Top executives tell us how they’re preparing for a post-pandemic world in our inaugural survey of midsized German businesses.
More than a year since COVID-19 first sent global markets reeling, the pandemic’s long-term impacts on German businesses are starting to come into focus. The J.P. Morgan Business Leaders Outlook: Germany survey reveals that the COVID-19 pandemic is prompting German businesses to double down on globalization despite supply chain friction, embrace technology as a means to adapt, and plan for ownership transitions in the near-to-medium term.
They’re also looking ahead with optimism. Of the 238 senior executives we polled from German companies with annual revenues over $100 million, about 6 in 10 think the economy is heading in a positive direction over the next year, and an even greater share are bullish about the performance of their own company (77%) and industry (67%). Their growth outlook is backed by expectations for increased revenue/sales (77%), profits (74%) and capital expenditures (62%).
Our survey was conducted at the end of March 2021, at a time when the national mood may have been buoyed by the government easing lockdowns temporarily before a third wave of the virus hit. Executives were likely also encouraged by conditions in the U.S. and Asian markets where they focus much of their international activity.
While the responses from executives show that they are still in recovery mode, many businesses are poised for a period of strong growth in the months ahead.
Economic Outlook
Five bar charts showing German business leaders’ economic outlook as of March 29, 2021.
The first bar shows that 60 percent of respondents are optimistic, 25 percent are neutral and 15 percent pessimistic about the global economy.
The second bar shows that 60 percent are optimistic, 21 percent are neutral and 18 percent are pessimistic about the European economy.
The third bar shows that 58 percent are optimistic, 22 percent are neutral and 19 percent are pessimistic about the German economy.
The fourth bar shows that 67 percent are optimistic, 19 percent are neutral and 14 percent are pessimistic about their industry performance.
The fifth bar shows that 77 percent are optimistic, 12 percent are neutral and 11 percent are pessimistic about their company performance.
Business Expectations
Three pie charts show business expectations in three key areas—revenue sales, profits and capital expenditures.
The first chart shows that 77 percent of business leaders expect revenue/sales to increase, 15 percent expect them to remain the same and 8 percent expect them to decrease.
The second chart shows that 74 percent expect profits to increase, 15 percent expect them to remain the same and 11 percent expect them to decrease.
The third chart shows that 62 percent expect capital expenditures to increase, 29 percent expect them to remain the same and 9 percent expect them to decrease.
COVID-19 Impact
When we asked executives about current business conditions, many of the top challenges they’re facing relate directly to COVID-19, with shifting consumer habits leading the list.
Top Overall Challenges
Five pie charts about the top overall challenges executives are facing related directly to COVID-19.
The first shows 37 percent are facing shifting consumer habits due to the pandemic.
The second shows 28 percent are dealing with uncertain economic conditions.
The third chart shows 26 percent are facing a challenge adapting their business’ technology needs to stay relevant.
The fourth chart shows 26 percent are facing a lack of COVID-19 relief/support from the government.
The fifth chart shows that 26 percent are facing a challenge in revenue/sales growth.
Although the pandemic has caused 62% of businesses to experience more supply-chain issues and 53% to see higher operating costs, roughly half of executives report improvements in company culture, employee productivity and topline revenue.
Direct Impacts From the COVID-19 Pandemic
Five bar charts showing direct impacts companies are facing from the COVID-19 pandemic.
The first bar shows 55 percent saw company culture/employee increase, 31 percent saw no change and 14 percent saw a decrease.
The second bar shows 53 percent saw employee productivity increase, 29 percent saw no change and 18 percent saw a decrease.
The third bar shows 53 percent saw operating costs increase, 24 percent saw no change and 24 percent saw a decrease.
The fourth bar shows 52 percent saw topline revenues increase, 18 percent saw no change and 31 percent saw a decrease.
The fifth bar shows 62 percent saw supply chain issues increase, 24 percent saw no change and 14 percent saw a decrease.
With executives reporting, on average, that 50% of their workforce is now remote and 45% will be permanently remote post-pandemic, most businesses expect to change their location strategy. Roughly equal shares of respondents anticipate going completely virtual (36%), adding locations (35%) or reducing locations (32%). Another 18% may move to a smaller location.
While the shift to remote work relieves real estate costs, it has also added fresh challenges to the hiring process, such as having to assess job candidates and onboard new employees remotely.
Workforce Challenges Due to the Pandemic
Five pie charts about hiring challenges leaders are dealing with due to the pandemic.
The first chart shows 41 percent say individuals are reluctant to change jobs.
The second chart shows 40 percent are facing challenges with workers onboarding remotely.
The third chart shows 39 percent are finding a lack of qualified applicants in general.
The fourth chart shows that 37 percent say that individuals are reluctant to work due to current conditions, such as required to work in person, at home, etc.
The fifth chart shows that 30 percent say they have an inability to interview candidates in person.
Given the many challenges brought on by the COVID-19 pandemic, businesses would like to see the German government focus its efforts there, either by working to stop the spread of the virus, making high-speed internet more accessible—which would aid remote work—or providing more relief to businesses affected by shutdowns.
What Business Leaders Want from Government
Five pie charts about where business leaders would like the German government to focus.
The first chart shows 49 percent want the government to stop the spread of the COVID-19 pandemic/focus on the vaccine.
The second chart shows that 46 percent want increased IT capacity/availability of fast internet access.
The third chart shows that 40 percent want additional relief/assistance to industries affected by the pandemic.
The fourth chart shows that 32 percent want taxes reduced.
The fifth chart shows that 26 percent want government to open up the economy.
Globalization
In today’s globalized economy, German companies continue to see value abroad—especially given the pandemic’s impact on geographically centralized production and supply chains. Despite the global reach of the COVID-19 recession and a rising trend toward economic nationalism in recent years, executives are not retreating from the world stage. The vast majority of German companies we surveyed anticipate they will have activity outside the European Union over the next three years. The top activities they’re planning outside the region are selling to (47%) and buying from (45%) markets outside the European Union (37%), having a sales office (33%), and creating a partnership/joint venture to sell (19%).
One pie chart—84 percent of German companies plan to have activity outside the EU in the next 3 years while 16 percent do not.
German companies plan to use multiple avenues for international expansion.
Five pie charts show German companies plan to use multiple avenues for international expansion.
The first chart shows that 47 percent of companies plan to sell to markets outside of the EU.
The second chart shows that 45 percent plan to buy from markets outside of the EU.
The third chart shows that 37 percent plan to have operations outside of the EU.
The fourth chart shows that 33 percent plan to have a sales office outside of the EU.
The fifth chart shows that 19 percent plan to create a partnership/joint venture to sell in markets outside of the EU.
The companies we surveyed that already do business outside the EU largely expect to grow their global footprint over time. Over half (58%) estimate that non-EU markets currently account for 26%-50% of their total sales, and 60% operate in 6-20 countries outside the EU.
Deepening Global Ties*
*Among companies that currently have sales or operations outside the EU
Two pie charts show that companies already doing business outside the EU plan to grow their global footprint over time.
The first chart shows that 67 percent expect their sales outside the EU to increase over the next 5 years.
The second chart shows that 65 percent plan to increase the number of countries where they operate over the next 5 years. Of those, 72 percent expect to grow global operations organically rather than through mergers and acquisitions.
Where German Companies Are Expanding
On a global map, here are the countries where German companies with current sales or operations outside the EU plan to expand.
61 percent in the United States.
44 percent in Canada.
40 percent in China.
33 percent in the UK.
26 percent in India.
23 percent in Eastern Europe.
But as these companies look toward global growth, they’re also encountering supply chain challenges. After the desire for new customers, the No. 2 reason executives cite for their international activity is to gain access to suppliers and materials. As contributing factors, 62% of executives say the pandemic has increased supply chain issues and 28% say Brexit has made supply chains worse as well.
Objectives for International Activity
Five pie charts that show the international business objectives for German companies planning expansion to other regions.
The first chart shows that 51 percent want access to new customers/markets.
The second chart shows that 44 percent want access to new suppliers/materials.
The third chart shows that 43 percent want to better serve domestic customers with global operations.
The fourth chart shows that 41 percent want to develop and sell new products.
The fifth chart shows that 37 percent want to achieve cost savings.
“Businesses are clearly looking outward, and they’re finding ways around supply chain or trade barriers. They are continuing to globalize because the opportunities internationally simply can’t be ignored.”
—Bernhard Brinker, Head of Commercial Banking, Germany, J.P. Morgan
Technology
Technological transformation has been a common theme of the pandemic, and, indeed, many of the top actions businesses have taken to respond to COVID-19 explicitly rely on technology. Over half of respondents have increased their use of online banking tools like electronic payments, changed their operating model to be more online, and shifted employees to work from home—and another quarter plan to take these actions in the next six months.
Technology-Related Actions in Response to COVID-19
Table showing respondents’ past and anticipated actions in response to the pandemic.
The first line shows 59 percent of respondents said they already shifted some or all of the workforce to work from home, while another 24 percent plan to start that shift in the next six months and 11 percent are not considering it.
The second line shows 57 percent of respondents said they already increased use of online banking/treasury tools, including electronic payments. Another 24 percent plan to start that increase in the next six months, and 11 percent are not considering it.
The third line shows 52 percent of respondents said they already changed their operating model to be more online. 29 percent said they plan to make that change in the next six months, and 13 percent are not considering it.
“Clients have been steadily embracing digital payments for their efficiency and convenience in recent years, but COVID-19 has accelerated this shift, as evidenced by the vast majority of executives who say they have already increased their use of online treasury and banking tools because of the pandemic or plan to in the next 6 months. Digital payments are no longer simply an advantage—they’re a necessity.”
— Viktoria Boecker, Head of Commercial Banking Treasury Management, Germany, J.P. Morgan
With that shift, many companies are also running up against a need for technology upgrades to stay relevant; 26% of executives cite this as one of their top three business challenges. A lack of high-speed internet is a longstanding issue that has only become more apparent over the past year, and 46% of executives would like the German government to focus on improving access over the next year.
Technology Challenges
Two pie charts about technology challenges.
The first chart shows 26 percent of survey respondents said they are challenged by adapting their business’ technology to stay relevant.
The second chart shows 46 percent of respondents said they would like the government to increase IT capacity/availability of fast internet access.
With the expanded use of internet-based operations, German companies are also attuned to risks from cyber incidents like a website crash, malware and data breaches; only 10% have no concerns about potential disruptions from a cyberattack.
Cyberattack Preparations
Five pie charts about cyberattack preparations showing responses among companies concerned about cyber-related incidents.
The first chart shows 46 percent of respondents educated and trained employees.
The second chart shows 45 percent of respondents created a contingency plan.
The third chart shows 44 percent of respondents developed proactive countermeasures, such as deploying technology.
The fourth chart shows 41 percent of respondents designated an in-house person/team for identifying threats and opportunities.
The fifth chart shows 37 percent of respondents collected additional data for analysis.
Business Transitions
“For years, there has been talk that aging baby boomers are going to create a big market for mergers and acquisitions once it comes time to hand over their family businesses,” says Patrik Czornik, Head of M&A Germany and Austria, J.P. Morgan. Indeed, responses from executives indicate that time may be at hand, with 63% saying they’re considering a full or partial ownership transfer—and most of that activity could be concentrated within the next five years.
Business Transitions
One pie chart— 63 percent of business owners say they are planning a full or partial ownership transfer for their business. Of those, 67% are planning on transferring within the family.
Those who aren’t planning to transition to family are planning on a transition to management (15%) or to a third party (15%). This changing of the guard may be another indirect effect of the pandemic.
“We are seeing family owners of mid-cap companies around the world sharpen their focus on their transition plans. The pandemic has shown that unpredictable events can cause insurmountable disruptions, economies of scale are critical, and prices are very attractive despite economic headwinds.”
—Stefan Povaly, Head of Germany, Senior Country Officer, J.P. Morgan
Anticipated Ownership Transfers
One pie chart—those planning a partial or full transfer of their business say:
25 percent will transfer to family through an inheritance.
21 percent will transfer to family through a gift.
21 percent will transfer to family through a sale.
15 percent will transfer to a third party through a sale.
15 percent will transfer to management through a sale.
2 percent identify as other.
Transition Timing
One bar chart—business leaders are planning a transition along the following timelines.
18 percent plan a transition in less than two years.
65 percent plan a transition in 2 to 5 years.
15 percent plan a transition in 5-plus years.
1 percent identify as other.
About the Survey
The J.P. Morgan Business Leaders Outlook: Germany survey is a snapshot of the current business environment based on the responses of 238 senior executives from German companies with annual revenues over $100 million. The survey was conducted March 10-29, 2021.
Results are within statistical parameters for validity; the error rate is +/-6.4% at a 95% confidence rate.
About the Survey
Pie chart showing job titles of survey respondents.
45 percent were CEOs.
24 percent were CFOs.
16 percent were Head of Finance.
8 percent were business owners.
7 percent identified as other.
Annual Revenue
One pie chart showing the annual revenues of responding companies.
28 percent had annual revenues between 100 million and 499 million in U.S. dollars.
40 percent had annual revenues between 500 million and 1 billion in U.S. dollars.
16 percent had annual revenues between 1 billion and 2 billion in U.S. dollars.
16 percent had annual revenues of more than 2 billion in U.S. dollars.
Number of Employees
One pie chart showing the number of employees for responding companies.
11 percent had between 1 and 249 employees.
13 percent had between 250 and 499 employees.
28 percent had between 500 and 999 employees.
26 percent had between 1,000 and 4,900 employees.
22 percent had more than 5,000 employees.
Our Experts
Stefan Povaly
Head of Germany, Senior Country Officer
J.P. Morgan
Viktoria Boecker
Head of Commercial Banking
Treasury Management, Germany
J.P. Morgan
Christian Kames
Vice Chairman of Investment Banking Germany, Austria, Switzerland & Vice Chairman of Diversified Industries EMEA
J.P. Morgan
Bernhard Brinker
Head of Commercial Banking, Germany
J.P. Morgan
Patrik Czornik
Head of M&A Germany and Austria
J.P. Morgan
Johannes Messing
Head of Corporate Leveraged Finance for Germany, Austria and Switzerland
J.P. Morgan
