A recent study carried out by Bain & Company found that Indian and Southeast Asian conglomerates no longer hold an advantage in total shareholder returns over pure plays. It was also found that if these conglomerates, which have already started to underperform, do not reinvent themselves, they might face the wrath of investors. As conglomerates’ performance suffers, there will be calls from sceptical investors to break them up. This is what happened in the West. If this happens in India and Southeast Asia, a doom loop will be set in motion: conglomerates will be less able to attract talent, money and opportunities, further hurting their performance.
The study found that unless these conglomerates, in India and Southeast Asia, do not renew themselves, they might face the bleak fate of their Western counterparts.
For these conglomerates to survive, the study suggests, they will have to evolve their portfolios to reach a sustainable leadership position in each of their businesses. However, achieving and sustaining market leadership in a level playing field requires more managerial and financial attention. Conglomerates would be forced to make strategic decisions involving where to focus their efforts.
Fortunately, these giants can look to the actions of the top-quartile performers, which have maintained a hefty conglomerate premium, to show the way. Indeed some conglomerates in the region have done especially well, outperforming pure plays by more than 13 percentage points on average, while the rest underperformed by an average 5 points.
The top-performing conglomerates include Thailand’s Charoen Pokphand Group and Berli Jucker Public Company, Malaysia’s Hap Seng consolidated, India’s Bajaj Group, the Philippines’ DMCI Holdings and Indonesia’s Sinar Mas Group. The study found that these conglomerates have a clear ambition, articulate their parenting advantage, and make strategic portfolio and financial choices to deliver superior growth.