Bain & Company, a financial management consulting firm, has just pointed out the decline in profits of private economic groups in Southeast Asia after 2 decades of strong growth. Typically in countries such as Indonesia, Thailand, Malaysia and the Philippines.
According to Bain's statistics of 100 typical private economic groups in the region, the average annual return to shareholders was about 4% in the period 2013-2020. This figure has decreased by 24% compared to the previous decade.
Private economic groups in Southeast Asia are facing a period of slowing growth compared to the previous decade (Photo TL)
This figure is based on statistics from private economic groups operating in key sectors such as mining, real estate, telecommunications, banking, etc. Companies in these sectors currently account for up to one-third of capital expenditure in Southeast Asia.
Also in Bain's study, total annual shareholder returns for private corporations during the 2013-2022 period also fell 63% compared to the previous decade.
Another statistic from EY also shows that the average shareholder return in the period 2002-2011 of corporations in Southeast Asia was 34%. This figure is 2.4 times higher than that recorded in private corporations in the rest of the world . This has turned Southeast Asia into an economic bright spot, attracting the attention of international investors.
However, a decline in profits over the past decade has caused Southeast Asia to lose the position it once established.
The reason, according to Bain, is that businesses are struggling with the economic downturn. Along with that, the process of digitalization of the global economy is taking place strongly. The Covid-19 pandemic has also created significant challenges, and businesses in the region lack the agility to adapt to the epidemic situation.
Bain & Company Southeast Asia Chairman Jean Pierre Felenbok said this was the end of the golden age of private economic groups in the region.
"The golden age is over, and I don't think it will come back. Private corporations were caught flat-footed by the slowdown. They had a hard time adapting to a less favorable business environment, and then they had the Covid-19 pandemic right after that."
Mr. Felenbok said that the decline in profits of private corporations could have a negative impact on the growth of developing economies in the region.
Another notable point in Bain's research is that diversified corporations are showing a clear disadvantage.
Typical examples include the Boustead Group, one of the oldest multi-industry corporations in Malaysia, or Lopez Holdings of the Philippines and Lippo Group of Indonesia. These corporations are all showing weakness compared to units that only focus on their core business.
Statistics show that single-industry conglomerates have an average annual total shareholder return of 11% over the 2013-2022 period, significantly higher than the group of diversified conglomerates. This is a complete reversal from the previous decade.
Also in Bain's assessment report, some factors that were previously highly valued, such as good relationships with the government , are no longer as highly valued as before.
"The business environment has become much more saturated as private sector corporations in the region have grown larger. It has become harder to recruit talent and governments are becoming more wary of companies that are growing rapidly," said Till Versting, a consulting partner at Bain in Singapore.
However, diversified conglomerates are still proving to perform well in areas such as green business, financial services, and healthcare. Typical examples include Adaro in Indonesia, Phinma in the Philippines, etc. This has also helped some conglomerates increase profits when splitting their businesses.
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