James Ashton: Money is flooding into emerging markets in Asia, and smart local operators are prospering from ties with overseas investors

Brands often need to partner with domestic firms who think they can cater best for changing local tastes
  • @mrjamesashton

Stephen Riady proudly describes his family business as the ultimate cradle-to-grave enterprise.

The Lippo empire is one of Asia’s largest corporations. It plays host to the birth of Indonesia’s next generation in its 11 hospitals (25 more are being built), feeds them through its food division and houses them in numerous residential properties. Then there are shopping malls, cinemas, banking and publishing interests – all held together through a network of cross-holdings. And, taking a leaf from the giant Forest Lawn cemetery in California, Lippo built the San Diego Hills memorial park in Jakarta where mourners from across the crowded city can buy a plot of land and lay family members to rest.

Navigating the Indonesian business scene is as much an acquired skill as picking your way through the gridlocked traffic in downtown Jakarta. Meeting Mr Riady, who runs the international half of Lippo’s business from Singapore (his brother James handles the domestic assets), is a reminder that for the all the new money flooding into these emerging markets, there are canny local operators making hay too.

There is a feeling that, as South-east Asia’s largest economy, Indonesia should have much to gain as 10 countries in the region forge closer economic and trade ties. However, there are fears that many of its industries, such as manufacturing and textiles, will suffer as they are not competitive enough. Mining companies are forever being caught in rows over export tariffs.

Lippo, set up by Mr Riady’s father, Mochtar, is already looking outward at new opportunities. But with all family businesses, succession is an issue if they are to avoid falling into the trap highlighted by Andrew Carnegie of going from “shirt sleeves to shirt sleeves” in three generations.

Here, Mr Riady thanks his father for his foresight, making sure that every family member has their own slice of the empire. His brother-in-law, for example, has a coconut plantation.

“Whether by industry or geography, you have to be clear,” he says.

Such clarity means being tough on his own three children – at least that is what his wife says. Sending them out to be a salesman for someone else or to work at an investment bank is an opportunity to experience disappointment early.

Now back in the fold, Mr Riady wants his son to start small. The business owns a Delifrance franchise in Asia. Riady junior has been handed five loss-making outlets with the brief to do whatever it takes to get them performing again.

It is a salutary reminder that the Western brands flooding into markets such as Indonesia in search of new middle classes often need to form a partnership with domestic businesses that think they can cater best for changing local tastes. So for every consumer devouring nasi goreng on a street corner, there is another seeking out a buttery pastry.

You wouldn’t bet against the Riadys prospering for another generation or so.

Will Singapore investors be able to stand the heat?

Once the furore over the mocking of “poor people” by the Singapore fund manager Anton Casey has died down, locals can get back to their favourite conversation: is the property market in the city state too hot or not?

Stephen Riady has a lot at stake. We meet in the swanky boardroom of his waterfront tower in Singapore, which dwarfs the Fullerton Bay Hotel next door. OUE, the listed vehicle through which he is spinning out real estate investment trusts on to the Singapore Stock Exchange, also owns the Mandarin Orchard hotel, a stake in the One Raffles Place tower and the Crowne Plaza near the airport.

Mr Riady placed many of his bets a decade ago, and has watched condominium prices more than double, with public housing prices catching up in the last few years. In the meantime, he also bought out from OUE the Malaysian tycoon Ananda Krishnan, who is best known in Britain for his shareholding in the Yorkshire Post publisher Johnston Press.

The Monetary Authority of Singapore has done its bit to calm the property market by introducing borrowing caps, but demand remains strong. When Mr Riady was bidding at government land auctions up to 2006, there were normally no more than six rivals. In the last two years it is often three times that. Even if interest rates rise, cash buyers from China are unlikely to be affected.

The irony is that Mr Riady has looked further afield to invest after competition hotted up at home. One addition to his empire was a skyscraper in California, where he attended university. He is one of numerous property tycoons eyeing London, but so far he has been outbid.

Back in Singapore, the authorities have the flexibility to help the supply side by relaxing rules on the density of developments – in other words, allowing taller towers or smaller flats. It will be a long time before the city state sacrifices living standards to the extent of Hong Kong. However, it is under pressure to pack more people in. Investors would be helped not so much by forward guidance, the favoured tool of central bankers to  flag possible rate hikes, as upward guidance.

Asia beckons but insurers won’t be on easy street

It was only a matter of time before Mark Wilson returned to Asia. The chief executive of Aviva made his name by keeping one of the region’s biggest insurers, AIA, going while its American owner, AIG, imploded.

Just over a week ago, he unveiled a joint venture with Astra International, Indonesia’s largest publicly listed company, to sell and distribute life insurance in the country.

Indonesia has been a happy hunting ground for Aviva’s closest rival, Prudential, whose boss, Tidjane Thiam, has deployed an army of insurance salesmen in Jakarta and beyond.

The industry has got excited by the market’s growth potential, given that insurance penetration is so low. The risk with managing a giant, direct sales force, though, is that agents often come and go. Nor can the British companies expect to have it all their own way. Richard Li, son of Asia’s richest man, Li Ka-shing, is also a fan of the sector. He is stepping up the search for assets after spending over $2bn on Dutch group ING’s insurance businesses in Hong Kong, Macau and Thailand. Taking a local partner might be Mr Wilson’s best policy.