CEOs and their management teams today must contend with a growing list of challenges and uncertainties that may constrain their growth and existing business models. Several issues, however, stand out as more pressing than others, with respondents identifying them as highest on the minds of key decision makers across corporate Asia. From our survey findings, these top challenges/complexities included:
  • Transformative technologies
  • Cost pressures
  • Compliance and regulatory change
That technology ranked among the top sources of complexity in Asia Pacific, or anywhere for that matter, should come as no surprise (Figure 1). The exponential rate of technological change and uptake of new advancements has already seen a number of industry-scale transformations. Innovative upstarts are challenging traditional leaders in their respective industries. Indeed, technology is both a blessing and a curse depending on a corporation’s ability and willingness to adopt and deploy the latest tech into existing operations and product offerings.

In our study, respondents broke tech-related complexities down into two categories: those motivated by innovation (a proactive internal approach), and those driven by disruption (which often results in a reactive, competitor focused response).
Figure 1: What are the biggest challenges/complexities facing your business?
By the numbers, 66% of respondents said driving innovation by adopting new technologies was their top concern, with 62% noting that disruptive technologies would present the greatest challenge. Importantly, an even wider body of respondents (84%) noted that disruptors would likely challenge their businesses directly, a point we discuss in greater detail here (Figure 2).
Competitive market dynamics have triggered the need for cost effective strategies and changing technological trends have resulted in greater investment to drive R&D and innovation to sustain the business and performance.”
Head of Strategy, China, technology corporation
Cost pressures and shrinking margins were another significant complexity, cited by 64% of respondents. Many noted that keeping costs under control was becoming more difficult as new competitors arrived in their primary markets and industries. Aside from new market entrants emboldened and enabled with innovative technologies – a cross-over challenge from the previously mentioned point – competition from large multinationals or regional corporations is forcing companies to reassess their pricing structures and as a result profitability margins are beginning to thin.

Shaky economic conditions and changing regulations have added to these burdens. As a result, pressure to reduce costs has become an imperative. Homing in on this challenge specifically, 67% of respondents said there would be greater pressure on reducing costs in the near term, with 20% saying it would be significantly greater (Figure 3). Just 3% of respondents predict the cost pressures they faced would ease.
Figure 2: How likely is it that your industry will see major technological disruption in the next two years?
Figure 3: Describe expectations for the pressure on costs in your industry in the next two years.
In an era of disruption and change, the power of data is paramount. Understanding what data an organization collects, and how this data is used, empowers the organization to maximize the value of this data, as well as enables the organization to meet its compliance requirements, and in many cases, reduce cost. Performance and compliance can and should be inextricably linked.”
Anne-Marie Allgrove, Global Head of Information Technology and Communications, Baker McKenzie
Complying with new regulations, meanwhile, was the third equal greatest pressure point, cited by 62% of respondents. With cross-border trade and investment now key components of most regional corporate initiatives, regulatory changes are adding to the already innumerable complexities associated with operating abroad. Indeed, many respondents said new compliance and regulatory requirements, as well as sanctions in some cases, have affected their strategies toward international trade, and with various events shaping the geopolitical landscape, there are few hopes of diminishing complications anytime soon.
Tying into the above point, respondents noted that regulatory changes and new trade or sector-specific laws could give rise to their increased involvement in legal action or settlement proceedings. Indeed, 67% of respondents think that dispute resolution and litigation will be a growing concern for their management teams (Figure 4).

Such disputes are likely to arise amid changing country-specific laws and increasing competition. Other factors that will likely contribute to increasing dispute resolution include: patent protection and copyright infringement; increasing default rates as stress levels rise within certain sectors; and preference for in-court settlement procedures as legal regimes are strengthened and clarified in emerging markets. The status of sanctions in markets such as Myanmar is also a key consideration for many.
Figure 4: Over the next two years, what do you expect to happen to the number of cases of dispute resolution/ litigation involving companies from your industry?
Bribery and corruption risks can appear complex, as corporates are faced with various different laws and the expectations of global regulators. An understanding of what risk looks like on the ground means that trusted advisors can far better respond with clear, practical solutions, which make sense to the local business, as well as promoting a more compliant culture globally.”
Mini vandePol, Head, Global Compliance & Investigations Group, Baker McKenzie
Figure 5: Which areas do you think will be a major focus for your industry in the next two years?
Increased complexity necessitates clear decisionmaking, and it is important for clients to understand the deal drivers and cultural nuances that make M&A more challenging in Asia. Clients should focus on maximizing transaction value considerations, understanding business and regulatory risk and minimizing post-closing liabilities.”
David Fleming, Head of Mergers & Acquisitions, Asia Pacific, Baker McKenzie
Deal flow in Asia Pacific has maintained momentum in recent years, driven largely by a supportive funding environment and desire among corporate leaders to tap into the vast populations of emerging Asia, specifically China and India. Market entry into more frontier markets in Southeast Asia, such as Vietnam and Myanmar, has also provided impetus to this trend.

In terms of cross-border transactions, Asian buyers are increasingly looking outside their domicile markets, looking to high-growth and/ or low production cost economies locally, and globally to secure bargain acquisitions, on-board new technology and expertise, and for new growth streams. China has become a dominant participant in these deal flows, and India looks set to join the outbound trend as Indian corporates strive to expand their international presence.

As such, appetite for dealmaking in Asia Pacific in the months and years ahead remains strong. In total, 94% of respondents anticipate M&A to increase, much of which will be tech driven as regional corporates and international multinationals vie for upstarts and innovators to bolster their existing product portfolios (Figure 6). Supportive government policies will also provide encouragement to cross-border dealmaking as policymakers begin paving the way to break down some complexities but allowing others to arise.
Figure 6: What do you expect to happen to M&A over the next two years?
With these challenges in mind, where will corporate leadership teams focus their time and energy as they try to navigate these complexities?

According to 76% of respondents, significant time and resources will be dedicated to focusing on regulatory changes (Figure 5). Meeting new guidelines would be joined by optimizing tax structures (67%) and focusing on business systems innovation (67%), all of which respondents mentioned are necessary to boost investment, reduce risk, and generate stronger returns.

Encouragingly, despite the complex macroeconomic environment, real ambition is still in evidence, with half of CEOs and management teams highlighting M&A as part of their corporate strategy. As companies look to access new markets and customer bases, as well as add new technologies to existing operations and service offerings, corporate expansion through acquisitions/expansion (54%) and mergers/consolidations (48%) will be a central theme of enterprise growth in this region.
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