International Financing Study
International financing study by Roland Berger: most companies plan to grow in their home markets with existing products
- Companies expect positive economic development for 2012 and plan to grow 3 to 10% by 2013
- However, due to the volatility of the markets, most companies plan to grow in their home countries with existing products
- It is primarily companies in Eastern Europe (74%) and Japan (75%) that need financing
- Companies look mainly to traditional financing sources, such as bank loans or internal cashflow
- Key criteria in choosing financing are low costs, high flexibility and low risk
- Exporters focus on country risks – Natural hedge used to protect against exchange rate fluctuations
"International companies view the current economic environment as positive and are assuming that they can grow by up to 10% by 2013," explains Sascha Haghani, Partner at Roland Berger Strategy Consultants. "These growth expectations are well above inflation."
Companies plan to grow in their home countries with existing products
But anxiety about the volatile financial markets means that most companies are planning to achieve their future growth primarily in their home markets. "Contrary to expectations, the traditional growth regions such as the BRIC countries and Southeast Asia are less important in companies' growth plans," explains Jürgen Müller, Project Manager at Roland Berger. "The difficulty of recruiting qualified workers in the emerging and developing countries plus possible political changes play a key role here." Specifically, a possible change in government could affect growth decisions at American companies (86%), while Western European companies are mostly concerned about the availability of qualified labor (68%).
In addition, companies also pay attention to the problem of power supply and rising energy prices when deciding how to invest for growth. "In regions such as the US and Western Europe, firms also look particularly at each country's public debt, as this can have a major impact on their investment plans," says Haghani.
Companies are planning to grow primarily in their home regions with their existing product portfolio – mainly American (75%) and Eastern European enterprises (68%). "This means that in most cases, companies are not planning to revitalize their product portfolios in the near future. This could weaken their innovative power and their long-term competitiveness," explains Müller. Only Japan is bucking the overall trend: due to the limited growth opportunities at home, 83% of Japanese companies report that they plan to grow abroad with new products. In contrast to companies from other regions, Japanese companies also see growth opportunities in acquisitions.
Japan and Eastern Europe need more financing
After the recent crisis, companies in Western Europe and the US have significantly strengthened their financing basis, and cashflow from operating activities has increased. This puts them in a position to finance most of their growth themselves. The situation is completely different in Japan and Eastern Europe – about 75% of the companies surveyed report that they need capital in order to grow.
"In both of these regions, firms are often financed solely by equity," explains Haghani. "They have no resources for further growth. That's why debt financing outside of the capital markets plays a key role in Eastern Europe. By contrast, Japanese companies often sell parts of their businesses to improve liquidity."
The selection criteria: low costs, high flexibility and low risk
Most companies still use traditional financing instruments – besides their own cashflow, the classic bank loan is still the most important option. In choosing a type of financing, companies look first and foremost for low interest rates, short lead times and a high degree of drawing flexibility. "Given the uncertainty on the markets, companies want to be able to flexibly adjust their financing," says Müller.
Low risk is just as important. Since the most recent financial crisis, many companies have become very wary of financial risks. "It's hardly surprising that most companies view long-term relationships as a key element. Working with a financing partner for many years creates trust and security," according to Haghani. But companies looking for financing aren't the only ones to be a bit "risk-shy" – potential partners can be hesitant as well. Companies with weak KPIs and ratings can expect major difficulties in obtaining fresh capital.
Targeted hedging against country risks
Companies that export a lot pay more attention to country risks. Regions such as Japan (76%) and the US (78%) view this problem as very important, and actively attempt to neutralize it. "Companies there tend to use a natural hedge: they generate sales and costs in the foreign currency to avoid major exchange rate fluctuations and the accompanying losses," explains Müller.
Companies seldom look for direct financing options abroad and/or in a foreign currency. Using financial derivatives to mitigate currency risks is just as infrequent, since companies mostly see this as too complex and inflexible.
The study can be downloaded free of charge at: www.rolandberger.com/pressreleases
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