Optimism increases slightly from 44 to 48 per cent driven by manageable inflation and moderate interest rates
Chief financial officers (CFOs) remain optimistic about the economic growth in Southeast Asia for the foreseeable future. The slight increase in optimism from 44 per cent to 48 per cent compared with the previous pulse check has been driven by manageable inflation and moderate interest rates.
This is according to the “Deloitte Southeast Asia CFO Survey 2014”, where 72 per cent of the CFOs polled revealed that their companies use the region primarily as a consumer market.
David Pacis, Deloitte Southeast Asia CFO programme leader, says the optimism levels of CFOs in this region are growing, albeit gradually.
The most cynical CFOs are those in the consumer business, where 47 per cent are less optimistic compared with only 32 per cent who are more positive. Representatives from other industries such as financial services, manufacturing, life sciences, technology, media and telecommunications, and energy and resources express optimism between 45 and 57 per cent driven almost equally by internal and external factors.
Companies will find it harder to keep up with growing consumer demands. Beyond the marketing function, there is a need for better collaboration across different parts of the business in managing different touch points through the development of consumer-centric business models.
Titled “Riding the SEA Growth Wave”, the pulse survey found that CFOs in the region expected to see growth over the next three years in Indonesia, Malaysia, Myanmar, the Philippines, Thailand and Indochina. Singapore, being the most mature market of the region, is the only country polled expected to decrease in importance over the next three years.
Despite the economic and geographical advantages Southeast Asia has to offer, only 33 per cent of polled companies use this region as a production location.
Manufacturing companies have the highest use of the region as a production base, with 59 per cent, followed by life sciences with 50 per cent and consumer business with only 21 per cent. In tandem with the rising costs in China, Southeast Asia is becoming more attractive as the next low-cost manufacturing base in the Asia-Pacific region.
Across companies of all sizes and industries, organic growth is still favoured as the main approach considered by companies in pursuit of increased market share.
Some 85 per cent of companies whose annual revenue exceeds US$1 billion polled choose to grow and strengthen their businesses organically, followed by collaboration or partnering agreements and subsequently mergers and acquisitions.
They are witnessing the regional objectives and priorities shifting, seemingly from a traditional focus of nation-building and socio-economic progress, to a more commercial framework around economic growth and performance.
It is interesting to see that M&A in the consumer business industry has become more common than in the financial services and manufacturing sectors, said Pacis, who is also an executive director of Deloitte Southeast Asia Consulting.
On companies’ end-game strategies and growth objectives, Pacis said consumer business companies were using mergers, acquisitions and joint ventures to drive market share.
“About 50 per cent of Singapore-based companies use M&A for growth and given the market sizes, growth rates and opportunities in this region, we expect companies to seek cross-border deals and focus on emerging markets such as Indonesia and Myanmar to gain access or expand in countries that are looked upon as the next consumer markets.”
With a growing large economy of Indonesia and the maturity of low-cost countries such as Thailand and Malaysia, Southeast Asia will soon become the next centre of market demand after China and India.
The increasing importance of this region means that CFOs need to play above the line,” while providing financial leadership to drive performance and ensuring the execution of strategic and financial objectives.
“Our study shows that 28 per cent of CFO respondents today are stepping up as adviser to the CEO, while only 12 per cent have assumed the role of corporate strategist and decision maker,” Pacis said.
As developments in the region and globally continue to evolve, companies remain significantly challenged by a number of factors including the misallocation of resources, increased costs in doing business, reduced investments, lower foreign direct investment and the ongoing issue of red tape.