The long-term economic impacts of COVID-19 are still unknown, but one thing is certain: businesses that make the right global moves will get ahead of the competition as the global economy recovers.
Jose Montero, Chief Operating Officer, and Rob Wellner, Chief Revenue Officer at Velocity Global held a webinar in partnership with the Association for Corporate Growth (ACG). The webinar explores current trends in international expansion and lessons from the past that show how companies use global growth to better withstand economic uncertainty.
How Companies Withstand a Global Pandemic and Economic Downturn
After introducing attendees to Velocity Global and its International PEO (professional employer organization) solution, Montero discussed the current state of the global economy. As the COVID-19 pandemic stalls global economies, experts predict that we’re heading into the worst recession since The Great Depression. An updated IMF report projects that the global economy will shrink 3% in 2020.
These numbers are bleak, and companies might think they need to scale back operations to save money and reduce risk. However, Montero highlighted how revenue diversification—or having business operations in multiple countries—is key, as different markets suffer outbreaks at different times.
Lessons Learned From the 2009 Recession
While economists predict the economy will bounce back in 2021, we won’t know the long-term impacts of COVID-19 for some time. Wellner highlighted how businesses strategically invest in specific markets to get ahead of the competition during this time.
Wellner discussed how attendees should look to companies that successfully survived the 2008-2009 recession and apply those lessons to the present. IBM, for example, had a distinct advantage before the 2008 recession hit. The company already had an established, diverse presence around the globe that generated two-thirds of its total revenue. IBM’s global presence helped them offset the downturn in the U.S. economy by focusing on international growth. Specifically, the company’s presence in China, India, Vietnam, and the Philippines fueled much of this growth during the Great Recession.
Some lessons from the past recession apply to our current situation; however, it’s more critical than ever that companies use a flexible global expansion strategy to mitigate risk. An agile global expansion method like International PEO gives businesses the important flexibility they need while ensuring risk mitigation and compliance. With this solution, companies are able to quickly start operating in a new market or leave that country just as fast if they need to— an essential consideration due to COVID-19’s unpredictability.
What Markets Still Offer Opportunities for Global Expansion This Year?
Similar to the 2009 recession, Wellner expects companies that diversify their business will come out on top of the post-COVID-19 recession. So, where should companies look to expand their business and hire for the best opportunities, and when should they take action?
Similar to IMB’s diversification strategy, Asian markets look promising for global expansion, as some Asian economies are still on track to grow this year. While major economies like the U.S. and many top European markets will shrink, the IMF projects a modest 1.0% growth across some emerging Asian markets.
Hiring is picking back up in markets that are recovering from COVID-19. So far in 2020, U.K., Australia, Canada, France, and Germany. The financial fallout from the pandemic hit these countries hard, and the IMF projects a contraction for all of these economies this year. However, these markets experienced outbreaks before the U.S. and are beginning to bounce back as businesses reopen. Using a flexible global expansion method is vital since it is easy to leave any market around the world that may prove unprofitable.
Post-COVID-19 M&A Activity
Montero then shifted the focus of the webinar to discuss trends in M&A transactions during COVID-19. The uncertainty around COVID-19 and the threat of a recession made investors hesitant. Fewer than half as many M&A transactions happened in March 2020 than in March 2019, and many have been put on hold or pulled.
Even though M&A activity has decreased in recent months, research shows that companies that keep making smart investments during this time will position themselves to recover once the market accelerates again, as the world begins to recover from COVID-19 and outbreaks are under control.
Similar to global expansion, companies can look to lessons learned during the 2008 recession for guidance on M&A during volatile times. The overall cycle of M&A is unpredictable; deals typically decline during an economic shock and pick up again as the recovery begins to take hold.
No one knows when the current crisis will end or how it will reshape markets or human behaviors. However, we do know that during the last downturn, companies that used a programmatic approach (making many relatively small transactions as part of deliberate and systematic M&A program) to M&A delivered excess returns with less volatility than compared to companies that used other approaches to M&A.
Getting Ahead of the Rush for Viable Assets
After discussing some current trends in the M&A space, Montero showcased that the companies most likely to emerge strongly from the COVID-19 crisis will be those that adapt to their unique situations and pivot their M&A activities toward the most relevant and attractive opportunities.
Velocity Global’s International PEO solution is particularly helpful in carveouts (which we typically see during downturns like the one COVID-19 is creating) and cross-border M&A deals. This employment method enables companies to quickly and compliantly onboard new employees in the countries where they do not have existing entities. International PEO gives companies the ability to confidently act on global assets, knowing they can seamlessly cover operational integration.
Going Global After COVID-19
COVID-19 has already created a shrinking global economy and forced many businesses to shut down. However, companies that still operate during this time have the opportunity to diversify their revenue streams now and better withstand economic uncertainty in the future. Before going abroad, businesses should utilize an agile hiring method like International PEO to reduce cost and minimize risk—two factors essential to most companies in this economic environment.
Ready to diversify your revenue streams in top markets around the globe? Contact us today. If you could not attend the webinar and would like more information about going global during and after the COVID-19 crisis, click here to watch the webinar in full.