Making Sense of the Eurozone Crisis by Rod Sutton, Chairman, Asia Pacific

Ahead of next week’s SuperReturn China event, we showcase an article by Rod Sutton, Chairman at Asia Pacific who will be speaking at the event. 

A recent FTI Consulting survey of more than 800 top executives in Asia, the Middle East and North America found that two-thirds (64%) of the respondents expected at least one of the 17 eurozone members to abandon the euro, and just three in 10 (31%) believed the European Union (EU) will begin to recover from the crisis in 2012. This was evenly reflected across the main regions surveyed and it appears that companies are preparing for the worst by demanding changes in contracts with the eurozone to include exit scenarios as the euro debt crisis drags on.

Executive Summary

  • 45% of Asia-based organisations are making strategic acquisitions in the EU in the year ahead.
  • 37% of Asia-based organisations favourably impacted by the EU crisis.
  • 37% of Asia-based organisations unfavourably impacted by the EU crisis.
  • While the Middle East and North America continues to suffer, Asian businesses benefit through strategic acquisitions.
  • The eurozone crisis presents more M&A opportunities for Asia-based companies moving West.
  • For more results from the FTI Consulting Eurozone Survey, please click here.

The research was conducted online by the Strategy Consulting and Research team of FTI Consulting in early January 2012, and sampled responses from C-suite executives involved in strategic decisions for their private organisations. Respondents were selected based on the known amount of trade they currently conduct with countries in the EU and their prospects for increased prominence. A total of 351 respondents were from Asia, with 133 of those from Mainland China and 62 from Hong Kong.

Asian companies are more likely to find investment 
opportunities in Europe than those based 
in the Middle East or North America 

Results from the survey show that Asian companies are more likely to find investment opportunities in the EU than those based in the Middle East or North America. Forty-five percent of companies in Asia reported that they were presently conducting or looking to do business in Europe in the next 12 months, compared with just 14% in the Middle East and 7% in North America. A large majority of companies are looking to invest in innovation and half are focused on organic growth (50% overall and 67% in Asia, with a massive 80% for China).

Although respondents from Hong Kong and the PRC reported a pessimistic economic outlook for the EU countries, they remained confident about the growth in their own economies within the coming 12 months (84% of Hong Kong companies and 92% of China companies were optimistic for growth in the coming 12 months).

Business executives from both Hong Kong and the Mainland indicated they expected more performance from the EU and the International Monetary Fund bosses. However, they are supportive of most interventions to date, agreeing that country leaders in the EU have the responsibility to help the eurozone recover from the crisis. This view could be explained by their exposure and commercial interests within and to the region.

Three-quarters (73%) of respondents in Asia said they have been impacted by the ongoing crisis; these were evenly split between those that experienced a positive and a negative impact. This was markedly different from the other regions, where 25% of executives in North America said their businesses had unfavourable effects. In the Middle East, 38% said the crisis has had an unfavourable impact on their operations. Sixty percent of the Mainland Chinese respondents said they intend to continue to conduct business in countries such as France, Germany, Italy and the U.K. within the next year, while just 10% said that they would not.

Opportunities create risks and businesses investing 
in Asian companies with expansionist tendencies
should also be wary, ensuring that their cash
is truly headed to where they think it is going

It is apparent that while companies in the Middle East and North America continue to suffer from the crisis in Europe, Asian businesses are maintaining the right mentality to take advantage of the changing landscape by planning to make further strategic acquisitions in the EU in the next 12 months. With this in mind, it is going to be very important that businesses in Asia take the correct steps to protect themselves against further shockwaves and ensure that the bargains they see are really what they think they are.

In fact, this shift is quite significant. For many years, it has been the western business that has typically conducted due diligence on potential M&A targets in Asia. However, the ongoing crisis in the eurozone is presenting more opportunities for M&A, but this time it is from East to West. Opportunities create risks and businesses investing in Asian companies with expansionist tendencies should also be wary, ensuring that their cash is truly headed to where they think it is going.

With respondents from Asia generally believing that the EU crisis will begin to improve by around Q3 2012 to 1Q 2013, Asian companies and investors hoping to capitalise should look to move now before the current opportunities evaporate.

To read some of the coverage of the Survey, please visit the Financial Times (a subscription publication). This article was kindly supplied by FTI Consulting. To see the original article please click here.

 

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