This year, the economic outlook is better in much of Asia than in North America or Europe. However, the post-Covid recovery is faltering as inflation rises in many countries and consumer and investor confidence falls. In conversations with executives across Asia, there is a common theme: they are uncertain about the future and worried about economic and geopolitical instability.
Of course, they have been living in uncertainty for years. Indeed, one of the many lessons of Covid-19 is the power of resilience: companies that were resilient survived and even prospered. Those that weren’t turned out to be weaker.
Resilience matters in good, bad and indifferent times, but it really shines in times of crisis. Consider the financial crisis that began in 2008. McKinsey research based on more than 1,000 publicly traded companies in North America and Europe found that the most resilient companies shared a common factor: they acted quickly. The best CEOs focused on beating the odds by making bold moves early, before the downturn. Through it, their scores dropped less. And when conditions improved, they returned faster.
Will the current business cycle worsen in Asia? The answer to this question will undoubtedly vary from region to region; countries such as India, Indonesia and Vietnam are still experiencing relatively good growth, while the economy has slowed in countries such as South Korea.
But senior executives must be ready. A turnaround in the business cycle requires leadership. This is a time when companies can solidify their trajectory for the next few years. Here are five things Asian companies can do to become more resilient and build long-term growth:
Look in the mirror. What sets resilient companies apart is that even in the face of uncertainty, they don’t waver. They act. They are able to act because they are ready for it. And that starts with self-awareness—that is, identifying the critical risks and disruptions they face, both now and in the next few years.
Clear balances. Before the 2008 financial crisis, resilient companies had already cleaned up their balance sheets by cutting operating costs and reducing their debt by an average of $1.20 for every $1 of equity. In contrast, their less resilient peers added more than $3 in debt. This made the difference: resilient companies were in a much stronger position when conditions turned sour. The same is true during the pandemic. In both cases, the important thing is that they were largely in a stable financial position. They had room to maneuver, whether that meant making acquisitions or just riding things out.
Looking back at the financial crisis, three of the characteristics of resilient companies were programmatic M&A, selling more than other companies during the downturn (2009-2011), and acquiring more during the recovery (2010-11). Clean balance sheets made this possible.
The last time global inflation was this high was in the early 1980s, so even very experienced leaders have not been through this kind of environment. Every business would do well to develop an inflation strategy.
Develop an inflation management manual. The last time global inflation was this high was in the early 1980s, so even very experienced leaders have not been through this kind of environment. Every business would do well to develop an inflation strategy.
This may include rethinking products and service delivery to increase efficiency; mobilizing procurement to resolve supply constraints and suggesting ways to reduce costs and of course pricing strategy. Raising prices is sometimes necessary, but almost always unpleasant. However, it may be possible for revaluation to become an opportunity to connect with customers. For example, a number of distribution companies have resisted raising prices across the board in favor of charging for special services such as express delivery. Adjusting for inflation-driven price increases in this way – taking into account consumer and product segments – can ease the pain.
Promoting operational flexibility. When Covid-19 hit, the most resilient companies created small and empowered cross-functional teams. They also invested more in collaboration technology, team building and leadership training. Companies did this out of necessity, and now they’re doubling down on these practices for one simple reason: they worked. To succeed, teams must have clear strategic direction and receive good training and meaningful recognition. The basic principle is to focus on results, not on inputs or processes.
Rethink talent recruitment and cultivation. Executives know how difficult it is to attract and retain talent these days. If growth slows or reverses, some talent pools – particularly those for digital skills – may open up. Resilient companies are well positioned to attract talent that may become available. To do this, companies need to look at their employee value propositions and ensure that what they offer aligns with what candidates want. Money and progress are important, but not enough. The McKinsey study found that employees increasingly value factors such as growth, engagement and well-being.
A turnaround in the business cycle requires leadership. But the best business leaders don’t wait for change to become obvious to everyone; they act.
During the pandemic, many Asian companies have reinvented the way they work faster and more deeply than they ever thought possible. They can do it again. Those who embrace this moment to strengthen their resilience could break away from the pack, positioning their companies for success.
This article originally appeared on Bloomberg on September 14, 2022 and is reprinted here with permission.