The Jakarta Post
Southeast Asia's conglomerates, which account for more than 20 percent of top-listed stocks in the region, are consistently outperforming their peers in developed markets, as well as single businesses in their own markets.
However, these conglomerates, especially from Indonesia, need to evolve as the economy grows, especially with the ensuing ASEAN Economic Community (AEC) single market, according to analysts.
A report published Thursday by management consulting firm Bain & Company revealed that the region's conglomerates achieved total shareholder returns on average 18 percent higher than conglomerates in developed markets and 10 percent higher than selected single or 'pure play' businesses in Southeast Asia.
The study, which looks at the value creation of 49 conglomerates from five Southeast Asian countries over 10 years from 2003 to 2012, claimed that the relative success of conglomerates was connected to the industrialization level in their underlying countries, as well as the talent pool size and multinational corporations (MNCs) competing for a stake.
According to Bain & Company, Indonesia was a pioneering country, still in the early stages of industrializing, with a business landscape dominated by large local enterprises and a relatively low multinational presence.
Emerging economies, such as Malaysia, Singapore and Thailand, were at a more advanced stage of development, attracting MNCs that saw these markets as a strategic priority, aggressively growing their presence and creating competition for local companies.
Mature economies, such as Japan, Korea, the UK and the US, were characterized by lower growth, the entrenched presence of global competitors, and more mature capital and talent markets.
The study also claims that while conglomerates in Southeast Asia typically delivered higher total shareholder returns than non-conglomerates overall, the premium shrank as economies matured.
One of Bain & Company's partners, Till Vestring, said this was the reason conglomerates needed to evolve as the economy around them developed.
'These are qualitative assessments that the dynamics are changing. Indonesia is quite a bit further ahead than Vietnam in terms of GDP, but not quite as there yet as Malaysia in terms of wealth, consumption and stability,' Vestring said during a press conference in Jakarta on Thursday.
Vestring said the biggest challenge for conglomerates lay in managing the transition points between the stages of economic growth. 'Indonesia has changed quite rapidly over last five years already, and it's likely to continue changing,' he said.
In the case of Indonesia, Vestring asked the country's conglomerates to adapt to the possibility of
smaller margins due to rising costs amid diminished domestic market growth.
Vestring said that they eventually needed to scale down their businesses and continue to strive for leadership positions in the domestic market to stay relevant and make the transition to regional powerhouses.
'It's going to be difficult for a company to [maintain] 15 businesses. They're going to have to trim down and decide which businesses they want to focus on and then reinforce the resources and attention to those and exit some others,' he said.
Vestring said the country had become so attractive to foreign companies vying for investment opportunities that simply being in the business and having the appropriate licenses was no longer enough to survive.
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