'For those who are agile and recognise speed to response being key, there will be significant opportunities'
Leaders of organisations in Asia-Pacific are focusing on navigating the immediate impact of COVID-19 on supply chains, revenue and profitability, according to the 22nd edition of the EY Global Capital Confidence Barometer (CCB) Asia-Pacific.
Moreover, the vast majority (94%) of Asia-Pacific respondents to CCB, a survey of nearly 900 Asia-Pacific C-suite executives (from more than 2,900 global respondents), expect COVID-19 to have a severe impact on the global economy.
This is due to forced shut downs, stringent safe distancing measures causing travel, work and supply chain disruptions, and declining consumption.
APAC companies were the first to experience the full business impact of the COVID-19 crisis, allowing companies in the region to be further along in terms of proactive responses and planning.
Every sector is experiencing the direct or indirect impact of COVID-19, with almost all (96%) of global and Asia-Pacific respondents reporting that COVID-19 will cause a decline in profitability. More than half (55%) of Asia-Pacific respondents expect a slower economic recovery, extending into 2021.
Moreover, companies’ economic expectations have changed significantly from six months ago (the previous edition of CCB), when 72% of Asia-Pacific respondents were positive about global economic growth.
The sentiment plunged to 21% in early February, and further worsened to just 14% when the survey was closed in April. Despite a clear shift in economic outlook in the middle of February, M&A intentions among Asia-Pacific respondents remains robust, with 52% saying they will actively pursue M&A in the next 12 months. This is significantly above the 10-year global CCB average (43%).
Harsha Basnayake, EY Asia-Pacific Transaction Advisory Services Leader, said what every business is experiencing is a significant shock, given the multifaceted implications of COVID-19.
“I think most parts of Asia-Pacific are beyond the shock of the initial chaos and are now dealing with the next phase of possibilities,” said Basnayake.
“That is what we are seeing in these results. The slower economic recovery expectations are not a surprise, but a majority of companies are realizing that they will be in a very different situation in the post-crisis future. As a result, many corporate executives are looking for the new business ‘normal.’ We’re expecting to see a shift in many industries and large-scale transformations as companies adopt agility, flexibility and resilience into their business strategies.”
Executives are reviewing their operating models in response to the crisis. The increasing shutdown of activity in many parts of the world has exposed vulnerabilities in many companies’ supply chains, and a greater percentage of Asia-Pacific companies (67%) are taking steps to change their current supply chain configurations, compared with global companies (52%).
At the same time, governments around the world are proactively offering rescue packages in their countries to weather the impact of COVID-19. In Asia-Pacific, government interventions are focused on three priorities: protecting jobs, providing cash aid to support households and ensuring credit access and liquidity to support hard-hit sectors.
Executives are also planning their future beyond the crisis and Asia-Pacific companies are taking more proactive steps than their global counterparts. From the survey, 67% of Asia-Pacific respondents are taking steps to change supply chains (compared to 52% of global respondents), 55% to change management of workforce (compared to 39% of global respondents), 47% to change speed of automation (compared to 36% of global respondents) and 39% to change digital transformation (compared to 31% of global respondents). In China, the data is even more striking, with high percentages of respondents taking steps to change supply chains (73%), management of workforce (70%), speed of automation (71%) and digital transformation (66%).
According to the responses in CCB, many Asia-Pacific companies (72%) already had major transformation initiatives underway, triggered as a result of pressure on revenue targets and to protect profitability. Pre-crisis, transformation was high on the corporate agenda, but the COVID-19 environment has created a need to reassess. Companies will have to work through multiple possibilities and remain agile, so that when the health crisis is finally overcome, they can act fast and move decisively.
Basnayake concluded that businesses have to shift their focus to plan for the potential outcomes of this crisis, preparing for a range of scenarios, as we expect the business landscape to change significantly.
“For those who are agile and recognise speed to response being key, there will be significant opportunities. The need to embrace change is strongest when adapting to a crisis – and in many ways the unwelcome and unexpected emergence of COVID-19 will further cement transformational strategies in the boardroom.”