Lack of confidence in a recovery leads Asian businesses to look internally - - consolidating existing operations and processes rather than seizing new opportunities, an Economist Intelligence Unit study claims.

Executives in Asia lack confidence in the economic outlook and are therefore trying to streamline their internal operations in order to drive efficiencies rather than investing in new markets or hiring new staff. So suggests a survey of 258 senior executives from Asia, conducted in June and July 2009 and summarised in research published today by the Economist Intelligence Unit: From hindsight to foresight: Improving business transparency in the wake of the financial crisis. The study, which looks at what the region’s enterprises did right and wrong in managing through the crisis, was sponsored by German software giant SAP.

Facing an unpredictable business and economic landscape, 47% of respondents say their organisations are focusing on internal issues such as increasing the frequency of internal reporting, placing more emphasis on forward-looking analysis and transparency, and strengthening market intelligence gathering tools and processes. Asked which function or department is the focus of efforts to increase visibility and transparency, 73% pointed to the finance department.

These internal issues are dominating Asian companies' agendas, with innovation, market and product development all taking a back seat. Half of the survey respondents say the priority will be to streamline existing operations and systems. Only 24% are taking advantage of the downturn to hire new staff, despite the improved availability of a pool of skilled labour. Outward expansion is seen as important, but it is evidently a secondary priority. Only 31% of respondents surveyed are likely to take advantage of distressed asset prices to make an acquisition over the next 12 months.

“While short-term adjustments are important, companies need to look beyond survival,” says Manoj Vohra, director of research with the Economist Intelligence Unit. “Businesses should aim to take advantage of the downturn by acquiring quality talent and assets, improving focus on innovation, reinventing business models and looking for new markets. A recession is a unique opportunity for a company to improve market focus and reinforce its capabilities.”

"In unpredictable times, companies need internal and external clarity," says Simon Dale, Senior Vice President, SAP Asia Pacific Japan. "Clarity not only helps businesses achieve internal transparency and accountability, but also allows them to pursue growth opportunities by realigning business strategies and operational execution.”

Other key findings of the study include:

• Companies in Asia are ambivalent about the apparent economic recovery; India and China are the bright spots.While about one-third of respondents believe they are seeing a sustainable rebound in their country of residence, another one-third question whether the recovery is sustainable. A sizeable 27% do not even think there is a recovery. The most optimistic respondents are based in India and China, where six out of ten believe the recovery under way in their country is sustainable. The most pessimistic are based in Japan—44% of respondents there think the recovery will falter, while another 44% say there is no recovery in the country at all.
• The majority of the region’s companies did not anticipate how badly the financial crisis would affect them.Seven out of ten respondents say the global recession has brought home the fact that their firm is vulnerable to market risk, while 59% pointed to credit risk and 53% singled out liquidity risk. Forty percent say the crisis has exposed their company to the risk of relying on internal reporting that has turned out to be of poor quality in terms of accuracy, timeliness and completeness.
• The quality of risk management in the region needs to be improved.While six out of ten of the executives surveyed are satisfied with the risk-management function’s success in complying with regulatory requirements, there is a significant level of dissatisfaction with technology infrastructure and the quality of stress-testing and scenario planning. The respondents recognise that it will not be easy to improve risk management, citing such barriers as inadequate business systems and processes, lack of a culture of risk in the broader business, lack of accountability for risk management, and insufficient and poor-quality data.
• The majority of survey respondents are optimistic that the changes they are making now will result in big gains when the recession ends.Seven out of ten see a rise in revenues, 63% predict improvements in operational efficiency, and 59% expect increased market share. They also believe that the various initiatives will improve risk management capabilities (55%) and transparency and reporting (54%).
• In preparing for the upturn, the region’s companies are focused on internal consolidation rather than on innovation, new markets and products, and processes.Half of the surveyed executives say the priority will be to streamline existing operations. Only 24% are taking advantage of the downturn to hire new quality staff. Outward expansion is evidently a secondary priority: 35% are identifying new markets, 30% are developing new products and services, and another 30% are intensifying the focus on innovation. Only 31% of respondents surveyed are likely to take advantage of distressed asset prices to make an acquisition over the next 12 months.

A total of 258 executives participated in the Economist Intelligence Unit’s From hindsight to foresight: Improving business transparency in the wake of the financial crisis survey, conducted in June-July 2009. Of these, 23% came from Australia and New Zealand; 22% from India; 16% from Japan; 10% from China; 7% each from Hong Kong and Singapore; and the remaining 15% from the rest of Asia. The analysis in this report is based on the survey results, desk research and a series of in-depth interviews with senior executives and independent experts.

The survey sample was senior: 57% of respondents were C-level executives such as CEOs, CFOs, and CIOs, and the balance consisted of senior vice-presidents, heads of business units and other senior managers. Of the total 258 survey respondents, 52% work with companies that have global annual revenues in excess of US$500m. The survey polled responses from a wide variety of industries: financial services (27%); professional services (14%); manufacturing (10%); IT and technology (8%); energy, resources and chemicals (6%); healthcare, pharmaceutical and biotechnology (5%); travel and tourism (3%); construction and real estate (3%); consumer goods (3%); entertainment and media (3%); and others (18%).