Results from the 2016 JPMorgan Chase Business Leaders Outlook report revealed that executives are more pessimistic about the global economy than they have been since the survey began, in 2011. Only 10 percent of executives said they were optimistic about the global economy in 2016, and 49 percent said they were pessimistic about it.
To some, this sharp hike in pessimism might feel distressing—what are the implications of executives' increased negativity toward the world economy?
However, this isn't really much of a surprise, especially considering that the time period in which respondents took this survey, in early January, was marked by turmoil in the equities, commodities and foreign markets. For example, currency markets were still rumbling from the repercussions of the Chinese renminbi's drop-off last August, and the energy market is still trying to navigate through the consequences of low oil prices.
What's really worth paying attention to is that despite the rise in global pessimism, companies are increasingly expanding into overseas markets, and this is a trend that we see year after year. In 2016, 60 percent of the midsize businesses surveyed have operations or sales outside the US, compared to 57 percent in 2015.
In 2016, 56 percent of businesses that have operations overseas expect the number of countries they operate in to increase over the next five years. Midsize companies are not only committed to expanding overseas, but they're also increasing the number of offices they have outside the US, with plans to increase even more, particularly in Europe, Asia and Latin America.
It’s typical for midsize companies to accelerate their global expansion once they set up overseas, reaching an inflection point when entering their fourth or fifth country. This trend is not just limited to large companies either, seeing demand for companies with revenue under $100 million, as well as for those over $250 million.
Considering the dim outlook toward the global environment, it begs the question: Why are businesses still choosing to expand internationally? There are usually three main drivers for going global:
1. They Want to Grow
Growth may be an obvious answer, but it's a relevant one. To compete in an increasingly global marketplace, midsize businesses know that they need to engage overseas. When surveyed about the main objectives for their international activities, 73 percent said that access to new customers and/or markets was at the top of their list. The third most-cited response was to better serve domestic customers with global operations.
2. They Want to Support Their Supply Chain
If your suppliers are operating abroad, or if you're the supplier for a business that operates abroad, effective supply chain management and support can be a key reason why it's beneficial to cross borders. The executives surveyed agree: Access to suppliers and/or materials was the second-most-cited reason they gave for their international objectives.
3. They Want to Better Manage Costs and Get Closer to Their Market(s)
There are true cost savings to expanding into a country or region where operational costs—like logistics, labor and manufacturing—are cheaper. With 95 percent of the world’s consumers living outside the US, companies also find that expanding into markets where they sell or buy can have positive implications on their bottom line.
Although executives expressed concerns about challenges overseas, they project positive international growth over the next few years. The pessimistic outlook towards the global economy is not translating into reduced overseas business, recognizing that growing globally can provide access new customers, suppliers and materials—and help firms stay close to customers with global operations.
This article was originally published by Forbes.
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