Business leaders in Asia-Pacific are focusing on navigating the immediate impact of the coronavirus pandemic on supply chains, revenue and profitability, while reconfiguring capital allocation and M&A plans for the post-crisis world, said EY.
According to the firm’s EY Global Capital Confidence Barometer (CCB) Asia-Pacific, the vast majority (94%) of Asia-Pacific respondents out of nearly 900 C-executives in the region survey by the firm, expect the health crisis to have a severe impact on the global economy due to forced shut downs, stringent safe distancing measures causing travel, work and supply chain disruptions, and declining consumption.
The survey collected responses from more than 2,900 global respondents, EY said.
While Asia-Pacific companies were the first to experience the full business impact of the COVID-19 crisis, which allowed them to be further along in terms of proactive responses and planning, every sector is experiencing the direct or indirect impact of the crisis, EY pointed out.
Almost all (96%) of global and Asia-Pacific respondents reporting that crisis will cause a decline in profitability while more than half (55%) of Asia-Pacific respondents expect a slower economic recovery, extending into 2021.
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, EY said.
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, according to survey results.
This is significantly above the 10-year global CCB average (43%), EY pointed out.
Looking for the new business normal
While the slower economic recovery expectations are not a surprise, a majority of companies are realizing that they will be in a very different situation in the post-crisis future, said Harsha Basnayake, EY Asia-Pacific Transaction Advisory Services Leader.
“As a result, many corporate executives are looking for the new business ‘normal’, Basnayake observed. “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%), EY said.
Preparing for what comes next
Executives are also planning their future beyond the crisis and Asia-Pacific companies are taking more proactive steps than their global counterparts.
- 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)
- 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%).
Many Asia-Pacific companies (72%) already had major transformation initiatives underway, triggered as a result of pressure on revenue targets and to protect profitability, EY said.
Pre-crisis, transformation was high on the corporate agenda, but the pandemic has created a need to reassess, EY pointed out. 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, the firm added.
Post-crisis recovery points through M&A
With the majority of companies assuming a recovery in the medium-term, 52% of Asia-Pacific respondents plan to actively pursue M&A in the next 12 months.
In addition, 80% of Asia-Pacific respondents are expecting to see increasing competition for assets in the next 12 months and they expect that a majority (57%) of the competition to come from private capital.