A survey of companies across ASEAN and India shows the impact of the pandemic on business activities and supply chains – and how they responded to it
Written by Henrik Batallones
The impact of the COVID-19 pandemic on businesses across the world continues to unfold, almost a year and a half after it began. However, we have a good idea of how companies were initially affected, beyond the shift towards flexible working arrangements and disruptions on supply chains and bottom lines.
As the world continues to navigate these effects, the Economic Research Institute for ASEAN and East Asia (ERIA) – an international think tank which provides research and policy recommendations for economic leaders in sixteen countries in the region- conducted a survey to assess the initial impact of the pandemic. It enlisted industry associations and foreign chambers – including SCMAP – to collect data. The final report, which was published last June, was expected to be submitted during the East Asia Summit Economic Ministers’ Meeting, conducted virtually last September.
The survey specifically looked at how COVID-19 affected sales and profits, as well as supply chains; and the response both of companies as well as governments to alleviate these issues. Out of 2,083 respondents across eleven countries, 57% considered large companies and 32% multinationals. 186 of these respondents came from the Philippines. Over half of the total respondents came from the manufacturing sectors, while a significant number of respondents came from professional services, finance and IT services sectors.
It is important to note that the survey was conducted from November 2020 to February 2021, before the Delta variant brought another wave of uncertainty to global economies, particularly those who were on their way out of economic restrictions.
The Philippine experience
The picture painted by Filipino companies who responded to the survey are decidedly mixed. 48% of those companies reported an increase in sales for 2020, while 46% saw a decrease. 54% of these companies saw an increase in operating profits.
68% of Filipino companies that saw an increase in operating profits plan to expand, while 43% are looking to maintain pre-pandemic business levels. On the other hand, 52% of Filipino companies who saw a decrease in profits were looking to downsize operations, compared to 39% who plan to maintain pre-pandemic business levels. 63% of all Filipino companies surveyed were looking to hire more personnel, compared to pre-pandemic levels, in the next two years.
81% of surveyed Filipino companies either experienced or plan to change their “customer relationships” in response to COVID-19— – meaning, an increase or decrease in transactions, or a temporary suspension. Similarly, 77% of Fiilipino companies either experienced or plan to change their “supplier relationships”.
65% of surveyed Filipino companies either changed or plan to change their production locations in response to the pandemic. It is worth noting that some of these companies are multinationals, and among all respondents, there is a pattern of companies considering to move their bases from China to the Philippines.
72% of Filipino companies responded to the pandemic’s impact on their supply chains by implementing cost optimization and reduction programs. 54% implemented remote operations. 62% responded by rebuilding customer relationships, while 41% looked into rebuilding supplier relationships. Only 32% of Filipino companies implemented supply chain digitalization, and 27% rolled out supply chain network optimization programs.
When asked about what forms of assistance they expect from the government, 67% of surveyed Filipino companies said they look forward to a reduction in taxes. 46% expected salary support; 43%, social security support; and 26%, rent support. Interestingly, 36% said they were hoping for financial support for supply chain investment.
Only 22% of Filipino companies surveyed were either receiving or expect to receive government assistance. Of those companies, 49% think the support provided is insufficient, while 38% are not sure.
How the numbers compare
The results from Philippine-based companies are more or less similar with the overall results from all respondents in eleven countries. The picture is also decidedly mixed, with different pictures painted depending on whether a country is reliant on manufacturing or not, as well as the main industry of surveyed companies.
Much like in the Philippines, nearly half of all respondents reported a decrease in sales, while slightly more respondents reported an increase. Advanced ASEAN economies such as Singapore, Malaysia and Thailand saw a greater reduction in sales for 2020; on the other hand, 62% of Myanmar-based companies saw an increase in sales. Across the region, this is attributed to changes in local demand for their products.
54% of all respondents expect an increase in operating profits in 2021. Of those companies, 66% are looking to expand operations, while 37% plan to maintain pre-pandemic business levels. Half of the 17% of companies who reported a decline in sales are looking to maintain pre-pandemic levels, while 36% are looking to downsize. Companies in Thailand, Malaysia and the Philippines considered this option more compared to the rest of the region; however, fewer Thai and Malaysian companies foresee the need to hire more personnel, compared to the rest of the countries surveyed.
Across all countries, COVID-19 was the main factor in companies changing their relationships with both customers and suppliers. Interestingly, these changes were more profoundly felt in ASEAN; roughly half of Indian companies surveyed see no need to revise transaction levels with customers or suppliers, an indication of more localized supply chain networks. Similarly, only 30% of Indian companies considered changing production locations in response to the pandemic.
63% of all respondents implemented cost reduction and optimization programs to address supply chain gaps caused by the pandemic. Only 23% explored supply chain digitalization, with companies in Vietnam, Myanmar and Cambodia less likely to consider this. Overall, digitalization seems to more of an option for larger companies – 25% of those with 100 employees or more responded as such—but they are more likely to pursue cost reduction programs.
Finally, 58% of all respondents expect their governments to provide tax reductions as a form of assistance during the pandemic. This is true of all countries (except Brunei and Singapore, where 57% of companies expect salary support), all industries and all company sizes. The picture of whether companies are actually receiving government support wildly varies; the Philippines, at 11%, is on the lower end, only trailed by India and Laos at 10%. (56% of Singaporean countries say they have received government support, although only 43% think the support they receive is sufficient.)
Steady for transport
ERIA’s survey also focused on responses from companies in the transportation sector, a key player in supply chains across the world. 113 of the over 2,000 respondents classified themselves as such.
Transport companies were also split when it comes to the impact of the pandemic on their profit levels, with 43% reporting an increase, and 42% reporting a decrease. Similarly, transport companies are either looking to expand or to maintain pre-pandemic business levels, perhaps a recognition of their critical role in the competitiveness of other businesses.
For the most part, transport companies were least affected by the pandemic’s disruption on supply chains. Only 44% of these companies considered changing their customer relationships, which is lower compared to other sectors surveyed. Similarly, only 36% sought to change their supplier relationships. Transport companies are also not affected by changes in production locations.
Also interestingly, 63% of transport companies addressed supply chain disruptions by rebuilding their relationships with customers – a divergence from the general preference to cut costs. However, 56% of these companies also sought to implement cost optimization programs in response to COVID-19, while 37% sought to optimize their supply chain networks, and 21% sought to digitize their supply chains.
Permanent changes
Despite the mixed picture illustrated by the respondents, trends point towards which attributes determined a company’s ability to respond and bounce back from the worst disruptions caused by the pandemic.
ERIA’s study concludes that firms that were able to adapt to the shocks of COVID-19, particularly those who were able to reconfigure their supply chains, were more likely to perform better and have a better business outlook in the coming years. The organization also believes that the changes implemented – a reduction in costs, or a reduction in transactions with customers and suppliers – were likely to be permanent.
An interesting result was how companies were less likely to choose supply chain digitalization as a response to the COVID-19 outbreak. While the pandemic has seen a greater embrace of digital tools – particularly in e-commerce – companies are still likely to be apprehensive to embrace these tools in their business, because of their perceived high costs, long return of investment and difficulty. Indeed, with more companies choosing to reduce costs or manpower, the priority was in short-term survival – understandable considering the disruptive nature of the pandemic on economies across the world.
Again, it must be noted that the responses to the survey were collected in the aftermath of the first year of the pandemic, which means any long-term effects – particularly from the rise of the Delta variant across India, and later Southeast Asia – have yet to be factored in. That said, with the pace of vaccination across the region picking up, and with companies better grasping the disruptions caused by the pandemic, one can hope that the numbers have shown some improvement.
Still, there is a lot of work to be done, especially if companies are to be resilient in the face of a continuing threat to both lives and businesses. As the battleground shifts from short-term survival to long-term resilience, firms should be more open to long-term measures such as digitalization to improve their processes and service levels. Cost will, of course, remain a determining factor, and so governments and authorities should provide greater support for these initiatives. It is, after all, a win-win solution: more competitive businesses mean a more competitive economy, one that can withstand whatever disruption comes next.