Mid-market companies focus on internationalization to grow

Rome, 25 March 2021 – During semester 2, 2020, mid-market companies went through a new shift towards international markets, as 34% of businesses expect to increase their revenues outside the national boundaries (+8%) over the next 12 months, showing a net increase compared to 26% registered in the first six months of the same year.

Italy is following the global trend, though with a lower growth level (+6%), increasing from 18% to 24% in semester 2, 2020, followed by the Eurozone, which, from 21% registered in semester 1, grows by 3 percentage points to 24%. Moreover, a significantly higher number of companies expect to increase the number of their employees located in foreign markets (29%, compared to 21% in semester 1, 2020), and to focus more on international markets (both as concerns clients and as concerns suppliers) over the next 12 months (30% vs 24%).

The “Globalisation is go again” research carried out by Grant Thornton international consultancy network shows a turnaround by the global mid-market: while in the first half of 2020 companies – due to the closure of markets and interruptions on supply chains caused by the pandemic – were forced to review their growth strategies, focussing more on domestic markets, starting from the second half of the year they have tried to adapt their strategies and internal resources, in order to take the opportunities offered by globalization.

By analysing each country in detail, we can see significant differences at a macro-regional level. North-American companies are leading the shift to internationalization, particularly in the United States, where 44% of businesses are extending their activity abroad (+16% compared to semester 1), but also emerging markets in Latin America (37%, compared to 32% in the first half of the year) and in ASEAN region (42% vs 35%) are focussing on opportunities offered by internationalization.

On the contrary, companies in the APAC region (17%) were more reluctant to follow this new trend (registering a growth of 5%), as those in the Eurozone, where, due to the persisting restriction and suspension of imports from foreign countries, the percentage increased only by 3%, from 21% to 24%.

It can be specified that Covid-19 has favoured, though in a different way, the choice of mid-market companies to focus on international markets. Approximately one fourth of companies examined at a global level (23%) state that they started increasing their expansion trend after the starting of the pandemic; this number decreases to 16% in Europe and to 7% in Italy.

A higher percentage of companies (35%) deem that Covid-19 contributed to speed-up internationalization plans, while the highest number of them (41%) declared that they modified their transfer pricing policies during the pandemic (33% in the Eurozone and 36% in Italy). Both in Italy (39%) and in the Eurozone (36%) there is a more significant percentage of companies that stated they were focussed on internationalization already before the outbreak of the pandemic.

The delocalization of the workforce is one of the main effects that drove change: Grant Thornton identifies some key factors, which, due to the impacts of Covid-19, led companies to increase the presence of their employees abroad.

At a global level, 41% of mid-market companies identify this strategy as an occasion to create new opportunities, also thanks to the exit of competitors from the market (due to the crisis). 37% of them associate this phenomenon to State programmes incentivizing investment initiatives in foreign markets (this is also confirmed by the majority of companies in Italy and in the Eurozone, amounting to 36% in both cases).

Another important incentive to internationalization for companies is the demand coming from cross-border markets, which, according to 36% of companies, has increased following the effects of the pandemic on the external market. 33% of companies identify as an opportunity in this context the fact that it is easier to transfer products and services at an international level and 31% related this phenomenon to lower competition levels.

From an analysis of how Covid-19 led mid-market companies to increase their focus on international supply chains and markets, a series of determining factors can be identified: the highest advantage is the possibility to secure better prices and contractual terms from foreign suppliers and clients, and this is the opinion of 43% of companies (41% in the Eurozone and 42% in Italy), while 41% of them believes the main advantage is the higher State support received in the emergency period (37% in the Eurozone and 25% in Italy).

Alessandro Dragonetti, Managing Partner – Head of Tax of di Bernoni Grant Thornton commented: “Resilience and agility shown by mid-market companies during the Covid-19 pandemic helped companies not only to manage the subsequent crisis in the best way possible, but also to take new growth opportunities and review their strategies.

The drive to internationalization that followed proves the ability of mid-market companies to prevent and take advantage of the changes in the market and their will to stay competitive, which are typical characteristics of such businesses, which were able to adapt quickly, turning difficulties generated by the pandemic into opportunities.

In such a context, companies of this sector could look at the potentialities offered by international markets, as concerns both procurements and the commercialization of their products and services. It is now crucial, mainly in view of the (hopefully) forthcoming recovery phase, to be able to define the right priorities at a strategic and decision-making level. Some effects of the pandemic, in fact, will be permanent and change will be irreversible, thus imposing an increasingly higher propensity towards resilience and a periodic review of strategic programmes”.