80% of private companies see strong growth in 2018
- Global survey of private business finds Australians most optimistic in the world
- Half expect revenue growth to exceed 25% in next 12 months
- Growth expected to be secured through international M&A and automation
- A third have concerns around their ability to keep pace with technological change
31 January 2018: Despite – or perhaps because of - the rapid impact of technological change, Australian private companies are very confident about future growth, more so than their counterparts across the rest of the world.
In a new report released today, Global perspectives for private companies, Deloitte Private has tracked the plans, priorities, and expectations of almost 1,900 private company leaders in 30 countries.
In Australia, 78% of private companies – one of the key drivers of the nation’s economy – say they are ‘very confident’ or ‘extremely confident’ in the success of their company over the next 24 months. This optimism is shared by private companies globally, reflecting current levels of global interconnectivity - Asia Pacific (57%), EMEA (65%) and the Americas (70%).
“Our outlook is uniquely shaped by our place in the world, with our research showing Australian companies are clearly more globally focused and connected, as shown by the proportion of revenue that comes from abroad, and the higher concern we have around the potential impact of global trade on supply chains,” said Deloitte Private Managing Partner, Sneza Pelusi.
“We also see significant opportunities for Australian private businesses in the Asia Pacific region. With strong global growth and major infrastructure investment in the region, there are favourable business conditions for the Asia Pacific private market - especially export oriented or infrastructure focused private market companies.”
Almost half (48%) of Australian private businesses interviewed also expect revenue growth of more than 25% in the next 12 months, significantly higher than counterparts in the rest of the world (37%). Revenue growth for the next 12 months is expected to average 24%, with only 6% of private businesses in Australia estimating business revenue growth to be 0%.
Only 6% of Australian respondents had no revenue from overseas, compared to more than one fifth of respondents in the rest of the world. 66% of Australian companies said global trade was important to their supply chain, compared to 57% for the rest of the world.
“Our report highlights that private businesses have an increasingly global outlook and revenue base,” said Pelusi. “For example, 76% see the United States as a top contributor to next year’s revenue, while revenue opportunities from Western Europe (42%) rank slightly higher than that from China (40%).”
Technological change - an opportunity and a threat
The top risk for Australian private companies over the next 12 months is the cost of keeping up with technological advances, with almost a third (30%) of business owners being concerned about this. Concerns about foreign exchange rate fluctuations (26%) and increased regulatory requirements (22%) are not far behind.
There is mixed sentiment about the impact of technology advances: 60% of business owners believe they will have a positive impact, 30% a negative impact and 10% no impact.
The technology trends expected to have the greatest impact in the next 12 months among Australian firms are big data (34% see as critical) cloud infrastructure (30%) and analytics (28%).
Australian private businesses are investing accordingly: with 56% saying they plan to invest in cloud computing or Software as a Service (SaaS) and 40% investing in data analytics/business intelligence. Over a quarter (26%) also plan to invest in Virtual Reality and Internet of Things technologies, and 18% in robotics.
“It’s good to see that the private market understands the importance of investing in technology, because it is going to play a greater role in every aspect of business,” said Deloitte Private Commercial Advisory Leader, Andrew Culley. “However, Australian companies could act faster and be more proactive in adopting technologies like cloud and data analytics. Investing in these technologies is complex. It requires a significant change in capability from what tends to exist in private business. That’s why SaaS is so attractive; it means companies can now upgrade technology without the scale of investment previously required.”
Private companies are using emerging technologies, such as cloud computing and predictive analytics in a variety of ways: with the priorities for business owners being increasing efficiency (56%), facilitating growth (52%) and reducing capital costs (42%).
The main functional areas using these technologies in Australian firms are to improve customer service (46%), management of employeees (38%) and purchasing (36% - significantly higher than the rest of the world, 27%).
Maturing M&A motivations
Private firms plan to expand over the next 12 months by growing existing markets (38%), increasing productivity (36%), or developing new products and services (32%).
“Almost a third (32%) of private business owners are also considering M&A as a way to enter an overseas market,” said Tara Hill, Deloitte Private partner and national deals leader. “Asia is opening up to private companies. Many that have already expanded into Singapore, Hong Kong and China are using those countries as gateways into wider Asia. As confidence and experience increase we are seeing more Australian companies look to other areas of Asia, such as Malaysia and Indonesia, as new growth markets.”
The other drivers of M&A in the next 12 months are expected to be the increased availability of capital (say 32% of Australian respondents) and bargain hunting underpriced assets (32%).
The future of work
The report also identifies that private market companies may be moving to develop more flexible or augmented workforces – 54% say full time headcount will remain the same in the next 12 months and 14% are expecting it to go down, despite their strong optimism around future growth.
“This suggests companies will manage growth opportunities by automating processes and augmenting their workforce with technology rather than hiring,” said Michael Clarke, Deloitte Private Chief Strategy Officer. “The Australian private market understands that automation doesn’t replace jobs, it improves the quality of them. Business leaders are taking advantage of automation, cloud and analytics to maximise their resources, but also recognising the importance of holding onto engaged and highly skilled employees to carry out higher value work.
“While the intention may not be there to hire, we are seeing Australian companies continue to invest in their people, significantly outstripping their counterparts in the rest of the world in this regard.”
58% of Australian companies are planning to invest in staff training, compared to the global average of 46% and 42% have plans to invest in leadership development, versus 32% in the rest of the world.
About the report, Global perspectives for private companies
From August 14 to September 18, 2017, a Deloitte survey conducted by OnResearch, a market research firm, polled 1,882 executives at global, mid-sized companies about their expectations, experiences and plans for becoming more competitive in the current economic environment. Respondents were limited to executives at companies with annual revenues between $10 million and $1 billion. 50 respondents were in Australia.