Five Ways for Asian Corporations to Win in 2022
By Gautam Kumra and Jeongmin Seong
As 2022 starts to take shape, and as much of the region prepares to welcome the Year of the Tiger, many of Asia’s business leaders are starting to glimpse life beyond COVID-19, turning their minds to how to deliver success amid radical change in the region’s economies. Weaknesses that preceded the pandemic still need to be tackled and technological change harnessed — all at a time when society is increasingly demanding business leaders play a fuller role in the health of societies. To win in the Asian century, companies need to build new capabilities to thrive in a radically different world. Conversations with leading executives suggest five ways to win.
1. Capitalize on the power of data and technology
Digitization offers fertile ground for value creation by corporate Asia, which is adopting technologies faster than anywhere else in the world, where their spread is enabled by a relatively fluid system across borders, and where digitally savvy consumers are not only generating vast pools of data, but appear more willing than their counterparts in other regions to share their personal information, subject to privacy controls, so long as it is used to offer them higher quality, more personalized products and services.
In the ten years before the pandemic, Asia was the fastest adopter of technologies in the world, accounting for 52 percent of global growth in technology company revenue, 43 percent of startup funding, and filed 87 percent of the world’s patents. There is every reason to expect Asia to continue rapid adoption. First, Asia has a less rigid industry structure than elsewhere, enabling fluid flows of technology across the region. Second, Asia has tens of millions of digitally savvy consumers — of all ages. During the pandemic, even seniors embraced the internet. By 2030, almost 100 percent of seniors in Australia, Japan, and South Korea are expected to be online, and at least two-thirds of seniors in China.
2. Lead the energy transition
Increasingly, consumers are demanding that CEOs embrace sustainability and inclusion as well as growth. Achieving all three may be even more challenging in Asia, which has many economies that are still in their developing phase.
Asian economies are arguably more exposed to physical climate risks than any other region. GDP at risk in Asia accounts for more than two-thirds of the total annual global GDP impact. About $1.2 trillion in capital stock in Asia could be damaged by riverine folding in a given year by 2050, about 75 percent of the global impact.
Nevertheless, there are large opportunities to pursue sustainability and grow. Asia is in a relatively strong position to play a critical role in the global energy transition. Renewable energy in the region is expected to account for an estimated 40 percent of average annual global energy investments to 2025. China and India have the highest and the fourth-highest installed capacity globally. These two economies also have the lowest cost of solar and onshore wind energy.
3. Create scale through partnerships and M&A
Scale matters for performance, and Asian corporations have been creating it at speed. Over the past decade, Asian companies have increased their share of the G5000 — the world’s 5,000 largest firms by revenue — by six percentage points to stand at 43 percent today, a larger share than any other region. Asia’s model for scale-building is rather different from that of other regions, favoring organic growth and partnership: an ecosystem approach. But will this be sufficient in what many expect to be a decade ahead characterized by an unusual degree of uncertainty and dynamic change? “Buying in” new capabilities and technology through M&A may need to be added to the armory, but thus far corporate Asia has a relatively poor track record.
4. Put speed and agility at the center of the organization
Leadership is highly contested in Asia. Companies operate in highly dynamic markets that are growing rapidly against a backdrop of digital disruption and rapidly evolving consumer demands. Operating under unrelenting pressure in high-churn environments, Asian leaders have learned to move fast and be agile.
The pressures of the pandemic forced companies to be more agile than many had believed was possible. Many of them fast-tracked innovation and decision making.
Analysis of the G5000 and how they performed on the global “power curve” showed only about one-third of firms in the top quintile in China, India, and emerging Asia were able to protect their position over a period of ten years, compared with 53 percent in North America. Outperforming firms in Asia tend to be bolder and more agile in allocating resources, capital expenditure, and cost programs.
CEOs should look to strengthen speed and agility not only during crises, but for the long haul. Shortening planning horizons, delegating decision making, and removing silos all increasing the velocity of decision making.
5. Live the purpose
Amid rising interest in the broader societal role of companies, “living their purpose” may well become a source of competitive advantage. During the pandemic, the broader role of companies in their ecosystems and societies was thrown into sharp focus. A sense of responsibility is a theme that repeatedly comes up in conversations with Asian CEOs who see it as the key to resilience and success in the post-pandemic future. In a 2017 study by Stewardship Asia Centre of 200 successful and enduring family businesses in Asia Pacific, 80 percent of those surveyed said that their company had a clearly articulated purpose, and that this was crucial to the development of the organization.
Gautam Kumra is the Chairman of McKinsey’s Asia offices, while Jeongmin Seong is a McKinsey Global Institute partner based in Shanghai.
