As global uncertainty continues to grow, private businesses throughout the world are showing remarkable optimism about their future. In Ireland, as we wonder what Brexit will eventually look like and ponder what President Trump’s tax plans will do to our economy, our indigenous private businesses remain solidly among the world’s optimists.
Deloitte has just published the results of its first global business survey of private companies. The report, Global Perspectives for Private Companies: Plans, Priorities, and Expectations, explores the views of almost 1,900 private company leaders in 30 countries, including 50 in Ireland.
Private companies are the lifeblood and backbone of the Irish economy. They are agile, nimble and capable of responding quickly to changes in the domestic and international business environment, and so will be an important factor in Ireland’s ongoing economic growth.
The good news is that despite considerable economic uncertainty, private companies in Ireland and around the world are showing optimism and are ploughing ahead with plans for growth and development.
Over half of those surveyed globally (53 per cent) say that uncertainty over business prospects is higher than a year ago, and in Ireland, the number of those who believe uncertainty has grown is a little higher than the average at 56 per cent. Geopolitical uncertainty is among the top causes for concern. However, the study does reveal some differences in views of the top risks to growth across different regions. For instance, respondents in the Americas expressed concern about the uncertain economic outlook in their home countries, while respondents in the EMEA region (Europe, Middle East, and Africa) point to hiring as a top challenge. Asia Pacific respondents identified raw material costs as a barrier to growth. In Ireland, exchange rate fluctuation is cited by 30 per cent as a significant risk along with lack of investment in R&D and innovation, and uncertainty in the outlook for the domestic Irish market.
Yet despite the uncertainty, 65 per cent worldwide are extremely or very confident of their business’s success over the next two years. In Ireland, the fact that 67 per cent are extremely or very confident of their business’s success comes despite uncertainty over major international developments such as Brexit and the ongoing uncertainty over President Trump’s tax and trade plans.
Just over a third of those surveyed are family or “closely held” businesses and almost all have revenues below $500 million. So we are seeing the views of medium-sized and smaller businesses here, rather than the outlook of global corporations.
Forty-five per cent of private businesses globally anticipate that their full-time headcounts will increase in the next year, with 38 per cent of Irish businesses expecting same. It is also evident that private companies are cultivating the talent they already have in-house. Both training employees and investing in leadership development programmes are noted among the top talent investment priorities for Irish and global private business leaders.
Almost 60 per cent of global respondents anticipate revenue growth of up to 25 per cent, with a similar rate estimated by 45 per cent of respondents in Ireland. The Irish findings also reveal that 70 per cent of companies expect profits to rise over the next 12 months.
The survey findings suggest global trade may continue to rebound in the months ahead as global production and supply chains translate into increased flexibility in getting product to market quickly. In the midst of uncertainty, trade continues to be seen as a central factor driving business growth, regardless of geographic location.
Private companies are very outwardly focused, with 79 per cent already relying on international markets for a portion of their revenue, and 43 per cent counting on them for more than a quarter of their revenue.
But the importance of the global market doesn’t end here. More than half of the executives (57 per cent) say global trade is important to their supply chain, compared to 16 per cent who say it is not.
The perception of the 1,900 executives from private companies surveyed is backed up by the World Trade Organization (WTO) which in September increased its forecast for global trade growth to 3.6 per cent for 2017, a prediction that’s three times that of the 1.3 per cent growth in 2016.
Technology has allowed businesses across the globe to be more interconnected than ever before, resulting in a shared sense of optimism. In Ireland, 58 per cent see technological advances as having a positive impact on their business. In general, private companies see adopting emerging technologies as the key to driving business results: two-thirds of private-company leaders globally equate technology advances with creating new opportunities and positive outcomes.
And in order of importance, the top technologies seen as having a significant impact in the next year are: cyber intelligence, analytics, cloud infrastructure and mobile devices.
The expectation is that businesses are more likely to be involved in merger and acquisition (M&A) activity over the next 12 months than they were over the past 12 months. Globally, 29 per cent have been involved in M&A activity over the past 12 months, though a much higher proportion of Irish respondents (40 per cent) have been involved in such activity. This mirrors the observed increase in private equity activity in Ireland.
Drivers of mergers and acquisitions are focusing on how private enterprise can be more competitive in their own backyard. Globally, 42 per cent of respondents state they are either likely or very likely to acquire targets in the next year, with an additional 26 per cent expecting to be acquired. In Ireland, 34 per cent said that they expect to acquire targets in the next year, while 30 per cent said they expect to be acquired.
Interestingly, the situation facing private businesses in Britain is different, and herein lies an opportunity for Irish business. Results were published earlier this month from a survey of British small business owners, conducted by the Federation of Small Businesses (less than 250 employees). It showed that as many as one in seven British small business owners plan to downsize, close or sell their companies during the next three months. This is the highest level recorded since this particular survey began in 2010.
This is no doubt Brexit-related. However, it offers opportunities to Irish businesses with the will and capacity to make strategic acquisitions in Britain. The advantage of being a private business is the ability to respond quickly to opportunities. The optimism evident among private businesses suggests that many will be able to grasp these arising opportunities.
Daniel Murray is a partner with Deloitte