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Business Trends

Asian and Indian conglomerates outplayed by pure-play companies

Traditional advantages of being big shrink as region's economies mature: Report

Many Southeast Asian conglomerates run plantations.   © Reuters

SINGAPORE -- Conglomerates in Southeast Asia and India have played big roles in their respective economies for decades, but their performance falls short of companies devoted to a single industry, new research has found.

According to a report released on Friday by Bain & Company, conglomerates in the region underperformed pure-play companies in terms of shareholder return.

The consulting company tracked total shareholder return -- stock price changes plus dividends -- between 2007 and 2016 for 102 conglomerates in the Philippines, Malaysia, Indonesia, Thailand, Singapore, Vietnam and India. It then compared the results to 287 listed pure-play companies with revenue over $500 million.

The average annualized shareholder return for the conglomerates over 10 years was 11%, whereas the figure for pure-play companies was 12%.

Conglomerates in the region are typically engaged in traditional businesses, such as plantations, real estate, food production, building materials and finance. Many are family-owned and have a solid relationship with government. As a result, these giants used to wield distinct advantages, such as more favors from regulators and better access to business opportunities, capital and talent.

However, this competitive edge no longer exists, said Bain's Till Vestring. "We could see already that some of these traditional advantages, as economies get more competitive, started to wane," he said on Friday at a media briefing.

Vestring pointed out that governments these days have become more interested in helping startups and disruptive businesses, and more local talent is choosing to work for digital companies and startups. Moreover, smaller businesses now have better access to capital, such as through private equity companies.

In fact, new types of businesses are rapidly growing in Southeast Asia and India, such as Singapore-based ride-hailing operator Grab and India's mobile payment service Paytm. Despite their brief history, they have raised funds from global investors and attracted talented engineers.

"As conglomerates' performance suffers, there will be calls from skeptical investors to break them up," the consultancy warned.

For conglomerates to sustain growth, Bain suggested that they learn from good performers as regards overseas expansion, acquisitions and divestment. "Divestitures that strategically clean up a company's portfolio and command an optimal price can generate shareholder value for both buyer and seller," said the report.

According to the report, performance varied among the 102 conglomerates: Conglomerates in the top quarter marked a 25% average return, while those in the bottom quarter recorded a negative 3%.

Thailand's Charoen Pokphand Group, which includes Charoen Pokphand Foods and CP All, topped the performance rankings, with average total shareholder return at 40%. Malaysia's Hap Seng Consolidated, which has plantation and property businesses, ranked second at 36%, followed by Berli Jucker of Thailand, a retail and consumer products group, at 34%.

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