A shock of this magnitude will change business, society, and the global economic order in many ways. Contactless commerce, for example, could become the permanent norm for consumers as enforced behavioural change becomes an everyday habit. Supply chains may be reconfigured to remove vulnerabilities that have been exposed by the pandemic. Across all aspects of business performance, the crisis will reveal both weaknesses and opportunities to improve.
As our colleagues wrote recently, this “black swan” event will first test the resolve and resilience of all businesses. Some will become more productive and better able to deliver for customers. As Asia’s corporate sector continues to mature and push ahead with digital innovation, we expect that Asia’s businesses will have to reimagine themselves and prepare for reform. As companies in the region do so, they may be the world’s first to shape the next normal. What will that look like? Here are four dimensions that could define it.
1. Rethinking social contracts
In times of crisis, the state plays an essential role in protecting people and prioritising a nation’s resources for the response. People and businesses must adapt to change very quickly. This power shift transforms the implicit, long-held expectations of the roles that individuals and institutions play in society. Concerns about digital and personal privacy, which continue to vary widely across the world, may yield, in some societies, to the usefulness of surveillance and medical data to monitor outbreak clusters. In Hong Kong, phone apps track movement to enforce quarantines. Mainland China’s national health-code system records who is safe to be exempted from them.
Meanwhile, collaboration has increased not only between the public and private sectors but also across the private sector itself. Governments are trying levers to sustain consumer and business confidence. Companies take greater responsibility for keeping people employed or for redeploying labor when possible.
In times of crisis, the state plays an essential role in protecting people and prioritising a nation’s resources for the response.
In Australia, the supermarket leader Woolworths is working with Qantas to provide up to 20,000 new jobs for airline employees laid off during the grounding of the airline industry, as well as other retail and hospitality workers. Woolworths has also been given the go-ahead to coordinate its supply-chain efforts with its biggest rivals, Coles and Aldi, to ensure a fair distribution of fresh food and other groceries and household essentials to Australian consumers.
In Singapore, the leading consumer bank DBS offered complimentary insurance coverage and home-loan-payment relief for employees in affected industries as well as support packages for small and midsize enterprises. The bank’s free insurance policy for COVID-19 hospital cash recorded more than 52,000 sign-ups a day at its peak.10 Special services such as online consultations with doctors and online video lessons for children have proved popular.
2. Defining the future of work and consumption
The crisis has created an imperative to escalate the adoption of new technology across all aspects of life, from e-commerce to remote working and learning tools. In China, the adoption of Alibaba’s DingTalk, WeChat Work, and Tencent Meeting to connect physically distanced teams and friends has increased rapidly. DingTalk had to add 20,000 cloud servers to support the traffic.China’s Ministry of Education deployed a national cloud-based classroom platform to support remote learning for 50 million students simultaneously. Digital consumption has taken off as well. In South Korea, the online retailer Coupang shipped a record high 3.3 million items on January 28, and SSG.com’s food-delivery sales rose by 98 percent. Sales of the delivery business of China’s Meituan soared by 400 percent during the outbreak.
Many brands increased their online promotions during the crisis to capture demand. In China, Tsingtao recruited more than 40,000 employees and consumers as “Tsingtao social distributors,” who promote products on their own social networks. Tsingtao’s WeChat store sales subsequently surged by a factor of three. In a recent virtual roundtable, many executives based in China shared their expectation that consumers will now move, even faster than expected, to digital and e-commerce.
These new practices will probably become a permanent fixture of the next normal, raising interesting questions for organisations. How far can they flex their operations without losing productivity? Could they scale up their commercial or retail footprints in the next normal?
3. Mobilising resources at speed and scale
Governments have had to implement policies quickly. The ability to direct resources to healthcare systems has been paramount: within weeks, China mobilised tens of thousands of doctors and added tens of thousands of hospital beds to help Wuhan.It also released 1 trillion renminbi (around $142 billion)—1 percent of GDP—to build public infrastructure and redeployed the labor affected by the demand destruction that the containment measures caused.
Rather than focusing on lockdowns, South Korea emphasised a test, track, and isolate model: widespread testing and monitoring to reduce the risk of transmission. To leverage data, other Asian governments have also invested in the digital ecosystem, mapping clusters and controlling transmission through apps such as Singapore’s TraceTogether, South Korea’s Corona 100m, and India’s chatbot, MyGov Corona Helpdesk. Governments around the world have also implemented other extraordinary fiscal and monetary measures. Australia just announced a 130 billion Australian dollars (around $80 billion) wage subsidy, part of a total stimulus package equal to 16.4 percent of GDP.Singapore provided two stimulus packages of $38 billion in all—11 percent of GDP.
Asia has a proven ability to mobilise grassroots resources from the bottom up, as well as the top down. During the Asian financial crisis, for example, South Korea’s sense of national unity spurred its citizens to collect and donate household gold, such as jewelry and medals, to pay the country’s foreign debt. In just two months, more than $2.2 billion was collected.
4. From globalisation to regionalisation
The current crisis has shown that the world’s dependence on global supply chains is a weak link, especially for commodities with a concentration around what now seem to be vulnerable nodes. China, for example, accounts for about 50 to 70 percent of global demand for copper, iron ore, metallurgical coal, and nickel.
We could see a massive restructuring of supply chains: production and sourcing may move closer to end users, and companies could localise or regionalise their supply chains. This change is likely to become especially prominent in Asia, where a growing middle class creates its own demand for production. Intraregional trade, which has already driven Asian trade for the past decade, accounts for almost as much of the total in Asia as in Europe.
Going forward, companies may accelerate their supply-chain transition from China to other parts of Asia.According to a 2019 AmCham survey, about 17 percent of companies have considered or actively relocated their supply chains away from China. In some sectors. such as textiles, this has already been happening, and the supply-side impact of the coronavirus could accelerate this change.Japan’s automakers and South Korea’s electronics players have indicated that they may accelerate the diversification of the manufacturing footprint beyond China.
Meanwhile, regional collaboration is already under way in response to the spread of the coronavirus; economies in South Asia, for instance, are sharing best practices and protocols. In the past, Asian responses to crises also brought about a similar kind of coordination—for example, China stepped up as a regional aid donor after the Aceh tsunami.
Regional collaboration within the Association of Southeast Asian Nations (ASEAN) is also evident in efforts to deal with increasing pressure from Southeast Asia’s rapid urbanisation, which led to the launch of the ASEAN Smart Cities Network (ASCN) in 2018. ASCN aims to facilitate cooperation on the development of smart cities, to catalyse projects between the public and private sectors, and to secure funding and support from ASEAN’s external partners.
The future global story starts in Asia
In 2019, we observed that the Future of Asia is now, and we still anticipate a strong long-term growth trajectory in the region. By 2040, Asia is expected to represent 40 percent of global consumption and 52 percent of GDP. We may look back on this pandemic as the tipping point when the Asian Century truly began.
This is certainly the year that will challenge every assumption we held in the past. Structural change will inevitably follow a major world shock like this. The decisions leaders make today will not only influence how quickly organisations and nations emerge from the current crisis but also define how they adapt to the next normal.