Asia-Pacific CEOs are actively reconfiguring their supply chains
CEOs are still dealing with the fallout of the pandemic.
Asia-Pacific CEOs are less concerned than their global peers about the geopolitical and trade tensions. Nevertheless, 84% (vs. 79% of global CEOs) say they are taking the opportunity as they reshape their businesses to proactively reconfigure their operations and supply chains. This percentage rises above 90% when we focus on major economies in the region, such as Australia, Japan, China and Singapore.
For more than 30% of Asia-Pacific CEOs, the primary driver for reconfiguring their supply chain is to reduce costs and minimize risks. Over the past two years, pandemic-related shutdowns have wreaked havoc on global supply chains. And while the pandemic is not the sole cause of rising input pricing, labor and energy costs and the cost of raw materials have increased substantially. Concurrently, freight rates have jumped more than 400% from their 2019 levels.1
Just as geopolitical risks were a lower priority for Asia-Pacific CEOs than global CEOs in reconfiguring their supply chains, geopolitical risks are of less concern for Asia-Pacific CEOs as they consider their growth strategies. Asia-Pacific respondents ranked it as the third-most-critical risk to future growth, behind increasing competition from nontraditional competitors and increasing pressures to build sustainability. Consistent with a similar EY study last year, geopolitical challenges were only ranked by Asia-Pacific C-suites as the fifth-greatest external risk to the growth of their businesses.
Transformational dealmaking tops the agenda
Asia-Pacific CEOs are looking for cross-border and cross-sector deals for growth.
As Asia-Pacific CEOs reframe their investment strategy for growth in a new environment, they expect transformative dealmaking to play a key role. M&A intentions among Asia-Pacific CEOs have reached historic highs, with 54% of respondents indicating that they are actively planning to pursue acquisitions in the next 12 months, up from 51% when the COVID-19 pandemic first hit the region in 2020.
CEO intentions are consistent with what we’ve been seeing in the M&A market. In 2021, Asia-Pacific M&A values reached US$1.4 trillion – a new high. While Asia-Pacific companies are eager to invest, the region is also attracting foreign investors, pushing inbound deal volumes to historic highs.
Meanwhile, Asia-Pacific CEOs are on the lookout for the right M&A targets abroad as well as at home, with 83% suggesting they will pursue cross-border M&A in the next 12 months. This is higher than CEOs in North America (37%) and Europe (71%). Further, comparing this year’s CEO Outlook findings with the findings from a similar EY study in 2021, we note that Asia-Pacific CEOs have a much stronger preference to invest outside the region, with 32% of respondents saying they plan to invest outside their domestic market, vs. 18% in 2021. Accordingly, the top five investment destinations represent a mix of foreign and regional – China, India, the US, Singapore and the UK.
Strategic investment opportunities abound
Growth and ROI remain critical drivers but are now viewed through an ESG lens.
While investment strategies focus on growth and return on investment (ROI), sustainable growth strategies have become critical for Asia-Pacific CEOs. In addition, the acceleration of climate change impacts is increasing pressure on Asia-Pacific companies. CEOs also rank sustainability as the second-most-critical risk to their future growth strategies.
Further, nearly three-fourths (74%) of respondents cite environmental, social and governance (ESG) as a more important driver of value over the next few years. One-third (33%) say they have sustainability key performance indicators (KPIs) for long-term value creation; more than one-fourth (26%) indicate that M&A is a critical avenue to increase ESG scores, which will attract investors.
Although Asia-Pacific CEOs view sustainability as a critical part of their long-term value creation, 89% say they have encountered resistance from investors and shareholders about their sustainability transition strategy. Only 11% of Asia-Pacific CEOs believe that investors fully support their sustainability strategy – a much lower percentage than North American CEOs (48%) and European CEOs (47%).
Further, while a majority of Asia-Pacific CEOs believe that investors are generally supportive of long-term growth initiatives (either moderately supportive of sensible long-term investments (43%) or extremely supportive of well-articulated investments (19%)), 38% of Asia-Pacific respondents feel that investors are not being supportive or are too fixated on quarterly earnings, vs. 21% of global CEOs.
Asia-Pacific CEOs need to gain confidence that investors support their long-term corporate strategies. Building a robust narrative and strong business case that capture ESG value is key to engaging investors and stakeholders and driving sustainability transformation. This may involve developing valuation models to capture ESG value that consider potential top-line growth, operational cost savings, reduced risk and brand enhancement.
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- Frank Holmes, “Shipping Bottlenecks Could Last Well Into 2022. That’s Good News for Investors,” forbes.com, 1 November 2021.
The EY CEO Survey 2022 is a part of the CEO Imperative Series, which provides critical answers and actions to help CEOs reframe the future of their organizations.