Conglomerates told to ‘ shape up’

> Bain & Co: Big boys in Southeast Asia must get slimmer, fitter and faster to survive and prosper amid current challenges

KUALA LUMPUR: Conglomerates in Southeast Asia, including Malaysia, will have to get slimmer, fitter and faster to survive and prosper amid the uncertain economic environment and rising competition, according to management consulting firm Bain & Company.

“Conglomerates should become faster with more disruption and change, speed and agility; slimmer by strengthening core business and potentially divesting other businesses; as well as being fitter by working on their cost structure,” Bain & Company Southeast Asia partner Till Vestring said in a media roundtable yesterday.

He said while conglomerates are generally outperforming single-focused companies, they are weathering through a challenging business climate, marked by a global slowdown in GDP growth, slumping commodity prices, heightened concern over China’s economic restructuring and regional and global political situations.

These headwinds, Vestring cautioned, could threaten conglomerates’ ability to outperform if they are unable to maintain a competitive edge amid economic uncertainty.

“People are reassessing what it means to them to be faster, fitter and leaner, and they’re reassessing their sense of purpose in the market,” said Bain & Company Malaysia senior adviser Shahazwan (Juan) Harris.

Conglomerates enjoy multiple advantages over their focused peers with greater access to capital, strong government relations and pick of talent because of prestige and perceived job stability.

“Scale helps. Size, history, reputation, credibility all helps to get access to new business opportunity,” Vestring said, but noted that conglomerates have been slower to reduce costs than single-focused companies.

Among the recommendations for conglomerates are to enhance their portfolio resilience, rethink the ownership model and capital structure, find new sources of profitable growth, tackle costs and improve productivity.

With the slump in revenue growth caused by the slowdown in economic growth, coupled with competition and softening commodity prices, Vestring said conglomerates will face a tougher domestic market and will need to explore venturing outside of their home markets.

Many conglomerates have been hurt by heavy exposure to commodities, as Bain found that 30% of the region’s conglomerates have a commodity focus.

On merger and acquisition, he said traditionally, Southeast Asian conglomerates have been in the buy-and-hold mode.

“Going forward, we’re going to see companies doing more active portfolio-shaping ... exiting certain businesses where the returns are not that interesting anymore. There’ll be further consolidation domestically and regionally but it hasn’t happened in a big way yet. It’s the inevitable consequence of increasing competitiveness,” said Vestring.