Welcome to the second edition of our webinar series — Managing in the new reality. Each session, we bring in a panel of experts and industry leaders to share actionable insights to help you successfully navigate an environment dominated by the COVID-19 pandemic.
In this webinar, presented live on 19 August 2020, KPMG posed the question: how has the pandemic impacted value chains — the “bloodline” of modern industries — within Asia Pacific?
Globalization was the prime discussion topic. Today, the geopolitical tides are seemingly shifting against globalization, leading many to ask whether this could be the end of the “global marketplace” as we know it.
As always, our experts had many valuable insights. Our panelists for this session were:
These were the four primary themes.
Despite this global backdrop, the panelists believe that Asia Pacific is — and is likely to remain — a relative outperformer. The key to this is how well countries have been able to strike the tricky balance between pandemic control and reopening their economies. In that respect, Kang observed that China has done remarkably well. In fact, its economy returned to growth in the second quarter, and this was on a year-on-year (as opposed to quarter-on-quarter) basis.
Further, Dhawan noted that when the Eurasia Group rated countries on three measures relating to health, the economy and stability in relation to pandemic response, all the top five countries were from Asia Pacific.
Drilling down into the emerging market side of the world, his consultancy – Eurasia - also ranked countries along five dimensions that summarized how well their value chains were being restarted. Here, ASEAN economies stood out well versus their emerging-market peers, although he noted that ASEAN economies still have one major weakness: infrastructure quality.
US–China relations had been a topic of contention long before the world ever heard of COVID-19. But with the virus first identified in China and having quickly spread around the world, the pandemic appears to have only added to this tension. In our first webinar in June, Dhawan highlighted his top three global risks: worsening US–China relations; the risk that the November presidential election will be seen as illegitimate by a significant portion of the population; and the risk that technology will become politicized.
Returning for the second edition, Dhawan shared that, unfortunately, he believes that all three risks have strengthened, with geopolitical tensions having increased in the ensuing time. He believes it would be wise for companies to consider a more difficult US–China relationship — even if the Democrats win the election — as a fundamental operating assumption.
However, while this is certainly a less-than-ideal situation from a global perspective, the situation within Asia Pacific looks brighter.
The discussion then took a broader perspective as the panelists tackled the issue of globalization — is it really on the back foot? Wolfers asserted that the pandemic has forced an increase in digitalization. He cautioned that many confuse disruption with de-globalization: while digitalization is indeed causing disruption, that is not to be confused with a diminishing interdependence between countries.
As a practical example, Ong chimed in with how the pharmaceutical and healthcare industry responded during the pandemic. Although healthcare is an industry where face-to-face interaction is paramount and the idea of digital interactions were “unthought of,” both the industry and the market adapted. She cited examples of how Janssen Pharmaceutical collaborated with Alibaba to offer location-based services so patients could locate medicine and Australia’s “Virtual Nurse” program, concluding that much of the digitalization in healthcare could well be permanent.
In short, the panelists believed digitalization — which emerged as a necessary response to the pandemic’s disruption of value chains — is only accelerating, and it is bringing the world closer to, not away from, globalization.
However, while digitalization is a powerful force supporting the “global marketplace,” it cannot be its sole pillar. Governments must also play their part.
With the pandemic severely affecting SMEs, typically the largest employer group in Asia Pacific, governments have rightfully been giving them — along with the lower to middle-income class — the necessary support. As Kang noted, this is essential not only for employment, but for the broader picture of social stability as well, making this support an important government responsibility.
Yet, governments also have a responsibility in facilitating free trade, particularly through pushing free-trade agreements forward. As Dr Sta Maria notes, free-trade agreements not only lead to greater predictability and transparency, but also instill various important “disciplines” in the business community. She cites the example of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), which she considers the “gold standard” of free-trade agreements as it goes beyond mere market access and investment, but also stipulates practices surrounding vital areas such as intellectual property, as well as environmental and human rights.
Given these benefits, free-trade agreements are something governments should actively champion especially as they — along with businesses — are now transitioning from the reactive to proactive phase.
After global markets cratered toward the end of the first quarter, we have seen a significant recovery in most financial markets and many economies have begun the process of reopening. In short, we are now transitioning from the reactive to proactive phase, and Wolfers observes that we will see the most significant changes in value chains in the next six to nine months.
But he also raises the longer-term question: how will governments finance the costs of the recovery? The larger trend is supportive of globalization and he notes that Asia Pacific will be a likely beneficiary as businesses diversify their supply chains. In the longer term, however, there will also be a significant shift in value chains, as well as taxation regimes, as governments look ahead toward the long road to recovery.
To listen to these insights in greater detail, watch the replay below. The panelists 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 - Asia Pacific after COVID-19: new forces, new dynamics, new era
Webinar 'Asia Pacific after COVID-19: new forces, new dynamics, new era'.
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.