Conglomerates Must Become Fitter, Faster and Slimmer to Thrive: Bain & Company

Conglomerates in Southeast Asia need to trim down their ailing business and adapt faster to the latest technology in a bid to stay ahead of its competitors amid global economic uncertainties, according to a report by global consulting firm Bain & Company.(Reuters Photo/Darren Whiteside)

By : Tabita Diela | on 8:09 PM January 25, 2017
Category : Business, Featured, Corporate Updates

Jakarta. Conglomerates in Southeast Asia need to trim down their ailing business and adapt faster to the latest technology in a bid to stay ahead of its competitors amid global economic uncertainties, according to a report by global consulting firm Bain & Company.

The report  titled "How Conglomerates in Southeast Asia Can Live Long and Prosper" — said Southeast Asian conglomerates need to become "fitter, faster and slimmer" version of themselves.

"Turbulence and uncertainty are here to stay," Jean-Pierre Felenbok, Bain & Company Indonesia president director and managing partner, said on Wednesday (25/01).

Felenbok cited several global economic challenges, such as the global slowdown in gross domestic product growth, China's economic restructuring, falling commodity prices and increased political risks in the region.

The World Bank estimated that global economic growth will pick up slightly to 2.7 percent this year, which is a 0.1 percent point lower from its projection in June last year. "But that does not — and should not — spell the end for Southeast Asia's conglomerates," he said.

In its second publication on conglomerates, the Boston-based consultancy company analyzed the performance of 70 large family and government-linked conglomerates across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam over 2006 to 2015.

The study pointed out that as many as 30 percent of these conglomerates are focused on the commodity sector. The sector that once had helped them is now hurting them, amid falling commodity prices in the last few years.

The median for annualized total shareholder return — or the capital gain and dividends — of the conglomerates assessed in the report have fallen to 13 percent between from 2006 to 2015, the report said. Bain's previous conglomerate report published in 2014 showed that the figure stood at 29 percent between 2003 and 2012.

Bain & Company recommended that the companies stick to what they do best by reducing the number of businesses they participate in.

Commodity-focused companies are also encouraged to reconsider the makeup of their portfolio to prevent further losses.

Conglomerates are in a unique position to rethink the ownership model and capital structure of their companies, the report said. 

These choices, the report said, are to optimize the trade-offs between access to capital and ability to control.

The third strategy is to invest in new sources of growth through merger and acquisitions, internationalization or digital disruption.

Still, Felenbok said each company should have its own priority. Banks, for example, will benefit more from acquiring a financial technology company to help builds its digital presence than a brick-and-mortar bank branch.

The report also recommended that companies reduce unnecessary costs, improve production output and try to look within the company to assess whether it still has the capacity to attract, develop and retain top talent.

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