Prudent management needed in year ahead

Going into 2016, businesses are still adapting to developments that have altered the terms of trade for local importers and exporters. Widespread currency volatility looks as though it is here to stay, while commodity prices seem anchored at recent lows.

Asia’s opportunity, however, is its diversity. 

Each country has its own unique economic circumstances, and so the impact of the big-picture trends will play out differently from place to place. One thing that will be felt across the region is the uncertainty that results from such a hazy outlook – and that puts a premium on prudent risk management.

It wasn’t long ago that China was enjoying double-digit growth, while the promise of a fast-growing middle class in Southeast Asia made countries like Thailand and the Philippines hot destinations for international businesses.

As the US and Europe slowly recovered from financial crisis, Asia had enough momentum to keep expanding strongly. 

Today, the region feels more sensitive to weakness elsewhere in the world. Consequently, ripples are being felt everywhere along the global supply chain, affecting large and small companies alike.

Businesses of all sizes are looking at how best to modify their operations to acclimatise to this increasingly tough environment.

Financial agility is needed for businesses in 2016 to find the right balance on a shifting landscape. 

Agility is not just about managing risk, though, but also being ready to pounce on the growth opportunities that will be available in Asia. The region stands out as the world’s global economic growth engine, despite the uncertainty that abounds. Asia may be decelerating from a period of supercharged growth, but it is not going into reverse. 

The best opportunities this year will be captured by companies able to analyse clearly the evolution of the regional economy over the medium to longer term. 

Some initiatives will kick in earlier than others, most notably the newly created Asean Economic Community.

Separately, countries that have signed up to the Trans-Pacific Partnership will begin ratifying their agreement in 2016.

Both are developments that will radically alter the dynamics of trade in Asia over time, but which will have their earliest effects felt in the coming 12 months.

Similar things can be said about the “One Belt, One Road” initiative – China’s ambitious plan to connect everything between Europe and Southeast Asia via interlinked land and maritime trade corridors worth an estimated US$2.5 trillion (Bt90 trillion) over the coming decade. Parts of the project should start take shape during this year.

All of which means that although there might be near-term concerns for business prospects, these mega-initiatives are laying down the physical and legal infrastructure that will power another wave of growth in Asia.

Therefore, Thai businesses now need to start thinking how they are going to adjust to the great changes of the region. 

No one should expect 2016 to be a smooth year, but firms that are committed to the region and are able improve their business models will be in a stronger position when Asia hits its next upward trend.

 

Krisda Phatcharoen is head of commercial banking, HSBC Thailand.