If the past three years have taught Asian business leaders anything, it is to expect the unexpected. A pandemic. A war in Europe. Inflation. And then there are long-term issues such as climate change and the changing dynamics of globalization. In short, don’t expect a quiet life anytime soon.
No business can solve these problems on its own. What it can do, however, is prepare. When McKinsey examined the performance of more than 1,000 global companies during the 2008 to 2010 financial crisis, it found the most resilient ones suffered less during the downturn, recovered faster, and then kept going. That is why resilience matters: it is an essential element of competitive advantage.
The stakes may be higher for Asia than any other region because that’s where the action is. Asia is the world’s engine of growth, accounting for more than half of global investment over the past decade. It is also a leader in critical industries, such as semiconductors and technical and business innovation.
To stay strong and become more resilient, Asian companies need to focus on four areas.
Asia accounts for more than half of global emissions. Moreover, all its biggest economies—China, India, Indonesia, Japan, and South Korea—have pledged to reach net zero. Asia could spend as much as $70 trillion in capital on new physical assets by 2027.
Because Asia is a manufacturing hub, cutting emissions could be difficult. But decarbonization can also be an opportunity to improve operations and resilience. For example, by leveraging digital technologies, electronics manufacturer Western Digital increased production at its site in Penang, Malaysia, while cutting energy consumption and emissions by more than 40 percent. It is possible to deliver both economic and environmental performance, for example by creating new markets for low- or zero-carbon offerings. Ultimately, sustainable systems create more value and build more resilience than traditional ones.
Companies have a once-in-a-generation opportunity to future proof their supply chains. This is a priority because, while disruption is unpredictable, it is all but inevitable—a known risk that can be managed. Consider Toyota. After the Tohoku earthquake in Japan in 2011, production was down for six months. To avoid this sort of disruption in the future, the carmaker regionalized its supply chains and addressed supplier vulnerabilities. When another earthquake hit in 2016, it lost production for just two weeks. That is resilience in action.
There are several ways to improve supply-chain resilience, including simulations of reality, optimization of plans, real-time supply-chain nerve-center monitoring, and integrated business plans. Regardless of the choice, companies must have a clear picture of each link and the risks to them. Research has found that companies that had such visibility, in the form of digital dashboards, were twice as likely to avoid supply-chain problems. That kind of data can be used to inform scenario planning. In addition, while many companies have a good sense of the risks facing their top-tier suppliers, very few have similar insights into lower tiers. Building resilience requires closing these knowledge gaps.
While inflation is not as high in Asia as in other regions, it is higher than many markets are used to and it is ubiquitous—in just about every country and every sector, from labor to commodities. And then there is the uncertainty: no one knows where it is going. We recently asked 100 senior executives for their forecast: half said inflation would rise, half said it would fall. The point, then, is that businesses need to be equipped to deal with uncertainty. This is the moment for companies to take a deep look at their entire value chain and see what can be transformed to set them apart. By that, we mean reinvention, not belt-tightening. This can be an opportunity for radical product and service simplification, as well as the creation of higher upstream value and new business models.
Technology and digitization
COVID-19 accelerated the pace of digitization from slow and steady to warp speed. The sense of panic has reduced, but there should still be a sense of urgency, as there is a correlation between economic performance and effective digital transformations. By adopting an end-to-end digitization approach, it is possible to upgrade workforce skills and achieve markedly greater efficiency, productivity, and customer satisfaction. For example, when Agilent Technologies in Singapore deployed digital twins powered by the Internet of Things, AI, and robotic automation solutions, it increased output by 80 percent, productivity by 60 percent, and cycle time by 30 percent.
The guiding principle is to be both strategic and ambitious: digital strategies that involve incremental changes don’t deliver the economic success that bolder ones do. Top performers are more aggressive in developing and monetizing proprietary assets, and are ahead of the pack in terms of adoption of the public cloud.
These are big and varied issues, but they are closely related. For example, climate change cannot be addressed without cutting supply-chain emissions. Digital transformations that make companies more efficient also make them greener because every kilowatt-hour counts. And that is the point: resilience is not about getting one thing right but getting many things right, at the same time. That is how companies can prepare themselves for the future—whatever it brings.
This article originally appeared in The Business Times on December 20, 2022, and is reprinted here by permission.