The Outlook for Developed Markets [EIU Study, Part 2]

In a new study by the Economist Intelligence Unit leaders of SMEs in developed markets reveal their top four priorities for 2013. Overall, they’re optimistic on growth, but should they be?

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How are leaders at small and mid-size enterprises (SMEs) in developed and emerging countries making sure their companies flourish in a challenging business world? To find out their biggest obstacles as well as opportunities for growth, the Economist Intelligence Unit (EIU) surveyed over 1000 senior business managers in developed and emerging countries. The findings reveal a surprising amount of optimism tempered by the realities of an uncertain economy. This is the first in a two-part series that summarizes feedback from SMEs in developed countries.

“The financial crisis won’t hurt me”

Senior managers at SMEs in France, Germany, Japan, the UK and the US may be battling for survival amidst an economic slowdown but they remain more determined than ever to expand. Not surprisingly, 59% of survey respondents agree that the business environment has become much tougher in the past three years. What’s more, 58% expect things to get much worse in the next three years. However, these same managers think their businesses will outperform the economy or the competition. Sixty-eight percent expect their businesses to grow turnover in the coming 12 months. And 59% expect their workforce to increase in the next year.

Zooplus & Wahoo’s Fish Tacos grow their social media

The top four business priorities of SMEs in the next year are growing sales and earnings, becoming more efficient, using technology more efficiently, and developing new products and services. Managers are less interested in cost cutting or short-term survival tactics. Instead they’re focused on growth and expansion across both emerging and developed markets. One opportunity respondents cite often is expansion of the business into new markets, or expansion of the markets themselves. Sixty percent of SMEs agree that they need to compete in more international markets.

Many managers are turning to the internet to meet growth objectives. Cornelius Patt, CEO of Zooplus, an online pet supplies retailer based in Germany, points to digital multi-channel contact, including content accessible by tablet computers and mobile phones, as a major opportunity for customer engagement. Zooplus also uses social commerce to get closer to customers. “The recommendation [to shop at Zooplus] does not come from standalone search activity by one consumer. It’s more that one consumer refers another,” says Patt.

Wahoo’s Fish Taco, a US-based casual-dining chain, has also shifted more resources into social media to replace traditional advertising venues. “Everything here has been about investing in our marketing and branding, and supporting our increasing sales,” says Mingo Lee, one of the three brothers who founded the business in 1988.

Lee also says Wahoo’s is using the power of collaborative business networks for procurement efficiencies, something that improves survival chances for small businesses. “We’ve started going to buying groups and purchasing partners who not only can help us refine existing contracts, but also help pool us with other customers. So for the lower volume items that we carry, we can partner with them and ride their coattails as a group,” he explains.

 SMEs use technology to get ahead

In pursuit of greater efficiencies overall, many SMEs plan to use technology more effectively. For example, a manager at a US-based firm in the transportation, travel and tourism sector describes the firm’s main opportunity in the next year as “involving new technologies into the business to increase growth and efficiency.” Other executives across various geographic markets and sectors echo these comments.

The need to differentiate in the face of fierce competition may be what’s behind stepped-up product and service innovation. Claude Palard, managing director of CQFD, a metal manufacturer based in France confirms this reality. “If I’m not able to come to my clients every year with new, dynamic products, they will go to suppliers in China or Malaysia. That’s a big change from five or six years ago, and it is something that keeps me awake at night.”

Bureaucracy slows down growth

Despite their optimism about growth prospects, one of the major challenges SMEs continue to face is red tape. Eighty-six percent of surveyed SME managers find government bureaucracy and regulation are obstacles to growth—more than any other factor. Fifty-five percent of respondents say that regulatory compliance consumes more resources than it did three years ago. A growing tax burden is another factor that slows growth, according to 83% of respondents.

The feeling is that stronger government support could provide a boost. It only makes sense. In developed markets, SMEs account for 45% of total employment and some 50% of GDP according to data from the Global Partnership for Financial Inclusion and World Bank. Within the EU, the European Commission says that SMEs account for two-thirds of employment and create 85% of net-new jobs. Easier access to funding and less bureaucracy could pave a faster path to success, bringing more opportunities to everyone.