While COVID-19 has created unprecedented disruption, it has fueled rather than dampened the growth ambitions of multinational corporations. The second edition of Standard Chartered’s Borderless Business study reveals that for nearly 40 percent of European multinational corporations (MNCs), the most compelling growth opportunities are outside their home region. The challenge for CFOs and treasurers is how to enable this growth, and overcome the challenges they are likely to encounter along the way.
Target growth regions for European MNCs
Although global trade fell by an estimated 14.5 percent in 2020, parts of Asia, most notably China, are rebounding quickly. In 2020, Asia’s share of global exports and imports grew to an all-time high of 41.8 percent and 38.2 percent respectively. Before the pandemic, 28 percent of European trade was with Asia; however, this is likely to increase given projected GDP growth of 7.5 percent in Asia compared with 4.8 percent globally.
As European corporations look beyond COVID-19, they recognise the scale of opportunity that Asia offers. As Borderless Business shows, 53 percent place Asia in their top three growth destinations, building on their existing business in the region: 83 percent of European multinational corporations already perform a variety of sales, sourcing and internal activities in Asia or are considering doing so. In addition, European corporations are keen to diversify geographically, with regions such as Middle East and Africa proving to be important growth targets. Thirty-five percent and 21 percent placed Middle East and Africa respectively in their top three growth destinations.
Creating certainty and confidence
Given the cultural, regulatory, currency and economic diversity both within and across Asia, Middle East and Africa, the single biggest challenge, highlighted by 31 percent of European multinationals as they pursue their international growth objectives, is to understand regional regulations, of respondents. This is a major reason why European companies choose to work with Standard Chartered as their partner bank in these regions. In particular, they are keen to access our deep knowledge and presence in key markets throughout Asia, Middle East and Africa, and our regional and global solutions that enable them to take a cohesive approach to cash, liquidity and risk.
Mitigating supply chain risks
The second biggest growth challenge in these regions, emphasized by 21 percent of European respondents, is building relationships with new suppliers and adapting supply chain logistics. This proved a particular issue during 2020 when many companies experienced supply chain interruptions and delays. According to the Business Continuity Institute (BCI), 27.8 percent of organizations reported more than 20 supply chain disruptions during 2020, the highest ever, compared with just 4.8 percent reporting this number in 2019. Over 40 percent of COVID-related disruptions were in tier 2 suppliers and beyond.
Supply chain disruption is also a concern for liquidity reasons, with 51 percent of participants in the Borderless Business study indicating that the impact of supply chain failure or interruption was one of their top three liquidity challenges. Standard Chartered continues to help MNCs build resilience through agile, transparent supply chains. One of the ways we do this is by banking our MNC clients’ supply chains, working not only with tier one suppliers, but throughout clients’ ecosystems to help build confidence and transparency, and put in place the solutions to help build financial resilience, such as supply chain financing.
Given the supply chain challenges of 2020, visibility over supply chains, the ability to model supply chain risks and building resilience have become more important than ever. Digitisation is a key enabler of this. As a result, the use of digital tools for greater supply chain efficiency is now the single most important trade and supply chain priority for European MNCs. Twenty-nine percent said this was their top priority, and 66 percent placed it in their top three. This compares with 56 percent when we conducted the same study in June 2020.
As a result, we are likely to see substantial focus on trade and supply chain digitization in the future. Forty-nine percent of CFOs participating in PwC’s 24th Annual CEO Survey expected to increase significantly their investment in digital transformation in the next three years. Standard Chartered is a pioneering digital and trade supply chain partner for our clients. We continue to actively support and invest in in-house solutions, third party initiatives and consortia in trade digitization, and advocate for standards creation and implementation, such as the International Chamber of Commerce (ICC) Digital Standards Initiative.
Doing business better
Another notable development in European MNCs’ trade and supply chain priorities is the growing importance of environmental, social and governance (ESG) issues: 24 percent identified ESG as a top three priority in December 2020, compared with 19 percent six months earlier. These efforts are likely to be fueled further at a strategic level, with 60 percent of CFOs expecting to moderately or substantially increase their investment in ESG initiatives over the next three years. A commitment to ESG is fundamental to Standard Chartered’s strategy and culture. Our footprint in Asia, Africa and the Middle East includes some of the markets worst hit by environmental and social challenges. We want to make the world a better, cleaner and safer place and promote positive change through our activities.
From understanding and complying with local regulations in new and expanded markets, to increasing visibility, resilience in supply chains, the value of an international partner bank, that has a local presence and knowledge base across Asia, Africa and Middle East, backed with global solutions, becomes ever greater. As European MNCs continue to develop their international strategy, across both familiar and less familiar markets, in a sustainable and responsible way, we’re here to help. We’re ‘Here for Good’.