Asian companies well set for the recovery

Companies whose growth strategies did not depend on heavy borrowing and who put their financial houses in order before onset of the downturn will be best positioned to steal an edge over their competitors during the next few years, a new report has suggested.

But according to The Economist Intelligence Unit (EIU), companies are going to continue to face challenges in the near term with signs of global economic recovery slow until 2013 and varying by region and industry

The EUI report, "Management magnified: Strategies for revenue growth in an economic downturn", predicts that the economies of North America and Western Europe will expand slowly, not exceeding 2% GDP growth until 2013. Latin America and the transition economies in Central and Eastern Europe will pick up in 2011, and the Middle East and North Africa will experience a somewhat stronger rebound, starting in 2010.

However Asia – led by India and China - will be the fastest-growing region in 2010-13, it predicts, suggesting that businesses in Asia Pacific are proving to be far more nimble and adaptable than their European or American counterparts.

One reason for this is that Banks in south-east Asia have been far less affected by the credit freeze and Asian companies therefore continue to have access to financing.

Companies that have cash on hand can go on the offensive, the EUI added, taking market share from more vulnerable competitors. On the other hand, over-leveraged companies in Europe and North America whose growth strategies depended on heavy borrowings have been crippled by the credit crunch, leaving them demoralised and vulnerable.

Similarly, while the banking, construction and the automotive sectors have borne the brunt of the recession, digital technology and low-carbon businesses will benefit most from the changed business environment.

Other factors noted by the EIU that will characterise successful companies over the next few years are flexibility, innovation and focus.

Flexibility is vital for companies to reposition themselves for new markets and new customers, the report suggested, with successful companies are altering their offerings in order to reduce prices, changing their products to appeal to local rather than global markets, or shifting their targets from developed to emerging markets.

Innovation is critical because there are limits to what can be done with existing products. Those companies that can afford to are continuing to innovate as part of their growth strategy. In fact, in all of the companies interviewed as part of the research, innovation programmes had been spared the knife.

Finally, the report said, while many companies are spending money to gain advantage, they are cutting in less important areas, trimming unpromising products or divisions or making cuts where efficiencies have been identified.