Asian M&A: Riding the wave

It will be quite evident to even the most casual observers that Asia has become the focus of the world, due in no small part to the current challenges in the developed Western hemisphere. As a result, growth in and through Asia is now on the top of the agenda for most global and Asian companies.


We see mergers and acquisitions (M&A) as a critical driver of industry structure and future competitiveness in this region. However, M&A activity on a meaningful scale has been slow to come to Asia, even as the region’s growth rate significantly outpaces that of the rest of the world. Though deal activity is heating up in Asia (Asia’s share of global M&A has doubled in the last decade), the industry endgames are still far away and dealmaking is still in its infancy.


We expect the coming decade to be critical for Asian M&A and therefore for the competitiveness of Asian industry. The Asian M&A story is expected to unfold rather differently and perhaps more unpredictably compared with the patterns established in the developed markets of the West.


We see three different themes about Asian M&A:


First, there will be room for multiple local deals in the Asian consolidation, due to the extensive fragmentation of customers and markets. This is unlike the West where there is a single optimum model with a handful of companies dominating each industry. For example, while Coca-Cola and PepsiCo might be the national beverage leader in China, local beverages that cost less and come in flavours that appeal to local tastes (for example, ready-to-drink herbal tea) dominate specific segments and geographic regions.


Second, there is a tendency for cross-border M&A to happen in Asia even before local consolidation takes place, unlike in the West. Asia’s share of outbound M&A, excluding Australia and Japan, grew from 4% to 22% of global outbound M&A from 2001 to 2010. The expansion strategy via M&A is driven by five key reasons:


The quest for new markets: Asian players in different industries such as SingTel in telecommunications, CIMB in banking and Infosys in IT have all used acquisitions to expand beyond their domestic markets.


Filling gaps: These can be in market access, distribution network, brand names, or new technologies, as exemplified by Lenovo’s acquisition of IBM to gain access to the latter’s global distribution and brand, and Tata’s acquisition of Jaguar Land Rover to get access to its top-end design and engineering operation.


Expanded balance sheets: Asia’s surging stock market, easier access to global bond markets as well as cash hoards that companies have built over the years have given Asian companies the means to acquire. In addition, some countries such as China are using its huge foreign reserves to support their national corporations’ bids to buy offshore assets.


Surging Asian currencies: Gains relative to the US dollar and euro have made acquisitions of Western companies more compelling from a value perspective. Thai Union Frozen’s acquisition of MWBrands and NTT’s acquisition of Dimension Data came during periods when the euro and dollar had depreciated at least 10% relative to the local currency over a 12-month period, following a long-term trend of Asian currency appreciation.


Domestic resistance to local consolidation: Sometimes it might be too difficult to consolidate locally compared to expanding internationally due to resistance by shareholders of family-owned companies, or complex cross-holding company structures as is common in many Asian countries.


Third, most Asian economies are dominated by government-owned or government-linked companies, which are typically lethargic, ponderous and bureaucratic compared to private companies. M&A could bring about a real and transformative benefit, allowing for a mindset shift to improve their competitiveness.


This is especially true in sectors traditionally dominated by government-linked entities, such as energy, telecoms, airlines, exploration and production, refining and downstream oil and gas, mining, metals and complex manufacturing. In some cases, government-to-government links may facilitate joint ventures, partnerships and even M&A between two government companies, thus favouring government-led M&A.


Asia is clearly rewriting the rules of global engagement. We are already seeing the emergence of Asian champions, and before the decade is out, there will be many global champions originating from Asia. We have one message for Asian companies: This is your time. If you want to track Asia’s trajectory and be a future Asian or global champion, you need to think about M&A.


http://www.bangkokpost.com/business/economics/305033/asian-m-a-riding-the-wave

A sleeping e-commerce giant

Vietnam is one of Asia’s sleeping giants in terms of e-commerce with a young population eager to buy more online. But low trust in online shopping and e-payment remains the main challenge e-commerce can really take off in the country.





Other payment systems besides credit cards are important in developing economies. Thai Smart Card offers a Smart Purse Online for transactions with many local business allies.


The Vietnamese government’s efforts to promote internet use and e-commerce over the last decade have helped popularise the business. Buying and selling through e-commerce websites has become popular for goods and services such as airline tickets, tours, hotel rooms, electronics, mobile phones, computers, books, perfume and flowers.


Payment and shipping methods are also flexible to meet the requirements of buyers, many of whom still do not have credit cards, from online payments to bank transfers or cash-on-delivery.


In Vietnam, one-third of population now uses the internet, and some 60% go online to research information on products before making a purchase. Internet penetration in the country has recorded the most rapid growth in Asia, with an average annual rate of 20% from 2000 to 2010.


According to a survey of 3,400 businesses operating in different fields nationwide by the Ministry of Industry and Trade, 60% of companies have applied B2B (business-to-business)


e-commerce, 95% of which received orders online. One-third of the companies said e-commerce accounted for 15% or more of their total revenues.


E-commerce transactions in Vietnam now account for 2.5% of it's GDP, or nearly US$2 billion. It's predicted to reach $6 billion by 2015.


Despite its huge potential, e-commerce growth in Vietnam is held back by a low-trust environment.





The other factors that constrained e-commerce a few years ago, including ICT infrastructure and the legal framework, have almost all been tackled, according to Nguyen Thanh Hung, deputy chairman of the Vietnam E-commerce Association.


“Current barriers now are buyers’ low trust in online shopping, customer protection and information security, and dispute settlement in online transactions,” Hung said.


Though payments can now be made easily online through cooperation between e-commerce websites and banks, they still account for a very small proportion of payments in Vietnam.


Though improvements are needed in some areas, many foreign companies are looking at business opportunities in the emerging industry, given Vietnam’s population of nearly 90 million and growing middle class. Big global players including Google, Alibaba, Rakuten, eBay and Amazon are rapidly building their presence.


In June 2012, Google became a member of Vietnam E-commerce Association, expecting to build online business with other members. Google has expressed its desire to earn $30 million a year from the Vietnamese market, targeting small and medium-sized companies.


Alibaba and eBay have also chosen official representatives in the country. While eBay bought 20% of Peacesoft Solution, the owner of the local site chodientu.com, Alibaba chose Investment and Technology JSC as its agent in Vietnam. Amazon and Rakuten have also approached local e-commerce providers for potential stake purchases or partnerships.


Foreign investors are free to form their own companies or they can buy into domestic firms to enter the market, said Tran Huu Linh, director of the Department of E-commerce and Information Technology at the Ministry of Industry and Trade.


Most Vietnamese e-commerce providers have been leaning on foreign investment, including the country’s two leading e-commerce sites, vatgia.com and chodientu.com. Heavy demand for venture capital also has led to the active participation of international financial players including IDG Ventures, DFJ Vina Capital, Softbank China and India, and CyberAgent.


Nguyen Hong Truong, director of business and technology development with IDG Venture Vietnam, said the country was an attractive target, having been ranked among the five most attractive online retail markets in the world in recent years.


“Therefore, even though the infrastructure, conditions of payment, delivery, quality of goods and transaction security are still underdeveloped, investment in this untapped market is a bold step for ambitious organisations,” Truong said.


Nguyen Ngoc Diep, director of Vat Gia Vietnam JSC, said that at the entry-level stage, development of an e-commerce website must attract foreign backers for financial support.


“Each site would need around $2-3 million to successfully pass the startup stage. Without funding from a foreign partner, Vatgia would not have been able to weather that stage,” Mr Diep admitted.


Vat Gia invested around $3 million from 2007-10, with most of this funding from IDG Ventures. Now the site is the top player in Vietnam with more than 1 million hits per day and transactions valued at $15 million a month, making up 40% of the market share.


Mr Diep said that if his companies could not raise more capital from domestic market, they might think about cooperation with foreign partners to keep the business strong and growing.


http://www.bangkokpost.com/business/telecom/306226/a-sleeping-e-commerce-giant

Indian e-commerce seeks winning formula

India has a booming retail market worth about $500 billion, but the market size of its e-commerce industry is only $10.3 billion with 81% of that total coming from travel transactions and 6% from product purchases.

However, e-commerce is likely to enter a high-growth phase in the coming years and travel will continue to lead as new business models emerge, according to B.N. Satpathy, economic adviser at the Department of Information Technology.

The federal government is working on a new information and communication technology (ICT) policy to propel the growth of low-cost, internet-enabled and handheld devices.

“India is poised to be one of the top e-commerce hubs as number of internet users increases. This will bring in a new revolution in retail industry,” he said, adding that e-commerce globally was now estimated to be worth at least $700 billion.

Accelerated innovations have expanded the online retail market to $241 billion in Europe, $176 billion in the United States, $76.4 billion in China and $10.3 billion in India. The Indian retail industry is currently estimated at $520 billion and e-commerce is a sub-set of it.

With high GDP growth, a young population with a median age of 25 years, large and relatively insulated rural tracts, coupled with people’s hunger for achievement, the country is projected to witness maximum growth coming from small towns and cities.

At present, small towns contribute 40% of all e-commerce transactions due to increasing broadband penetration.

India also has the second fastest growing travel market globally, estimated at $42 billion. Of this, the online travel market is expected to grow from $2.9 billion in 2008 to $7 billion by next year.

E-payment systems are also expanding for products such as mutual funds and insurance, and government bodies also are increasingly adopting this route for both accepting and making payments, according to Amrish Rau, vice-president and country manager of the data aggregator First Data Corporation.

Other promising segments include digital downloads and paid content subscriptions.

However, Indian e-commerce companies have been incurring huge losses by selling products at heavily discounted rates as a way to build up the market base.

The industry has suddenly become crowded with all players chasing the volume game and leaving no money on the table. With the cost of acquiring a new customer ranging between $15 and $20, many have shut up shop and the rest are trying hard to keep afloat. 
The business model is slowly finding acceptance with people ordering even groceries, vegetables and meat online. But even after 12 years, none of the e-commerce companies makes money and no one has any idea when they will break even.

Industry watchers are optimistic that online shopping may reach $40 billion by 2025.

Indiaplaza was among the first to go online and began operations in 1999 with warehouses in five cities, trying to cater fast services to new customers. By 2002, founder and CEO K. Vaitheeswaran realised that the only way to make his new business profitable was to start sourcing products from vendors and do away with the warehouses. So he closed all of them.

Most e-commerce players agree is that the high operational efficiency and a strong back-end are the most pressing needs for the industry to gain more credibility.

Myntra.com, a retailer of branded garments, shoes and accessories, whose CEO Mukesh Bansal is optimistic that like global e-commerce, the Indian counterpart will also be profitable in the next two to three years. But huge discounts are a risk that needs to be managed properly or else it will spell doom for the industry.

http://www.bangkokpost.com/business/economics/307594/indian-e-commerce-seeks-winning-formula

Indonesia looks to unclog bottlenecks

Indonesia is preparing to make major investments to improve its infrastructure, which has been blamed for holding back growth and reducing the investment attractiveness of Asean’s largest economy.

President Susilo Bambang Yudhoyono recently told parliament that the country would increase spending on the country’s overburdened roads, airports and power plants and pare restrictions on businesses in order to encourage investments.

Indonesia’s infrastructure is strained on all fronts. It faces a lack of power and its ports and airports are sadly outdated, hardly in line with the country’s status as a G20 economy.

Mr Yudhoyono’s budget proposed lifting infrastructure spending to 194 trillion rupiah (640 billion baht) in 2013 from a target of 169 trillion rupiah this year. The funds will be used to improve 4,431 kilometres of road, add 380km of new rail lines, build 15 new airports and expand another 120.

Indonesia has massive economic potential but is struggling to position itself to take advantage of Asean integration in 2015. Reforms related to distribution and logistics networks are the most pressing needs.

Indonesia has the highest logistics cost in Asean, estimated at 25-30% of gross domestic product (GDP), according to Lukman Hakim, chairman of the Indonesia Institute of Sciences.

Even in Thailand, which is also considered to have unacceptably high logistics costs, the comparable figure is 17% of GDP.

In a country with Indonesia’s geographical conditions, said Mr Lukman, the logistics cost should not exceed 15% of GDP.

“Indonesia’s logistics system is not efficient as there is a price gap in logistics between eastern and western regions,” he said. “Thus, some imported commodities are more affordable than local commodities.”

Distribution of goods between regions and islands is a major challenge and this means the prices of many goods outside Java are too high.

“For example, the price of rice in one province can be 64% higher than in other provinces. Also, the price of a bag of cement in the territory of Papua can be about 20-fold higher than in Java,” he said.

National logistics costs in 2010 were 1,402 trillion rupiah (about 4.6 trillion baht), or 26% of GDP. The figure is made up of inventory carrying costs of 421 trillion rupiah, transport 841 trillion, and administrative costs totalling 140 trillion.

Armida Salsiah Alisjahbana, the minister for National Development Planning, said proper funding for infrastructure development would gradually encourage better connectivity.

The ratio of infrastructure spending to GDP in 2013 is expected to reach 4% and grow to 5% in the following year. “In terms of macro funding, we have set the infrastructure spending target at as much as 5% of GDP in 2014, and it will increase to 7% or 8% afterward,” she said.

With progressive infrastructure funding and an investment ratio of 5% of GDP, the country could achieve economic growth above 7% annually on an ongoing basis, the minister said.

In terms of soft infrastructure improvement, Ms Armida is pushing continuous reform of the bureaucracy with involvement from local governments, private companies and state enterprises.

She said she had already noted more responsive management and productivity from state enterprises in charge of ports, airports, and other means of connectivity.

The World Bank recently increased the performance index of logistics in Indonesia, from 75 in 2010 to 59, reflecting improved contributions of both the private sector and the government.

It recommends two steps to improve efficiency: reducing dwell times in port and developing “dry ports” or inland container depots.

Henry Sandee, senior trade economist with the World Bank, said the average dwell time of import containers in the Jakarta International Container Terminal was still increasing, which was not a good sign.

Over the past year, the port of Tanjung Priok handled one million containers with an average dwell time of 6.7 days, up from 4.8 days a year earlier. Port officials have been working with experts at the Technology Institute of Bandung to monitor dwell time changes every three months.

“The main issue is to improve logistics efficiency to reduce dwell time and develop a dry port. Surely this must be supported with the good coordination,” said Mr Sandee.

The dry port is urgently needed to handle extra demand until work is completed on the higher-capacity Kalibaru container terminal or Tanjung Priok New Port.

“We have Cikarang Dry Port. Let’s compare it with Lat Krabang in Bangkok, which has been optimised. Indonesia has to do the same thing. We estimate 62% of containers will be directed to Cikarang,” he said.

Mr Sandee said Indonesia could learn from its neighbor. He noted the logistics cost (transport, handling, customs and excise tariffs) between Tanjung Priok and Cikarang, a distance of 55.4km, is US$750 per container. In Malaysia between Pasir Gudang and Tanjung Pelepas, a distance of 56.4km, the cost is only $450.

The Indonesia Chamber of Commerce and Industry (Kadin) has set an ambitious target to reduce logistics costs by 10% in 2014 as part of preparations for the Asean Economic Community in 2015.

http://www.bangkokpost.com/business/economics/309575/indonesia-looks-to-unclog-bottlenecks

Flexibility the key to e-commerce success in Indonesia

E-commerce in Indonesia is experiencing substantial growth, from sale and purchase transactions via Facebook to the growing presence of Indonesian versions of international online shops.

A wide variety of payment methods also serves to reassure consumers, ranging from bank account transfers to credit cards, mobile credit, and the traditional cash on delivery. The potential in the country of 240 million has encouraged international online merchants to set up shop, among them Zalora, one of the many brands of the German company Rocket Internet.

The boom in e-commerce in Indonesia is being fuelled by rapid growth in internet penetration — up 32% last year alone, according to research by MarkPlus Insight. Currently, there are about 55 million internet users, both mobile and fixed-line.

According to research by Frost & Sullivan, the total transaction value of e-commerce in Indonesia in 2011 was estimated at US$1 billion.

The biggest challenge for e-commerce in Indonesia, as in many developing countries, is to gain the trust of consumers. Unfamiliarity with English is also a barrier, although

almost all leading sites, such as Tokobagus.com and Bukalapak.com, offer Indonesian language services. Even international sites have Indonesian versions, such as Groupon (with Disdus.com) and eBay, through Plaza.com

Ichwan Sitorus, manager of public relations with Tokobagus.com, said education is needed to increase the number of visitors and turn them into buyers.

“The goal is to increase page view traffic, which will have an impact on ads,” he said. “It is important that we create more revenues which usually come from advertisements placed by third parties.” Most online shops do not charge fees to sellers or buyers, so they rely heavily on ad revenue.

“The tip is an intensive educational activity such as offline activity without forgetting the online activity,” he said.

Online shopping has become a regular habit for the most Indonesian people, especially in big cities such as Greater Jakarta, Bandung, Yogyakarta, Bali, to Makassar.

The two main online shops, with hundreds of millions of page views per month, are Tokobagus.com and the online shopping forum Kaskus. Local sites also average thousands of page views per month.

“Online shopping is common. What is new in Indonesia is the online transaction in which payment is made through a payment gateway,” said Edward K. Suwignyo, assistant vice-president for marketing communications with Multiply, one of the world’s largest online malls.

Multiply is so bullish on Asia that it even moved its headquarters to Indonesia from the United States.

E-commerce sites are not just serving as providers but also are involved in regulating the system, including ensuring the security of transactions, as operators are aware that trust is the key to their success.

One of the local sites that accommodates online transactions is Multiply Indonesia. A buyer can pay using mobile banking such as Klik BCA, a system provided by PT Bank Central Asia Tbk, one of the largest banks in Indonesia. There is also a direct payment using ATMs of large banks such as BCA and Bank Mandiri.

Also significant is that fact that the future of e-commerce in many developing countries doesn’t involve computers. Infonetics Research noted that mobile broadband users worldwide grew nearly 50% to 846 million last year, which will have a huge impact on the way people buy, sell and pay.

In Indonesia alone there are an estimated 100 million internet users who connect via mobile devices including phones and tablets. The rapid growth of mobile channels has put the country ahead of schedule for internet connectivity. Policymakers earlier had set 2015 as the deadline for having half the population, or 120 million people, online.

http://www.bangkokpost.com/business/economics/309578/flexibility-the-key-to-e-commerce-success-in-indonesia

Asean spells out tourism priorities ahead of 2015

Asean countries are now working on a clear road map to achieve the tourism objectives of the Asean Economic Community in 2015. There will be a new ‘Asean for Asean’ campaign and special promotions, along with enhanced strategic cooperation with the growth markets of China, Korea, Japan, India and Australia.

A new website and digital promotional campaigns targeting the mass markets of China and India are part of the programme endorsed by the 10-country bloc’s tourism ministers and Asean Secretary-General Dr Surin Pitsuwan

Asean will also work to attract niche markets such as experiential, creative, adventure, business, senior, and long-stay visitors. There will be special promotions for the cruise market as well to take advantage of the region’s many island and port attractions.

“Our strategy is designed to help build global recognition of Southeast Asia as a competitive, world-class tourism destination,” said Dr Surin.

“Our focus is on drawing visitors to the region and encouraging them to visit more than one country. As each has its own unique attractions, we will capitalise on the sophisticated marketing capacity and resources of our individual national tourism organisations to spread the word.”

The Asean Tourism Strategic Plan 2011-15 is the foundation of the Asean Tourism Marketing Strategy (ATMS) 2012-15, adopted by tourism ministers in January 2012.

Asean destinations attracted 81.2 million visitors in 2011, an average increase of a million visitors each year for the last two decades. Three out of four visitors to Asean come from Asia; 46.5% from within Asean and 27.6% from other Asian markets.

Niche and mass-market promotions will go hand in hand, Sansern Ngaorungsi, who chairs the Asean Tourism Marketing Working Group and is also a deputy governor of the Tourism Authority of Thailand.

“While Asean’s niche, tactical campaigns will target sectors such as adventure, experiential, business and long stay, and show the diversity of Asean, mass tourism demand for mainstream attractions is expected to keep growing and bring important economic benefits to Asean destinations,” said Mr Sansern.

One niche sector, cruises, is being favoured because river and sea-cruise vessels usually visit more than one destination. To promote cruise ship activity in Asean, Singapore will stage the Cruise Shipping Asia Pacific 2012 forum on Sept 17.

Southeast Asian NTOs will also be emphasising the group’s marketing plan at the Asean Tourism Forum in Vientiane from Jan 17-24 next year. More than 1,600 delegates will include some 150 Asean tourism ministers and officials, 800 Asean exhibitors, 400 international buyers, 150 international and local media members and 100 tourism trade visitors.

Myanmar micro-lenders could help reshape rural economy

The first of an expected wave of new micro-lenders plans to begin operating in Myanmar in the next quarter as the country lifts restrictions on a sector that could bring in hundreds of millions of dollars to help kick-start the rural economy.

Germany’s Savings Bank Foundation for International Development (SBFIC) has teamed up with two local non-government organisations, Myanmar Egress and Mingalar Myanmar, with plans to start taking deposits by the end of the year to fund a pilot lending operation.

“We are strengthening the local microfinance institutions there,” said Nicole Brand, SBFIC’s project manager for Southeast Asia, adding the project expected a government licence within a month.

Over decades of military rule and amid Western sanctions, micro-lenders were effectively barred from Myanmar, meaning the rural economy has missed out on millions of dollars in small loans poured into other developing economies such as Cambodia and Laos.

The vacuum has been filled in part by a handful of humanitarian organisations including the United Nations, whose portfolio of just US$50 million accounts for 90% of all micro-lending in the country.

But a microfinance law passed by the new civilian government late last year has prompted a “stream of foreigners” to look into micro-lending, said Akbar Usmani, senior deputy resident representative of the UN Development Program’s Yangon office.

“In terms of the potential market, we are just tiny,” he said of the UN’s microfinance operation in Myanmar.

The country’s appetite for micro-loans is thought to be about $650 million, according to the latest UN estimates, a figure that balloons to $2 billion when small loans are taken into account.

“The domestic banks haven’t really gone out into rural areas in a very big way,” said Usmani.

The UN has dispersed $440 million in Myanmar since it started lending in 1997, offering loans of $100 to $150 to groups of people – mostly women – in the centre of the country, the Irrawaddy Delta and Shan State.

“At the grassroots level people are saying: ‘Look, we have repaid our loans, can we borrow a larger amount?’” said Usmani. “But we are not a microfinance institution.”

Although the new framework affords a legal status to micro-lenders while also permitting non-collateralised loans and deposit-taking for the first time, the central bank has taken the “unusual step” of fixing micro-borrowing and lending rates, said SBFIC’s Brand.

New microfinance lenders cannot charge more than 2.5% per month, a move analysts warn could put off some organisations, given the costs associated with Myanmar’s underdeveloped financial sector.

“This is not enough to allow genuine financial self-sustainability,” said Sean Turnell, an economist at Burma Economic Watch at Macquarie University in Sydney.

In other countries such as Cambodia, microfinance institutions have blossomed, offering savings rates of about 10% per year to lure investors, which in turn has allowed rapid accumulation of funds to lend at high rates of interest, but considerably lower than what informal lenders charge.

In Myanmar, these lenders typically offer cash at about 10% interest per month, while the low level of banking makes transferring money equally expensive.

“Far and away the majority of people in Myanmar have no relationship with a formal bank, or an ability to borrow from them,” said Turnell. “So they are forced into the hands of informal money lenders charging exorbitant rates of interest.”

It also remains to be seen whether micro-lenders will be willing and able to reach some of the areas with the greatest need for loans – the outer-lying ethnic areas which have in many cases have seen fighting between insurgency armies and government forces for decades