tools for a successful business in asean what...

Tools For A Successful Business In ASEAN – What The Future Will Bring

Vienna, Austria

December 5, 2017

A Business Case Study in an Emerging Economy

A Crucial Part of ASEAN

The Next Big Investment MarketASEAN

Outline

The Philippines

Rustan’s

Opportunities, Risks & Parting WordsConclusion

ASEAN: Political, economic bloc organized to promote economic growth and stability among its members

ASEAN: Fast Facts

In 2006: ASEAN-10 In 2016: ASEAN-10

Population: 567 million Population: 634 million

Land: 4,326 thousand km2 Land: 4,326 thousand km2

Life expectancy: 70 years Life expectancy: 71 years

GDP/Capita (current prices): US$1,895 GDP/Capita (current prices): US$4,021

Trade: US$ 1,404,806 million Trade: US$ 2,218,534 million

*Average growth rate GDP per capita is 7%

Growth will not just be driven by China

and India, but also by ASEAN

ASEAN is a CHOICE DESTINATION for

international investors and

businesses

India7.8%

China 6.0%

ASEAN5.1%

South Korea3.0%

Australia2.9%

Japan0.5%

EU1.7%

US1.9%

Taiwan2.2%

Population Pyramid

Declining and older population Young and growing population

EUROPE

0,0%

0,2%

0,5%

1,0%

1,4%

1,8%

2,5%

3,0%

3,4%

3,6%

3,4%

3,5%

3,5%

3,6%

3,4%

2,8%

2,5%

2,6%

2,8%

2,7%

0,0%

0,1%

0,5%

1,0%

1,3%

2,1%

2,3%

3,0%

3,5%

3,7%

3,7%

3,5%

3,5%

3,5%

3,5%

3,2%

2,7%

2,4%

2,5%

2,6%

2,6%

6,0% 4,0% 2,0% 0,0% 2,0% 4,0% 6,0%

100+

95-99

90-94

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

Male Female

2017POP: 739,207,742

0,0%

0,0%

0,1%

0,3%

0,5%

0,7%

1,1%

1,8%

2,3%

2,8%

3,2%

3,5%

3,7%

3,9%

4,0%

4,3%

4,3%

4,3%

4,4%

4,6%

0,0%

0,0%

0,1%

0,2%

0,4%

0,6%

0,9%

1,3%

1,9%

2,4%

2,9%

3,2%

3,5%

3,8%

4,0%

4,0%

4,2%

4,1%

4,1%

4,2%

4,4%

6,0% 4,0% 2,0% 0,0% 2,0% 4,0% 6,0%

100+

95-99

90-94

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

2017

ASEANPOP: 739,207,742

Male Female

Swelling Middle Class

Ease of Doing Business

Source: World Bank Doing Business

TOP 10 COUNTRIES 2017 2010

New Zealand 1 2

Singapore 2 1

Denmark 3 6

Korea, Rep. 4 9

United States - New York City 5 4

Hong Kong SAR, China 6 3

United States 7

Norway 8 8

United Kingdom 9 5

Macedonia, FYR 10 57

ASEAN COUNTRIES 2017 2010

Malaysia 25 20

Thailand 55 27

Vietnam 81 96

Brunei Darussalam 85 88

Indonesia - Jakarta 87 113

Indonesia 90

Indonesia - Surabaya 95

Philippines 122 125

Cambodia 150 137

Lao PDR 158 146

Myanmar 191

Rapid Urbanization

Number ASEAN Cities

5 megacities (pop >10M)

4 large cities (pop 5M-10M)

20 medium cities (pop 1M-5M)

21 small cities (pop 500K to 1M)

Why ASEAN is the Next Big Market

Young, vibrant population and a growing middle class Demographic and

Social Changes

High urbanization rates offering concentrated critical mass of consumers to businesses

Rapid Urbanization

Becoming more business - friendly and dynamic places to do business

Opening Up to Investors




Outline

The Philippines

Rustan’s


The Philippines: Fast Facts

Second largest archipelago in the world with 7,107 islands

Emerging economy with GDP at US$ 305 Billion

Third largest English speaking country in the world

Rich history combining Asian, European, & American influences

Social networking capital of the world

Large, growing population of over 103 M

Modern and progressive, but also pristine and natural

Active trading relations with China, Japan, India, Arabia, and Indonesia

Prehistoric men from Mainland Asia and Austronesia move to inhabit the islands

Pre-Historic Period25,000 BC to 200 BC

Independent republic defining its own identity by drawing from its rich history

Nearly 50 years under the American regime saw American influence permeate the society

(education, constitutional democracy, English as a second language, etc.)

Thriving indigenous civilization with system of government, religion, and art, showing strong Malay and Hindu influences

Pre-Colonial Period200 BC to 1000 AD

Barter Period1000 to 1500

Spanish Colonial Rule1521 to 1898

Over 300 years under the Spanish era saw the introduction of Christianity, public education, Galleon trades, and a longing for independence

American Colonial Rule1899 to 1946

Post Colonial /Modern 1946 to Present

Melting Pot of Cultures

Rich history resulted in a

unique marriage of

different cultures

Enduring Traditional Values

Resilient - Smiles amidst great difficulties

Makes the best out of bad situations and circumstances

Religious and family oriented

Hospitable and a fun-loving people

Flexible, adaptable, and creative

Filipino Modern Day Values

New middle class

sensibilities

Educated and Tech Savvy

• Dual income household (OFW family, BPO)

• Marries late

• 3 kids or less

• Heavy social media use

• Interconnected

• Likes to socialize online and offline

• Know his/her rightsand entitlements

• Demands attention and service

• Vents on social media

Aspires for the good life

• Status seeker

• Increasingsophistication (wants quality, not just low price)

• Readily helps others

• Cares for the environment

• Mindful of health

Socially and Self Aware

Vocal, Demanding

• Global traveler (largely for work as an OFW)

• Able to relate and work well with othercultures

Globally Connected

Strong Affinity to Europe

PHP-EU trade reached US$13.2 Billion in 2016

90% is with 9 EU member states

34% GERMANY

18% NETHERLANDS

11% FRANCE

8% UNITED KINGDOM

7% ITALY

4% BELGIUM

4% SPAIN

14% OTHERSAustria, Poland, Hungary, Denmark, Finland, Czech Rep., Sweden

28.8% of new brand entrants are Western retailers, particularly

from UK, France, and Italy

Infrastructure

Retail Brands

Agricultural

Manufacturing

Products

Strong Affinity to Austria

Labor About 30,000

Filipinos in Austria, 90% nurses

Trade PH-AT trade reached

€210 Milin 2016

InvestmentsIn 2015, about

€250 Mil investments from

Austria

Some of the Companies / Brands Present in the Philippines

Waagner Biro, since 1999, has built a total of 437 bridges in the Philippines

The Philippines: Ripe for Investment

GDP Growth of

at least 6% : among Asia’s best

performing economy

in the last 5 years.

Globally

competitive with

cost of doing business

relatively low.

Investment

Destination of

global brands in

retail & service in

the last 5 years.

Consumption

Driven, with a

growing middle and

affluent class.

Growth has exceeded 6% for a ninth consecutive quarter

Bullish EconomyOne of Asia’s fastest growing economy, with GDP growth of at least 6% in the last five years

Highly resilient and insulated from global economic downturns

75% of Economy from Household Consumption

$27 B in Remittances from Overseas Filipinos

$25 B in Revenues from BPO Call Center Capital of the World

Philippines Malaysia Indonesia Thailand Singapore

Y 2013 7.1 4.7 5.6 2.7 5.0

Y 2014 6.1 6.0 5.0 0.9 3.6

Y 2015 6.1 5.0 4.9 2.9 1.9

Y 2016 6.9 4.2 5.0 3.2 2.0

Taiwan

2.2

4.0

0.7

1.5

Vietnam

5.4

6.0

6.7

6.2

Bullish Economy

Sovereign investment grade ratings, strong economic fundamentals, and a reform-driven government point to long-term economic stability

Vibrant Retail Sector

Retail industry growing by 6%,

fuelled by strong consumer

demand and rising incomes

Vibrant Retail Sector

Global expansion destination of

hundreds of foreign brands since 2008

HISTORICAL GROWTH OF NEW FOREIGN BRANDS BY RETAIL TYPE

Additional 113 new foreign brands in

the past two years

Large Consumer Base12th most populous country in the world, with a very large base of young, working, and aspirational customers

Millenials alone number more than 35 million

31%

35%

17%

11%

6%

Genera onZ(14andbelow)

Millennials(15-35yo)

Genera onX(36-50yo)

BabyBoomers(51-64yo)

Seniors(66+)

Philippine Millennials Profile

• Aspirational in spending

• Politically and socially-engaged

• 70% active on social media

• Spends time online• have the latest apps• watch the latest TV series

• Career-shifters

Conducive Business Environment

Retail rents among the cheapest in Asia Pacific

Large pool of relatively cheap, educated workforce, with a strongcustomer centric culture, andexcellent work ethics

Universal cultural adaptation, with a strong affinity for Western cultures

Asia Pacific Shopping Center Rents

Ave. Rent

Q4 2016

(USD per yr)

Hong Kong Central 15,294

Sydney CBD 5,756

Shanghai West Nanjing 4,303

Singapore Orchard 3,990

Mumbai Prime South 1,316

Jakarta CBD 680

Bangkok Central 640

Manila Makati CBD 568

Source: Jones Lang LaSalle

Conducive Business Environment

Regional hub for logistics. Critical entry point for South East and East Asia

Government committed to investing andupgrading public infrastructure

Stable banking system and market-oriented policies

Deregulated industries such as banking, energy, insurance, shipping, telecommunications, and retail trade

Preferential tax rates and holidays for companies located in Special Economic Zones

Excellent living standards for expatriates

Underserved Sectors

REALITIES

AGRICULTURE1 MANUFACTURING2

INFRASTRUCTURE4 INFORMATION & COMMUNICATIONS TECHNOLOGY3

• Philippines is an agricultural country as half of the citizens still lives in rural area

• Contributed 9.6% to 2016 GDP• Lowest agricultural exports among ASEAN-6• Lacks service support to

farmers and fishermen

• Contributed 19.6% to 2016 GDP• Manufacturing although growing remains small

compared to ASEAN neighbors• Limitation on foreign ownership

• Philippine economy is beingdampened by slow infra-structure development

• Lags behind ASEAN communities• Scored 3.4 out of 7 in overall infrastructure. 7th

place in ASEAN

• Second slowest internet speed in Asia Pacific

• Limited cell site towers• Lacks ICT program in rural areas

Underserved Sectors

GROWTH

OPPORTUNITIES

AGRICULTURE1 MANUFACTURING2

INFRASTRUCTURE4 INFORMATION & COMMUNICATIONS TECHNOLOGY3

• Financing and Incentives for farmers• Technology• Improved logistics & integration in the supply

chain• Irrigation• Postharvest facilities

• Public-Private Partnership • Revised government rules

and regulations

•Possible foreign telecommunications players

• Fixed connectivity network• New cell sites• Improved program in rural areas

• Revitalized automotive sector• Shift to higher value added sectors like machinery

and equipment • New sectors like plastics

recycling




Outline

The Philippines

Rustan’s


Case study of a successful luxury retail conglomerate in a developing country

“Serving only the finest”

Our Roots and How We Evolved

Founded in 1952 by Benny and Glecy Tantoco

Started as a very small trading operation

First trip abroad unexpectedly became a buying trip

Literally selling merchandise to friends from suitcases

Evolved into a department store selling softlines

First their living room, then eventually the whole house became a store

Amb. Bienvenido R. Tantoco, Sr. & Ms. Gliceria R. Tantoco, Founders of Rustan’s

San Marcelino,

Ermita Manila Store

(1952)

L-R: Rustan’s Makati (1962) & Rustan’s Shangri-la (1991)

Amb. Bienvenido Tantoco & Gliceria Tantoco with Lanvin and Dior

Principals

Founding vision was to offer basics with aspirational quality

Rustan’s eventually become a luxury store and destination for international brands

Dominant Position in the High-end Sector

Core competence in merchandising and brand management

Best in class customer service

More focused on retail than most of our competitors

Home of the world’s premier cosmetics, fashion, jewelry and accessories, and home brands

Partner of choice of top international luxury brands with its unmatched know-how of the luxury business

Exclusive Brands

F I N E J E W E L R Y

C O S M E T I C S , F R A G R A N C E S , T O I L E T R I E S

Exclusive Brands

F A S H I O N

Exclusive Brands

H O M E

Exclusive Brands

From a department store operation, the company has diversified into other retail formats that cater to the evolving lifestyle demands of the Filipino customer

The only luxury department store chain in the Philippines

Wholesale nationwide multi-channel distribution

Leading specialty retailer of international lifestyle brands

Pioneer in the grocery shopping industry

Philippine franchisee of Starbucksrustancoffee

Duty-free shopping

The Rustan Group Today

1,370 StoresUS$ 1.2B Revenues

2,000 Licensed Brands

X# Employees

HOW DID A BUSINESS BUILT ON QUALITY AND

LUXURY SUCCEED IN AN UNDER DEVELOPED

MARKET?

Success Factors or Tools

• Commitment to Quality

• Higher purpose beyond making money

• Focus on loyaltyCustomers

Employees

• Lead and excite our marketplace

• Innovation also entails process improvement

Vision: Deliver Quality for All

• Customer: Understand and fulfill their life and lifestyle aspirations

• Employees: where ordinary can collectively accomplish the extra ordinary

Care deeply about quality

Enable to improve the quality of their lives

Vision: Deliver Quality for All

• Shareholders:

Protect their investment, legacy and DNA

Deliver consistent ROI

• Serve our community

Artists

Women

Quality

• Quality borne out of discipline, good systems and controls

• Use our platform to continuously adapt the best of the world to our country

Brands, experiences, solutions

Best practices and technology

Higher Purpose Beyond Money

• Business must be an engine of profit and force of good

• Ours is to create and preserve jobs

• Job is a source of livelihood, dignity, economic and creative growth, education, and stability

• Create a an organization of diversity and opportunity

Royal Duty Free Shops

• Government changed a regulation during the Asian crisis

• Within 2 months: lost 80% of our market, and our debts doubled

• Almost all our competitors closed

• Remained open to pay off our bank debt

Royal Duty Free Shops• Instead of lay offs, we did an across the board pay

cut• Entailed great sacrifices• Results

Debts were paid on timeRoyal is profitable market leaderRoyal team built another company from scratch 6X bigger

Focus on loyalty: relationships

• Main source of our longevity

• Customer service that leads to a relationship

• Employees remain with us for decades

• We have hundreds of partnerships

International and local

Large and small enterprises

Innovation• Lead and excite our marketplace

Focus on the Filipino woman (i.e working)What her aspirations and underserved needsLuxuryBeautyLifestyle: cloth herself, decorate her home, family, build relationships, experiences

• Strong support system

Continuous Innovation

• Daring spirit to disrupt the market and challenge the status quo

• Deep and penetrating understanding of customers and constantly evolving to deliver what is

relevant to them

• Speed to market: be the first to offer something new and compelling to customers

First Christian Dior licensee outside of France

First store to combine department store and supermarket in one

building

First rewards card program in the country First to offer free giftwrapping First to offer personal shoppers First to offer gift registries First store to curate designer brands First store to start a Filipino designer

brand….. and many more!

Innovation

Culture

• Belief: Inspired well trained Filipino team can persevere in taking on huge goals

• Transform the ordinary

• Sense of urgency and long term planning




Outline

The Philippines

Rustan’s


Examples:• Food and Beverage in Vietnam• Telecommunications in the Philippines• Local Tech Startups in Indonesia

Opportunities

Many industries need foreign

expertise and capital (subject to

varying foreign equity laws per country)

Example:• Philippine retail is still dominated by

mom & pop stores

Some sectors are still very

fragmented, dominated by small

players and micro-industries

• Many governments offer Public-Private-

Partnerships as a vehicle for foreign firms to

invest in the country

Opportunities

Public infrastructure networks in

ASEAN countries tend to be poor,

but governments are committed to

improving these

Will help future proof emerging economiesForeign Investments in renewable

energy, sustainable production

Many governments and non-profits are stepping

up efforts in disaster risk management, as well as

in protecting the environment

• Developed countries can offer expertise and

support in urban planning and development

• Advent of new technologies, new business

models (e.g. telecommuting) can help offset

some of the problems

Risks

Many ASEAN cities are located in

coastal areas that are vulnerable to

rising sea levels, flooding and climate

change

With rapid economic progress

come increasing urban problems

like congestion, traffic and pollution

• In - depth understanding of the economic and social differences of ASEAN markets is required

• There is no one sized fits all approach. Each ASEAN country has its own unique circumstance

• Many foreign investors enter into a JV agreement with an established local player that has local market knowledge and local purchasing power to minimize risks

Risks

ASEAN markets have unique ways

of doing things or idiosyncrasies that

may require tailoring of operating

business models

END OF PRESENTATION

Parting Words• ASEAN is a place to invest, market to serve, and an opportunity to

help accelerate social and economic development

• Markets like the Philippines and the ASEAN are rife with potential

– The Rustan’s case showed that a key to success is to understand the market, identify the unmet needs, position strongly on the unfulfilled gaps in the market, and invest in people

• Time is of the essence

– Now is the best time to invest

– Adopting a wait and see approach may cause interested parties to lose to local players or other foreign investors

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