Mid-market executives are accelerating strategic business investments and displaying increased optimism despite a harsh winter that took a toll on growth for U.S. businesses, according to the findings of Deloitte's Mid-market perspectives: 2014 report on America's economic engine.
As the economy shows signs of strength again, mid-market executives report more confidence in growth prospects. In fact, 39% of the executives believe the economy will grow 2% to 3.5% over the next 12 months, compared to 23% a year ago. Their optimism also extends to their outlook on the job market, as the majority (77%) believes that the unemployment rate will either go down or remain the same during the next 12 months. As such, significantly fewer respondents (41%) say the uncertain economic outlook is an obstacle to their company's growth, compared to a year ago (59%).
Moreover, the positive outlook of mid-market executives is translating to increases in capital investments. A higher number of mid-market executives (38%) report they are increasing capital investments, compared to last year (32%) and only 23% of respondents say that their company is deferring major investments due to uncertainty, down from 43% a year ago.
"The economic ups and downs since the Great Recession caused many mid-market executives to postpone strategic decisions and scale back investments," said Tom McGee, deputy chief executive officer, Deloitte LLP. "But over the past year, we've seen that hesitancy begin to shift. Our survey results show that mid-market executives are regaining the confidence to increase their investing for growth once again."
Strategic investments accelerating
Flush with cash and buoyed with historically low interest rates, mid-market executives are investing in hiring and technology in an effort to promote growth.
- Forty-three percent of respondents say they plan to increase full-time headcount in the next 12 months
- Forty-eight percent rank technology investments as one of their top three investment priorities
- Forty-five percent say development of new products and services is one of their top two investment priorities over the next 12 months
In order to spur growth, mid-market executives are increasingly looking to drive sales by expanding in existing markets and diversifying their customer base. In fact, sales remain the highest priority for mid-market executives both in terms of capital (25%) and time (42%) investments for the coming year.
When it comes to their top business strategy for the next 12 months, growing organically within existing markets was cited ,most among executives (24%), followed by raising new capital (12%) and reducing costs/improving margins (10%).
Even as the main focus appears to be on achieving growth organically, some mid-market companies report that they are looking to diversify their customer base by exploring acquisition opportunities: Thirty-two percent of the respondents indicate it is likely that they will make an acquisition during the next 12 months.
Domestic market still the biggest priority
While the majority of mid-market companies have some type of exposure to global markets, whether through international sales, operating companies outside of the US, or global vendors, 38% say they do not do business globally. And of those who do not do business globally, only 6% say they are considering expanding to global markets. Further, almost a quarter of mid-market executives who have global operations say they are considering bringing certain operations back to the U.S.
However, some evidence is emerging that mid-market leaders are looking to take advantage of the increasing purchasing power in overseas markets: While the domestic market was the biggest contributor to growth for 91% of the companies surveyed in the past 12 months, this figure drops to 79% for the next 12 months.
"Operating overseas can be challenging for a mid-size companies that doesn't have a strong foothold internationally, as establishing a presence in a new foreign market involves a complex set of issues related to suppliers, customers, taxes, infrastructure and human resources," said McGee. "However, there is great potential for companies to succeed in international markets and the potential rewards may be worth the effort."
Obstacles to growth are still hovering
Although mid-market executives aren't letting uncertainty impact their business decisions, they continue to see potential barriers to their success. Nearly two-thirds (63%) of respondents say rising healthcare costs are the biggest obstacle to overall economic growth, followed by government budget challenges (55%), high tax rates and lack of consumer confidence, both at 45%.
"Since 2011 when we began asking mid-market executives about their confidence in the economy and their business prospects, we have witnessed a significant, gradual reawakening," concludes McGee. "Our latest findings suggest that for many companies in this important sector the best is yet to come."
From March 17 to April 3, 2014, a Deloitte survey conducted by OnResearch, a market research firm, polled 509 executives at U.S. mid-sized companies about their expectations, experiences and plans for becoming more competitive in the current economic environment. Respondents were limited to senior executives at companies with annual revenues between $50 million and $1 billion.
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