For one thing, with a 7-percentage-point increase since 2006 in the share of Indonesia’s exports that go to China, the country is more exposed to China, where growth has almost halved. An ongoing United States–China trade war might further slow China’s growth. Commodities’ contribution to Indonesia’s gross domestic product (GDP) has dropped from 29 percent to 22 percent, and prices could fall further. In addition, Indonesia’s corporate and household debt have risen significantly as a share of GDP, from 25 percent to 39 percent. Fortunately, the country’s economic growth rate has fallen only 0.3 percentage points from 2006 to 2018.

Despite these vulnerabilities, many senior executives in Indonesia and Southeast Asia have not begun to seriously prepare for a downturn. Bain & Company’s recent survey of chief executive officers and chief financial officers in the region found that 77 percent of them expect a severe downturn in the region within the next two years, yet only 37 percent expect a severe effect on their own company. Very few, 20 percent, have significant actions or plans in place. Our conversations with them suggest that some are loath to even think about cost programs while they are growing, or have never weathered a downturn as senior executives. Others are simply overly optimistic or believe they have time to wait.

For Indonesia’s business leaders, then, the critical action is getting ready to seize the moment early, when they have more options. By taking a “future back” approach on what they want their company to look like in five to 10 years, they can use the downturn as an opportunity to achieve future growth through more efficient operations and selective investments when asset prices and borrowing costs are lower.

Bain research finds that well-prepared Southeast Asian companies emerged as winners during and after the last downturn. Headed into the global financial crisis, a group of 200 public Southeast Asian companies posted double-digit earnings growth, on average, our analysis found. As soon as the storm hit, performance diverged sharply: The winners, on average, realized a compound annual growth rate (CAGR) of 20 percent from 2007 through 2009; that’s in stark contrast to the losers, which barely mustered a 2 percent CAGR. What’s more, winners locked in gains to grow at an average of 7 percent after the downturn, from 2012 through 2017, while the losers slipped at negative 3 percent.

Our research reveals key moves by companies that outperformed their peers in four areas: early attention to cost productivity, plus some combination of balance sheet discipline, aggressive commercial growth plays and proactive mergers and acquisitions (M and A).

Winning companies focus on cost productivity without cutting muscle. We analyzed the cost productivity of 200 public companies in Southeast Asia, defining cost productivity as earnings growth less revenue growth — namely, the part of earnings growth attributable to cost rather than revenue. During the 2007 to 2009 slowdown, winners had a 20 percent CAGR in earnings, with 10 percentage points of that coming from cost productivity. The losers’ had just a 2 percent CAGR in earnings, with cost productivity actually dropping by 2 points. This divergence continued during the subsequent recovery.

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