The European Mid-market in 2013

8/22/2019 The European Mid-market in 2013

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GE Capital

The Europeanmid-market in 2013:

Voices rom the boardroom


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ContentsForeword 4

Executive Summary 6

1. EU-4 mid-market : An updated prole 7

2. EU-4 mid-market : A major global economy 8

3. EU-4 mid-market : Focused on growth 9

4. Growth Champions 11

5. Manuacturing the heart land o the EU-4 mid-market? 13

6. Innovative growth 14

7. Challenges keeping the costs down 15

8. Conclusion: Finding growth in challenging markets 18

About the Author 20

Overview o research approach 20


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ForewordLooking back over the past year economies across Europehave continued to look or growth in less than ideal economiccircumstances. Against this tough climate, one segment o theeconomy the mid-market punches well above its weightsurpassing average national growth to make a substantiveeconomic contribution.

Following our oundational study o the European mid-market in2012, over the past year we have continued to track and assess

this crucial segment o the economy in order to understand thebusiness environment that they operate in as well as some o thechallenges that they ace. This years report is based on updateddata rom 2,200 interviews with mid-market executives. It showshow critical these businesses are to the European economy. Themid-market accounts or just 1.5% o companies, yet contributesover a third o economic activity.

But these businesses are not completely immune to marketrealities. They are ocused on reducing their costs andoverheads to ensure that prot margins are robust in uncertaintimes. They ace tough challenges - exporting to new markets,nding the skills required to plan or the uture and the abilityto overcome ever-changing regulation, which can sometimes

impede ambitions to grow.

At GE we seek to provide meaningul responses to thesechallenges and pride ourselves on oering our customersmore than just nancial solutions. As one o the largestindustrial companies in the world we are able to oer mid-market companies access to our deep industrial heritage andmanuacturing know-how, helping them grow. Through ourAccess GE programme, our customers can tap into ourexpertise and global network, oering them practical solutionsor many challenges.

Championing mid-market companies, raising awareness o theirrole, making sure that they are well understood amongst policy

makers, business leaders and the media is critical to realisingthese companies growth prospects, and helping them achievetheir ull potential.

Richard A. Laxer

President & CEO, GE Capital, EMEA


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Our conclusion rom last years research was that theEU-4 mid-market is a silent miracle worker, that createsmore jobs than small rms and value comparable tolargest rms. In 2013 this remains the case.


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As a collective, the mid-market across theseour nations continues to drive growth in itsrespective national economies continuedocus and championing the strengths o themid-market is as important as ever.

Over the past year economies across Europe have continued tosearch or growth and have somewhat struggled to nd compellinganswers as to where this growth will come rom. A year on rom ouroundational study looking at the midmarket in the UK, Germany,France and Italy (termed together as the EU-4) both France1 andthe UK2 lost their prized AAA credit ratings and Italy, with a triple-B-plus rating, sits only three places above junk rating3. The German

economy, which has been the healthiest o the EU-4, grew by just0.7% in 20124. Austerity measures undertaken by policymakersdominate the economic agenda in these countries where wesee businesses o all sizes struggling with weak currencies andchallenging economic environments.

The mid-markets o the EU-4 have shown themselves not to beimpervious to these pressures, but still demonstrate a resilienceand condence about the uture.

Our research ound that EU-4 mid-market rms grew sales lastyear the UK by an average o 2.3% - only marginally slower thanrms in the much lauded German mid-market (2.4%.) For mid-market rms in France (1.7%) and Italy (0.2%) sales growth was

less robust but still outgrew the pace o GDP growth in each o itsnational economies.

However beneath these punchy headlines are barriers to growthand strategic challenges acing mid-market businesses acrossthe EU-4. The continuing economic crisis and lack o condence innational economies is stifing ambition as is regulation and accessto nance which hamper growth.

Across the EU-4 cost reduction in the ace o market uncertaintyis the key challenge acing businesses and this is also true ormid-market rms in the U.S. This years report includes, or the rsttime, a unique comparison o the EU-4 mid-market with that o theU.S. mid-market. This interesting analysis will be expanded uponin the uture as it allows us to understand global trends and learnvaluable lessons rom across the pond. We have also taken a step

urther in our research, analysing the EU-4 by region (as well ascountry) allowing us to produce a more detailed regional analysis.This exercise provides greater insight into the potentialthe mid-market has to rebalance economies both geographicallyand sectorally.

We have continued to track the progress o the mid-marketanalysing macro data provided by millions o companies and acomprehensive survey o over 2000 senior mid-market executives.Our conclusion rom last years research was that the EU-4 mid-market is a silent miracle worker, that creates more jobs thansmall rms and value comparable to larger rms. In 2013 our reportshows that this remains the case. As a collective, the mid-marketacross these our nations continues to drive growth in its respective

national economies. With the European economy continuing tostruggle, the continued ocus and championing the strengths o themid-market is as important as ever.

Executive Summary


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Last years research identied the mid-market as a critical engineor growth across the EU-4. It highlighted that this segmentaccounted or less than 2% o total companies but contributed toover a third o economic activity. This year we have continued totrack mid-market progress, and using data sets rom millions opublicly available company data records, we can track how themid-market is evolving.

The denitions or the mid-market are as ollows oreach country:

Germany: 20m - 1bn in annual turnover

UK: 20m - 1bn in annual turnover

France: 10m - 500m in annual turnover

Italy: 5m - 250m in annual turnover5

There are 144,172 mid-market rms, constituting 1.46% ototal companies in the EU-4. These companies contribute nearlyone-third o private sector GDP (33%) and support nearly 29 million

jobs6. The total revenue o EU-4 mid-market rms is7.8 trillion, 31% o total EU-4 revenue (Figure 1).

The UK mid-market emerges as a particularly strong contributorto total UK employment, with nearly 39% o total jobs in the UKderived rom this segment. Likewise the UK mid-market seems tobe reaching or growth and achieving above average contributionsto the EU-4 economy, starting to match the perormance oGermany the standard bearer or the mid-market.

The latest data shows that the German economy has expandedand that Germany continues to leverage the power created by itswell-developed and world leading industrial sector, and by its wellestablished Mittelstand (a trend that we see later on in the report).The macro data shows that France and Italy are both strugglingin more challenging national economic environments and theirmid-markets, like businesses o all sizes, are struggling to grow ata similar pace to either Germany or the UK. The Italian mid-marketstill managed to increase its revenue contribution, despite anoverall downward trend o Italian turnover (Figure 2).

1. The EU-4 mid-market: An updated prole

Fig 1. Source: Eurostat, BVD

fig 1.

The EU-4 mid-market profile

Mid-market companies

Firms

Employees

1.46%

29.08%

Revenue

GDP

31.08%

32.77%

All other companies

fig 2.

EU-4 country profiles


Germany

UK

1.39%

29.45%

28.76%

30.03%

1.67%

34.86%

38.97%

38.97%

Firms

Revenue

Employees

GDP

Firms

Revenue

Employees

GDP

Germany

UK

1.39%

29.45%

28.76%

30.03%

1.67%

34.86%

38.97%

38.97%

Firms

Revenue

Employees

GDP

Firms

Revenue

Employees

GDP

Germany

UK

1.39%

29.45%

28.76%

30.03%

1.67%

34.86%

38.97%

38.97%

Firms

Revenue

Employees

GDP

Firms

Revenue

Employees

GDP


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Mid-market rms are hugely valuable to their national economiesand their impact is signicant by all standards and measures. TheEU-4 mid-market as a group is also signicant when compared withthe largest economies in the world. In the league table o globaleconomies the EU-4 mid-market is a major player. Combined, theGDP contribution o the EU-4 mid-market in U.S. dollars is 1.64trillion. I it were a national economy, the EU-4 mid-market wouldbe 12th largest economy just below Canada but above Spainand Australia (Figure 3).

To provide an up to date and authoritative view o the prole o themid-market we carried out a survey o 2,195 board level executivesin mid-market rms across the EU-4. Interviewed during March andApril 2013, we asked mid-market business leaders how their rmshave ared over the last year and what strategic challenges theyare currently acing.

2. The EU-4 mid-market: A major global economy

fig 3.

GDP contribution of the EU-4 mid-market


(U.S. $ trillion) Based on World Bank 2011

Germany

Rank:

1 United States 14.9

2 China 7.3

3 Japan 5.8

France Brazil UK Italy India Russian

Federation

Canada

EU-4

mid-market

Spain Australia

3.6

2.7

2.4

2.4

2.1

1.8

1.8

1.7

1.6 1

.41.3

1413121110987654

fig 2.

EU-4 country profiles


France

Italy

1.36%

26.78%

22.42%

28.08%

1.47%

33.07%

22.26%

33.74%

Firms

Revenue

Employees

GDP

Firms

Revenue

Employees

GDP

There are 144,172 mid-market rms, constituting 1.46% o totalcompanies in the EU-4. These companies contribute nearly one-third o private sector GDP (33%) and support nearly 29 million jobs.The total revenue o EU-4 mid-market rms is 7.8 trillion, 31% ototal EU-4 revenue.


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fig 4.

Business Growth

Fig 4. Source: Millward Brown and GE Capital EU-4 mid-market Survey, 2013

% whose grossrevenue grewin past year

% whose grossrevenuedeclined inpast year

FranceUK Germany Italy

+2.3% +2.4% +1.7%Net growth 2013 +0.2%

52% 4

8% 4

5%

34%

13% 6

%

12%

22%

Significantlygreaterperformance

than EU-4average

Significantlylowerperformancethan EU-4average

fig 5.

Anticipated mid-market sales growth




47%

35%

35%

26%

10%

6%

10%

16%


+2.1% +1.7% +1.4%Net predictedgrowth

+0.5%

Significantlygreaterperformance

than EU-4average

Significantlylowerperformancethan EU-4average

The EU-4 mid-market was unable to match growth perormanceachieved last year but despite challenging market conditionsmodest net sales growth was achieved. The German mid-marketexperienced the highest net growth at 2.4% with the UK almostmatching this perormance with growth o 2.3%. France and Italysmid-markets experienced weaker sales growth, but still achievedpositive growth o 1.7% and 0.2% respectively (Figure 4).

These broadly positive sales growth gains were refected in rmscondence about uture growth. When we asked them how theyassess the uture outlook or their company, all markets on average,expect continued growth. The UK mid-market is particularly upbeatwith 47% o rms anticipating growth (up rom 45% in 2012). InItaly this gure drops to 26% and is impacted urther by negativesentiment rom 16% o rms, leaving a slightly underwhelmingpositive net score o 0.5% (Figure 5).

Based on the net growth projections o mid-market rms expectingto grow over the next year, we estimated that across the EU-4 mid-market, these rms are orecasting 124bn in sales increases in thecoming 12 months.

Condence in uture growth is underscored by strong investmentintentions or the uture. On average, across seven dierentinvestment categories 88% o EU-4 mid-market rms areplanning to either increase their investments or maintaininvestment at existing levels over the next year. Just 12% aimto reduce their investments7.

In terms o job growth the experiences o the EU-4 mid-marketare rather varied. The UK is more polarised than the otherEU-4 countries and only experienced 0.6% growth, althoughit matched Germany in the proportion o rms creating new

jobs (Figure 6).

We ound that in the last 12 months these EU-4 mid-market rmsadded more than 214,000, jobs, with Germany accounting orthe majority (116,000) o these positions. However, had the othermarkets kept pace with the job growth o the German mid-market,

this would have resulted in an additional 188,000 jobs beingcreated over the last year.

3. The EU-4 mid-market: Focused on growth

Based on the net growth projections o mid-market rms expectingto grow over the next year, we estimated that across the EU-4 mid-market, these rms are orecasting 124bn in sales increases in the

coming 12 months.


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fig 6.

Mid-market jobs growth





+0.6% +1.4% +0.6%Net workforcegrowth

0.0 %

30%

31%

21%

26%

9%

18%

24%

17%

We ound that in the last 12 months these

EU-4 mid-market rms added more than214,000, jobs, with Germany accounting or

the majority (116,000) o these positions.

However, had the other markets kept pace

with the job growth o the German mid-

market, this would have resulted in an

additional 188,000 jobs being created

over the last year.

Learning from the U.S. mid-market

The dierence in the perormances o U.S. and EU-4 mid-markets depends, to a large extent, on the perormanceo their respective national economies since the recentnancial crisis. The EU-4 economies, except Germany, havebeen slow to recover rom that crisis. The U.S. on the otherhand, has shown more steady growth. U.S. GDP grew 2.4%in 2010, 1.8% in 2011 and 2.2% in 20128.

This national economic growth is refected in positivesentiment rom the survey o U.S. mid-market rms. Whenlooking at sales growth, the EU-4 market is surpassed bythe U.S. which charted 5.8% growth in revenues9. Revenuegrowth or the EU-4 mid-market ranged rom 0.2% in Italyto 2.4% in Germany. This trend continues into anticipatedsales growth where U.S. mid-market rms are condentlyexpecting to grow at 4.9%10 over the

coming year. In comparison, EU-4 mid-market growthestimates range rom 0.5% in Italy to 2.1% in the UK. Thiscondence is matched by outlook or national economicperormance, where the U.S. mid-market is much moreoptimistic than the rest o the EU-4 (Figure 16). InterestinglyU.S. and EU-4 mid-market rms are experiencing similarcost- cutting related challenges. EU-4 rms reported thatkeeping the costs o doing business down was their majorchallenge as did U.S. rms, with rising healthcare costseaturing prominently.

Attracting, training and retaining talent is also one o thetop 10 challenges acing the U.S. mid-market. Other topchallenges include the rising cost o healthcare reormand navigating an uncertain regulatory environment.


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The EU-4 mid-market is a ormidable segment with signicantrevenue, employment and GDP contributions to their nationaleconomies. Within the mid-market we have identied a set ohigh-perorming, ast growing rms who we term as GrowthChampions companies that achieved revenue growth o at least10% over the previous year. The distribution o Growth Championsis, to a degree, relatively uniorm across the individual EU-4 mid-markets. However, with 17% o its constituent rms categorised asGrowth Champions, the UK mid-market is the best perorming whilewith just 11% Growth Champions, the French mid-market is hometo the least amount o ast growing rms. The German and Italianmid-markets each have 13% o their mid-market rmsclassied as Growth Champions (Figure 7).

Declining sales demand represented one o the top-ve barriersto mid-market growth and, more broadly, the national economieso France, Germany and the UK achieved less than 1% growth in2012 whilst the Italian economy contracted by 2.4%11. Against thisbackdrop, the mid-market Growth Champions emerge as a highlysuccessul cohort (Figure 8).

Interestingly the strategic emphasis o Growth Champions diersquite starkly rom other mid-market rms - specically those thatsit in the marginal and fat/declining categories. We compared thestrategic ocus o mid-market rms (Figure 9) and discovered thatGrowth Champions are more likely to:

Have dedicated unding or research and development, invest ininnovation and new product development

Invest in training and development o existing sta

Exploit new opportunities in ast-growing oreign markets.

Firms in the marginal and fat/declining categories struggle topursue such an ambitious growth agenda and are much more likelyto experience basic operational challenges and diculties. They aremore likely to be ocused on keeping cost down, accessing nanceand navigating regulation.

4. Growth Champions

fig 7.

EU-4 Growth Champions


Growth Champions(Claimed at least 10% growth over the past year)

Growers(Claimed at least 5-9% growth over the past year)

Marginal Growth

(Claimed at least 1-4% growth over the past year)

Flat or Declining(Claimed no or declining growth over the past year)

52%

17%

18%

13%

Germany

66%

10%

11%

13%

Italy

54%

20%

15%

11%

France

49%

18%

16%

17%

UK

53% 14%

17%

16%

fig 8.

EU-4 Growth Champions strategic vision


15%

12%

11%

10%

10%

10%

Strive to set the standard for ourindustry through innovation

Expansion into emerging markets

is pivotal to growth

Expand into other markets to builda truly international business

Maintaining our current businessstructure and size

Creating a company that we caneventually sell for the best possible price

Driving profits to pass a thrivingbusiness on to future generations


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fig 9.

EU-4 Strategic Emphasis

Fig 9. Source: Millward Brown and GE Capital EU-4 mid-market Survey, 2013.

Investing in trainingand development ofexisting staff

Having dedicatedfunding for research& development

Investing in systemsand business processesto boost productivity

Exploiting newopportunities in fastgrowing foreign markets

Investing in sales& marketing

Investing ininnovation & newproduct development

Investing innew talent

Less emphasis Same emphasis Greater emphasis

Growth Champions Growers Marginal Growers Flat or Declining

67%4% 29%

54%15% 31%

56%10% 34%

48%15% 37%

51%10% 39%

49%11% 40%

53%13% 34%

62%3% 35%

53%18% 29%

60%8% 32%

49%18% 33%

46%9% 45%

47%18% 35%

47%15% 38%

65%5% 30%

52%16% 32%

51%12% 37%

52%14% 34%

51%13% 36%

53%13% 34%

58%18% 24%

59%4% 37%

45%16% 39%

55%9% 36%

48%16% 36%

56%8% 36%

47%6% 47%

52%12% 36%

European mid-market league table

1 UK South 3.0 2.6 5.6

2 Germany North 3.1 2.4 5.5

3 Germany East 2.6 2.5 5.1

4 UK Central 2.6 2.1 4.7

5 Italy South 2.0 2.2 4.2

6 France North 1.9 1.6 3.5

6 France South 1.9 1.6 3.5

8 Germany South 2.1 1.0 3.1

8 Germany West 1.7 1.4 3.1

10 UK North 1.2 1.7 2.9

11 France Central 1.3 1.0 2.3

12 Italy Central 0.9 1.1 2.0

13 Italy North -0.4 0.0 -0.4

Position Market Region Net Revenue Net Revenue Combined

Growth (actual) Growth (forecast) Total - %

last 12 month - % next 12 months - %

2 Germany North 3.1 2.4 5.5

4 UK Central 2.6 2.1 4.7

6 France North 1.9 1.6 3.5

8 Germany South 2.1 1.0 3.1

10 UK North 1.2 1.7 2.9

12 Italy Central 0.9 1.1 2.0

Regional deep dive

In order to better understandthe relevance o geographicpositioning o the mid-market,we compared how regions aredagainst each other across theEU-4. Based on actual salesgrowth over the last two years,and orecast sales growth inthe coming year, this leaguetable demonstrates the mighto the UK South as well as theGerman industrial centres in theNorth and East12.

Regional analysis demonstrates the mighto the UK South, as well as the German

industrial centres in the North and East.


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fig 11.

EU-4 anticipated growth by sector


Net sentiment significantly higher or lower than last year

% whose gross revenuegrew in past year

% whose gross revenuedeclined in past year

ManufacturingandConstruction

Retail& Wholesale

IT Transport Professional& FinancialServices

Others

+1.0% +2.0% +2.2%

Net predicted growth

+1.1% +2.0% +1.5%

42%

8%

33%

7%

39

%

8%

3

8%

9%

3

8%

6%

36%

15%

Manuacturing is traditionally a crucial industrial sector or mid-market growth. Much o the success o the German Mittelstand isrooted in manuacturing and it drove growth during the nancialcrisis. The manuacturing sector o the German mid-market,known or its superior product quality and technological advances,contributes more than one third o mid-market GDP, generating28.6% o the German mid-market revenues.

Italy, which has limited natural resources or sectors such asmining, quarrying and agriculture, also ocuses on manuacturing,traditionally, in high value luxury products and mid-market rmscontribute close to 40% o GDP and revenues. The French mid-market manuacturing sector contributes 27.2% to the mid-marketrevenues but only 20.4% GDP (Figure 10).

In contrast to the rest o the EU-4 mid-markets, the UK mid-marketis relatively less manuacturing ocused. It generated less than one

th o the UK mid-market revenues and employed 18.5% o mid-market workorce. The UK is a more service-orientated economywith proessional business services providing 19.3% o mid-marketemployment.

In our survey o mid-market executives, manuacturing andconstruction businesses reported a marginal increase o 1.3%in revenues. However, this was much smaller than the 3.1%growth they reported the last year. This sentiment is consistentwith the macro analysis where, except or in Germany, themanuacturing mid-market rms in the rest o the three countriesreported declining revenues. Only 44% o the EU-4 mid-marketmanuacturing and construction rms experienced revenue growthcompared to 54% in the previous year.

Their sentiment about the uture growth partly refects the lessthan desirable perormance across the previous year. Over athird (36%) o mid-market manuacturing and construction rmsanticipate positive sales growth in contrast to 47% last year. Otherindustries including IT, nancial services and retail were moreoptimistic about their uture outlook (Figure 11) with net predictedgrowth all above 2%.

5. Manuacturing the heartland othe EU-4 mid-market?

fig 10.

Manufacturing contribution to the EU-4 mid-market


Firms Revenue Employees GDP

Germany

France

Italy

UK

21.2% 19.9% 18.5% 22.3%

38.7% 40.1% 41.9% 39.8%

22.6% 27.2% 30.0% 20.4%

27.9% 28.6% 30.0% 34.3%


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In our report last year we emphasised the importance oinnovation13 in the EU-4 mid-market. Mid-market R&D spend asa percentage o revenue tends to match the national averageo 5% and in 2011 equated to over one billion euros across the EU-4mid-markets. The UK mid-market accounted or 37% othe EU-4 R&D spend.

Furthermore the EU-4 mid-market holds a considerable proportiono the total patents in these economies. Although patent ownershipis not a wholly sucient way o measuring innovation, it canprovide a useul insight into rms interest in innovation andlong term strategic planning. The mid-market across the EU-4collectively owns over a third o all patents (35.3%). In Italy andthe UK the number o patents held by the mid-market is nearly asmany as that held by small and large companies combined. Alsonoteworthy is patent ownership in France which has risen rom31.7% to 37.4% (Figure 13).

Interestingly a signicantly large proportion o mid-market patentsare held by manuacturing rms, suggesting a highly innovativeand technology-driven manuacturing sector across the EU-4(Figure 14).

Patent data does come with limitations and we must be cautiouswhen drawing any denitive conclusion. When innovations arerelated to processes and designs, they are not always patentable.Even i they are, the long-term benets o patents are limited due tothe perishable nature o such inventions. For example, many rmsin Italy, where the manuacturing ocus is on luxury and liestyleproducts, dont necessarily patent their innovations. Thereore,although Italian mid-market owns only 15.5% o the EU-4 mid-market patents, we cant conclude that Italian mid-market isless innovative. In act their R&D intensity at 4.9% o the annualrevenues is comparable to the rest o the EU-4 (UK: 4.8%, Germany:5%, and France: 4.7%).

6. Innovative growth

fig 12.

EU-4 R&D spend


12%

37% 33%

18%

Over

1 billion

The mid-market across theEU-4 collectively owns overa third o all patents

fig 14.

Manufacturing patents as a % of all mid-market patents


68.00%84.90%

74.20%65.60%

Manufacturing patents Al l other sectors

fig 13.

EU-4 patent ownership


Small

Mid-market

Large

41% 22%

37%


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Each o the EU-4 economies have experienced a downturn in recentyears. It is thereore not surprising that when we asked companiesabout the single most critical barrier to growth, the top ve barr iersthat emerged were, to a large extent, external barriers; economiccrisis, regulation and government policy, nancial barriers,increased overheads, and declining sales, rather than internal oroperational issues (Figure 15).

The economic crisis is cited as the key barrier to growth and this isto some extent borne out by a lukewarm response to the questionon condence in national markets. The UK and Germany are netpositive about their national economies, France is neutral and Italyis negative in sentiment about the Italian economy (Figure 16).

UK mid-market rms have much less positive views o utureEuropean growth. In particular, while UK rms see positive growthin the global, UK and regional economies over the next year, they

anticipate the European economy to shrink by around 0.7% (Figure17). Germany, France and Italy are all more positive (althoughnot overly-enthusiastic) about the European economy. For UKmid-market rms this implies that the impact o the continuingeconomic crisis is likely to be elt most keenly through theirexposure to European markets.

Condence in the European economy is refected in attitudestowards the importance o EU membership or business growth.In each country the largest proportion o mid-market executivesbelieve that remaining a part o the European Union is vitalor business growth. However, only 44% o UK rms agreed incomparison with 58% o German rms, 63% o French and 67% oItalian mid-market companies (Figure 18). This shows the vestedinterest that those operating in the Eurozone, benetting rom acommon currency, with signicant exposure to a single market,have in the strength o the European economy and the importanceo remaining part o the Euro.

Ater the economic crisis and regulatory concerns, nancial barriersare the third biggest barrier to growth. Over a quarter o the mid-market cited access to nance as presenting the highest degree ochallenge to their business. O the regulatory challenges access tonance was the highest challenge, ollowed by cost o compliance(24%) and dealing with corporate taxation (21%) (Figure 19).

7. Challenges keeping costs down

fig 15.Top five barriers to growth across the EU-4


Economic crisis

Regulation/policy

Financial barriers

Increased overheads/direct costs

Declining income/sales/demand

Mid-market

Economic crisis

Regulation/policy

Financial barriers

Increased overheads/direct costs

Declining income/sales/demand

UK Germany

France Italy

33%

33%

33%

33%

33%

22%

20%

14%

16%

27%

23%

14%

9%

15% 7%

7%

28%

21%

12%

12%

10%

31%

26%

25%

9%

fig 16.

Confidence in national economy


National Center for Middle Market, Middle Market Indicator, Q1 2013.

25%

26%

12%

6%

+0.2% +0.5% 0.0% -0.4% +1.0%Net predictedgrowth

UK Germany France Italy USA

33% 31

%

21%

20%

58%

%predictedgrowth

%predicteddecline

12%


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When we investigated urther and asked what specic nancialmanagement issues they aced, the key priority or the EU-4 mid-market rms is bank loans with 40% saying that they would likemore access to this orm o nancing in the uture. More equityinvestment was cited as desirable by over a third o rms (35%)with 21% wanting more commercial leasing or structured nance(Figure 20).

Compounding the EU-4s challenges surrounding access to nance,mid-market executives also cited keeping down business costsand overheads as the single-most critical challenge to uturebusiness growth. 46% o Italian and 42% o UK mid-marketexecutives ound this to be a high degree o challenge as did athird o German and French mid-market executives. With therevenue growth expected to remain relatively fat, businesseshave to control their costs in order to protect margins (Figure 21).

HR-related challenges appeared requently among the top vechallenges to uture business growth. In particular, retainingtalented employees, attracting top managerial talent, andproviding competitive wages and benets are critical personnelchallenges. This was similarly the case last year however, theirrelative importance varies across EU-4 with personnel challengesbeing more prevalent in France and Italy.

In 2013, UK mid-market rms are nding it easier to retain talentedemployees compared to last year. Similarly, German mid-marketrms nd attracting top managerial talent and retaining talentedemployees less challenging this year. In contrast, 25% o Frenchmid-market rms nd providing competitive wages challenging,refecting an increase o 7% such rms rom the previous year.Similarly, 37% o Italian mid-market rms nd attracting topmanagerial talent challenging this year, up by 13% on last year.

fig 17.

Confidence in European economy


30%

UK

20%

18%

Germany

23%

21%

France

25

%

21%

Italy

2

3%

Confidence in theEuropean economy

Lack of confidence in theEuropean economy

fig 18.

Mid-market views on the importance of EU membership


Remaining part of the European Unionis vital for our business growth

Agree Neither agree nor disagree Disagree

Germany

France

UK

Italy

67% 23% 10%

63% 27% 10%

58% 31% 31%

44% 30% 27%


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fig 21.

Challenge faced by the mid-market


Keeping business costs down

Retaining talented employees

Cost of compliance

Access to finance

Competitive wages

42%

26%

23%

23%

22%

UK mid-market


Providing competitive wages


Cost of compliance

Corporate tax

Access to finance

33%

25%

23%

22%

22%

22%

French mid-market


Access to finance

Cost of compliance

Attracting topmanagement talent

Financial agreements

46%

43%

38%

37%

34%

Italian mid-market


Attracting topmanagement talent


Access to finance

Corporate tax

33%

30%

30%

26%

24%

German mid-market

fig 19.

EU-4 regulatory challenges


Access to finance

Cost of compliance

Dealing with corporatetaxation requirements

Navigating the tax structure

Keeping up with changing regulation

Ensuring that we are in compliancewith Health and Safety Requirements

Having a constructive dialoguewith regulators

Complex employment regulation

Navigating the regulatory frameworkfor exports to new markets

Dealing with personaltaxation requirements

Mid-market EU-4

High challenge Moderate challenge Little or no challenge

45%27% 28%

52%24%

49%21% 29%

51%19% 30%

54%19% 27%

51%19% 30%

40%16% 44%

54%16% 30%

54%15% 30%

37%14%

24%

49%

fig 20.Financial management


Bank loans

Mid-market EU-4

Not at allreliant

Somewhatreliant

Highlyreliant

% who would like more accessto method in the future

Equity of companyowners/directors

Retained earnings

Commercial leasing/structured finance

Factoring(account receivable)

External private equity/

venture capital

Financing from otherPublic funded programmes

47%30% 23% 40%

31%50% 19% 35%

36%47% 17% 21%

47%37% 16% 21%

39%47% 14% 12%

30%58% 12% 14%

35%54% 11% 12%


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8. Conclusion:Finding growth in challenging markets

In 2013 we nd the mid-market o the EU-4 continuing to strive andsearch or growth in a less than ideal economic climate.The EU-4 mid-market makes an enormously signicant impact onthe economy as an important contributor to GDP and jobs despiteaccounting or less than 2% o rms. However, the mid-market ispreoccupied with keeping costs and overheads down in challengingmarket conditions where margins become o critical importance.

Within the EU-4, the UK and Germany stand out as weatheringthe economic storm most eectively, with this segment reportingrobust revenue and employment gures and eeling optimisticabout the uture. The UK has taken top spot o the mid-marketGrowth Champions league and its cadre o rms achieving doubledigit growth has emerged as a key strength o the UK mid-market.These champions provide a compelling blueprint or growth romwhich lessons can be drawn across the EU-4.

Likewise Germany has continued to fex its mid-market musclewith strong sales and workorce growth. The French mid-market,on the other hand, has suered a drop in condence as a result oweaker sales gures and a more challenging national economic

environment. This is also the case in Italy where rms are sueringa lack o condence in their national economy and sales and jobsgrowth are weak. Italy has the highest proportion o fat or decliningmid-market rms - companies that are struggling to overcomeoperational challenges.

Championing the mid-market, advocating their needs and learningthe lessons that can be drawn rom Growth Champions across theEU-4 and in the U.S., is hugely important, i this crucial segment othe economy is going to continue grow. Advocating the growth othe mid-market can yield great results a lesson that can be drawnrom the German model where the well-established Mittelstand isserviced well by policy makers and regulators to suit its needs.

The potential is plain or all to see throughout this report.The mid-market is dynamic, innovative and condent enoughto make investments in its own uture. Now is the time to better

support these companies to provide an environment moreconducive to their growth, to enable them to reach theirtrue potential.


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Championing the mid-market, advocating their needsand learning the lessons that can be drawn rom GrowthChampions across the EU-4 and in the U.S., is hugelyimportant, i this crucial segment o the economy isgoing to continue grow.


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About the authorThis report was written by Proessor Ashwin Malsheo ESSEC Business School.

A multi-sourced, collaborative, and data-driven approach wasemployed which drew upon database research, primary research

and local market academic expertise.

Database analyses based on data rom:

a. Eurostatb. BvD Orbis

The denitions o mid-market rms ollow an intuitive yet objectivemethodology using infection point analysis at local market levelto pinpoint the section o the economy that could be described asmid-market. The infection points emerged through a triangulationo three actors turnover, productivity and employee numbers. Wedened small, medium, and large rms when dierent parameters(e.g., revenue/employee) showed relatively large jumps as we moverightward on the rm size continuum.

Boardroom Survey:

a. Four-country, nationally representative sample o 2,690 C-suiteexecutives o private and public companies:

France, Germany, Italy, United Kingdom

Regional boost added to mid-market interviews in UK, Franceand Germany

358 micro/small businesses

2,195 middle market businesses

137 large companies

Survey data weighted to BvD data to ensurerepresentativeness (weighted by region, industryand revenue)

b. Survey conducted via mix o computer assisted telephoneinterview (CATI) and online depending on the country andexecutive type

c. Managed and executed by Millward Brown Corporate

d. Fieldwork conducted March April 2013

Overview o research approach

Proessor Ashwin Malshe

ESSEC Business SchoolAshwin Malshe has been a marketing proessor at ESSEC BusinessSchool since 2011. He holds a PhD in marketing with special ocuson nance and econometrics rom SUNY-Binghamton, USA. Hisresearch is primarily ocused on conceptualising and measuringthe ROI o marketing strategy. Proessor Malshe teaches marketinganalytics and social media marketing to ESSEC Masters studentsand executives.


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1 http://www.guardian.co.uk/world/2012/nov/20/moodys-downgrades-rance-credit-rating

2 http://www.bbc.co.uk/news/business-22219382

3 http://online.wsj.com/article/SB10001424127887324128504578348371705282616.html

4 Eurostat

5 In this research we dene the UK mid-market to include thosecompanies with annual turnover between 20m and 1bn.Our denitions o UK and European mid-markets are basedon a methodology originally developed in 2011 by Ohio StateUniversity and GE Capital, to examine the U.S. mid-market.

Based on industrial demography data or each country, andexamining discontinuities in the distribution o productivityby size band and other perormance descriptors by rm size,allowed us to create a market specic denition or each EU-4economy. In the UK and Germany the mid-market includesrms with 20m to 1bn in annual turnover; in France themid-market comprises rms with 10m to 500m in annualturnover; and in Italy, 5m to 250m in annual turnover. Thisrefects the smaller average rm size in Italy. See: Malshe, A(2012) The mighty middle: Why Europes uture rests on its mid-market companies, GE Capital, London

6 BVD, Eurostat

7 Millward Brown and GEC EU-4 mid-market survey

8 U.S. Bureau o Economic Analysis

9 National Center or Middle Market, Middle Market Indicator,Q1 2013

10 National Center or Middle Market, Middle Market Indicator,Q1 2013

11 Eurostat

12 The ollowing methodology was applied to calculate theEU-4 league table; The product o actual business growth

experienced over the past year and predicted business growthover the coming year, Millward Brown and GEC EU-4 mid-market survey

13 Malshe, A, (2012) The Mighty Middle: Why Europes uture restson its middle market companies, GE Capital, London

Notes


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Notes


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Important Notice:

Nothing herein shall be construed as an approval or commitment to nance or provide any other service by GE Capital to any person orentity. All transactions are subject to nal investment/credit approval by GE Capital and the execution o mutually satisactory denitive

documentation. GE Capital does not guarantee or promise any level o protability or generation o revenue o any kind whatsoever, noris anything contained herein intended to constitute tax, accounting, nancial or legal advice by GE Capital to any person. Recipient shouldconsult his/her/its own proessional advisors or any such advice. GE Capital does not make any representation or issue any endorsementor any o the rms or products reerenced herein.

This document contains orward-looking statements that is, statements related to uture, not past, events. In this context, orward-looking statements oten address our expected uture business and nancial perormance and nancial condition, and oten containwords such as expect, anticipate, intend, plan, believe, seek, see, or will. Forward-looking statements by their nature addressmatters that are, to dierent degrees, uncertain.

For us, particular uncertainties that could cause our actual results to be materially dierent than those expressed in our orward-lookingstatements include, without limitation: the level o demand and nancial perormance o the major industries we serve; the impact oregulation and regulatory, investigative and legal proceedings and legal compliance risks; s trategic actions, including acquisitions anddispositions and our success in integrating acquired businesses; and numerous other matters o national, regional and global scale,including those o a political, economic, business and competitive nature.

These uncertainties may cause our actual uture results to be materially di erent than those expressed in our orward-looking statements.We do not undertake to update our orward looking statements. Whilst all reasonable care has been taken in the preparation o thispublication and all inormation in this report is veried to the best o the authors and the publishers ability, we, nor General ElectricCompany, our employees or agents accept any responsibility or any errors or omissions therein or or any loss arising rom reliance onit. No liability is accepted or any direct or consequential losses arising rom the use o this inormation. Furthermore, nothing containedherein is intended to constitute tax, accounting, nancial or legal advice by us to any person. Recipients should consult their ownproessional advisors or any such advice.

Disclaimer Caution concerning orward-looking statements


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GE CapitalThe Ark,201 Talgarth Rd,Hammersmith,LondonW6 8BJT +44 20 7302 6300

www.gecapital.eu/midmarket

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Neither this publication nor any part o it may be reproduced, stored in a retrieval system ortransmitted in any orm or by any means, electronic, mechanical, photocopying, recordingor otherwise, without the prior permission o General Electric Company.

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The European Mid-market in 2013

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