The end of Sri Lanka’s bloody decades-long conflict has led to many (delayed) opportunities opening up once again and this time with more vigour, vitality and a sense of positivism.
While tourism is taking off at unbelievable levels though sections of the public believe Sri Lanka is yet to exploit its full potential in the absence of proper infrastructure, lack of a sustainable policy and a halt to the musical chairs that takes place at the Tourism Ministry -- as expressed in a special focus column on the sector on Page 4; other sectors like real estate, power and telecommunication (though at a slower pace in view of a crowded market) are gearing up for positive growth.
At the same time, Sri Lanka’s old established and familier groups like John Keels Holdings (JKH), Aitken Spence (AS), Hayleys, Cargills and CIC are on a diversification mode particularly in areas like power, tourism, real estate, IT, agriculture and other sectors.
Diversification is a natural progression for companies that have reached the peak in an established business and a need to put their eggs in many baskets, spread risk and make more profits. And with the economy expanding in the post-war era, most large groups are setting their sights on new business ventures and diversifying in different areas in addition to current ones like bungalow tourism for example. BPOs are another new sector for the big groups.
In the post 1977 liberalisation period, JKH ( then a commodities broker) rapidly branched out into different activities like plantations, IT, consumer goods, hotels and leisure, travel, transportation and food & beverages. Aitken Spence also expanded but to a slower degree while Hayleys was more cautious, selective and old fashioned resulting in the stockmarket labelling the company a ‘sleeping giant’ to reflect on its enormous size but reliance on a few businesses while other corporate giants were steaming ahead with other projects.
That changed about a year ago when wealthy businessman Dhammika Perera and his advisor, Nimal Perera got on the board of Hayleys where they are now driving a new strategy under Hayleys’ Chairman Mohan Pandithage’s stewardship with the acquisition of a majority stake in Colombo’s Continental hotel; reflecting a new investment and risk-taking culture in the boardroom.
Diversification paid off for JKH and Aitken Spence during the troubled 1980s and 1990s when they invested in Maldivian resort properties bringing in huge profits while losses mounted in their Sri Lankan resorts. Aitken Spence went a step further last year expanding rapidly into the Indian market and the Middle East, managing hotel properties and acquiring some – again which has shown good results.
But expansion can be a double-edged sword as seen in the collapse of the Ceylinco Group. When Lalith Kotelawela took over as chief executive of Ceylinco Insurance Co in the early 1960s, the 1939-established firm had just three small subsidiaries and 100 employees. Years later it was turned into Sri Lanka’s biggest private corporate group employing well over 30,000 people in more than 250 connected companies.
The group went into all kinds of unlikely businesses that was a huge mistake like ‘buth kades’, tea boutiques, beauty parlours and pre-schools, in addition to insurance, banking and hotels. Years later like a pack of cards and bursting at the seams, the group collapsed with some senior executives including Deputy Chairman Sicille Kotelawala fleeing the country while Kotelawala was jailed for many months while awaiting trial. One positive lesson however was Kotelawala’s cell strategy borrowed from Cuban revolutionary leader Che Guevara to have independent profit centres which has worked with Ceylinco Insurance being able to separate itself – after a long spell of adverse publicity - from the disaster of 2008.
Ceylinco’s diversification was all about the ego of one man who sensed an opportunity in everything but without a proper assesement and lived on debt and borrowed capital.
JKH also burnt its fingers in restaurants and plantations which it exited. In the new realm of business, groups like Softlogic Holdings, BAM holdings and old timer Lankem (with an infusion of new blood) are getting into a rapid diversification and expansion.
It makes sense with huge opportunities ahead to diversify in the new economic environment. However doing so with some caution and a comprehensive assessment – pitfalls, etc - plus lessons learnt from bad examples should be the doctrine Sri Lanka’s business community must follow. |
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