Tuesday, May 19, 2020

Life after lockdown: the view from Asia Pacific

Alongside China, many countries within the Asia Pacific region were the first in the world to go into lockdown when COVID-19 struck

Hard-line measures were introduced, affecting all aspects of peoples' lives, as governments scrambled to stem or halt the spread of the virus.

With the number of COVID-19 cases within many Asia Pacific territories now slowing, governments there are beginning to ease lockdown restrictions and allow some businesses to re-open. Some are taking one step further and re-opening their doors to international travel – and all under the watchful eyes of the rest of the world as we look at get a glimpse of what life after lockdown will look like.

Listen to the first of our Great Conversations Podcasts in which we look at life after lockdown in Asia Pacific.

Asia, in general, may be better prepared to handle COVID-19 than other regions, believes Harsh Maheshwari, Baker Tilly's Asia Pacific Regional Director.

"We've learned lessons from the prior epidemics of SARS and MERS: the infrastructure and procedures are in place in most Asian countries to tackle a crisis of this nature", says Maheshwari.

"The steps in place now – safe distancing, mandatory use of face-masks etc – are likely to continue or be mandated as businesses and economies open up.

"There's also going to be heavy reliance on technology, such as tracking apps for contact tracing, and an emphasis on digital transformation and reliance on online tools as people continue to work from home."

While the emergence of COVID-19 has presented many 'unknowns', one thing that most agree on is that the post COVID world is going to look quite different.

The pandemic has changed business drivers

"Business owners need to think less about restarting their business and think more along the lines of starting a business: answering the same questions that an entrepreneur or business founder asks themselves when they start a new venture," explains Maheshwari.

"What are the customer needs that I can serve? Where is the demand, and how do I configure my business, my production, my distribution supply chain etc to meet this new customer demand?

"Agility is one of the key factors that will determine which businesses survive. Resilience is also going to be another key factor.

"One of the interesting shifts that we are seeing from our clients' perspective is an impact on valuations.

"Until now, we've been talking about triple bottom line considerations, along with normal business profits. I think now companies are also going to be judged on how resilient they are to future shockwaves, whether that be epidemics, natural disasters or financial crashes."

"Our member firms across Asia Pacific are reassessing what clients are asking for. What are their pain points now, and how can we help them? We are seeing fantastic innovations around the real estate market, where we are helping landlords with financial assessments of their commercial tenants to determine what financial aid/rent holidays etc to offer."

One of the areas hit hard by the pandemic has been supply chains. And with China such a force in the global supply chain, there have been whispers that businesses should look to de-risk their own supply chain by moving out of China. Over recent weeks we’ve seen government support for this. The Japanese government has earmarked around $2 billion to help manufacturing plants move out of China, while the American and Korean governments have voiced their support for businesses in their respective countries to do the same.

But Maheshwari believes businesses will shun this idea, at least in the medium- to short-term.

"The Chinese assembly line will be swift to bounce back even as other countries are still in lockdown.

"There is a reason why China is called the factory of the world: they have the size and scale to produce goods economically, and they're able to start production quickly.

"On the flip side of the coin, companies may, in this environment, lack the funds necessary to invest in new operations or fiddle with their existing supply chain. Typically, supply chains for certain industries are incredibly complex, with components hopscotching across countries, meaning it’s difficult to move the entire assembly line.

"I think we are more likely to see a level of diversification in the supply chain to economies like India, Vietnam, Taiwan and even Mexico. However, with the focus for companies firmly on cash preservation and controlling costs, the scope of diversification of any supply chain out of China will be limited."

Another interesting trend that we're seeing is a change in inventory management.

"Until now, the gold standard for inventory management has been the just in time inventory protocol, where you order inventory that comes just in time for the manufacturing process so you don't have to store it and your inventory holding cost goes down", says Maheshwari.

"The pandemic has taught some important lessons to businesses. Many are reconsidering whether this just in time model is suitable for them, and whether they need to hold some backup inventory for future situations that may impact production."

What is clear is that there is no one size fits all

With a consensus amongst experts that the virus cannot be eradicated completely unless there's a vaccine, governments will have to focus on keeping infection to a manageable level. And this will mean additional short-term measures, such as gradual reopening of workplaces and possible staggered working hours, and ongoing schemes to bring financial assistance to businesses.

For businesses this means ensuring there are resilient today, so they can move into tomorrow with confidence as we step out of the COVID shadow.

Listen to the full podcast: Great Conversations: Life after lockdown APAC edition.

 

Meet the expert

Wedge
Harsh Maheshwari
Asia Pacific Regional Director

 

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