How global expansion mitigates a recession’s impacts

Presented by Velocity Global

Economists, academics, and top executives increasingly predict that a global recession is on the horizon within the next year. In fact, when looking at the previous financial crisis back in 2008, there are many parallels to the current market conditions. Specifically, these financial experts see a sluggish stock market, an inverted yield curve (which is a precursor to every U.S. recession since the mid-1950s), and Federal Reserve rate cuts.

In addition to market similarities with the Great Recession, we must consider current socio-economic and political factors, including uncertainty around Brexit, the ongoing U.S.-China trade dispute, and a slowing GDP growth rate in the U.S.

The last recession not only forced many companies to rethink their business strategies, but also caused thousands of workers in the U.S. and around the world to lose their jobs. No company wants to repeat history, so how can high-growth tech firms find success when the next recession hits?

Despite unsettling economic forecasts, global expansion provides tech leaders an opportunity to grow their businesses — even under volatile market conditions.

How one business’ global presence prepared it for the financial crisis

As tech leaders adjust their 2020 business strategies to account for a potential recession, there is one company they must turn to as an example. IBM, one of the oldest and well-known tech companies in the U.S., illustrates how global expansion helps mitigate recession risks.

IBM 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.

Tech firms of all sizes need to utilize a similar strategy; greater market diversity increases tech firms’ odds of success during economic downturns.

Promising markets for tech firms navigating a recession

While IBM found success by leaning on its branch offices throughout Asia, current market conditions indicate that this Asia-centric strategy does not apply to a 2020 recession.

For example, China was a top market for IBM during the Great Recession; however, the country’s contributions to Southeast Asia’s relative economic stability in 2008 are not as substantial as they once were. China’s GDP growth rate is slowing down, and its economy relies heavily on exports to the U.S. and Europe. This reliance means that, if the U.S. and Europe suffer economic blows, then China will also feel the financial hardship.

If a recession occurs in the next year, Asia will not offer the same level of assurance it did a decade prior. So, where should tech leaders head to ride out a 2020 recession?

The Global Expansion Tech Index, included in Velocity Global’s The State of Global Expansion 2019 Report: Technology Industry, ranks 50 of the most promising markets to help tech companies decide where to grow.

Here are three markets around the globe featured in the Global Expansion Tech Index that show strong economic growth, offer qualified tech talent, and are ready to withstand financial turmoil in the U.S.:

1. The Netherlands

The Netherlands, and its capital Amsterdam in particular, is one of Europe’s top tech hubs and continues to grow. It attracts top talent from around the world, currently employing over 250,000 tech workers, which is about 13% of the Netherlands’ overall economy. The Netherlands’ GDP growth rate exceeds other Western European markets at 2%.

2. Germany

Another top European market is The Netherlands’ neighbor, Germany. Its economy ranked highly in the Global Expansion Tech Index.

Germany’s tech capital, Berlin, boasts 50% of all startups in the country and employs over 100,000 tech workers. To fill much-needed roles, Germany’s Skilled Labour Immigration Act makes it easier for skilled, non-European Union workers to immigrate to Germany.

3. Australia

Australia is the only major economy not to experience an impactful economic recession in nearly 30 years. Its GDP grew, on average, 3.2% annually since 1992. With a projected GDP growth of 2.4% in the next four years, tech firms expect stability.

The country is also one of the world’s most startup-friendly markets. Its English-speaking population and similar western culture make it a natural move for many tech firms from the West.

Surviving a recession requires flexibility

When all signs point to a recession, these predictions cause panic among business executives. However, growing tech companies find stability even in volatile markets by diversifying their revenue streams in foreign countries.

While weathering a looming recession is critical, the benefits of global expansion go beyond simply attaining more consistent business. International expansion enables tech companies to attract top talent and carve out a market presence before their competition.

Making a global move with a recession on the horizon leaves many business leaders feeling uneasy — but there are flexible, risk-averse solutions that allow companies to enter or exit almost any overseas market quickly — and diversify their revenue streams before another recession.

Ben Wright is CEO of Velocity Global.

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