– German CFOs focus on growth in home market – CFOs outside Germany focus on foreign markets
– Europe as top target region for expansion of procurement, sales and production
– Supply chain disruptions, liquidity planning and currency risks no longer acute problems
16 February 2021 – Six months after the first survey, a second Standard Chartered Bank survey of some 1,000 CFOs and treasurers shows how multinationals are preparing for a post-Covid-19 world. The survey, conducted in December 2020 in the U.S., U.K., Germany and France, provides an overview of operational and strategic trends among companies looking to expand operations outside their home region.
Focus on Germany as a growth market
Despite the pandemic, multinational companies continue to pursue their international growth strategies. For example, with the introduction of vaccine programs, there was an increase in growth opportunities outside their respective home regions to 42% in December from 37% in June 2020. This was particularly evident among U.S. respondents, where the figure rose to 49% from 35%. Companies based in Germany were the big exception here. Only 31% of respondents saw growth opportunities outside their home region, compared with 37% in June 2020. Accordingly, 69% of respondents currently saw their home market as their primary growth focus, which the study said was due to demanding procurement and consumer markets and a large production base in Germany.
When it came to trade and supply chain expansion outside Europe, CFOs and treasurers of German companies saw North America as the most important growth region at 44% (up from 29% in June). North America thus replaced Asia as the top region. Asia was prioritized by 26%, compared to 34% in June. Likewise, South America and the Middle East fell in the prioritization of German companies, while Africa rose slightly from 5% to 11%. In the Asian region, Japan is prioritized at 40% for trade and supply chain expansion opportunities – China follows at 36% and Australia at 28%.
Europe clear target region for expansion of procurement, sales and production
Within the last six months clear shifts showed up with the target growth regions of multinational enterprises. Here Europe was seen by 52% (compared with 40% in June) as a clear favorite for the expansion of procurement, sales and production operations. Additionally, 85% of all CFOs saw Europe as one of their top three growth regions. Germany was seen by 50% as the most important country for further expansion of these activities. On the other hand, North America with 21% (compared to 32% in June) and Asia with 13% (18% in June) in particular lost ground as desired target regions for further expansion.
In terms of their trade and supply chains, CFOs and treasurers of German companies placed a much stronger focus on Germany and Europe than respondents from other countries. While prioritization for expansion in North America increased from 3% to 10%, it remained 11 percentage points behind that of CFOs in other countries (21%). For example, 69% of German CFOs see Europe as the most important growth region and 61% chose Germany as the most important country. In addition, 90% ranked Europe as one of their top three growth regions, while North America accounted for only 73% and Asia only 57%. Africa was in last place here, with only 18% rating it as a top 3 growth region in the next six to twelve months.
Positive changes in liquidity management and supply chain
Like CFOs in other countries, German CFOs no longer see liquidity management and financing as a major hurdle in their expansion outside their home region, with the importance dropping from 20% in June to 12% in December. Likewise, the assessment of currency risks as a hurdle fell from 20% in June to 10% in December. This shows a subsiding of uncertainties. The importance of the regulatory environment in foreign markets (33%) continued to be rated highly as a hurdle. There was also reassurance in the perception of current problems in business outside the home region. Collecting outstanding receivables dropped as a priority from 31% in June to 21%, and supply chain failures or disruptions from 26% to 19%. On the other hand, concerns about lower sales were a much higher priority (11% in June compared to 21% in December 2020).
Building relationships with suppliers within the supply chain increased significantly in importance, from 3% in June to 19% in December. The same was seen with renegotiating contracts and payment terms, which dropped as a priority from 37% to 19%. While companies in 2020 sought to increase the resilience and flexibility of their supply chains, the prioritization of this through increased predictability dropped from 32% in June to 26% in December 2020. Also, the companies surveyed showed that the use of digital tools to increase longer-term supply chain efficiency became more important. This was particularly visible in Germany, where the main focus was 33% on supply chain digitalization. The results show that the focus has changed from immediate crisis management to preparing for a post-pandemic business environment.
ESG as a basis for expansion and investment
That companies are anticipating a post-Corona world is also evidenced by the greater importance of social and governance (ESG) issues in relation to trade and supply chains. 23% of companies placed ESG on their top 3 priority list within their expansion plans, a 5% increase since June 2020. This prioritization is particularly true for industries such as service consulting, consumer services, healthcare, consumer goods, and transportation. In Germany in particular, the importance of ESG in trade and supply chain expansion was weighted even higher than in other countries, rising from 14% to 29% in December 2020 in just six months as one of the top 3 priorities.
About the Study:
This study surveyed 1,008 CFOs and senior treasury professionals from multinational companies with more than $500 million in revenue and headquartered in one of the four major Western economies: the U.S., the U.K., France or Germany. The survey took place in December 2020 and the home countries of the corporations were equally represented at 25% each. 50% of respondents represented companies with revenues of $500 million-$1 billion, while the remaining 50% represented companies with revenues greater than $1 billion. Of the respondents, 16% represented the technology sector, while representation of the remaining industries ranged from 6% to 9%. Financial service providers were excluded from the survey.