Deloitte’s first biennial cost survey: Cost improvement practices and trends in Asia Pacific
Thriving in uncertainty
To learn what APAC companies are doing to manage costs and improve margins, Deloitte recently surveyed 299 business leaders (CXOs, executives, and senior management) from large and mid-size companies in China, India, Japan, Australia, Hong Kong, and Singapore–which together comprise 89% of the Asia Pacific economy based on gross domestic product (GDP).
Indian companies have set the most aggressive cost reduction targets in the APAC region, with 44% of companies looking at cost reduction targets of upto 20%. However, 63% of companies have reported failure in meeting cost reduction targets in the past. Thus, it is imperative for companies to focus on more strategic cost reduction that can be implemented and sustained through a structured cost reduction program.—Gaurav Gupta, Partner, Deloitte India.
Macroeconomic factors are having a major impact on cost improvement priorities and actions throughout the Asia Pacific (APAC) region. To learn what APAC companies are doing to manage costs and improve margins, Deloitte recently surveyed 299 business leaders (CXOs, executives, and senior management) from large and mid-size companies in China, India, Japan, Australia, Hong Kong, and Singapore–which together comprise 89% of the Asia Pacific economy based on gross domestic product (GDP). We also analysed key macroeconomic factors in order to establish a broader context for the survey results.
Indian respondents have demonstrated high expectations for growth and cost reduction. In fact, their cost reduction targets are the highest in APAC. Indian companies also have cost program failure rates that are much lower than the regional average.
- Since the 1960s, Asia Pacific growth has been largely driven by countries in the region with export focused strategies. The APAC region is already the leading contributor to global GDP, and its overall role in the global economy is expected to continue growing.
- Although China and India experienced mixed growth in recent years, those two economies remain by far the most vibrant in APAC, and will likely lead the region’s growth resurgence.
- APAC economies have faced significant market volatility and uncertainty in recent years. Deceleration of global trade volumes since 2008 has contributed to slower growth in the region; however, signs of recovery in global trade offer a positive outlook for APAC’s export-based economies.
- Middle-class spending is growing much more quickly than in other regions, helping the region’s economies develop healthy internal markets.
- India indicated the highest cost reduction targets in the region, driven significantly by demonetization and its likely negative impact on consumer confidence and demand.
- Also, Indian companies are more likely than average to pursue cost reduction (95% vs 76% for APAC).
- The top two drivers for cost reduction are growth oriented, with companies citing 'gain competitive advantage' (60%) and 'required investment' (63%) more frequently than the APAC average (58% and 51% respectively).
- However implementation of cost reduction programs has remained a challenge as 63% of respondents did not meet cost reduction goals in the past.
- The highest external risk for Indian respondents is political climate at 26%, followed by high product/services at 25% and customer confidence/demand erosion at 23%.