Less than half of SMEs expect a rise in sales in the next 12 months, according to the latest Global Business Monitor study from global SME partner, Bibby Financial Services and global leader in trade credit insurance Euler Hermes. The study surveyed more than 2,300 SMEs in 13 countries across Asia, Europe and North America. Discover the key findings below:
Overall, the proportion of SMEs voicing concern about the global economy has fallen to 56 per cent from 65 per cent in 2017. However only 20 per cent of SMEs think the global economy is performing well, down from 30 per cent in 2017. Views differ by region and are influenced by the degree of dependence on international rather than domestic trade. SMEs in Hong Kong are most concerned (70%) compared to 2017, when it was Singaporean SMEs that were most concerned (79%). The reasons for concerns vary from country to country, but common themes emerged around global politics, rising costs and the administrative burden resulting from local legislation and red tape. In 2017, at 41 per cent, Czech SMEs were most positive about the global economy, compared to 39 per cent of Polish SMEs that were most positive about the global economy in 2019.
Figure 1: SME perceptions of the global economy
Top three threats to global economic growth in 2019
According to the SMEs surveyed, when asked for the top three threats to global economic growth in 2019, the political situation in the U.S. (42%), Brexit (35%) and rising raw material costs (23%), featured most frequently, broadly the same as in 2017. That said, exposure to each varies, with Ireland and the UK predictably mentioning Brexit, whilst SMEs in countries more dependent on international trade and therefore more exposed, were more likely to highlight other political challenges as potential threats to growth.
Figure 2: Top three threats to global economic growth in 2019
Confidence Index 2019
The Confidence Index is compiled by equally weighting SME sentiment on sales performance over the past 12 months, with expectations of the coming year ahead.
This composite index shows confidence is down overall, at 63.66, compared to 68.39 in 2017. Dutch, U.S. and Polish SMEs are most confident overall, whilst in 2017, it was Dutch and German SMEs. SMEs in Hong Kong remain the least confident. Confidence levels did correlate somewhat to reported sales success, however cultural factors also seem to have played a part in SME responses, with the traditionally optimistic Americans scoring highly on confidence.
Figure 3: Confidence Index 2019
Belgium and Slovakia are new additions to the 2019 research, while Canada, Czech Republic, France, Netherlands and Singapore were added in 2017.
Business performance expectations for the next 12 months
Just under half of the SMEs surveyed (46%) are expecting sales to increase over the next 12 months, reflecting falling confidence in international trade. U.S. SMEs are most confident about future sales, with 64 per cent expecting growth. In contrast, just under a third (30%) of SMEs in Hong Kong expect sales growth, reflecting their general pessimism across the piece.
Figure 4: Business performance expectations for the next 12 months
Greatest challenges in 2019
Overall, the greatest challenges currently facing SMEs are rising overheads/cost (42%), government regulation/legislation (red tape) (36%) and cashflow (32%).
The challenges are similar to those mentioned in 2017, which were: lack of skilled staff (49%), rising overheads/costs (48%) and government red tape (44%). The exception is cashflow, which has become a greater challenge in the intervening period, moving from fifth to third on the list of challenges.
Figure 5: Greatest challenges in 2019
84 per cent of SMEs feel there are growth opportunities for their business and the greatest opportunity is social media (14%), closely followed by developing new products and services (13%). These have climbed from third and fourth place respectively since 2017, when finding new segments to market and sell goods and services to, alongside domestic expansion, were seen as the two key opportunities for growth. It seems that SMEs are seeking to connect directly with their customers and social media is identified as a key channel to market which is readily accessible to even the smallest of SMEs.
Figure 6: Growth opportunities
Proportion of SMEs planning to invest
Overall, 85 per cent of SMEs surveyed plan to invest in their business in 2019. Those in the U.S. (92%) and Czech (90%) are most likely to invest, whilst those in the UK are least likely. In the UK, many have been deterred from investing whilst Brexit discussions continue. With no clear definition of what a British trading environment outside of the EU might look like, they are unwilling to burn precious resource to invest in what might turn out to be the wrong strategy. What investment has occurred so far has been used to offset risks associated with a no-deal Brexit.
Figure 7: Proportion of SMEs planning to invest
Areas of investment
Overall, the top areas of investment are sales and marketing (37%), followed by IT or digital technology (34%) and existing staff (training and development) (34%). As in 2017, SMEs remain more likely to train existing staff than recruit new employees.
Figure 8: Areas of investment
Overall, 28 per cent of businesses are exporting, while 20 per cent are importing, looking across all 13 countries surveyed. Singapore is top for importing (41%), while Hong Kong is top exporter (48%). Of those surveyed, a third (34%) of SMEs say more than half of their turnover is export related. Around half (51%) of Hong Kong SMEs say over 50 per cent of their turnover is export related, followed by the Netherlands (47%). Foreign exchange fluctuation remains the greatest challenge to SMEs that trade internationally (18% in 2019 vs 20% in 2017). Of those seeking government support they typically needed help to identify overseas markets and assistance collecting payments to begin exporting.
Availability of finance
Overall, 1 in 3 SMEs feel the availability of finance is excellent/good. As shown in the graph below, those in the U.S.. (43%), Belgium (39%), Canada (38%) and Singapore (38%) are most likely to think access to finance is excellent/good. In contrast, those in Slovakia (34%), France (33%) and Ireland (33%) are likely to believe access to finance is poor. For those saying access to finance is difficult, it is the documentation/paperwork required (48%) and high interest rate (40%) that makes access challenging.
In 2019, 1 in 5 SMEs report having been rejected for external finance, with SMEs in France (37%), and the Czech Republic (33%) experiencing the highest levels of rejection. Of those that have been rejected for external finance, the main reason cited was poor credit rating/history (31%). For a quarter of SMEs that were rejected, the reasons varied: inability to demonstrate viable business projections (37%) or a poor credit rating and trading history (30%). The main difficulties in accessing finance are attributed to unfair repayment terms (41%) and lengthy decision processes (37%). This typifies the challenges faced by SMEs worldwide in their search for appropriate finance to grow their businesses and supports the need for such new and growing businesses to be more creative in their search for best fit funding models.
Figure 9: Proportion that think to finance is sufficient
Applying for finance in the next 12 months
Across the sample, 15 per cent of SMEs are likely to apply for external finance in the next 12 months. Polish SMEs are most likely to apply (25%), while only 6 per cent of German and Dutch SMEs say they are likely to apply.
Figure 10: Applying for finance in the next 12 months
Bad debt over the last 12 months
The proportion of surveyed SMEs that suffered a bad debt that they were unable to recover has broadly remained the same (30% in 2019 versus 35% in 2017). SMEs in Belgium (40%), the Czech Republic (38%) and the Slovakian Republic (37%) are more likely to have suffered a bad debt.
Of the SMEs that reported suffering a bad debt, over two fifths (44%) said it has affected their growth/profits.
Figure 11: Suffered from bad debt in the last 12 months
Click here to download the report from Bibby Financial Services.