The Grant Thornton International Business Report is a survey of around 10,000 mid-market businesses. The research takes place twice a year across 29 economies.
Tom Rathborn takes us through what we’ve learnt following the most recent survey; including key economic outlooks, the views and expectations of the global mid-market, and where the UK sits on the global scale.
Confidence continues to mask ongoing concerns – but will it slip?
Outlook indicators remain remarkably strong, with revenue (62% expecting an increase) and profitability expectations (60% expecting an increase) remaining at post-referendum highs and in line with the global trend.
Investment intentions continue to rise
% of UK businesses expecting to increase investment over the next 12 months
Investment expectations continued their strong performance in 2021 and again rose across the board. The focus remains on people, with 65% expecting to increase investment over the next 12 months (up 9pp) – however, the sharpest rise was in planned investment in plant and machinery: up 11pp to 52%. Overall, UK investment intensions remain above the global average and more in line with our G7 partners.
The known and unknown causes of concern
This optimistic outlook and strong investment intensions are tempered by two key factors – a striking rise in perceived barriers to growth and a wider uncertainty over the new wave of coronavirus.
Seven of the eight restriction indicators we measure worsened in H2. It will come as little surprise that the three biggest rises were in energy costs (up 26pp to 63%), availability of workers (up 14pp to 58%) and labour costs (up 12pp to 57%).
Elsewhere, concerns over red-tape reached new highs, with 64% citing it as a major barrier to growth – up 5pp from previous high in H1. These challenges are unlikely to subside in the short term, but are at least identifiable and quantifiable with businesses able to take steps in response.
The other challenge revolves around economic uncertainty. At the time of asking, the only perceived barrier to growth that declined was economic uncertainty, down 8pp to 57% - falling below the global average for the first time since 2017. However, this was before the identification of Omicron in the UK and the start of the third wave.
So far, the UK has avoided significant restrictions and the government has signalled it’s clear intent to avoid doing so in the future – with the narrative moving to ‘living with Covid’.
The international picture is more complicated – with different economies adopting different approaches in response. This will have knock-on effects for businesses with international footprints.
It is too early to tell how big an impact Omicron will have on UK businesses – though our latest Business Outlook Tracker recorded a fall in all outlook indicators in December - suggesting this uncertainty may already be biting.
Our next survey will give a clearer idea of how damaging Omicron will be to business.
What does this mean for the first half of 2022?
The latest research has highlighted some key learnings for the year ahead
Rising input costs are being passed onto consumers
As the rate of inflation in the UK reaches decade-long highs, our survey found that mid-market firms expect to pass most costs onto customers.
Input costs are rising for firms, with particular challenges around energy and staffing. Two thirds of businesses cited rising energy costs as a major constraint on growth, with 57% citing labour costs. The figures are both the highest that we have seen in the 11-year history of our research.
Despite these rising costs, UK businesses continue to be optimistic over future profitability. 60% of those surveyed in H2 expect to increase profitability over the next 12 months, in line with recent highs and slightly above global average (57%).
Unless efficiencies can be found elsewhere, the only way to maintain profits in the face of rising costs is to pass it on to the consumer, which seems to be the plan. 61% of respondents in the UK expect to increase prices over the next 12 months. Not only is this the highest ever recorded, but is far above the average over the past decade of 39%, and 10pp above the global average.
How willing consumers are to stomach these rises remains to be seen.
Does the mid-market have the necessary leadership skills?
Our latest research suggests there is room for improvement for those sat at the top table of UK business.
We asked business leaders to rate their leadership team’s performance in 2021 across key areas. Overall, respondents felt their teams had performed well, but when looking at the worst performing areas there may be cause for concern.
The four areas that they perceive their teams to be weakest in were: data interpretation; managing an international team; adaptability; and managing an international supply chain. All of which look set to be key for 2022.
As uncertainty rises in the face of a new wave of the pandemic, businesses may need to react quickly to changing information, making best informed decisions in real time. The ability to interpret data and adapt in response will be key to navigating the ongoing volatility. International management will grow in importance too as ambition to operate across borders increases.
For leaders looking for personal development opportunities, here are some areas to consider next year.
Upskill your workforce with our leadership and management teams
International growth is an ambition rather than a priority
UK mid-market businesses appear to be optimistic about international growth and the opportunities available overseas. Our latest research shows that export expectations have increased by 5pp to 48%, the highest level since the survey began, and nearly twice as high as the long-term average of 27.
High hopes for exports translate into business performance and strategy, with 49% of survey respondents saying they are expecting an increase in revenue from non-domestic markets. 42% of all firms expect to increase the number of countries they sell to, with businesses looking to expand beyond regional trade partners, identifying the US as the country with the most opportunity for growth.
From an operational perspective, 42% of businesses said they expected to increase the number of staff focused on non-domestic markets.
There's a growing reliance on the use of non-domestic suppliers and outsourcers to facilitate this growth, with 39% of businesses saying they would use these services, up 6pp on the H1 2021 survey.
International expansion is just one of several strategic priorities for businesses over the coming year. When asked to select areas for focus beyond financial performance over the next 12 months, just 28% of respondents selected internationalisation, suggesting that there may be other, more immediate, priorities for business.
Competitive labour market puts skills development and retention at top of agenda
The battle for talent is one facing all businesses. Our survey found that 58% of mid-market businesses felt that the availability of skilled workers was a major constraint, with 41% saying skills development and retention was their biggest priority in 2022.
It appears one of the ways businesses are looking to attract and retain talent is by increasing wages. Nine out of ten respondents said they planned to raise salaries over the next 12 months – the highest level ever recorded. However, as only 29% intend to do so in line with inflation, businesses will have to explore what else they can offer beyond financial reward.
Despite challenging market conditions, 56% of respondents said they intended to hire more over the next 12 months. Not only is this an increase of 13pp on the previous quarter, it is the highest this indicator has been since the IBR started.
This suggests that the competition for talent is set to continue.
Helping you and your business to win the war for talent