By Kim Bo-eun - The Korea Times

Companies in Asia have lagged behind the rest of the world in terms of profit, but if they take COVID-19 as an opportunity, they will be able to see significant growth, a report from global consulting firm McKinsey & Company's research arm said Thursday.

According to the McKinsey Global Institute report titled "The future of Asia," which looks at the value and performance of corporations in the region, businesses have grown but underperformed on profit. While businesses in Asia account for 43 percent of the world's largest companies by revenue, this has not translated into earnings.

This is attributed to Asia's higher concentration of firms that "destroy economic value" ― such as those in energy and materials ― and a lower share of companies that create it.

Energy and materials companies are generating a $600 million economic loss on average worldwide, McKinsey data shows.

The report says companies in Asia can unlock significant profit creation by improving firm performance and investing in value-creating sectors such as information technology, pharmaceuticals and medical products.

McKinsey notes that companies in value-creating sectors are twice as likely to generate economic profit as those in value-destroying sectors.

"Around $180 billion in economic profit could be created if Asia invested more of its capital in value-creating sectors," the report said. "Most additional economic profit would be in IT, pharmaceuticals and medical products."

The report notes pharmaceutical players in China and advanced economies such as Korea, Japan and Singapore have the R&D capabilities to match economies in the West but "need to scale up."

At the same time, McKinsey said digitization, mergers and acquisitions (M&As) and regionalization would be key levers for corporate leaders in the post-pandemic era.

"There are many opportunities for corporations in Asia to build capabilities to sustain long-term growth in what will be a more volatile context in the wake of the COVID-19 shock," the report said.

"Corporations can accelerate digital adoption and thereby unlock productivity, build scale by exploring M&As and continued regionalization, and be bold and agile in the management of portfolios."

Chris Bradley, a senior partner in McKinsey's Sydney office, said: "Corporate Asia may underperform overall on economic profit, but that should not obscure that many bright spots in various sectors across the region."

He added, "Now the pressure is on companies in Asia to position themselves not only for what may be a turbulent post-pandemic world, planning ahead on multiple time horizons, but also ensuring that they seize the many opportunities that lie ahead."

Source: The Korea Times