Disruption arising from COVID-19 has accelerated trends already apparent in the industrials market –– particularly digitalization and trade volatility –– and transformation has gone from a “nice to have” to a necessity, according to Baker McKenzie's report, "A License to be Bold: Transforming Industrials."
 
The report includes in-depth interviews with leaders from industrial companies in powerhouse markets, including China, Japan, the United States, United Kingdom, Germany, France and Brazil. According to the managing director of a manufacturing multinational company in China: "Organizations that are more innovative and can quickly change and respond to new market conditions will be best placed to succeed. Those who are more agile will survive."
 
Cherrie Shi, co-chair of Baker McKenzie's Industrials, Manufacturing & Transportation Industry Group in Asia Pacific, said: "Digital transformation was already well underway before the COVID-19 pandemic, and the pandemic not only accelerated its pace but also became a wake-up call for many industrial companies and manufacturers about the weaknesses in their manufacturing and supply chain operations. We believe some companies will be using this opportunity to review their operations, from reshoring and bringing their production closer to consumers to rebuilding more distributed supply chains for risk diversification. 
 
Cherrie added, "Demand for higher-level skills or even new occupations may emerge in the future, as automation technologies become more mainstream and reshape demand for human labour."
 
Transactions will be a critical component of recovery and transformation for organizations the industrial sector. With market conditions changing daily, many industrials are stuck in “wait-and-see” mode. However, some are taking a proactive view. 
 
"We are seeing a lot of carve outs of non-core business units – freeing up capital to reinvest in the core  and spin offs – targeting IPOs to realize greater profit," Grace Tso, M&A partner in the Firm's Hong Kong office, said. 
 
Grace continued, "Companies are also thinking creatively about how they structure for success – particularly to enter fast-growth markets. For example, we are seeing a rising trend in China where companies are shifting to joint venture structures with local partners to access new markets and lower the cost of supply chains, which in part is fuelled by the different requirements and considerations of different cities. China's national policy of upgrading the country's manufacturing capabilities by 2025 is also adding further impetus to deal activities, particularly as Chinese companies boosting their investments in new technologies to move up the value chain."
 
Nikolaus Reinhuber, Global Chair of Baker McKenzie’s Industrials, Manufacturing and Transportation industry group says, “Those organizations that meet disruption with a bold and innovative vision and execute effectively on it, will be best placed to adapt and grow over the coming decades. The industry has an imperative to change and a new license to be bold –– the stage is set for transformation.”
 
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