Is corporate Asia ready for the Asian Century?

IT IS official - 2020 marks the dawn of the Asian Century. Over the next two decades, the region will account for 50 per cent of global gross domestic product (GDP) and fuel 40 per cent of global consumption. As the epicentre of global growth and economic activity, it's no wonder that Asia has been the destination for US$1 of every US$2 in new investment in the past decade. What is a wonder is why Asia also accounted for half of the drop in global economic profits since 2005?

Corporate Asia - which now comprises 43 per cent of the world's largest 5,000 companies by revenue (G5000) - is also underperforming other regions on average returns. This means that the region still has significant stores of economic profit yet to be unlocked - as much as US$440 billion by our measures. To achieve this potential, companies in the region will need to move on two critical fronts - turning around troubled companies, and championing the winning qualities of leading profit makers.

Asian firms are not alone in experiencing falling economic profits, defined by profits net cost of capital - economic profits have been shrinking for companies around the globe due to a downcycle in the energy and materials sector, a weakening of Europe's financial sector, and widespread capital allocation to sectors that offer lower returns. The latter phenomenon is most pronounced in Asia, particularly in China.