MANILA – Mid-sized businesses are displaying reserved optimism about an economic recovery according to the latest figures from Grant Thorton’s International Business Report (IBR) which gathers responses from nearly 5000 business leaders in 29 economies including the G20. This follows a challenging year, in which mid-sized companies (the mid-market) saw their revenue decrease by an average of 1% globally after they factored in the impact of COVID-19 (EU: -5%, APAC: -2%, North America: +3%, Latin America: +4%).
Economic optimism is resurgent.
In the Philippines, economic optimism among mid-market businesses has further decreased over the past six months with the research finding that 49% of businesses have a slightly or very optimistic economic outlook for the next 12 months. This 5 percentage point decrease I only a slight contrast to six months ago when the government mandated lockdowns saw economic optimism fall to the lowest level since 2016.
Growth expectations turn sluggish downwards.
With optimism steadily sinking among the mindset of mid-market leaders, other key indicators are also sluggishly turning downwards with 43% of businesses expecting revenues to increase over the next 12 months (-2 percentage points on H1), along with profitability (47% -3 percentage points). On the other hand, employment increased (51% +6 percentage points.) However, all will remain well down on pre-COVID 2019 levels.
Economic uncertainty remains elevated.
This highlights the fact that economic uncertainty remains at elevated levels, with 53% of businesses in the Philippines indicating it is the number one constraint on their ability to grow their business. And as optimism has decreased, this has materially flowed through to orders, with 56% citing shortage of orders as a constraint. Businesses are also concerned about availability of skilled staff and labor costs with 50% of business citing each as a constraint on their ability to grow.
Companies are making investments – with traditional categories making a comeback.
The number one investment area is research and development (with 51% expecting to increase this in the coming year), followed by staff skills (50%) and technology (47%) as businesses continue to retool for a new world of business. With second and third waves of COVID-19 hitting many markets, the need to invest in enhancing an existing product portfolio, digital business models and having people with the skills to operate in virtual world for the foreseeable future continues to drive investment decisions. Additionally, in this latest research, we are seeing less traditional investment categories come to the fore. The percentage of mid-market companies looking to increase investment in new building decreased 4 percentage points to 39%, while the percentage of mid-market companies looking to increase investment in plant and machinery increased 4 percentage points to 46% respectively.
Shortage of finance remains a significant concern.
Funding that investment and meeting the continuing operating needs during the pandemic, however, may not be straight forward. Shortage of finance remains a significant concern for businesses, with 47% of firms identifying it as a business constraint over the next 12 months, increasing by 6 percentage points from the number set in the first half of 2020 when the full scale of the pandemic was becoming evident. This is despite record monetary easing and fiscal support provided by the government to businesses in the country as they attempt to alleviate cash flow constraints arising from COVID-19.
Companies around the world are starting to prepare for recovery.
In preparation for recovery, mid-market companies around the globe are prioritizing the ‘use of technology to support organizational recovery’ and looking at ‘workplace safety and new workplace regulatory requirements’ – with 39% of global companies planning or implementing strategies in these areas. The next priority is what ‘financial resources will be needed’ (33%), with some attention also being given to what product or service area and markets to focus on (31%).
Marivic Españo, CEO and Chairperson, P&A Grant Thornton says:
“This latest IBR date demonstrates to us that mid-market business leaders globally are being very realistic about the challenges that the first half of 2021 will bring, but they are facing this uncertainty with sensible pragmatism and resilience.”
“While the outlook is showing real improvement with both economic optimism and expectations around revenue and profits on the rise, it is important note the context of these increases. In many cases the improvements we are seeing are due to firms benchmarking the next 12 months against the very depressed economic environment of 2020 due to COVID-19.
“Even with vaccines being rolled out in some markets, the reality is it will still be some time before we return to anything approaching normality. Many businesses have already made transformational changes to their operating models investments in this area, and this show no sign of abating as everyone looks to ensure they are able to compete in a post-COVID world.”
As published in Mindanao Times, dated 26 January 2021