COVID-19: the changing fortunes of industries and how businesses can thrive

With no end to the COVID-19 pandemic in sight, how can businesses build resilience and pivot for future growth? Transformation and transactions could well be the twin big bets.

With the COVID-19 pandemic causing unprecedented disruptions, many companies have been compelled to respond with new ways of working and doing business. Suffice to say that no industries will be left unscathed, but the extent of impact will vary, with some likely to fare better than others. We are clearly in different boats in the same storm. We expect industries to emerge from the crisis in one of these four states: strong, transformed, reshaped or uncertain.

The strong

The outlook for the consumer technology, e-commerce and health care industries is expected to be positive. The pandemic has scaled up demand for consumer technology such as super app payments, e-commerce and OTT media streaming companies. The health care sector may have been overburdened but is benefiting from technological innovations in the form of digital health and telemedicine – previously hampered by regulatory and behavioral obstacles. These upsides of digital seen now should endure into the future.

The transformed

The real estate, FMCG and food logistics, and manufacturing industries will likely emerge transformed as a result of major shifts in supply-demand dynamics.

Commercial retail and REITS face the strongest headwind given how space will be used vis a vis employee density, remote working options, and increased proliferation of online retail and cloud or dark kitchens. For the FMCG and food logistics industry, while it enjoys a spike in demand in last-mile delivery during the pandemic, escalating cargo costs and productivity are of concern. Yet, the prospects are promising. For the manufacturing industry, deferred consumption of goods in an economic downturn will require manufacturers to rethink business models, adapt production practices with technology and review supply chains.

The reshaped

The oil and gas sector continues to suffer from plummeting oil prices and supply surplus, exacerbated by the pandemic. Many oil and gas companies are focusing on cash flow management. As the new normal sets in, the sector will recover but not back to its pre-crisis trajectory. Many companies have taken steps to restructure, digitalize and exit non-core businesses.

 The uncertain

Tightened travel restrictions and lingering fears of travel will create significant uncertainties for the future of tourism and aviation. Faced with liquidity crisis, direct financial support and tax relief from governments will be critical. Travel and tourism have been a big part of lifestyles, so despite the current dire situation, it remains to be seen how permanent the negative impact will be.

Navigating now, next and beyond

Notwithstanding the varying impact across industries, businesses are confronted with a common challenge: how can they balance addressing the immediate and short-term issues with longer-term strategic priorities?

At EY, we see it necessary for businesses to plan over three time horizons.

In the “NOW”, we are advising businesses to develop contingency plans to facilitate quick, effective responses to possible scenarios, as well as manage short-term liquidity to preserve value.

Looking at the “NEXT” phase, defined as the next six months, businesses will need to focus on areas such as finance and balance sheet, portfolio rationalization and tax optimization, rapid cost take-out, and operational efficiency improvements, and looking for areas of longer term value creation.

While resolving near-term concerns, businesses need to also consider the “BEYOND” i.e., after the next six months, and prepare to seize opportunities post-pandemic. The key areas of focus should include business strategy and transformation, supply chain diversification, M&As and portfolio optimization.

Transform and transact

How one harnesses transformation and transactions to reposition itself for the future is vital.

Businesses have had to leverage technology to enable new ways of working and delivering their services during the pandemic, underscoring the importance of digital in boosting agility and competitiveness. As companies look to reshape their business, improve productivity or reduce capacity, digital transformation is a key enabler.

Where digital capabilities are lacking to drive growth, M&As could be an accelerator. Valuations have dipped in recent uncertain times, making it opportune to consider M&As for business expansion in similar or adjacent industries, or for traditional incumbents to acquire distressed players or underfunded companies that have good technology products and capabilities.

Invariably, there will be execution challenges and companies must be mindful of them. For one, companies must be clear of their long-term strategic goals and ensure alignment across business units on the priorities, including where to play and how to win. Even when that is achieved, the lack of funding and internal capabilities will limit even the best plans on paper.

Clearly, the issues to be managed are complex, evolving and span the entire enterprise. To help provide business with structure amid the chaos, EY has developed an Enterprise Resilience Framework, identifying the nine key areas that businesses must address to build business resilience in the now, next and beyond.

Using the framework helps pave the way towards clarity on what needs to be done. No doubt, securing future growth may come with a price. But let growth not be the price you pay for inertia or fear of the unknown.

#digital #businesstransformation #restructuring #mergersandacquisitions #NowNextBeyond

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