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@ the APEC CEO Summit: How will the Asia-Pacific region shape global growth?

Lizzie O’Leary: Hello, and welcome to this special live recording of Take on Tomorrow. I’m Lizzie O’Leary, and I’m on the ground in San Francisco at the APEC CEO Summit, billed as one of the most influential meetings of business and government in the Asia-Pacific region. This year’s theme is “Creating Economic Opportunity.” Yet rarely in history has the world dealt with as many challenges as it has over the last few years. So how do you create opportunity during a time of so much global risk? I’m here with PwC’s Global Chair, Bob Moritz, and Raymund Chao, Chair of PwC Asia-Pacific and China. Welcome, Raymund.

Raymund Chao: Thank you.

Lizzie: And, Bob, welcome back. Nice to see you again.

Bob Moritz: Nice to see you.

Lizzie: Bob, I’m gonna start with you. You were part of a fireside chat here at APEC called “The Global Economy and the State of the World.” Coming away from that conversation, how do you see the role of the Asia-Pacific region in the global economy over the coming years?

Bob: Look, the role of this particular region and the countries that are part of APEC is really impactful today, as well as over the next few decades. The reality is you see the local economies continuing to grow. There’s lots of opportunities for that GDP growth. Why is that? Because the trends are moving in that direction—when you look at the size of the populations, when you look at the need for infrastructure, when you look at the consumption of goods and services. So there’s gonna be a tremendous economic uptick as you look at some of these countries. Second, these countries are supplying a significant amount of the supply chain to the world. And as a result, the world’s gonna be seeing them as very important, as well—both in terms of the services and goods that they provide to those countries, but equally as important in manufacturing of goods and services that they actually will take and export elsewhere. So this region, I think, is gonna have a coming out, so to speak, over the next decade that’s gonna be really important that CEOs, politicians, and others look to from an economics perspective. But just pivot one more point, Lizzie, here, which is the role that this world plays in terms of setting the standards, the norms, the policies around things like AI and what “good supply chain” looks like or what “green” looks like. That’s gonna be influential, as well—whereas the historical West perspective will be as important as it was before, but you’re gonna have another point of view coming to the table. And that’s why this region is so important for people to understand today, as well as understand what it’s gonna mean for tomorrow.

Lizzie: Raymund, on this podcast, we focus a lot on the ways business can help solve society’s biggest challenges, and as chair of PwC Asia-Pacific, what’s first on your list of issues that business needs to tackle?

Raymund: There’s so many issues to…

Lizzie: Big list!

 

Raymund: I mean, today’s world, I think every businesses or every business today is just struggling with so many issues. I don’t think any CEO would tell you that, or they would tell you today that it’s probably the, yeah, the most challenging times that we’ve ever seen for a long, long time. So you’ve got inflationary issues. You’ve got, obviously, geopolitical tensions, and you’ve got climate issues, et cetera, et cetera. So all of these coming, you know, into play at the same time. So it is a very challenging job for any CEOs, not just Asia-Pac CEOs. And for the Asia-Pac community, obviously—and Bob just referred to the fact that this is a very important region going forward and for the next decade and more—and because Asia-Pac is predicted to be providing a significant portion of the GDP growth for the world going forward. And that’s a very important role. And part of what Asia-Pac is going through is transitioning into this looking at the supply chain model going forward. And for the past three years, because of covid, people are looking at more short-term. It’s just looking at just agility and resilience. And given the importance of China, obviously, you know, there’s China for China. There’s China Plus One. There’s China Plus, Plus, Plus today. And if you look at some of the economies in Asia-Pac, specifically, Vietnam has done very well over the last little while as part of that China Plus One or Plus, Plus model. But if you look at the supply chain today, what we need to understand is you gotta build a supply chain model that is gonna drive sustainable growth going forward.

Lizzie: One of the biggest issues facing the world is, obviously, climate change. That has come up here among, you know, global leaders. But I’m also curious about what you’ve heard about how business and government together, sort of, can work to manage the climate better.

Bob: Well, let’s put the facts on the table. You’re not making the progress at a corporate level or at a country level to meet the minimum standards that were put out by the Paris Accords. And the reality is you’ve got to decarbonize by 11 times faster than we ever have before. So that’s a huge feat to be achieved.

Lizzie: That feels scary.

Bob: It’s scary, but also full of opportunities. If you think through what Raymund talked about in terms of redesigning supply chains, redesigning business models, et cetera. So to your question, what’s gonna happen first is business has to control its own destiny in terms of what it needs to do. It needs to then secondarily talk about how can it influence its supply chain and its consumers and its ecosystem. And there’s two pieces to that. One’s on the demand side, meaning their supply chains, their Scope for emissions, et cetera. The other is, what are they doing to educate their consumers so they actually change their behavior of what they buy, how they use it, and their own personal carbon footprint, for lack of a better word? Because this is a chicken-and-egg issue in terms of corporates versus their consumers. Now, the third piece here is government’s gonna have to change policies with a level of speed and urgency and scalability to really opportunistically take advantage of things. So what I mean by that is we’ve got capital today that’s ready to go on various projects. It could be to create wind farms. It could be to create infrastructure changes for transportation and storage. The problem is some governments have rules and regulations in place that it takes decades to get the approvals. So the analogy I would make, Lizzie, is to covid. We actually redesigned regulatory approval processes for vaccines to get in record pace the scalability of a vaccine for the world, or multiple options for the world. But we’re not doing that with climate. So we’ve actually gotta come together and have it a public–private partnership with government, business. Really drive things forward in scale and urgency. It’s necessary to achieve the objectives I talked about.

Lizzie: When you shift, Raymund, from the public conversations, that the, you know, on the stage of a conference like this one, into a boardroom, what are the private conversations about climate like? Is it high on the agenda?

Raymund: It is certainly getting very high on the agenda, which is a very positive phenomenon at this point. If I compare it to a couple of years ago, it certainly has risen on the board agenda. No doubt. Corporates need to do their part, and I think there’s standards coming out. And whenever you measure something, hopefully something gets done. And then what’s important too is the policymakers need to have policies that would incentivize or help corporates to take the right actions together in order to advance the agenda. So I—what I don’t wanna see is every year we come to, you know, this conference and talk about, this is a critical juncture for us to deal with the issue. Let’s come and talk about, here is what we’ve accomplished and how we are achieving our goals, rather than saying, “Well, we haven’t really achieved our goals. Yeah. We missed, you know, 11 out of the 14 goals that we’ve set.” That’s not what we want. We wanna hear, “Yeah, you’ve got, you know, three more done.” And here’s what we need to do going forward together.

Bob: I think it’s easy to say it’s higher on the agenda. And it is. But there’s a nuance to the discussions that are happening. If I’m sitting in China today, China actually has put forth a very aggressive agenda in terms of climate change, and everybody’s into now: how do I act to achieve the goal? If you’re sitting in the States today, you still have the rhetoric of: is this on the agenda? Is it not on the agenda?

Lizzie: Is it not? Yeah.

Bob: And therefore, what can I say, first? What should I do, second? And then, should I act, third? So it’s a different dialogue. But climate as a result, definitely on the agenda, but it’s a different nuance. If you’re sitting in Europe right now, some of the rules and regulations that have come into place, there’s a back-end reporting requirement that’s gonna be requiring organizations to report a lot for accountability in the next two years. And they have to demonstrate not only how to report to be more trusted but also the progress made during that time. So it’s a totally different sense of urgency, now, that’s at that level. So the qualification is, I would say, Raymund’s absolutely right: top of the agenda, and it is there. But what’s being discussed about it in the boardroom is slightly different depending on where you are in the world.

Raymund: For a long time, it’s a long—over the last few years—many of the boards will look at it as a compliance exercise. It’s a cost to business. You’re beginning to see a shift in where the CEO is taking ownership of the agenda, which is important, and understanding, hopefully, that the climate agenda, or embedding the climate agenda into the business model and into strategy, is part of driving value. It’s not just a cost exercise or compliance exercise. And that’s very important. That’s a big shift.

Lizzie: Well, that leads me to supply chains. You both mentioned supply chain, because that is one of the places where there’s a potential for a big impact from climate disruption. Bob, I know PwC published a new report on supply chain resilience in the region in the context of technological change. Obviously, some of the economic shifts we’ve seen post-covid—what is your expectation for the evolving role of the Asia-Pac region in supply chains?

Bob: So first, the Asia-Pac region continues to be a huge source of supply chain for the benefits of the rest of the world. That’s gonna continue when you look at the cost of delivery, the skilled work set, the resiliencies that are existing in various countries. So that dependency is gonna remain for a long, long period of time. The second thing that’s gonna happen, though, is we’re gonna reshape that supply chain in terms of where it goes. You’re gonna see a lot more multiple-options theory in terms of creating supply chain. So there’s not too much dependency or a single concentration risk.

Lizzie: Is that a post-covid lesson?

Bob: It’s a post-covid lesson and a geopolitical lesson that’s coming out of this right now. Because one of the things CEOs and management teams look for is: give me the certainty for a couple of years rather than the certainty just for the next six months, because I’m really concerned about what may change. The third thing that’s gonna happen from a supply chain perspective, and I think Asia-Pac has a huge opportunity here, is that, historically, when organizations looked at supply chain, it was based upon economics and scalability: can you produce en masse for me in terms of what I need? Now what’s happening: it’s economics, it’s scalability and resiliency, but also climate. So it’s gotta be much greener. Because they’ve got to report on it. And second, does it give me data points so that I can make faster decisions around my pricing strategy? How I push down price in other places? Or maybe when I see a foreshadowing risk coming, that I may have to pivot elsewhere? So embedding AI and technology and digitization in supply chain is gonna be the next new wave of how do you compete on supply chains. So, greener and more tech and more data-intensive is gonna be the key to success.

Raymund: And the critical part of the whole of this supply chain going forward to build, to support sustainable growth is the investment in infrastructure. It’s almost impossible to replace China, period, given, you know, the, you know, the last 30 years of development, the quality labor and, you know, the quality labor force, and everything else. But the infrastructure build is also very important in order for that supply chain to work efficiently and effectively. And that investment is huge. And who is gonna finance that, and how are you gonna finance that to make that happen, to make us, the world, work closer together and the region to work closer together?

Lizzie: I want to talk about AI. We are very close to Silicon Valley. There are AI billboards everywhere. But it’s been a big theme woven into a lot of the discussion here. Is there a distinctive set of AI issues for the Asia-Pac region, or are they sort of the same as they are anywhere?

Raymund: Well, I think the issues are probably the same, but perhaps a little bit more unique in certain parts of Asia-Pac. For example, I think China, for example, because of the trade wall, because of the technology wall—and, you know, China is probably the biggest investors in, has got the biggest investments in AI. And generative AI is important, but all of that is dependent on data at the end of the day. So how do you actually share the data is actually something that we all need to think about and work on going forward. And there are so many large language models being built across Asia-Pac. Everybody’s doing that. Everybody’s doing that. Whether it’s in Korea, whether it’s in Japan, but everybody’s dependent on data—that large language models work if you have data. Right? And they do have data. But at the end of the day, it works the best if data are freely exchanged, but they are not today. And so that is an issue that needs to be thought about, addressed, and you need to find a solution that at the end of the day, you get the best outcome out of that generative AI.

Bob: The thing I would add is the Asia-Pacific region, as Raymund said, has some of the similar issues, and there’s a particular data element to it in terms of data privacy, you know, the laws that exist in some of the countries. But let’s take it to another place. The region’s gonna grow significantly. And like we said at the start, it’s gonna be the source of GDP growth to the world. In order to grow, it needs more energy. So one of the things that’s gonna be interesting is the energy demand out of the region, not only for the growth, but AI-fueled growth.

Lizzie: Which demands tremendous computing power.

Bob: And that’s the thing people are missing, right, is that connectivity around the amount of energy and computing power and data centers and other aspects like that? So the energy-demand aspect is a really important one that’s gonna be really prevailing in Asia-Pac. The second thing that’s gonna be important in Asia-Pac is, as you look at the labor forces that exist today, many of those labor forces are sitting in and working on manufacturing and scale, et cetera. And the combination of AI and robotics has the potential to replace many of those humans doing that work. So how quickly can you actually change the labor force and redeploy it elsewhere depending on how fast the scaling up? And that’s gonna be important to some of the, I’ll call it, the haves and the have-nots in some of the countries that exist today. So that aspect of labor and what we do with the supply and demand of labor is another challenge that’s probably gonna be more pronounced. The world will have to deal with it, but a little bit more pronounced in Asia-Pac as well.

Lizzie: If you had to boil down, kind of, the most important takeaway that you’re gonna be walking away from this summit with, what would it be?

Bob: To me, it’s the outcome of the meetings between President Biden and President Xi. The world is looking for a sense of stability and a reduction of the stress level that people perceive. They’re looking for tactical actions to build on and solidify the foundation between the two countries. And if you talk to anybody in this particular conference, it’s top of mind for everybody. So there’s an eagerness to say what’s gonna come out of these. And what I’m gonna say to them is, let’s minimize the focus on just this meeting. It’s actually the aftereffects of this meeting that’s gonna be really important. Because the two leaders talking is one thing. It’s what their teams do thereafter. And is it sustainable, and is it consistently moving forward with improvement rather than the ups and downs? ’Cause we had these conversations 18 months ago, relevant to the two countries. And then you had a few issues blow up, and all of a sudden you were in a danger zone again. So that’s the thing I think that’s most important for people to take a look at. That’ll have a huge positive effect on morale, certainty, investment, and ultimately people’s mindset around where they invest and what they do.

Raymund: Everyone is really looking for, hopefully, the two largest economies getting a little closer together and working together. That’s gotta be better off for everybody. Because all of the uncertainties around the last little while has been, you know, if the two largest economies are not working together, how can anybody be better off? So I’m certainly looking forward to some good news. Hopefully, some positive news. And the fact that they are talking together is already a step forward and hopefully some positive news around collaboration, working together. And that’s gotta be a positive for everybody around the world. And then, secondly, I think the topic around sustainability, that’s such a big topic for everybody, and that’s a world issue. And it needs everybody to work together to address this, you know, this big issue that we’re facing, climate issue. So it requires governments to work together. It requires corporates to work together, and requires individuals to invent, to work together, and then to address the issues.

Lizzie: Raymund Chao, Bob Moritz, thank you so much for joining us on this live episode of Take on Tomorrow.

Raymund: Thank you.

Lizzie: That’s it for this special episode of Take on Tomorrow, recorded live at the APEC CEO Summit. Join us next time, when we’ll be looking at prospects for progressive action on climate change and how business can help accelerate the pace. We’ll be talking to Christiana Figueres, an internationally recognized global advocate for climate change action, who played a pivotal role in negotiating the 2015 Paris Agreement.

Christiana Figueres: We’re about 20 or 30 years too late with mitigation. So we already have the adaptation problems now from the delay of 20 or 30 years ago. And that’s why we have to deal with both of them at the same time. But we have to scale up and speed up mitigation.

Lizzie: Take on Tomorrow is brought to you by PwC’s strategy and business. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. 

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