Global business pulse

Freight expectations: a striking rise in international ambitions

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Six months ago, our global research led us to conclude that there was a ‘once in a generation’ opportunity for businesses to grow internationally. Normal opportunities bring the mid-market running. Once a generation opportunities bring a stampede, and this is exactly what has happened. A massive 45% of the global mid-market now expect their exports to increase in the next 12 months.

To put that into some context, in the ten years of Grant Thornton’s IBR research, we have never seen a number higher than 36%, and at the start of the pandemic, this number had shrunk to just 25%. So we have observed a near doubling of expectations in a year.

Peter Bodin round.jpg.pngPeter Bodin, Global CEO at Grant Thornton International Ltd., says this greater international appetite is also seen in the mid-market clients that we serve across 130 countries. “International growth is a central strategy for the mid-market and supporting them is the key priority for the Grant Thornton network. We are laser focused on helping them succeed.”

The higher growth expectations are being seen widely across the world, with slightly elevated levels recorded in the more developed parts where vaccine roll-outs are helping economies to rebound strongly. Asia Pacific and the EU are up by 11 percentage points (pp) in the first half of 2021, North America by 10pp and Latin America by 6pp.

This growth is expected to come from a mix of existing and new international markets, with 43% of global companies expecting to enter new countries in the next 12 months. This compares with just 25% a year ago and is another striking feature of this expansion.

For the first time, Grant Thornton can disclose what new countries are being prioritised for growth by the global mid-market (see below). The US features strongly in the results, as does Australia and a number of G7 countries reflecting the pull of the larger markets. There is also a regional bias to be seen, with companies prioritising centres in close geographic proximity. Contact Grant Thornton member firms to find out more about trends in your local market.

Countries prioritised for growth by the global mid-market

Rank Africa APAC ASEAN European Union North America Latam
1 United Kingdom China United States Germany United States Germany
2 Canada Australia Japan United States Canada United States
3 France United States Indonesia United Kingdom Australia Argentina
4 China Germany Singapore France France Brazil
5 United States Russia Australia Australia United Kingdom Canada
6 South Africa United Kingdom China Italy Brazil China

Pandemic opportunities and recovery drive growth

The factors we identified in our previous analysis are at the heart of this trend. Competitive disruptions and shake-outs from COVID-19 have created opportunities for companies to enter new markets and form new relationships. And there are abundant sales opportunities on offer in international markets, some of which have been stimulated during the pandemic and supported by government spend.

It is also easier to take products and services international due to the rise in digital communication during the pandemic and greater willingness for buyers to engage remotely. This will be explored further in upcoming content from Grant Thornton.

Recent developments have provided further catalysts. The recovery in global economies as they emerge from the pandemic has sent demand soaring.

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Mike Ward.PNGBut Mike Ward, Global head of advisory at Grant Thornton International Ltd., says it is the combination of stronger demand and vulnerable supply chains that’s really powering international trade.

The massive global microchip shortage and blockage of the Suez Canal have made public the very shaky nature of global supply chains. At the same time, companies are battling with dramatically higher transport costs (300-400% in cases cited by our experts) – reflected in the record concerns around energy cost and transport infrastructure seen in H1 2021.

“The supply chains in many industries are stretched,” explains Mike. “Some are even broken around one or two commodities. There is a race to patch these up causing a super-normal demand spike. Companies are racing to find alternative sources of supply wherever they are in the world.” Reflecting this point, we are seeing significantly higher intentions to use international suppliers and outsourcers within the mid-market. In H1 2021, 36% of companies were expecting to increase their use of foreign suppliers and outsourcers in the next 12 months, a rise of 6pp.

There is plenty more opportunity globally

While the rise in companies looking to grow globally is dramatic, our leaders think there is still plenty of opportunity internationally for mid-market companies. This view is supported by further analysis of our mid-market research which reveals very little match between known market opportunities and changes in international expansion plans. In other words, large areas of known opportunities are being materially overlooked by the mid-market, and if the mid-market isn’t targeting these, they’re probably being overlooked by everyone.

For those looking to grow international sales, our experts have given some great advice around international expansion strategies, stressing the importance of prioritising opportunities and managing risks. We also advise to look beyond the immediate sales contract and think about the medium and long-term, with clear priorities and action plans that are also backed up by scenario planning.

It’s also worth bearing in mind some of the bigger global trade trends that we’ve highlighted, although the surge in international activity – everywhere – is likely to make these less distinguishable. Just as outgoing tides expose what’s really going on, to borrow from the wisdom of Warren Buffett, incoming tides tend to cover things up.

Jonathan Eaton.pngOne trend that is still distinguishable is a move to shorter supply chains. Jonathan Eaton, national supply chain practice leader at Grant Thornton LLP in the US, explains: “For companies with global sales, a major challenge is the exponential increase in supply chain cost to serve. When companies experience this along with supplier reliability issues and a shortage of labor in key markets, they must look aggressively at how to get products to market more cost effectively. And the easiest way to do this is to make products closer to where they are going to be bought or consumed.”

So expect to see more local sourcing and reshoring – bringing manufacturing back home – with plenty of exceptions and nuances. One exception is to be found in the US, where we had previously noted a trend toward onshoring due to tax cuts and other government policies. “With a possible shift in the current legislative landscape, and the uncertainty over tax rates and minimum wages and shortages of workers, smart companies are rethinking their plans around reshoring and looking at the bigger picture with an emphasis on business simplification, supply chain resiliency, and the minimization of cost to serve,” explains Jonathan.

Build in supply options, particularly with inflation looming

scott-farber.pngFrom a supply or buyers’ perspective, Scott Farber, network capabilities team regional head for the Americas at Grant Thornton International Ltd., stresses the value of integrated forecasting for companies that are looking to better align their demand and supply chain forecasting. “Now that we have seen some growth and bit more stability, it’s a good time to think about how you plan, communicate and interact upstream and downsteam to manage supply chains in the most efficient way.”

Robert Hannah.pngAll the instability also underlines the importance of having more supplier options. This is inevitably a balancing act as Robert Hannah, leader of the international business support function at Grant Thornton International Ltd explains: “There’s always been a tension in supply chain strategies between efficiency (by having less suppliers) and risk (by having more). Pre-pandemic, company strategies were more about efficiency. During the pandemic, control of risk has come to the fore.”

Mike notes that the prospect of inflation makes it even more important to build up relationships, so if one supplier tries to hike prices, you have options. “Or alternatively buy more when it’s cheap. You may make more money off your inventories than you do off a lot of other things in your operation!”

In the US, Grant Thornton is advising companies in a few related supply-chain areas: “First, we are helping companies rationalise their product bases and eliminate those that are not profitable or creating excess inventory. Second, recognising the cost to serve every customer is different, we are assisting businesses to segment and prioritise different customers, and develop different order fulfilment models for their most important customers. And, third, we are helping companies adapt their physical networks to the needs of their business and their customers while maintaining a laser focus on proactive supply chain risk management and ethical sourcing,” says Jonathan.

A final big idea worth mentioning here is the idea of strategic supply partnerships, proposed by Robert. This involves a complete departure from traditional supply chain structures, where a few buyers and sellers are locked into rigid agreements. Instead, he proposes partnerships between buyers and suppliers that are transparent about the collective needs, fairer in terms of profit and risk sharing and flexible by design.

Underpinning this is the belief that competitors can collaborate on sourcing and sharing data (as we have seen in the pharmaceutical industry during the pandemic), but still differentiate their final products or services to customers. This may seem unbelievable to some but has historically proven successful in some areas like the whisky industry. The practical challenge with this solution is quality and data control, but Robert explains that businesses just need to work out their tolerances around quality and data sharing, and then ensure that the necessary controls are built into the system.

To access the help you need to support your international sales and supply chains ambitions please reach out to Imad Adileh who will be pleased to help.