Property development around Jalan T.B. Simatupang, a busy office area in South Jakarta, in December 2016. (Investor Daily/Emralsyah)

Asian Companies to Keep Costs in Check in Good and Bad Times


APRIL 06, 2017

Jakarta. Companies in Asia need to keep costs in check throughout their business cycles to avoid having to take drastic measures like slashing employment to keep them afloat during economic slowdowns, executives at global consulting firm Bain & Company said.

Most economies in Asia have been seeing slower growth recently and businesses have seen more competition compared to five to ten years ago.

According to a World Bank report published in January, East Asian and Pacific economies are expected to grow by 6.2 percent this year and 6.1 percent next year — continuing a declining trend from 6.7 percent in 2014, 6.5 percent in 2015 and 6.3 percent in 2016.

"A lot of companies turn their attention back to cost management when times are [already] bad," Vinit Bhatia, a Hong Kong-based partner at Bain & Company, told reporters on Wednesday (05/04).

"But we find that the best companies [...] pay more attention to costs throughout a business cycle, so both in good times and bad times," he said.

Bhatia, along with Francesco Cigala, the managing partner of Bain's Kuala Lumpur office, and Jean-Pierre Felenbok, a partner at Bain & Company who heads the firm's office in Jakarta, told reporters that companies must identify poorly deployed resources to reallocate them into activities that can strengthen them, and prepare for the so-called sustained cost transformation even when there is no urgent need to trim costs.

"The focus is not on saving a company or just managing cost," he said. "The goal is to take a good company and make it great."

Bhatia said managing costs — including adopting new technologies to reduce workload and using zero-based budgeting in which expenses must be justified for each new period — may sound absurd in Asia. The region's economies are growing faster compared to the rest of the world and companies here have been focusing on capturing as much of the market as they could.

But as well as looking for new opportunities, companies need make sure that all elements of their business are working well and occasionally look back to their business practices and figure out whether they can be done more efficiently.

"You may not want to cut staff in call centers or at the checkout counters because that's where your customers have a great experience. You want to be aware of that before you start fiddling with costs," he said.

For the past several years, companies in big markets such as China and India have started to adopt this sustained cost transformation practice. These companies also offer incentives — including compensation and sometimes penalties — for its employees to improve cost efficiency.

In the past 18 to 24 months, Indonesian companies have also started adopting the same practice, Felenbok said.

According to him, Bain's Indonesian clients — who he claimed are mostly industry leaders — want to make sure that they "slim down" their businesses in all the right places to make room for growth when the economy expands again.

The Indonesian government targets a 5.1 percent economic growth this year, a slight increase from last year's 5 percent and 4.8 percent in 2015. The government has hinted that it might be eyeing growth of 5.6 percent next year.

Felenbok said Indonesian companies are well aware of the prospects of positive growth in the country in the coming years.

He said the companies want to lower their cost base to just the right level, which will allow them to have more money to invest in growth and create a new culture of smart cost management to ensure costs will not creep back up over time.