IMD International

The dynamic world of Asian M&A

South East Asia is increasingly viewed as a key growth area for global brands

November 19, 2014

"60-75% of mergers and acquisitions fail to deliver value for shareholders."

This was the troubling statistic shared by Margaret Cording, IMD's Regional Director Southeast Asia & Oceania, and Professor of Strategy, during her presentation at IMD's Orchestrating Winning Performance program in Singapore.

Professor Cording believes it's a common mistake for businesses to refer to merger & acquisition 'strategies' when M&A should be viewed as a tool to implement a strategy rather than a strategy itself.

Cording's view of corporate strategy emphasized three key components: strategic logic, being the relationship between businesses to create value; linkage logic, referring to the coordination of business activities to capture synergies; and resource logic, where there are requisite capabilities to being competitive.

By viewing M&A through this lens, Professor Cording believes such activities act as a vehicle to gain assets necessary to grow value in a company's overall portfolio. Linkage logic in particular, can provide an opportunity for a business to review and coordinate its resources in order to create value while eliminating activities that fail to drive value, and ensure these activities are occurring in the most appropriate geographies.

While Cording concedes that it is difficult to generalize about Asia as a market due to its complexity and immense diversity, it remains true that the region has recently seen an incredible rise in M&A activity.

Improving equity markets, improved consumer confidence, availability of credit on good terms, opportunities in emerging markets, cash reserves, and a lack of appetite for investment in Europe and to some extent China, have provided businesses with numerous incentives to invest significantly in South East Asia.

Interestingly, Professor Cording also refers to the domestic M&A market in Asia, where significant intra-country consolidation is continuing to occur, most notably in Thailand where 98% and South Korea where 89% of M&A is domestic. This shift is leading to fewer, stronger competitors across Asian markets who are growing in size and learning to compete on an international stage.

One key aspect of M&A that Professor Cording identified was that the outcomes of such activity have largely been observed from a purely western perspective, with little understanding of an eastern approach. While a common western approach to acquisition is to move quickly to maximize the profitability and value of a new purchase, a more patient, considered approach can in fact deliver hugely beneficial outcomes.

Cording cited the acquisition of Addax Petroleum, which operates in Africa and the Middle East, by a Chinese organization, Sinopec Group. In 2009, Sinopec purchased Addax Petroleum and with no more than the appointment of a Sinopec executive to a Vice-President role at the company, allowed it to continue standard operation for years while Sinopec learned the business, and instigated a robust integration process in order for African, Chinese, and Middle Eastern cultures to come together. The business significantly increased its profitability and revenue as a result.

IMD's Orchestrating Winning Performance program runs ever November in Singapore. For live insights from the program follow on Twitter at #OWP2014 or check out OWP pictures on IMD's flickr account.

IMD Professor Margaret Cording is Regional Director of Southeast Asia and Oceania.

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