Mid-market manufacturers


18th June, 2024

Mid-market confidence drops as cost pressures rise

Confidence in the New Zealand economy has dropped among mid-market businesses, as rising costs pile on more pressure to pricing margins and profitability. 

MYOB’s latest survey of mid-market business leaders shows that 48% of decision-makers polled expect the New Zealand economy to decline in the next 12 months.

Conversely, just 36% believe it will improve and 15% expect it will stay the same.

The latest figures reflect a change in mood to that seen in MYOB’s last mid-market poll in late 2023, when a strong majority – 65% – believed the New Zealand economy would improve over the next 12 months.

Sales pipelines slimming

In terms of what could be affecting confidence, those surveyed report that fuel prices (55%), interest rates (54%), the cost of utilities (51%), cashflow levels (50%), and attracting new employees (48%) will put the most pressure on their business over the next 12 months.

Likely adding further pressure is the health of their sales pipelines. The majority (41%) of mid-market business leaders surveyed said they had less work or sales lined up for the current quarter than they would usually expect.

Meanwhile, 23% said it’s about the same and more than a third (36%) said they had more in the pipeline than usual at this time of year.

“Despite their size and traditionally solid performance, mid-market businesses are not immune to the significant economic pressures weighing on many New Zealanders right now and the start of 2024 hasn’t been an easy ride by any stretch,” explains Kim Clarke, MYOB General Manager — Enterprise & Practice.

“Juggling rising costs alongside a drop in pipeline sales, is not comfortable territory to be in. Coupled with sticky inflation and high interest rates which are predicted to remain so for a while yet, it’s hardly surprising that they’re downbeat.

“But we know that mid-market businesses are determined and resilient, so many will be focused on operationalising strategies that will help to improve performance and pave the way for growth now and in the long-term.

“That includes investing in research and development, upgrading tools and systems, and shoring up a future-ready workforce.” 

Research and development

Revenue declining for a third of the mid-market

As far as business performance is concerned, MYOB’s insights show a mixed bag when it comes to revenue to date.

While 46% of business leaders polled reported that their business revenue is up on this time a year ago, nearly a third (32%) have seen a decline, while 22% said their revenue is about the same.

Looking ahead, it’s a similar picture with the same proportion (46%) expecting their revenue to be up in another year’s time, however, a marginally higher proportion of businesses (34%) are expecting revenue to be down.

“Heading into this year, mid-market business leaders had a laser focus on growth, with revenue growth being the top goal for 2024,” Kim says.

“While businesses and consumers endure incredibly difficult conditions, impacting sales performance and revenue, their ambitions won’t have changed – even if the pathway for how they achieve their goals, has.

“While the labour market remains tight, we’re seeing a deeper focus from mid-market business leaders on maintaining and building a skilled, capable team.

“A strong combination of expertise, skills and the right attitude can make all the difference to an organisation’s ability to strike when the iron’s hot when the economy turns a corner.”

Business planning

Focus on business planning

Penny Boland, CEO of Verde Group, which offers business management software solutions and services to local mid-market businesses, explains that the challenging economic conditions are driving cost-conscious behaviour across the board. 

“Most mid-market businesses are taking a very considered approach to their spending in the current economic climate, with a strong motivation to get the best value or return possible from any investment,” she says.

“Business leaders are still spending and investing, but with a clear focus on business planning and process improvement, to see where they could do things faster, better, and more efficiently.

“However, it’s plain to see that many are facing hard times, and we’ve seen that while some sectors are doing well, others have notably tightened their purse strings. Sales pipelines are challenging, and it is very tough out there for mid-market operators to win new business in the current environment.”

After more than 19 years with Verde Group, Penny has supported local businesses through the peaks and troughs of previous economic cycles.

While noting it’s difficult to predict the timing of any potential upswing, she encourages decision-makers to weigh-up the long-term effects of not re-investing in their business.

“We know that people invest or spend for different reasons, but the cost of not doing an upgrade, installing new processes, buying new machinery or expanding their footprint, could be a lot more significant long-term than the initial hit to their cashflow,” Penny explains.

Perspective on the current climate important

Based on trends Verde has seen among local enterprises, Penny says most mid-market businesses are taking a very considered approach to their spending in the current economic climate, with a strong motivation to get the best value or return possible from any investment.

“If a deeper spending slowdown was coming, we would usually start to see signs of this around this time of year (end of May/June), as businesses get into the new financial year,” she says.

“This is unfolding in some sectors, however others are continuing to spend but still with a relatively cautious mindset.”

Penny explains that for some industries, like the construction sector, there have been boom years where tight cost control is less necessary, and tougher times when all expenditure comes under the spotlight, as is currently the case.

“But commonly, business leaders are constantly looking for indicators around inflation and what’s happening overseas with exchange rates, to see if they can predict when that upturn might happen and revisit areas for investment and spending,” she says.

Penny adds that businesses that do the best job of riding out economic hard times are those that are innovative and always looking for efficiencies.

“It always excites me to see companies who are really adding value for their customers, and ensuring their business stands out in their market,” she says.

“Understanding and anticipating their customers’ needs makes it easier to do business.

“Aligning their offering closely to these requirements drives success. It’s all about future-proofing the relationship, leading to longevity and stability.”