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Moving on From COVID-19

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How Canadian businesses will evolve over the next two years?

The latest HSBC Navigator report contains some fascinating insights about how Canadian businesses, many of them battered by the COVID-19 pandemic this year, are viewing the next two years in areas that include global trade and sustainability.

According to the survey of businesses in 39 markets, including more than 500 in Canada, almost half of Canadian companies (46%) called the COVID-19 second wave the leading threat to business growth, followed by reduced consumer demand and supply chain disruptions.

But they’re feeling optimistic about the future in the aftermath of the pandemic — 81% expect to return to pre-COVID levels of profitability by the end of 2022.

“COVID-19 has been the primary threat to growth and recovery, but Canadian companies are feeling much more bullish about the next two years,” says Dan Leslie, Senior Vice President and Head of Client Coverage, HSBC Bank Canada.

“What’s more, while half of Canadian companies are considering cutting costs, most have noted that future success will require workplace upskilling as well as expanding into new markets.”

Nonetheless it’s very much a two-speed recovery process. The survey found that high-growth businesses are making online advancements while slow-growth companies are seeing sales declines. But both high-growth and slow-growth companies (44%) regard innovation to be the most defining feature of a successful business.

Canadian companies also now regard success as requiring more than just profit; it’s also about culture, sustainability and innovation.

Business and Entrepreneurship

Most Canadian companies are prepared to spend in order to grow — even businesses with declining sales.

More than six in 10 businesses surveyed (62%) plan to increase investment in the next year, with a greater focus on environmental and ethical sustainability. Furthermore, companies in Quebec and Ontario are keen on increasing investment in technology.

They intend to focus their investment on two fundamental areas in 2021 – customer experience and employee well-being. They hope to do so by investing in technology that assists customer targeting and improves customer experience.

“Businesses are now investing to deliver value over the long term, prioritizing investment over immediate shareholder returns,” Leslie says.

Trade and Internationalism

Although there has been an understandable drop in international trade throughout 2020, there’s still a steady 27% of Canadian companies conducting more than half their business internationally. At the moment, about 75% of that international trade takes place in North America, but trade with Europe is expected to increase over the next three to five years.

HSBC research has also revealed close to three quarters (73%) of Canadian companies expect their sales in China to grow over the next two years: it continues to be a target destination market and a key player in Canadian supply chains.

The Navigator survey found Canadian companies recognize the many varied benefits of international trade for their business, for the communities where they operate and for consumers.

“Companies see the benefits of international trade for their business and broader society,” Leslie points out.

Many feel a reduction in international trade would impact their business in three main ways — a drop in customer demand, a loss of employee mobility and limited supply of raw materials.

Sustainability

Approximately 65% of companies have set targets for a broad range of ESG (environmental, social and governance) initiatives.

The Navigator survey found an increasing number of businesses are embracing ESG compared to 2019. As many as four in 10 already have annual targets in place, and almost a quarter of businesses have set targets for 2025.

The majority of Canadian companies think the most important opportunities to improve its ESG efforts are workplace-focused – promoting employee well-being and enabling new ways of working.

Many see commercial benefits in becoming more sustainable and expect their sales to grow through their greater focus on sustainability. Government incentives and workforce engagements are both important to helping businesses become more sustainable.

“Companies are increasingly recognizing that sustainability is also good for business,” says Leslie. “External pressures from governments and consumers are also galvanizing businesses into action.”

Supply Chains

The survey found that a large majority of Canadian businesses (93%) have concerns about their supply chains. Their key concerns are increasing costs, suppliers not meeting sustainability requirements and suppliers who aren’t sufficiently agile.

In response to these concerns, businesses have been selecting suppliers based on their country/government’s control of COVID-19, and increasing usage of digital/technology. The key benefits expected are cost reduction, increasing speed to market and enhanced security.

Looking to 2021, half of Canadian businesses plan to focus on suppliers closer to their customers or closer to home, and to choose suppliers based on their operational resilience and ability to deliver quickly.

“All of this reflects the need to increase the security of their supply chains in the event of another black swan event like the COVID-19 pandemic,” Leslie says.

Contact HSBC to discuss how your business can navigate the short term to thrive in the years ahead.

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