Study finds Southeast Asia’s conglomerates losing edge

Another reason plays directly to the cliche of conglomerates as unwieldy dinosaurs.
“A conglomerate’s size and complexity create ways to hide costs, cross-subsidise businesses and avoid tough decisions,” said the report, and the region’s dinosaurs have lagged behind their focused counterparts in tackling the mounting cost and productivity challenges.
From 2011 to 2015, the region’s conglomerates saw a 2-per-cent median annual rise in revenue, but operating expenses rose by 3 per cent.
Median operating expenses as a percentage of revenues rose from 13 per cent in 2011 to 15 per cent in 2015.
By contrast, the region’s pure plays have kept median operating expenses at 15 per cent of revenues.
In spite of this, conglomerates continue to play a major role in Southeast Asia, accounting for around 40 per cent of the top listed stocks, management consulting firm Bain & Company said in the report. And what has not changed is that Southeast Asia conglomerates are consistently delivering higher shareholder value than their counterparts in developed markets.
Conglomerates outside Southeast Asia delivered an annual TSR (total shareholder returns) of 7 per cent from 2003 to 2012, and a TSR of just 2 per cent from 2006 to 2015, according to Bain. The report also discussed some popular growth strategies among conglomerates, such as mergers and acquisitions.
In Bain’s analysis, “M&A is an acquired skill, and frequent acquirers substantially outperform infrequent acquirers”.
Conglomerates in Southeast Asia that executed 10 or more deals (acquisitions and divestments) achieved a median TSR of 13 per cent in the 2011-15 period, while non-acquirers achieved only 2 per cent, the research found.