Ludovic Subran, Chief Economist at Allianz and Euler Hermes, shares his advice for SMEs and reflects on the 2019 Global Business Monitor research

Blog

By Bibby Financial Services

12 Dec 2019

It may sound like a bad choice for a tattoo or t-shirt, or the cheesy title of a self-help book, but in today’s complex and volatile world, small and medium enterprises (SMEs) do need to be “humble and hungry”.

Humble because political risk and trade uncertainties are the new normal

Amid the renewed zeal for protectionism around the world, and rapidly changing financing conditions, smaller companies are less diversified, and less protected, than their bigger counterparts. So do not think you know it all; always gather new information and be open to new ideas and strategies to take your business to new geographies and new outlets. Be open to being challenged and be nimble when faced with unprecedented situations.

Humility does not mean you think less of yourself. It means you think of yourself less. In the business world, it means making sure you have your antennas out, especially when it comes to country and sector risks affecting your clients. Indeed, their environment may be turned upside down overnight by interventionist political leaders, depreciating currencies, and new legal impediments. Trust is everything but being accompanied by professional service providers will come in handy in times of uncertainty. Smaller companies should also be super prepared when doing business internationally, with stellar credit management practices (to avoid credit risk), solid cash positions to overcome the unpredictable, and short feedback loops to avoid higher losses down the road. Going abroad with larger companies is a proven recipe for success, as is working with local distribution partners, and ensuring your client-facing functions are indeed close to your customer base. These steps may not completely make going abroad risk-free, but they will certainly help manage expectations, and mitigate newbie risks.

Be hungry: the sky is the limit, even for you

Looking at the glass half-empty is a classic approach for insurers, but I also see too many companies unable to make a decision in the current environment. My advice to them is always the same: Be confident to be bold! Dare! Do not freeze!

Hungry does not mean greedy. Yes, follow your passion and your dreams, push yourself out of your comfort zone, invest the time and dedication to be the best, be willing to pay the price that greatness requires, and focus on where you go. But that does not mean taking uncalculated risks.

Being hungry means that you test and learn, and, more importantly, that you take your chances. Very often, well-established SMEs underinvest in their digital transformation or their geographical outreach. Young SMEs are more daring (that’s why they call them startups) but every company should try to find new growth opportunities. Though less visible than the risks, there are emerging customers, new needs, and certainly well-functioning ecosystems ready to help you address new outlets. Wait-and-see mode is the enemy. As Albert Einstein allegedly put it:“[Corporate] life is like riding a bicycle. To keep your balance, you must keep moving.”

The global business monitor is your compass

Since you cannot be unassuming and starving all the time, or the next startup will definitely have your cake and eat it too, the Global Business Monitor can be your guide when doing business. The findings in this year’s issue are fascinating.

First, skills and staffing continue to be a top issue for SMEs. Deemed less attractive (though much more fun to work for than their larger counterparts), they struggle to compete for tomorrow’s scarcer resource: human capital. This reveals a lot about the real-life problem companies encounter: hiring right to be the best. Upskilling becomes essential for SME attractiveness as life-long learning is borne by companies. And it is harder to offer mobility and compensation packages to star recruits, but the daily impact your employees make, and the control and influence they have, are a strong motivation for engagement and success.

Second, something I also continue to struggle with, is the pessimism about the future, around the globe, among small companies and in spite of resilient growth and trade opportunities. Do not fall into the infobesity trap, where every morning you believe the world is falling apart, based on the news on your smartphone. This is particularly true for European SMEs, which hear about the U.S.-China rivalry, the tensions in the Strait of Hormuz, and the mega risks from climate change to digital disruption to the next pandemic. The reality is that most of these risks may never affect your supply chain when you are an SME because you are under the radar. Small is beautiful sometimes, far away from the current trend to “name and shame” conglomerates and superstar firms. One fair at a time, one order at a time, there are ways to increase both revenues and profits.

Last, the “invisible bank”, i.e. suppliers’ credit, continues to be pivotal to company financing. Our bread and butter at both Bibby Financial Services and Euler Hermes, it seems that working capital requirements continue to increase as outstanding days sales rise. Stockpiling and deteriorating payment practices are important factors behind companies’ stretching their suppliers once more. As the next recession looms ahead, it is all the more important that SMEs have virtuous payment loops to avoid going bust. One in four bankruptcies comes from a non-payment.

Euler Hermes insures close to 1 trillion dollars of B2B trade flows around the world from microenterprises to multinationals. We have been around for over 100 years and we are constantly reminded that this time things are different. Credit managers are asked to make difficult decisions to secure growth. And when you work for a smaller company, every choice matters. Be confident and bold, be smart, and, more importantly, be humble and hungry!


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