1. “Go local” to support domestic economies
The first policy shift is increased government intervention to boost domestic growth and national competitiveness. Several Asian governments are crafting ambitious economic development goals, intervening heavily to foster domestic industries. China, for example, is investing in digital technology such as 5G, big data, and artificial intelligence. And governments across Southeast Asia are supporting emerging FinTech industries. Yet sustained government intervention also creates greater potential regulatory risks – particularly if a slow economic recovery induces policymakers to protect domestic industries at the expense of foreign companies.
Our advice for mitigating the risks associated with such policies? “Go local” to help governments support domestic growth and national competitiveness by collaborating with local entities, often through joint ventures. It requires deep immersion and the slow-and-steady accumulation of political capital to unlock additional opportunities in the future. Companies that will be most successful in Asian markets will demonstrate to policymakers their long term commitment to the local economy.
2. Diversify supply chains
Government policy-driven incentives for supply chain reorientation are the second key shift. The COVID-19 pandemic has triggered a reassessment of supply chains globally and within Asia, where companies source everything from palm oil to cell phones and medical supplies. Established supply chains are often “sticky” due to strong manufacturing ecosystems for certain products in key markets, and Asian governments are offering tax and other economic incentives for companies to relocate production and supply chains to enhance resilience in the COVID-19 era.
Reliance on China makes the global medical supply chain vulnerable
Companies should evaluate governments’ investment attraction and production relocation policies as part of any supply chain diversification within Asia. Capitalizing on these incentives should be done in a way that balances enhancing supply chain resiliency with the added cost and reduced efficiency that diversification may entail. It’s in this way that supply chains are becoming more intricately tied to overall strategies. For many companies, maintaining the ability to serve the Chinese domestic market will be crucial. The “China Plus” model – where producers expand to other markets while retaining their footprint in China – may be an effective strategy for many companies to pursue.
3. Target the Asian consumer
Escalating geopolitical tensions are affecting the Asian business environment, with US-China tensions particularly impactful for companies around the world. Yet this creates a silver lining for companies operating in Asia: policymakers are deepening regional trade ties, which will result in larger, more integrated consumer markets. Most notably, there’s a renewed focus on finalizing the Regional Comprehensive Economic Partnership (RCEP) – a bloc of 15 Asian countries that comprise approximately 30% of global trade. And Asian governments are using direct cash payments and other stimulus measures to support consumer spending during the COVID-19 crisis.
Regional Comprehensive Economic Partnership (RCEP)
30%of global trade comes from RCEP – a bloc of 15 Asian countries.
Companies should continue to target the Asian consumer for future commercial growth. Asia already accounts for more than half of the global middle class – a share likely to grow in coming years, driven by China, Southeast Asia and South Asia. Rising geopolitical tensions make the case for developing stronger ties to Asian consumers even more crucial. Rapid expansion of the Asian middle class will not only provide opportunities to companies in the consumer sector, but in pharmaceuticals, energy, industrial materials, and financial services.
Asia already accounts for more than half of the middle class and is set to grow further
Companies need a geostrategy for Asian markets
Winning across Asian markets is a strategic imperative for multinational companies. Even as the COVID-19 crisis continues, Asia is poised to lead the global recovery. But this recovery will largely be shaped by government policy interventions, creating political risks that can have a profound effect on enterprise resilience. Executives should develop a geostrategy for Asian markets – incorporating political risk management into their broader risk management, governance and strategies in Asia – to capitalize on opportunities while also mitigating the risks that come with more active government intervention in economies throughout the region.
Summary
Even as the COVID-19 crisis continues, Asia is poised to lead the global recovery. Government interventions are driving the economic recovery – and simultaneously reshaping the business environment. Companies should adjust their Asia strategies to incorporate political risk management in order to capitalize on the opportunities while also mitigating the risks that come with more active government intervention in economies.
