COVID-19 ushered in a new reality for businesses, governments and people. As part of our efforts to ensure you thrive, and not just survive, in this new reality, KPMG has launched a webinar series titled Managing in the new reality.
In each session, experts and industry leaders will share their thoughts and provide insights to help you successfully navigate the post-pandemic landscape.
In this first webinar - Asia Pacific after COVID-19: new forces, new dynamics, new era - presented live on 10 June 2020, speakers elaborated on the new forces and dynamics that will influence how Asia Pacific and the world will emerge from the crisis. Participating in the session were:
The diverse backgrounds of the speakers led to some unique perspectives. Nonetheless, several common themes emerged. For those who missed the webinar, here are the four primary themes.
Although the underlying causes of the 2008 Global Financial Crisis (GFC) were very different from what we are going through today, it still serves as a useful point of comparison. As Dhawan noted, the GFC triggered a coordinated global response from both governments and central banks, something that – barring some minor central bank coordination – is missing this time around. It has been a largely unilateral approach.
As such, the recovery will happen at different speeds and trajectories depending on country and industry. We can see how this is playing out in how Asia has been more successful at managing the crisis – at least from a health perspective – compared to its Western counterparts. China's response, in particular, has been the envy of the world. From a fiscal management perspective, it seems to have been able to walk the fine line of providing economic stimulus while simultaneously managing future financial risk.
Still, Asia Pacific is far from a homogenous entity. Even within ASEAN - the Association of Southeast Asian Nations - we see differing roads to recovery. Consider how Vietnam – which took aggressive measures as early as January – is faring. As Ling noted, Vietnam is still expected to a have a positive GDP growth for 2020, compared to sharp contractions for countries like Singapore and Thailand.
These differences aside, ASEAN and Asia Pacific are likely to be overall net gainers. The uncoordinated global response presents an opportunity for them to 'build back better' and forge closer bilateral relationships. Examples Dhawan brought up included Indonesia's omnibus job creation bill – which could boost foreign direct investment – and Vietnam's free trade agreement with the European Union (EU).
The brighter outlook for Asia Pacific notwithstanding, the speakers cautioned that it would be a mistake to relax and think that the worst is behind us. Risk and uncertainty remain heightened, and trajectories are negative overall for a recovery in global trade patterns. The slower recovery in the US and EU could prove to be a headwind for Asia's recovery prospects, even with Dhawan expecting a fourth stimulus package in the US and the European Commission to approve its major recovery plan in July (he estimates a further six- to eight-month lag for the funds to reach member countries).
Another source of uncertainty stems from the financial markets. Here, the GFC proves to be a useful basis for comparison yet again. As Dr Rynne noted, the GFC started in the financial markets and spilled over into the real economy – it was a demand-side constraint. The COVID-19 crisis is the opposite, a supply-side constraint that began in the real economy and has spilled over into the financial markets. This creates a further feedback loop where the repercussions in the financial markets can in turn flow through to the real economy. The full effect of this is yet unknown.
Then, there is still the potential for future infection waves. The health crisis is far from resolved, and the current social unrest in the US may undo all the efforts taken thus far to limit the spread of the virus. Dhawan also noted his number one risk for 2020 – potentially resulting from the confluence of electronic voting and social dynamics – that the loser of the November US presidential election will challenge the result in the courts, further stalling economic recovery.
Finally, countries everywhere must also grapple with two issues: the length of time they can keep their economy “closed” and how they will pay for the unprecedented levels of fiscal stimulus. As Dr Rynne observed, paying it back seems unfeasible, meaning the preferred option is to “grow your way out of debt”, i.e. making the debt pile nominally smaller. However, every country wants to do that, which makes it easier said than done, especially considering the lack of global policy coordination.
Amid persistent uncertainty, it was unanimously agreed that the best move for both businesses and governments is staying agile. As Ling noted, the old paradigm of business operating models, prior to the pandemic, may have been cost-efficiency, but the new paradigm required to navigate the current crisis and beyond is agility.
For instance, from the supply chain perspective, a hybrid model of both localized and global supply chains is likely to emerge, which allows for scale but also agility in the face of crises. Even governments themselves have switched to a “quarterly forecasting” and “zero-cost budgeting model” to reflect the inherent uncertainty. The next few quarters will be difficult, so it is important to stay agile and continually reassess the situation.
Here, Fabre's experience was particularly enlightening. His company – Lagardère Travel Retail – saw its business affected as early as late January. It was forced to pivot and reinvent its business model; at one point, despite being primarily a physical retailer, 90 percent of sales were delivered through online channels such as WeChat and Weibo. While the situation remains fluid, his company has weathered the storm to date. His key learning? Empower frontline staff. They are the closest to the ground and are thus the ones best equipped to come up with strategies. The key to agility is to allow innovation to percolate from the bottom up, instead of top-down.
This is a serious global crisis that cannot be downplayed. But, at the same time, it is also a time to reflect how we can revamp the way we do things, to build back better – something all the speakers agreed with. As Fabre noted, this is an opportunity for organizations to push the envelope and redesign their businesses for the future.
Something else all agreed on were the two key focal points for building back better – ESG (Environmental, Social and Corporate Governance) and digital transformation. According to Dhawan, the crisis has caused a shift in ESG priorities. While environmental issues were in the driver's seat before, he now sees sustainability accelerating to the forefront. As rightful concerns surrounding the pandemic's potential to further exacerbate income inequality are raised, he sees it leading to an increased understanding that society should provide for the common good and that companies should have a sense of purpose.
Digital transformation was also highlighted as a key value-add for the post-COVID-19 environment. Here again, Asia stands out. With its young, digitally literate population, the sheer amount of data it will be able to generate will be a boon for machine learning algorithms, thus increasing the region's “transformation journey potential”. As Ling noted, the key to unlocking this potential begins with data sharing. However, this does not necessarily need to be a common standard with a binary compliance approach. Tolerating and accepting a range of acceptable standards might be the way forward, as it recognizes and celebrates our uniqueness.
To listen to these insights in greater detail, watch the replay below. The speakers also took several interesting questions from the audience, and you can hear them all on the replay.
Click on the closed-captions button to display English subtitles.
If you want to equip yourself with more knowledge on how you can thrive in the new post-COVID-19 reality, don't miss the next webinar in the series.
Summary and recording available - Globalization revisited: trade, investment and value chains in Asia Pacific.
Second episode in the 'Managing in the new reality' webinar series.
The views and opinions expressed herein are those of the webinar speakers and do not necessarily represent the views and opinions of KPMG International or KPMG member firms.