Jakarta. Indonesian conglomerates need to focus on developing local markets in order maintain growth, as the economy transforms into an emerging nation, according to a recent study compiled by consulting firm Bain & Company.
Till Vestring, a partner at Bain & Company’s Singapore office, said on Wednesday that Indonesia is moving from an economy with a relatively inefficient capital and labor market, and a protected local market, to an emerging economy, in which multinationals will create competition for local firms.
“As the economy evolves, it’s time to build a defensive leadership position. Many companies make mistakes by under- investing in their already strong businesses,” Vestring said.
Still, Indonesian conglomerates should consider increasing the focus of their portfolios, the study suggested.
“It’s impossible for you to maintain leadership in all sectors of your portfolio,” said Jean-Pierre Felenbok, the head of Bain & Company’s Jakarta office.
The study presented the example of Singapore’s Keppel, which successfully trimmed down its widely diversified portfolio in the 1980’s to now focus on their marine, property and infrastructure sectors.
The smaller focus also helped Keppel to embark on global expansion.
Conglomerates in Southeast Asia have been thrived in the past decade, on the back of their market-leading position.
The study, which samples 49 of Southeast Asia’s largest listed conglomerates, found that their annualized total shareholder returns — which is capital gains plus dividends — has been 14 percent on average, above the regional benchmark over the past 10 years.
The Southeast Asian varied conglomerates also fare better against their single focus competition.