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International expansion drives European middle-market growth and optimism over next 12 months

– 86% of European middle-market companies plan revenue growth of more than 6% in the next 12 months
– 25% of European middle-market organizations plan international expansion
Cognitive technologies and hiring diverse full-time talent round out growth priorities for European executives

European middle-market companies expect to ride a wave of optimism over the next 12 months and cash in on ambitious growth plans, according to analysis published today in the annual EY Growth Barometer: Europe survey.

Bolstered by Europe’s highest economic confidence levels since the global financial crisis of 2007–2008, European middle-market executives are looking to capitalize and are unmoved by broader concerns around rising nationalist sentiments and other geopolitical uncertainties, including rising tensions over trade.

The annual survey of 863 middle-market executives in eight European countries finds that nearly two-thirds (62%) of the respondents expect growth between 6% and 10% — representing a year-on-year increase of 38 percentage points, while a further 24% are targeting double-digit growth of 11%–15% in the coming 12 months — equalling to a 16 percentage points yearly rise.

International expansion is the driving force behind this confidence, as 25% of European middle-market leaders identified it as their top growth priority.

Andy Baldwin, EY EMEIA Area Managing Partner, says:

“European business leaders are poised for a buoyant year of growth. They are showing themselves to be more agile and willing to adapt to change more than many of their global counterparts. The middle market in Europe is getting ahead of change and shaping their businesses through investment, expansion and the embrace of technologies and diverse talent pools.”

Growth beyond borders

The survey finds that growth ambitions are the highest in Russia and the Netherlands. Thirty-eight percent of middle-market leaders in both countries plan to grow over 11% in the next 12 months.

Germany and France, Europe’s largest economies respectively, are not far behind with 31% of middle-market companies looking at double-digit growth over 11% in both markets. The UK proportion of middle-market organizations showing double-digit growth ambition is lower at 24%, as the uncertainty around Brexit continues to define prospects, the survey reveals.

Amid international expansion, France leads this drive with 33% of respondents looking to enter a new overseas market. In the UK, however, only 16% of middle-market leaders place cross-border expansion as a priority. According to the survey results, Brexit continues to weigh heavily on UK middle-market business leaders as a whole, who are now focused on increasing market share (21%) and pursuing M&A opportunities (19%), rather than expansion beyond the domestic market.

Risks to growth

Given the focus on cross-border expansion, Europe’s middle-market leaders place slow or flat global growth as the top external risk (with 28% of the cohort), 18 percentage points up on 2017 and 4% more than the rest of the world. This is considered a much greater risk than related concerns such as geopolitical uncertainty (9%) and high trade barriers (2%). Other challenges include insufficient cash flow, which 37% of European middle-market CEOs perceive as the leading operational challenge to growth (up 22% from 2017).

Baldwin says: “While Brexit continues to define prospects, particularly in the UK, the critical issue for the European market is sustained global growth. So long as political actions don’t obstruct global economic growth, European company leaders will remain relatively optimistic.”

Embracing and understanding technology

The survey also finds that technology represents the most powerful change to European middle-market businesses in 2018. While last year 70% of the region’s middle-market leaders said they would never adopt robotic process automation, today an even greater percentage (75%) say they are adopting artificial intelligence (AI) within two years. In fact, 97% of all Europe’s middle-market company leaders have plans to adopt AI within five years, putting the region ahead in embracing cognitive technologies and machine learning.

However, far fewer European middle-market companies are complementing this swing with a corresponding strategy to combat against looming cyber threats. Just 7% of the region’s middle-market CEOs are investing in technology to reduce cyber risks and only 5% rate cyber threats as the key barrier to growth.

Baldwin says: “In this world of rapid transformation, agility is a key business strength. Company leaders will need to develop strong digital security strategies hand-in-hand with their AI adoption plans.”

Talent and hiring plans

In a show of confidence of ambitious revenue growth, over a third (37%) of European middle-market CEOs are looking to hire full-time employees and none intend to reduce their workforce. The survey respondents place attracting talent with the right skills (33%) as the No. 1 factor in accelerating growth and say an improved organizational culture will first and foremost attract young and digitally-native talent (36%). In line with a massive shift across the world, 42% of European middle-market company executives place diversity at the top of strategic recruitment priorities, a 29% increase from 2017.

Baldwin says: “New business challenges are creating a need for a different kind of employee, so it is promising to see that leaders are responding to change and prioritizing recruitment. As economic growth is increasingly driven by technology, the race for talent will become more and more vital to competitiveness.”