McKinsey: taking corporate Asia beyond COVID-19

A report recently published by McKinsey has explored how the post-COVID-19 world could pose both challenges and opportunities for Asian business.

Regarding the agile and dynamic qualities of Asian enterprise to be among its finest, and perhaps also the reason for its resilience, McKinsey nonetheless highlights that market stagnation has started to become a recurring problem:

“As a group, companies in Asia lag behind their counterparts in the rest of the world. An external shock of the magnitude of the COVID-19 pandemic may accelerate the widening of the gap between underperforming and outperforming companies,” says the report.

To address this, McKinsey proposes the following changes to corporate strategy:

• Accelerate digital adoption.
• Scale operations through mergers and acquisitions (M&A).
• Manage portfolios in bold ways.
• Create teams dedicated to planning for the future.

Not all success is equal

The primary weakness highlighted in the report is that, although 43% of the world’s largest companies by revenue are located there, Asian business lacks growth and scale owing to cheap capital.

Also, following on from McKinsey’s concept of ‘value creators and destroyers’ - companies which are profitable in the short-term but not in the long-term - the Asian region has a disproportionately higher incidence of investment than other regions/countries.

The report also posits that the success of individual companies at opposite ends of the ‘power curve’ are significant.

As mapped out on the Global 5000, Asia has only a 16% representation, while North America sits on 24%. In effect, this means that the value of the Asian market is being sapped significantly by value-destroying companies.

The market’s strengths and weaknesses

Analysing each of the region’s standout sectors, McKinsey’s report makes four assessments - leading Asian businesses:

• Outperform in finance (USD$43bn profits versus $52bn loss in the rest of the world).
• Underperform in service and technology (three to 20 times less profitable).
• Match the global average in energy and raw materials.
• Have mixed results in domestic services and capital goods.

So, although there is room for improvement, business in Asia is in a good position to reevaluate, leverage its strengths and overcomes its weaknesses. To achieve this, the report singles out the post-COVID-19 market as a fertile opportunity.

By striving to improve performance from top to bottom and refocusing on value-creating activities, McKinsey projects an unlockable potential of $440bn to $620bn in profit.

The latter can be redressed by exploring and developing industries such as pharmaceuticals, consumer goods, energy, real estate and banking.

The former will depend on how well businesses can adjust to the ‘new normal’ and the technological implications of doing so; digital transformation has entered the corporate zeitgeist as the defining strategy point for the foreseeable future:

“Whether it’s the emergency of digital health solutions, such as telehealth, or unlocking productivity gains through robotics and automation for energy companies, digitisation is a key lever in all sectors,” said McKinsey.