Building an alliance culture in Asean

ASEAN FORUM Defense Secretary Delfin Lorenzana greets US Ambassador to the Philippines Sung Kim during a conference on “Asean Leadership Amid a New World Order” in Makati City. —AP

For Filipino CEOs planning business expansion, many don’t see the need to sail too far to find a rich new fishing ground. The Association of Southeast Asian Nations (Asean) neighborhood is itself seen as a huge untapped market for many aspiring multinational corporations (MNCs).

Within the Asean neighborhood, the top three picks of Filipino CEOs are Vietnam, Indonesia and Malaysia.

Based on the 2017 CEO (chief executive officer) survey conducted by PwC/Isla Lipana for the Management Association of the Philippines, Vietnam garnered the highest vote among respondents at 20 percent, closely followed by Indonesia at 19 percent and Malaysia at 16 percent. Singapore got 14 percent of the votes while Thailand and Myanmar got 11 percent each.

“The top three countries were selected by our CEOs because of relative political stability, ongoing reforms similar to what they’re having here in the country and more importantly, a bright economic prospect,” said PwC Philippines partner Aldie Garcia.

Vietnam’s economy is expected to benefit from the strong investments in the manufacturing sector, openness to trade, political stability, growing tourism sector and ongoing reforms, the PwC research noted.

Indonesia, the most populous country in Asean, is expected to post stable growth because of the tax amnesty program as well as the government’s commitment to ease red tape and grow infrastructure spending.

Malaysia is also expected to grow as a result of the improved political outlook alongside its export performance.

Greater incentive

With the creation of One Asean, companies within the region have greater incentive to build a regional customer base and supply chain outside their traditional bailiwicks. With improvements in technology and regional connectivity, this is expected to create more and more MNCs.

Some large Philippine businesses have, of course, long evolved into MNCs with significant footprints in Asean. These are typically the makers of consumer goods like Universal Robina Corp., San Miguel Corp., Unilab Pharmaceuticals and Liwayway Marketing. They now operate production and distribution hubs across multiple territories.

Then there are food retailers like Jollibee Foods Corp., now Asia’s most valuable fast-food chain in terms of market capitalization. It has not only brought its own brand to various territories but also acquired a string of homegrown brands to cater to local palate.

In recent years, the infrastructure space has also become interesting for Philippine companies, encouraging the likes of Manila Water and Metro Pacific to explore regional opportunities.

Based on the 2016 investment report by the Asean Secretariat, intra-Asean investment remained the largest source of foreign direct investment (FDI) flows ($22.1 billion in 2015) to the region.

Collaborative mindset

The share of intra-Asean investment in total FDI flows to the region rose from 17 percent in 2014 to 18.5 percent in 2015. Seven member-states received higher levels of intraregional investment: Malaysia, the Philippines, Thailand, Cambodia, Laos, Myanmar and Vietnam.

PwC’s CEO survey indicated that more CEOs were adopting a more collaborative mindset. Asked about their reason for entering into strategic alliances or partnerships, 52 percent said they wanted to gain access to new customers, 44 percent wanted to gain access to new geographical markets and 39 percent said they wanted to strengthen their brand or reputation.

When these CEOs were asked what they were looking for in a partner, most respondents cited product fit, management capability, ability to collaborate and network or market coverage.

“Interestingly, financial sources only rank fifth [on] the list and this is a good indication for our CEOs that the type of strategic alliance that they are looking for is not only driven by financial strength,” PwC assurance partner Aldie Garcia said.

He said financial strength would be at the top of the list two or three years ago. But now “it’s moving up the value chain that they are looking for.”

But as partnerships are not always built to last, the PwC research said it was essential to define the termination conditions at the start of a partnership and an exit strategy—

whether a buyout option, right of first refusal, and other termination clauses—must be developed to help minimize liquidation costs and stress for all the partners.

7 success factors

Drawing insights from top CEOs as well as its own experience as a global auditing and advisory firm, PwC identified seven factors that can lead to successful partnerships:

Put strategy first: Finding the right partner starts with having a clear strategy.

A solid strategy will help assess whether growth will be realized organically, through mergers and acquisitions or other forms of alliances.

Invest in joint upfront planning: Plans should be discussed upfront. Spend time to jointly develop a compelling business case. Agree on priority areas as well as decision-making rights. Those who fail to plan, plan to fail.

Plan the end: While often a difficult topic, it will help if dispute resolutions and exit mechanisms are discussed and agreed early in the process. This will be a more difficult conversation at a later stage when relationships have already soured.

Create trust: Successful partnerships are based on a mutually beneficial relationship, anchored on trust and transparency. A person who cannot be trusted with small things cannot be trusted with big things. Make good on commitments, focus on growing the whole pie, not securing the biggest slice.

Start small: Build trust and confidence in the partnership by agreeing on small, realistic and achievable goals. Celebrate and build on these small successes.

Keep track: Clarify milestones and monitor whether the partnership has delivered on its objectives. Adjust as necessary.

Build enterprisewide capability: Establish a dedicated corporate alliance-management function, and use this to codify and share leading practices, drive collaboration, provide expertise, coordinate relationships with key partners and ultimately create an enterprise-wide “alliance culture.”

For some, having a collaborative mindset is also a means to survive a fast-changing, highly competitive global economic landscape.

As Ned Stark has told his children in the popular TV series “Games of Thrones”: “When the snows fall and the white winds blow, the lone wolf dies, but the pack survives.”

This feature was produced as part of the Reporting ASEAN programme (www.aseannews.net), hosted by Probe Media Foundation Inc. with the support of the ASEAN Foundation.