corporate strategies for the southeast asian...

Corporate Strategies for the

Southeast Asian Market

June 10, 2013

Dr. Martin Schulz

Senior Research Fellow

Economic Research Center, FRI [email protected]

Copyright 2013 FUJITSU RESEARCH INSTITUTE

Outline


Why Southeast Asia?

Strong Middle Income Growth, ASEAN Integration

But High Risks remain

Asia’s Engine of Growth: Mega Cities

Stable High Income Growth

Mega Cities are “Flat”

Mega City Strategy

Focus on Services (B2G, B2B, B2C)

IT-based Opportunities

Japanese Companies have the best Opportunities

1

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

198

9

199

0

199

1

199

2

199

3

199

4

199

5

19

96

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

20

05

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

20

14

201

5

201

6

201

7

Potential Growth: ASEAN Middle Income Growth

Note: Potential growth rates are 10-year moving averages. From 2011, estimates

Potential Growth Rates 1989-2017 (%)

Copyright2010富士通総研

Japan

Emerging & Developing C.

ASEAN5

Copyright 2013 FUJITSU RESEARCH INSTITUTE Source: © FRI 2013. Data: IMF (20012). 2

EU US

Asi

an C

risi

s

Middle Income

All Rights Reserved, Copyright Fujitsu Research Institute 2010 3

ASEAN Opportunity: Strong Trade & FDI Growth

Source: © FRI 2013. Data from ASEAN.

ASEAN Trade (Bill. USD)

Copyright 2013 FUJITSU RESEARCH INSTITUTE 3

ASEAN FDI (Bill. USD)

Strong trade growth:

Intra-ASEAN, China, Japan

Integration just starting:

Intra-ASEAN trade 28% of GDP vs.

Extra-ASEAN 82%

From 2009, 80% of ASEAN free

trade is zero or low tariff,

100% free trade in ASEAN5

From 2015, liberalization of

investment, professional services,

visa requirements 0100200300400500600

1998 2008 2011

0

5

10

15

20

25

30

2000 2005 2008 2009 2010 2011

Intra-ASEAN EU Japan USA China


ASEAN Challenge: Diversity

Source: © FRI 2013. Data from IMF WEO, ASEAN DB.

ASEAN GDP per Capita (1000 USD)


0

5

10

15

19

80

19

84

19

88

19

92

19

96

20

00

20

04

20

08

20

12

20

16

Malaysia

China

Thailand

Indonesia

Philippines

Vietnam

Cambodia

Myanmar

ASEAN FDI (Share %)

Slow market integration:

Diverse income levels,

cultures, regulations

Investment imbalances:

Regional investment hub

Singapore, Philippines being left

behind

High Income

Low Income

Singapore, 50.9

Thai, 11.3 Vietnam,

9.3

Brunei, 0.7

Cambodia, 1

Indonesia, 13.1

Laos, 0.4

Malaysia, 9.9

Myanmar, 0.8

Philippines, 2.6


ASEAN Market Risks: Governance & Bubbles

Source: © FRI 2013. Data from IMF-WEO, IMD-WCY.

IMD Competitiveness Rank & Problems


Share Prices (2002=100)

0

200

400

600

800

1000

1200

2002

2003

2004

2005

2007

2008

2009

2010

2012

Indonesia

India

Philippines

Thai

Singapore

US

Shanghai

Major governance problems:

Strong improvements, but still crippling

infrastructure problems in the

Philippines, slow progress in Indonesia

Market risks:

ASEAN risks are moderate, but the

range between top ranking

Singapore, trailing Philippines, and

not rated Myanmar is wide

Investment bubbles:

Opportunities are followed by booms

and busts

0

10

20

30

40

50

Infra.

Busin. Eff.

Gov. Eff.

Econ. Perf.

Rank

Asia’s Engine of Growth: Mega Cities


Asia-wide Strategies remain difficult

Unbalanced growth

Huge cultural and governance challenges

Strategic Opportunity: Mega City growth

Stable High Income Growth

Mega Cities are “Flat”

6


Urbanization and Mega-Cities are the Root of Asian Growth

Source: © FRI 2013. Data from Citypopulation.de, Photo from Nasa.

Asian Mega-Cities

Jakarta 26 Mill.


Manila 22 Mill.

Guangzhou 26 Mill.

Shanghai 26 Mill.

Delhi 24Mill..

Mumbai 21Mill.

Kolkata 16 Mill.

Ho Chi Min 7 Mill.

Bangalore 10 Mill.

Taiwan 9 Mill.

Hyderabad 9 Mill. Bangkok

15 Mill.

Kuala Lumpur 7 Mill. Singapore

7Mill.

Tokyo 34 Mill.

Peking １6 Mill.

Seoul ２6 Mill.

600 Cities produce

50% of global GDP

Emerging Market Cities generate

33% of global growth (2007-2025)

High Income > $20,000 USD


Mega-Cities are driving Demand Trends in Asia

Source: © FRI 2013. Data from McKinsey “City 600”, Oizumi (2010), Brookings (2011), UN (2011), IMF 2012.


Mega Cities are “Flat” Converging consumer trends

Sophisticated infrastructure demand

Strong government service demand

Top-level corporate technology 10

15

20

25

30

35

40

2007 2013 2025

Bangkok

Shanghai

Manila

Mumbai

Jakarta

High

Income:

60%

of Japan

(2007)

25

30

35

40

45

50

55

65

70

75

80

85

90

95

1990 2000 2010 2020 2030

Asia: 1 Bill. Citizens

Asia: 2.1 Bill. Citizens

Southeast Asia: + 55%

= 305 Mill. Citizens

Asia (right scale)

N America S America

Europe

Japan

Mega-City GDP per capita (USD PPP)

Urbanization Rates (%)

Mega City Strategy


Mega City Strategy

From Infrastructure to Services (B2G, B2B, B2C)

IT-based Opportunities

9

Globalization

Urbanization

Climate Change & Energy

Demographic Change

From Megatrends to Strategy: Siemens & GE


Governance

Megatrends

Siemens GE

Industry

Infrastructure & Cities

Energy

Healthcare

Building

Moving

Powering

Curing

Focused Expansion & Investment

Focus on Emerging Markets

Global Sourcing, People Development

Lean Management, Reverse Innovation

Vertical IT, Intelligent Infrastructure

Strategy

Businesses

10


Siemens Portfolio: Infrastructure & Cities

Source: Siemens (2013).

Smart

Grid Mobility Power

IT

Parts

Infra

Apps Decentralize

Power

Smart

Buildings

Transport & Logistics Share: 8%, Growth: -1%, Profit: 4%

Power Grid Share: 8%, Growth: 7%, Profit: 7%

Building Technologies Share: 8%, Growth: 6%, Profit: 6%

Vertical IT Target: +250% Growth

Finance Target: Project Support

Energy Share: 35%, Growth: 12%, Profit: 8%

Renewables Share: 7%, Growth: 37%, Profit: 6%

Health Share: 18%, Growth: 9%, Profit: 13%

Industry Automation Share: 12%, Growth: 7%, Profit: 14%

11

Infrastructure Competition

Siemens wins Metro

contract

CRC Changchun wins

Expansion contract

Siemens wins Airport Link

contract

CRC Changchun competes

for National Rail contracts

Siemens founds 50:50

Thai Joint Venture

CRC Changchun

BTS Skytrain Expansion

(2009)

Cars


Bangkok: Infrastructure Competition & Systems Opportunity

Source: © FRI 2013.

Siemens BTS Skytrain (2000)

Siemens MRT Subway (2004

Cars, Systems, Maintenance

Private Finance +

German ODA

Siemens

SRT Airport Link (2010)

Cars, Systems, Maintenance

Italian-Thai

(Constructor)

Government +

Japanese ODA

B Grimm,

Sino-Thai,

China Rail

(Constructor)

Bombardier Transport

CRC & BTS Systems

Porsche Design

BTS, MRT, SRT Train Design

PPP +

Japanese ODA

Siemens

BTS & MRT Systems, Maintenance

Systems Opportunity

Siemens keeps Systems,

Maintenance Contracts

Bombardier develops CRC

Changchun Systems

Porsche Design gets all

Train Design

High Competition

High Income

12


Bangkok: “Smart City” Business Strategy

Source: © FRI 2013.

Highway Toll Collection &

Traffic Control (Siemens)

Systems, Maintenance

City Air Terminal (Siemens)

Systems, Maintenance

Airport Cargo (Siemens)

Cargo Handling

BSS Rabbit Card – E-Money NXP (Phillips) NFC System 1.5 Mill BTS+MRT Smart Cards

Ticketing

E-Money

“Smart City” Opportunity

Siemens wins more

Systems and Services

Airport Cargo Systems

City Terminal Systems

Traffic Control Systems

Bangkok wants E-Money

Ticketing System

Siemens no system

Sony Felica no global

standard

NXP (Phillips) global

NFC system wins

13

Mega City Infrastructure Lessons


High B2G infrastructure demand, but:

High political and finance risks: close relations to ODA partners necessary

High competition from China and Korea: income and profits need to come from long-term systems and maintenance contracts

Strong competition among general contractors and government relations: Joint Ventures with local partners necessary

Fast “Smart City” B2G, B2B, B2C technology progress

High demand for e-money and social media at low prices, strong emphasis on “global standards” (ISO-norms) and long-term contracts

Siemens did not have a modern (NFC) e-money system and lost ticketing contracts

Sony, the original e-money leader (Suica, Edy, Hongkong Octopus, Singapore ez-card), lost contracts on high prices and lacking ISO standardization

14

Commercial Service Opportunities: Malls - GE Case


Com.

Serv.

Internet

Banks Fin.

Serv. Oil&Gas

Telecom

Comp.

Coal

Real

Estate Mining

2001-2013

US-ASEAN M&A (Case Top10)

Plaza Indonesia

Mall, Retail, Hotel

25,000 light points (mostly LED)

$373,000 USD cost saving per year

Customer one-year payback time

Dunkin Donuts Flagship Store

369 light points (mostly LED)

$21,000 USD cost saving per year

GE is expanding into Building

Energy Management Systems

Mall Services GE Lighting (US; 17,000 Employees)

0

20

40

60

80

100

Convenience

Hypermarket

Department Store

Mall

Mall Users (>1 Visit per Month) %

Source: © FRI 2013. Data from Bloomberg, GE, Kawazu (2013).

28 38 49

21

35

54

0

50

100

150

200

2011 2016 2021

NA WE AP LA EE MEA

Comm. Service Opportunities: Security – Securitas Case


Leading Position in Singapore

Asia 8-13% Growth

Indonesia Entrance:

- PT Environmental Indokarya (1,200 Emp.)

- Embassy Security

- Government Outsourcing

Security Service Securitas (Sweden; 300,000 Employees)

EU-ASEAN M&A (Case Top10)

Global Security

Service Market (Bill. Pound)

Guards Onsite

Securitas Business Model (Profit Margin)

Oil&Gas

Com. Serv.

Banks

Insurance Transp.

Chemicals

Build. Mat.

Food

Retail Agri.

2001-2013

Asia

Technology Remote

Pro

fit M

arg

in

Source: © FRI 2013. Data from Bloomberg, G4S, Securitas (2013). 16

Bottom Line


ASEAN is booming, and Mega Cities create high-level demand

Strong opportunity for Japan’s high-level products, technologies, services

Mega City Strategies run from Infrastructure to Services

Infrastructure and government outsourcing demand is very high, but competition is intense, finance is difficult, long-term contract require local partnerships (JV, M&A)

Mega City Business Models focus on Systems and Services

In B2G (infrastructure), B2B (parts, systems), and B2C (product) markets, profits come from low-cost, high value-added system integration, business services, applications

Japanese Companies have the best Market Position

Deep experience with Mega City (Tokyo) technologies and systems

Strong ASEAN government ties (ODA), wide production networks, leader in consumer markets (cars, electronics, …)

But need to focus more on (IT-based) systems, business services, and local M&A, local partnerships and management

17

corporate strategies for the southeast asian...

Documents