The future of the Indo-Pacific: Building sustainable value chains in Asia.

“The future is Asian,” according to geopolitical strategist and author Parag Khanna. Beyond the era of Western hegemony, Asia is returning to the patterns of commerce and cultural exchange that thrived long before European colonialism and American predominance. Western analysts and the media have been discussing the emergence of Asia in terms of its enormous future potential for years. But now that the future has arrived even sooner than anticipated, and it is time for the rest of the world to change the way it thinks. The emerging markets are driving consumption and its integration into global flows of trade, capital, talent and innovation have been two of the most spectacular changes of the past 30 years.

In the decades ahead, Asia’s economies will go from participating in these flows to determining their shape and direction. Indeed, in many areas—from the internet to trade to luxury goods—they already are. The question is no longer how quickly Asia will rise; it is how Asia will lead. The corporate landscape in Asia has also caught up quickly. Beyond the COVID-19's devastating effects on people and the economy and the ensuing Russia-Ukraine crisis, Asia's business leaders are most concerned with how to address performance issues that existed before pre-pandemic. They want to learn to set themselves up for success in a period that may be unstable, characterised by rapid technological advancement, and threatened by the existential threat of climate change. 

However, despite the pandemic's shock, local businesses shown resilience and increased earnings. Leading businesses may be able to use the epidemic as a stimulus for improved performance as economies continue to recover, as there seems to be significant momentum in this direction. However, there is also another requirement: taking on a bigger role in society. The function of businesses in society and economies has gained prominence both in Asia and abroad. Companies are under scrutiny for how seriously they take their obligations to the complete range of stakeholders, including not only customers and suppliers but also people and governments. To win in the Asian century, companies in Asia need to build new capabilities and resillience to thrive in a radically different world—and play their full role in the welfare of societies. 

Companies need three key capabilities to win in the Asian century

1. Capitalize on the power of data and technology to win in the borderless economy.

Given that Asia is embracing technology more quickly than any other region of the world, digitization presents a fertile ground for value generation for the corporate sector. Digital technology adoption is a global phenomenon, but it is accelerating dramatically and on a massive scale in Asia. In the ten years before to the pandemic, the region was responsible for 87 percent of global growth in patent filings, 43 percent of global growth in startup funding, and 52 percent of global growth in technology firm sales. In comparison to other places, Asia's digitization environment is considered more flexible and "borderless," with a less fixed industry structure.  As a result, there might be greater room to change the landscape and catch up to Asia. Super-apps are being offered by top technology companies and provide cross-sector solutions for business, mobility, healthcare, finance, entertainment, and social networks, to mention a few. This blurring of lines suggests that business executives must establish strategies for operating within (or leading) ecosystems, such as growing their user base, partnering to develop complementary skills, and maximising data.

Some of the most digitally savvy consumers in the world are driving Asia's potential to benefit from digitization, and Asian technology leaders have served them by quickly commercialising new solutions, providing complementary cross-sector services across multiple touchpoints, and gaining even more network effects. In Asia, there are many people at both ends of the age spectrum who are active online. Between 2020 and 2030, it is anticipated that the number of seniors in Asia (those who are 60 years of age and older) would increase by almost 40%, accounting for more than 60% of consumption growth. Companies in the region seem to be in an excellent position to monetize the value of data as a result of the digitization of Asian economies, which is creating a massive pool of data. According to the Omnia network, for instance, China's data consumption might increase ninefold between 2017 and 2024. Both businesses, which can now market, sell, and deliver services in new ways, and consumers, who frequently obtain these services for no cost or at a minimal cost, appear to gain from the monetization of such data.

2. Lead the energy transition now.

Asia is the region most affected by the climate problem; if greenhouse gas (GHG) emissions are not drastically decreased, the consequences of climate change will worsen. However, it might be argued that Asia faces a more challenging balancing act than other regions when it comes to fostering growth while championing sustainability. Since many Asian economies are still in the "developing" stage, speeding growth, lifting more people out of poverty, and creating jobs are many firms' top priorities, especially in the wake of the pandemic. According to the Asian Development Bank, there may be 170 million more people in poverty (living on less than $3.20 a day) in 2020.

Consumers, investors, and workers, especially the young, are putting more pressure on companies and governments to adopt sustainability. According to a 2020 McKinsey study, more than half of respondents in China, India, and Indonesia reported that they were more worried about sustainable packaging than they had been before COVID19, a larger percentage than among their peers in Europe and the United States. In a 2020 Ipsos study, respondents in Asia reported being "far more frightened" about climate change than they had been a year earlier, contrasted to respondents in North America and Europe, who reported being "much less worried." Despite the difficulty of finding the ideal balance, Asia offers enormous prospects. The region is in a good position to contribute significantly to the global energy transformation. China and India have the greatest and fourth-highest installed capacities worldwide, respectively, in terms of renewable energy, which is anticipated to make up approximately 40% of average annual global energy investments until 2025. The cost of solar and onshore wind energy is also the lowest in these two economies, and they are anticipated to be the main drivers of worldwide solar and wind growth between 2018 and 2040, accounting for more than 80% of all new cumulative renewable additions to the world's energy capacity.

3. Live the purpose—and communicate you are doing so.

Companies as well as people thrive in both normal and difficult times when they have a strong sense of purpose. What exactly is the role of purpose, a topic of conversation that is growing more popular in Asia? The most important factor defining a company's existence is its mission. Beyond the quarterly financial statement, it is a fundamental obligation. The pandemic brought into sharp relief the larger role that corporations play in their ecosystems and society. Asia shares challenges with other parts of the world when it comes to a number of ingrained problems, such as income, wealth, and gender inequality; climate risk; and corporate governance. In Asia, companies have often collaborated closely with governments; the developing of technology ecosystems is just one example. Such collaboration became even more mainstream during the pandemic. In the heat of the crisis, companies clearly saw themselves as responsible to a range of stakeholders, from employees to customers, suppliers, and even governments.

The Asian Century is well underway. The region is delivering on robust economic, but there is also disruption to existing business models and the corporate mix. What worked in past eras may no longer be fit for purpose in the next, and Asia’s corporate landscape is changing rapidly, shifting from makers toward services, digitizing, and climbing the value chain.

Sources: 

• Mckinsey Global Institute
• Nikkei Asia
• The Daily Star