Should one invest just in a time of crisis?
The United Nations Conference on Trade and Development (UNCTAD) reported that global foreign direct investment declined by 42 percent in the previous year. Companies all over the world are more hesitant to invest abroad than they have been for a long time. In the light of the worldwide pandemic and its economic impacts, it seems particularly risky at this time to invest in opening up new markets, getting closer to customers and reducing costs or transport distances.
Nevertheless, it could be just the right time now for some companies to act anti-cyclically and leverage the "first mover advantage". There are three underlying reasons for investing just in a time of crisis.
First, European countries in particular have faced unprecedented declines in their economic output as a result of the lockdowns and crisis in consumer confidence. Up until now, Austria has been rather successful in its attempts to compensate for the loss of income suffered by the population and also, in part, by the corporate sector. A large portion of this money is waiting to be spent as soon as customer confidence is restored. This phase is likely to begin in the second half of 2021 as soon as a sufficiently high vaccination rate is achieved, and the governments are able to lift most of the health-related restrictions once again. In turn, this will lead to an economic upswing which will be more dynamic than has been witnessed for decades. As a consequence of the crisis, many companies have reduced their capacities, opening up special opportunities for those who are fast, also abroad - if a company succeeds in positioning itself on the market early enough.
Second, many companies have complained, amongst other things, about the lack of skilled employees internationally over the past few years. It is already clearly obvious that the availability of qualified employees will rise once again for the time being as a result of the crisis. This means that the faster one is able to establish a company and seize opportunities on the labour market, the larger the pool of potential employees will be.
Third, some countries, including Austria, offer crisis-related funding for new investments. The Alpine Republic enacted the investment premium, in which seven percent of all new investments in tangible and intangible fixed assets are funded by the state. The government subsidy is even increased to fourteen percent of the total investments if they are made in the fields of digitalisation, climate protection or health and life sciences. These funding instruments are also limited in time.
The vast majority of these arguments also apply to companies operating on their domestic markets. However, it might just be an appropriate time for some companies to establish a foothold in a new market, appeal to new customer segments or come closer to existing customers in the future. Austria is especially well suited for small and medium-sized German companies. This is because the market is manageable in terms of its size and quality against the backdrop of the population's high purchasing power. Moreover, the people speak the same language, and the legal and educational systems compare well with their counterparts in Germany. All in all, this facilitates and accelerates market entry.
Find out more about the investment premium here.