Press release

21 Mar 2023 Kuala Lumpur, MY

EY-Parthenon study: Conglomerates in Southeast Asia (SEA) need to refine their strategies to win in the next decade

Conglomerates in Southeast Asia (SEA) have historically outperformed their global counterparts in total shareholder returns (TSR) but this outperformance has since been eroding.

  • SEA conglomerates outperformed global counterparts in total shareholder returns but the gap has shrunk
  • Stagnant portfolio poses risk to performance
  • Study highlights four strategies for SEA conglomerates to focus on

Conglomerates in Southeast Asia (SEA) have historically outperformed their global counterparts in total shareholder returns (TSR) but this outperformance has since been eroding, according to a recent EY-Parthenon report, Defining a winning strategy for Southeast Asia’s conglomerates, which studied 262 publicly listed conglomerates globally (including 36 in SEA).

The 10-year annual average TSR between 2002 and 2011 of conglomerates in SEA was a staggering 34%, compared to conglomerates in the rest of world, which stood at only 14%. This 20 percentage points (pp) difference has dropped to 3pp between 2012 and 2021, with the average annual TSR for conglomerates in SEA slipping to 14%, compared to their global counterparts at 10%.

Sriram Changali, EY Asean Value Creation Leader, says:

“The gap in TSR is a clear indicator of the underperformance of conglomerates. Having said that, a deeper study of the companies revealed that some were able to consistently outperform their peers. Hence, there are opportunities for conglomerates in SEA to better understand their attributes and strengths and enhance their performance.”

Stagnant portfolio driving dip in performance

The historical high returns of these conglomerates in SEA can be attributed to inherent advantages they had in the 2000s. These include easy access to capital, strong government relations and early exposure to high-growth sectors like energy, commodities, and industrials in the region. However, the upsides from these advantages are rapidly fading.

According to the report, the portfolio mix for SEA conglomerates had centered in industrials, energy and consumer products sectors since 2001, which had been performing strongly previously. However, over the past decade, these sectors saw diminishing returns, leading to a dip in the business performance of SEA conglomerates. Yet, SEA conglomerates did not engage in any material reallocation exercises or expand their focus to other sectors. In fact, the report revealed that SEA conglomerates had very limited exposure to emerging sectors, such as health care or technology, media and telecommunications (TMT), which generated very high returns in the past decade.

Also, conglomerates in SEA are increasingly challenged by pure-plays and a growing ecosystem of startups with innovative business models. In the last decade, pure-plays were able to generate better returns in both traditional and emerging sectors; in fact, they now outperform conglomerates in SEA with TSR higher by as high as 37% in some sectors.

The study also reveals the characteristics of conglomerates in SEA compared to their global counterparts:

  • They are less diversified, with the top three sectors they operate in representing some 90% of the total revenues, compared to 75% for global conglomerates.
  • Three-quarters (75%) of SEA conglomerates are family-owned, compared with 50% among their global conglomerates.
  • SEA conglomerates have fewer portfolio companies, controlling about 50 portfolio companies compared to the global conglomerates that operate nearly 175 portfolio companies. They also have an average revenue of US$4.5b, compared to over US$50b for global conglomerates covered in this study.
  • SEA conglomerates have a smaller footprint, operating in less than 10 countries, compared with over 60 countries on average for their global counterparts. 

Andre Toh, EY Asean and Asia-Pacific Valuation, Modeling & Economics Leader, says:
“SEA conglomerates have remained rather ‘loyal’ and chose to focus on sectors that they have been familiar with. Hence, we are seeing that the sector revenue contribution of conglomerates in SEA remained rather consistent since 2003.

“Yet, with the fast-evolving business landscape where sectors that may have performed well previously no longer bring the same returns in future, conglomerates in SEA need to have a flexible and well-defined capital allocation strategy. They should actively identify and invest in newer emerging sectors and markets, which helps them future proof their portfolio, while shedding laggards from their balance sheets. With the understanding of their unique characteristics, a tailored value creation approach can help SEA conglomerates to regain dominance over the next decade.”

Four strategies to drive success in the next decade 

The EY-Parthenon study proposes four strategic pillars that SEA conglomerates can focus on to help them achieve success:

  • Develop an agile capital allocation strategy to future-proof their portfolio and increase exposure to higher-growth sectors such as technology and health care while balancing that with exposure to dividend-yielding, lower-risk and capital-heavy sectors.
  • Build a digital ecosystem to drive productivity and new revenue streams and start investing in venture-building capabilities.
  • Build a mindset of creating long-term value by integrating sustainability as a long-term group strategy embedded in each business of the conglomerate.
  • Move toward asset-light business models and improve valuation multiples by shifting toward deployment of third-party capital. 


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