Andrew Betts, Managing Director, Regional Head of Global Trade and Receivables Finance Europe and Global Head of Commodities at HSBC, provides an overview of the effects of Covid-19 on businesses in France, Germany and the UK, and the patterns emerging in these firms’ supply chains.

 

The impact of the Covid-19 crisis on business has been swift, strong and widespread. Across geographies and industries, there are very few companies that can say that their business has not been affected, as countries went into lockdown to combat the spread of the global pandemic.

As these restrictions tentatively ease and companies look to trade again in a much-changed environment, the total impact of this reset is uncertain and the so-called ‘new normal’ has yet to fully take shape. However, clear patterns are emerging.

The European companies emerging as the most resilient in this environment are those that were already investing in technological change and innovation. They are agile and nimble businesses with a renewed focus on liquidity, risk capacity, operational flexibility and a strong commitment to sustainability. They are securing and investing in more resilient supply chains.

 

Germany stands out

Between 28 April and 12 May 2020, HSBC spoke to over 2,600 businesses across 14 countries/territories about the impact they are feeling now and their plans for the future. Within Europe, 600 firms, evenly distributed across France, Germany and the UK, responded and highlighted key differences.

Across the world, 98% of businesses said they had been affected by the coronavirus crisis, with 72% citing a strong impact. However, this was not felt uniformly across geographies. In Europe, a total of 96% of companies felt the effects and 69% were strongly impacted. But in Germany, that number fell to 93%, with just over half of companies feeling strongly impacted. This discrepancy is likely due to the German government’s more effective containment strategy at this time. In contrast, 99% of British businesses felt impacted, 83% strongly, and the numbers in France were 98% and 85%.

Also notable is the fact that across Europe, businesses felt reasonably well prepared. 91% of German companies and 92% of British companies felt that they were prepared to some extent for the challenges of the last six months, along with 80% of French firms.

 

Technology powering resilience

Companies in the region have been taking action to increase their agility and resilience. This effort is not confined to strengthening the balance sheet. Instead, the most important factor for companies in France, Germany and the UK is investing in technology and innovation, followed by diversification in products and/or markets.

Business culture is also a strong indicator of resilience, according to European respondents. A resilient company values its customers and treats its employees well, while also having the ability to adapt fast to external events.

It’s no surprise then that when thinking about the future, European businesses also see investing in technology and innovation as the top priority over the next five years. Businesses that are prioritising adopting technology and digitisation believe it leads to greater agility and flexibility, increased productivity and better ability to meet the needs of future customers.

The focus of technological investment has also evolved. While automation is still seen as an important investment for the future, businesses are also thinking about technologies that enable collaboration and close working.

The Covid-19 pandemic has become a significant accelerator in the pace of tech adoption and trade digitalisation. We’re seeing new innovations in trade like 4D printing, cloud computing to improve real-time inventory monitoring, and tech companies effectively providing infrastructure as a service. The fastest area of trade growth is in the movement of trade from the physical to the digital.

 

Reshaping supply chains

The map of world travel is being continuously rewritten, as countries open and shut borders in response to falling and rising levels of coronavirus infection. In this uncertainty, businesses are re-examining their supply chains for resilience, and focusing on strengthening control, diversification and transparency.

The priority for firms is how to plan for interruptions and manage supply and demand more efficiently. The Covid-19 supply shocks had immediate effects, most famously in suddenly emptied grocery shelves, when retailers operating just-in-time models found themselves caught short.

But businesses for the most part aren’t restricting suppliers; they’re diversifying across the chain. Within Europe, the focus is on reviewing supply chain partners to ensure they are able to weather future challenges and uncertainty and digitising more of the supply chain. They are also looking deeper into supply chains and looking to work with partners that can help to finance through that whole supply chain.

 

Transformational trends continue

Interestingly, German companies are most inclined to consider restricting the supply chain. While 10% of French firms and 8% in the UK call this a top priority, 19% of German companies are prioritising this change. However, all European firms are most interested in securing their supply chain, with 42% in France and 34% in both Germany and the UK.

Businesses definitely feel that they need to make changes to their supply chain, but it’s not all a reflection of recent times. Many businesses are still working on trends that pre-date the crisis, including digitalising supply chains, which rates most highly for Germany and the UK, and making the supply chain more environmentally sustainable, which is most important for the UK and France.

 

The sustainable new normal

Previous HSBC Navigator reports in the last few years have seen an increased focus on ESG importance for businesses across the globe, and it has now come to permeate every aspect of business strategy. In the wake of the current crisis, that commitment has not wavered: if anything it has strengthened.

Most companies in the world want to “build back better”. They agree that the need to reassess or review their operations will allow them to rebuild their businesses on firmer environmental foundations. In Europe, 89% of French companies, 87% in the UK and 86% in Germany agreed with this point.

Worldwide, consumer demand and government regulations are driving the pressure to embrace sustainability, and this holds true for Europe as well. But 32% of French firms, 20% of companies in the UK and 19% of German businesses also recognise sustainability as a business imperative.

The view of sustainability is changing, it is less and less a response to others, and more and more a core part of strategy, resilience building and response to changing consumer demands. In Britain, 62% of businesses said they would be placing greater emphasis on sustainability throughout their operations, and the same was true of 51% of German companies and 48% of companies in France. Environmental sustainability is now part of the core purpose of the business for 60% of UK firms, 49% of German companies and 44% of French firms.

 

 

Coming out of the crisis stronger

These are not easy times for any business. But what is striking in HSBC’s latest Navigator survey is that amidst the turmoil, companies are seeing opportunities for transformation.

67% of UK companies, along with 57% of German and 52% of French firms, plan to invest more in their brand in the coming years. Well over half of UK companies and German companies believe they will emerge stronger from the current situation (59% and 57% respectively) and 46% of French firms feel the same way.

By reshaping and securing more agile supply chains, continuing to invest in technology and innovation and strengthening their commitment to sustainability, businesses believe they can become more resilient for the future.