Business risk: the risks and challenges for businesses and economies
Focusing on Asia, many micro and small businesses have been forced to close their businesses in most countries, while large companies are still reeling from the consequences of the pandemic. Interlocking singularities such as growing economic disparities, growing population pressure, lingering security concerns, complicated global economic transition, environmental risks and increased technological advancements are having a tremendous influence on the economies of the Asian region, making the landscapes more complex, more risky and difficult to understand and manage.
Add to this geo-ecopolitical scenario the perilous risks and challenges such as the failures of climate action, the damage caused to the environment by man, the erosion of societal cohesion, terrorist attacks, inequalities and fractures. digital, cybersecurity failures and the US-Chinese trade war, all plaguing business growth in Asia. There is no doubt that the cumulative and cascading effect of all these factors on economies has been made worse and worse by the pandemic, but this all needs to be stopped as well.
Since the start of the 21st century, the Asia-Pacific region has experienced rapid economic expansion, bringing massive trade transactions and gargantuan shipping to the waters of the Indian Ocean. The region’s progress was interrupted by the economic crisis of 2008-11, but it was able to recover and has since become an engine of global economic growth.
2021 has been characterized by a patchy recovery, as vaccine deployments create a world of have and have not, with pockets of a pandemic still remaining widespread despite efforts to eradicate the virus. Many people, sadly, have slipped into the underprivileged category as businesses have been subjected to extended periods of operational uncertainty due to localized restrictions imposed in response to virus outbreaks. 2021 has thus seen delays in the manufacture and distribution of vaccines, frequent blockages that have altered supply chains. Consumer behavior has changed dramatically, resulting in spending only on the essentials, a minimalist attitude towards non-essentials, high-end and luxury items, and global concerns for more savings.
If in the coming year 2022 in Asian countries global supply chains continue to be disrupted, it will be difficult for companies to remain resilient. Investors may have to prepare for further localized lockdowns and targeted travel restrictions, which can generate panic and plummet financial markets. Several underlying characteristics of Asian economies explain both variations in development patterns and fluctuating growth rates. The risk-free events have made it more difficult for them to obtain the external financing they seek, limiting budget support to countries with the largest current account deficits.
An inflationary shock could emerge due to supply constraints linked to pent-up demand resulting from a smooth roll-out of vaccines and widespread optimism. Supply constraints would obviously hit economies with current account deficits the hardest (Asian Outlook, 2021).
As tensions between the United States and China continue to rise in the Indo-Pacific region, attention shifts from economic issues to security concerns. Obviously, the two hot spots that influence the dynamics of the IOR are those involving Taiwan and the South China Sea. QUAD already existed and its anti-Chinese stance was asserting itself more and more. The new security alliance between the US, UK and Australia, known as AUKUS, has added another layer of complexity to the already complicated geopolitical dynamics in the region. This fragile position in the Indo-Pacific area will undoubtedly have an impact on businesses and supply chains in the region.
One of the main negative effects of the coronavirus and the inability of policy makers to respond to it is the rapid build-up of debt, which has affected populations not only in Asia but all over the world. Due to the global decline in birth rates, demographic challenges are worsening. Compared to countries that still benefit from a favorable demographic dividend, the aging economies of Asia therefore experience a much greater economic impact.
The effects of Covid 19 have only two positive points, one, the signing of the Comprehensive Regional Economic Partnership Agreement, which has the potential to deepen regional trade integration and regional economic integration, and two, Environmental, social and governance (ESG) issues have become the rule of the day in the corporate sector, and we anticipate that companies and businesses will work together to build resilience to meet the challenges facing Covid 19. Hong Kong, Singapore, Japan, Indonesia and Taiwan are some of the Asian countries adopting ESG more extensively.
In conclusion, businesses face rapidly changing environments due to the rapid emergence of innovative technologies, the majority of which are disruptive in nature. Coupled with the wide range of obstacles of an environmental, digital and geopolitical nature such as supply chain disruptions, climate action failures, social divisions, digital inequalities and complex security issues in the waters of the Indian Ocean, all of these will have ramifications for businesses that may hinder their recovery and long-term development. Environmental and geopolitical risks, according to risk analysts, are the biggest concerns in the Asia-Pacific region.
Finally, to successfully avoid risks and prepare for challenges, as well as escape the clutches of simple survival, businesses and enterprises must focus all of their attention on building resilience and agility. Maintaining these qualities will be possible through collaboration between the private and public sectors, with the support of NGOs, communities and government; and use digital technologies while adapting to changes induced by disruption.
Amit Kapoor is President of the Institute for Competitiveness of India and Visiting Fellow at Stanford University. Raagini Sharma is a researcher, Institute for Competitiveness.