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White Paper - Beyond COVID-19: Adapting to the Next New Economic and Business Reality

Updated: Jun 4

Outline


The COVID-19 crisis has been dominating our daily lives ever since the start of the outbreak in January 2020 when it was first declared a Public Health Emergency by the World Health Organization (WHO). Industries have had to adapt rapidly by switching to a remote mode of work, with meetings now predominantly taking place via video conference calls and the majority of the workforce working from home. Companies have also had to launch liquidity securing programs to safeguard their future in these increasingly uncertain times.

While much effort is being placed to address the challenges facing businesses today, a more pivotal question is looming ahead. Namely, when the pandemic is over what will come next? Which companies and industries will emerge as winners or losers from this unprecedented crisis and, more importantly, what lessons can be learnt to prepare for future market shocks?


Impact on industries


The world post COVID-19 will be drastically different from the way we know it. Analysts across the board agree that it will take several quarters to (partly) recover from the impact dealt on businesses and economies across the globe. There is an immediate correlation between the duration of lockdown measures and the recovery time of an economy. Even countries that are not significantly affected by the virus will suffer from indirect effects, for instance, in the form of raw material price slumps, lower revenue from tourism, value chain disruptions and unprecedented capital drain.


Industries such as travel and MICE (meetings, incentives, conferences and exhibitions ), as well as leisure among others, are facing long-term implications on their profitability, while other sectors including retail, e-commerce, the medical sector and IT services will only be confronted with managing short-term losses and a liquidity shortage.

Nevertheless, we expect a never before seen boom of merger and acquisition (M&A) activities as well as a surge in restructuring programs on both governmental and corporate level.

Economic impact: A focus on the Middle East


In April this year, the IMF revised its 2020 global forecast for GDP growth (Figure 1). Asia and the Middle East are poised for a healthier GDP outlook compared to developed economies.

In this paper we focus on the Middle East and the impact from the latest developments and trends on businesses operating in the region.

Figure 1 Source: IMF April 2020

Despite being hit by two major shocks – the COVID-19 pandemic and the collapse of oil prices and demand – the forecast for oil exporting countries looks healthier in comparison to the majority of developed countries.

While oil prices remain at a low level, they are still profitable for the Gulf Cooperation Council (GCC) states which enjoy some of the lowest production costs in the world. Historically high growth rates of GDP allow for higher resilience in GCC states, while the demographic and political structures provide greater flexibility to adjust to The New Normal in contrast to democratic societies in Europe and the US which are likely to face more challenges.

The (next) New Normal


Business leaders now more than ever before are seeking guidance on what “The New Normal” will look like once the crisis is over and how best to adapt in this new socio-economic reality.

Our key advice to business leaders today is to prepare for The New Normal and turn their challenges into an opportunity. We know this is easier said than done but regardless of the impact, disruption creates a unique opportunity to gain market share and emerge as a winner from the current global crisis. Instead of focusing on the negatives, companies must take this as a once in a lifetime chance to adapt and transform into agile, resilient, and robust organizations.

To help them achieve this, we have identified several key areas that both businesses and governments will need to focus on if they want to overcome future challenges and emerge as winners in a post-coronavirus world. We have developed a multi-pronged approach encompassing eight main areas to help governments and organizations lead the way and navigate successfully the next economic and socials shifts (see Figure 2).


Figure 2


Changing business landscape


Post the COVID-19 pandemic the world will awake to a new reality with modes of work, life and travel likely to remain radically different – at least for the foreseeable future – from the ways we have all gotten so accustomed to over the last few decades. With the current infection wave still under way, experts continue to fear a second wave of the virus which would deal another devastating blow to businesses and the economy. The economic impact from the coronavirus pandemic is not likely to abate any time soon not at least in the next couple of years. New and emerging business models devised to help companies deal with the consequences from the pandemic will result in investments being reshuffled.


Fundamental adjustments in supply chains and operation networks such as nearshoring and onshoring are also likely to occur. Other major trends that will take shape in a post-pandemic world include accelerated digitalization, a shift in industries’ competitiveness, and increased global protectionism. We also expect to see Asia’s rapid ascend as a world economic power thanks to its fast recovery from the virus and generally lower costs.


Accelerated digitalization


Companies and governments with high level of digitalization have a big advantage over organizations that lag behind, in better managing the crisis and gathering real-time data to make swift decisions. Digitalization also helps to design robust business processes available 24/7, independent from conventional office operations.

We find that GCC governments are well prepared to face current and future disruptions by utilizing the power of digital, while the private sector is lagging behind. There is a huge potential for the industrial sector to further improve its productivity and performance and mitigate human factor risks by accelerating the adoption of digitalization.


Rise in protectionism


An increase in economic protectionism to secure supply chain continuity and investments on countries’ own soil will lead to global supply chain disruptions not just now but also into the future. The status quo in the new VUCA World (Volatility, Uncertainty, Complexity and Ambiguity) is unlikely to be restored to pre-COVID-19 levels. It is particularly important to analyse crucial suppliers, markets, and competitors to evaluate all available options. A special emphasis should be placed on critical spare parts and fast-moving goods and commodities. Just-in-time delivery (JIT), central distribution centres and buying syndicates are some of the models to reduce costs and minimize the risk of production downtime.

The higher the level of integration, the less vulnerable the entity is to external factors. Long-term supply and off-take agreements can buffer short-term bottlenecks and allocate the market risk several shoulders. Fully integrated industrial complexes will feel lower impact from the crisis than single service or product providers. These phenomena have been discovered in several countries, which suffered from economic embargos in the past. Self-sufficiency ensures a minimum of interruptions even during a severe crisis.

A counter trend to the integration and collaboration described above can be seen in an increased protectionist environment, which has become increasingly predominant, with countries increasing their focus on meeting their domestic needs. For instance, some countries have resorted to closing their borders or refused to export medical products.

In addition to accelerated digitalization and a rise in protectionism, a number of other factors, such as internal stakeholder management and location of the operation network in Special Economic Zones (SEZ), also need to be considered in a post-pandemic recovery plan.


Stakeholder Management


Increasing shareholder value normally drives decisions for cost cutting, performance improvement and outsourcing. Margins are squeezed out on cost of employees, the environment, and other stakeholders in the direct business environment.

In a sustainable economy greater emphasis needs to be placed on stakeholder value, even if this is on cost of margins. Such strategy pays off well, especially in difficult times. Fairness is key to achieving continuous success in business as well as trusted partnerships.


Special Economic Zones In Saudi Arabia and Saudi Vision 2030


Modern and efficient Special Economic Zones (SEZ) combine all the aforementioned enablers in a closed business community. With special fiscal and other incentives, SEZs attract global key players to contribute and benefit at the same time local government from the synergies of the business community.

Saudi Arabia is a leading example for the Special Economic Zones concept. The Kingdom was already on the right way and had achieved several key milestones, before the COVID-19 crisis hit. This was clearly demonstrated in Saudi Vision 2030 and by implementing key initiatives at a high priority. The newly SEZ regulations and potential fast tracking the implementation of the SEZs initiative further demonstrate the country’s leadership and resolute vision to build a more conducive business environment and attract foreign investment in Saudi Arabia. With this in mind, the challenges and opportunities arising from the COVID-19 pandemic will have a direct impact on the macro-economic environment in the country. Figure 3 provides a snapshot of the areas of challenges as a result of the pandemic and their correlation to Vision 2030.


Figure 3


Final thoughts


The COVID-19 pandemic has disrupted the entire world, transforming the way we live, work, travel and do business. The economic repercussions are already being felt on industries across the board and are here to stay for many years to come. This will create significant challenges for businesses, particularly in the form of new and emerging business models, major supply chain disruptions, limited cashflow and a changing competitive landscape. At the same time, opportunities will arise for companies to increase their resilience, accelerate digitalization, grow their market share, and eliminate inefficiencies across the business. To emerge as winners from these increasingly turbulent times, business leaders must prepare for the New Normal and act now in order to secure their future in a post-pandemic world.


How can we help?


Advisory Group (AG) and Consul-T are well positioned to support the public and private sector to establish strategies for a robust business model and business continuity.

Despite the COVID-19 pandemic, our highly experienced teams are working around the clock to provide support to our clients, maintain their business, and adjust to the (next) New Normal. What seemed to be impossible in the past has become the norm in the last few months, proving that with modern IT infrastructure and common communication tools businesses can continue to operate with absolutely no disruption from any part of the globe. We are the living proof, as we managed to deliver our various customers’ projects with significant success at a lower cost.

Our partners across the globe are playing a key role by helping us to overcome the lack of local presence in our target regions – GCC and Africa.

Thanks to our extensive network, AG, Consul-T and partners can provide a one-stop-shop for businesses and governments alike across a range of services, including:

  • Management consultancy

  • Market Entry and new business models strategies

  • Financial advice

  • Restructuring and M&A advice

  • Value & Supply chain adjustments

  • Marketing services

  • Industrial fast-turnaround management

  • Energy efficiency based on artificial intelligence

We also support the healthcare sector and related fields for government and industry to keep the workforce safe and protect your customers. You can find one of our new initiatives at www.thenewnormal.ae


The full White Paper is available from the contacts below. Send us your full details and we will organize a video conference, including sharing the full white paper.


Contact Advisory Group:


Marcus Meissner, Senior Partner

Phone +971 4 429 5819

info@advisorygroup.ae

Advisory Group Management Consultants, DMCC

Office #69, 5th floor, ONE JLT Tower

Jumeirah Lake Towers, Dubai, UAE

www.advisorygroup.ae


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