Agility and responsiveness are helping middle-market leaders seize new growth opportunities, EY Growth Barometer 2018 reveals.
Growing global business confidence is the dominant theme underlying the 2018 EY Growth Barometer survey results. Middle-market company leaders are planning for higher revenues, creating more full-time jobs and racing to embrace disruptive technologies like AI. Industry convergence, regulation and a tilt to the East are all influencing business strategies for growth and innovation. While there are signs that these business leaders are planning for higher and more sustainable growth, any credit tightening or slowdown in global demand could pose significant risks in the longer term. EY is YPO’s Global Learning Advisor.
Growth prospects for all major economies are finally swinging upward in 2018, with International Monetary Fund (IMF) forecasts currently at 3.9 percent for the year. Eurozone Europe (2.4 percent) and the United States (2.9 percent) are on track to maintain an upward growth curve following 2017, while Asian countries (excluding India) are expected to grow by about 5 percent. China is heading for 6.6 percent growth in 2018, which is half a percent drop on 2017, while growth expectations for India are in the lead at 7.4 percent. With a few exceptions – notably Brexit-mired United Kingdom (at 1.6 percent expected growth) and Japan, beset by demographic brakes on the economy (at 1.2 percent expected growth) – the IMF has signaled 2018 will see higher growth than in any year since the financial crisis.
This rare synchronization of growth across the globe is boosting middle-market C-suite growth ambitions, led by Asia-Pacific based companies.
Geopolitically, the much-forecast tilt from West to East has emerged from “potential” to reality: China, India and Russia are not just focused on the opportunities within their respective economies but are increasingly dominant voices on the global stage. China has also declared its ambition to be the global leader in AI by 2030. Alibaba’s recent USD600 million investment in the China-based facial recognition startup, SenseTime Group, makes it the world’s most valuable AI company, with a valuation in excess of USD4 billion.
Data company eMarketer predicts e-commerce sales will top USD3 trillion in 2018, with half of all e-commerce sales done in China. China is a pace-setter particularly in mobile shopping, partly aided by its high concentration of urban dwellers.
And Australia is set to become the world’s largest exporter of liquefied natural gas in 2018 (overtaking Qatar), riding the wave of increased demand from China.
The EY Growth Barometer respondents from across Asia-Pacific are at the forefront of grasping the growth opportunities from this tilt to the East, forging new markets with new business models.
Regulation – the new hero of innovation?
The EY Growth Barometer survey results show that this year, in a major shift, regulation emerges as a key driver of innovation across middle-market companies.
The old mantra that regulation stifles innovation seems outdated, at least for companies outside North America, where governments are wielding policy levers to drive creative change, not shut it down.
For example, new European Union General Data Protection Legislation (GDPR), dubbed by “The Economist” as “the Dodd-Frank of data,” is likely to have widespread implications not just for technology giants but also for all businesses that collect and hold customer data. As recent high-profile cases have illustrated, companies are unlikely to be able to rely on the terms and conditions most people are so quick to click “agree” to. These changes are already spawning new innovative services to help organizations achieve compliance.
Government regulations on reducing carbon emissions from diesel engines have accelerated innovations in electric vehicles (EVs). The mayors of Paris, France, Madrid, Spain, Athens, Greece and Mexico City, Mexico, have agreed to outlaw diesel vehicles from city centers by 2025. China also has indicated that it will ban all but hybrid and electric cars, but has yet to set a timetable for that ban. Sales of EVs worlwide are on the increase: Nissan’s Leaf has sold 300,000 and a new model launches in 2018. Startups are also competing with established brands: CHJ Automotive, for example, plans to tap into the lucrative Chinese market with a compact EV retailing at under USD8,000. While consumer behavior has helped drive the market for greener vehicles, so too has regulation.
“Initiatives such as Japan’s goal to double cashless payments to 40 percent by 2025 definitely support our business and provides us an easily justifiable raison d’être,” says Yoshiki Yasui, founder and CEO of Japanese fintech startup, Origami Inc.
The race to embrace AI
Last year, 74 percent of global CEOs said they would never adopt robotic process automation (RPA): This year, 73 percent say they are already adopting or planning to adopt intelligent automation and machine learning (AI) in the near term (two years). The burning platforms driving this exponential rate of change include ongoing digitization of everything, the leap-frogging effect of China and India – economies not shackled by legacy business models and infrastructure – and the global need for diverse talent with strong digital skills.
Middle-market companies across the world are re-focusing their strategies to adjust to these seismic shifts and to restructure their organizations to better fit a new paradigm. This includes exploring how AI can be leveraged to increase organizational agility, speed up decision-making, and eliminate hierarchical models that no longer fit the needs of the fourth industrial revolution.
Risks and challenges
As companies accelerate their growth plans, look to build talent and experiment with new technologies and business models, insufficient cash flow emerges as a significant risk this year. Some commentators are predicting a tightening of global financing conditions and rising interest rates, which would only exacerbate such risks. The race to embrace AI is, largely, insufficiently matched by awareness of and safeguarding against cyber threats. However, perhaps “the biggest challenge companies face is the sheer pace of change,” as Simon Rogerson, CEO and Co-Founder of U.K.-based Octopus Capital, says. “The speed at which companies will die or grow has changed dramatically.”
The 2018 EY Growth Barometer reveals how middle-market company leaders are getting ahead of change and shaping their businesses to ride the wave of opportunity. It uncovers the key trends shaping the middle market – the global engine of economic growth and jobs – and shows how business leaders are investing, expanding and prioritizing in the heat of change.