Business confidence and the economic outlook have improved dramatically for small and medium-sized enterprises in the past year, according to a new survey by the Association of Chartered Accountants and the Institute of Management Accountants.
The joint ACCA and IMA survey polled SMEs about the 12 months leading up to mid-2014. The report, titled “Back in the Game,” found that a range of business challenges, particularly those relating to cash flow, have eased for SMEs in the second review period, with SMEs in the Middle East and Western Europe leading the way. In addition, capacity building across regions has resumed in earnest, led by the Americas and the Middle East. Despite widespread improvement, the report noted mounting business challenges for SMEs in some regions, including Central and Eastern Europe and South Asia.
“Western Europe and the Middle East are taking the lead in the economic recovery, showing a significant decrease in external pressure and a 13 percentage point increase in capacity building,” said ACCA senior policy advisor Charlotte Chung in a statement. “However, Central and Eastern Europe and South Asia still struggle to see an increase in capacity building. The former is likely to reflect the ongoing concern over Ukraine and the impact of sanctions imposed on Russia by the U.S. and E.U.”
Government Policy and the Investment Environment
Ratings of government policy by SMEs have continued to improve. Ratings from the U.K. reached positive territory for the first time in this latest review. Spurred by greater confidence in the sustainability of fiscal policy, SMEs are increasing hiring and investment. In particular, SMEs are starting to rebuild the capacity of their finance functions, with larger SMEs focused on building human capital, and micro and small businesses focused on professionalization.
The investment environment also improved for SMEs globally, driven primarily by a greater availability of capital and profitable opportunities. Micro and small businesses have benefited the most as the banking sector’s ongoing recovery has finally unlocked the flow of credit to them. Among ACCA and IMA’s major markets, SMEs in the UAE, the UK and Ireland saw the greatest improvement, while those in China and Malaysia continued to experience shortage of growth capital.
While SMEs were hit hardest by the economic downturn, they have historically shown greater resilience, compared to their large corporate counterparts. SMEs are seizing new opportunities for economic growth by embracing innovation, entering new markets and building strong supplier relationships. ACCA/IMA’s first Global SME Performance Review identified mid-market businesses as a distinct group which greatly contributed to economic growth, and the second review has reinforced the two bodies’ conviction.
“Mid-market businesses are the most ambitious and ready for growth,” said IMA vice president of research Raef Lawson. “This group was the most likely to create new jobs during the 2013/14 period and reported the largest increase in job creation, more so than large corporations,” Lawson said. “They also reported the largest net investment in staff development and greatest emphasis on job creation, highlighting a difference in resource prioritization and allocation between mid-market business and micro, small and medium businesses.”