Business Leaders Outlook
2021 Germany Business Leaders Outlook: Growth and Transformation
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.
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.
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.
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.
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.
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%).
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.
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.
“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
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.
“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.
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.
“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.
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
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.