Friday 29 Mar 2024
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KUALA LUMPUR (April 1): Some 85% of Southeast Asian (SEA) companies intend to divest business units by 2021 to gain competitive advantage in the face of changing technology, and sector convergence, according to a study by Ernst & Young.

This is a stark difference from the 26% recorded by SEA companies two years ago, the EY Global Corporate Divestment Study showed.

“More than four out of five companies say streamlining their operating model will impact their divestment plans this year, demonstrating a growing desire for companies to be more agile, as they face new and existing competition,” EY said.

According to George Koshy, Malaysia Transaction Advisory Services Leader, Ernst & Young, convergence across industries has changed the competitive landscape for some companies in previously well-defined industries.

“Their challenge is to find new ways to innovate for the next generation consumer, and drive competitive advantage and shareholder value. Companies that show focus through a well-defined strategy are being rewarded, which drives the need for portfolio rationalization and divestment of non-core assets,” Koshy said.

Some major geopolitical shifts that will impact divestment plans in SEA are the increased cost of operations (73%), cross-border trade agreements (60%) and tax policy changes (60%).

About 71% of SEA companies, up from 68% in 2018, see the number of divestments increasing from technology-driven changes, such as changing consumer preferences, and supply chain development.

On the other hand, 58% of SEA companies reinvested proceeds from their last divestment into new products, markets and geographies. “This strategy helps companies to better respond to cross-sector opportunities and can create longer-term value for shareholders and the company,” EY noted.

Industry consolidation is also a major factor driving companies to pursue inorganic growth strategies to win a higher market share.

“In 2019, 78% of SEA companies are expecting divestments to drive industry consolidation, up from 54% last year,” EY added.

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