Geopolitical uncertainties are causing significant apprehension among CEOs and corporate boards. Indeed, the impact of political and economic shifts globally and across the region on business complexity cannot be understated. In our survey, respondents noted that such developments were impacting businesses in Asia Pacific in two very specific ways:
  • Creating doubts about the future of key trade deals
  • Causing a shift in economic, and therefore political, influence within Asia Pacific
While ranking fifth as the greatest challenge facing businesses today, multilateral trade deal uncertainty was nonetheless a contentious point respondents felt would have repercussions within Asia Pacific and their industries, either immediately or within the next few years. Specifically, these respondents addressed the future of the Trans-Pacific Partnership (TPP), a multi-government trade agreement whose fate hangs in the balance after the US withdrew from the deal in January. Indeed, 79% of respondents said the potential collapse of the TPP would impact their company’s growth prospects, including a third of businesses predicting significant fallout (Figure 7).

In fact, several respondents have already started rethinking their investment strategies. Others said the impact will increase the cost of doing business with certain trade partners, the result of which could obstruct their growth in those markets, have a negative impact on sales, and possibly even affect M&A deal flows. Another issue that arose frequently in responses related to the future of their procurement programs.

Even without participation from the US, the TPP may have one last breath of life. In one scenario, China could be brought into the trade group. Equally, Australian leaders have discussed the possibility of a 12-minusone agreement. Alternative trade deals, such as the China-led Regional Comprehensive Economic Partnership (RCEP) or Free Trade Area of the Asia Pacific could also be considered to fill the current economic void.

With its exit from the TPP and further promises from the Trump administration to scale back US commitments elsewhere in the region and globally, respondents accordingly believe that US economic influence in Asia Pacific may be in its twilight. Of those surveyed, 48% feel this influence will decline over the next five years, a development that will pave the way for the emergence of key regional economies – led by India and China – to fill this vacuum (Figure 8).
THE FATE OF THE TPP
Figure 7: What impact would the demiseof the TPP have on your company’s growth prospects?
The Regional Comprehensive Economic Partnership (RCEP) has the potential to not only enable most of the Asia Pacific region to be a single free-trade area, but also create a single certificate of origin regime for free trade within the region. This will help simplify and rationalize the complex web of overlapping rules of origin and make Asia Pacific an extremely attractive place to locate global value chains as cross-border trade within RCEP countries will be free from duties.”
Eugene Lim, Head of International Commercial & Trade, Asia Pacific, Baker McKenzie
Talk of China’s economic miracle, the former envy of the emerging world, has subsided as the country sees its once blistering expansion begin to moderate. And while 77% of respondents anticipate China’s economic influence in the region to increase, an even larger number see a promising future for India. Among key decision makers, a full 95% expect to see India becoming increasingly influential in Asia Pacific over the course of the next five years. More than a third expect the increase in this influence to be significant.

As India’s economic growth begins to surpass China’s, the stage is being set for the country to expand its reach within Asia Pacific, and primarily into some of the busiest markets and trade corridors in the world. Indeed, solid growth is expected as India’s rural-to-urban transition boosts the country’s productivity into the coming decade.
INDIA: ASIA’S NEXT BIG ECONOMY?
Figure 8: Compared with today, how much economic influence do you expect China, India, and the US will have in the Asia Pacific region in five years’ time?
As the US potentially becomes more inward looking and protectionist, and Europe deals with elections and Brexit negotiations, an increasing share of the growth in international trade and investment will by necessity come from intra-Asia Pacific activity. Not only are business leaders looking more favorably on India as a destination to do business in and with, there is an expectation that India’s influence will grow substantially in the region as a result.”
Ashok Lalwani, Global Head of India Practice & Head of International Capital Markets, Baker McKenzie. Wong & Leow
Growth rates aside, India’s influence will also stem from its attractiveness as an investment destination and a jurisdiction where domestic businesses are able to grow and expand beyond their borders. Prime Minister Narendra Modi’s pro-business government has taken several steps to upgrade infrastructure, increase foreign investment limits, and modernize the approval and registration process for new businesses. These actions, among many other factors, have contributed to respondent sentiment that the Indian government is the most active in the region in terms of improving the ease of doing business in the country (Figure 9).

By contrast, only 20% of respondents felt the Chinese government was taking similar steps to improve business conditions. Far smaller percentages felt the same toward similar government actions in Singapore, Australia, and Japan, although this is in part to be expected as these developed markets already have a number of long standing initiatives in place making it easier for companies to do business and for foreign investment to enter their respective markets.
More than three quarters of respondents that say China’s economic influence is growing point to the country’s drive to expand through various trade pacts and cross-border initiatives. Aside from the RCEP, China’s One Belt, One Road program is forging stronger investment ties along historical trade corridors spanning the Asian continent.

In terms of M&A, China’s outbound forays are becoming a driving force of global acquisition activity. In 2016, Chinese corporations completed 382 deals totaling a historic US$208bn – a dramatic increase from the year prior with 310 deals worth US$93.6bn – and highlighted by the US$46.7bn acquisition of Swiss-based Syngenta by ChemChina. While future dealmaking may be limited as the government imposes stricter control of outflows to limit flight capital, China will still play an important role in regional and global M&A markets.
CHINA: SOLIDIFYING REGIONAL AND GLOBAL TRADE
China’s economic growth may be decelerating, but the country continues to increase its position and influence throughout regional and global markets. A large part of this is being driven by Chinese businesses as they increase their presence in key advanced and emerging economies, a process that will lead to their growing stature and recognition as market moving players.”
CFO, Philippines-based consumer goods company with operations in China
With the incredible pace at which China and Chinese companies have developed and expanded, the impact that China’s globalization drive has already had on the world economy is immense. But that journey has still far to go. Expect to see Chinese brands, products and ideas becoming much more visible across Asia and beyond as Chinese companies continue to move up the value chain, providing competition and disruption in sometimes surprising places.”
Milton Cheng, Managing Partner, Hong Kong, Baker McKenzie
IN FOCUS: CORPORATE INDIA’S KEY CONCERNS
Baker McKenzie recently held its flagship Doing Business Globally event in India. Over 400 C-level business leaders gathered in New Delhi and Mumbai to understand the challenges and opportunities for Indian businesses and their outbound strategies. Baker McKenzie polled the audience to understand some of these complexities specifically from the Indian business perspective.
Business complexity
62% say doing business across borders will become more complex
Business complexity
The rise of protectionist/ populist governments
Economic uncertainty
Compliance/adapting to new or changing regulations
M&A
90% of participants expect the number of cross-border M&A transactions involving Indian companies to increase
Figure 9: In your view, which government in the Asia Pacific region is most focused on simplifying the process of doing business within their borders?
95%
said India’s economic influence across the Asia Pacific region in five years’ time will be greater than it is today
This compares with 77% who saw China having a greater influence
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GEOPOLITICAL TURBULENCE
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