Why asset-light model
The Covid-19 pandemic has impacted companies severely and prompted them to review their business thoroughly. As a result, through the comprehensive review of the business portfolio, companies have restructured their operations. Some companies have started to adopt the asset-light model to enable business resiliency.
Some companies explore the asset-light model because they want to have a digital presence. Take the example of AirAsia Group, the group has adopted the asset-light model as it is more feasible and cheaper in the current volatile market. The group has sold the aircraft and leased them for its operation. AirAsia group CEO Tan Sri Tony Fernandes pointed out the asset-light business model is a good way to eliminate residual risk. Recently, AirAsia has invested in Gojek Thai business to turbo-change its ambition to be a superapps in the field of travel, e-commerce and financial services. Gojek is an Indonesian on-demand multi-service platform and digital payment technology group based in Jakarta.
Photo Source: Malay Mail
Wong Heang Tuck, the CEO of U Mobile, has mentioned that U Mobile would continue to offload its non-strategic assets, mainly telecom towers, by sticking to its “light capital expenditure, lean operating expenditure” model. He also further explained that as time has evolved, U Mobile will lease infrastructure as much as they can as building and owning towers is not their core business.
Photo Source: The Edge
Some businesses have adopted the asset-light model and deliver good results. There are Zara and Shopee. With the asset-light model, Zara designs and manufactures its lines of fashion apparel in its facilities and sells them through its global network of company-owned stores. Shopee also benefited from this asset-light model as it is ideally suited to the level of logistics infrastructure development of the ASEAN region.
Advantages of adopting the asset-light model
Greater flexibility is one of the key advantages. Companies with lower levels of asset ownership can respond faster to changing demand, technology advancement and massive disruptions. Lazada’s Lazmall, this platform has become more asset-light, serving primarily as a transaction platform for third-party sellers and buyers. This initiative has levelled the playing field with its competitor, Shopee.
Photo Source: Tech In Asia
Companies can realise higher scale driven cost savings without investing much capital. Qualcomm is an US company specialising in designing and manufacturing wireless telecommunications products. According to Forbes, Qualcomm is a successful example as it leverages Taiwan Semiconductor Manufacturing Company (TMSC) for its chips. This move helps Qualcomm in minimizing the amount of capital tied up in fixed assets. By having TMSC as foundry, it gives Qualcomm accelerated access to the supply chain.
Photo Source: Qualcomm website
Lower fixed cost is another added advantage. Companies with a lower fixed cost to their revenue tend to have a more stable profit. Companies in the oil & gas, machinery industry financial performance are more volatile and profit can swing widely from one year to another year.
Disadvantages of adopting the asset-light model
Many companies have tried adopting the asset-light model but this model did not turn out well for them. Key challenges they face are miscommunication with suppliers, maintaining the know-how and maintaining the economic incentive with suppliers. Take the example of Wendy which is a US company for major fast food chains. For years, Wendy has unloaded assets and piled on debt. Due to over leverage, Wendy is at the brink of bankruptcy.
Photo Source: InsideRetail
What can Industrial Malaysia do for you?
Becoming more asset-light is the way forward. We help enable strategic growth through acquisitions of strategic assets or disposing of non-core operations. In particular, we help companies fine-tune their growth strategy and perform deal sourcing for properties by combining research insights, sector experience, and functional knowledge, which helps deliver better results. Please speak to us now at hello@industrialmalaysia.com.my.