The economic outlook for this year is more buoyant in much of Asia than in North America and Europe. Still, the post-Covid rebound is leveling off as inflation rises in many countries and consumer and investor confidence declines. There are common themes in our conversations with managers across Asia. They are uncertain about the future and worry about economic and geopolitical instability.
Of course, they have lived with uncertainty for years. In fact, one of Covid-19’s many lessons is the power of resilience. Resilient businesses survived and even thrived. Those who do not know themselves to be weak.
Resilience is important in good times, bad times, and indifference, but it really shines in times of crisis. Consider the financial crisis that began in 2008. A McKinsey survey of more than 1,000 publicly traded companies in North America and Europe found that the most resilient companies have common factors. The best CEOs focused on overcoming the odds by taking bold early action ahead of the recession. During that time, their results didn’t drop much. And as the situation improved, they bounced back faster.
Will the current economic cycle in Asia worsen? The answer to this question will undoubtedly vary by region. Countries such as India, Indonesia and Vietnam are still seeing relatively good growth, while economies such as South Korea are slowing.
But senior executives should be prepared. Changing business cycles requires leadership. This is a time when companies can consolidate their trajectory for the next few years. Here are five things Asian businesses can do to build resilience and achieve long-term growth.
look in the mirror What sets resilient companies apart is their resilience in the face of uncertainty. they act. They are ready, so they can act. And it starts with self-awareness—identifying the significant risks and disruptions you face now and in the years to come.
Clean up your balance sheet. Prior to the 2008 financial crisis, resilient companies had already cleaned up their balance sheets, reduced operating costs, and reduced debt by an average of $1.20 per dollar of book value. By contrast, less resilient peers added more than $3 to his debt. This made the difference. Resilient businesses were in a much stronger position when things took a turn for the worse. The same was true during the pandemic. In both cases, the point is that most were in solid financial standing. They had room for manipulation, whether that meant buying out or just living things out.
Looking back at the financial crisis, three hallmarks of resilient companies are programmatic M&A, selling more during recessions (2009-2011) than others, and selling more during recovery (2010-2011). made more acquisitions. A clean balance sheet made that possible.
The last time global inflation was this high was in the early 1980s, so even many seasoned leaders have never experienced this kind of environment. All businesses are well suited to developing an inflation strategy.
Create a playbook for inflation management. The last time global inflation was this high was in the early 1980s, so even many seasoned leaders have never experienced this kind of environment. All businesses are well suited to developing an inflation strategy.
That can include rethinking product and service offerings to increase efficiency. We propose ways to mobilize procurement to solve supply constraints and reduce costs, and of course pricing strategies. Sometimes a price increase is necessary, but most of the time it’s uncomfortable. Nonetheless, there is a possibility that price revisions can be used as points of contact with customers. For example, many distributors resist blanket price increases in favor of charging fees for special services such as rush deliveries. Coordinating inflation-driven price increases in this way, with consumer and product segments in mind, can ease the pain.
Facilitate operational flexibility. When Covid-19 hit, the most resilient companies established small, empowered cross-functional teams. We also increased our investment in collaboration technology, team building, and leadership training. Companies did this out of necessity, but now they are doubling down on these practices for one simple reason. To be successful, teams must have clear strategic direction, good coaching and meaningful recognition. The basic principle is to focus on results, not inputs or processes.
Rethink talent recruitment and training. Executives know how difficult it is to attract and retain today’s talent. If growth slows or reverses, it could open up some talent pools, especially those in digital skills. Resilient companies are well placed to acquire talent that may become available. To do that, companies need to consider their employee’s value proposition and ensure that what they offer matches what candidates are looking for. Money and progress are important, but not enough. McKinsey research shows that employees are increasingly focusing on factors such as growth, engagement and happiness.
Changing business cycles requires leadership. But the best business his leader won’t wait for the changes to become apparent to everyone. they act.
During the pandemic, many Asian companies have reinvented the way they operate more quickly and thoroughly than once thought possible. they can do it again. Businesses that embrace this moment and strengthen their resilience can stand out from the crowd and set their companies on the path to success.
This article was originally published on Bloomberg on September 14, 2022 and is reprinted here with permission.
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