As the storms of the pandemic and extreme inflation pass, governments across Asia are making moves to improve investments in their markets. Historically, Japan, South Korea, and Australia have been stable markets that multinationals could rely on for consistent top-line growth and strong margins. However, recent global trends, including historically elevated levels of inflation, a sharp rise in interest rates, and weakness in global manufacturing, have made the outlook for these countries much murkier.

Maximizing success in Developed APAC in 2023

Three key trends that will shape the trajectory of these markets in the months ahead:

  1. Shifts in consumer behavior: As inflation and interest rates spiked in 2022, households in the region have come under substantial pressure and were forced to make trade-offs around how and what to buy. In this environment, most consumers showed a clear preference for services and travel over the consumption of expensive household items or electronics. Demand in these channels is also being bolstered by the resurgence in tourism that these countries are experiencing.
  2. Slowing production activity: Rising global credit costs, along with consumers’ shift away from durable goods, have dampened manufacturing and production activity in the region. While demand conditions are set to improve over the year, certain industries will be more exposed to current headwinds than others. Electronics and semiconductor manufacturers in Japan and Korea will be most vulnerable due to the weakest demand conditions and overflowing inventory stockpiles.
  3. Reorientation of fiscal policy: Tokyo, Seoul, and Canberra spent extravagantly during the pandemic to support their economies and protect livelihoods. In 2023, however, policymakers are looking to rebalance their budgets and return to more sustainable levels of spending. This will not be easy, as each government faces rising healthcare and military costs, and will look to provide welfare and cost-of-living support to citizens while aiming to execute on long-term investments. As a result, we will see more strategic deployment of government resources with fewer winners than previous years.

Prepare for heightened volatility in the months ahead

The current uncertainty in the region will create a host of challenges for executives, from pricing and demand planning, to resource allocation and risk management. As growth will be subdued, multinationals must form a clear roadmap for success, drive alignment across teams, and remain flexible enough to respond to opportunities as they arise.

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