- 94% of Asia-Pacific survey respondents expect COVID-19 to have a severe impact on the global economy, compared with 73% of global respondents
- Asia-Pacific companies are proactively acting on strategies beyond COVID-19, including revisiting their supply chains, with 67% taking steps to change
- While M&A sentiment has shifted significantly, there is still strong intention to seek value-adding and transformative acquisitions in the near term
Business leaders in Asia-Pacific are focusing on navigating the immediate impact of COVID-19 on supply chains, revenue and profitability, while reconfiguring capital allocation and M&A plans for the post-crisis world, according to the 22nd edition of the EY Global Capital Confidence Barometer (CCB) Asia-Pacific.
The vast majority (94%) of Asia-Pacific respondents to CCB, a survey of nearly 900 Asia-Pacific C-suite executives (from more than 2,900 global respondents), expect COVID-19 to have a severe impact on the global economy due to forced shut downs, stringent safe distancing measures causing travel, work and supply chain disruptions, and declining consumption.
Asia-Pacific companies were the first to experience the full business impact of the COVID-19 crisis, allowing companies in the region to be further along in terms of proactive responses and planning.
Nevertheless, every sector is experiencing the direct or indirect impact of COVID-19, with almost all (96%) of global and Asia-Pacific respondents reporting that COVID-19 will cause a decline in profitability. More than half (55%) of Asia-Pacific respondents expect a slower economic recovery, extending into 2021.
Companies’ economic expectations have changed significantly from six months ago (the previous edition of CCB), when 72% of Asia-Pacific respondents were positive about global economic growth. The sentiment plunged to 21% in early February, and further worsened to just 14% when the survey was closed in April. Despite a clear shift in economic outlook in the middle of February, M&A intentions among Asia-Pacific respondents remains robust, with 52% saying they will actively pursue M&A in the next 12 months. This is significantly above the 10-year global CCB average (43%).
Harsha Basnayake, EY Asia-Pacific Transaction Advisory Services Leader says:
“What every business is experiencing is a significant shock, given the multifaceted implications of COVID-19. I think most parts of Asia-Pacific are beyond the shock of the initial chaos and are now dealing with the next phase of possibilities. That is what we are seeing in these results. The slower economic recovery expectations are not a surprise, but a majority of companies are realizing that they will be in a very different situation in the post-crisis future. As a result, many corporate executives are looking for the new business ‘normal.’ We’re expecting to see a shift in many industries and large-scale transformations as companies adopt agility, flexibility and resilience into their business strategies.”
Executives are reviewing their operating models in response to the crisis. The increasing shutdown of activity in many parts of the world has exposed vulnerabilities in many companies’ supply chains, and a greater percentage of Asia-Pacific companies (67%) are taking steps to change their current supply chain configurations, compared with global companies (52%).
At the same time, governments around the world are proactively offering rescue packages in their countries to weather the impact of COVID-19. In Asia-Pacific, government interventions are focused on three priorities: protecting jobs, providing cash aid to support households and ensuring credit access and liquidity to support hard-hit sectors.
Preparing for what comes next
Executives are also planning their future beyond the crisis and Asia-Pacific companies are taking more proactive steps than their global counterparts. From the survey, 67% of Asia-Pacific respondents are taking steps to change supply chains (compared to 52% of global respondents), 55% to change management of workforce (compared to 39% of global respondents), 47% to change speed of automation (compared to 36% of global respondents) and 39% to change digital transformation (compared to 31% of global respondents). In China, the data is even more striking, with high percentages of respondents taking steps to change supply chains (73%), management of workforce (70%), speed of automation (71%) and digital transformation (66%).
According to the responses in CCB, many Asia-Pacific companies (72%) already had major transformation initiatives underway, triggered as a result of pressure on revenue targets and to protect profitability. Pre-crisis, transformation was high on the corporate agenda, but the COVID-19 environment has created a need to reassess. Companies will have to work through multiple possibilities and remain agile, so that when the health crisis is finally overcome, they can act fast and move decisively.
Basnayake says: “Businesses have to shift their focus to plan for the potential outcomes of this crisis, preparing for a range of scenarios, as we expect the business landscape to change significantly. For those who are agile and recognize speed to response being key, there will be significant opportunities. The need to embrace change is strongest when adapting to a crisis – and in many ways the unwelcome and unexpected emergence of COVID-19 will further cement transformational strategies in the boardroom.”
Post-crisis recovery points through M&A
With the majority of companies assuming a recovery in the medium-term, 52% of Asia-Pacific respondents plan to actively pursue M&A in the next 12 months. Eighty percent of Asia-Pacific respondents are expecting to see increasing competition for assets in the next 12 months and they expect that a majority (57%) of the competition to come from private capital.
Basnayake says: “While the crisis is having a severe impact on M&A sentiment, there’s evidence from the survey that M&A activity intentions remain steady in the long term. There are many who recognize this is a time where valuations will reset, and there will be stressed and distressed acquisition opportunities. Companies with stronger balance sheets and that have been able to respond to this crisis better, will look at these opportunities and invest. For example, from the interviews with corporations in China, a majority cited that COVID-19 has not impacted their M&A strategies, noting that the situation has not led to any cancelations or withdrawals of deals, but for delays in closing deals. A number of Asia-Pacific respondents see the potential for value during this economic shock.”
The full survey is available online.
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About the survey
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. From February 4 until March 26, Thought Leadership Consulting surveyed on behalf of the global EY organization a panel of more than 2,900 executives in 46 countries; 72% were CEOs, CFOs and other C-suit-level executives.
- Respondents represented 14 sectors, including Financial Services, Consumer Products and Retail, Technology, Life Sciences, Automotive and Transportation, Oil & Gas, Power & Utilities, Mining and Metals, Advanced Manufacturing, and Real Estate, Hospitality and Construction.
- Surveyed companies’ annual global revenues were as follows: less than US$500m (25%), US$500m–US$999.9m (26%), US$1b–US$2.9b (16%), US$3b–US$4.9b (11%) and greater than US$5b (22%).
- Global company ownership was as follows: publicly listed (51%), privately owned (22%), publicly listed – family controls over 35% of the voting rights (15%), private - family controls over 50% of the voting rights (5%) and private equity portfolio company (7%).