The experience of Germany
German corporations are amongst the world’s top exporters, but an emphasis on heavy manufacturing and the automotive industry makes German industry particularly vulnerable to the effects of the crisis, with disruption to supply chains and production, and rapidly changing consumer buying behaviors. International diversification of sourcing, sales and operations, and embracing digitization both of internal processes and customer engagement models has therefore never been more important.
A focus on international expansion
Our recent research illustrated that German corporations were more likely than those in other countries included in the study to identify Asia Pacific as their number one international growth destination (23% compared with 18% globally). They were also slightly more likely to focus on growth in Africa (20%) than their peers in other parts of the world (17%); likewise the Middle East. With mature markets in Europe and North America, emerging markets are more important than ever, both for sourcing and sales. Like respondents from other countries, understanding the regulatory environment was the number one challenge for German corporations when expanding internationally, raised by 31%, a particular issue when expanding into less familiar markets. This is a key area in which Standard Chartered can help, leveraging our local presence and expertise.
Distinctive international priorities
While German respondents were amongst the most enthusiastic in their growth strategies outside their home region, their primary concerns and priorities when doing so diverged considerably from those in other markets. Only 3% noted that supplier relationships and supply chain logistics was their top priority (compared with 16% globally) while only 9% highlighted the challenges of managing post-COVID implications, compared with 16% overall. Conversely, managing FX risk was a top priority for more German respondents than those from most other locations surveyed (20% compared with 12%). Given the global reach and extensive foreign currency activities amongst many manufacturing, automotive and pharmaceutical businesses, in which Germany excels, the focus on FX risk is unsurprising.
Adapting business models was also the no. 1 concern for a larger proportion of Germany companies than those from other regions. This could reflect the digital shift which many companies, such as in the automotive sector, are driving, to respond to changing mobility trends, capture a higher proportion of post-sale revenue, and invest in innovative vehicle technologies.
However, when moving from no. 1 to top three international growth priorities and concerns, only 17% noted that adapting business models was a major challenge, compared with 25%, suggesting that while it was this concern for some companies in the sample, it was restricted to certain industries.
Respondents in Germany also prioritized different liquidity challenges associated with growth outside Europe than those from other regions. Lower than forecast revenues were less of a concern in Germany than other countries, raised by 11% in Germany compared with 21% overall. This perhaps reflects the higher levels of private ownership amongst German corporations, for whom quarter-by-quarter financial results are less sensitive than publicly-owned businesses.
Liquidity and supply chain resilience
Conversely, while 17% of respondents overall said that delayed receivables was their no.1 liquidity concern, 31% of respondents in Germany highlighted this issue, suggesting that working capital is a key consideration. This is also reflected in trade and supply chain priorities. Renegotiation of supplier payment terms was a far stronger trend amongst respondents in Germany than in other countries surveyed – 74% noted this as a top three priority compared with 61%. This perhaps reflects that companies work with the same suppliers globally, rather than setting up local supply chains in each region in which they operate.
However, given that the focus of trade and supply chain initiatives is increasingly to build more robust supply chains, as opposed to solely optimizing working capital, it will be important to avoid squeezing suppliers, which could disrupt supply chains. Many companies are setting up or expanding regional or global working capital financing programs, such a supply chain financing (reverse factoring), to support suppliers more effectively and boost supply chain resilience.