Today 8 Mar 2007
Alliances may be safer bets
So, why do GLCs choose to acquire foreign assets?
Letter from Leong Sze Hian
I refer to the articles, "iTV to be operated by Thai govt firm"
(March 3) and "Temasek's Thai woes deepen" (Feb 2
.
.
Nominated Member of Parliament Eunice Olsen raised a question in
Parliament on the role of Temasek Holdings and asked if it could be
more forthcoming in explaining its investment decisions and sharing
its assessment.
.
As I read in the media about the unfolding saga of problems that
our Government-Linked Companies (GLCs) are having with large-scale
acquisitions in Thailand, Indonesia, Australia, and with countries
such as Hong Kong and China in the past, I am compelled to ask
searching questions, with the view that we must learn from the past
in order to move forward into the future.
.
According to Professors Jeffrey H Dyer of Brigham Young University,
Prashant Kale of the University of Michigan and Habir Singh of the
Wharton School University of Pennsylvania, in Harvard Business
Review (July-August 2004): "Alliances and acquisitions are
alternative strategies that is, the decision to do one usually
implies not doing the other. If companies actually factored that
into their decisions, they would make better deals."
.
This begs the question of what were the internal decision-making
processes that our GLCs went through in deciding on acquisitions,
instead of alliances, in the various countries concerned?
.
"Most acquisitions ... fail. A few may succeed, but acquisitions,
on average, either destroy or don't add shareholder value," the
professors wrote.
.
Our experience in Thailand is a case in point. "Acquisition deals
are competitive and risky
Companies should consider exogenous
factors like market uncertainty", and culture. Will it gain or lose
the widespread acceptance of consumers, particularly in acquiring a
major national asset of a foreign country?
.
According to Rita Gunther McGrath and Ian C MacMillan in Harvard
Business Review (July-August 1995): "Business lore is full of
stories about smart companies that incur huge losses when they
enter unknown territory
new markets
By definition, new ventures
call for a company to envision what is unknown, uncertain, and not
yet obvious to the competition."
.
What management decision-making processes or other tools such as
scenario planning, reverse income statement, pro forma operations
specs, assumptions checklist, milestone planning, and so on, did
the GLCs use?
.
Was "a keeper of the assumptions someone whose formal task is to
ensure that assumptions are checked and updated as each milestone
is reached and that the revised assumptions are incorporated into
successive iterations" designated?
.
How skilled are the GLCs in peripheral vision? Otherwise, we may
end up being precisely wrong, rather than being about right.
.
A crucial question we may need to ask is whether the GLCs' present
organisational capacity for strategic vision is more or less than
their future needs? What risk-management techniques were used to
weigh known, unknown and unknowable risks?
.
I write my comments and questions with the caveat that I know very
little about the inner workings of the GLCs, because some, as
private exempt companies, may not have much of their internal
processes available as public information.
This letter offers a better suggestion than the decision of GLC.
at least we will not be seen as a "foreign govt hostile takeover of
Thailand assets" no matter how hard we are trying to tell others
that the GLC is a business entity
