German and US business relations remain strong despite protectionist risk

03 May 2018

Germany and the US have a long, and productive history of trade. New research shows that both countries hosting businesses from each other’s’ nations are positive about the future of revenue, people and investment growth. Concerns around protectionism have mounted however, with particularly German companies in the US disturbed about uncertain political commitments.

Uncertainty has gripped global trade in recent months, as equity markets saw corrections and US president Trump tabled trade tariffs, with China pursuing an initial tit-for-tat response. While China appears to be the major target of Trump’s protectionist policies, the US’ relation with Europe, a major trading partner, too have come under strain. However, concern has softened off late, following the recent visits of Macron and Merkel, among others, to Trump in a bid to wind down his protective policies.

To better understand the trading relationship between US and European companies, as well the outlook for the coming period, management consultancy Roland Berger and AmCham Germany joined forces to conduct the ‘AmCham Germany Transatlantic Business Barometer 2018’, a study which sheds light on major trends in trading relations between corporates of the two countries.

Positive expectations for 2018

The survey shows that German companies operating in the US are expecting their growth for 2018 to be by-and-large, positive. Most of the surveyed companies, 80%, expect their revenues to increase, while a further 9% say that they will remain stable. Companies are also generally positive about growth in headcount, with 55% saying that it will increase and 42% saying it will remain stable. Investment in the US by German firms too is set to grow, with 55% saying that they will increase their funding.

The positive note for 2018 reflects a relatively strong performance over 2017, when revenues increased at 53% of surveyed companies, while a further 35% said that revenues were stable. Investment from German countries was relatively strong last year, with 46% increasing such investments and 47% being consistent with the year previous.

German outlook in the US

German companies remain positive about the US market for the coming three years. Around 70% of companies say that they will expand their activity in the US over the coming three to four years, with almost 70% saying that conditions are very good or good, while 46% of respondents expect that conditions will improve in the same period.

Location conditions in the US

German respondents continue to see the US as a strong market for sale, cited by 84% as good or very good. The quality of digital infrastructure, as well as the startup culture, were also cited as good or very good by the majority of respondents, at 61% and 69% of respondents respectively. Areas of concern remain however, with the predictability of politics cited by 51% as less good/bad, while the predictability of investment decisions was cited by 26% as being in the same category.

Vice versa, US companies’ interest in further expanding operations in Germany also note opportunities. Business was strong in 2017, with 77% citing growth in revenues, while 51% said that they increased headcount and 58% said that they boosted investment. Optimism about 2018 hit a peak across revenue (82%), investment (58%) and employee additions (54%).

Germany is seen by the Americans as an area of stability, with 91% saying that conditions are currently good or very good. 28% of respondents, meanwhile, expect conditions to improve over the coming three to four years, while 55% say that they will stay the same.

US companies in Germany remain optimistic

In terms of attraction, German is cited as an attractive sales target for US companies operative in the region, while also providing high quality personnel, although at a slightly higher rate than in the US. Other areas noted for quality, include the region’s R&D and infrastructure.

Commenting on the cross-border engagement between the US and Germany, Bernhard Mattes, President of AmCham Germany, said, “The stability of transatlantic business relations must not be put at risk. Protectionist measures such as the announcement of unilateral import tariffs contribute to business uncertainty and are a step in the wrong direction. Both company representatives and political actors must work together for free and fair trade and engage in dialogue.”

Germany is a top location with high stability

The conclusions by Roland Berger and AmCham Germany are in sync with another recent study which found that optimism among German executives is on the rise. According to a study by Deloitte, CFOs in Europe are more confident about the continent’s economy and outlook compared to a year ago, with 32% of German CFOs more optimistic.

Meanwhile, Roland Berger itself has reason to be optimistic in its home market Germany. The firm grew its sales by around 10% last year, and amid growing demand for its services, the consultancy is seeking to add 200 consultants to its German footprint in 2018. Roland Berger, which was founded in 1967, has six offices in Germany: Berlin, Dusseldorf, Hamburg, Frankfurt and Stuttgart.

Turning economic tide requires reassessment of strategic priorities

16 April 2019

Risks of a downturn in Europe continue on the horizon as various risks to (global) growth come together. A new survey of operations managers in Europe shows that around half expect a downturn somewhere in 2019, although few expect a recession. Leaders in financial services are the most pessimistic, while automotive respondents are the most likely to expect a downturn.

The financial crisis, born from a chain of activities on the back of risky lending by banks combined with poor risk governance as well as an inflated real estate market in the US, nearly collapsed the global economy. The decade that followed saw recovery, with recent years seeing sustained economic growth in Europe, booming equities and positive sentiment among companies and investors.

However, stability may be giving way to uncertainty in Europe. Global headwinds from a trade spat between the US and China, fallout from Brexit, as well as the rise of populism – particularly in Italy, Austria and the Netherlands – means that the tide is turning. Changes to monitory policy are also on the cards, with interest rates expected to rise in Europe and in the US. Meanwhile, the Chinese economy is projected to slow, while growth of other fast growing emerging market economies is stagnating.

Economic expectations - Overview

A new report by Roland Berger, titled ‘Operations Efficiency Radar’, highlights the changing sentiment among European business leaders. According to the study, the number of respondents expecting a downturn this year stands at 48%, up from 17% last year. Few, 2%, however expect a recession, comparable to the view last year.

The sentiment comes on the back of worsening key economic indicators, the researchers note. The number of restructuring cases has increased, global stocks fell 10% over 2018, and there are an increasing number of profit warnings across industries. Market volatility is also up, while business confidence and expectations have trended down over 2018. Profit warnings by companies have gone up, in particular in Europe’s largest economy Germany, and further interest rate hikes are looming around the corner.

Different industries have considerably different expectations. The most pessimistic industry is financial services – 11% of its professionals expect a recession this year and 33% a downturn. The automotive industry meanwhile has the highest number of leaders expecting a downturn, at 92%, followed by industrial products, at 56%. The most optimistic industry is chemicals/pharma, with 36% expecting a boom, followed by consumer goods and retail at 33%.

Economic expectations by industry

The changing market conditions are prompting leaders to change some of their strategic planning and priorities going forward. The automotive industry operations leaders are set to focus on production (79%), working capital management (79%), and product portfolios (77%). Aerospace and defence firms are set to focus largely on production (73%) and controlling & finance (66%), followed by procurement (64%) and product portfolios (61%). Industrial products companies are set to focus their operation priorities on product portfolio (75%), production (69%), and procurement (63%).

For four other industries studied – chemicals & pharma, consumer goods & retail, industrial services and financial services – product portfolio, which includes rationalising, optimising and innovating products, is the top strategic priority.

Commenting on the findings, the authors state, “The first consequences of the fragile environment are already visible in a number of indicators. Company leaders should use the results to challenge priorities throughout 2019, review their early warning systems, fine-tune and/or re-assess budgets and investments and consider crisis preparation scenario’s.”

Related: 13 business and technology trends for 2019.