The rise of the emerging economy

Rising through the ashes of the pandemic

Businesses are running out of business. This has been the headline across international newsboards as the coronavirus pandemic continues to rattle global economies. With economies failing and unemployment rising — how can the startup and middle-market survive this squeeze?

Early in January, before the current health crisis became a pandemic — our team has been sitting on this issue as we see the crisis unfold in other parts of the world. It is apparent at that time that this will be big even if we’re not panicking yet.

Countries began shutting borders down in January until the Philippines followed suit in March 2020. With the crisis initially impacting mostly the travel and leisure sector, the national lockdown has snowballed the economic impact across almost all industries specifically those involving physical spaces.

In the latest impact assessment on international tourism (source) conducted by the United Nations’ World Tourism Organization (UNWTO), the global tourism industry shrunk by 22% with Asia suffering the most at 35% decline in international arrivals. This is just the start. Top think tanks globally including UNWTO and the OECD are expecting an annual impact of up to 80% resulting from this crisis.

Food and beverage sector is another industry heavily impacted and will continually be impacted as we progress into the new normal. With social distancing measures put into place, profitability ratios have gone totally out-of-whack as restaurants operate at effectively 10% capacities considering existing seating capacities and capex investments.

This is an introductory article as we begin our series of articles that focuses on the new ventures rising throughout this pandemic. We carefully review the emerging industries growing through this pandemic from our discussions with clients and other first movers in these emerging industries.

As physical retail sunsets, digital retails ascends

New normalcy. Sounds nice and heard everyday as new industries continue to emerge. In a nutshell, it’s just a fancier way of saying that the future is about being socially distant.

Low-touch economies have been here for some time with the scale of growth that we’re seeing for ecommerce (e.g., Amazon, Lazada, Alibaba, and TMall) and on-demand food deliveries (e.g., Uber Foods, GrabFood, and FoodPanda). The pandemic just gave it a push as travel restrictions were implemented and psychological impediments were successful.

Looking at the mobility graph (source) since the lockdown was implemented across the Philippines, it is clear that COVID-19 has massively impacted our normal habits. As lockdown restrictions are gradually lifted, it is evident that people are slowly, and really slowly, returning back to their normal habits. (Note: read Google’s Understand the Chart first before making any interpretations on this mobility chart)

The pandemic has massively shifted consumer behavior in a short period of time but only time will tell if this will convert into consumer habit or a mere temporal trend as we face the scourge of the pandemic. But we’ll remain hopeful and positive throughout our articles and see how these new industries will change the way businesses work with consumers.

On demand is in demand

When we talk about the new trends in consumer behavior during this pandemic — the biggest shift really is the massive decline in socialized buying activities. Due to the virus being highly contagious — low-contract on-demand services are in demand.

When we talk about on-demand, the first thing that comes to mind are the on-demand food deliveries. They fulfill our late night cravings for some bad-ass chicken wings or a cuppa milk tea with just a click. With dining-out heavily restricted by our regulators and ourselves (mentally!), ordering online seems to be the easiest option for many of us.

However, there’s more to on-demand than food delivery. Throughout this pandemic, we’ve seen the massive growth of nontraditional retail businesses booming around the world. In exploring this area, we focus on platforms and omnichannel services used by consumers during these times.

In the recent survey and study conducted by Accenture (source), it is clear that digital services have won in leaps and bounds during these times with almost 80% of consumers prospecting to continuously rely on these omnichannel services.

As we write about the new and emerging ventures during this pandemic, we will focus on these areas being shaped as we progress deeper into the new normal. Whilst it might be short-lived, these new habits might indeed be the new normal that we’ll be living on even after the pandemic has passed.

The glue that knits them together

Lastly, this whole new phenomenon that we’re seeing piggybacks on the success of omnichannel services and digital payments. Prior to the pandemic, we’ve seen a lot of fulfilment startups and last mile operators knitting through the tightly weaved digital market — this we expect to become more and more relevant as we shift into the digital market.

While eliminating intermediaries has been one of the hallmarks of modern digital businesses, it is quite inevitable that intermediary businesses continue to sprout to address gaps in the newly created space. Into this space are the ecommerce fulfilment companies, third-party logistics providers, payment processors, platform providers, among others.

All these intermediary businesses fall into the fulfilment category. Either fulfilling orders through logistics or through financial intermediation — the need for these services will continue to rise for economies of scale to make sense.

With the expectation that these new low-touch socially-distant industries will continue to grow, the growth prospect for the intermediary business seems highly positive during these times.

Wrapping it all up

I have to go back to our team discussion early this January. Despite a strong forecast of an economic downturn even before the coronavirus pandemic became a crisis, history teaches us that certain industries will rise and flourish while others wither away.

Back in January, the answer was not pretty obvious as there are so many angles on where the next growth area will be. It could either be another financial crisis, a credit crunch or a pandemic. There’s several possibilities back then.

But when we knew it’s the pandemic, the emerging industries became clearer as what we’re seeing today. It is a clear sign that despite the economic downturn that we’re facing, opportunities arise. We have to grab them, take them, and use them to our advantage.

Some say this is a “black swan” event. It’s easy to point fingers to excuse poor management execution. It’s not. Ask Taleb himself (source). This is a pivotal moment for businesses to pivot, for companies to adapt and for new ventures to rise.

Throughout this series, we will continue to monitor, track and write about new startup industries that are emerging or growing during these thriving times. This series is about supporting existing and new startups as we gain the latest insights whilst working with the country’s top startups in navigating these challenging times and the regulatory uncertainties that they’re facing.

About UpSmart

UpSmart is the premier financial consultancy firm in the startup, SME, and social enterprise industry. UpSmart specializes in strategic finance (e.g., structuring and restructuring of legal entities, valuing and modelling companies, serving as chief financial officer of companies) and operational finance (e.g., optimizing business processes and controls, accounting and bookkeeping support, financial reporting and analysis).

About Filbert

Filbert is the co-founder and managing director of UpSmart. He leads the consulting practice of UpSmart and specializes in handling corporate structuring and financial transformation projects. He was previously a consulting manager at Ernst & Young in the UK. He writes for Tech in Asia, Business Mirror and serves as a mentor at The Final Pitch on CNN.