An Economist Intelligence Unit Survey of More Than 1,350 Business and Public Sector Senior Executives in Asia-Pacific Finds Adaptive Business Models Key Driver of Competitive Advantage
Singapore — Survival in a fiercely competitive global economy will depend more on adapting business models—or the way Asia-Pacific organisations operate—than what service they provide or product they sell. Fifty-six percent of the more than 1,350 senior executives in Asia-Pacific interviewed in-depth by the Economist Intelligence Unit feel that business models will be the most important source of competitive advantage in 2010. The survey of the future hopes, fears and strategic priorities of some of the top executives in Australia, China, Hong Kong, India, Japan, Malaysia, Singapore and South Korea was part of a major Economist Intelligence Unit research program, sponsored by SAP, and involving more than 4,000 business and public sector executives across 23 of the world’s leading economies. More than half of those executives surveyed came from organisations with less than US$350 million in annual revenue.
China was a notable exception to the adaptive business model finding. In that country, introducing new products and services will still remain central to company growth strategies for the majority of respondents, probably because more sectors will be opened further to private and/or foreign investment over the next few years. Comparatively, close to twice as many respondents predicted business models, as opposed to new products and services, would be the key competitive advantage in the more developed economies of Japan and Singapore. China was also the clear business hotspot among executives around the region. Fifty-six percent of the respondents felt China would have the most favourable business environment for growth between now and 2010, almost four times higher than the percentage for India.
“From our research, it is clear that the ability to create adaptive processes internally and within a company’s partner and supplier network will be the most important determinant of business success in the Asia-Pacific region,” said Denis McCauley, director of Global Technology Research with the Economist Intelligence Unit. “The study also shows that information technology use will make or break companies’ ability to acquire the attributes of flexibility, openness, collaboration and speed.”
Best-run Businesses Will Rely on Best Practice Technology
Senior executives in Asia, particularly those in China and India, believe that technology already plays an important role in their business strategy today and no longer view technology simply as a cost-reduction tool. A distinct majority of Asia-Pacific respondents (62 percent) see IT’s primary role as driving competitive advantage. Interestingly, executives in the US (51 percent) and Europe (55 percent) are less decisive on this aspect of IT’s role.
The role of technology will be particularly important in the areas of customer relationships and customer service, which further confirms the results from an earlier Economist Intelligence Unit study conducted last year . Over 60 percent believe that technology is vital in building stronger customer ties, more so than sales, supply chain management, or any other function. This is particularly notable because the executives in Asia-Pacific ranked the acquisition and retention of customers as one of the three greatest challenges that companies will face in creating long-term value. The respondents further agreed that technology innovation would have the single greatest impact on their business models over the next five years, more so than increased competition, government regulation and outsourcing. In addition, technology will be expected to improve management decision-making, as both private and public entities will look to business intelligence and analytics technology to improve the delivery and meaningful analysis of time-sensitive and relevant information.
“We can’t make profit doing the same things as our competitors,” said Mr. Tsuzuki, Senior Vice President, Assistant to CIO, Mitsubishi Corporation. “To stay ahead in the competitive Japanese and global markets, we must be wholesalers of information and make information flow faster and more efficiently from customers to manufacturers. Our business model must be adaptive, enabling the right information to be provided to the right people at the right time. Technology solutions from business software providers like SAP are crucial to achieve that aim.”
Performance: People, Not Just Profit
Eighty-six percent of those surveyed believe that executive boards and shareholders will measure business performance in 2010 against a combination of metrics that include financial performance, human capital and customer satisfaction. Almost nine out of every ten respondents, compared with 76 percent in the US and 79 percent in Europe, said they believe that brand value will be linked to good corporate governance. Executives across the region see improved governance structures and policies as a means of delivering greater value but, with much of the work of improving compliance ahead of them, nearly half of the executives interviewed were concerned that improved corporate governance will have a negative impact on profitability in the short-term.
Identifying and retaining talented employees was one of the key business challenges the senior executives saw looking towards 2010. This aligned with what they felt would be the biggest threat to business intellectual property in 2010—the loss of key personnel/expertise to competitors. Nearly half of the respondents named this as the biggest threat, more than twice the number two concern, which was vulnerability of commercially sensitive data on IT networks.
Quality and Innovation Over Price
Companies in the region fear the consolidation of market players and competition from domestic companies in China and India. Squeezed by new entrants and existing larger players, a significant 58 percent of respondents believe they need to have a specialization strategy and narrow their business to survive over the next five years. Executives described their winning business strategy as one of finding new markets for existing and modified products rather than one of launching new types of products and services. Across the region, managers from Japan (69 percent) and Hong Kong (64 percent) appear to be the most convinced of this strategy moving forward.
Asked to identify what will change most about the way their companies operate over the next five years, 38 percent claim it is how their firms innovate, be it products, services or the all-important business model. Supporting the significance of customer relationships, 32 percent claim that the second most critical change will take place in their customer interaction including facilitating customer access to the network to enable customization of products and services.
“The Economist Intelligence Unit survey confirmed that no region will change and grow faster than Asia-Pacific between now and 2010 and, as the region’s leading business software provider, we are excited to contribute to that dynamism,” said Hans-Peter Klaey, President and CEO, SAP Asia Pacific. “The survey reinforces that sustainable competitive advantage is directly linked to a company’s ability to quickly adapt business models to changing customer demand. This is why we are so committed to offering solutions innovative businesses of all sizes in the region need to serve their customers’ evolving needs effectively.”
Singapore to Lead in Business Innovation and e-Governance
According to the Economist Intelligence Unit Business 2010 Singapore report also released today, Singapore will continue to remain attractive to foreign investment over the next five years. The overall score for Singapore will improve marginally to 8.6 in 2005-09 from 8.5 in 2000-04 in the Economist Intelligence Unit’s business environment rankings. Singapore’s third position in the global rankings, and first in the regional ranking remain unchanged.
In the survey of 117 senior executives from Singapore’s private and public sectors, 66 percent felt that, in the race to gain an edge over rivals, new business models will be more important to firms than developing new products and services. Contrary to the popular image of the risk-averse Singaporean, the executives surveyed seemed to be surprisingly open to top-to-bottom overhauls, more so than their counterparts in Japan (62 percent), South Korea (57 percent), Asia-Pacific as a whole (56 percent), Europe (52 percent) and the US (47 percent).
“The Economist Intelligence Unit study showed that good organisational governance is becoming an increasing focus of attention in Singapore, something we’ve found as well among our growing Singapore customer base,” said Eric MacDonald, Managing Director, SAP Singapore. “Singaporean executives agree that brand value will be increasingly linked to good governance and that board-level compensation should be more closely tied to company performance. This is also clearly important in the public sector where nine out of ten public-sector managers agreed that operational governance will become increasingly important by 2010.”
IT will be a critical factor in addressing these issues according to 77 percent of the senior executives interviewed in Singapore, especially with respect to adapting business models and implementing strategy. More than 60 percent of respondents in Singapore see IT as becoming a source of competitive advantage rather than just a driver of cost efficiency, especially in financial services and manufacturing (64 percent and 62 percent of respondents respectively). The Economist Intelligence Unit study also further validated the Singapore government’s reputation as a regional leader in e-government initiatives, along with Australia, New Zealand and Taiwan.
About the Business 2010 survey and report series
A total of 4,018 executives participated in the Business 2010 survey. Drawn from 23 countries across Europe, Asia-Pacific and the Americas, respondents included business leaders from the private and public sectors, including 50% at the level of CEO, CFO, CIO, other C-level executives or their equivalents. A range of industries was represented in the survey, with executives from financial services, retailing, manufacturing and the public sector contributing the largest share of responses. In addition to the survey, the Economist Intelligence Unit conducted over two dozen in-depth interviews with senior executives and other international thought-leaders from these and other sectors. Their insights and those of the survey respondents are the basis of the analysis presented in the 29 reports of the Business 2010 series. These include a global report, two regional papers covering Europe and Asia-Pacific, 23 country summaries and three sectoral studies covering financial services, manufacturing and the public sector.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through the organisation’s global network of over 500 analysts, it continuously assesses and forecasts political, economic and business conditions in 195 countries. As the world’s leading provider of country intelligence, the Economist Intelligence Unit helps executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
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