In the book "Revolutionary Wealth" by futurist couple Alvin and Heidi Toffler, there is a quote from Robert Manning of the Council on Foreign Relations that states: "Ponder the world of 2050, an Asia with more than half of the world's population, perhaps 40 percent of the global economy, more than half of the world's information technology industry, and world class high-tech military capabilities." The Philippines, analysts predict, will be the 16th biggest economy by 2050.
Such is the promise of the future of Asia-Pacific. Currently, Asia-Pacific is the engine room of the global economy. GDP growth across the region outstrips the West's while the vast majority of European and North American economies are forecast to grow by less than 2 percent this year, many of those in Asia Pacific are looking for at least 3 percent growth, in some cases more.
When Grant Thornton asked 675 business leaders across ten Asia-Pacific countries, through its International Business Report (IBR) covering the 2nd quarter of 2016, about their views on the myriad of challenges and opportunities facing them, Grant Thornton found that overall business optimism is increasing.
Business optimism across the whole region increased by seven percentage points to a net 28 percent in the second quarter of 2016. This level is significantly above the IBR long-run average of optimism for the region of 18 percent. Interestingly, business leaders in emerging Asia-Pacific economies reported optimism at 50 percent, while in developed economies it was 20 percent (20 percent more pessimistic than optimistic).
Among developed economies, optimism is low in Singapore (-12 percent) and Japan (-51 percent). However, across emerging Asia-Pacific economies, the Philippines has the highest business optimism of any economy in the world in the IBR at 94 percent. Philippine business leaders are expectant about increases in exports and profitability over the next 12 months. (As the survey covers the 2nd quarter of 2016, it does not take into account the new administration's comments about some of its trading partners.)
Many are excited by the prospect of automation transforming the business landscape, while others see it as a potential threat to third party providers of low-skilled labor, a pillar of some economies in the region like India and the Philippines, which are both known for their call centers. Likewise, developed Asia-Pacific economies, in particular, are positive about the Trans-Pacific Partnership (TPP) while others urge diversification of investment into the Asean economic community. India is also gearing up to attract yet more foreign investors in 2017 by introducing the long-awaited simplification of its indirect tax system.
However, the region faces significant economic, political and social challenges that, if left unmitigated, could undermine its economic promise. The re-balancing of the Chinese economy, ageing populations, territorial conflicts and the US Federal Reserve's plans to increase interest rates, are all issues firmly on the minds of business leaders across the region.
Asia-Pacific spans a huge and diverse business community, from India to Japan to New Zealand. What is clear from our research is that while businesses remain largely confident about the coming months and years, with many areas ripe with opportunities, threats do linger which could undermine growth if left unaddressed.
Grant Thornton recommends that, while there are so many moving parts, now is the time for dynamic businesses across the Asia-Pacific region to reassess the opportunities and challenges present in the regions they operate in. After all, opportunities exist for dynamic organizations that are able to change with the evolving business environment. A healthy proportion of leaders within the region recognizes the transformative power of technology to automate business tasks and processes. Those with the foresight to invest time and resources in understanding the opportunity will be in the best position to gain a competitive advantage over their peers.
For firms in the Asean region, the recent commitment to greater economic cooperation is a major step forward and business goals should reflect the improved relationship with their nearest neighbors, which should open new markets offering fresh opportunities.
At the same time, the Grant Thornton research highlights the need for businesses across the region to take
proactive steps to minimize the risk of overreliance on China. While it will remain a hugely important trading power, what's clear is that as it continues to evolve, firms should explore ways to diversify. Not just in terms of trading partners, but product and service offerings, too.
Ageing populations have also emerged as a significant threat in the region and while it is not the job of the business community to reverse this demographic trend, it needs to react now to stay ahead of the trend. Automation could be part of the answer, but so could closer links with education institutions and a revitalized training program to ensure that the skills needed by their workforce are continuously being developed.
Asia-Pacific holds so much promise for the future. Opportunities are knocking; we should be welcoming them, but at the same time we should be mindful of the challenges.
Jessie Carpio is a Partner and Head of BPS/Outsourcing of P&A Grant Thornton and concurrently President of P&A Grant Thornton Outsourcing Inc., an entity wholly owned by P&A Grant Thornton. P&A Grant Thornton is one of the leading Audit, Tax, Advisory, and Outsourcing firm in the Philippines, with 21 Partners and over 800 staff members.
As published in Manila Times 2 November 2016