Pursuing growth in a pandemic

Our survey of more than 300 Chief Financial Officers and senior finance executives at companies in Europe and the Americas revealed that global expansion remains key to future revenue growth

The COVID-19 crisis has inevitably reshaped many US companies’ priorities and the way they address challenges. As the situation continues to evolve, companies should not be stifling their expansion ambitions but re-thinking their methods of execution, increasing resilience, and strategically positioning themselves for future growth opportunities.

We recently interviewed more than 300 Chief Financial Officers and senior finance executives at internationally active companies based in Europe and the Americas. Our survey found that even though markets close to home are often prioritised before looking further afield, global expansion remains a major driver of revenue growth. Over half (56 per cent) of the US survey participants see opportunities for sourcing, sales, and operations in Asia Pacific, with nearly a quarter (22 per cent) in the Middle East, and 14 per cent in Africa. Growth outside of the home market is also a key focus for companies seeking to reduce risk in their supply chains and diversify their customer and supplier base.

Corporate growth ambitions

When it comes to expanding internationally, many companies share similar motivating factors. These include gaining market share, lowering costs, and increasing access to untapped sources of skill, technology, and talent.

In 2018, almost half of global foreign direct investment spend was directed towards Asia Pacific, particularly to South East Asia, according to the United Nations Economic and Social Commission for Asia and the Pacific (Escap).

The fact that a high proportion of companies are looking towards Asia Pacific for growth is not surprising. In addition to China’s still dominant position in global supply chains and its huge consumer market, the rapidly increasing potential for both sourcing and sales in India and ASEAN are some of the reasons behind the attention.

Equally, the growth potential of markets like Africa should not be ignored. With a combination of a young, increasingly urban and digitally-savvy population, and a developing infrastructure, Africa is a market that deserves strong consideration.

Africa through a growth lens

Although only two sub-Saharan African economies make it into the top 50 countries in the World Bank’s Ease of Doing Business rankings (Mauritius #13 and Rwanda #38), leading companies are already making significant inroads on the continent. American Tower Corporation acquired Eaton Tower Holdings in 2019 adding 5,800 sites to its African portfolio. Anheuser-Busch InBev announced its commitment to invest USD400 million in its Nigerian brewery in 2019, posting a double-digit volume and revenue increase during the year to become the country’s second largest brewer. In the same year, Visa invested USD200 million in a minority equity stake in Nigeria’s Interswitch, with a view to expanding the digital payments ecosystem, while Microsoft launched its first Africa Development Centre, with centers in Kenya and Nigeria.

With the Africa Free Trade Agreement coming into effect on 1 January 2021, a single market with a population of 1.1 billion and USD1.755 trillion in GDP will potentially boost intra-African trade by 52 per cent within the first two years and create even more opportunities.

Considerations for international growth

While no two companies will share the exact same motivation behind their plans, the key to success is to anticipate potential obstacles and find ways to overcome them.

Understanding and addressing the obstacles to international growth is essential. Despite the opportunities in the emerging markets and proven successes of companies that have expanded into Asia Pacific and Africa, many remain concerned by the risks related to doing business in less familiar geographies. For example, 35 per cent of US executives emphasised that the biggest single obstacle is understanding the regulatory environment.

Regulation and compliance can be a major issue if not dealt with properly. It is common to hear about companies adopting the right business model, organisational structures, and supply chains to capture a portion of what foreign markets can offer. What is less heard about is the immense challenges related to the day-to-day running of a business in some parts of the emerging markets. They include cultural differences, currency and capital controls, and the variability of market and regulatory infrastructures, which business are often less prepared for than initially thought.

Some of the most common challenges mentioned above can nonetheless be readily overcome with a trusted partner. Experienced banks offer advisory services, have the ability to make introductions to central banks and ministries of finance, provide liquidity and repatriation solutions, and accommodate flexible financing capabilities, including access to Export Credit Agency-backed financing. Some can even offer robust solutions to manage capital and currency requirements that are compliant with local regulations – essential for the majority of the biggest African economies and many Asia Pacific markets, including China and India, where capital and currency controls are in place.

Increasing use of digitsation

As economies look ahead to the post COVID-19 world, governments, corporations, and societies are reimagining the way they work, do business, and interact. As a result, it is not surprising to see the adoption of digital business models growing  across Asia Pacific, the Middle East, and Africa.

Digitisation will be key to enabling new business and operating models. It will also lower the cost and risk of entry to new markets. As a Deloitte article noted digitally mature companies enjoy a wide range of specific benefits that go well beyond the bottom line. These benefits include improved product quality and customer satisfaction, reduced environmental impact, and increased workforce diversity.

Companies should therefore remain mindful of the advantages digitization can bring in enabling access to foreign markets – both for themselves and their competition.

Enhancing supply chain resilience

Expansion into new and emerging regions is a crucial way to manage risk, as well as growth. Supply chain failure or interruption was noted as the number one concern for 28 per cent of US respondents in our recent survey. Given the early experiences of the pandemic, this is a valid worry. According to the United Nations Conference on Trade and Development, even before many of the world’s lockdowns took effect, the disruption to world trade caused by the slowdown in manufacturing in China resulting from the COVID-19 outbreak was estimated to be USD50 billion. Ten percent of this impact was expected to hit the US alone, second only to the European Union. It is therefore not surprising that the Bank’s survey revealed that US companies are considering a variety of responses such as vertical supply chain integration (i.e., in-sourcing) and supply chain diversification to manage risks in the future. The trend of companies seeking to diversify their supply chains that had started before COVID-19 will likely continue.

In conclusion, the emerging markets of Asia Pacific, the Middle East, and Africa offer compelling and distinctive opportunities for growth. By diversifying sales and sourcing into new territories, companies can boost resilience, increase flexibility in global value chains, access new markets, and strongly position themselves for the post COVID-19 world. While there are unique challenges that the companies must overcome to enter into and do business in many of these regions, the ways to weather them are broadly similar: through advisory services, local introductions, and financing solutions from an established banking partner with on-the-ground expertise and global connectivity.