European firms focus on business resilience for future growth

European companies are strengthening their focus on business resilience to deliver recovery and growth in 2021.

The latest HSBC Navigator report, which surveyed more than 10,000 business in 39 markets, shows business leaders are steering their organisations towards greater business resilience. Tougher supply chain scrutiny, a stronger focus on sustainability, and product and service diversification are all playing important roles, as businesses look towards the growth opportunities of 2021 and beyond.

Europe made up the second largest regional contribution to the report, with 13 markets represented. In line with the rest of the world, about three fifths of European businesses are adapting to their changing environment, with some thriving and some saying they’re surviving day-to-day.

Around a third of businesses in Poland (35%), Italy (33%), Sweden (32%) and Germany (32%) say they are thriving, the highest levels across Europe, while around a quarter of businesses in Belgium (27%), the UK (23%) and the Netherlands (22%) say they are simply surviving day-to-day.

Unsurprisingly there is a trend of increased pessimism across all markets compared with last year’s report. Over two-thirds of European companies don’t expect to return to pre-COVID levels of profitability until the end of 2022, and 27% think that they will achieve this by the end of this year.

The most dynamic recovery expectations for a return to normality by the end of 2022, are in Italy (78%), Russia (77%) and Spain (74%), which are slightly above the global average (73%). Recovery expectations centre around several aspects of building business resilience.

Optimising supply chains

In the face of increased costs, transport, movement restrictions, and the unpredictable nature of national health measures, supply chain optimisation has been a unanimous concern for European companies, with 95% having made changes in the last year. A quarter of these changes have been made due to suppliers’ operational business resilience.

Selecting suppliers based on operational resilience and their ability to deliver quickly and reliably were both cited as immediate investment priorities by businesses adapting their supply chains.

Achieving a strong supply chain through diversification and reducing the number of suppliers overall have both been practiced by large numbers of European companies in similar proportions, with 21% diversifying and 20% reducing the number of suppliers. Both approaches show a trend of greater scrutiny over supply chain stages and contingency planning, whether that’s to move to a smaller number of reliable suppliers or to widen contingency options.

Driving greater sustainability

The vast majority, more than four fifths (81%) of European companies believe that there is opportunity for growth in sales from a greater focus on sustainability. Businesses cited multiple avenues including promoting employee well-being, new ways of working and enhanced reputation as possible areas of focus. Compared to 2019, more companies have been measuring environmental and social sustainability, with 44% believing that social and environmental responsibility was key to being a ‘successful business of the future’.

A third of companies also said that environmental and ethical sustainability was among the top priorities for stimulating growth and driving demand in 2021.

Just looking at the massive increase in activity by corporates in what we term the real economy, in terms of green bond issuers, especially in Europe, investors are increasingly looking to invest in companies who have more embedded Environmental, Social and Governance (ESG) and sustainability in their overall strategy.

And what we’ve observed and tracked at HSBC is that companies who have embedded those metrics in their strategy are actually generating a higher rate of return for investors.

Alan Duffy, CEO & Head of Banking, HSBC Ireland

Product and service diversification

45% of businesses in Europe intend to increase financial investment in customer experience and 42% intend to invest further in product innovation and technology, both to target new customers and grow demand. Upskilling the workforce was also a priority for companies looking to increase resilience through innovation (38%).

Nine in ten German companies surveyed felt they were prepared to some extent for the challenges of the last six months, compared to 80% in France1.

This is because firms in both countries, over the last couple of years, have been taking action to increase their agility and their resilience. It isn’t just about strengthening the balance sheets

Instead, firms in Germany and France have focused on investing in technology and diversification in both products and markets.

Andy Wild, Head of Commercial Banking Europe

For businesses already projecting growth, the biggest driver was adapting to changing demand through the introduction of new products and services. Increasing internal efficiencies, leveraging technology and motivating the workforce were also key focus areas for meeting demand this year.

While the pro-active improvement of product and service offerings is a priority, it is coupled with a desire to increase efficiency through defensive cost-cutting and better cashflow management. While 30% of companies predicting high levels of growth said they would focus on cost cutting measures, 37% of companies with lower predictions said the same.

Two fifths of businesses in Europe believe that overall resilience to withstand future changes will depend on being innovation-driven, well-rounded and environmentally and socially responsible.

There are many areas of concern for European companies but for those predicting optimistic growth as well as those simply trying to ride out the storm, business resilience will play a leading role in the coming year.

You can read the full results of the HSBC Navigator Europe Report 2021 here.

1 HSBC Resilience survey (fielded in May 2020)