They see just how important they are to the overall health of the economy
March 06, 2019 — NEW YORK–(BUSINESS WIRE)–The world’s small and medium-sized enterprises (SMEs) are forecasting slower revenue and profit growth, according to the third annual Global SME Pulse: Smart Strategies to Improve the Bottom Line, conducted by Oxford Economics on behalf of American Express. Despite forecasts, global SMEs are developing strategies to sustain their top and bottom line and feel positive about the importance of their role in the economy.
The research, carried out among senior executives and decision-makers at SMEs across 12 countries, found that 78% of global SMEs say they continue to feel that SMEs are important to the overall health of the economy.
Global SMEs say they will be under increased pressure to sustain their bottom line in 2019. For U.S. SMEs, growing revenues and building company reputation are the most important long-term objectives (87% and 56% of respondents respectively), marking a shift since 2018 where the top three priorities for U.S. SMEs were profit margin growth (62%), revenue growth (57%) and building a company’s reputation (41%). Global SMEs have also scaled down their growth predictions for the future, with average predicted annual revenue growth for the next three years dropping from 6.9% to 5.2% and average predicted annual profit margin for the next three years decreasing from 5.7% last year to 4.7%.
Slow Revenue Forecast for 2019
To counter the slower revenue forecasts for 2019, global SMEs continue to report that understanding customer demands remains the most important strategy for revenue growth (increasing from 56% of U.S. respondents in 2018 to 67% in 2019). In addition, 71% of global SMEs say they have a long-term plan that considers technological, demographic and economic changes over the next 5-10 years. Global SMEs also think that using their advantages as a small business is an increasingly important strategy for revenue growth.
Longer term, global SMEs believe the biggest factor contributing to financial performance in the next three years will be increased productivity and operational efficiency. As a result, global SMEs are – on average – forecasting labor productivity to improve by 3.7% a year over the next 3 years, a significant increase from the low rates achieved by economies over the last 10 years. Innovation helps boost labor productivity – global SMEs who are forecasting higher productivity (more than 5% a year over the next three years) report being more effective today in innovation (74% vs. 49% for all other SMEs) and developing/retaining skills and talent (67% vs 48% all other SMEs).
“When planning for the future, it is also important that SME leaders don’t forget about other routes for boosting business performance,” said Antonio Gagliardi, Vice President of Strategy, M&A and Alliances, Global Commercial Services, American Express. “Our study has found that when it comes to innovation, employing talented innovators and fostering an innovative culture are the top drivers for improvement. To retain their edge, global SMEs should continue to invest in ways of attracting and retaining top talent for their organizations.’’
Tech Is A Key Factor
American Express’ study also found that technology is a key focus for global SMEs in 2019, with respondents less confident in their ability to apply the latest tech than they were a year ago. U.S. respondents report that this is one of the biggest business challenges they are trying to address in the next three years, preceded by the need to quickly respond to changing business demands.
In particular, global SMEs are shifting away from infrastructure to enterprise and value-add technology. Workforce productivity tools are the most important technology that global SMEs are currently using and plan to use over the next three years – representing a significant leap (31%) from the previous year. And, while not reliant on them now, nearly a quarter (23%) of global SMEs expect to be using machine learning, smart algorithms and artificial intelligence technologies in the next three years.
Among global SMEs, cyber and data security sit alongside the top three challenges cited as a growing threat, joining the perennial threats of economic uncertainty (63% globally and 63% in the U.S.) and changes to policies, laws and regulations (65% globally and 66% in the U.S.), which have topped the list for the past three years.
About the report
In October and November 2018, Oxford Economics surveyed senior executives at 3,000 SMEs ranging in size from 10 to 250 employees across 12 countries and 16 industries. Telephone interviews were used to explore opportunities and threats, business prospects, strategies, investments and how SMEs could be better supported by changes to regulation, financing and government support.