Good vs great companies: Survive or innovate

Roaring inflation, war in Ukraine, tension with China, disrupted supply chains, and a looming recession—there is no shortage of challenges for businesses in the world right now.

This geopolitical and economic disruption demands a reaction: It’s more important than ever for businesses to be prudent and maximize efficiency. But focusing on short-term savings alone might hurt over the long term. Being strategic and finding new revenue streams is of critical importance, too.

This might seem like odd timing to encourage business leaders to accelerate digital transformation and pivot to new business models. But the past years have taught us that innovation and adaptation are often the best ways forward in challenging times.

Looking at past slowdowns can be instructive. In the dot-com crash of the early 2000s, the Nasdaq fell 78 percent as thousands of online companies went bankrupt. Those companies that did survive did so at much lower valuations. But some of the most successful tech companies of our time not only survived, they thrived through the crisis. Amazon’s topline revenue almost doubled from Q1 2000 to Q4 2001. The downturn was a defining moment for the company, partly because of strategic decisions it made that positioned them for success far beyond the economic cycle.

Amazon started off in the 1990s as a direct book retailer. But in late 2000, six months after the crash began, it launched Amazon Marketplace, allowing third-party sellers on its website. Marketplaces were not as common then as they are today, so it was not an obvious decision for Amazon to open up its platform. The move required a significant investment. At the time, building a marketplace was complex and expensive. But Amazon decided to invest despite the crisis wreaking havoc on its share price—and was rewarded with extreme success.

While Amazon’s story is impressive, there’s no lack of companies that made defensive choices when faced with a challenging environment — and paid the price. Once the unchallenged global leader in mobile phones, Nokia faced a new threat in 2007 when Apple released the iPhone. A year later, the business climate grew even tougher with the financial crisis of 2008 and the subsequent economic slowdown.

Instead of allocating resources to long-term innovation goals, such as developing a new operating system, Nokia’s management went for the cheaper option: They decided to develop new phone devices for short-term market demands, keeping the outdated, unwieldy Symbian OS. We know what happened next.

Amazon’s decision might look obvious today, but its success was far from guaranteed, especially given the dire macroeconomic conditions. For Nokia, the temptation to focus on cost-cutting and short-term profit alone must have been huge.

But history shows that companies can’t afford to lower their ambitions in a slowdown. They need to attribute developer time to strategic projects, and not only think about costs in terms of immediate survival—but also in light of long-term opportunity.

In the past, global trade has traditionally been dominated by large companies and advanced economies, buying and selling tangible goods sourced and manufactured through physical supply chains.

Today, global data flows and digital platforms have democratized access to international trade. Countries, industries, and businesses of all sizes can now use the internet to ease access to new global markets. The cooperation in regional payment connectivity between five Asean countries through QR code and fast-payment mechanism, which will be fully operating next year, is also one of good examples of how technology eases access to global markets.

Marked by the signing of a memorandum of understanding by the central banks of the five countries, i.e., Indonesia, Singapore, Malaysia, Thailand, and the Philippines, on the sidelines of the Group of 20 Leaders’ Summit in Bali last month, the cooperation will facilitate cross-border trade, accelerate regional payment connectivity and economic recovery, as well as drive more investment and the growth of many sectors, including tourism and micro, small, and medium enterprises (MSMEs) in the region.

While the world is experiencing a challenging macroeconomic situation, Southeast Asia in the next decade will be a leading global hub for innovation; the hottest region where all ambitious businesses will want to be.

A lot has changed since the dot-com crash. Today, an ecosystem of cloud-based software has emerged that makes it possible to test new business models and revenue streams in a capital-efficient way without having to invest time and money into building the same tools in-house.

We also found that the profile of businesses selling internationally is changing. Businesses that have traditionally conducted operations offline are increasingly turning to the internet to access new markets. This was spurred in part by the need to serve customers remotely during COVID-19 lockdowns.

However, it also reflects the increasing range of readily available tools to support different aspects of running a global online business, from accounting and tax, to payments and marketing. With low-risk, cost-effective digital platforms available, businesses shouldn’t view a lack of technology as a barrier to accessing new trade routes.

For a long time, traditional companies have tried to learn from the success of tech companies, and use those lessons to adapt to the digital world themselves. In the current economic climate, it might be a good idea to turn around that knowledge transfer for once: Younger tech companies can learn a lot from them about adaptability, innovation, and resilience.

—The Jakarta Post/Asia News Network

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Sarita Singh is Stripe’s Southeast Asia revenue and growth lead.

The Philippine Daily Inquirer is a member of the Asia News Network, an alliance of 22 media titles in the region.