Firms need post-COVID rethink — Bain


By Denise A. Valdez, Senior Reporter

PHILIPPINE conglomerates may need to adjust their business models to remain competitive in the post-coronavirus disease 2019 (COVID-19) world, as the evolving economy is proving better for pure-play companies.

Bain & Company, Inc., a United States-based management consulting firm, said pure-plays are now outperforming conglomerates in Southeast Asia, and the Philippines is prone to seeing the same event.

“Conglomerates have done well in the Philippines, historically, but as the economy matures and becomes more competitive, the old model will not work,” Jean-Pierre Felenbok, managing partner at Bain Southeast Asia, said in an email to BusinessWorld last week.

“As the Philippines economy is particularly severely impacted by the COVID crisis, there are a few imperatives for conglomerates in a post-COVID world,” he added.

Among these is the tight management of productivity, which entails not only reducing operating costs, but also changing a business operating model to consider digitization and automation, Mr. Felenbok said.

Part of this would be reengineering supply chains and investing heavily in digitalization, which may result in leaner and more agile ways of working.

The consultancy firm also suggests reshaping portfolios, which will focus on leadership positions in industries that thrive in the post-COVID world. This may include divestitures, mergers and acquisitions, and joint ventures.

“Typically, less diversified conglomerates with a clear theme and areas of focus will do better going forward,” Mr. Felenbok said.

In Bain’s 16-year research of Southeast Asia’s conglomerates covering six countries, namely the Philippines, Indonesia, Thailand, Vietnam, Malaysia, and Singapore, it has found that pure-plays are generally outdoing conglomerates in terms of annual total shareholder return (TSR).

In the past five years, Bain said there had been a growing gap between conglomerates and pure-plays, such that in 2010-2014, conglomerates bested pure-plays by four percentage points in terms of TSR, and now, had been beaten by six percentage points.

But in the Philippines, four conglomerates were recognized as part of Bain’s 12-member list of “All-Weather” companies, which means they have shown consistently superior TSRs since 2003. These are A. Soriano Corp., Aboitiz Equity Ventures, Inc., DMCI Holdings, Inc., and JG Summit Holdings, Inc.

Family-owned conglomerates perform significantly better on average than other conglomerates (13% vs 6% TSR over 2010-2018), Mr. Felenbok said.

“This is attributable to what we call ‘founder’s mentality’ characterized by a strong sense of purpose, an obsession with the customer and the front line and an aversion for bureaucracy and complexity,” he added.

The four companies that made the All Weather list are all family owned: A. Soriano (Soriano), Aboitiz Equity Ventures (Aboitiz), DMCI Holdings (Consunji), and JG Summit (Gokongwei).

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