3 opportunities for business leaders in Asia to revive growth
Dark clouds over the global economy are dampening growth in Asia, according to the International Monetary Fund (IMF). Weaker global trade, adverse sentiment and spillovers from China’s economic slowdown forecast a deceleration in Asia Pacific’s growth to 5.3 per cent for the 2017 financial year.
Even in the midst of this challenging economic environment, business leaders in Asia have reason for cheer. Digital globalisation has emerged as a leading source of growth in the region. Indeed, from a negligible contribution 15 years ago, data flows have now rocketed to become the dominant form of globalisation – accounting for a US$2.8 trillion, or 3 per cent, increase in world GDP by 2014, more than the impact from goods trade.
Digital globalisation is opening up new markets that business leaders can capitalise on, both online and offline. It’s fuelling a new booming trade in virtual goods and enabling companies to tap rural areas with strong growth potential. Much like Alibaba did when it set up more than 10,000 village service centres as part of its rural e-commerce growth strategy in China.
The McKinsey report has now shed light on growth opportunities arising from digital globalisation. Turbulence Ahead: Renewing Consensus Amidst Greater Volatility highlights three significant opportunities for companies in the lower-growth environment, which are especially relevant for business leaders searching for ways to revive growth. Multinationals in Asia can capitalise on these opportunities to unlock demand, inclusion and productivity and reawaken growth.
Seek out demand
In today’s lower-growth environment, companies can still grow by seeking out and capitalising on opportunities in markets with stronger demand and growth prospects. According to McKinsey, the decision of where to compete explains nearly 80 per cent of growth differences amongst companies.
Business leaders would do well to examine demand opportunities in the Association of Southeast Asian Nations (ASEAN), “[one] of the world’s most dynamic and fastest growing regions”, according to Diaan-Yi Lin, Senior Partner, McKinsey and Company and Managing Partner, Singapore.
Lin pointed out that harnessing demand in ASEAN is anticipated to become easier with the creation of the ASEAN Economic Community (AEC). The AEC sets the stage for companies in the region to serve what is becoming a strong open market of more than 600 million people.
“For many multinational companies, Singapore is the gateway to ASEAN,” said Lin. The island-state’s world-class infrastructure and business environment is a major draw. Placing second on the World Bank’s ease of doing business ranking, Singapore is seen as an ideal location for companies to set up regional hubs. Many among the world’s largest global brands have done just that, including Unilever, L’Oreal and P&G – their Singapore base not only drives businesses in Asia Pacific, but also serves as global headquarters for divisions like Family Care.
“Singaporean businesses can help multinational companies navigate fast-changing markets in ASEAN such as Vietnam, which Indonesia Investment Coordinating Board (BKPM) chairman Thomas Lembong described as an ‘overnight sensation’,” said Lin.
Companies can also capitalise on demand opportunities arising from digital globalisation.
Susan Lund, Partner at the McKinsey Global Institute, said digital platforms, such as e-commerce marketplaces and social networks, give businesses enormous built-in customer bases and ways to interact with customers directly. “What’s more, digital platforms are helping companies enter new international markets without establishing a physical presence there,” she said.
“Another area of opportunity that is growing rapidly is trade in virtual goods, such as e-books, apps, online games, and music downloads, as well as streaming services, software, and cloud-computing services,” said Lund.
In order to capitalise on these demand opportunities, business leaders should consider making capital allocation more adaptive. The McKinsey study of 1600 firms found that those companies which reallocate capital more flexibly had a substantially higher growth rate and return to shareholders.
Raise productivity through digitisation
Digitisation also presents a huge opportunity for business leaders to unlock productivity gains - McKinsey calculated that it could contribute more than US$4 trillion to the global economy by 2025.
Digitisation is a game changer, especially in countries like Singapore, which stands apart in the ASEAN as a highly productive nation. Lin credited Singapore’s productivity in part to its high-quality infrastructure and skilled workforce.
She also said that government initiatives that enable and encourage use of digital technologies, such as Singapore’s Smart Nation, are also vital to capture the full "productivity potential”.
The Smart Nation strategy was devised in part to overcome local challenges, such as an ageing population and urban density, through the use of technologies such as next-generation connected and sensor networks, big data and analytics. These technologies can be deployed to raise productivity in a multitude of ways. For instance, Internet of Things tracking systems could potentially reduce food wastage in supply chains by monitoring container temperatures. DHL is leading the way in innovating logistics with such technologies, testing everything from self-driving vehicles to maintenance on demand in its Singapore-based Asia-Pacific Innovation Centre.
The productivity gains from digitally enabled technologies extend far beyond supply chains, as in the example of Korean startup Ecube Labs’ smart garbage bin, which is equipped with an ultrasonic sensor that can cut the operational cost of waste collection by signalling when it is full.
Lin pointed out that while developed countries have struggled to raise the productivity of knowledge and service workers over the past two decades, businesses can now leverage digital technologies to raise productivity further.
Expand inclusion to revive growth
Moving towards a more inclusive workforce also presents significant opportunities to boost growth. Economies and companies can increase labour force participation through initiatives that remove barriers to work faced by certain groups in society – such as women, the elderly and people with disabilities.
The link between expanding labour force participation and growth is clear. McKinsey estimates that falls in employment growth due to demographic ageing could cause global growth to slow by as much as 40 percent. On the other hand, equalising labour market participation for women could augment global GDP by as much as 26 per cent by 2025. The International Monetary Fund has also cited examples of how expanding inclusion for women can fuel economic growth, adding that female workers are more likely than men to invest in educating their children – enabling greater career opportunities for them in turn, and higher earning potential in the future.
Multinationals in Asia can follow the lead of corporate inclusion pioneers, such as Mitsui Fudosan Group. The Japanese trading house is well known for supporting women in the workplace by offering shorter hours and reimbursements for childcare. It also mobilises its retired employees to provide consulting services to businesses.
In Singapore, where women are well represented in the labour market, the inclusion opportunity lies in the nation's burgeoning digital economy. “Digitisation is creating new opportunities for flexible work, whether driving for Grab or Uber, or becoming an Airbnb host,” said Lin.
She added that talent platforms such as LinkedIn as well as sites that enable people to find one-off jobs, such as TaskRabbit, could ease labour market dysfunctions by more effectively connecting individuals with work opportunities “thereby boosting labour force participation”.
In today’s lower-growth environment, business leaders in Asia still have enticing opportunities to fuel growth by unlocking demand, productivity and inclusion. Companies can strengthen labour markets to stimulate demand, boost productivity through digitisation, and tap newfound opportunities in emerging markets. Recalibrating strategies to capitalise on these opportunities now can help businesses power through challenging times and prepare for the next wave of growth.
This article was written with reference to McKinsey & Company’s Turbulence Ahead: Renewing Consensus amidst Great Volatility, and insights from McKinsey and Company’s Senior Partner and Managing Partner for Singapore Diaan-Yi Lin, and Partner at the McKinsey Global Institute Susan Lund. The report, developed in Singapore and produced for debut exclusively for the Singapore Summit, feature business insights on future-oriented topics in finance, business and economics with a Global-Asia focus.
Edited by Goh Wei Ting, Sophie Chen and Kritika Srinivasan