Embed Size (px)
Citation preview
Spotlight on Business
Perspectives that matter Issue 2, 2016
Digital opportunity The next big thing: Blockchain Data analytics in treasury Rise of digital deal-making
Leadership challenge Get cyber governance right CFO: fraud and conscience Disconnects in gender parity
Destination watch Rising Kuala Lumpur Anti-tax avoidance in Singapore
The future of workDigital technology, globalization and demographic shifts are displacing and reinventing the workplace of tomorrow.
In today’s rapidly changing world, having an informed view of tomorrow is vital. That’s where we come in. Spotlight on Business offers you global perspectives and insights into business issues that matter to you. Knowledge that can help you take your business forward with confidence.
Max LohManaging Partner, Asean and SingaporeErnst & Young LLP
WelcomeGo ahead, disrupt yourselfIt is often said that we’re our worst enemy.
The powerful combination of ignorance and inertia can leave many once-successful enterprises and people behind in the race for elusive growth. Your trump card: digital. And winning is less likely about how well you fight digital disruptions than how ready you are to disrupt yourself.
Fast forward into the future of work, and you’ll see one that is radically different. It’s not simply about the age-old “man versus machine”; it’s about creating more value for and by man with machines. Already, data and analytics are enhancing treasury management and better informing a broadened spectrum of cyber governance duties by boards. It may not be long before the impact of blockchain is felt across industries, even as the market struggles now to know all the questions that the technology will raise, much less the answers.
The rise of digital technology — its utility and ubiquity notwithstanding — cannot replace the importance of human insights and relationships that business decisions are founded upon. For instance, the robustness of thought achieved through gender diversity and ethical surveillance are proof of why the human element remains key.
Disrupting oneself also requires honest introspection. In acquiring new capabilities needed to succeed in a digital world, is it smarter to buy or build?
Deal-making and alliances are on the minds of many executives in Southeast Asia, judging from our latest Capital Confidence Barometer. Intraregional investment appetite is strong with destinations like Indonesia and Malaysia drawing inbound investor attention. Among many factors, the availability of incentives and clarity of anti-tax avoidance positions will play a part in influencing investment location decisions.
Clearly, there have been tremendous shifts in the business environment.
Is it happening too much too fast? Perhaps.
Are you doing too little too late? Hopefully not.
1
Contributors
World in numbers
The future of work
4
6
Available on-the-go
10
Issue 2 2016
What the future of work looks like is a question that many — from governments to business to individuals — are grappling with but find no easy answers to. Perhaps the most important question that needs a commitment now is: “Will you be part of this ‘future’, or have a hand in shaping it?”
The next big thing: Blockchain The rise of blockchain technology is revolutionizing conventional notions of transactions and challenging C-suite executives to understand its upsides and risks.
24Gender diversity: The three disconnects Disconnects are holding businesses back from achieving gender diversity. Unless organizations make a commitment to change and take tangible, measurable actions, progress will continue to be slow.
18
@EY_Singapore
betterworkingworld.ey.com
ey.com/GL/en/Home/EY-Insights
ey.com/SG/en/Issues/SpotlightOnBusiness SB
21
Big data and analytics in treasury managementWith data analytics, corporate treasury and finance function can unlock a trove of valuable insights and information on their organization.
Act now as anti-tax avoidance roots in SingaporeCompanies need to prepare for a new tax reality, where the impact of Base Erosion and Profit Shifting can influence decisions around almost any tax and non-tax aspect of the business.45
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
© 2016 Ernst & Young Solutions LLP. All Rights Reserved. APAC no. 12000869. ED 0517
Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A).
In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.
48
Entrepreneurs fuel job creation In this age of uncertainty, entrepreneurs are more likely than their conventional counterparts to drive innovation and create jobs.
34
Digital innovation: buy or build?Non-tech firms are turning to M&A, joint ventures and alliances to acquire innovation as developing capabilities in-house will no longer suffice.
The CFO’s battle with fraud and conscience CFOs may be tempted to meet financial performance objectives at all costs, even as corporate misconduct has grave individual consequences.
35
50
Global IPO market: a story of stop-start 2Q16 has reversed the downward trend of the previous quarter in IPO markets, with Asia-Pacific leading the way as the most active region.
28
Cyber governance in the digital age Cyber is among the top three enterprise risks of most organizations. Yet, its dynamic risk nature, added to the technical aspects, makes oversight particularly challenging.
Deals and alliances on corporate strategies Despite the current low-growth environment, companies continue to look to M&A in Southeast Asia for resilient growth.
32
Rising Kuala Lumpur Companies looking to invest in Kuala Lumpur are set to benefit from the city’s continued economic and urban transformation and world-class infrastructure.
38
Samir Bedi PartnerPeople Advisory ServicesSingaporeErnst & Young Advisory Pte. Ltd.+65 6309 [email protected]
Samir has extensive consulting experience in the areas of business strategies linked to people-organization dynamics across Asean. His experience includes all areas of human resources particularly in organization structuring, manpower planning and optimization, integration of performance, reward and talent programs, and HR process review and audit.
Jerome Van Staden Partner, International Tax ServicesErnst & Young Solutions LLP+6309 [email protected]
Jerome is experienced in international reorganizations and transactions involving Europe MNCs with investments in Brazil or Brazilian MNCs with operations overseas. He is also knowledgeable about Dutch and international tax law, particularly in the reorganization of MNCs, M&As, and double tax treaties.
Reuben Khoo Leader, Fraud Investigation and Dispute Services, AseanHead of Forensic Technology and Discovery Services, Asia-PacificErnst & Young Advisory Pte. Ltd.+6309 [email protected]
Reuben’s experience of over 30 years spans from management consulting and systems integration, business transformation, risk, digital forensics, data analytics to cyber breach management. He is also focused on the financial sector particularly in business and IT transformation, anti-money laundering, big data, anti-fraud, risk, and cyber security.
Henry Syrett Partner, Transfer Pricing ServicesErnst & Young Solutions LLP+6309 [email protected]
Henry has served clients in various industries on their transfer pricing planning needs and changes to transfer pricing models. He is also experienced in transfer pricing controversy, including management of audits and dealing with competent authorities with respect to Advanced Pricing Agreements and Mutual Agreement Procedure.
Dilys Boey Leader, People Advisory Services Asean Ernst & Young Advisory Pte. Ltd.+65 6309 [email protected]
Dilys has significant experience in people strategy and organization development work. She leads in assignments including industry and market feasibility studies, organization structuring, people strategies and corporate governance across sectors including public, education and retail.
Paul O’Rourke Cyber Security LeaderAsia-Pacific Center of ExcellenceErnst & Young Advisory Pte. Ltd.+65 6309 8890paul.o'[email protected]
Paul’s vast experience is in cyber security, identity and access management and information security strategy. He has extensive information risk and cyber security experience, and has worked on some of the most complex government and corporate security projects in the region.
4
Contributors
Sam Wong Government & Public SectorLeader, AseanErnst & Young Advisory Pte. Ltd.+65 6309 [email protected]
Sam has led projects covering business process re-engineering and improvements, performance management and change management. He has worked with clients from sectors including banking, securities, oil and gas, hospitality and leisure, supply chain and government.
Jonathan Rees Digital Lead, AseanPartner, Advisory ServicesErnst & Young Advisory Pte. Ltd.+6309 [email protected]
Jonathan has extensive experience working in high-growth technology arenas, systems integration and digital media. He is focused on areas including customer experience, service design, analytics, mobility, digital media, and digital risk and governance to help businesses plan and deliver their digital strategy.
Grahame WrightPartner, People Advisory ServicesErnst & Young Advisory Pte. Ltd.+65 6309 [email protected]
Grahame has significant experience in global mobility matters. He has assisted clients in industries including banking and technology on Singapore business immigration and permanent residency, global mobility policy and program administration compliance and advisory.
Managing EditorMax Loh
EditorDonna Liew
EditorialAudrey BongHo Ying Shan Sophia Mah
DesignSoo Soon Tat
MCI (P) 083/11/2015 Printed by Hock Cheong Printing Pte Ltd
Editor’s note: Spotlight on Business is published exclusively for clients of EY. If you would like to receive copies of our publication or wish to suggest topics of interest to be covered in future issues, please write to: The editor, Spotlight on Business, Ernst & Young Solutions LLP at [email protected].
Max Loh Managing Partner Asean and Singapore Ernst & Young LLP +65 6309 [email protected]
Max has overall responsibilities for the operations of the Singapore practice and Asean Region. He has extensive experience in providing audit practice and business advisory services, having served various listed companies, responsible for their financial statement audits and internal control reviews.
5
6
All data on this page are extracted from EY published materials.World in numbers
New Transaction Advisory Services leaders appointedHarsha Basnayake is appointed EY Asia-Pacific Leader of Transaction Advisory Services, while Vikram Chakravarty succeeds him as EY Asean Leader of the practice. Both are based in Singapore.
New Assurance leader in SingaporeChristopher Wong assumes the role of Singapore Assurance Leader, Ernst & Young LLP, bringing with him vast experience with audit of large global companies, multinationals and public-listed companies.
Corp
orat
e
brie
f
When mobile meets financial servicesMobile is increasingly becoming a preferred medium for financial services, driven by accessibility and ease of use. The end result: service innovation.
Banks: how relevant are you? The EY Bank Relevance Index finds Asian banks more vulnerable to decreasing relevance, likely due to the prevalence of mobile and non-traditional banking options and the evolving “unbanked” population.
Is there trust in your workplace? An EY global survey finds that trust is lacking in the workplace between employers, bosses or colleagues.
Average bankrelevance,by country Finland
IndonesiaChinaIndiaItaly
Mexico
Brazil
Hong K
ongJapan
Nigeria
USARomaniaSingaporeIreland
South Africa
Turkey
UK
Greece
SpainRussia A
ustr
alia
Swit
zerl
and
Net
herl
ands
Fran
ce
Malays
ia
Cana
daSw
eden
Denmark
Norway
New Zealand
Germany
Saudi Arabia
Global average 75.1
66.9
69.5
71.1
71.671.671.771.7
71.871.8
72.2
72.2
73.4
74.1
75.1
75.1
75.6
75.6
76.9
77.6
77.8
80.5
80.5
80.6
81.1
82.7
80.4
80.379.478.4 78.4 78.9
59.7
46% place a great deal of trust in their employer
Less than half of full-time workers globally trust their employer
Important factors in determining trust in employers
Communicate openly and transparently
Two billion adults, or 38% of adults globally, continue to be excluded from the financial system
434m
10mGlobally, approximately 10m dedicated mobile savings accounts have been opened so far Users of mobile payments
are expected to grow at a compound annual growth rate of 47% until 2019
Service providers can achieve 96% cost savings in the average cost per transaction through mobile bank channels
96%
Mobile credit witnessed a 50% increase in the number of services in 2014
38%Market opportunity for mobile financial services (MFS)
There is a potential near-term opportunity for MFS in 15 select countries to include 434m unbanked people in the financial system
50%
47%
Deliver on promises
Provide job security
67% 63%
64% 59%
Provide fair compensation and good benefits
Strategic thinking for CFOsA survey by EY and CPA Australia reveals strategic thinking as the single top skill CFOs urgently need now and in five years’ time.
7
EY promotes 714 partners worldwide A record percentage (35%) of promoted partners was from emerging markets, and women represent nearly 30% of all new partners.
Leader for consultingEY has been recognized as a leader in digital innovation consulting, and business analytics consulting by ALM Intelligence and IDC MarketScape respectively.
1H16: Asia-Pacific leads IPO volume globallyAsia-Pacific was the most active region worldwide by the number of deals. A strong pipeline combined with improving investor sentiments suggests positive prospects for the rest of the year.
Primed for dealsThe latest EY Global Capital Confidence Barometer finds that across sectors, strong deal sentiments remain as companies seek to achieve commercial advantage through strategic M&As amid volatility and disruption.
59% Oil and gas
59% Consumer products and retail
Sector respondents that intend to actively pursue acquisitions
Few companies are confident that they can:
51% Life sciences
46% Telecommunications
58% Power and utilities
55% Diversified industrial products
What tasks do you spend the most time on?
What skills do you need most?
Now Five years from now
57%39%
52%60%
52%56%
47%63%
47%47%
Working capital and cash flow management
Risk management
Advising management and board on business fundamentals
and growth strategy
Strategic business planning
Corporate governance
75%72%
73%47%
49%39%
49%33%
33%40%
Strategic thinking skills
Communication and influencing skills
Leadership skills
People management skills
Risk management skills
Consumer product companies disruptedTraditional value-creation tactics are losing their potency, and can no longer reliably sustain profitable growth.
22% innovate to meet changing consumer wants and needs
20% work with customers to gain a real-time, end-to-end view of the value chain
10% move beyond conventional sales forecasting to sense and shape demand
13% secure talent to translate insight into action
22% tune supply chains to meet go-to-market objectives
22% accurately map the portfolio revenue impact of individual stock keeping unit
14% understand the true profitability of promotional spending
12% identify and revise processes that don’t fuel value creation
Top six exchanges by funds raised
HKEx Main and GEM
US$5.6b (37 deals)
SSE Shanghai
US$2.5b (28 deals)
SZSE Shenzhen
US$2.4b (35 deals)
TSE Tokyo
US$1.7b (43 deals)
ASX Australia
US$1.4b (33 deals)
SGX Main and Catalist
US$1.2b (7 deals)
Buy for digital transformationBusinesses face increased competition from those that have embraced digital, whether existing competitors or new entrants. Buying digital capabilities is on the minds of many.
Buy or build? Digital transformation function
85% say they have established a digital transformation function
59% don't have the in-house capabilities required to respond to digital transformation
68% say accelerating sector dynamics require a rapid response and an inorganic approach
67% plan to use M&A to buy rather than build digital capability over the next two to three years
When “leave” could mean “opportunity”Brexit marked the first time a member state has left the EU. The consequences are almost impossible to predict, with repercussions cascading through governments, businesses and individuals alike.
“Above all else, it is vital that the message that the UK is open for business should not change,” said Steve Varley, UK Chairman, EY. Indeed, EY’s latest research on foreign direct investment (FDI) revealed that the UK continued to be the most attractive location for FDI in Europe in 2015. Businesses will need to work alongside the government to ensure that this remains the case.
One thing is certain: Brexit will result in a number of large-scale changes in areas such as trade, employment, regulation and government policy. Few changes are likely to happen overnight though. Businesses now have a prime opportunity to take proactive steps to prepare for the challenges and opportunities that lie ahead.
8
9
In conversation
The coming evolution of work is unlike anything the world has ever seen.
Technology has created new sharing platforms, digitally native sectors and forms of employment that were not seen just five years ago. Artificial intelligence and robotics are making jobs redundant — even white-collar roles that were previously thought to be immune to technological displacement are not spared.
At the same time, a truly mobile workforce is emerging from trade liberalization and globalization of markets. Shifting workforce demographics including a growing silver population and the flux of Millennials and Gen Z into the workforce are challenging conventional notions of talent management.
It is an interconnected and complex web of impetuses that is creating a ripple effect throughout the workforce and economy.
“We’re seeing a hastening pace of change, but we have not fully felt the extent of disruption. The change that has begun will be pervasive and radically alter more than business models and value networks — the impact will be felt from policy-making levels through to the livelihoods of people,” said Dilys Boey, Asean Leader for People Advisory Services at EY.
Indeed, what the future of work looks like is a question that many — from governments to businesses to individuals — are grappling with but find no easy answers to. Perhaps the most important question that needs a commitment now is: “Will you be part of this ‘future’, or have a hand in shaping it?”
Dilys Boey, Samir Bedi and Grahame Wright, partners from EY’s People Advisory Services discuss how organizations can — and must — commit to both.
future of work
The
10
Grahame Wright Partner People Advisory Services Singapore
Samir Bedi Partner People Advisory Services Singapore
Dilys Boey People Advisory Services Leader EY Asean
11
Given the pace of change, it’s becoming pressing for labor-intensive companies to reinvent their business models, deploy smart technologies, and rebalance the roles for human talent and those tasks that can be undertaken by machines. ”
“
Dilys Boey EY Asean People Advisory Services Leader
12
What does the future of work mean to you?Samir Bedi (SB): “The future of work will be starkly different where artificial intelligence, robotics, virtual reality, Internet of Things and sharing economy platforms will be much more commonplace. One result is that work will be unbundled. Just as disruption unbundled music albums into songs, it’ll unbundle jobs into tasks based on skills, with each task to be performed in the most efficient manner.
This could result in a fundamental shift in how talent is currently resourced, managed and developed. To know what future skills they require in their workforce, as a starting point, companies need to know where they’re headed first, and review whether these skills exist in their workforce.
As new roles and new skills are created, there’ll be increased competition for highly skilled labor which will drive up salary premiums. This will ultimately force companies to rethink employment criteria by recruiting and training staff from a broader talent pool, and engaging and retaining them in new ways. With that, companies will need to overcome the challenges in broadening the talent pool such as removing barriers of academic qualifications as entry requirements.”
Grahame Wright (GW): “The broadening of talent pool is also intertwined with the increased globalization and mobility of the workforce. Greater mobility takes many forms: frequent travel of workers to deliver services across markets, or short-term foreign contractors delivering their services in-country or remotely. Employers will seek to upskill labor from emerging markets and tap emerging markets using talent from their more mature operations.
Each of these have different challenges, both from a people management perspective and for government regulations. In the future of work, companies need to be more adept at managing such a talent pool of diverse profiles, and navigating the myriad of related immigration and taxation rules that comes with labor mobility.”
Dilys Boey (DB): “The demographic shifts in the workforce will also create its own disruption. Take for example the differing career expectations from generation to generation. Most baby boomers embraced the concept of one career for life, while millennials are experiencing multiple careers in life. Now in the ‘gig economy’, people are holding a series of networked jobs as an independent contractor versus full-time employment.
In the future of work, the definition and expectation of a career for the various demographic groups will be different. Companies need to recognize this in their talent management strategies if they want to attract the best in the war for talent.
Furthermore with the increase in the use of contract workers or contingent workers, companies would need to embrace a broader definition of talent management to apply beyond the traditional full-time employee and include the contract or part-time worker.”
The war for talent has always been in existence. Do you foresee a war of talent — one that is “man versus machine”?DB: “There will be some levels of job displacement with the advent of technology. But the reality is that not all jobs will be fully displaced, nor will it be a choice between man or machine.
There is always a place for human insights. Automation of manual processes to perform transactional activities has resulted in companies reducing head counts, or reallocating staff to other areas of the business. But the upside is that automating routine tasks can allow humans to focus on ideas, innovation and higher-value work.”
SB: “History shows that automation surprises us with new sectors and forms of employment. Just as digital disruption spawned jobs for web designers and app developers that few foresaw in the early days of computer revolution, the machine economy is likely to generate jobs, companies and even entire sectors that we’re unable to envisage today.”
Q
Q
13
DB: “Whether you see technology as enabling or disrupting boils down to a ‘glass half full or half empty’ mindset. Given the pace of change, it’s becoming pressing for labor-intensive companies to reinvent their business models, deploy smart technologies, and rebalance the roles for human talent and those tasks that can be undertaken by machines. These have implications on productivity and operating costs, which makes it a strategic business imperative.
The rapid advance of technology can also create emerging skills gaps among staff and companies should address this when developing their recruitment and training plans.”
How ready are companies in embracing this future of work?SB: “With the national agenda on driving productivity, employers in Singapore have an opportunity to look at how they best optimize their talent and technology to be competitive, efficient and effective. They need to redesign jobs to meet future requirements as well as to motivate the current population to embrace the change. To that end, companies need to transform talent by focusing on the entire employee lifecycle, ensuring that recruitment, onboarding and existing talent processes promote the desired culture and behavioral traits.
As jobs get unbundled into tasks and skill sets, performance-linked pay practice will become more entrenched. The role of job evaluation and hierarchy-driving policies will lose relevance as performance, rather than job evaluation, will form more of the backbone of HR systems.
Companies also need to demonstrate to employees that growth in career opportunities goes beyond grades and levels — something that companies may not traditionally be good at. Leading companies are already organizing their talent based on skill sets into teams rather than allocating fixed roles and departments. This evolution is therefore not just a HR system but a fundamentally different business model.”
GW: “Another aspect that challenges companies with a highly mobile workforce is regulatory compliance.
Employers and workers, particularly independent contractors, are challenged by the existing structures of country immigration and tax laws. Ensuring immigration and tax compliance for a fast-paced mobile workforce that needs to be on the ground within days, rather than weeks or months, is difficult to achieve. People are moving faster than immigration applications can be processed. Mobility teams may struggle to remain on top of rapid deployments and managing the risks of frequent business travel, and to interpret the various country regulations in a way that manages the risks appropriately.
Technology offers part of the solution to this. Digital solutions can enable employers to proactively track their mobile employees and analyze their immigration and tax reporting needs on a real-time basis. The first step is to detect the traveler in a reliable and timely manner — whether it’s through travel bookings and approvals or by a location-based app. Once the traveler is identified, digital solutions can provide the necessary analysis and advice on immigration and tax requirements.”
DB: “All in, the real challenge is the accelerating pace of change.
Companies are expected to run the business as usual and yet be geared for the future. They need to reinvent, yet stabilize amid change. How do you help the different cohorts within your company grow along this journey, and by that extension, how do we as a country enable inclusive workforce growth?
It’s a challenge that is already in play. Many acknowledge that there will be structural unemployment, especially for lower skilled jobs such as record-keeping. There’s thus a need to reskill and upskill the workforce and government support programs such as SkillsFuture aim to address this issue. Yet, not all workers will know the right skills to pick up and will need career counselling and job-matching services.
Q
14
Grahame Wright Partner, People Advisory Services, Singapore
An increasingly fluid global workforce will challenge countries’ borders as the workforce structure changes from the traditional model that existing immigration and tax laws are built upon.”
“
15
Samir Bedi Partner, People Advisory Services, Singapore
Just as digital disruption spawned jobs for web designers and app developers that few foresaw in the early days of computer revolution, the machine economy is likely to generate jobs, companies and even entire sectors that we’re unable to envisage today. ”
“
16
It takes the government, corporates, industry bodies and individuals to work together to keep our workforce and economy relevant and competitive. But I’d say that directionally, we need to move away from a reliance on government to individual responsibility and ownership to upskill for real change to happen.”
While governments are supporting businesses for change, are they challenged as well in the future of work? SB: “Governments are often the largest employers themselves and so are exposed to similar issues that corporates face. Beyond that, they find themselves having to constantly review their leadership and approach to manpower development in the country.
The major challenge is to set up the right infrastructure to serve as a catalyst for businesses and people to change. This would involve reshaping the governance, regulations, incentives, learning architecture and pedagogies, to name a few. Singapore has been at the fore front of this through the establishment of two new statutory boards namely Workforce Singapore and SkillsFuture Singapore to create a lifelong learning infrastructure.
Also, the Committee for Future Economy is recommending strategies to fundamentally transform industries and jobs to remain competitive. Future growth industries and markets are being identified, and companies will be incentivized and supported to invest in these priority clusters, which will in turn generate demand for new skills and redesign jobs.”
DB: “The government is also pressed to rethink the relevance of regulatory regimes. Gig economy start-ups are already challenging regulations governing the operation of hotels, restaurants, taxis and more. The trend will accelerate with the move to machine economy innovations such as driverless cars and medical algorithms.
Workplace protections are worth a relook too. Globally, in the growing gig economy, hard-won rights that have become commonplace such as collective bargaining, the five-day workweek, paid time-off and insurance against workplace injuries and unemployment may need some revisiting. Independent contractors in a gig economy may not have these protections. The start-ups disrupting work argue that existing regulations were designed for another era and do not apply to the gig economy.”
GW: “An increasingly fluid global workforce will challenge countries’ borders as the workforce structure changes from the traditional model that existing immigration and tax laws are built upon. This would also challenge the society’s expectations around workforce competition and opportunities that are available to a local versus foreign workforce.”
With businesses and governments pulled in all directions in response to various change drivers, what must they bear in mind?GW: “Governments will need to find the right balance and create regulatory regimes designed for the workforce of the future — nimble, real-time and powered by data and smart technologies.”
SB: “In the future, the ultimate resource that companies will use more efficiently is the human resource. Employee skills will be the biggest asset of any company and productivity and utilization of this asset will drive future performance.”
DB: “And in times of change and transformation, having a clearly articulated organizational purpose becomes much more essential. Purpose is more than just what the company does; it’s what the company stands for and its contribution to the community and other stakeholders. Purpose will provide a strong sense of engagement across employees in a diverse workforce, which is important for any company to succeed.” SB
Q
Q
17
Viewpoint
18
Gender diversity: The three disconnectsby Max Loh
Disruption and gender diversity are two issues that are most critical to the future of industries and organizations today. By treating these as separate, leaders
often fail to realize the nexus between the two. Disruption demands innovation, and new ideas will more likely flourish in organizations with diversity of ideas and experiences borne from different gender perspectives.
Past commercial experiences point to the flaws of underestimating gender diversity in innovation. When voice recognition software for the automotive industry was launched, it had a fundamental problem — the software barely recognized women’s voices. The male-dominated design team had calibrated the systems to their own voices and speech patterns. The value of their innovation was harmed as a result.
As Singapore gears itself up for the future economy backed by robust corporate capabilities, there is a growing urgency to promote gender diversity as an enabler of innovation and competitive growth.
Our local companies are making fairly good progress on this front. Women’s representation on the boards of Singapore Exchange (SGX) listed companies rose more rapidly in 2015: women held 9.5% of the 5,029 board seats, up from 8.8% in 2014.
Small improvements were seen across many industry groups, where women’s representation clustered between 6% and 12%. Yet, in many industries where women constitute a large
proportion of customers, women’s representation on boards is still below the market average of 9.5%.
Unless boards place priority on this issue — and possibly as a result of greater shareholder pressure — progress will continue to be slow.
The gap in gender parity is not unique to Singapore. According to a new EY report Navigating disruption without gender diversity? Think again, only 1 in 10 industry leaders worldwide expect a real increase in the number of women in leadership roles over the next five years.
The report also revealed several disconnects holding businesses back from achieving gender diversity. Overcoming these disconnects requires boards and senior executives to make a commitment to change and take tangible, measurable actions.
The reality disconnectIt is easy to assume that gender diversity will simply take care of itself. In reality, it won’t without conscious intervention.
Boards need to take a critical view of where their organization is now and where they want to be — and by when. Until that strategic vision is mapped to action pathways, such as implementing key enablers including increased and more inclusive networking opportunities, formal training, sponsorship and mentoring programs for women, achieving gender diversity will remain as good intentions and a product of wishful thinking.
19
The data disconnectEven with a strategy in place, companies may not effectively measure progress on this front even with the availability of technology and analytics.
Many companies do not have clear metrics for gender diversity, and those who use gender metrics may simply be counting the number of female employees on the leadership team. The measurement of the pipeline is often lacking.
Questions that boards need to ask include: What about women’s progress through the business? Do we understand when and why they leave? Metrics are useful as the data can be used to identify obstacles and enablers to female career advancement.
Also, companies may not be measuring the impact of gender diversity on their bottom line, and without that, it can be less compelling for shareholders to support the investments made in driving gender diversity.
The pipeline disconnectOrganizations that are good at recruiting women are not necessary also good at promoting them. Boards should push for clarity on the organization’s plan to not just attract and recruit female talent, but also retain, develop and promote them to leadership positions.
Creating a culture of open dialogue is also important in realigning misperceptions between men and women on the issue. The EY report revealed male respondents as mostly pointing to a shortage of female candidates as the primary barrier to gender diversity. Yet, only a small percentage of female respondents agreed, listing an unsupportive culture, organizational bias, and the conflicts of raising a family as prime concerns.
Clearly, formal programs that consider such a perception gap and address challenges from a woman’s perspective must be part of the solution.
A holistic perspectiveThe EY report also found that different industries are making progress at different paces globally. There were some stark differences: for example, only 45% of the respondents in the insurance sector say that they are effective at promoting women to leadership, compared with 65% in life sciences.
While individual boards take the driver’s seat on gender diversity within their companies, there is much more leverage to be gained with the collective will and effort across the sector.
Given their influence and networks, boards can take a holistic, cross-sector view of what is possible in driving female talent pipeline and progression, as well as how they and their organizations can play an active role in improving the sector’s overall gender landscape.
Ultimately, advancing gender diversity for the good of business, and by that extension, greater economic good, is a shared responsibility that counts on each organization’s commitment to make a difference. SB
Forty-five percent of the respondents in the insurance sector say that they are effective at promoting women to leadership, compared with 65% in life sciences, in the last five years.
45% 65%
Insurance Life sciences
One in 10 industry leaders worldwide expect a real increase in the number of women in leadership roles over the next five years.
1 in 10
Women’s representation on the boards of SGX-listed companies rose more rapidly in 2015: women held 9.5% of the 5,029 board seats, up from 8.8% in 2014.
9.5% 2015
8.8%
2014
This article was first published in The Business Times and BT Invest (a financial portal of The Business Times), under the column “Boardroom Matters” by the Singapore Institute of Directors.
2015
20
Big data and analytics in treasury managementby Sam Wong
Viewpoint
21
Against such demands, how can the corporate treasury obtain the necessary information to deliver the right insights for them to bring about increased shareholder value, improved business operations and performance for the organization?
Creating an analytics-driven organizationIn just the last few years, the terms “big data” and “analytics” have become hot topics in company boardrooms. The treasury and finance functions are clear beneficiaries of analytics, which provides greater insight into customers, competitors, profitability and processes. Analytics can also strengthen the CFO's ability to drive strategic decision-making and investment planning. Thus, creating an analytics-driven organization has also become the top driver of collaboration between the CFO and CIO.
Many executives understand that embracing big data and analytics is crucial to keeping their organization nimble, competitive and profitable. Yet the challenge is how to invest and implement data analytics to derive useful insights for business improvement. For a start, it is important to get the buy-in from the board of directors. Board members need to understand the complexities and have a grasp of the issues surrounding these technology trends. Equally important, these board members should be prepared to ask the right questions of the executives in charge of big data and analytics initiatives.
With the large and disparate volumes of data being created within the organization, innovative and scalable technology is needed to collect, host and analytically process the data.
Big data includes information garnered from social media, internet-enabled, machine, video and voice recordings, and is typically characterized by the four “Vs”:
Volume: the amount of data being created is vast, compared to traditional sources
Variety: data comes from different sources and is being created by machines and people Velocity: data is being generated extremely fast — a process that never stops
Veracity: big data is sourced from many different places; as a result, one needs to test the veracity and quality of the data
While big data is often defined by the volume, the value is equally important. For the CFO and treasurer, data analytics can offer significant value across a variety of financial and non-financial activities. For example, in forecasting, organizations can use data from various sources, such as unstructured data from embedded sensors and social media feeds to understand market signals. Incorporating real-time market signals, and analyzing their impact on revenue, creates a new level of forecasting accuracy with real-time availability.
The corporate treasury is under increased scrutiny today. Particularly, as more and more shareholders are asking companies to demonstrate how they manage financial resources and financial risks, a global trend toward centralization of treasury activities has emerged. In addition, treasurers
need to cope with the increasingly complex financial instruments, volatile financial markets and the introduction of new regulations and accounting practices. For the treasury, this means a need to continually update know-how in order to bring about a reduction of costs and volatility, and deliver value and short and expansive lines of communication to the company.
22
Leveraging big data and analytics in treasury functionsBig data and analytics can support treasury management activities. There are many areas where treasury function can use data analytics to its advantage, such as asset liability management, hedging of interest rate risk and foreign exchange risk, cash management and compliance.
In asset liability management, treasurers can leverage data such as foreign exchange, market value assumptions, mark to market, bank data, rates and spread to conduct analytics for insights for stress testing, interest rate risk management and fund transfer pricing, balance sheet strategy and multi-factor behavior model for consolidation.
In hedging of interest rate risk and foreign exchange risk, treasurers can turn to economic fundamentals for each country, and analyze currency to determine the necessary time to hedge. Analytics allow
a more efficient process to run simulation to test effectiveness of hedges and price complex derivatives.
As well, in cash management, treasurers can run detailed transaction analysis to institute cash culture program, compress payment terms, accelerate initial customer contact for collections and consolidate the number of collection paths.
On the same note, data analytics can be applied to reconcile fixed asset book to tax differences, review source data to reconstruct accurate tax fixed asset records for compliance.
Big data-aligned treasury agendaTo implement big data and analytics into the treasury function, organizations can look into developing a big data-aligned treasury change management agenda, covering the management model, treasury operating model and the IT
architecture. This includes designing a big data-aligned treasury transformation strategy; updating the treasury model and organization management model; designing a big data-aligned treasury architecture; optimizing the treasury operating model; and implementing big data aligned with the treasury management system.
Thereafter, the next generation of treasury operating model can focus on management activities, including separating operative treasury (trading) and strategic treasury (holistic organization management, optimization of business performance and shareholder value). The added insights from data analytics also mean that the treasury function can allow innovative and new services, and play a key bridging role between the lines of business.
Indeed, with the insights to be gleaned, data and analytics looks to be the way forward for the treasury function. SB
23
The next big thing: Viewpoint
Blockchainby Jonathan Rees
24
B
Essentially, blockchain is a distributed decentralized database technology that maintains a growing list of transactions, validates their legitimacy and ensures their permanence. It is a digital ledger of transactions shared among a distributed network of computers. It can be public or private based on who has permission to write to the ledger and verify transactions. Time-stamped and validated individual transactions are compiled into blocks, which are linked together into a chain.
Although blockchain is an early-stage technology, the outlook on its growth and impact is bullish. Large investment firms, venture capitalists and start-ups are confident that the technology is “the next big thing”. The two most active development areas are in developing core blockchain technologies; and developing business applications to run on top of blockchains.
Many people are familiar with the peer-to-peer virtual currency, Bitcoin, where blockchain is best known as its underpinning technology. However the potential of blockchains goes far beyond monetary transactions. People are actively looking at its potential across entire industry supply chains.
lockchain is arguably the “new geek on the block” that has at once left many curious, excited and perplexed.
25
With massive potential comes risksBlockchain has the potential to revolutionize transactions across industries. This is especially true of transactions that require multiple authentications and verifications, contracts, and any type of record verification. Its greatest value lies in its ability to streamline the transfer of any value (data, assets, currency and information) in a secure, real time and cost-efficient way, and administers transactions globally without centralized oversight.
For example, blockchain technologies can improve operational efficiency via better asset management and transform supply chain management and delivery. Companies can use blockchain to track the movement of assets throughout their supply chains, coordinate their back-end operations or electronically initiate and enforce contracts.
Imagine a near future where smart devices will increasingly be central to supply chains, from in-factory manufacturing to global logistics, and how these devices will be able to report on performance and status of assets and products anywhere, anytime. We can then integrate all that data into a global, reliable picture of supply chain performance and reliability.
Another example is in managing global trade, which has historically been a paper-work intensive process that is costly to execute but critical to managing large cross-border flows of trade. Using blockchains, companies can radically simplify and reduce the cost of trade finance, extending credit and reducing cost across the global supply chain. This also can be used to speed up supply chains, by reducing administrative overheads, and reduce the cost and complexity of tax filings.
Blockchain technologies are also moving quickly to applications in the Internet of Things (IoT) — and there are, potentially, powerful spins off from there. The distributed nature of IoT and the blockchain could lead to a myriad of applications. In the same way that blockchain could become a “registry of anything”, it could also serve to decentralize any number of business processes.
Yet, the huge potential of blockchain also magnifies the risks and challenges of the technology, including infrastructure concerns, capacity constraints, computing resources required to change records, performance risk, questions around privacy and information disclosure, regulatory hurdles and potential cyber security threats — of which many businesses and regulators may yet be addressing fully.
Don’t dismiss it These emerging opportunities and risks of blockchain are compelling C-suite executives to move out of their comfort zones in many ways. As it is, C-suite executives are already finding themselves in a state of digital tension that is intensifying with the accelerating pace of change.
On one hand, C-suite executives are expected to be digitally ready and be able to anticipate, assess, and respond to the impact of these new technologies on their operational models, work processes and business strategies.
On the other, many admit to not understanding new technologies, let alone the disruptions that can seize the business. Whether as a result of inertia, fear, or simply not having the time and resources to keep pace, many reasons could account for the widening digital knowledge chasm present in many organizations today.
At the same time, organizations need to be careful of the temptation to “over-hype” this important technology as this often leads to confusion. Put in simple terms, blockchains are just “rules-based” data platforms, as opposed to “controls-based”, where data is validated, added, and shared, based on pre-agreed rules rather than based on the control of any specific individual third party.
As a start, C-suite executives can consider some of these potential implications of the technology.
For the CFO, blockchain could change the role of the finance function in areas such as corporate reporting, where it could transform the speed of reporting and help to provide greater transparency and trust in a company’s financial accounts.
For the CEO, ask yourself: how will your company look to compete in a market where all transactions are transparent, secure and validated; industrial assets are shared among market participants; customers have even more information than they do today; and regulatory compliance and tax collection could occur in real time as and when transactions occur?
These are all intriguing questions that are not yet all clearly answered. What is certain is that the impact of blockchain will pull in different industries at different times, and understanding the nature of that pivot, and the tax, legal, security and compliance questions that will arise, is of growing importance. SB
26
© 2
016
EYG
M L
imite
d. A
ll R
ight
s Re
serv
ed. E
D02
17
Find out how EY is helping companies transform the way decisions are made. ey.com/analytics #BetterQuestions
Is the next evolution of big data, big judgment?
Viewpoint
digital age in the
The digital era has opened up new opportunities to reinvent business models and transform customer interactions. This holds great
potential but also introduces significant risks at all levels for the business and every part of the C-suite in different, often subtle and not easily recognized, ways.
Traditionally misconceived by many as a technology issue, digital and the associated cyber risks is very much a business issue and cannot remain solely in the IT domain. While cyber management must be an enterprise-wide responsibility, there should be a clear owner for cyber risk within the business.
In many organizations, increasingly, the CFO owns the responsibility for the overall cyber risk management strategy. This often makes sense as they are well-positioned to determine that key issues around metrics and reporting on cyber risks are reviewed with an overall business lens.
The growing prevalence and sophistication of digitization, and resultant cyber attacks, has quickly elevated cyber into the top three of many organization’s enterprise risks. Yet, the dynamic nature of the risk, added to the technical aspects, makes oversight particularly challenging for boards. Many boards are thus still grappling with the underlying risk, and trying to assess their level of exposure.
Regardless, judging from the potential of cyber breaches in inflicting significant financial, regulatory and reputational damage on organizations, boards should have an updated knowledge of this fast-rising new risk category and understand the practical methods of governing the cyber risk position in their organization.
by Paul O'Rourke
Cybergovernance
Viewpoint
28
digitalsecurity
security
human
data
mobile
risks
cyber security
cyber security insight
insight
enterprise
privacy
privacy
internet
information
cyber intelligence
29
Rethinking cyber governanceThere are several reasons why yesterday’s approach to cyber governance may no longer serve in today’s digital age. First, the legacy mindset of governance as a control mechanism does not work when information flows are fluid. Second, digital governance overly rooted in mitigation will limit organizations from the potential upsides.
Boards need to factor in these new realities when executing their governance function. Governance in the cyber and digital era is not chiefly through rules, but through a combination of rules, processes, values, monitoring and listening, and the explicit development of infrastructure and services to not just mitigate risks, but support and shape how digital can help to create value for the business.
To a large extent, the management of cyber risk needs to draw on the well-tested processes used for dealing with more conventional risk types. Fundamental to this alignment is the fact that cyber risk cannot be completely eliminated. The core focus for boards, from their vantage point, is to determine that appropriate cyber risk mitigation strategies are both established and embedded in the business.
The reality is that cyber attacks will likely happen to every business at some point, so it is important for boards to establish an acceptable level of cyber risk appetite, as part of the organization’s overall risk management framework.
To that end, boards need to clearly understand the cyber risks that confront their organization in order to meaningfully assess the investment needed and initiatives that should be prioritized to tackle these risks.
Boards should also expect information on the organization’s risk profile to be provided to them in a timely and insightful manner. Such information should be relayed in a clear business context. In particular, lead indicators, focusing on governance and metrics, will help boards to identify how well issues are being managed today, as well as provide valuable insights into the potential future-state risks.
Increasingly, boards are requiring cyber insurance be taken out as part of the organization’s cyber risk management approach. While cyber insurance can be a valuable investment to protect against the impact of cyber incidents, it is essential for boards to understand what is — and is not — covered.
Often, cyber insurance will require the organization to maintain its cyber security to an agreed standard. In these cases, specific reporting for the Board is required to determine that cyber insurance compliance remains in place. Businesses also need to demonstrate that they have the evidence to support claims, which insurance providers are likely to require.
The core focus for boards, from their vantage point, is to determine that appropriate cyber risk mitigation strategies are both established and embedded in the business.[ ]
30
Areas of focusOne of the core areas that boards need to focus on is education, awareness and culture. Cyber security is a shared responsibility — organizations are only as strong as their weakest link.
Cyber attacks that are enabled by human error are a significant contributor to the overall risk organizations face today. Such incidences cannot be addressed using technology alone. It is thus important that the entire organization and relevant third parties are aware of the cyber risks that they may be exposed to in their everyday operations, and be educated as to how they should respond in the event of cyber breaches.
Another important area for boards to focus on is determining the organization’s most critical assets are identified and prioritized for protection. An improved return on investment will be achieved by allocating capital to key areas of cyber risk, rather than taking a blanket approach across the whole organization.
For this reason, boards should demonstrate that the business focuses its investments on its critical assets, and expect appropriate reporting on how well these assets are being managed. Critical assets may include M&A data, customer data, intellectual property, financial data or sensitive company information that can sway share price.
Effective boards are also cognizant of the range of their directors’ skills and experiences. They continuously reassess and adapt so that the skill sets are commensurate
with the company’s current risk profile. It may not be necessary to add someone with IT experience to the board to address cyber security risk if the board can mitigate its “knowledge gap” in other ways. In some instances, boards are leveraging independent advisors who can provide insights on trends related to cyber risk present in the industry.
A cyber-intelligent boardMore than ever, boards are faced with increasing complexity in governing cyber in the context of rapidly changing business models, emerging technology and new market entrants.
What is certain is that digitization, mobility and cloud technology are essential to driving increased productivity, competitiveness and innovation. Therefore, importantly for boards, the fear of or lack of understanding of cyber risks should not deter them from supporting the deployment of these new technologies. A better response is for organizations to learn how to deploy these technologies securely, and embed a culture around active defense and “security by design”.
Smart boards know that the best offense is a strong defense, and an organization’s value and reputation can hinge on how well it responds to an unforeseen cyber event. Security does not have to be the price to pay for innovation and growth; the converse is true as well. SB
Boards should establish an acceptable level of cyber risk appetite, as part of the organization’s overall risk management framework.
Boards should expect information on the organization’s risk profile to be provided to them in a timely and insightful manner.
Boards are requiring cyber insurance be taken out as part of the organization’s cyber risk management approach.
31
News
Deals and alliances on corporate strategies
D espite their muted confidence in the state of the economy today, Southeast Asian (SEA) corporates continue to look to M&A for growth.
According to 2016 June issue of the SEA edition of the EY Global Capital Confidence Barometer, 39% of the respondents said that they planned to actively pursue an acquisition in the next 12 months, retracting only marginally from 42% six months ago. They also expected M&A markets to improve over the next 12 months.
Deal fundamentals were favorable as vast majority of SEA corporates believed that the number and quality of acquisition opportunities and likelihood of closing deals were stable or positive. Deal pipeline remained robust too, with many indicating that they were working on three or more deals.
Their expectations around M&A are not surprising, said Harsha Basnayake, EY Asia-Pacific Managing Partner, Transaction Advisory Services. “We’re moving into a phase where low GDP growth will become the norm. Resilience is an important theme. And in a low-growth environment, businesses are going to continue to look for alternative strategies to grow.”
He added that there is a lot more consolidation opportunity to build scale in SEA. “We’re confident that this trend is going to hold, so long as the region remains strongly committed to good capital flows, liquidity and a healthy business environment. SEA, among other emerging economies, continues to be conducive for M&As.”
32
Contact us
Harsha Basnayake Asia-Pacific Managing Partner Transaction Advisory Services [email protected]
Vikram Chakravarty Asean Leader Transaction Advisory Services [email protected]
Read the full report Southeast Asia edition of the EY Global Capital Confidence Barometer at www.ey.com/SG/en/Services/Transactions/EY-capital-confidence-barometer
Attractiveness of alliances The survey also revealed that companies were seeking alternative avenues, apart from M&As, for inorganic growth. Close to half of the respondents expected to enter into alliances to create better value from underutilized assets.
Corporate alliances are preferred in the current fast-changing business landscape, given its more informal and less permanent nature, together with the ability to mitigate significant risks.
Basnayake pointed out that SEA is not insulated from the impact of the digital sharing economy. “As such, seeking competitive scale and advantage through alliances appears to be a smarter option — because it creates innovative possibilities to seek better returns from both tangible and intangible assets owned by businesses,” he said.
The survey also revealed that SEA executives were concerned about the political stability in both local and global
markets; volatility in commodities and currencies; and the slowing growth in China.
Many saw changing customer behavior as the major source of disruption to the core business, together with advances in technology and digitalization, and sector convergence or increase in competition from companies in other sectors. SB
44%
Are focusing on creating strategic transactions and alliances to drive
growth in the next 12 months
23%
See changing customer behavior and expectations as most disruptive for its core business in the next
12 months
57%
Perceive the global economy today as stable
83%
Expect to complete up to three acquisitions in the next 12 months
64%
Expect the M&A market to improve in the next 12 months
39%
Expect to actively pursue acquisitions in the next 12 months
33
Digital innovation: buy or build?
As the world goes digital, developing innovation in-house is no longer enough, according to a new study from EY. Instead, with constraints around time and capital, non-tech firms are turning to M&As, joint
ventures and alliances to acquire the innovation they need.
The EY Digital Deal Economy Study found that 90% of the 600 corporate executives — from large companies globally that were surveyed — faced increased competition from businesses that have already embraced digital technology. Responding to heightened competition and a disruptive environment, more than two-thirds of global executives now plan to use M&A to upgrade their digital capabilities.
Joongshik Wang, Partner, Corporate Finance at Ernst & Young Corporate Finance Pte Ltd in Singapore observed that companies in Southeast Asia are also moving toward digitalization.
“However, the speed of digital transformation of companies in this region appears to be much slower than that of global players, as they’re still exploring the returns of investment for digital before taking the plunge. For instance, we see brick-and-mortar companies in the consumer and retail sector frequently talking about e-commerce opportunities, but very few of them take real action to transform or buyout capabilities as they’re still concerned about cannibalization,” he said.
Focus on strategic capital allocation Although the majority (85%) of survey respondents have an established digital-transformation function in place, more than half (59%) of companies said that they do not possess the in-house capabilities required to keep pace with the speed at which technology is evolving. In addition, only 55% of businesses have sophisticated processes in place to quantify the capital needed to pursue digital transformation.
Tony Qui, EY Chief Digital Officer — Transaction Advisory Services, cautioned against seeing digital as an IT strategy or one-off investment.
“The scale of transformation needed requires a long-term digital capital strategy,” he said. “The key challenge for many
companies will be a lack of sufficient capital to meet their digital ambitions. Businesses need to take a holistic view and incorporate their digital strategy into their ‘capital agenda’ — an enterprise’s strategy for capital allocation — and confirm that leadership is committed in the long term to creating a digital mindset and a culture of agile innovation.”
While 87% of survey respondents said that they are explicitly considering digital transformation needs in their capital allocation planning for the next two or three years, only 55% have a sophisticated method in place to quantify the capital needed to pursue digital transformation.
A significant proportion of companies are using analytics and seeking advice to improve effective inorganic growth. More than three quarters (79%) have employed analytics and fully leveraged big data to achieve digital transformation objectives, while a similar number (77%) of respondents have turned to third party advisors for pre-deal analysis.
Technology can also be used to support and accelerate deal success. “The smart use of digitally enabled analytics will help companies make the right investment choices, whether it’s acquisitions, alliances or joint ventures, alongside organic routes,” Qui added.
Effective digital transformation — to accelerate growth and create new opportunities — requires a business model supported by a capital and digital strategy that is both adaptable and agile, the study finds.
Three-quarters of companies surveyed said strategic vision mapped to digital needs is the most important element of digital transformation. More than half of respondents (59%) said digital is embedded in the major decisions they make.
However, 44% of respondents said that they do not have clarity when it comes to accountability around digital transformation, which can negatively impact funding and create leadership-related issues. “Aligning the capital strategy to support the digital strategy is fundamental to success, as is accountability at the board level around decisions to future-proof your business model,” Qui said. SB
Contact us
Joongshik Wang Partner, Corporate Finance [email protected]
Read the full report EY Digital Deal Economy Study: Dealing in a digital world at www.ey.com/GL/en/Services/Transactions/EY-digital-deal-economy
Tong Qui Chief Digital Officer — Transaction Advisory Services [email protected]
News
34
The CFO’s battle with fraud and conscienceby Reuben Khoo
CFOs today face immense pressures. They need to meet aggressive financial targets in the midst of a slowing global economy. In addition, they are increasingly being
scrutinized for individual culpability by regulators around the globe for corporate misconduct.
It would seem like the law is justified in turning the spotlight on CFOs: findings from the 14th Global Fraud Survey 2016 by EY showed that 36% of the CFOs polled globally admitted they could rationalize unethical conduct to improve financial performance. Sixteen percent of finance team members below the CFO would make cash payment to win or retain business.
It might come as a surprise that executives in Singapore are not closed to unethical business practices. The same survey has shown that the top three unethical behaviors which Singapore respondents would be willing to engage in are allowing for more flexible product return policies; changing assumptions in determining valuations or reserves, and extending the monthly reporting period — so as to meet financial performance objectives.
This high degree of tolerance toward unethical behaviors juxtaposes sharply against an increase in efforts by global authorities to fight against fraud, bribery and corruption. In May 2016, world leaders, business and civil society met in London for a landmark anti-corruption summit, where world leaders pledged to tackle corruption and are committed to setting up a public registry of beneficial ownership. Also, a few countries like China have strengthened its anti-bribery and anti-corruption regulatory framework and its aggressive anti-graft campaign has already resulted in several high profile prosecutions.
Viewpoint
35
Global operations, global risks Against this backdrop where regulators are feeding a growing appetite to hold companies accountable, Singapore companies — many of which are fast expanding into new markets through setting up of overseas operations, M&A ventures or third-party — could find themselves exposed to fraud risk liabilities overseas.
Our survey found that just over half of all companies that exited investments in Africa, Brazil, China, Eastern Europe or India had cited fraud, bribery and corruption risks as a contributory factor. In addition to the costly withdrawal from an investment, this can lead to time-consuming and reputation-damaging
investigations, remediation action and regulatory fines. To that end, due diligence prior to market entry on both existing and new third parties is key. Given that the operations of multinationals span multiple locations, organizations should establish clear whistleblowing channels and policies that not only raise awareness of reporting mechanisms, but also encourage employees to report misconduct. Apart from relying on whistleblowing channels, organizations should also leverage technology to detect fraud risk and incorporate forensic data analysis as part of a comprehensive anti-fraud compliance program.
While the entire senior management ought to be responsible for driving the tone on anti-fraud, CFOs play a pivotal role in mitigating fraud exposures, given their broad optics of the entire business, which makes them uniquely positioned to drive market investments while tempering risks of growth.
What this means is that there is mounting pressure on the CFOs to manage risk exposure — fraud included, yet at the same time, there is ironically a certain level of willingness in some CFOs to justify unethical behaviors to meet financial performance.
Global enforcement, individual liabilitySuch a tension is highly concerning, given the reliance that boards and investors place on CFOs and finance team members to provide accurate financial information. Clearly, this has implications for the boards where such unethical behaviors place the business at continued risk of illegal conduct, which could lead to subsequent enforcement action.
CFOs and senior executives might not realize that in cases of corporate misconduct, there are individual consequences. “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing," said Sally Yates, Deputy Attorney General of the US, Yates Memo, 2015. This global trend to prosecute individuals should be a wakeup call that the responsibility to guard against fraud risk falls on the CFO and senior executives.
There are some positive indicators that enforcement and individual prosecution are gaining traction. In India, for example, where steps to increase transparency and crackdown on corruption have been taken by the government, EY survey showed that the proportion of respondents from India believing that bribery and corruption happens widely in their country had declined from 67% in 2014, to 58% this year. In China, 74% of local respondents reported that enforcement is effective, indicating the apparent effectiveness of the Chinese Government’s commitment to tackle corruption.
Clearly, an unrelenting tone from governments and zero-tolerance for fraud and corruption is fundamental. As Singapore Prime Minister Lee said at the launch of the Corrupt Practices Investigation Bureau’s exhibition in April 2016: “Keeping a system clean must start at the very top." And CFOs must play a key role in “cleaning up the system”. In view of the intensity of the global crackdown on fraud, bribery and corruption, and the growing complexities of doing business, it is urgent that CFOs start keeping their house — and conscience — in order. SB
16% of finance team members below the CFO would make cash payment to win or retain business
36% of the CFOs polled globally admitted they could rationalize unethical conduct to improve financial performance
Just over
1/2 of all companies that exited investment in Africa, Brazil, China, Eastern Europe or India had cited fraud, bribery and corruption risks as contributing factor
36
Is understanding the industry as key as understanding the problem?With a global network of forensic technology and investigation professionals who also are knowledgeable on industry issues, EY eDiscovery matches your needs. ey.com/FIDS #BetterQuestions
© 2
016
EYG
M L
imite
d. A
ll R
ight
s Re
serv
ed. E
D N
one.
Country
“The significant transport infrastructure investments committed will transform KL’s urbanscape and raise the city’s connectivity with market centers, locally and regionally.”
Dato' Abdul Rauf Rashid Managing Partner, Ernst & Young Advisory Services Sdn Bhd, EY Asean Assurance Leader
38
ising Kuala Lumpur
Malaysia’s economic diversity and resilient track record, including strong economic trade partnerships with regional and world markets, have driven Kuala Lumpur (KL),
the capital city of Malaysia, to be a major regional hub with strong linkages to the global supply chain.
39
KL is already a pivot point and headquarter destination for global regional businesses. Over 3,600 MNCs have set up their global and regional representative offices in Malaysia, according to EY's investor guide, KL Calling 2016.
The significant transformation of its rail infrastructure and the recently introduced Principal Hub tax incentive bode well for KL’s growth to be a leading hub for Asia.
Dato' Abdul Rauf Rashid, Managing Partner for EY in Malaysia and EY Asean Assurance Leader, points to KL’s continued economic and urban transformation and its world-class infrastructure as catapulting its progression. “The significant transport infrastructure investments committed will transform KL’s urbanscape and raise the city’s connectivity with market centers, locally and regionally,“ he said.
The ongoing transformation of KL is part of Malaysia’s 2010 — 2020 Economic Transformation Program. By 2020, KL aspires to be among the top 20 global metropolises.
KL, Malaysia’s most well-developed city, is well-regarded as an affordable city and a leading commercial and financial center in the region.
Over the last two decades, KL city development activities have expanded from the city center to the periphery areas across the state of Selangor. This larger area is known as the Klang Valley or Greater KL.
Encompassing 10 municipalities, Greater KL now spans an area 11 times larger than KL city. Each is covered by local authorities located around Klang Valley. Greater KL's population of 7.2m is forecasted to expand at a compound annual growth rate (CAGR) of 6% to reach 10m by 2020. Its economy by Gross National Income (GNI) is expected to grow from US$75b to US$98b at 3% CAGR in view of current global economic conditions.
Overall, Malaysia is favored for its pro-business environment. According to Bank Negara Malaysia, strong global investor interest saw Malaysia receive global foreign direct investments (FDI) amounting to US$9.9b (RM$39.5b) in 2015. Based on A.T. Kearney’s Global Services Location Index 2016, Malaysia is the next favorable destination among 55 countries — after India and China — for offshore and outsourcing services.
Under the infrastructure pillar, Malaysia is well-ranked at the 24th position among 140 countries in the World Economic Forum’s Global Competitiveness Report 2015-16. Malaysia is also highly ranked at the 15th position for road quality and 13th for railroad infrastructure quality. The implementation of significant road and rail infrastructure upgrades in key urban and regional transportation networks from 2015 to 2022 will further boost KL as Malaysia’s central logistic hub.
40
Export-driven economyMalaysia has attracted significant FDI into export-oriented industries, producing a wide range of products and services which have integrated Malaysia into the global supply chain. The country’s export-oriented manufacturing and services sectors have recorded 4.9% and 6.2% CAGR over the past five years respectively. Among Asian economies, Malaysia is the fourth most open trading economy — its trade to GDP ratio stands at 157%, after Hong Kong (434%), Singapore (359%) and close to Vietnam (164%).
Malaysia’s active participation in strategic trade and economic partnership agreements including the ASEAN Economic Community (AEC) and the Trans-Pacific Partnership Agreement (TPPA) continues to shape its trade and growth directions. With the AEC, Malaysian trade has access to a combined population of 630m people, and a total GDP of US$2.5t. TPPA participation will expand Malaysia’s trade access to 11 other TPPA members with a collective GDP of US$28t.
In addition, Malaysia has six regional free trade agreements (FTAs), seven bilateral FTAs and a number of upcoming agreements in the pipeline including the Regional Comprehensive Economic Partnership, ASEAN-Hong Kong FTA and Malaysia-EU FTA.
In anticipation of higher flows of trade of goods with the ratifications of bilateral and regional FTAs as well as economic trade partnerships, Malaysia has developed a comprehensive Logistics and Trade Facilitation Masterplan (2015 — 2020). The Masterplan outlined three phases and five thrusts to elevate the competitiveness of the logistics industry, reinforcing the country’s bid to be the preferred logistics gateway to Asia.
Yeo Eng Ping, Tax Leader for EY in Malaysia and Asean commented: “Malaysia has been progressively reshaping herself toward providing high-value added services. In both the manufacturing and services sector, Malaysia is well-positioned in the global supply chain and with more FTAs and economic partnerships, Malaysia is gravitating to become the region's core activity nucleus.”
The tax factorToday’s increasingly challenging global business environment spurs business models to aspire for a “high-value, high-impact” central operating model. In optimizing operating models, the search for flexible tax regimes becomes imperative. Malaysia launched the Principal Hub incentive in April 2015, making it attractive for MNCs to locate their regional HQ operations in the country.
By definition, a Principal Hub is a locally incorporated company that uses Malaysia as a base or regional nerve center for conducting its regional and global operations to manage, control and support its key functions, including the management of risks, decision-making, strategic business activities, trading, finance, management and human resources. In addition, corporates can leverage the Principal Hub model to streamline their global and regional resources and enhance consistency across its group of companies.
Principal Hub incentive: features and qualifying criteria
1 Three-tiered rates
Three-tiers of concessionary corporate income tax rates are based on level of business spend; value-added functions; risks transferred to hub; level of high-value job creation; and number of countries served.
2 Exempted income
The incentive allows for all types of income to be exempted to the extent they are generated from the qualifying activity.
3 Flexible qualifying criteria
The incentive accommodates varied business models, allowing a mix of commitments that meets Malaysia’s investment criteria*.
4 Multi-country control
Organization serves and controls network companies in at least three countries outside Malaysia.
5 Extended durationIncentive is for five years with a potential extension of five years. *Investment criteria: Creation of high-income jobs,
Gross National Income impact through local spending and multiplier effect and having strategic functions driven through Malaysia
41
Tax savings aside, qualified companies can optimize their supply chain operating model and also benefit from KL’s highly competitive operating costs.
To qualify for the Principal Hub benefits, investors will be required to maintain critical management, operational and legal functions as well as conduct value-based economic activity in Malaysia.
Such substance requirements are timely given the current global tax climate, particularly the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which aims to ensure that profits are recognized where economic activities generating the profits are performed and where value is created.
Sectors in focusWith Malaysia being the second largest global exporter of Liquid Natural Gas (LNG), KL’s position as the regional HQ hub for oil and gas is well-anchored.
KL is the headquarter address for Malaysia’s national petroleum company, Petronas along with its key suppliers and service contractors.
In addition, KL is Malaysia’s capital bedrock and the central hub for banking and capital market activities. The active participation of domestic and foreign Islamic banks, which offer both conventional and Islamic products, continues to drive KL's growth
to be the region's prime and holistic financial hub. Other contributing factors include the continued growth of bond and sukuk issuances as well as the insurance and takaful markets.
As Malaysia transforms her economy, it is anticipated that the services sector will be a key growth contributor. In 2015, the services sector contributed 54% to Malaysia’s GDP and grew 6.2% CAGR (2010 to 2015). By 2020, the contribution of the services sector is targeted to increase to 58%.
Under the Economic Transformation Program, Malaysia has set her aspirations to be a leading Global Business Services (GBS) hub through the development of globally competitive shared services and outsourcing services.
Half of Malaysia’s GBS export revenue was from the business process outsourcing and IT outsourcing sectors. Knowledge process outsourcing (KPO), which is presently at 5% of the aforementioned GBS export revenue is expected to expand as Malaysia enhances its policy initiatives and talent pool toward the provision of knowledge-based services.
According to Chow Sang Hoe, Advisory Leader for EY in Malaysia and Asean, “KL is Malaysia’s pivot point to service the global needs of tomorrow’s sharing economy — the continued transformation
and advancement of her intellectual assets — her people — will determine the direction of KL’s KPO service segments.”
“In fact, KL’s aspiration to be the preferred regional services hub in the new sharing economy sectors such as KPO is synergistic to Malaysia’s industry capabilities in financial services, including Islamic finance, aerospace, engineering construction, halal food, healthcare, education, oil and gas and a wide range of business services,” added Dato’ Rashid.
Future visionToday’s rapid integration of the global economy, fueled by digital technologies and the continued global outsourcing of production and services, provides significant opportunities for KL to be a key regional player in servicing the new global sharing economy demands.
That said, the optimization of KL's growth potential will be subject to Malaysia's ability to grow its economy and generations of talent; to transform and adapt to new technologies; develop flexible and accomodative business policies; and provide a stable and responsive government.
“ KL is fast transforming to be one of the world’s most connected cities, from the implementation of world-class rail transport links to the deployment of ICT infrastructure.“YB Datuk Seri Utama Tengku Adnan bin Tengku Mansor Minister of Federal Territories
42
Briand Greer President, Honeywell Southeast Asia shares his thoughts about KL as a principal hub.
In the market What was behind Honeywell’s decision to locate its Southeast Asia principal hub in KL?“Honeywell is a long-term investor in Malaysia. Our Malaysian operations started in 1985 and since then, all of our businesses are present here. We’ve more than 1,500 employees in six cities: Kuala Lumpur, Petaling Jaya, Shah Alam, Penang, Kemaman, and Johor Bahru.
KL provides strong infrastructure, connectivity to the rest of the region, a significant highly skilled labor force, and government entities like Invest KL and MIDA are supportive facilitators for building up our presence.”
How does KL complement Honeywell on its strategic and business objectives? “Malaysia is a fast-growing, upper-middle income nation. Malaysia’s rapid urbanization, growing affluence of its citizens, demand for energy and resources, and both investments in KL’s infrastructure and Malaysia’s national projects across the country are fascinating opportunities for multinational companies like Honeywell.
KL is an excellent base for companies like ours to be located in a diverse, dynamic market with excellent local business opportunities, while also being able to conveniently do business in the many high-growth markets across the region.”
What strategic services will Honeywell perform in this principal hub?“We view our principal hub in Malaysia as an opportunity to bring more senior decision-making and high-value services into the dynamic, growing Southeast Asia region.
We'll be performing regional P&L and business unit management; strategic business planning and corporate development; project management; sales and marketing; business development; technical procurement and distribution as well as logistics services in our KL principal hub.
By joining the Principal Hub initiative, we look forward to investing and placing more resources to support Malaysia’s and Southeast Asia’s growth.
We’ll bring in best-in-class technologies into the country, and join hands with our local partners to build a nation that is more sustainable, more secure, connected, energy efficient, and productive.”
How has Honeywell fared in building the capabilities of Malaysian talent?“Of our 1,600 employees across Malaysia, more than 95% are Malaysians, and we’ve a very strong representation of local employees across our mid and senior level management.
Our employees are our ultimate differentiator. We believe in hiring the right people, providing them with meaningful jobs, development opportunities that enrich and enhance their capabilities, and career opportunities.
We focus and invest on promoting from within, as our internal talent is the single most valuable resource to us. Providing internal opportunities is not an aspiration; it’s fundamental to our ongoing success, and we’ve been successful in achieving this at Honeywell Malaysia.” SB
43
0
billion m3/per annum
Qatar
Malaysia
Australia
Nigeria
Indonesia
20 40 60 80 100 120
KL at a glance (2015)
Sector highlightsOil and gas
Halal food
Global business services
Financial services
Malaysia holds the
4th largest oil reserves in Asia-Pacific
Malaysia is the
2nd largest global exporter of LNG
US$576b Total assets
73%
27%
Conventional Islamic
Malaysia — share of total banking assets, 2015
KL, the HQ address for conventional and Islamic banking groups
Malaysia is a major halal player exporting over US$11b (RM$42b), positioning KL well to become the region’s halal food hub.
Half of Malaysia’s global business services revenue is from business process outsourcing and IT outsourcing sectors.
Growth of global KPO market, 2014 - 2019
Strong growth of Malaysia’s halal exports
8 19Domestic Banks
Foreign banks
Knowledge process outsourcing (KPO) services include:• Analytics• Animation and design• Market and business intelligence• Database management • Finance shared services• Finance modelling• Patent research• Legal services• Research and development• Tax and financial consultancy• Training and development
60
454035303025201510
50
20
20142010 2011 2012 2013 2014 2015e 2019f
CAGR: 23% 2014 - 2019
US$b
0
20
4056
CAGR: 23% 2010 - 2015
15
24
32 3338
42
US$266b
GDP (constant prices) US$8,273 GDP per capita (constant prices)*
US$9.9b Foreign direct investment
31m Population
74% Urban population**
74.8 years Life expectancy
Contact us
Dato' Abdul Rauf Rashid Managing Partner, Ernst & Young Advisory Services Sdn Bhd EY Asean Assurance Leader [email protected] Yeo Eng Ping EY Asean Tax Leader [email protected]
Chow Sang Hoe EY Asean Advisory Leader [email protected]
US$316b global sukuk
53% US$168b
17%
4.7%3%4.9%
10%
7.4%
Indonesia Qatar Turkey
Others
Malaysia — share of global sukuk outstanding, 2016
Malaysia Saudi Arabia UAE
Read the full report KL calling 2016 at www.ey.com/klcalling2016
* Note: US$1 = RM4.00 (23 March 2016) ** Latest available data, 2014
44
Act now as anti-tax avoidance roots in Singaporeby Henry Syrett and Jerome van Staden
The biggest evolution in tax is upon us — locally. Singapore has announced that it would become a Base Erosion and Profit Shifting (BEPS) Associate and formally unite with other governments to implement a number of measures against tax avoidance.
Firstly, let’s dispel a couple of misconceptions. For one, BEPS is more than just tax; its impact can influence decisions around almost any non-tax aspect of the business. Secondly, BEPS is not just of concern to large multinationals in G20 or OECD member countries. It affects any company that has cross-border businesses and operations, regardless of size or country of origin.
Viewpoint
45
Companies in Singapore are obviously not immune to international tax reforms given the openness of its economy. With the country committed to specifically implementing the OECD’s BEPS standards on countering harmful tax practices, preventing treaty abuse, transfer pricing documentation, and enhancing dispute resolutions, companies need to prepare themselves for this new tax reality.
Increase in transparency With increased transparency standards comes requirement for more comprehensive reporting. Companies can expect more queries and challenges on their structures and transactions from authorities in their home country and wherever they invest.
Governments will be able to raise more tailored and context-specific queries, as they perform analytics on the information that is collected. Consistency in the information that companies provide to the authorities is key, as any incongruence will prompt more controversy with the authorities, amid a higher level of inter-government information sharing.
There is also a risk that propriety tax information of companies may eventually be made public. For instance, the European Union is open to making data from country-by-country (CbC) report public, and the Australian Tax Office has stated that it may share certain information about large taxpayer entities in Australia.
This means that companies, in addition to supporting a technical position to governments in accordance with law, will also have to deal with public perception of whether their tax payments are “fair”.
In Singapore, the government has assured taxpayers on the confidentiality of information in the CbC reports and that it will only exchange CbC reports with countries if certain relevant conditions are met.
Substance requirementsThe focus on substance will only get stronger and companies will, more than ever, need to demonstrate alignment of where tax is incurred to where their substantive economic activities are performed and value is created.
Companies enjoying preferential tax rates in Singapore may come under scrutiny. If they are unable to justify the appropriate substance to enjoy the tax benefits given, the tax incentive could be withdrawn or the ruling made no longer applicable.
Therefore, companies should review the sustainability of existing tax incentives or rulings now, so as to avoid surprises where the preferential tax treatment is denied, resulting in a higher tax cost that erode their earnings.
46
Sustainability of existing legal and operating structuresCompanies may also be challenged in accessing double tax treaties to minimize or eliminate withholding tax on cross-border payments.
Treaty shopping, which was frowned upon in the past, is definitely gone and exploiting low-tax and tax haven regimes for businesses will require substantiation. The Inland Revenue Authority of Singapore has a tax shelter group, which is active in challenging structures, especially financial structures that involve the use of an entity in a treaty country to access the benefits on payments such as interest payments.
Tax residency may no longer be sufficient to provide guarantee that a company can obtain the tax treaty benefits. Authorities may argue that the sole purpose for a taxpayer to enter into the arrangement is to obtain the tax treaty
benefits, and if so, the onus is on the taxpayer to defend otherwise.
Companies should therefore review the level of substance of their holding, operating and financing companies to determine the sustainability of their current holding, operating financing and structures now.
Some pertinent questions include: what is the initial design of your business and are your tax strategies in sync with how your operations have evolved? Have you maintained legal documentation of the business model and updated it to reflect the latest set of facts? Do you have robust internal control procedures to ensure tax compliance and manage tax risks?
Increase in disputes Tax authorities may become increasingly aggressive in challenging the cross-border arrangements that multinationals enter into. This may result in more
disputes and increase the risk of double taxation as countries take opposing views, notwithstanding the efforts of the Organisation for Economic Co-operation and Development to improve dispute resolution in this area.
Depending on the extent of dispute, companies may need to involve the authorities in their countries to assist to resolve the issue on hand. They can also monitor how countries relevant to their company plan to implement different parts of the BEPS project and if possible, work with policymakers during this process.
Collaborate and actClearly, as the compliance and administrative burden increases with the heightened reporting obligations, companies will need to invest more resources in the tax function.
If BEPS has far-reaching implications for companies beyond tax, then any key
business decision ought to be considered in light of the possible tax risks.
Therefore, the tax function must proactively partner other functions, including HR, supply chain, financial planning, M&A, legal and operations, to view their decisions through a “BEPS lens”. The structure of the tax function definitely needs to change so as to better collaborate with other functions, if not already so. Singapore’s latest commitment toward anti-tax avoidance is welcomed in that it offers much needed clarity and certainty for businesses. Perhaps the greatest certainty arising is that a “wait and see” approach to BEPS is not sufficient and risky. Proactive action is now needed. SB
The focus on substance will only get stronger and companies will, more than ever, need to demonstrate alignment of where tax is incurred to where their substantive economic activities are performed and value is created.
47
Entrepreneurs fuel job creation
Taking into account all anticipated workforce changes for 2016, entrepreneurs expect to expand their overall global workforce by 9.3%, and expect 12% of new hires to be young people in their first jobs.
Disruption and innovation drives employment The survey also showed that the more disruptive and innovative the company, the more they hire and the faster they do it.
The most disruptive entrepreneurs — the 17% of respondents who said they have changed all or many of the rules in their sector — are more likely to forecast an increase in their overall workforce in 2016 compared to their more conventional competitors. At 18%, the net workforce growth level of these most disruptive entrepreneurs is twice the average global figure.
When companies that are changing only “some” of the rules are added to this group, the impact of disruption remained clear: they are 46% more likely to grow their workforce compared to more conventional businesses and, at 12%, net workforce growth is still higher than the global average of 9%. This suggests that any level of disruption has a positive impact on anticipated workforce growth.
“The disruptive force of technology is transforming individual companies and creating entirely new sectors, said Mark Weinberger, EY Global Chairman and CEO. “In this environment, entrepreneurs are pivotal drivers of global job creation, and in some cases are navigating economic and political uncertainty better than established players.”
Innovative entrepreneurs — those who said they have created an entirely new product or service in the past year — have similar hiring plans. They are 95% more likely to
expect to grow their workforce in the next year compared to those who have not created a new product or service. Their net workforce growth levels, like their disruptive counterparts, are also twice the global average figure.
Uschi Schreiber, EY Global Vice Chair Markets, added that the findings could serve as a stark warning to businesses that are not embracing innovation, change or disruption, as they risk being left behind by disruptors. “We know from the survey that disruptive companies are laser-focused on attaining the talent that will allow them to attract customers and drive growth. Governments too need to focus on fostering an environment in which innovative and disruptive entrepreneurs can flourish,” said Schrieber.
Large corporations
28% of respondents expect to increase thier total global workforce in the next 12 months
Most disruptive entrepreneurs
58% more likely to forecast an increase in their overall workforce in 2016 compared to their more conventional competitors
All disruptive entrepreneurs
46% more likely to grow their workforce compared to more conventional businesses
Contact us
Uschi Schreiber EY Global Vice Chair, Markets Chair, Global Accounts Committee [email protected]
Read the full report Does disruption drive job creation? EY Global Job Creation Survey 2016 at betterworkingworld.ey.com/disruption/global-job-creation-survey-2016
Entrepreneurship continues to be an important source of economic growth, judging from the EY Global Job Creation Survey 2016, which found that over half of the entrepreneurs
surveyed globally expect to increase their total global workforce in the next 12 months — double that of large corporations.
News
48
Manny Stul, Chairman and Co-CEO of Melbourne-based toy company Moose Enterprise, has been described as “a quintessential entrepreneur” due to his tenacity and ability to take a business from the brink of disaster to the highest ranks of the industry. His mettle was tested when Moose faced a product recall that would have overcome less resilient and well-managed businesses.
At an awards ceremony held in Monaco’s Salle des Etoiles in June, Manny was picked from among the 55 EY Entrepreneur Of The Year country winners from 50 countries to be crowned the World Entrepreneur Of The YearTM 2016.
Embrace (not fear) changeThe child of Polish refugee parents, Manny worked in construction in northwest Australia before making his first foray in entrepreneurship in 1974 with a gift company called Skansen.
Innovating and changing constantly to adapt to the market’s requirements, Manny expanded Skansen phenomenally before listing it on the Australian Stock Exchange in 1993. With no mentors or guidance, he counts every decision and opportunity as helping him to shape his skills and showing him in practical terms how to run a successful business.
Manny Stul subsequently took over Moose in 2000, then an Australian toy company with just 10 employees. In his 16 years running Moose, Manny increased sales by 7,200% and built a global business that is now the fourth largest toy company in Australia and, by sales, the sixth-largest in the US.
The judges were impressed with not just his track record but his ethos as a purpose-led organization. “We're a company that succeeds by focusing on innovation with integrity and a clear purpose to make children happy,” he said. “This has allowed us to grow exponentially, while overcoming huge challenges.” SB
Manny Stul Chairman and Co-CEO, Moose Enterprise World Entrepreneur Of The YearTM 2016
A winning Australian toy story Entrepreneurs are not only disruptors in their fields, they embrace and turn disruptions into opportunities too.
49
News
However, IPO activity at the mid-year point remained significantly below that of the same period last year. At 437, IPO volumes were 38% lower and at US$43.0b, total capital raised was almost two-thirds (61%) down on 1H15.
In 2Q16, all major global regions reported substantial gains in terms of capital raised. Asia-Pacific was up 20%, EMEIA was up 187% and the US was up 755% — with the UK and Greater China being the only major IPO markets to buck the trend.
The most significant gains were made by Australia and New Zealand, which saw proceeds increase by 820%. However, the drag from an exceptionally slow first quarter meant that for the first six months of 2016, even the buoyant Australian and New Zealand markets were down close to a third on the same period in 2015 in terms of capital raised, with EMEIA down 50%, the Middle East down 55%, Asia-Pacific down 65% and the US down 66%.
Optimism in Asia-Pacific With 229 IPOs raising US$17b in the first half of the year, Asia-Pacific was the most active region by number of deals and second behind EMEIA in terms of capital raised. Although this represents a decrease of 37% and 65% respectively over the same period in 2015, this is broadly in line with the global trend.
Investor sentiment appears less cautious than in some other regions and there is a healthy pipeline of companies ready to go public when the timing is right.
Max Loh, EY Asean and Singapore Managing Partner, said the outlook for the IPO market in Asia-Pacific is brightening following a period of uncertainty. “Although a number of political and economic headwinds including Brexit, the slowdown in China’s growth rate, fluctuating commodity prices and the possibility of a further interest rate rise in the US continue to weigh on investors, a sense of optimism is returning.”
A fter the weakest first quarter since 2009, 2Q16 reversed that trend with a resounding 120%
upswing in capital raised to US$29.6b via 246 deals — up almost a third on the prior quarter, according to the quarterly EY Global IPO Trends: 2016.
Global IPO market: a story of stop-start
50
The Singapore Exchange in Singapore saw its largest new listing in three years — Frasers Logistics & Industrial Trust raised US$668.7m when it listed in June. Earlier in the quarter, Manulife REIT raised US$469.9m. Combined, both deals raised US$1.14b and were among Asia-Pacific exchanges’ top 10 deals for the quarter. Malaysia, Indonesia, Thailand and the Philippines contributed to a total of 10 IPOs, raising US$630m.
“Barring an uptick in volatility and erosion of confidence, the stage does seem set for an increase in IPOs in Asia-Pacific in the second half of the year,” he added.
Return of financial sponsorsFinancial sponsor involvement is a feature of a healthy IPO market in developed economies and 2Q16 saw participation of sponsors bounce back after a very muted first quarter.
Globally, there were 63 financial sponsor-backed IPOs raising US$10.4b in 2Q16, accounting for 26% of global IPOs by number and 35% of capital raised. This is in contrast to 1Q16 when PE- and VC-backed IPOs accounted for only 16% of deals. The ready supply of private capital from PE firms will continue to support the pipeline of larger, more mature businesses waiting for the right time to come to market.
People and profits matterIn a crowded competitive IPO market, investors are today patient and conservative. For IPO-aspirants, knowing what investors want is key.
According to a separate report, EY’s latest valuation survey — Value quest: How do investors find value amid the crowd of private companies?, almost two-thirds of investors, covering institutional investors, private equity and venture capital firms, highlighted that the breadth and depth of the core management team is critical.
Overall, people factors dominate the survey with investors citing other existing investors, the IR strategy and financial advisors among the key considerations when deciding where to invest. Getting the “people” factor right is an essential first step for companies serious about growth and ultimately focused toward an IPO.
“For companies considering a public listing, it’s important to vet potential investors since their reputation may be a key enabler for attracting further investment and building the brand. A quality management team, robust financial and business infrastructure, corporate governance and a strong investor-relations strategy will attract the right investors,” said Jacqueline Kelley, Americas IPO Leader at EY.
Traditional investment metrics — earnings, revenue growth and, most importantly, profitability were cited as important too. Over half of investors surveyed (51%) focused on earnings before interest, tax, depreciation and amortization of assets plus sales multiples as the key metrics of appraisal. SB
Contact us
Max Loh Managing Partner Asean and Singapore [email protected] Jacqueline Kelley Americas IPO Leader [email protected]
Read the full report EY Global IPO Trends: 2016 2Q at www.ey.com/Publication/vwLUAssets/ey-global-ipo-trends-2016-2q/$FILE/ey-global-ipo-trends-2016-2q.pdf
Read the full report Value quest: How do investors find value amid the crowd of private companies? at betterworkingworld.ey.com/growth/value-quest
Global IPO market: a story of stop-start
51
The World Economic Forum’s 2016 The Future of Jobs suggests that we are entering a very different jobs era. In this fourth industrial revolution, automation, digitization and disintermediation are destroying jobs at such an unprecedented pace that new jobs are no longer sufficient to replace those redundant roles. Meanwhile, more and more work is being done on a freelance or “gig” basis. The question is: does disruption drive job creation? Recent EY research showed an incontrovertible evidence of the link between disruption and growth: the most disruptive and innovative businesses are also the most likely to be creating jobs.
Disruption: destroy or create
52
Building a better working world for our clientsEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
Our commitment to building a better working world is reflected in a truly borderless organization tuned to provide high-performance teams and exceptional client service quickly and effectively around the globe.
For more information on how we can help you, contact:
Managing Partner, Asean and Singapore Ernst & Young LLP Max Loh +65 6309 8828 [email protected]
Head of Assurance, Singapore Ernst & Young LLP Christopher Wong +65 6309 6935 [email protected]
Head of Tax, Singapore Ernst & Young Solutions LLP Sim Siew Moon +65 6309 8807 [email protected]
Head of Transactions, Singapore Ernst & Young Solutions LLP Purandar Rao +65 6309 6560 [email protected]
Head of Advisory, Singapore Ernst & Young Advisory Pte. Ltd. John Chin +65 6309 6789 [email protected]
© 2
016
EYG
M L
imite
d. A
ll R
ight
s Re
serv
ed. E
D N
one.
EY’s global People Advisory Services helps you support your people to transform your business.ey.com/pas #BetterQuestions
Do you change your people or change the way your people work?
