Corporate leaders across Asia Pacific are currently worried the most about the impact of disruption from new technologies on the way they do business, a recent survey has found.
According to the Asia Pacific Business Complexities Survey 2017, conducted by the international law firm Baker McKenzie, 84% of 150 CEOs, C-suite officers and senior executives from regional and multinational firms believe technological disruptors will affect their businesses and revenue in the next two years.
The annual revenue of companies participating in the survey ranged from US$500 million to $5 billion. Sixty percent of the respondents are either based or do business in China. Other respondents came from developed Asian markets such as Singapore, Japan, Australia, Hong Kong, South Korea, Taiwan and New Zealand and from Asean firms operating in Thailand, Malaysia, Indonesia, Vietnam, the Philippines and Myanmar.
The companies surveyed operate in a variety of sectors including energy, mining and infrastructure; information technology and communication; healthcare; financial services; consumer goods and retail; manufacturing and industry.
"Technology, cost pressure and compliance with new or changing regulations are the three main concerns where the technology element breaks down into two categories: one being the pursuit of innovation and the other being disruption via technology, which are interrupting current business processes," said Brandon Taylor, managing editor of Remark Asia, the research and publications arm of the Mergermarket Group, which helped conduct the survey.
Executives now believe that cloud computing, big data and artificial intelligence, along with machine learning, are the technologies that will have the biggest impacts on business in the next two years. Consequently, many of the surveyed companies are investing heavily in big data, customer relationship management and cloud computing.
Given the urgent need to adapt to new technologies, a clear majority of business leaders see their environment becoming increasingly complex. More than half of the respondents feel that doing business is becoming more difficult with only 11% finding things easier.
This comes as no surprise because the exponential rate of technological change is already causing large-scale transformations, such as in the banking and telecommunication industries. By the numbers, 66% of respondents said driving innovation by adapting new technologies was their top concern.
"The innovation angle is interesting because they are saying that it is a necessary part of business," observed Mr Taylor. "It is time-consuming, it is resource-consuming, but if you don't do it, eventually you are going to fall behind and lose revenue to disruptors that are competing against your operations, and then cost pressure begins to rise."
Cost pressures and shrinking margins were a significant complexity cited by 67% of respondents, who felt keeping costs under control was becoming more difficult with new competitors in their markets.
Another big concern is geopolitical turbulence. Forty-eight percent of the executives expect the US to have declining economic influence in Asia Pacific over the next five years because of the expected increase in US protectionism from President Donald Trump's inward-looking policy.
In contrast, 95% of the respondents expect India to have stronger economic influence, followed by China (77%).
"If the US influence in the region starts to decrease ... other elements are going to happen and start to fill that void, and the respondents feel that China is going to be one of those countries that will increase its economic influence along with India," Mr Taylor said.
"The respondents have commented that India is taking actions to promote growth and help businesses to start up, while rules and regulations are also being improved, while China is taking also taking steps to make the business environment more conducive, particularly when it comes to outbound acquisition."
More than a third of the respondents expect the increase in Indian economic influence to be significant as India's growth begins to surpass that of China and sets the stage for Indian companies to extend their reach abroad.
India's solid economic growth is being driven by a rural-to-urban transition that will improve productivity in the next decade, respondents believe. As well, Prime Minister Narendra Modi's pro-business government has taken several steps to upgrade the country's infrastructure, increased foreign investment limits and modernised the approval and registration process for new businesses.
In China, capital controls intended to protect the yuan could affect outbound investment but ultimately, Beijing wants to see its companies out in the world competing with Japanese and western firms, said Mr Taylor.
"The really interesting thing I find coming out of this report is that the influence that India and China are likely to have is really striking, along with a reduction in influence that the respondents expect from the US," said Gary Seib, chairman for Asia Pacific of Baker McKenzie.
"The expected increase in M&A (mergers and acquisitions) that has been highlighted by the report is because of the response to the increase in complexities that are confronting them in their industry, and this is a fascinating find."
More than 90% of the business leaders expect M&A activity to increase over the next two years as Asian corporations branch out to neighbouring countries, as well as the regional and global markets.
M&A is driven largely by a supportive funding environment and the desire to tap into the vast populations of emerging Asia, specifically China and India, while market entry into frontier markets in Southeast Asia, such as Vietnam and Myanmar, is another driving factor.
Asian buyers are also increasingly looking outside their own markets for high-growth and/or low-cost economies to secure bargain acquisitions, new technology, expertise and new growth streams to combat rising cost pressures and shrinking margins.
Most of the M&A is expected to be in manufacturing and industrial sectors because consolidation is under way. IT, communication and other companies are also looking to acquire the latest technology to increase their competitive edge, Mr Taylor said.
Mr Seib also noted that a lot of Chinese and Indian concerns are pursuing deals in advanced markets such as the US and EU as opposed to the regional market. "But there is a lot of discussion by Indian and Chinese investors who are looking to come into the Southeast Asian region and particularly in Thailand," he added.
With new technologies and cross-border expansion come new regulations, and complying with them is putting more pressure on executives.
"The changing nature of business today, where a lot of it is going to be driven by digital technology, means that technologies are now developing faster than the current laws can keep up with and it is one of the main driving forces behind the regulatory changes," Mr Taylor said.
More than 90% of executives from financial institutions, consumer goods and retail expect their industry to see major technological disruption in the next two years.
Unsurprisingly, innovation and cyber security are the main challenges for IT, communication and financial institutions where protecting customer data has become vital. There is a need for innovation to drive new product development and compete against new challenges such as fintech.
"In terms of the major tech disruptions, we can see that a lot of it is coming from fintech so these are young upstarts that are coming to challenge traditional banks, lenders and insurance providers, while consumer mobile payment platforms are also coming into play," Mr Taylor said.
"For ITC, the buzzword is now blockchain."
For companies in consumer goods and manufacturing, pressure on costs from volatile commodity prices and rising competition from regional and international peers is a growing headache.
"That technology is at the top of the list (of complexities) is probably not a surprise to many, but the number of companies that expect disruption by competitive technology in just the next two years should give pause to any corporates that see themselves as immune to these factors," Mr Seib said.