Monthly Archives: August 2015

Family businesses must explore overseas market

GOING regional is the path small and medium enterprises (SMEs) are encouraged to go for in the Philippines. The opportunities are plenty.

While the large companies in the Philippines are eager, careful and taking every opportunity as it presents itself in the ASEAN Economic Integration on a more in-depth and long-term vision, the emerging enterprises are in the process of learning and finding ways to expand in the more basic levels.

Our SMEs are like toddlers who are starting to walk and explore. They should think strategic so they can make their products relevant. The past year, I have helped a handful of family businesses expand overseas especially in stable economies like Singapore and emerging growth areas like Indonesia and Vietnam.

At present, my coaching work requires me to handhold a number of companies seeking out opportunities in the ASEAN region. Help is available, and more changes are expected in due time to support the needs of these family enterprises.

Can family businesses from the Philippines thrive in the global arena?

As the ASEAN economic integration begins with its daunting challenges and the world economic center of gravity shifts to Asia, how can we in the Philippines take advantage of opportunities and adapt to irreversible changes? I have identified some inspiring stories of family businesses in the country who successfully hurdled the challenges. Let me start with my former boss and mentor of eight years, Dr. Andrew Tan’s listed company, Alliance Global, Inc.

Alliance Global Group, Inc.

One of the most inspiring new “rags-to-riches” billionaires of Southeast Asia is Dr. Andrew Tan of listed firm Alliance Global, Inc., the new $3-billion holding company for his three major businesses – condominium-developer Megaworld, the world’s biggest brandy producer Emperador Distillers, Inc. and 49 percent shareholdings in the nationwide Philippine franchise of McDonald’s fastfood chain.

It is difficult to believe that authentic “rags-to-riches” sagas built on honest hard work still happen in this modern and complex world. The son of poor immigrants from Fujian province, south China and himself born overseas, Andrew grew up in downtown Manila dreaming of someday owning a store or small business like many of his peers’ families (See my past columns of Andrew Tan’s rise to the top).

Emperador: A global brand after acquiring Whyte and Mackay for P31.7 B

One of the amazing accomplishments of this self-made businessman is his unexpected success in making his homegrown Emperador Brandy into the world’s largest-selling brandy in terms of total number of bottles sold. Tan’s firm sold 7.2 million nine-liter cases of brandy last year, and plans to soon expand into Thailand, Vietnam and the vast China market.

Sources said there were originally 16 groups interested in Whyte & Mackay, but these were shortlisted. Tan personally oversaw Emperador’s win in London over Western conglomerates such as the French luxury giant LVMH Moët Hennessy Louis Vuitton, American liquor group Brown-Forman (producers of Jack Daniel’s Tennessee whiskey), Italian beverage group Gruppo Campari and Russian billionaire Roustam Tariko (producer of Russian Standard vodka), after two rounds of bidding.

Despite being ranked as one of the country’s wealthiest billionaires, Tan remains unassuming and self-effacing when asked about his “rags-to-riches” saga. Here are excerpts from the exclusive interview as featured in The Philippine Star, “Bull Market, Bull Sheet”, by Wilson Lee Flores:

What are the benefits of Philippine companies going overseas?

Apart from boosting our long-term economic strength like other Asian economic powers, Philippine companies expanding overseas and going beyond our comfort zones or going to some uncharted territories, will help sharpen our management skills. This is also positive for the country in terms of raising the prestige and international profile of the Philippines as a fast-growing economy with our own foreign investors, too, going abroad. This Emperador investment in Whyte & Mackay has also increased interest in Philippine tourism among the British people, Europeans and other foreigners, who in the past might have had little knowledge about the Philippines.

Why did you audaciously decide to invest in this British distillery?

I believe this Emperador Distillers investment in Whyte & Mackay is good for the Philippines as a whole, not only beneficial to our business. I believe that our Philippine companies can be globally competitive, although not many have invested beyond Asia like going to the US or Europe. The recent notable ones are Manny V. Pangilinan’s PLDT Group investing in the German tech startup firm Rocket Internet in Europe; John Gokongwei Jr.’s Universal Robina has also this year bought New Zealand’s biggest snack producer, Griffin’s Foods. All these are positive developments, a good sign that we in the Philippines can also go global.

(sorianoasia@gmail.com)

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I am excited to deliver a very timely real estate talk on Sept. 25, 2015, a Friday, at the AIM Conference Center in Makati. The title of the one-day talk is “Anticipating a Real Estate Bubble? Manage Your Growth During Uncertainties”. To reserve slots, please call the organizer, Octopus Branding, at 0915-9108686.

India’s 117-year-old conglomerate: a model family business

THE Godrej Group is a public company and a conglomerate based in Mumbai, Maharashtra, India. It was founded by two brothers: Ardeshir Godrej and Pirojsha Godrej in 1897. The story behind the success began when Ardeshir came about his creation and selling of locks as a response to the alarming citywide crime rates. He also made vegetable oil-based soaps, which was a hit at that time. Pirojsha helped in developing the business into an enterprise that carried an extensive line of industries.

Today, the Godrej Group spans several industries that include chemical and commodities, agriculture, precision engineering, fast moving consumer goods (FMCG), services and real estate. It markets furniture, security, home appliances, and agricultural care products and its expansion extends to three consumer sectors: personal wash products, haircare and household products in Asia, Latin America and Africa.

The family-run conglomerate handles its operations through two holding companies, namely Godrej Industries Limited, and Godrej & Boyce Mfg. Co. Limited. Other subsidiary and affiliate companies are Godrej Consumer Products Limited (GCPL), Godrej Sara Lee, Godrej Hershey Foods & Beverages Limited, Godrej Infotech Limited, Godrej Properties, Godrej Agrovet, Godrej Hi Care (pest management services), and Godrej Global Solutions (ITES).

The third generation as change agent

The amazing transformation of Godrej Group from manufacturing locks and soaps to different industries during the time of liberalization to the current globalization is the result of the ingenuity and innovativeness of its present chairman, Adi Godrej, who hails from the third generation of the family business (following the second generation, which was led by Pirojsha’s grandsons Naval, Sohrab, and Burjor).

Adi is known as a business icon, an Indian industrialist who embraces change. He initiated appointing non-family members as CEOs because the management of the Godrej Group then was not flexible. He initiated and put in place a system in the management structure to make it flexible. He then moved to modernize the management of the group and incorporated new business processes. The inclusion of technology immensely benefited the family business because of his inclination to it. The Godrej Group reached the completion of its restructuring process in 2000-–10 years in the making. Now it prides itself to have formed a stand-alone company per business handled.

Adi and family are considered one of the richest in India. Their estimated net worth–a whopping $11.6 billion as of 2014! What is great about this family is their wisdom towards money. Having wealth that could afford any person almost whatever material possession they want, the patriarch at the helm of the family business has always taught the value of money to his children. As a result, the abounding wealth is from the combined effort of the family.

Adi leads Godrej Group with his brother Nadir Godrej and cousin Jamshyd Godrej. Nadir is the managing director of Godrej Industries and chairman of Godrej Agrovet. Jamshyd is the managing director and chairman of Godrej & Boyce. The 72-year-old chairman’s three children are also working and continuing the family business. Tanya, who is his eldest daughter, oversees the marketing of the Godrej Industries Limited as the executive director and president. Pirojsha, his son, serves the family business as the chief executive officer of Godrej Properties, which is considered one of the fastest growing property arms and one of the largest in terms of revenue (if not the largest). Nisaba, his second daughter, is the executive director of Godrej Consumer Products and is part of the boards of GCPL, Godrej Agrovet and Teach for India.

As we could imply, nepotism comes to mind when we see the members of the family heading the business. So, how does the group face the issue? There simply is the rule that allows the members of the family to join the group, provided they have professional training. The Godrej Group’s chairman values the importance of training his children.

Godrej Group employs 28,000 people. What does the chairman say about his people? “My grandfather, father and uncle placed a lot of emphasis on building housing and schools for employees, which have paid good dividends. Making sure your employees are properly taken care of is a strong lesson we’ve learnt from previous generations,” Adi says. The conglomerate’s chairman values the welfare of their employees, gives financial reward, and opens a world of opportunities to those who display promising performance.

117 years and going forward

That is really something for family businesses. The group is not shy of any track record, and is looking for further expansion at its fourth generation phase.

So, to those who doubt and believe that family succession is impossible for the long haul, take inspiration from the Godrej family.

(sorianoasia@gmail.com)

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I am excited to deliver a very timely real estate talk on Sept. 25, a Friday, at the AIM Conference Center in Makati. The title of the one-day talk is “ Anticipating a Real Estate Bubble? Managing Your Growth During Uncertainties”. To reserve slots, please call the organizer, Octopus Branding, at 0915-9108686.

Singapore’s richest siblings

TO commemorate Singapore’s 50th anniversary, I have decided to dedicate this column to my favorite city-state and to write about Singapore’s richest siblings, the brothers Robert and Philip Ng.

Rated amongst the best cities to live

But first, let me briefly describe Singapore. Because of my coaching work (real estate and family business) in the Asean region, I have used Singapore as my hub for most family business sessions. Singapore is one of the world’s major commercial hubs, the fourth-largest financial center and one of the top two busiest container ports in the world, at least for the past ten years. Its globalized and diversified economy depends heavily on trade, especially manufacturing, which accounted for around 30 percent of Singapore’s GDP in 2013.

Singapore places high in international rankings with regard to standard of living, education, healthcare, and economic competitiveness and it has one of the highest per capita income and one of the longest overall life expectancy in the world. The country is also one of nine countries in the world with top AAA rating from all credit rating agencies. The Philippines is several notches below, with a fairly credible BBB rating.

Robert and Philip Ng: when siblings unite

Brothers Robert and Philip Ng are sons of real estate tycoon Ng Teng Fong and inherited their father’s real estate empire and continued to bring it to greater heights. Robert Ng is not only a property tycoon, but also a trained lawyer while Philip has a degree in city planning, as well as civil and geotechnical engineering.

The Ng family today builds one in six houses in Singapore. They are known as the HDB (Housing Development Board) of condominiums. There are different routes to success, and although their wealth might not be entirely self-made, their story is still nonetheless impressive.

Forbes listed the two as the 30th richest people in the world in 1997. As of January 2015, Robert, together with his brother, Philip Ng, has an estimated net worth of $11.5 billion. Seems like the Ng brothers are unbeatable when they join forces.

The Ng family owns property giants Far East Organization and Sino Group. Their late father, Ng Teng Fong, developed Far East Organization into a conglomerate with over 700 malls, hotels and condos in Singapore and Hong Kong worth over $6 billion. After their father’s demise in 2010 due to cerebral hemorrhage, the brothers worked together to grow the business.

When the real estate market in Singapore and Hong Kong slumped, the Ng brothers remained unfazed despite their revenues declining by nearly $1 billion to $4.6 billion. They diversified their investments and proceeded to purchase real estate in Australia.

Philip Ng is a Christian and believes in involving Christ in the workplace and practicing Christ-centered leadership. He said, “My people and I would go to our project sites on Sundays, to inspect and ensure the quality of our delivery. But I was making my employees work on a Sunday. It never occurred to me before that it isn’t right because I wasn’t a Christian then. I realized that when I became a Christian and I told everybody that they would no longer work on Sundays, which is a day of rest. What’s so amazing is that I did not know until a couple of months later that the wives of some of my Christian colleagues had been praying for their husbands to be released from this curse. God does amazing things. This is a small anecdote, but I think it had a large impact on the organization.”

Despite their massive wealth, the brothers have not forgotten their roots. In 2011, the Jurong General Hospital was renamed as Ng Teng Fong Hospital after the Ng brothers donated $125 million to the hospital. Philip Ng said, “the gift served to give back to the Singapore community as well as leave a lasting memory of our father”.

Not everyone is born with a silver spoon – some might be luckier than others.

Take Ng Teng Fong, the father of Robert and Philip, who made it from zero to hero, the epitome of a rags to riches tale. He had no rich father, no degree, but made it with determination, hard work and foresight. When he unfortunately passed on, he left behind a legacy succeeded by his sons, who helped expand the business.

Happy SG 50!

The dangers of not initiating succession planning early

ACCOUNTING for more than 96 percent of enterprises in the Asean, SMEs that are made up mostly of small family business firms, are a significant engine of growth in the region. Although perceived as small, their combined contribution to the economy has a great impact.

It is also a fact that most family businesses have a very short life span beyond their founder’s stage and that some 95 percent of family businesses do not survive the third generation of ownership.

In the Philippines, most businesses are small and family-owned. Challenges for SMEs in the Philippines include a lack of research and development, inadequate access to technology, and financing.

This article will focus on intellectual capital management as well as the lack of or inadequate knowledge perspective prevailing in small family businesses. In today’s Information Age economy, knowledge–-not natural resources, machinery, or financial capital–has become the most important factor in business activity.

Intellectual capital is a result of empirical research

Without being too academic, intellectual capital or IC is the combined value of its people (human capital), the value inherent in its relationships (relational capital), and everything that is left when the people go home (structural capital), of which intellectual property is but one sub-component. The term became widely used in academia in an attempt to account for the value of intangible assets on company’s balance sheets.

A second branch that has survived in academia and was largely adopted in large corporations was focused on the recycling of knowledge via knowledge management.

According to Karl-Erik Sveiby in his article “Intellectual Capital and Knowledge Management”, a term is best defined by its use, and therefore it is probably still correct to regard IC and knowledge Management (KM) as twins–-two branches of the same tree. Both Skandia and Ernst & Young emphasize the static properties of knowledge, that is: inventions, ideas, computer programs, patents, etc., as IC.

Correlation to family-owned enterprises

Measuring the real value and the total performance of intellectual capital’s components is a critical part in running a company in the knowledge economy and Information Age. Understanding the intellectual capital in an enterprise allows leveraging of its intellectual assets. For a corporation, the result will optimize its stock price.

In my family business book, “Kite Runner Column” (Article No. 7), I enumerated several reasons why most family-owned businesses fail and what to do about it. One of the reasons is failure to develop a succession plan. Few people find it hard to come to terms with their own mortality and it may be difficult for an entrepreneur to recognize the time when he/she is no longer the best person to run the company. The third generation has not been adequately trained to take over, thus, resulting in failure to continue the business. And this is where the knowledge management perspective comes into play.

Challenges confronting family business owners

Early succession planning ensures the continuity of management, goodwill, operations efficiency and retention of clients in the event of the owner’s departure.

The owner-manager represents the central source of competencies and capabilities in the family firm and sometimes, he retains these assets to his dying day, not knowing why and how to pass them on to the next generation. Another major challenge is in choosing a successor who will chart the future overall direction of the business as well as the highly emotional process of succession. IC plays a role in explaining the competitive advantage of the family business and the successful or unsuccessful family business succession.

One of the surrounding issues involved in the business succession process is the transfer of tacit knowledge embedded in the owner-manager’s mind to the successor. Small firms tend to be loosely coupled, founder-centered and with a low development of operative systems. As a consequence, the organization is not capable to retain and to develop knowledge independently from the owner-manager presence, and might not be able to support the succession process.

Under this scenario, the business struggles to survive and loses its momentum to transition to the next stage of the family business cycle. Inevitably, when the owner dies or loses power by reason of health, the business succumbs to internal dynamics and the pressures of the external environment.

Therefore, it is imperative that succession planning, when initiated way in advance, can be considered a capstone and legacy project for the senior generation leader.