Mid-market firms using international supply chains have faced significant disruption and headwinds as a consequence of the long tail of COVID disruption, and wider geo-political tensions. However, despite ongoing economic uncertainty, many international business leaders continue to see international trade, and particularly exports, as a key driver for growth. According to data from the IBR, Grant Thornton’s global survey of mid-market companies, 45% of mid-market firms expect to increase their volume of exports over the course of 2023. This represents a slight increase from the first half of 2022 (+1%), and continues the trend that expectations have been rebounding strongly from the lows of the pandemic. 

With the accelerated evolution of the world's significant changes, trade routes and supply chain reshaping are becoming the new focus of competition among countries worldwide, said Li Huiqi, CEO of Grant Thornton China. Enterprises should also seize the opportunity to expand their markets actively, adapt to market changes and win more significant business opportunities by continuously improving product quality and service levels and strengthening international trade risk management.

Increasing resilience by reshaping international supply chains

Grant Thornton’s latest research shows many businesses are innovating and adapting by reshaping their international supply chains, as they look to reduce risk, embrace opportunity and deliver value. Businesses have taken a variety of steps to increase resilience, from building inventory, to diversifying their suppliers, to setting up local manufacturing hubs and ‘friend-shoring’ – striking deals in sympathetic countries that are more politically palatable to shareholders and customers.

Firms that develop a sound understanding of their risk environment and plan ahead, will create sustainable value in their supply chains and be well positioned for growth as economic conditions improve and trade picks up from the current levels. 

Peter Bodin, CEO, Grant Thornton International said, “Mid-market business leaders have learned they must focus on resilience to survive the geopolitical and economic uncertainty of today’s global markets. Despite this, many still expect to sell to more countries, and to grow their exports and international revenues. The challenge for leaders is to make strategic responses to these volatile markets without over-reacting. Mid-market business leaders who get this balance right will emerge stronger and better able to exploit opportunities when the markets rebound.”

Mid-market firms turn stumbling blocks into stepping stones by rerouting supply chains to boost value and resilience. Business leaders have had some difficult decisions to make on supply chains as they contend with global issues beyond their control. Product costs have always been a key consideration but firms must also navigate fluctuating transport costs, trade restrictions and the reliability and security of trade routes. As a result, international trade has become more strategically complex and increasingly requires a multi-lateral solution. 

Effective supply chains enable businesses to deliver value and drive growth. As such, mid-market leaders are adapting their export planning to respond to opportunities to optimize in international trade. Every chief executive should have three main considerations when optimizing their supply chain: 

• Firstly, what makes most sense strategically? Where are the markets, channels, and customer segments that offer sustainable growth and support the overarching growth objectives for the business? 

• Secondly, what will be most effective operationally and financially? How can we minimise costs in our supply chain while maximising profit and mitigating risk at the same time?  

• And thirdly, what is the most tax efficient solution? Are there tax benefits to be had from the way we structure the supply chain, the trading partners we use, and the supporting flow paths to get products to market? 

Those businesses that can triangulate these three points successfully and adapt their supply chain execution quickly are the businesses which will thrive and take market share. If you can shift your mindset to think more long term, you’re going to continue to grow trade, and you’re going to do it profitably.

Expectations for exports remain strong among mid-market firms

Expectations for exports remain strong among mid-market firms, even though wider economic indicators are more subdued. Two in every five firms (40%) expect an increase in revenue from non-domestic markets in 2023. A similar proportion (41%) were planning to increase the number of countries they sell to this year. 

In the second half of 2022, mid-market firms saw a slight decrease in the ratio of their employees who were focussed on non-domestic markets. These figures were skewed by a major fall in the oil and gas industry, but not reflected across all sectors and regions. In Latin America and Africa the ratio of mid-market firms’ employees focussed on non-domestic markets increased. The top three markets to benefit are China, Germany and the USA, which are primed to increase supply from external markets. In China 26% (up from 25%) of companies report an increase in this activity over 2023. Meanwhile China’s latest export figures show a 14.8% jump in this activity in March 2023, defying expectations, with some analysts having predicted a contraction of 7%. 

Dongdong Liu, Managing Partner of the National Advisory Services Line at Grant Thornton China, said the growth of China's exports underscores the country's competitiveness and resilience in global trade and reflects the steady recovery and stability of the Chinese economy. China's increased supply in non-domestic markets will bring more business opportunities, partners, challenges, and risks. Enterprises need further to balance the needs of domestic and international markets, maintain good cooperation with major trading partners, and cultivate new advantages in participating in international competition and collaboration.

Global events have made it a tough time for trade. The outlook from the WTO and others was that trade would slow in 2023, with rising interest rates and financial instability adding to geopolitical tensions. In April, the WTO expected export volumes to grow by just 1.7% this year, well below the average level for the past decade of 2.6%. Firms that plan ahead and are prepared to innovate will be able to make the most of their exports, helping them to stay one step ahead of the competition, despite current economic headwinds and a number of threats on the horizon.