1st December 2020 – Buffeted by the pandemic and other headwinds, companies in Asia Pacific are doubling down on intra-regional trade to grow in the post-Covid world: 71% of APAC businesses that participated in the latest HSBC Navigator survey are trading within Asia Pacific, up from 67% in 2019.
Meanwhile, mainland China as a market continues to gain importance among companies in Asia Pacific: 18% of APAC businesses are prioritising mainland China, while 16% are prioritising the US. (In 2019 the figures were 18% for the US and 16% for mainland China.)
“Intra-regional trade already accounts for some 60% of Asia’s overall trade, and it’s a figure that will only grow when RCEP comes into effect,” says Stuart Tait, Regional Head of Commercial Banking, Asia-Pacific, HSBC. “Asian integration will not only strengthen the region’s role in the global trading system but also enable the next round of global economic growth.”
RCEP, or the Regional Comprehensive Economic Partnership, was recently signed by 15 Asia Pacific markets and will create the world’s largest trade bloc, covering around 30% of world GDP and population.
Buffeted but not blown off course
4,131 companies from 16 APAC markets – the largest sample size yet – participated in the latest HSBC Navigator survey. It comes as no surprise that business confidence has weakened considerably: only 60% of APAC companies expect revenue to grow in the coming year, down from 77% in 2019. The resurgence of Covid-19 and its knock-on effects – eg, a decrease in customer demand, supply-chain disruptions and workforce morale- are seen as the main threats to economic recovery.
Whether they are surviving or thriving in the post-Covid world, the top three strategies APAC companies will employ are improving the quality of their products and services, expanding into new markets (both 38%), and cutting costs (37%).
Cutting costs, however, does not equate to cutting investment. In fact, almost two in three (65%) APAC businesses will increase their investment in the coming year, primarily in sales and in marketing, as well as improving their cash flow and capital management (all 47%).
“You can’t cost-cut your way to growth, so it’s encouraging to see that businesses in Asia Pacific are increasing their investment,” added Tait. “In the current operating environment, businesses need to be extra judicious with how and where they can create value so that they can sharpen their competitive edge.”
Only as strong as its weakest link
The pandemic has also driven businesses everywhere to rethink their supply chains. In particular, the main concerns of APAC businesses are the stability of their suppliers (whether they are at risk of tariffs), rising costs, and the physical distance between suppliers and customers.
In response, APAC companies have diversified their supply chain so that they work with more suppliers; selected their suppliers based on the country’s handling of the pandemic; and ramped up the use of technology (all 34%).
These changes are expected to deliver the following benefits: reducing cost (39%), increasing speed to market (33%), and lowering unforeseen risks their supply chain partners are exposed to (33%).
