Finding the way in the new normal
Amid the unprecedented volatility brought about by the COVID-19 pandemic, multinational corporations (MNCs) in the region have had to take swift action to deal with the immediate impact of the coronavirus on their operations, even as they plan for a post-virus ‘new normal’. While COVID-19 infection curves appear to be flattening, it will be a slow return to any semblance of stability, and the landscape is likely to remain volatile for some time to come.
Top of mind issues
It’s still unclear what the new normal will look like once the dust settles, but signs are emerging that give us an idea of what lies ahead. For one, the pandemic is accelerating a number of trends – from e-commerce and digital payments to telecommuting and digitalisation – and pushing companies to alter the way they operate as they adapt to these changes.
As the situation continues to evolve, corporates are searching for clarity on how to navigate the landscape. Based on our interaction with the region’s MNCs, there are 10 themes at the top of mind of Asia’s C-Suite. Key among them are ensuring liquidity adequacy, developing contingency and business continuity plans, the rise of China, reshuffle of supply chains and geopolitical tensions.
During this time of heightened uncertainty, the priority for companies is to ensure sufficient liquidity to survive in the long run. Looking at the S&P 500, which represents the largest publicly traded corporations in the U.S., we found that about 75 per cent of these companies have liquidity coverage ratio of around 1.5 times. Suffice to say, although the pandemic is putting huge pressures on the balance sheet, U.S. large-cap companies, and most of them have operations in Asia, are in a relatively strong liquidity position.
But, with no clear timetable on when the virus will end, businesses must be prepared to hunker down for an extended period of slow or negative growth. We are seeing companies across the region raise capital at this time to replenish their coffers, even if they have no immediate need for the funds. These firms are taking advantage of low interest rates to borrow, where possible, to ensure a healthy cash position and prepare for the long haul.
Developing Contingency and Business Continuity Plans
The pandemic has also brought into stark relief the need for companies to develop robust contingency and business continuity plans to deal with disruptions. Management teams are considering how they will operate in a post-crisis world where social distancing remains thenorm, and the health and welfare of workers will be of increased priority at the workplace.
This might involve expanding flexible work arrangements and other policies that allow their employees to work remotely and safely. Indeed, a recent Singapore Workforce Survey conducted among 2,700 respondents found that eight in 10 employees in Singapore wish tocontinue working from home at least half the time or more.
The Rise of China, Reshuffle of Supply Chains and Geopolitical Tensions
As governments around the world begin to ease restrictions and restart their economies, all eyes are on China, which is leading the way in reopening its economy for business. Whether the coronavirus returns in the future is anyone’s guess, but to date, talks of a second wavehave largely been stemmed by data released by the Chinese Government.
The economy is certainly not out of the woods yet. While China's business activity rebounded sharply to a ten-year-high in May according to IHS Markit's Purchasing Managers Index (PMI), not all industries are recovering at the same rate and the post-virus reboot remains gradual and uneven.
The pandemic has also exposed vulnerabilities in the global supply chains and brought to the fore the importance of keeping production of key resources, such as critical medical supplies, on home ground.
MNCs must take into account the changing global geopolitical landscape, and in particular the rise of China, when evaluating their supply chains and planning for a reshuffle, which is likely to happen post-COVID. Even before the current crisis, global manufacturers had shifted some of their production out of the mainland to neighbouring countries, such as Vietnam, as a result of the trade war.
One thing is for certain -- rising tensions between China and the U.S. will have ramifications for businesses and supply chains in the region. For one, the ongoing spat between the two over the origins of the COVID-19 outbreak could result in the breakdown of the phase one trade deal, further disrupting global supply chains.
There will inevitably be casualties before we reach the end of the pandemic, but good companies that learn from the crisis will be well-positioned to capitalise on what could be a swift recovery. Indeed, the current lull in economic activity is an ideal time for management teams to re-imagine their businesses and plan for the future.
In particular, MNCs may need to adjust to changing consumer behaviour as a result of the crisis by changing their modus operandi. Many consumers are now accustomed to transacting online, whether it is to order food, stream movies or even buy clothes. Some may not see the need to own everything they want, but seek to rent instead.
In the real estate sector, commercial landlords may see less demand for office space as more businesses shift in the direction of telecommuting. As such, property firms will need to repurpose these spaces for other uses. To adjust to the new reality, these companies may have to acquire new capabilities or assets through mergers and acquisitions or other means to stay competitive.
Today, companies that are able to operate efficiently are the ones that fast-tracked digital transformation pre-COVID. The pandemic has underscored, yet again, just how critical it is to continue investing in innovation and technology. In the long term ‘new normal’, MNCs will have to learn to be more nimble and work more digitally in order to succeed.
A silver lining
Mankind has been gravely affected by the pandemic and the world economy continues to reel from its catastrophic impact. But, this crisis has also given governments and businesses time and reason to pause and seriously consider the nexus between economic growth and sustainability and the need to balance the two.
As painful as the pandemic has been, it could be the catalyst that finally propels the world towards a more sustainable path of existence. As the saying goes, ‘never let a good crisis go to waste’.
The writer is head of global subsidiaries group Asia Pacific Banking at Citi