Can shifting sands be a solid foundation for growth? Growth Barometer 2017 Italy highlights How Italian businesses are driving their growth agenda Can shifting sands be a solid foundation

EY Growth Barometer 2017Italy highlights

How Italian businesses are driving their growth agenda

Can shifting sands be a solid foundation for growth?

2 EY Growth Barometer | Italy. Can shifting sands be a solid foundation for growth?

Highlights1 Optimism despite north-south divide ............................................. 5

2 Competition bites ......................................................................... 7

3 Focused on the bottom line .............................................................. 9

4 Technology challenges and enables ............................................... 10

5 Embracing the gig economy ............................................................. 12

6 Partnering for growth ...................................................................... 13

EY Growth Barometer 2017

Italy



Business confidence in the Italian middle market is robust, with more than half (52%) of companies looking to grow by 6%–10% in the next year — significantly higher than the World Bank global forecast of 2.7%.

Amid intense domestic competition, Italy’s middle market is focusing on M&A, expansion into different markets and new technologies such as robotic process automation (RPA) as it seeks to drive improvement in the bottom line.

These findings come from a new longitudinal global survey by EY of middle-market companies, which represent 99% of all enterprises and contribute

almost half of global GDP. In Italy, as elsewhere, the middle market drives economic success, high-impact entrepreneurship and innovation. What is it about middle-market companies that enable them to accelerate growth? Are there lessons for all corporate leaders, whatever their business size?

The EY Growth Barometer explores middle-market leaders’ growth ambitions, strategies and challenges, and their attitudes to global risks and uncertainties. The survey covers 2,340 C-suite executives, in businesses with revenues of US$1m to US$3b, and selected high-growth companies less than five years old.

Executive summary

EY Growth Markets commissioned Euromoney Institutional Investor to undertake an online survey of 100% C-suite (60% CEOs, founders or managing directors) in companies from 30 countries and with annual revenues of $1m–$3b. The survey was conducted from 31 March 2017–12 May 2017. The 2,340 respondents are geographically

representative of global GDP (as per World Bank 2016 data). EY further invited its global network of Entrepreneur of the YearTM alumni to take the survey. The survey was available in English, French and five other languages. Further in-depth, follow-up interviews were conducted during May 2017 to provide additional specific insights.

About the survey


The entrepreneurial culture of Italy’s middle market r fl t t a b t o or growth or tal a

businesses (52%) than in the rest of the world (34%) plan to expand by 6%–10% over the next year; and a slightly smaller number than elsewhere expect to grow by 0%–5%. That said, far fewer C-suite leaders in Italy (11%) than globally (30%) forecast growth of 11% or more, and slightly more expect to contract.

h g r how r a ob r a a or underlying factor in the Italian economy: its long-standing north-south divide,1 with

northern Italy much stronger economically than the more rural south.2 “It’s a two-speed economy, with the north growing fast and the south contracting,” says Paolo Zocchi, Mediterranean Growth Markets Leader, EY.

The main growth lever for the Italian middle market is M&A consolidation (21% of responses, compared to 12% in the rest of the world) — as companies dispose of assets to focus on their core businesses. Indeed, M&A is booming in Italy, with deal count growing for seven consecutive years.3

CHAPTER 01

Optimism despite north-south divide

1 “Italy’s north-south divide in one chart”, CityMetric, http://www.citymetric.com/business/italys-north-south-divide-one-chart-361, 6 October 2014.

2 “GDP at Regional Level”, eurostat, http://ec.europa.eu/eurostat/statistics-explained/index.php/GDP_at_regional_level#Regional_GDP_per_capita, 23 July 2017.

3 “2017 Mergers and Acquisitions Report: Italy”, t r at o al a al aw w htt //www flr o /

Article/3673248/2017-Mergers-and-Acquisitions-Report-Italy.html, 28 March 2017.

What revenue growth rates do you expect your company to achieve in the coming year?

0% 10% 20% 30% 40% 50% 60%

5%7%

16%

31%30%

34%52%

Negative growth

0–5%

7%

6–10%

11–15%

16–25%

4%26–50%

More than 50%

Rest of world

Italy

2%

2%

9%



The second most cited growth strategy for the Italian middle market is entry into a new geographical market, with increasing market share third. Both ta t ar l l to b a r o to a a or r r on Italian businesses: domestic competition. Rising competition is Italian leaders’ top-ranked risk to growth, with 25% of responses (20% in the rest of the world). Aligned with this, they also say new market entrants are one of their top three challenges. “In Italy, we are facing competition from emerging markets, especially on new technology trends, and we are still facing some challenges on labor, even though th ar l r lat to o t a or to new competences,” says Zocchi.

Italian middle-market businesses rank regulation/trade barriers as their second greatest risk (16% of r o h r fl t a r t o o tal a a r g lator l th orl o o or ranks the country 136th of 138 on the burden of government regulation, and 128th on transparency

of government policymaking.4 “We need clear rules to manage innovation,” says Zocchi. “Sometimes entrepreneurs would like to invest, but avoid doing so because they lack clarity on future tax plans, for example.”

Italian respondents’ third-placed risk is geopolitical instability (14% of responses), a full 11% behind increasing competition. Domestic uncertainty is never far from Italian minds — the country has had 65 governments since 19465 — but in recent years tal ha al o bor o t o r g gra t flow amid calls for the EU to do more to contribute. So it’s little wonder that middle-market leaders rank demographic shifts as the top long-term megatrend most affecting their business. However, the fact that geopolitical instability is still only the third-ranked risk says much about the dynamism and resilience of the middle market. It seems leaders are focused more on what they can shape — their place in a competitive marketplace — than events outside their control.

CHAPTER 02

Competition bites

4 The Global Competitiveness Report 2016¬–17, World Economic Forum 2016.

5 “Why do governments in Italy change so often?”, euronews, http://www.euronews.com/2016/12/13/why-do-italian-governments-change-so-often, 13 December 2016.


Rest of world

Italy

0% 10% 20% 30%

7%Supply chain disruption

9%

9%

12%Cost/availability of credit

8%11%Foreign exchange volatility

17%14%

Geo-political instability

12%16%Regulation and/or trade barriers

25%Increasing competition

8%

10%7%Slow/flat global growth

6%5%Commodity prize volatility

4%Rising interest rates

20%

which of the following pose the greatest risk to your growth plans?



When it comes to challenges facing the middle market, sluggish demand is a bigger factor for Italy than elsewhere, ranking in second place (17% of responses) as opposed to fourth in the rest of the world (14%). This weak domestic demand perhaps explains why the Italian middle market is focused on the bottom

l ra g arg or ro t ro t a t to tr o r o a ro tab l t

as its top innovation driver (28%), ahead of the rest of the world (19%). In a similar vein, supply chain

ar o o th to two a tor r g productivity for the Italian middle market (23%).

CHAPTER 03

Focused on the bottom line

When it comes to challenges facing the middle market, sluggish demand is a bigger factor for Italy than elsewhere.


Adding to competitive pressures, Italian middle-market leaders rank technology disruption (20% of responses) as their No. 1 growth challenge, 3% more than the rest of the world. But they also see new technology as an enabler: it is one of the top three factors they say contribute to their growth strategy. The rapid pace of change means it’s essential to keep looking forward. Italian middle-market leaders are ahead in this respect; 45% spend at least half their t la g t r trat g g a tl or

than the rest of the world (30%). This future focus could explain why Italian middle-market businesses are more likely than the rest of the world to have adopted robotic process automation (RPA). Eleven percent have already adopted RPA, compared to 5% globally; with another 15% saying they plan to do so in the next decade. However, contrary to the dystopian predictions of the global media, most Italian respondents think that RPA-related ob lo w ll b r

11% of Italian respondents have already adopted robotic process automation, compared to 5% globally.

CHAPTER 04

Technology challenges and enables


Will RPA be adopted by your company?

0% 10% 20% 30% 40% 50% 80%60% 70%

5%7%

5%

8%2%

7%6%

In the next 10 years

In the next 5 years

74%

In the next 2 years

Already adopting RPA

No

Rest of world

Italy

74%

11%



In line with its growth plans, much of the Italian middle market is looking to recruit. Nearly one-quarter (24%) are focused on hiring more full-time staff — and as business leaders look to the gig economy, 19% seek more contractors or freelancers (18% globally). This is in line with Italian respondents seeing shifts in working patterns are one of the top two megatrends affecting their business. However not all Italian businesses are intending to up their headcount: 19% plan to cut staff numbers, 10% more than the rest of the world (9%).

As in the rest of the world, Italian middle-market companies say their number one talent need is

o l w th al t ll r fl t g tal

wider skills shortage in sectors such as ICT, science and technology, and health care. Business leaders in tal a g tal t w th th r ght ll th a tor most likely to contribute to business growth — but they are less concerned than the rest of the world about a lack of skilled talent (11% of responses, against 14% globally). Second on the Italian middle market’s hiring list, meanwhile, are people who are an excellent

lt ral t r fl t g th a t that th al o a improved organizational culture as their main way to improve productivity in the next 12 months.

CHAPTER 05

Embracing the gig economy

6 “Italy: Mismatch priority occupations”, Skills Panorama, http://skillspanorama.cedefop.europa.eu/en/analytical_highligths/italy-mismatch-priority-occupations, October 2016.


CHAPTER 06

Partnering for growth

Middle-market leaders in Italy aren’t only focused on their own people; they look outside their organizations, too. More than eight in 10 (83%) agree that success depends on the strength of a company’s wider network (86% globally). In this, Italy’s C-suite leaders — like those around the world — are complementing internal skills and capabilities with a collaborative external ecosystem that may

l l r art r to r fl r and even competitors. This outward focus is starting to be seen in Italian middle-market leaders’ approach to innovation. Although they say harnessing their people’s creativity and insight is their top priority (22% of responses, against 25% globally), they have slightly more appetite for investing in start-ups (14%) than elsewhere (13%).

Zocchi comments: “Despite competitive and regulatory challenges, the focus on the future — and a willingness to look outside the business — bode well for the Italian middle market. The best of Italian entrepreneurship has given the world great examples o o at o o l w th ra t a h a design. What’s more, the ongoing push toward new technologies can facilitate the internationalization of Italian quality and excellence, still the hallmarks of Italian competence. This is especially true now that Italy is no longer facing a lack of capital.”

The best of Italian entrepreneurship has given the world great examples of innovation o l w th

craftsmanship and design.

Contact

Paolo Zocchi Mediterranean Growth Markets Leader, EY+39 02722122493 [email protected]

Global dataTo delve further into your country findings and make comparisons around the world please visit ey.com/growthbarometer to interact with all the global survey results.

Over a third (34%) are set to grow 6%-10% this year, more than double World Bank GDP growth forcasts (2.7%) and 14% of all companies target growth over 16%

Expected revenue growth innext year

Negative growth0–5%6–10%11–15%16–25%26–50%More than 50%


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Can shifting sands be a solid foundation for growth? Growth Barometer 2017 Italy highlights How Italian businesses are driving their growth agenda Can shifting sands be a solid foundation