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15 Jan 2013

Advantage Asia in global recovery

Noel Quinn

by Noel Quinn

HSBC Regional Head of Commercial Banking, Asia-Pacific

Cab in Singapore

Singapore is one of many countries in the region looking to make the most of the opportunities in 2013

The past year has been tough for business, but beyond the headlines there is also a compelling Asian story of robustness, adaptability and entrepreneurial flair that bodes well for making the most of the opportunities of a global recovery in 2013.

Asian businesses, steeped in the harsh lessons of the regional financial crisis 15 years ago, have shown they have the reserves and stamina to weather the current drought in demand; they have found ways to maximise their cost-efficiency, particularly in supply chain management; and they have found new markets for their products.

Unlike 1997, most companies are not overburdened with debt, and most have avoided significant layoffs, leaving them in a strong position to expand production as soon as demand returns

From a banker’s perspective, it is clear that most companies have sufficient resources to see themselves through the current dip. Unlike 1997, they are not overburdened with debt, and most have avoided significant layoffs, leaving them in a strong position to expand production as soon as demand returns.

But perhaps the most striking trend has been how businesses have streamlined their financial management to cut costs. Producers are taking an in-depth look at their supply chains – not just their tier 1 suppliers, but deep into the second, third and fourth tiers – in a drive to control costs and understand potential vulnerabilities.

The preference for connectivity has been amplified by cash-rich Asian businesses looking for competitively priced acquisitions in Europe and the US.

We have seen subtle and interesting shifts in acquisition profiles. Asian businesses are still interested in buying Western companies to establish a hold in developed markets and to use their technical advantage to move up the value chain, but they are now also looking for management skills that will assist them to take their business to the next level.

If Asian businesses spent 2012 looking inward to cut costs by pursuing greater integration and efficiency, they were also looking outward for new growth opportunities, particularly in other emerging markets – the so-called South-South trade routes.

China is leading the charge – overseas direct investment surged more than 25 per cent in the first 10 months of the year to reach USD58 billion.

The flow of raw materials from the Middle East, Africa and Latin America to Asia is well-established, but Asian exporters are forging new trade links to provide infrastructure, goods and services to other emerging economies to take advantage of growing disposable incomes.

This is part of a long-term shift in the shape of global growth. Our research indicates that 17 of the world’s 30 largest economies in 2050 will be what we now regard as emerging markets, and the International Monetary Fund predicts that more than 60 per cent of global GDP growth in the next five years will come from outside the developed world.

The continuing uncertainties in Europe and the US have weighed on Asian markets over the past year, but despite these difficulties and the slowdown in China, we are seeing a shift in sentiment, with the green shoots of cautious optimism beginning to emerge.

Most importantly, from an Asian perspective, China seems to be back on the road to growth.

This year will present its own challenges. The rebound is still fragile and much could go wrong, but Asian businesses will be at the centre of the recovery when it comes.

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