New research published by Standard Chartered Bank reveals that while corporations in Europe and the Americas are prioritising their home regions of Europe (84%) and North America (74%) as a source of growth, Asia Pacific (55%) remains a target for their international expansion strategies. Other regions of interest include South America (38%), Middle East (32%) and Africa (17%).
The survey explored how international expansion remains a key priority for corporations of all sizes and industries to diversify and grow their business. It also delved into CFOs’ and treasurers’ ambitions, concerns and goals as they help their organisations pursue new geographical areas of growth.
The COVID-19 impact
The COVID-19 pandemic has reshaped many organisations operating and strategic priorities. Over half (51%) were worried about its impact on growth outside the home region. Close to half (49%) of Americas respondents indicated that managing the sustained impact of COVID-19 as one of their top three challenges.
This was also indicative in how the top liquidity management challenges identified was supply chain failure. When looking at liquidity issues, 23% of Americas businesses indicated lower than anticipated revenue as a management challenge overseas when asked. This was followed closely by supply chain failure and disruption (21%).
“Around the world, companies’ experience of the COVID-19 crisis has inevitably reshaped their priorities and the way they address challenges,” commented Torry Berntsen, chief executive officer, Americas and regional head, Corporate and Institutional Banking at Standard Chartered Bank. “As businesses explore expansion opportunities, the growth potential of emerging markets such as Africa should not be ignored. Some of the most commonly perceived challenges can be readily overcome with a trusted partner.”
Over the next six to twelve months, Americas companies highlighted the need to diversify their suppliers outside of their home region (37%) as the top priority. This reflects how many companies recognise the need to increase resilience and flexibility in their supply chains in response to the challenges experienced from the pandemic.
Tackling the challenges of expansion
The most significant perceived challenge to expansion is the ability to understand and comply with local regulations (32%), and technology companies (52%) were most concerned compared to other sectors. Americas respondents ranked the ability to understand and comply with local regulations on growth outside the home region as the top challenge of international expansion (32%). This unfamiliarity may suggest why only 13% of Americas businesses listed Africa as a top three potential growth market - particularly when considering the growth potential of the region.
“During what is a challenging time for corporations all over the world, expansion into new markets remains a key way for corporations of all sizes and industries to diversify and grow their business, both through new customer and supplier relationships," said Tracy Clarke, regional CEO of Europe and Americas at Standard Chartered Bank. “This research has shown, by exploring ambitions, concerns and priorities, how the COVID-19 pandemic has reshaped plans for today and the future, and with it, the knock-on impacts for liquidity, trade and even digitisation. What is clear though is that significant opportunities remain.”
When it comes down to financing international growth, equity capital markets (76%) were the preferred choice of funding. Alternatively, 44% of respondents from the Americas were inclined to use cash from across the business for funding, compared with 39% amongst Europeans. Likewise, use of venture capital, such as private placements, was more common, with a more established private placement market in the United States than Europe.
ESG still a low priority
Almost one-third (32%) of respondents noted that their top supply chain priority was to diversify their supplier base beyond their home market. This was followed closely with the need to digitise trade (28%). The lowest priority noted within the trade and supply chain priorities outside the home market was environmental, social and governance (ESG) criteria and sustainability issues. Only 2% nominated it as their top supply chain priority, and 18% identified it within their top three priorities. This could be down view that responsibilities for ESG lie elsewhere in the organisation, or that ESG and sustainability objectives are inherent in the business culture. On a regional level, 3% of the respondents in the Americas ranked ESG criteria and sustainability issues as their top supply chain priority.
"International trade is a cornerstone of companies expanding their client base and increasing the resilience of their supply chains by diversifying outside of their home market creating prosperity and jobs," added Mike Vrontamitis, head of Trade for Europe and Americas at Standard Chartered Bank. “In a world where resilience is more important than ever companies are focusing on managing foreign exchange volatility as well as digitisation and vertical integration of their supply chains. It is no surprise given the increased geopolitical tensions that companies are also highlighting the need for local advice from experts. It is disappointing to see how few companies have ESG issues as a top priority given the opportunity of a ‘green’ recovery.”
About the report
The research was conducted between 25th May and 5th June 2020. Three hundred respondents participated, equally split between Europe (UK, Ireland, France, Germany, Turkey, Sweden, Denmark, Finland, Norway) and the Americas (US, Canada, Brazil). Responses were restricted to:
- CFOs and finance directors (30%) and regional/ global treasurers (70%).
- US$500m turnover upwards, of which 28% had a turnover above US$1bn.
- Non-financial corporations. Manufacturing (19%) and healthcare (14%) and technology (10%) were the biggest industry participants.
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