This article first appeared in Forum, The Edge Malaysia Weekly on May 6, 2024 - May 12, 2024

Despite global economic turbulence, Asia-Pacific (Apac) is projected to account for 60% of global gross domestic product (GDP) growth in 2024. This optimism isn’t unfounded — it’s rooted in the tangible growth that countries within the region are making, with Malaysia being a prime example. Since the Covid-19 pandemic, Malaysia has seen a steady rebound in its compound annual growth rate, largely fuelled by the boom of digital sectors such as e-commerce and financial technology.

As consumer needs and behaviours evolve, companies are adapting their product offerings and are exploring new avenues for expansion, as seen in the recent launch of Grab’s GX Bank — the first fully digital bank to operate in Malaysia.

Looking ahead, as new technologies like artificial intelligence (AI) rapidly emerge and evolve, companies in Malaysia will need to go beyond the status quo and further adopt an effective “business building” approach. This approach should encompass the invention, initiation and expansion of innovative products and services with high growth potential. Only by strengthening their business building capabilities, companies in Malaysia will be able to grow, compete and thrive among competitors in Apac.

To understand priorities and preparation for business building among leaders in Apac, BCG X — the tech build and design division of Boston Consulting Group — surveyed over 400 senior leaders across the region. The results are outlined in our latest report, “Navigating Business Building in Asia: Insights and Trends”.

Some 80% of executives surveyed say business building is a major priority for their organisation, with these companies pursuing five high-growth opportunities each year on average.

Apac leaders are also reinvesting almost one-third (32%) of their company’s annual revenue into launching, acquiring, or co-launching start-up ventures. More than half of these leaders (57%) viewed their investments as being successful.

In Malaysia, opportunities abound, especially because micro, small and medium enterprises (MSMEs) form a crucial part of the national economy. MSMEs account for over one third (37%) of gross domestic product (GDP) and nearly half (47%) of total employment. For companies aiming to business build, serving MSMEs is a smart strategy. The opportunities to enable MSMEs through new digital propositions are plentiful in Malaysia.

Yet, despite the energised landscape, 40% of leaders in Apac say their companies are not well-prepared for pursuing new high-growth opportunities. For them, the main reasons for failure in business building include the inability to find a viable business model and lack of product/market fit.

This indicates to us that businesses in Apac may do well in business building within existing areas of operations but are struggling to find a foothold in innovative new spaces beyond their core business operations.

In recent years, mergers and acquisitions (M&A) have been enjoying renewed focus in Apac as a path to capture new business opportunities. Almost two-thirds (65%) of Apac leaders say there is now higher focus on M&A than in the previous year within their organisations. With economic headwinds pushing down valuations, there are clearly some appealing acquisition opportunities for organisations to consider.

In fact, Malaysia has seen several noteworthy transactions, including Sime Darby Bhd’s RM42 million investment in SoCar and Carro, and Catcha Digital’s acquisition of Ittify Sdn Bhd and the acquisition of a 30% stake in Headline Media Sdn Bhd.

A word of caution, however: M&A might be an encouraging opportunity today, but it is important that businesses don’t rely too heavily on this single growth strategy. As markets pick up in the future, premium valuations may return, narrowing M&A opportunities and potential returns.

So, where does that leave leaders looking to capture growth?

We have identified nine strategic assets which leaders across Apac should leverage to maximise their success in business building, split across distinct categories of: (i) core assets; (ii) organisational and collaborative strength; and (iii) technology capabilities.

(i) Core assets

•     Brand. A strong brand is crucial for gaining customer trust and standing out in the market.

•     Financial position. Healthy cash flow and a robust financial position enables a company to sustain operations in growth areas.

•     Sales and distribution. Access to sales and distribution networks enables an organisation to efficiently reach customers faster than fresh start-ups.

(ii) Organisational and collaborative strength

•    Talent. Skilled and experienced individuals are essential to execute innovation.

•     Culture of innovation. Culture should underpin an environment that encourages the pursuit of new ideas without the fear of failure.

•     Strategic partnerships. Collaborations with other companies, universities, community groups and    government agencies can provide additional resources, capabilities and/or market access.

(iii) Technology capabilities

•      Technology.  The requisite technology and necessary technical tools and systems must be in place to deliver products and services.

•     Data. Data drawn from inside and outside the company should underpin informed decision-making.

•     Intellectual property. Intellectual property (IP), including patents, trade secrets and methodologies are fundamental to provide a competitive advantage.

Our study reveals that 71% of respondents have five or fewer of these strategic assets available, and only 4% of companies claim access to all of them. The assets most frequently lacking are IP, sales and distribution networks, brand and data that can be leveraged.

What steps should businesses take? A well-designed preparedness plan is vital to help guide business direction. This should include investment in underlying capabilities, rather than individual business building efforts. With this in mind, we have some clear recommendations for what business leaders aiming to build new businesses should do.

First, develop a robust talent strategy. This means finding that sweet spot between nurturing in-house talent and infusing fresh perspectives. New talent can spark fresh ideas, sidestep preconceived organisational mindsets, identify new market gaps and run lean experiments to explore new market opportunities.

Next, implement rigour in your business-building methodology. Our experience shows corporate venturing has higher odds of success compared to traditional start-ups and corporate venture capital when the right process is followed. Ensuring a thorough methodology for research means designing products which better meet customers’ needs and building viable business models with a genuine chance of success.

Collaboration with venture building studios can also help businesses power up their business building efforts. These studios offer specialised expertise and methodologies that not only improve product development, but also work alongside internal talent to improve the knowledge and experience of in-house teams.

Finally, it’s essential to foster a culture of innovation. BCG X has worked with numerous companies across Apac to foster a culture of innovation by introducing rigour in methodology, governance and operational processes. The right mix of talent and inventive direction provide a powerful uplift to positive innovation culture that cannot be understated.

We know from our experience how exciting the Apac region is for business, and the opportunities for Malaysian companies to expand through rigorous business building methodologies are abundant. The ambitions of this business landscape are clearly reflected in the attitudes of Apac leaders who responded to our report. Now, it’s time for businesses to take the next step and embrace the fundamentals required to implement a truly effective business building strategy for their organisation.

Hanno Stegmann is managing director and partner at BCG X

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