Trade disputes & protectionism leading business risks in Asia Pacific
· Asia Pacific business leader survey finds trade disputes and protectionism top list of concerns
· 90% of Thai respondents are building in greater flexibility to their supply lines
· 56% say they will focus on investing domestically, with 40% expecting M&A activity to increase
In a new report by Baker McKenzie under the Asia Pacific Business Renewal Series, 800 business leaders across the Asia Pacific region* were interviewed in Q1 2021 on a few market forces that are reshaping the regional economy. The Firm has published two reports tracking business sentiments with the first focused on Supply Chain and the second about M&A, tracking also the on-ground views of Thai businesses. There will be two more reports to be released in the next few weeks on Digital Transformation and ESG viewpoints.
Across the Asia Pacific region, two-thirds of respondents (67%) say they already have or are currently transforming their supply chains and production centres. Topmost of their concerns are on trade disputes and rising protectionism; a sentiment shared by Thai respondents were 46% said they will be seeking expert legal input on trade dispute and increased protectionism. 90% of them said that they are building in greater flexibility to switch supply lines if needed, while at the same time 72% also said they will look to insourcing and near-shoring as solutions.
“In light of overriding concerns about trade disputes and protectionism, our clients are definitely taking a critical look at their supply chains in order to minimize disruption and modernize their businesses going forward, especially as foreign investor interest is on the rise,” said Tax partner Panya Sittisakonsin.
Thai respondents also expect more M&A activity in the next 12 months, with 40% saying they expect M&A in their respective sectors to increase; notably 56% of Thai respondents also said that they will now focus primarily on investing domestically. When asked to quote their multiple factors for considering acquisitions, the top reasons for Thai businesses were to acquire new technologies, access to raw materials or natural resources, to access new markets, and also to acquire intellectual property.
M&A Partner Peerapan Tungsuwan commented on market sentiment towards M&A: "We anticipate activities in healthcare and life sciences sector to continue to rise even post COVID-19. Transactions would involve more of collaborations and partnerships than traditional M&A, especially in the areas of telemedicine and digital transformation. What will be critical for the clients is how best they can leverage their own portfolios and balance the benefits of other partners whose expertise could be unfamiliar to them traditionally, for example like technology companies who are partnering with life sciences companies."
On the flipside, 30% of respondents also expect the number of distressed investment opportunities to increase. Interestingly, Thai respondents also ranked regulatory enforcement as the top driver for insolvencies this year, with the other main concerns being technology disruption, lack of liquidity, and ongoing economic uncertainty brought upon by the pandemic.
From a macroeconomic perspective, Thai respondents were also cautiously optimistic with 28% saying that average revenues will recover to pre-pandemic level by the first half of 2021, but conversely 26% said that they expect pre-pandemic recovery only in 2022.
