Restrictive conditions linked to the global COVID-19 pandemic are likely to disrupt businesses for at least the next 18 months, while they have to navigate a challenging combination of risks from rising protectionism and regulatory hurdles to major cyber security vulnerabilities at a time when a wave of activism is putting their operations under increased scrutiny.
In another of its Virtual Boardroom series, HSBC brought together senior leaders from the Professional Services sector, who on this occasion formed an all-female leadership roundtable delegate roster, to discuss major trends and risks that companies are likely to face in the medium term as a result of measures put in place by governments battling the disruption from the COVID-19 pandemic. The guest speaker for the roundtable was Sorana Parvulescu, Partner for EMEA at Control Risks consultancy, and the session was chaired by Pri McNair, Regional Head of Coverage for HSBC Commercial Banking (MENAT).
While the situation has improved in Western Europe, leading to a partial reopening of its economy and travel corridors, the United States has seen an increase of new COVID-19 cases in recent weeks. Some Middle Eastern countries are very much focused on trying to contain the infection, while other countries further afield are seeing a resurgence of COVID-19 cases.
As a result, many businesses are still facing headwinds with on and off restrictions and rules creating confusion, while the return to normal operations is unlikely before an effective COVID-19 vaccine is administered globally.
Delegates agreed that it is going to require a re-think of business purpose and strategy, resourcing and operating models going forward to prepare for a “new normal” and to take up opportunities coming out from the pandemic.
The next few years are going to seriously question the global business model that sector players have taken for granted for a long time as new trends take hold.
A major question for firms is how regulation may change as the investment landscape is already becoming more protectionist, but also how to make their supply chains more geographically diversified and resilient, leveraging digital sourcing.
Businesses could be looking at significant changes, at least in some parts of the world around taxation and distribution of income on the back of unemployment and social inequalities that will become even more accentuated. Consensus amongst the delegates called for businesses, sectors and countries to collaborate more on effective ways to steer the world and economies successfully in the post pandemic phase. The Middle East has opportunities such as the G20 in Riyadh and Expo 2020 Dubai (postponed to 2021) in the near future to help position itself as a pioneer for this within the next year.
Risk Map 2020-Geopolitcal trends shaping the business environment
In her presentation of a special edition of Risk Map 20201 (an annual analysis of critical geopolitical trends which are likely to shape the business environment), Sorana Parvulescu listed leaders without strategies, economic paralysis combined with political weakness, supercharged drivers of activism, U.S. presidential elections and cybersecurity as the top five global business risks in the months ahead.
A significant erosion of the middle class hit hard by the pandemic is poised to increase social unrest around the world and put pressure on governments – and corporates- to come up with solutions to these economic challenges both at national and global level. This pressure could result in increased nationalism and protectionism as well as a stronger role of the state in the economy.
The middle class erosion is something that Gulf Arab countries are likely to also suffer from, with the SME sector most affected. Coupled with low oil prices, this is expected to drive a renewed focus on diversification and green recovery across the region.
Finally, the potential of further trade tensions could have fundamental implications for the way we think about the global economy and lead to more permanent shifts in supply chains and increased concerns for food and critical supplies security, including in the Gulf.
The delegates and Sorana discussed a number of themes arising from her analysis, and those raised around the table.
Purpose and Strategy
Social responsibility is becoming a major accountability mechanism for companies globally in how they behave towards their employees and customers, a trend that is likely to grow.There was agreement amongst the group that the current global context as presented in the Risk Map, coupled with the impact of the pandemic, is driving Professional Services firms, and the wider business community, to review their purpose as organisations, and to answer the fundamental question: Why are we here? And who are we here for? This would both support the short-term survival of businesses, and, critically, positively impact long-term client relationships, and the attraction and retention of “talent”. As one contributor put it, this period will be a “turning point” for the reputation of Professional Services firms.
Companies have been put under much greater scrutiny and pressure to take a stance and put value on their purpose and the way of doing business, including the way they have dealt with the COVID-19 pandemic, and also from an internal point of view.
Past the initial shock of the pandemic companies will be expected to have a much more solid response to the pandemic and the health and wellbeing of their staff as one delegate noted.Consumers and employees alike are increasingly demanding of business leaders to show commitment to strong ethics and purpose.
Business Environment and Opportunities
Business opportunities in the Middle East have shrunk in some countries with the COVID-19 challenge dashing prospects for a near-term reversal, while other countries remained active despite the struggle. This pointed to the range of business and advisory activity across the sector with a particular emphasis on corporate restructuring, disputes and arbitration, litigation, and M&A pipeline driven by both distressed situations and strategic opportunity. One contributor commented on feeling like the “eye of a storm” awaiting further volatility while the pipeline continues to swell, and another seeing the regional market as “very fluid and very dynamic” with an acknowledgement around the table in the direction of government driven projects in certain countries, the banking sector generally across the region, and the core influence of Saudi Arabia in the regions workflow, and cashflow.
There was discussion also around the critical people agenda, given the sector’s appetite for retaining talent whilst cutting costs, and around cost management and cashflow. The reputation of firms as a result of the pandemic, and the need for “good social” behaviours is recognised for sitting at the core of the future purpose of firms in the sector, and in the business environment as a whole. As this was a “virtual” roundtable conversation, inevitably there was discussion around working from home and the expectation that, certainly in the Professional Services sector, the future workforce can expect to combine office with home working with no apparent break in efficiency and motivation.
In the region, Egypt was flagged as an opportunity and as seeing quite a lot of interest from the professional and investor community. The country is a control point for subsea cables for internet going from Europe to Asia, a commodity of the future with a lot more projects in the pipeline. On the downside, however, Egypt is struggling with high debt and its economy remains fragile.
More broadly across the Gulf, the question of how the region can diversify away from the current combination of key factors and reinvent itself to create an alternative vision, remains to be seen. Gulf countries have ventured into the technology industry before for example as a way forward but underlying business conditions do not seem to allow for sufficient technology innovations to emerge.