Technology, through either disruption or the need for innovation, is the leading complexity facing Asian businesses today, according to a new survey of 150 Asia Pacific-based business leaders by law firm Baker McKenzie and Mergermarket.
Of those surveyed, 60% of the respondents are either based or do business in China.
In the Asia Pacific Business Complexities Survey 2017, the number one complexity identified by companies across the region was the need to drive innovation by adopting new technologies, followed by cost pressures/shrinking margins, and technological disruption from competitors.
An even wider body of respondents (84%) predicted that disruptors would likely challenge their businesses within just two years. This rose to 97% amongst financial institutions and 96% amongst consumer and retail companies.
Meanwhile, geopolitical complexities were also a major concern, with the demise of the TPP set to impact 79% of respondents.
Swap in influential power
The geopolitical trends were also reflected in the survey, with an overwhelming 95% of respondents predicting Indian economic influence in the region would grow in the coming five years, compared with 77% who saw China's influence as continuing to expand.
Conversely, US influence appears on the decline in Asia Pacific. Just 16% see an increase in US economic influence in the region over the next five years, compared with almost half of business leaders (48%) who predict a decline.
"The world of business is more complex than ever,” says Baker McKenzie Asia Pacific Chair Gary Seib. “Identifying where companies and industries see predicted complexities emerging can help both governments and businesses themselves better prepare for this rapidly changing environment.
"That technology is at the top of the list 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 forces."
Several other key trends were drawn out of the research, including a strong prediction of increased mergers and acquisitions (M&A) activity across the region (94% of respondents saw a rise), while litigation was also seen as on the increase by two thirds of businesses.
Key areas of focus for corporates
The three key areas of focus for corporates operating in Asia Pacific in terms of solving immediate complexities are: regulatory change, optimizing tax structures and business systems innovation.
“Political uncertainty and increased regulatory scrutiny is making the market outlook more challenging in the near future,” says Danian Zhang, chief representative of Baker McKenzie's Shanghai office.
“Therefore, taking into consideration political risk assessment and regulatory compliance as part of the overall transactional strategy planning will become increasingly important for businesses.
“For our clients though, there is no clear indication that they have been forced to abandon deals as a result of the changes in policy and regulations. With the backdrop of US exiting from the TPP and China pushing the Belt and Road initiative, China is likely to exert greater influence in the region and drive intra-regional investment in the Asia Pacific.”