Shareholder
value and international diversification
Our columnist Ravi Mahendra discusses the advantages of local companies
venturing abroad and potential for growth given the limited opportunities
in the domestic market.
It
is interesting to note that Indian companies such as Indian Oil
Corporation (IOC) and Bharat Petroleum are making it into the Fortune
500 league and becoming leaders of international standing. Sri Lankan
companies can also follow a similar model and reach great heights.
What
leads to the growth of a global giant
I believe that to become a global giant a corporate will
have to have the following attributes.
* Be focused in a sector
* Spread operations around the world
* Be exposed to many competitors
* Do research heavily if possible even from other countries
* Raise funds in many markets
Being
focused on a sector
Conglomerates have always appeared attractive due to diversification
into many sectors. GE is a company which had the highest market
capitalisation in recent times and it is also a conglomerate. Even
though this has been the case sometimes, a clearly emerging trend
in recent times is the dominance of the business world by corporates
who are clearly focused in their sector of involvement. Wal-Mart,
Exxon Mobil, British Petroleum and Toyota are all international
giants who are focussed on their respective sectors. Even in Sri
Lanka companies such as Maliban, Siddhalepa and Dialog have achieved
tremendous growth by adopting the focus strategy.
Spreading
operations around the world
Acer is a Taiwanese IT hardware manufacturer. Taiwan is
a small country where growth has limited potential. Acer today is
present in the US, Europe and Russia as well as many Asian countries.
Corporates should venture out from small countries like Sri Lanka
if they wish to achieve phenomenal growth. It is notable that some
of our local businesses such as Commercial Bank, Munchee etc are
attempting to push their operations outside the shores of Sri Lanka.
HSBC, a bank with origins in Hong Kong, has now become the UK's
as well as Europe's largest bank due to its pursuit of new horizons.
Being
exposed to many competitors
Being a part of an open economy and actively entering
other markets will train a firm to be competitive as well as tough.
The survivors in a global economy would be those who have been exposed
to global competition rather than those who have been protected
and pampered by their governments. Toyota has done extremely well
in the international arena because of its exposure to European,
American and Asian rivals. Comparatively Proton, heavily subsidised
and protected by the Malaysian government, has performed dismally.
Doing
research in many countries
The larger corporates are often involved in research and
development in many parts of the world where they make use of expertise
and talents of different individuals from different parts of the
world. Companies such as Nestle have research centres in many countries
where they develop knowledge, which is then used by the company
all over the world.
Raising
funds in many markets
IOC is getting ready for an IPO to raise capital in Sri
Lanka. The expansion here is funded from Sri Lankan capital. This
is the advantage which multinationals that spread over many countries
possess. They can raise capital in different countries to fund expansions
in those countries.
Message
to the investor
There is a limit to which your wealth will grow if your
company is only focussing on the Sri Lankan market. If the returns
are to grow to the extent to which the corporates in developed markets
are earning, there is a need for Sri Lankan corporates to start
moving out of the country. Once they start moving out, the sky would
be the limit for growth.
(The
writer could be reached at ravim@icbsgroup.com) |
