Are APAC Companies Prepared for Global Recession?
High inflation and the war in Ukraine are just some of the many crises and challenges slowing down global economies. And China’s real estate market struggles indicate that Asia is far from safe. Expert Christoph Petzoldt explains how companies in APAC can become recession-proof.
In turbulent times, when global economic activity slows, concerns over the possibility of a recession increase. While much has been reported on the US and euro zone, companies in APAC are also beginning to sense the risk.
In Japan, for example, a growing number of COVID cases and the burden of spiking inflation have shrunk business output. Meanwhile, Australia’s real estate sector contracted at the fastest rate in 20 years due to rate hikes. The country’s services sector also started to decline after several quarters of growth. And in China, the current commitment to COVID Zero and the challenges around the real estate sector are dampening both consumer and business confidence.
The numbers and outlook for APAC are still a lot better than for the US, UK, or Germany. However, these markets are key importers and exporters for the Asia and Oceania region, meaning that even if some APAC countries might avoid a technical recession, they will experience a “felt recession”.
The questions CEOs must ask themselves are: Are we prepared for a bumpy ride? And what can we still do to tighten the belt?
Don’t rely on cost cutting
In these circumstances, too often, the knee-jerk reaction for many companies is to cut costs. This stems from a common misconception that cost reductions are the main driver for a company’s success and ultimately profit. While cost optimization can, of course, lead to short-term profit improvements, it cannot be the answer to potentially more crucial issues regarding consumer sentiment or willingness to pay.
My experience as a growth consultant for more than 20 years is, that the ‘cost myth’ is one that is particularly hard to shake. The focus on cost often blinds companies to the customer’s perspective, therefore neglecting the revenue side.
The truth is that no matter how trimmed down the cost, no company can last long without the following ingredients: A value-focused product, or a service strategy targeting the right customer segments with the right pricing metric and level.
In fact, provided that the price level is above cost, making product-value and pricing improvements will generate a greater impact on profit than reducing costs alone.
Seriously consider price and volume
In order to make informed decisions, understanding the relationship between price and volume is vital. Identifying the price elasticity of a product as well as the value drivers behind customers’ decisions provide the foundation for strong, customer centric, revenue focused, profit growth strategies.
In an inflationary environment these insights are also crucial to balance cost increase recovery with volume impact, not to mention the broader, social responsibility perspective.
This is especially true in the food and personal care space, where companies need to elaborate how to balance cost increases with “cross-subsidized” price increases across the board. This is possible by, for instance, limiting price hikes for staple / basic goods while trying to recover some lost margin with specialty or premium items.
In times of contracting demand, a reassessment of the offer, assortment, and sales strategy can help the business become more efficient, as well as focus on what really matters to customers.
Focus on value
Even in challenging times, companies that have more sustainable business models place a larger focus on revenue protection, ensuring registered profit growth. While potential organizational inefficiency may need to be improved through cost cutting measures, costs can be squeezed only so far before the lights have to be turned off.
Recession or no recession, growth through value creation and value pricing keep the lights on for years to come.