09/08/2014 Talking Business with Linda Yueh

2014 could be the biggest year Talking Business with Linda Yueh.

2014 could be the biggest year for mergers and acquisitions in a

decade. What is behind this trend, and will

it continue? Here in Singapore we are Talking Business.

A warm welcome to the programme. It seems that every week we hear about

another company expanding into a new overseas market. Whether it is a

European brand opening new stores? Asia or a Chinese firm establishing

its fist branchs in the US, there have been a flurry of global

expansion plans, looking at merges and acquisitions the number of deals

this year is set to rival the pre`2008 crisis peak in global M and

A, one of those companies that is growing internationally is luxury

jeweller bug Gary. It expanded its operation to Asia, the Italian firm

has diversity fibbed from selling jewellery and watches into boutique

hotel, to find out what is driving the company's expansion and

diversefication strategy I caught one the Chief Executive. When you

look at your global strategy, how you viewing the different regions?

Are you elevating Asia in the next five, ten years? Are you paying less

attention to Europe? What we are aiming at where is the money today

and tomorrow, so where the money is today is still clearly in the United

States, it remains by far the richest country on earth, overall,

not percap but per capita means you have tens of millions of people who

can afford some luxury. The second region remains Europe, despite the

vie its `` crisis, issues in the south and then Asia is one which

tomorrow might become the number one, but where it an ears the next

ten year, I think global company must pay as much attention to Asia,

a to the US as Europe, because for the next ten years it will prevail.

Even though the gross rate of Asia is for sure quicker, than the gross

rate of Europe, US being another challenge, as people have the money,

but they don't spend as much money on luxury, as Asia, and Europe would

do. Terms of your competitor, your size and your sales and turn over

are not as large as say Tiffanys, or even LV. Is that intentional or are

you intending to grow the business in terms of scale? It is never

intentional to be the number two, in the sense that, well, let us put LV

aside because we are different business, you mention Tiffany. That

is an interesting case because the report said that they sell different

products, in in other words, sizeable share of Tiffany business

is silver product, can be silver jewellery, can be any object related

to silver, frames, and whatever, which we do not consider as direct

competition, so when we look at Tiffany for instance, we look at

comparable, which is any jewellery above one,000 euro row, which it is

a kind of commonly agreed definition n the luxury industry. I would say

most competitors do agree. So if you look at Tiffany under this angle, so

anything above 1,000 euro, I am not sure because bug Gary is nothing

below, at the end there is an industry one competitor which is

bigger than Bulgari, Cartier, because Cartier sells only precious

material, and precious and semi precious stones so products over

one,000 euro row. It is not our goal take market share out of them,

because the utmost challenge in jewellery is to take share out of

the global market. I explain myself, unlike watches which are 100%

branded. Luxury watches are 99% Swiss and they are all branded, you

don't have unbranded watch, selling over one,000 euro row. Conversely

jewellery is a different business. Fine jewellery market is about the

size of the luxury watches, we talk about 40`50 euro retail value in

both cases, but if the 50 billion euro watches are branded, in the 50

billion euro jewellery, only eight or nine o brand and the rest are

local actors who can be very strong in some market, I have in mind the

players in China, they are huge, but they sell only in China and they can

be really very local, typically I mean the family jeweller, round the

corner, who for three or four generations has forged your wedding

band and ring and combining the two channel, that means the local and

independent jeweller, you have 80% of the market, which do not belong

to the global brands. Our main challenge for growing is obviously

to take more and more share out of this market. Why is that? Because,

you know, it very much to see the total change into society. After the

war, most people were born in a place where there would be get

married, get a job, spend their life and die. In most countries it is

different. We are moving to a nomadic world. I am myself. I was

born in France, then I moved to Italy, then my first job, I have

been in five or six different country, I have no idea whatsoever

who as a jeweller of my parent, if nicks and therefore, the trust which

was explained, the strengths of the family jeweller, because basically

when you buy a jewel you need trust. It is about precious material,

precious gems, and even they are stiff Kate, they can be forged, so

eventually, trust is foremost, also because of price you pay is very

expensive. So the trust is today transitioning from the local family

jeweller, to the big brands, because the big brands are global. You can

find the trust everywhere. I am born in Paris today, I can find Bulgari,

if I move to Hong Kong to work still I can find Bulgari. If in five years

I move to New York I will file Bulgari, so the trust relationship

is shifting from your family jeweller, to the global brand, why?

Because the world is becoming nomadic. You diversified into hotels

and you have aarrangement, you don't have the full owner of the hotel.

Why diversify in that way and what is your product going ahead? Is it

hotel, a small nearby, are you predominantly going to be jewellery,

with watches, and what is the kind of diversification you have in mind?

Is that it? The hotel is the pinnacle of service in a boutique

already, you can offer a unique experience, we all training our

staff, as good as we can, not only, mine, in terms of products, in terms

of the way the product is connected to legends, when it comes to the

most beautiful Bulgari Sapphires or emerald, but our competitors are

capable do that, they have their own needs, their own stories, so I don't

see we are on an equal footing but the most professional competitors

can be pretty close in providing a good store experience. We do it in

our style, which is very Italian as you can see round, and some are

doing it in a more classical style which is Parisian. It is fantastic.

If you want to go to next step and create an experience that is

enchanting, the hotel is the pinnacle, because the hotel is not

only one room or couple of rooms or three room, the hotel is a lobby,

plus a couple of bars, a restaurant, a spa, a couple of restaurants,

different suite of different sizes so in an hotel you can express much

more of a brand than in a boutique. That was the Chief Executive of

Bulgari. Even as west companies are fast growing markets, led by China

in many areas, Asian companies are going global into overseas markets.

Leading the charge, are Chinese firms.

Due to the Chinese Government controlling the amount of outward

investment it was only a decade ago the first deal was done.

Since then, expansion by Chinese companies has been rapid from 3

billion dollars, Chinese companies spoefrnt 52 billion in 2008. That

figure has nearly doubled to a record 100 billion invested out of

China last year. The Chinese company has bought the pizza express chain

in Britain. They are not the only ones. Globally M and A deals are at

the highest level since before the global recession, in the first half

of the year, 1.75 trillion $s of deals were done, which is 75% higher

than a year ago and the most since 2007. In that year $2.8 trillion

worth of deals were concluded. This year it is led by cross`border M and

A deals. These have surged by over 130% a year earlier. The busiest

sector is healthcare, which accounts for nearly one in five deal, at $317

billion. Followed by media and entertainment with deals valued at

220 billion $, so what is driving firms to go global. Why are aShaun

companies investing overseas when western firms are trying to get into

the region? I have with me a panel of Chief Executive. The Chief

Executive of Banyan tree hotel resorts. John Nelson. And Anthony

Tann the CEO of GrabTaxi. Welcome to all of you. Let me start with you.

Why expand outside the region? We have a very strong footprint in Asia

People have come to enjoy what we have got to offer. We are bringing

that experience to other parts of the world where we are missing

today. Also, the demand for brands that are common and prevalent in

Asia is growing in western parts of the world, hence the reason we want

to capitalise on that demand in growing middle class. Is that a

similar reason for you, John, because there's a lot of business to

be done, especially assembly`conductor? Taiwan,

Singapore tend to be the high`technology hubs in Asia. There

is expansion into Thailand, Vietnam more recently. For us, the advance

technologies continue to come to Singapore and Taiwan. We are

investing more in Indonesia, in Thailand and the markets that we

serve are very diverse. In some cases, our customers basically, for

their own supply chain reasons, asked us to support their operation

from certain locations, be it Thailand, be it Singapore or Taiwan.

Anthony, what about you? You've dominated south`east Asia in a sense

and do you have any plans to go further afield? South`east Asia has

been kind to us, so there was a clear problem today in south`east

Asia, the broken public transport system, very inefficient, Friday

5pm, raining outside, can't get a taxi. A lot of women fearful of

taking a taxi in south`east Asia, there was a clear need. So that

basically will allow us to scale first within south`east Asia and of

course, other countries, other cities that we see has a real

problem of a similar nature and of course that we have the competitive

advantage to solve. Isn't there a bigger hurdle for brands like yours.

Whir very well`known in Asia, less so say in Latin America or Europe?

Even though our presence today is in Asia, we have a very, very good

presence throughout Asia. A lot of our customers over the years have

been through typical Western Europe, through the US, so the brand recall

in those markets is quite good. We bring in the brand to that market,

so at times we'll have to travel long haul to enjoy the brand. That's

actually helped us. Yes, we've been missing in some of the markets, so

making our presence known and delivering those experiences could

be a challenge. Finding the right talent group. Because if we are in a

very high`touch industry. Unfortunately, it's low`tech, but

high`touch industry and we rely on talent pool to be able to deliver

the services. That is a big challenge for us.

John, is there more competition now in Asia than before? You have

western companies, looking to get into this fast`growing middle`class.

Are you feeling more competition in your business? I think the

competition we see is primarily coming from China. The

semi`conductor business in heroin is one of the ones that the

government's placing a special emphasis on be it special funding,

incentives. So the China companies have become very strong. 15`20 years

ago, they were low`end technology, not so sophisticated servicing,

low`end products. Over the last ten years, they have become pretty

advanced. They are not quite at the Taiwanese level in terms of

technology, but with one of the constraints I think that the

semi`conductor industry is facing a little bit is China customers would

like to have a strong preference to have their products manufacturered

in China. So that in a way is forcing companies such as ours to

ensure we have a presence there. Anthony, do you have a built`in

advantage because you're dominant in the market, you know the network and

the market. So even if western markets try to come in and get a

piece of this market or Chinese companies even trying to come to get

a piece of the mash, you are going to provide fierce competition,

aren't you? We already do, every day there's a war and we love it,

because it helps us remember again why we started the business. We are

solving south`east Asian problems. Being hyper`local that way. For

example, the customer call centre is supporting someone not only in the

Philippines, but could also support other areas, right. So our Thais can

also speak Thai and other language languages a well as English.

Appreciating that and having the nuances are critical. It's customer

service focussed. This is an industry whereby if you jumped in a

taxi or car in hoe chill mean, you can speak via the app. `` Ho Chi

Min. It will get you safely from A`to`B. What about the hotel

business? More competition as western hotel chains are trying to

again get a piece of the Asian middle class? Sort of economic

migration, if you would. If you are not there, you are going to get in

and try to take a bit of it. The first advantage is always there.

We've been very fortunate and have gone into emerging economies where a

typical hotel organisation we shy away from actually, some of the

deaths nations that we went into, it would scare a lot of people. Like?

`` destinations. We opened a certain hotel seven years ago, a luxury

presence there was unheard of. People thought it would never work.

It was an absolute roaring success. So we go into new destinations. We

almost create the destinations. It helps the local economy because

there are hundreds of jobs that are created. The in`bound travel creates

the destination. Now, seven years later, there are lots of other

brands that are present in that area, we were the only ones at one

particular point. Finally, which companies are you most anxious about

entering your home market? Is it the American companies, the European

companies or the Chinese companies? Anthony? The Chinese are battling it

out there. There are huge subsidies behind each other. So they have the

subsidies coming into your space? Yes. It's tough work. If you look at

the apps actually, they are very different in characteristics,

recording, non`recording, ours is four square based, the map systems

are different, so it's all possible and it's something that obviously

it's always on the radar, but for us, just go back to the story about

if you are looking, chasing a girl, focus on a girl, don't think about

the guys, the other guys chasing her. OK. That is a great analogy,

I'll have to remember that! Are you most concerned about American,

European or Chinese hotels coming into your space? Rierks all of the

above but none of the above `` yes, it's all of the above but none of

the above. Competition keeps us honest. The innovation is driven by

competition. We are all about innovation, we have to do it better

than it's been done before, better than somebody else would. So

competition is not necessarily a bad thing. It is the dominant players.

We have the advantage in this area. I think we will continue to

capitalise on it. We are launching new brands to stay relevant with the

demographics are chaining. That will help us. We have to do it better

than anybody else can. John? What about you? For us I think, Taiwan,

Korea have a very strong presence already. They are not a threat, they

are a reality. We go to war every day. I would say the next wave of

attack will be Chinese companies, subsidies probably give them some

financial benefit, but the reality is in our semi`conductor world, it's

stability of the workforce, the education and the depth of

knowledge. This is not an area that someone can walk into and within a

year or two or three years become a dominant player. You need ten #15rks

years experience of the management team, the engineering groups,

customer service also, we have to work with the same role as other

companies in terms of supporting other companies. So yes, they'll

come, but there's adequate silos and walls up there that we can defend

ourselves quite well. Silos walls, keeping you honest ander, chasing

girls. Thank you very much indeed. Anthony Tan, Abid Butt and John

Nelson. If the trend on the stock market

continues, we could see a new slew of multinational corporations emerge

from around the world. There is rapid expansion of European and

American companies Ian to sell to the world's fasters markets. They

may not be profitable at first but there are advantages to being in an

emerging market as it's about to take off. But for all these

companies, they'll be aware many markets will have their own dominant

local companies which could offer fierce competition at home, and

increasingly globally. That's all we have time for. Check out our

website. Join us next time for more Talking Business with me, Linda

Yueh. We have been tracking a certain

weather system for well over a week now and at last it's arrived on our

shores, determined to spend the day with us here tomorrow rather than in

France. It's going to bring wet and windy weather