Highly priced and rare coffee shops Only 400 coffee shops can be transacted

Singapore is a country with a small land area but active property investments with daily transaction reports rising. Examples of typical transaction reports: 1) In July 2022, the CEO of Three Arrows Capital, a virtual currency hedge fund that filed for Chapter 11 bankruptcy protection in the US, to sell a luxury bungalow (GCB) he had just purchased for S$48.8 million (approximately JPY4.7 billion). 2) In July 2021, the family of Grab’s (A super app platform) CEO, and the CEO of Secret Labs (manufacturer of gaming chairs) bought a GCB for S$40 million (approximately JPY 3.9 billion) and S$36 million (approximately JPY 3.5 billion) respectively. 3) In October 2020, it was also reported that the founder of British home appliance giant Dyson sold his penthouse, which he had purchased a year earlier for S$74 million (approximately JPY7.2 billion), for S$62 million (approximately JPY 6 billion). These expensive housing transactions are not limited to a few wealthy people. In HDB, where 80% of the population lives, the transaction price of resale properties is also at an all-time high, with a series of cases reported where properties were sold for more than S$1 million (approximately JPY 97 million). Alongside housing, the sale and purchase of coffee shops are increasingly reported in the press. Coffee shops are a collection of several small-scale eating and drinking establishments located usually on the ground floors of the busy town centre, HDB, and industrial estates. Many of which are owned by private companies and individuals, in contrast to “Hawker Centres” which are owned by the National Environment Agency (NEA). In June 2022, the news of the Eastern 21 Street Eating House in Tampines being sold for S$41.6 million (approximately JPY 4 billion) and KPT Kopitiam in Yishun in the north for S$40 million (approximately JPY 3.9 billion) hit the headlines. More surprisingly, both coffee shops were sold at a new historical high price. The Tampines coffee shop was purchased from the Housing and Development Board (HDB) for S$3.45 million (approximately JPY 330 million) in 1992, and 30 years later, it was sold for 12x the price, while the Yishun coffee shop was purchased for S$6 million (approximately JPY 580 million) in 2007 for 15 years after it was sold for nearly 7x the price. It is also astonishing to note that the acquisitions are leasehold (fixed term usage) and not freehold (unlimited term usage) and that the selling prices are comparable to a ground-floor shop in a prime location on Orchard Road, Singapore’s busiest shopping street (Figure 1). Why are suburban coffee shops trading at such high prices? We believe there are two main reasons. The first reason is the limited number of outlets available for trading in the first place. There are about 2,200 coffee shops and similar eateries in Singapore, and about 770, equivalent to one-third, are set up by HDB on the ground floors of HDBs out of which 400 of these are sold to private companies and individuals in the early 1990s. In 1998, NEA has stopped selling them and switched to renting the owned coffee shops to private companies and individuals. In other words, only 400 coffee shops that are set up in public housing can be transacted. The second reason is that the coffee shops in Tampines and Yishun, which were sold at a historical high price, are large and scarce. The two coffee shops have 18 and 14 stalls of small-scale restaurant space, respectively, and are expected to attract a more significant number of customers as they can develop a wider variety of restaurants than many coffee shops, which typically have less than 10 plots. However, the sale and purchase of coffee shops at high prices risk becoming a social problem in the form of increased rents borne by the tenants, small restaurants, which subsequently are passed on to consumers through increased food prices resulting in a larger burden on the household budget for consumers. In this context, National Development Minister Desmond Lee, in his parliamentary reply in July 2022, emphasised that an average of 15 coffee shop transactions in public housing have occurred every year since 2010, but that 70% of these transactions are for less than S$10 million (approximately JPY 970 million), with limited impact on household finances.  

Coffee shops are like a ‘second kitchen’ Coffee shops perform well in the COVID-19 pandemic

Singapore is often called the “Nation filled with food critics”. This article examines the critical role of food and drink and coffee shops in their socio-economic activities. The most recent household survey conducted by the Singapore government shows that the average monthly household expenditure on food is S$1,199 (approximately JPY 116,000), the largest of all categories (Figure 2). Looking further at food by detailed category, it can be seen that the average monthly household expenditure of S$437(approximately JPY 42,000) per month on categories in addition to coffee shops, including hawker centres and food courts is higher than food and non-alcoholic beverages (S$389) and restaurants, cafés and pubs (S$296) (Figure 3). The fact that more was spent on coffee shops and hawker centres than on food and non-alcoholic beverages suggests that eating out or taking food away from home is more common in Singaporeans’ lives than cooking for themselves. Furthermore, looking at average monthly household expenditure by income quintile in the three food service categories, including fast food, it shows that the largest expenditure is on coffee shops and hawker centres, except for the highest income quintile with an average monthly household income of S$10,070 (approximately JPY980,000) (Figure 4). It is often believed that the main customers of coffee shops and hawker centres are low-income households, but in reality, coffee shops and hawker centres are almost like a ‘second kitchen’ for many Singaporeans, who use them daily. These food and beverage purchasing behaviours by Singaporeans will continue to grow as a result of new behaviours stemming from the outbreak of COVID-19, namely the increasing use of coffee shops adjacent to suburban HDB rather than restaurants in office blocks due to the spread of work-from-home. In fact, 30 new coffee shops are expected to be built in council housing over the next four years. A comparison of the performance of typical food service companies in COVID-19 also provides a glimpse of the reality of the assumed impact of changing consumer purchasing behaviour. Among the major food service companies listed on the Singapore Exchange (SGX), Kimly Group, which operates a total of 136 multi-brand outlets with 84 coffee shops (as of October 2021), and JUMBO Seafood, which is famous for its seafood dishes, operates total 42 restaurants under 12 restaurant brands. Looking at the sales figures for the first half of the year (ending September) over the past three years, using the example of the JUMBO Group, which operates domestically and internationally, it is possible to understand the strong performance of the Kimly Group (Figure 5). Moreover, the JUMBO Group, which has mainly targeted tourists and business customers, has announced plans to acquire a 75% stake of the shop “國記雲吞麺” in the hawker centre for S$2.1 million (approximately JPY 200 million) in November 2020 under COVID-19 and to open multiple outlets both domestically and internationally. As of August 2022, “國記雲吞麺” has expanded to eight outlets, mainly in coffee shops in Singapore, and this is an excellent example of large food and beverage companies, which until now have mainly opened outlets in street shops and shopping malls, accelerating the opening of outlets in hawker centres and coffee shops based on changes in the business environment and consumers’ purchasing behaviour.

What measures can be taken to increase the profitability of coffee shops? It is vital to implement measures without thinking outside the box.

Regardless of whether the investment is in a coffee shop or a shopping mall, there is a common need to increase the earning power of the tenants so the property owner can benefit from the rental income and future gains from the tenants. So what measures can coffee shops take to increase the profitability of their tenants, i.e., small-scale restaurants? The following are five ideas to consider. The first is to optimise the tenant mix (the combination of restaurant types and business categories in which they open) and merchandise (the product range and pricing strategy offered by each restaurant) to maximise the number of customers and customer spend for the coffee shop as a whole, rather than for each individual restaurant. For example, a coffee shop owner regularly adds high-profile restaurant brands to his tenants to prevent existing customers from leaving and attract new customers at the same time. Another owner, who also manages several tenancies himself, attracts more customers to the coffee shop by offering lower-priced food at a lower price point, while another tenant, who offers higher-priced but comparable quality food to restaurants in the city, ensures that the coffee shop is profitable. The second is to change not only the menu offered but even the signage of the shop in order to respond to the needs of the customers who visit the shop on different days of the week and at other times of the day, as well as the consumer profile of the area around the coffee shop. Even though the rent for the tenants of coffee shops is a fixed cost, many shops are only open for a limited number of hours, such as from morning to evening on weekdays. For example, coffee shops in office areas are surrounded by restaurants and bars that are busy after five on weekdays and cafés that are packed with cyclists, mainly Westerners, on weekend mornings; however, they are not open after the evening on weekdays or weekends. We believe that sales can be steadily increased by developing a menu such as smoothies that stick with the health-conscious attribute immediately after exercise on weekends, and alcohol and snacks in the evenings on weekdays. The third is to develop menus and stimulate potential demand, not only for in-store dining in coffee shops but also for takeaway and food delivery, in order to increase turnover and occupancy rates per tenant. While the small number of seats means a waiting time before being seated, there is high demand for takeaway food in coffee shops adjacent to offices and residences. In addition, food delivery, which has become more popular due to COVID-19, is expected to continue to be used on a daily basis as the new normal (Figure 6), and small-scale restaurants in coffee shops must develop their services in line with the changing purchasing behaviour of consumers. The fourth is to focus on digital marketing activities using social media such as Facebook and Instagram. In particular, Generation Z, born between 1996 and 2015, are also known as “digital natives” as they were born in an age where digital is commonplace, and it is not uncommon for them to decide what to eat and where to eat based on information obtained from social media. Therefore, it is essential to develop menus that stick with Generation Z while simultaneously providing effective promotional information on social media, which they are in contact with at all hours of the day. The fifth is to ensure thorough cleaning of the coffee shops, including tables, chairs and toilets as well. In order to prevent losing consumers who are unhappy with the cleanliness. Overall cleanliness of a coffee shop is an important factor that consumers subconsciously evaluate along with other factors such as the taste and price of food and beverages.  

A need to fully understand the industry structure and consumers’ purchasing behaviour Start with the daily use of coffee shops

Finally, we would like to discuss the business opportunities Japanese companies should know about coffee shops in Singapore. Firstly, Japanese food and beverage companies should consider opening coffee shops as an option. We have an impression that most Japanese food and beverage (F&B) companies only consider opening new outlets in street shops and shopping malls in prime and downtown areas of Singapore. Many Japanese F&B companies are not even aware of the existence of coffee shops. However, as mentioned above, many Singaporeans spend more on eating out and takeaways in coffee shops, hawker centres, and food courts rather than in restaurants, cafés, and pubs. The ignorance of the importance and potential of coffee shops could be a risk and lead to lost opportunities. Whether or not they are aware of this consumer purchasing behaviour, some Japanese restaurants and cafés have recently become prominent in opening outlets in coffee shops; however, only a few have been expanding steadily. For example, Li Yuan Mee Pok, which has six outlets on the island, is gaining a growing presence as a popular restaurant in coffee shops across the country, offering “Japanese Fusion Mee Pok”, combining a local dish called mee pok, thick noodles similar to Japanese kishimen noodles, with a sour sauce and unique flavours such as miso and soy sauce, and toppings such as pork. Furthermore, Japanese food companies seeking to develop sales channels along with the local authorities and banks supporting these companies should also consider coffee shops as a sales channel. Some Japanese food companies that engage in what they call ‘sales channel development’ activities in Singapore are often satisfied with the fact that their products are used in pilot or temporary events at only a few high-end restaurants or supermarkets and are not concerned about making money through permanent sales or increasing sales volumes. Although it depends on the type and price range of local products sold, the growing importance of merchandising in coffee shops and the fact that almost no Japanese products are sold in coffee shops, compared to the popularity of Japanese products in Singapore, make it difficult to differentiate Japanese food and beverages from other products on the menu. It is strongly recommended that these Japanese companies, as well as local governments and banks, consider business opportunities based on an essential understanding of the structure of Singapore’s F&B industry and consumers’ purchasing behaviour from a frontline perspective, with a focus on coffee shops and hawker centres. The vast majority of Japanese people living in Singapore do not even use coffee shops, let alone know the difference between coffee shops and hawker centres. We would like to conclude this business consulting report by recommending that consumers start using coffee shops daily and understand through first-hand experience how easy they are to use and how essential they are to their daily lives.     **************************************************************************************************** IGPI can provide strategy consulting for multiple aspects of your business.  Get in touch with us on internationalization, strategic planning and fund raising related topics! ****************************************************************************************************

About the author

Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations, such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experience, especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.      

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few.  IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.   *This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

In Australia, the minimum weekday wage is over 2,000 yen per hour with up to doubled hourly rates on Sundays

  The minimum wage in Tokyo is ¥1072 per hour (effective October 1, 2022), whilst in Australia it is A$21.38 per hour (as of September 11, 2022) or approximately ¥2010 (calculated as A$1 = ¥94). In some cases, hourly wages on Saturdays are guaranteed to be 1.5 times higher than on weekdays, up to double the weekday rate on Sundays.   If one were to work part-time for three days on weekdays and two days on weekends, each for eight hours, their total annual income would be close to ¥5.5 million at minimum wage. Granted, this cannot be directly compared with Japan as there are other factors such as the exchange rate, income tax rate, price of goods and services.   A resource-rich country, Australia has long been plagued by the Dutch disease (which will be covered later in this article) and has been unsuccessful in building the infrastructure to support its vast lands. However, thanks to various measures, Australia sits in 12th place among Asia-Pacific countries in the World Happiness Report, ranking far ahead of Japan in 62nd place.   In this article, I would like to share some insights on what we can learn from Australia in order to improve the current labor productivity in Japan. The concept of “analogical thinking” to learn from external sources is an essential skill to achieve quick improvements in this era of rapid change and future uncertainty.    

Population density of Australia is 1/100 of Japan. Automotive industry driven out of business by Dutch disease

  With a population of 25 million, Australia’s population density of 3 persons/㎢ is much lower than Japan’s 333 persons/㎢ or the United States’ 34 persons/㎢. By city, Sydney has 430 people/㎢, Melbourne 453 people/㎢, and the capital Canberra 443 people/㎢, all far below the 15,428 people/㎢ of Tokyo’s 23 wards, Singapore’s 8,358 people/㎢, and New York City’s 11,000 people/㎢.   A resource-rich country, Australia has a GDP per capita of US$57,000, much higher than Japan’s US$39,000. However, its economy has been suffering from a serious Dutch disease for a long time and industrial diversification is urgently required for future economic development.   A Dutch disease refers to the phenomenon where trade surplus resulting from the export of abundant natural resources leads to the appreciation of the country’s currency and the loss of international competitiveness, mainly in the manufacturing industry due to higher labor wages. The automotive industry was in fact once a major industry but came to meet its end in 2017.　   I would like to explain how Australia has addressed this, via implementing good national management policies to address the low population density and supporting the creation of new industries in this environment.

1) Investment and management policies with good intentions that support low population density

There are many industries that are not suitable for countries with low population density. Cell phone base stations, EV charging facilities, retail chains, and public transportation are some examples of extremely inefficient investments when population density is low. In Australia, there are existing policies to ensure minimal unsound or unnecessary investments or operations in these areas.

For example, only Sydney and Brisbane have train services from the international airport to the city center, while other airports offer cab or bus services. In addition, many gas stations are unmanned, and retail stores are closed at times of the day when customer traffic is low.

2) Technology to support low population density

In Australia, a number of technologies have been developed to support low population density. For example, there are innovative technologies to support the operation of gyms that are open 24 /7 or to automate agriculture. Among these, a company that provides IoT technology called Myriota is attracting particular attention. Starting as a spin-off venture from the University of South Australia in 2015, the company aims to build a large-scale, low-cost, low-power consumption satellite communications network using nano-satellites. Its technology is currently being used in a wide range of applications, from monitoring wind farms to water tanks on farms.

It has raised more than A$50 million in funding to date, and investors include Innov8, a Singapore-based venture capital firm run by SingTel, one of Asia’s largest telecommunications companies, and HorizonX, Boeing’s venture capital arm.

3) Role of the federal and state governments in supporting the creation of new industries

A key factor in creating new industries in Australia is the federal government’s management of industry portfolios and state governments’ focus on specific industries. For new industries, startups in each state’s region focus on a specific business area, such as FinTech in New South Wales, AgriTech and HealthTech in Victoria, and CleanTech and SpaceTech in South Australia.

Moreover, each state governor has made efforts to develop their cities to maximize the growth of the industries they are focusing on. For example, in South Australia, the incubation hub Stone & Chalk is located within walking distance of the University of South Australia, the University of Adelaide, and research institutes. Myriota, introduced in 2) above, is also a university startup born in such an environment.

  In the past, excessive population growth was considered a social issue in Japan – today, the paradigm has shifted and key challenges include a declining population due to the falling birthrate and aging population, as well as depopulation of regional cities.   Instead of viewing environmental change as a risk, let us acquire and apply the skill of analogical thinking to find reference cases that will help us solve our current problems. Looking across the world, there is an abundance of solutions and resources that we can and should tap on. **************************************************************************************************** IGPI can provide strategy consulting for multiple aspects of your business.  Get in touch with us on internationalization, strategic planning and fund raising related topics!

 

About the author

Kohki Sakata is CEO of IGPI Singapore. After joining Cap Gemini and Coca Cola, Kohki joined Revamp Corporation, where he managed projects on global expansion and turnaround in various sectors, including F&B, healthcare, retail, IT, etc. After joining IGPI, Kohki has managed projects mainly on global expansion and cross border M&A in various sectors such as logistics, IT, telecom, retail, etc. In addition to his broad experience in implementing solutions that have been developed in Western countries, he has developed multiple methods to turnaround Asian companies with a focus on setting a clear vision and employee empowerment. He has proven the practicality of these methods by turning around Asian companies not only as an advisor but also as senior management. He graduated from Waseda University Department of Political Science and Economics and IE Business School.  

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few.  IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.   *This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

“We are a large Japanese company with a long history. The management team, including myself, has been telling our employees about the necessity of innovation and the importance of digital transformation at every opportunity, but we have not seen any signs of change nor any tangible results. To be honest, I am beginning to feel that it is difficult for a large company to innovate like a start-up. Do you have any advice for us?”

 

Products have lifecycles

A product has a lifecycle, which may be long or short depending on its characteristics, as shown below. The lifecycle of introduction, growth, maturity, and decline is easy to understand if we compare it to the life of a human being. Naturally, infants and adults, as well as the young and old have different values and use money differently. In the case of business, our way of looking at sales and profits should also be different, as shown in the figure below. This is also similar to the life of a human being. Initially, there is no income earned during our childhood and money is continuously spent on necessities such as food, education, etc. However, we can think of this as an “investment for the future” rather than a mere expense. As we grow up, our expenses increase while income rises and as we move from middle age to old age, our investments for the future decrease and our priority shifts to how to control expenses while being conscious of saving sufficient money. In business, the number of competitors also change over the different phases of the lifecycle. This number, which was small in the introduction phase, increases rapidly in the growth phase, decreases again in the maturity phase and decline phase due to weeding out and eventually is reduced to a few companies through acquisitions and mergers. This is what happens in every industry.

 

Management styles differ depending on the stage of the lifecycle

The person posing the question mentions startup innovation, but the products deployed by startups are in the introduction to growth phase, while most of the products deployed by large companies are in the maturity to decline phase. This is a natural change, and the business is sustained by recovering the investment made during the introduction and growth periods in the mature period. The company grows by having more products in the mature stage and continues its business by investing the generated cash to create new products. The key point is that the management style of a business differs depending on which stage of the lifecycle it is standing in. From the introduction to the growth phase, the company needs to focus on new customer needs and social issues and clearly articulate its vision. This is more easily understood by imagining visionary managers such as Steve Jobs or Elon Musk. In the mature stage, a fluid and adjustable style of management is required as it is important to identify how to generate stable profits in the formed market. This is the PDCA type of management that Japanese companies excel at, increasing sales and reducing costs in order to raise profits from the previous year.

 During a period of decline, fact-based, top-down decision-making is required to determine whether to remain in the declining market or to withdraw from it. Making a decision to withdraw from a declining market, even if it is an inherited business or still profitable at that point in time, requires autocratic management.

 

Ageing of organisations is inevitable

In its early days, every company strives to solve the problems of their customers, but as soon as they reach the growth stage, they start to focus on their competitors. In order to beat the competition, they adopt a variety of measures to hire talented employees and introduce a number of systems to retain them. The gaze of the management and employees gradually turn inward to their own company, and the ageing process is rapidly exacerbated in an organisation that has become insensitive to external stimuli. This is the reason why startups lose their liveliness when people coming from large companies introduce various HR systems and management structures, or why their decision-making process becomes slower than before after being acquired by a large company. Also, since ageing is an irreversible process, even if we can slow it down slightly, we cannot stay as young as a teenager forever. Per the question above, it is not easy to make the same innovations in a large company as compared to a startup. The stages they are in are different, the problems they need to solve are different and the goals of their management may be different. Don’t be seduced by the words “innovation” and “transformation,” but think about whether you have a clear idea of the issues your company needs to address now. If the overall concept of problem-solving drawn from these issues is not shared with your employees, it will be inevitable that your frontline will not proceed in the direction intended by management. Though you may be able to accumulate small improvements, you cannot expect to transform the organisation as a whole. Innovation and digital transformation is not the goal, but rather, the first priority is to listen to the voices of your customers and frontline, identify the issues that need to be solved and share them with the entire company. For example, Sony recently announced that it is working with Honda to develop an electric car. Sony is much older than when it launched the Walkman, but continues to innovate at an age-appropriate rate. There is no need to be pessimistic just because your organisation has aged.

 

Architects are unlikely to be born from a well-developed organisation

An entrepreneur is the equivalent of an architect of a company. Entrepreneurs are business architects who are generally:

• Able to draw a vision from a blank sheet of paper
• Consider all facets of the company
• Possess the ability to think in solitude
• Free from constraints of existing ‘common sense’ and rule in their thinking
• Able to incorporate a personal touch to their company

Therefore, we may presume that many entrepreneurs are more or less capable of practising Architectural Thinking. However, it is not enough if only entrepreneurs can practice it.

 

Innovation and new ideas are needed at various levels and in various situations

The reason why I advocate Architectural Thinking is because this way of thinking is required at many business scenes. The age of “鶏⼝⽜後 (Better be the head of a dog than the tail of a lion)”, brought about by digitalisation, requires innovation and new ideas at different levels and in a variety of situations. While the architect of the company as a whole is the entrepreneur, Architectural Thinking is also required at the “upstream” level in each department and project. However, although Architectural Thinking can be applied in various situations, it is a difficult skill to develop in certain organisations. This is because the organisation itself exists as a product of Architectural Thinking by its founders and other upstream people. The reason why it is difficult to create architects from established organisations is because there are few opportunities to utilize such abilities even if there were people who possessed them.

 

Governance reform to bring diversity to the management is important

While it is difficult to create architects from established organisations, architects are essential for developing new products and new businesses. Thus, in order for ageing companies to survive, it is important to raise basal metabolism and ensure that this metabolism is working properly. So, what can we do to achieve these goals in the organisation? One solution is to create a mechanism for selecting a diverse management team. For example, OMRON, which has been actively promoting governance reforms, has established the President Nomination Advisory Committee and the Personnel Advisory Committee for the purpose of selecting the management team with an objective viewpoint. The current president does not sit on this committee. In the case of a startup, an entrepreneur can focus on driving the growth of the company as an architect. However, as mentioned earlier, management skills such as adjustment and autocracy are required in addition to playing the role of an architect in large companies, so diversity of management personnel is key to further growth. In order to continue running a large company while monitoring businesses in the mature or declining phase, it is important to find people with Architectural Thinking skills that have little to no opportunities in the established organisation and assign them to the right places to create new businesses or develop new products after assessing their potential. This is applicable not only to the management of a company as a whole but also to each department. Especially in the age of VUCA (Volatility, Uncertainty, Complexity, and Ambiguity), where things are changing rapidly, it is imperative that as many departments as possible make profits from existing products while investing for the future. So, how can we achieve governance that is both diverse and balanced as an organisation?

 

Issues are occurring on-site

When talking about governance reform, we tend to focus on formalisms such as increasing the number of external directors or inviting women and foreigners as external directors. The fact is there is no such general solution in management. As mentioned above, the management team of a large corporation needs to be diverse. If the current president is an autocratic architect with overwhelming influence, the others in the management team may be of the adjustment type. As long as management diversity is ensured according to the lifecycle stage of each company and business and there is fundamentally no issue with having a male-only, female-only, or Japanese-only management team in each company. However, we must keep in mind that even if the management team is renewed, new products will not be created, and sales and profits will not increase unless the behaviour of the frontline changes. When undertaking management reform, keep a high perspective and analyse the stage your company is in and at the same time, pay close attention to what is happening on-site. By going back and forth between concrete and abstract to develop an overall concept from scratch, we can create a balanced view of the big picture. It is also important to share this vision with on-site employees. There is no doubt that a group of people who are forced to walk without knowing where they are heading and a group of people who each recognise their destination and walk with purpose, will have different strides and completely different views.

 

About the author

Kohki Sakata is CEO of IGPI Singapore. After joining Cap Gemini and Coca Cola, Kohki joined Revamp Corporation, where he managed projects on global expansion and turnaround in various sectors, including F&B, healthcare, retail, IT, etc. After joining IGPI, Kohki has managed projects mainly on global expansion and cross border M&A in various sectors such as logistics, IT, telecom, retail, etc. In addition to his broad experience in implementing solutions that have been developed in Western countries, he has developed multiple methods to turnaround Asian companies with a focus on setting a clear vision and employee empowerment. He has proven the practicality of these methods by turning around Asian companies not only as an advisor but also as senior management. He graduated from Waseda University Department of Political Science and Economics and IE Business School.

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few.  IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron. Get in touch with us on internationalization, strategic planning and fund raising related topics!

 

*This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

 

More recently, an outbreak at the Pasir Panjang Wholesale Centre, which handles about half of Singapore’s vegetable imports, led to a temporary supply disruption in September 2021. These events brought food security into the limelight as it has a direct impact on the livelihood of Singaporeans. The Singapore Food Agency (SFA) revealed its ambitious ’30 by 30’ target in 2019. the goal is to locally produce 30% of Singapore’s nutritional needs locally by 2030. A myriad of government schemes such as the S$60 million Agri-food Cluster Transformation Fund and the S$39.4 million ‘30×30 Express’ grant were introduced to provide financial support to innovative companies which have risen to the challenge. The SFA has also launched tenders for more than 10 carpark rooftops in 2020 and 2021 to be used as alternative spaces for urban farming. On the demand side, consumers were generally receptive to purchasing locally cultivated vegetables that carried an ‘SG Fresh Produce’ Logo. Many upscale restaurants and hotels have incorporated local produce into their menus to reduce the carbon footprint of their food supply and ensure the freshness of their ingredients. The strong push by the government coupled with an increase in demand for locally produced vegetables contributed to a heightened interest in urban farming. As at October 2021, there are at least 20 urban farms in Singapore operating in both indoors and in rooftop environments.

Urban farms such as Sustenir and Edible Garden City have experienced a certain degree of success

Sustenir Agriculture was established in 2014². This urban farm was conceived when the co-founder came across a Facebook article on the future of vertical farming. This inspired him to leave a banking career in baking in pursuit of urban farming³. It took the company several iterations to alter the taste profile of its produce to appeal to the taste buds of local consumers. Today, Sustenir cultivates non-native vegetables such as kale and arugula in an indoor farm using controlled environment agriculture. It is best known for its kale products which retail at many supermarkets including Cold Storage and FairPrice Finest, and are even used in the menus of dining establishments such as SaladStop! and Les Amis Group.Sustenir has also secured financial backing from Temasek Holdings and other institutional investors to catalyse its growth locally and regionally. Edible Garden City was founded in 2012. It is a social enterprise that aims to create change in the environmental, social and community spaces while strengthening Singapore’s food resilience. To date, it has built over 260 edible gardens by offering ‘foodscaping’ services to companies, and operates both indoor and outdoor farms including an 8,000m² farm at Queenstown and a rooftop farm at Funan Mall. Rather than selling to consumers through supermarkets like Sustenir, Edible Garden City focuses on B2B sales and supplies ingredients to more than 220 dining establishments spanning across local cafes to Michelin-starred restaurants.

Major challenges to overcome include high operating costs and stiff competition

Even though some urban farms such as Sustenir and Edible Garden City have been successful in getting their products to market, urban farms which aspire to create a viable business needs to be aware of the potential challenges that are unique to this industry. The three main cost components of urban farms in Singapore are energy, manpower and rent. Energy is the primary cost driver for indoor farms that rely on a controlled environment to cultivate its crops. A significant amount of energy is required to ensure that conditions such as lighting, humidity and temperature are optimal so as to obtain a good harvest. Manpower costs are high due to a skilled workforce and a high cost of living in Singapore. Lastly, space constraints in Singapore contribute to the high rental cost of farming spaces. These cost concerns will make a tangible difference to profitability and highlighting the need for urban farms to adopt cost-effective measures when conceptualising their business models. Following the announcement of the ’30 by 30’ goal, Singapore has seen the emergence of numerous new urban farms since 2019. One such new entrant is &ever, a German indoor vertical farming company that already has another operational farm in Kuwait. Using proceeds from the ’30×30 Express’ grant awarded in 2020, &ever is in the process of setting up an high-tech farm with the ability to produce up to 1.25 tons of vegetables a day using its proprietary grow systems⁴. I.F.F.I (Indoor Farm Factory Innovation), a local company which was awarded a similar grant, is also looking to set up a mega indoor farm that is expected to yield close to 1 ton of vegetables per day⁵. Looking ahead, the number and scale of new players will intensify competition in the urban farming space, which may lead to consolidation and smaller players exiting over time.

Knowing the potential pitfalls in this market, aspiring urban farms need to be cognizant of the following key success factors

Assortment With the right technologies in place, urban farms can essentially cultivate any crop in a controlled environment. Rather than producing a wide array of crops to appeal to a broad consumer base, it may be more prudent for urban farms to position themselves in a niche market with a narrow assortment to serve a well-defined customer segment. The cost of producing the crops should also commensurate with the selling price to ensure a viable business model. Sales channel When coming to a decision on the assortment, urban farms need to consider how to best bring their produce to market. If the farm opts to sell B2B (e.g. to restaurants and hotels), it may be able to command a higher volume of sales to a single customer at the expense of a lower wholesale price. Conversely, choosing to sell B2C through supermarkets or even D2C via its own e-commerce site or a subscription model comes with its own set of considerations. It is thus imperative for urban farms to carefully weigh the pros and cons before coming a decision. Engaging a business consulting advisory firm may help different firms map out their overall strategy in greater clarity Marketing Even though urban farming is a relatively new concept, the end-product is a commodity that people consume on a regular basis. Consumers are generally unwilling to pay a premium due to the ubiquity of vegetables unless there is a clear differentiating factor. Marketing could be an important tool to aids brands in communicating their value proposition and to enhance its perceived value in the mind of its consumers. Technology Technology is a key enabler that sets the limits as to the type of crops which can be cultivated, while directly controlling the cost structure of the farm. Unique technologies such as autonomous drones provided by local start-up Polybee can be used for precision pollination, further stretching the variety of crops which can be grown in an indoor controlled environment.

IGPI can support your expansion in Singapore and SEA

Urban farming in Singapore is just one of the many opportunities that lie in the fast-growing Southeast Asian region. Having a comprehensive understanding of the target country and industry will enable your business to evaluate opportunities and come to a sound business decision. IGPI has an extensive track record in supporting large corporations, SMEs and start-ups in the ASEAN region since 2013. We offer a wide range of business and strategy consulting services including market entry advisory, new business creation and identifying local partners. Some of our past experiences include:

• Entry support for a Singaporean start-up hoping to enter the Japanese market
• Creating a business strategy with a Singapore deep tech start-up for a Japanese specialized trading house
• SEA Point, a partnership between KK Fund and IGPI, which served as an accelerator program to help corporates collaborate with start-ups and SMEs across Southeast Asia

IGPI can support your business in realizing its growth aspirations. Get in touch with our firm today!

About the authors

Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experiences especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University. Mr. Zhi Hao Thean is an Analyst in IGPI Singapore. Zhi Hao started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his penultimate year, Zhi Hao embarked on an internship in Corporate Advisory, where he was engaged in M&A, financial due diligence, and valuation projects across various industries. He also worked as a Research Assistant at SMU, where he performed academic research on real estate investment trusts. Zhi Hao is proficient in English and Mandarin. He enjoys keeping up with the latest developments in consumer technology such as smartwatches and mobile operating systems in his free time.

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies. IGPI Australia is a branch office of IGPI Singapore. The later which was established in 2013 focus on management consulting and M&A advisory in Southeast Asia across various sectors. We act as a bridge between Japan and wider APAC, having advised on market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration and change management for leading Japanese clients. In addition, we have helped businesses in Southeast Asia enter Japan and acted as sell-side advisor for SMEs and private equity fund looking to divest. IGPI Australia was established in 2020 with a dual focus of helping Australian businesses enter and grow in ASEAN / Japan and attracting Japanese investments into Australia. We have since successfully help to connect multiple Australian businesses with Japanese businesses within IGPI’s network. Get in touch with us on internationalization, strategic planning and fund-raising related topics!

 

IGPI Singapore – contacts:

This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

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  ¹ https://www.sfa.gov.sg/food-farming/sgfoodstory/our-singapore-food-story-the-3-food-baskets ² https://www.mti.gov.sg/FutureEconomy/Leaders-of-Transformation/Sustenir-Agriculture ³ https://www.cnbc.com/2019/01/11/cnbc-transcript-benjamin-swan-co-founder-and-ceo-sustenir-agriculture.html ⁴ https://www.todayonline.com/singapore/high-tech-vertical-farms-begin-operations-next-year-and-bring-fresher-leafy-greens ⁵ https://www.businesstimes.com.sg/companies-markets/emerging-enterprise-2020/planting-the-seeds-for-the-future-of-farming

However, with or without the government pressure, Japanese companies  operating overseas had already been under strong pressure to decarbonize from NGOs, institutional investors, lenders, insurance companies and customers for several years, and been trying to tackle this issue and survive. This is true of companies in Southeast Asian countries as well. Some countries and companies have recently set ambitious long-term goals based on the Paris Agreement. The following points will be discussed in this article:

• Southeast Asian countries’ long-term goals and initiatives on tackling climate change
• Examples of Southeast Asian companies’ carbon reduction targets
• New businesses arising from climate change issues in Singapore and Southeast Asia
• Corporate strategy planning on climate change issues

Southeast Asian countries’ long term goals and initiatives on tackling climate change

Southeast Asia’s economic and energy presence in the globe is growing. This region is one of the fastest growing drivers of energy demand in the world. Looking back in time, it can be seen that coal and oil have satisfied the energy needs of Southeast Asian countries. ^[1] However, in accordance with Paris Agreement, six major ASEAN countries are also setting their targets to reduce greenhouse gases (hereinafter “GHG”) by replacing fossil fuels with renewable energies. Nonetheless, when examining their National Determined Contributions (hereinafter “NDCs”), it is necessary to bear in mind that most countries propose two frameworks towards achieving their target, one includes financial assistance from the international community, and the other without^[4]. This means that foreign companies who wish to do business related to carbon reduction need proposals tied to the financial support framework. In addition, many countries adopt future targets compared against a business-as-usual (hereinafter “BAU”) levels, meaning they pledge to reduce CO2 emissions compared to their projection in the absence of major climate change policies. Additionally, Malaysia adopts their reduction target on carbon intensity against GDP basis. The table here-below lists the NDCs and major initiatives by governments in Southeast Asia:

Examples of Southeast Asian companies’ carbon reduction targets

Many companies in Southeast Asia as well as Japan have started to declare net carbon ambitions. However, it is necessary to bear in mind that different companies will often use different standards and refer to different scopes. Many companies are still struggling to capture their Scope 3 emissions. Scope 3 refers to carbon emissions that occur indirectly in a company’s value chain. This is an area that is difficult to reduce because it requires cooperation from suppliers, and sometimes drastic changes in the value chain. The larger the company with influence over the supply chain, the more significant it is to address it. The same is true for investors, who have influence over their investments. For example, Temasek incorporates ESG considerations into their investment decision-making and management.^[5] In terms of tackling climate changes, Temasek has committed to reducing the net carbon emissions to half the 2010 levels by 2030. They have signaled their ambitions for net zero carbon emissions by 2050, extending to their equities portfolio. Temasek also adopts an internal carbon price of US$42 per tCO2e to inform their investment decisions. The table below shows examples of initiatives by companies in Southeast Asia to combat climate changes.

New businesses arising from climate change issue in Southeast Asia

With the momentum for de-carbonization in Southeast Asia as a backdrop, apart from renewables and its associated technologies, there are already new businesses focusing on scaling of GHG, trading them, and making platforms. For example, in May 2021, it was reported that a new global carbon exchange will be launched in Singapore within the year. Companies unable to reduce emissions can purchase a carbon credits through this platform. It will be interesting to see how much the platform will be utilized internationally. In other countries such as Thailand, businesses related to the Renewable Energy Certificate (REC) trading market are flourishing, as are startups offering blockchain technology. Please refer to the table below for examples of companies engaging in scaling, trading, and making platforms in the region:

Corporate strategy planning on climate change issues

Following are a few points regarding strategy planning amid a carbon neutral era. As shown in the image below, there are many factors to be incorporated in corporate activities starting from governance to disclosure, which means that comprehensive strategy planning is inevitable. There are two types of risks that companies need to be aware of: physical risk and transition risk. Transition risk refers to the risk posed by changes in, for example, climate change policies and regulations, technological developments, market trends, and market assessments. In other words, it is necessary to follow the policies of each country and act in advance so as not to fall behind. In addition to hedging against these risks, there is also the possibility of seizing new business opportunities and the need for a major change in policy from traditional businesses. While financial institutions have withdrawn from fossil fuel-based businesses, options such as green finance have emerged. It is necessary to consider both risks and opportunities when formulating strategies for the existing companies or future businesses.   The above paragraphs served as a general discussion. Internal carbon price (hereinafter “ICP”) will be used as an example to explain factors that need to be taken into consideration. Businesses use ICP to evaluate the impact of mandatory carbon prices on their operations, and as a tool to identify potential climate risks and revenue opportunities^[7]. ICP was introduced in Europe and the US over five years ago, and an increasing number of Japanese companies have adopted it in the past few years. When introducing ICP, the most important thing to keep in mind is to set a clear objective and design business strategies accordingly^[8].  If objectives are not properly set, the business will end up on the Carbon Disclosure Project (CDP) list as “ICP introduced” but it is meaningless to be satisfied with this. It is easy but it is meaningless to only refer to competitor’s pricing. If companies want to invest in expensive but low-carbon equipment, compared to conventional equipment, in their factories or offices, the price must be at a level that makes low-carbon equipment more economically advantageous. As an oft-cited example, Microsoft has adopted a model in which each department pays an amount based on its CO2 emissions, whose price is determined by dividing necessary investment amounts to offset annual CO2 emissions^[9]. This pricing mechanism is reasonable. CO2 emissions are also reflected negatively in Microsoft’s sales departments’ internal profit and loss statements, which incentivizes carbon reduction efforts.   In the case of business investments, it is one way to refer to price levels that may have influenced investment decisions in the past (this is a pattern called “implicit carbon price”), not only referring to market price of carbon. Many companies adopt a market price such as the EU ETS (EU Emissions Trading System). While this makes a certain amount of sense from the perspective of scenario analysis, there is no guarantee that the carbon pricing imposed in different countries in future will be close to the current EU ETS price. Moreover, ICP is not a solution for everything. Even if a project pays off economically under a scenario where ICP is applied. There remains the possibility that the project may be forced into cancellation due to opposition from activists or institutional investors. While ICP can be useful if introduced wisely, it is not a panacea, but a tool in the overall strategy for businesses looking to reduce their carbon footprint.

How can IGPI add value?

As stated above, climate change issues as well as other ESG-related issues require a comprehensive approach towards governance, funding, operations, and the creation of new businesses. IGPI’s Singapore office was established in 2013. Since then, our consulting services have supported many Japanese companies with business planning, new business creation, finding partners as well as market entry research. To find out more about how IGPI can provide Japanese consulting support for business in Singapore and the region, browse through our insight articles or get in contact with us.

About the author

Having worked for Sumitomo Corporation for 12 and a half years, one of the major general trading firms in Japan, Miyoshi Nishimura has rich experience in risk management and industry & strategic research areas.  She was engaged in multiple M&A deals including on-site D.D. aboard, valuation, negotiations and collaboration with internal/external counterparties. As leading Strategic Research Team at Sumitomo Corporation Global Research, Miyoshi researched and analyzed new business areas and reported to the managements. She graduated from Law faculty of Chuo University.

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies. IGPI Australia is a branch office of IGPI Singapore. The later which was established in 2013 focus on management consulting and M&A advisory in Southeast Asia across various sectors. We act as a bridge between Japan and wider APAC, having advised on market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration and change management for leading Japanese clients. In addition, we have helped businesses in Southeast Asia enter Japan and acted as sell-side advisor for SMEs and private equity fund looking to divest. IGPI Australia was established in 2020 with a dual focus of helping Australian businesses enter and grow in ASEAN / Japan and attracting Japanese investments into Australia. We have since successfully help to connect multiple Australian businesses with Japanese businesses within IGPI’s network. Get in touch with us on internationalization, strategic planning and fund-raising related topics!  

IGPI Singapore – contacts:

This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

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  ^[1] https://iea.blob.core.windows.net/assets/47552310-d697-498c-b112-d987f36abf34/Southeast_Asia_Energy_Outlook_2019.pdf ^[2] https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx ^[3] https://www.greengrowthknowledge.org/sites/default/files/downloads/policy-database/Philippines%20-%20NDC.pdf ^[4] Although not discussed in detail in this report, there has been ongoing debate for many years on the framework for financial assistance from developed countries to developing countries on climate change. This means that there are unknown factors in the GHG reduction targets of developing countries. ^[5] https://www.temasek.com.sg/en/sustainability/focusing-on-climate-change#metrics-targets ^[6] The company also stated to set the carbon neutral goal throughout the entirety of its supply chain but it is not clear the timeframe is the same. (https://www.bangkokpost.com/thailand/general/2137519/cp-takes-on-climate-change-vows-to-be-carbon-neutral) ^[7] https://carbonpricingdashboard.worldbank.org/what-carbon-pricing ^[8] “Executive Guide to Carbon Pricing Leadership: A Caring for Climate Report” by United Nations, etc. is useful material (https://www.unglobalcompact.org/library/3711) ^[9] https://download.microsoft.com/documents/enus/csr/environment/microsoft_carbon_fee_guide.pdf  

ASEAN countries are struggling with the global decarbonization trend

A notable feature of the 2015 Paris Agreement is that it covers all major carbon emitters, including developing countries. This differs from the previous Kyoto Protocol which obligated only some developed countries to reduce their emissions. While the Paris Agreement is a breakthrough in terms of ensuring fairness, we need to keep in mind that the situation in many ASEAN countries is different from that of developed countries that are leading in decarbonization. One major challenge is the problem of dependence on fossil fuels in the region, which hinders ASEAN countries from decarbonizing. ASEAN countries are experiencing rapid growth in demand for electricity as a result of ongoing economic growth. To meet this demand, they have built more thermal power plants using fossil fuels, mainly coal, which is cheap and abundant in reserves. In contrast to Europe, one of the first regions to launch a decarbonization strategy, and where renewable energies (excluding hydropower) account for 21% of power generation, the share of renewable energies in ASEAN countries is lower (11% in Thailand, which has the highest figure among countries in the region—in other nations, renewable energies only make up less than 10%¹). It is also worth noting that the percentage of coal-fired power generation, which has a particularly significant environmental impact, is relatively high in the region. For example, in Indonesia, coal accounts for generating than 60% of the total power consumed (Figure 1). As a result, greenhouse gas (GHG) emissions in the region have significantly increased due to the heightened consumption of fossil fuels.

ASEAN countries have increased their efforts to decarbonize in recent years

In the light of the above, ASEAN is in a difficult situation due to the global trend towards decarbonization. However, there are also positive factors. For example, the potential for renewable energy is huge in the region thanks to the abundance of resources. As for solar power resources (as seen in Figure 2) ASEAN countries are generally blessed with abundant solar radiation and high utilization rates are expected. Wind power generation (as seen in Figure 3) is also expected to have a high utilization rate in countries such as Myanmar, the Philippines, Thailand, and Vietnam, where the average wind speed is high in coastal and inland areas. In order to take advantage of these strengths, the governments of ASEAN countries are implementing policy measures to encourage the introduction of renewable energy. For example, Vietnam, which has had to cope with high electricity demands due to delays in the expansion of coal-fired power generation facilities, introduced a FIT system under which the Vietnam Electricity (EVN) buys electricity generated from solar power at a high price. As a result, the country’s power generation capacity grew from just 105 MW in 2018 to over 16 GW in 2020. Vietnam is now the number one solar power producer in Southeast Asia. Currently, the country has preparations underway for the release of the Power Development Plan VIII (PDP8). The third draft of PDP8 strengthens the policy of renewable energy expansion by stating that the share of renewable energy shall increase to nearly 30% by 2030. This will be achieved by scaling up wind and biomass power generation³. Another decarbonization movement in the region is the promotion of shifting to Electric Vehicles  (EVs) in the field of transportation. Traffic congestion a serious problem in many major cities in ASEAN, and the resulting air pollution caused by gas emissions is a critical issue in the region. The Thai government was one of the first to launch an investment incentive program for EVs and battery production in 2017 and has set a goal of having 30% of vehicles produced in the country be EVs by 2030⁶. In Vietnam, VinFast, a subsidiary of one of the country’s conglomerates Vin Group, has proposed the Vietnamese government to exempt EVs from special consumption tax and vehicle registration fees for five years to incentivize the use of EVs. Vietnam’s Ministry of Industry and Trade and the Ministry of Transport are positively considering the idea⁷. As shown by the above initiatives, ASEAN countries are gradually following close upon Europe and other developed nations in their efforts to achieve decarbonization.

Support from both Japan’s public and private sector will be an important key to ASEAN decarbonization

For ASEAN countries to achieve decarbonization, it is important for the region to collaborate with other countries to incorporate technology and joint development. Japan and ASEAN countries have been trading various products for decades. In the field of electric power, Japan has been exporting power generation technology—mainly gas-fired and coal-fired power generation. They have also developed local Japanese power plants. Due to the current trend of decarbonization, business tractions between both parties are bound to change. However, it is expected that Japan can become a strong ally to ASEAN given the bilateral relationship with the region built over past decades. As a matter of fact, at the Special Meeting in June 2021, Japan agreed to support the gradual reduction of greenhouse gases in ASEAN countries. Japan announced 1 trillion yen of investment and/or credit line to be implemented by its public and private sectors for the purpose of introducing renewable energy and strengthening energy conservation projects for countries in ASEAN. During this meeting, Japan and Southeast Asian countries also agreed to establish a cooperative framework for the dissemination of CCUS technology (technology for capturing, storing, and reusing carbon dioxide emissions), to involve more than 100 private companies and/or research institutes in sharing Japan’s technologies and knowledge, and to conduct joint research⁸. With the strong ties between Japan and Southeast Asia, examples of joint development in decarbonization have already been identified. A few examples are as follows:

1. IHI (Japan) – Joint development of CO2 recycling technology in Singapore

IHI is developing a new CO2 recycling technology in collaboration with the Singapore Institute of Chemical and Engineering Sciences (ICES). The company has been conducting joint research and development in the fields of environment and energy since 2011. In 2019, IHI developed a device for methanation. This device produces methane from CO2 using a methanation catalyst⁹.

2. MTI (Japan, NYK subsidiary) – Joint development of tidal power generation technology in Singapore

MTI is a joint research partner participating in a study on renewable tidal energy with MAKO Energy Pte. Ltd., a subsidiary of Australian tidal turbine manufacturer Elemental Energy Technologies Ltd., and Sentosa Development Corporation which develops Sentosa Island under the Ministry of Trade and Industry. The project aims for the first commercialization of marine renewable energy in the country¹⁰.

How can IGPI add value to the acceleration of decarbonization in ASEAN?

It is expected that the number of cases of collaboration at both the public and private levels of Japan and ASEAN as mentioned above will continue to increase. There are many business opportunities for private companies, so it is important to seize the appropriate opportunities and take an appropriate approach. IGPI’s Japanese consulting services can help identify such opportunities in Singapore. Decarbonization is an urgent issue that the entire world will tackle, and player landscape, related regulations, required technologies, etc. will change day by day. In such an environment, it is important to:

1. Build and select an appropriate business model; and
2. Select appropriate partners and connect them to the business

IGPI’s Singapore office was established in 2013. Since then, we have supported many Japanese companies in their activities in ASEAN. To deal with the above issues, IGPI can provide a variety of business consulting services. Some of our consulting solutions include, but are not limited to:

1.    Building and selecting appropriate business models

• Market prioritization study – Analyze industry and competitive landscape in selected Southeast Asian countries through research and interviews to access market potential
• Develop the concept of an ideathon – Create a business model from the shortlisted ideas to allow for our clients to enter a new space in the technology-driven businesses in Southeast Asia, including Singapore

2.    Selecting appropriate partners and connecting them to different business

• Potential target/partners search – Identify and shortlist certain companies in Southeast Asia based on unique needs and requirements of our clients
• Mergers and acquisitions (M&A) advisory – Including project management, data room, due diligence, Q&A assistance and closing with associated investors

To find out more about how IGPI can provide Japanese consulting support for business in Singapore and the region, browse through our insight articles or get in contact with us.   About the author Mr. Tatsushi Sasakura is an Associate Manager of IGPI Singapore. Tatsushi has worked in Mizuho Bank and Deloitte Tohmatsu Financial Advisory (DTFA) in Japan. At DTFA, he belonged to the Corporate Strategy team specializing in business strategy planning, M&A advisory, and business due diligence. He was also engaged in crisis management, supporting clients to tackle emergencies. He has profound experience in the energy, consumer, and financial industries. He covered a wide range of clients including Private Equity Funds and large-sized companies. Tatsushi graduated from Waseda University with a B.A. in International Political Science and Economy. About IGPI Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies. Get in touch with us on decarbonization, strategic planning and new business development related topics!  

IGPI Singapore – contacts:

    Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp Tatsushi Sasakura Associate Manager +65 9457 6052 t.sasakura@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.  

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¹ BP (2020) ² BP (2020) ³ JETRO (2021) ⁴ USAID-NREL Partnership (2020) ⁵ USAID-NREL Partnership (2020) ⁶ The Nation Thailand (2021) ⁷ NNA Asia (2021) ⁸ Ministry of Economy, Trade and Industry (2021) ⁹ Economic Development Board (2021) _¹⁰ Monohakobi Technoloy Institute (2018)

Food security is a national issue in Singapore

Singapore has the third highest population density in the world after Macau and Monaco. Around 5.8M people live on only 728 sq km land. Upon independence from Malaysia in 1965, Singapore’s economy rapidly transformed under the leadership of Lee Kuan Yew, the founding father of modern Singapore, by concentrating resources into industries generating high added value, such as manufacturing and finance. Agriculture was not the government’s first priority as an industry, and Singapore currently heavily relies on imports¹ (Figure 1). Currently more than 90% of food consumed in Singapore are imports from 170+ countries¹ (Figure 2).

Singapore faced a critical situation during Covid-19 regarding the country’s food security. In the early stages of the pandemic, some supermarket shelves were emptied as people rushed to buy instant food. The government worked with major supermarkets and food wholesalers to build up stocks of food and essential supplies. Singapore’s government also consulted with Malaysia’s government to ensure that food imports would continue even after the border closed at midnight on March 17, 2020. Concerns were thus lessened. Nonetheless, the pandemic reaffirmed the importance of food security.

 

Singapore’s government has launched food-related initiatives

On March 7, 2019, about a year before pandemic, Singapore’s government announced food security as one of the chief concerns to be addressed, and set three strategies to achieve food security for the nation: 1) Diversify import sources 2) Grow local 3) Grow overseas The biggest challenge is “Grow local”. The government aims to achieve 30% of Singapore’s nutritional needs with food produced locally by 2030, a plan referred to as 30 by 301. Singapore Food Agency (SFA) provides financial support to aim for efficient and sustainable agriculture. The following examples demonstrate efforts by the Singaporean government to realize the “grow local” strategy.

  1. Agricultural measures by the Singaporean government

SFA offers a variety of support menus to assist agricultural businesses and food-related R&D. For example, SFA prepared an Agriculture Productivity Fund worth SGD 63 million (USD 47 million) to co-fund high-tech, productive farming systems with better environmental control, and to boost production capabilities and capacity¹.

SFA, in collaboration with national research institute A*STAR, secured SGD 144 million of Singapore Food Story’s R&D Programme to support R&D in sustainable urban food production, future foods, and food safety science and innovation².

On April 17, 2020, SFA announced the 30×30 Express grant to ramp up local production of eggs, vegetables and fish over the next six to 24 months in early stage of the Covid-19 pandemic². SFA originally announced its budget as SGD 30 million in April, but this was increased it to close to SGD 40 million (USD 30 million) to subsidize nine companies on September 9.

  2. Encouragement for citizen involvement in agriculture

Singapore’s government also encourages citizen cooperation to achieve the 30 by 30 goal. One measure is the use of the SG Fresh Produce logo¹. This logo can be found on agricultural products produced in Singapore. You can find these products in major grocery stores throughout the country²(Figure 3 and 4).

Figure 3  SG Fresh Produce logo

Figure 4  SG Fresh Produce products at RedMart, one of Singapore’s major grocery stores

National Parks Board also provides useful information and hosts events for home gardeners and community gardeners⁴.  

Food tech companies have flourished in Singapore

Many domestic and foreign food tech companies gather in Singapore and do business because Singapore’s government offers various types of policy measures related to food security. A few examples are listed below:

  1. Eat Just

Eat Just, a startup from San Francisco has developed cultured chicken meat. In December 2020, SFA approved it as the world’s first meat not derived from slaughtered animals. Plant-based meat such as Beyond Meat, Impossible Foods and Quorn have been in the market as alternative meat sources, but this is the first time animal muscle cells have been cultured in a lab as meat to be eaten⁵.

Eat Just was founded in 2011. It is known that Hong Kong tycoon Li Ka-shing and Singapore state investor Temasek are backers of this company. Qatar’s sovereign wealth fund, the Qatar Investment Authority, and others invested in Eat Just in March 2021, raising USD 650 million in total. The company is valued at USD 1.2 billion.

  2. Shiok Meats

Shiok Meats, a cell-based crustacean meat company in Singapore, raised USD 12.6 million from a Singaporean investment arm SEEDS Capital, a Japanese package manufacturer Toyo Seikan among others in October 2020. They will construct a pilot plant and start selling their products in 2022.

  3. TurtleTree Labs

TurtleTree Labs has been developing cultured milk since 2019. This reduces CO₂ emission by 98% compared to livestock farming. The milk produced is also of higher nutritional value. Temasek Foundation, a non-profit foundation owned by Singapore sovereign fund Temasek Holdings, injected SGD 1 million to TurtleTree Labs.

During his travels around Asia, Singaporean CEO Lin Fengru discovered an issue with livestock farming concerning hormones and antibiotics being pumped into cows. Max Rye, Chief Strategist, was a CEO in Silicon Valley and gave a session at Google on technology for making meat and seafood from cells. He met Lin Fengru, who was working at Google at that time, and discovered that there were no companies making milk from cell culture. They started research with scientists and filed patents³.

They raised USD 3.2 million in June 2020 and USD 6.2 million in December 2020⁴. One of the company’s major investors is Prince Khaled bin Alwaleed bin Talal Al Saud, a vegan, and the son of a billionaire Al-Waleed bin Talal in Saudi Arabia.

 

Agri-tech companies are also active in Singapore

There are urban farming companies from both Singapore and other countries receiving funding from the Singaporean government.

  1. &ever

&ever, a German company focused on indoor vertical farming, announced in October 2020 their intention to set up a facility to produce 500 tons of vegetables a year in Singapore². The company has received a 30×30 Express grant from SFA. &ever is also planning a R&D project with one of Singapore’s national research institute A*STAR, in collaboration with Signify, a lighting company. Research will focus on how to use sunlight and LED grow lights to minimize energy consumption and maximize production. The R&D center will also receive support from the Economic Development Board (EDB).

  2. Sky Greens

Singaporean company Sky Greens has operated the world’s first commercial vertical farm since 2012. The farm is 9-meters tall with 38 tiers, produces 500kg of vegetables every day and sells at grocery chain FairPrice Finest. Sky Greens’ vertical farm is covered by glass, and the tiers rotate so that sunlight hits evenly, which means that there is no need to use LED lights.

Singapore’s government created the world’s first standard for organic vegetables grown in urban farming, and certified Sky Greens in July 2019².

  3. ComCrop

ComCrop was founded in 2013 and is currently the only commercial rooftop farm in Singapore. A hydroponic farm was built on the roof of a shopping center in Orchard, the largest shopping district in Singapore. It produces 150kg of vegetables and herbs a month². ComCrop also created a 36,000 sq ft farm on the roof of a building for food companies built by JTC Corporation⁸, a government-owned industrial zone developer. They sell vegetables and herbs grown at major grocery stores such as RedMart and FairPrice. For example, caixin, a leafy vegetable common in Singapore, is produced by ComCrop and sold at S$3.90 per bunch at supermarkets. In the same supermarket, organic caixin from Malaysia is sold at $2.80 per bunch, which is about 1.4 times below the price of domestic, rooftop produced vegetables³.

ComCrop also received a 30×30 Express grant in September 20202².

 

Summary

Digital transformations are highly valued in Singapore. The government has historically facilitated innovation by intensely investing into specific industries such as biotech, fintech and smart city. Food tech and agri-tech became one of those industries in 2019. The Singaporean government welcomes foreign companies, and there are great business opportunities for startups with food tech or agri-tech technologies as well as large corporations and investors who are interested in those startups. Following on are three types of business opportunities regarding food tech and agri-tech. Food tech and agri-tech companies are strongly encouraged to expand their businesses to Singapore. There is funding and regulatory support from the Singaporean government, as well as the great potential of raising funds from investors. There are also sizable opportunities for large corporations. Nowadays, companies are faced with the need to address their Environmental Social and Corporate Governance (ESG), and one way to do ESG business is to partner with food tech or agri-tech companies. Singapore is an important city for investment firms that want to add food tech and agri-tech companies to their portfolio. The speed of growth is phenomenal, and no one should miss this chance.  

How can IGPI add value to the food & agriculture tech boom in Singapore?

We have recently been solicited by large Japanese companies wondering about how they can create new profitable businesses and achieve their ESG goals. One solution posed is to create a new business by partnering with a food tech or agri-tech startup. IGPI has been supporting large corporations, SMEs and startups in the ASEAN region since 2013. We offer a wide range of business consulting services including consulting support on market entry, new business creation, and finding local partners. Our experiences include, but are not limited to:

• Finding Singapore food tech startups for a Japanese mall developer
• Entry support for a Singaporean startup hoping to enter the Japanese market
• Creating a business strategy with a Singapore deep tech startup for a Japanese specialized trading house

If you have any questions or comments, please do not hesitate to contact us. IGPI can provide strategy consulting for multiple aspects of your business in Singapore – Get in touch with our firm today!  

About the Author

Chieko Tazuke is an associate manager at IGPI Singapore. She joined IGPI Singapore in 2017 and has contributed to various projects including cross-border M&A by a Japanese company and PMI of its subsidiary overseas, organizational reform in a Japanese conglomerate, support for a Singapore startup to enter Japan market. She started her career at Ministry of Economy, Trade and Industry (METI), the government of Japan in 2011, and established four venture capital firms under top universities in Japan and injected more than a half billion dollars in the academic society. She holds an MBA from National University of Singapore, PhD in Neuroscience from the University of Tokyo, and Master of Design Methods from Illinois Institute of Technology.  

About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies.  

IGPI Singapore – contacts: 

  This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

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¹ Singapore Food Authority ² The Straits Times ³ RedMart ⁴ National Parks Board ⁵ Reuters ⁶ Channels News Asia ⁷ PR Newswire ⁸ JTC Corporation

Disparity in services for the middle class in ASEAN is apparent

In ASEAN, the middle-income class is increasing rapidly due to economic growth spurred by urbanization. This demographic has grown to become the majority of the population in major countries. Urbanization refers to the population shift into urban areas, which in turn promotes economic development. For example, in 2019, the GDP per capita for Indonesia was about US$4,000, but it was 4.6 times higher in its capital city of Jakarta which stood at about US$19,000. On the other hand, there is a large variation in services for the middle class in ASEAN, and that presents many potential business opportunities and strategies for growth. For example, service standards are similar between Shangri-La Hotel in Tokyo and Shangri-La Hotel in Manila but are very different between that of APA Hotel, the ubiquitous budget accommodation chain in Tokyo, and a two- or three-star hotel in Manila. While there are cases where a delicious breakfast is included, there are also instances where rooms are not properly cleaned, or where towels are not provided. Japan is unique since there is less variation in their service standards provided to the middle class compared to other countries in the world. Hardly is there anywhere else in the world where a consumer who pays just US$1.5 for a subway ride would expect the same standard of punctuality as that of an airplane. Even for a US$3.0 fast food meal, consumers expect the polite and prompt service that you would get at a five-star hotel. Japanese companies have continuously cooperated with these demands for high service standards from consumers, and I think there is great value in understanding how the steady implementation of systems has enabled this.  

Digital transformation and the success behind Grab and Gojek

In Southeast Asia, unicorn companies such as Grab and Gojek are continuously addressing and eliminating the disparity in services for the middle class. Grab and Gojek are doing this not only through transformative digital technology but also through steady training of employees and structuring of services, similar to the approach of Japanese companies. In the past, we have seen countless companies in Southeast Asia that were similar to Grab and Gojek, but many of them relied too much on digital transformations and neglected ground-level operations, which ultimately led to their fall. Grab and Gojek collected data and used that to add value to their users and partners on the ground, and eventually emerged as the winners through the adoption of “air-based strategies” that made use of digital technology. Unicorn companies like Grab and Gojek have solved many problems in Southeast Asia for certain B2C services, but there are still many business opportunities in the B2C and B2B areas where traditional legacy business models remain, awaiting digitization and digital transformation. Such businesses can certainly benefit from strategy consulting services. For example, in the Philippines, there are thousands of small logistics companies, and in Vietnam, there are countless wholesalers that support the estimated one million mom-and-pop stores. In Indonesia, the education boom has led many schoolteachers to open private schools. In Thailand’s provincial cities, many clinics remain insufficiently equipped to provide basic medical care, let alone implement digitalization. In these areas, the know-how that Japanese companies have cultivated through steady groundwork for improvement can be fully utilized.

So how can Japanese companies implement digital transformation (DX)?

For Japanese companies to leverage their strengths in these legacy areas and implement DX, the following three points must be addressed: (1) Building a combined “ground- and air-based” strategy. (2) Leveraging cross-industry knowledge; and (3) Ensuring long-term sustainable operations The measures to be taken for each are as follows:

1. Building a combined “ground- and air-based” strategy

Build a strategy that enables Japanese companies to leverage their strengths on the ground (steady improvement activities) to acquire data and use that to their advantage in the “aerial” territory (use of digital technology). Engaging a business consulting service can help optimize your company’s existing strategy to reach its full potential.  

2. Leveraging cross-industry knowledge

Incorporating the technologies and knowledge of startups and local companies across multiple industries into a new business supports the creation of an ecosystem rather than a one-off activity.

3. Ensuring long-term sustainable operations

On top of hiring and training local staff, cooperating with relevant local companies, including capital providers, and building mid- to long-term relationships with these companies, is important to achieve localization of the business.

We hope the above information provides some food for thought in your digital transformation journey in ASEAN. If you have any questions or comments, please do not hesitate to contact us.   IGPI can provide strategy consulting for multiple aspects of your business – Get in touch with us!    

IGPI Singapore – contacts:

    Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

Using this experience, we provided explanation and practical solutions on how to tackle the relating circumstances. The relationship between Japan and Vietnam has become more solid over the past few years. In addition to the meeting held last October by Prime Minister Suga and Phu regarding supply chain diversification, the cooperation between Japanese local governments and Vietnamese government has strengthened. The amount of trade volume is steadily increasing and as in 2019, Japan’s imports volume from Vietnam was valued approximately $20.4 billion (US dollars) and the amount of foreign direct investment by Japanese companies reached $8.3 billion (US dollars) in 2018. Furthermore, there is a growing investment demand on healthcare and construction sectors. The activities of Japanese companies increased in Vietnam, which has led the challenges to be distinct. The following are examples of requests we have received during the COVID crisis: 1.) Recruitment and cultivation of human resources 2.) Establishment of governance system 3.) Establishment of monitoring system       These queries and requests for consulting and support have increased since the pandemic. Below are the summaries of our approaches to each challenge: 1.) Recruitment and cultivation of human resource It is crucial for companies to build a recruitment strategy based on the business model and come up with a plan to nurture those that are hired. It’s especially important to define the competencies of people to be hired. Currently, most of the companies have created a job description whereas only a few have defined the competencies. For instance, it is desirable for a CFO to have an achievement-oriented mind and ability to influence others rather than having a financial proficiency. Therefore, a talented Treasurer may not necessarily be appropriate for the CFO role in terms of being a manager. 2.) Establishment of governance system The company has to select the leader through a valid process that is based on criteria. But it is also important to create the policy to dismiss the leader for a poor job performance. Therefore, this will guarantee that personal emotion is not involved in the process of decision-making. Additionally, in the initial stage the company should entrust the management to the local leader and impose restriction. At the later stage, they can gradually delegate the authority to leader which will help increase the success rate of the business. 3.) Establishment of monitoring system It is important to centralize the management of administrative tasks at the regional headquarters and localize them as needed. Moreover, KPI should be set up to monitor business operations in order to avoid ambiguities. Due to COVID-restrictions, it is also effective to carryout surveys which would help discover problems regarding business processes, employee, organization and compliance, and allow for action to be taken quickly. We hope you find the prior information useful for your business in Vietnam. If you have any additional questions or require further clarification about our business consulting services, please feel free to contact us.

IGPI Singapore – contacts:

    Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as a digital transformation advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

In this report, after explaining the current state of the startup ecosystem in SEA, I would like to provide my views on how to work together with start-ups to gain results. There are two types of start-ups: “global type”, which has the potential to expand into the world due to its excellent technology and business model, and “local type”, which solves the problems specific to each country and region. When collaborating with SEA start-ups, unlike in Silicon Valley and Shenzhen, we must first understand that there are only basic “local” start-ups in SEA. GOJEK, one of Indonesia’s unicorn companies, is a typical “local type”, started its business from organizing regional bike taxis. In the past, users had to physically find a bike taxi, negotiate a price, and guide the driver to get to their destination. GOJEK has solved this complicated process for foreign travelers through this single app. In addition, by building a cash-on-delivery mechanism, GOJEK has overcome the problem of low credit card penetration, which has been an obstacle for EC growth in Indonesia. In addition to establishing a system for collecting money from users, GOJEK has established a mechanism for depositing money in an E wallet, and it has grown into a leading financial institution in Indonesia. This is just one example of GOJEK’s functions, and GOJEK has established its position in Indonesia by controlling the basic infrastructure of payment and logistics under a dominant strategy. Why is the “local type” business, GOJEK expanding into Vietnam and Singapore? The SEA startup ecosystem has a big influence on it. SEA, experiencing rapid economic growth, has been attracting attention from investors all over the world, but the size of the economy per country is small so it is not easy to find an investment target. For investments in early stage start-ups, it would be good if we could exit when start-ups grow to a decent size. But without exit, the ecosystem will not be maintained. To be an attractive company, such as Google, Alibaba, and SoftBank, it is necessary not to become a dominant player in one country but to become a regional player that operates in multiple countries and regions. Considering this background, GOJEK is attempting to expand overseas, but in SEA the number of supporters and management know-how to expand from one country to multiple countries is limited, so there are many start-ups forced to close their business. Such issues are particularly noticeable in Malaysia and Thailand, where the population is relatively small and social issues are rare. So how do Japanese companies and local conglomerates invest in start-ups to get results? There are three important points. These are ① Clarifying the issue you want to solve, ② Finding a reasonable startup, and ③ Using your own capabilities to support the global expansion of start-ups.

① Clarifying the issue you want to solve

It’s not just about collaboration with start-ups. You can’t get results if you just follow trend and do not clarify the issues. Cash flow management, balanced scorecards, IoT, AI, fintech, are examples of trend. Adopting these trends does not always mean that management will improve. These are just tools, and there will be no achievement without considering how to use them. It is very important to clarify “which problem you want solve”, and this will clarify “what you want from start-ups”.

② Finding a reasonable startup

Companies often focus on the uniqueness of technology and business models when making investment decisions, but the most important thing to get a return on investment is to buy at a reasonable price. Such start-ups are relatively easy to be find in Malaysia and Thailand, where the supply-demand gap in financing is huge.

③ Using your own capabilities to support the global expansion of start-ups

Quick business synergies between companies and start-ups are not easy. However, it’s not difficult to leverage companies’ capabilities to help start-ups expand business globally. For example, companies can quickly lend their own free space or introduce an existing customer in a country where the startup has not yet expanded. We can say that gradually increasing mutual trust by supporting regional development of “local type” start-ups and then creating business synergies is one of the ways to minimize the burden on both parties Please feel free to contact us if you have any questions regarding collaboration with start-ups in SEA. Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute investment, legal or tax advice. This should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, an official confirmation of any transaction, or as an official statement of IGPI. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.