Jenny Liquete
Three
Entrepreneurial Clans in Asia:
The
Addition, Multiplication, Subtraction and Division
of Family Conglomerates
Situation
Analysis
The three entrepreneurial clans, Raiva
siblings and their spouses, Tunku Abdullah and his royal brood of Malaysia, and
the three lineage of Indonesia’s Ibu Mutiara, have all undergone the arithmetic
of family conglomerates. In each process, the clans had their own pros and cons.
Addition
The Raiva clan has established several
businesses on the food and baking industry. It is focused in consistent
expansion that is within their area of expertise (ex. food, bakery products,
food additives, and cooking classes). Their addition of consistent product
lines and innovation in frozen dough distribution promotes cost efficiency.
Completely different from the Raiva clan, the Melewar
group has multiple and incoherent industries – from construction and renting
construction, blending and bottling beverages, defense, computers, tour and travel, insurance, transport,
investment, communications, fruits and vegetables, education, rattan and wood,
granite to property and infrastructure development – highway and television
broadcasting. This clan used a shotgun approach in seizing opportunities which
damaged the company in terms of cost and loss of focus. Its expansion and
diversification into multiple industries placed the company into confusion and
lower profitability. The vision of the corporation can no longer be seen and
the diversity and complexity of the businesses required immense capital. It
foregoes the cost cutting strategy of economies of scale. For example, the
computer manufacturing did not fit their business and it required a lot of
R&D and capital. The corporation lost lots of money because of this.
The range and consistency of the industries of
the Blue Bird clan are in the middle of the other two clans. It has taxi as its
core business. Other services include service buses, non-passenger transport
services, fire truck assembly plant, natural gas fuel (Gas Biru), petroleum and
CNG pumping stations (Jass Alam), resorts, freight center, and clutch and brake
manufacturer. Like the second clan, it went overboard on its expansion and
disposed businesses that are not aligned to its business focus such as the fire
truck assembly plant and agribusiness venture.
Multiplication
Similar in
their approach to the addition process, the Raiva clan multiplied and expanded
its service branches and bakery shops by heavily focusing on its core restaurant
and bakery operations.
The Melewar
group started multiplying when the diverse businesses were classified into
common industry groups under separate siblings. The first generation expanded
its business by adding more new ventures while the second generation used
acquisitions and had natural growth.
Among the
three clans, the Blue Bird clan multiplied the greatest. The two key factors of
this expansion is its nature of requiring only one or two people for every
vehicle acquired and the vehicle is a cash cow to acquire other vehicles.
Subtraction
Because of
the Raiva clan’s heavy focus on maintaining its main business (food and baking),
there were only very minimal eliminations on the businesses. They eliminate to
promote cost efficiency and effectiveness of the business. The matriarch is
also very strict when it comes to expansion and limited public offerings for
their business.
The Melewar
group, on the other hand, had several failed businesses (computer manufacturing
and agricultural products) that were eventually eliminated. They ventured into
these businesses even if these are already outside their area of expertise and
are difficult to manage.
Similar to
the Melewar group, the Blue Bird group ventured into agriculture business which
is out of their expertise and was eliminated later on. The nature of Blue Bird
group also required them to replace the old machines and equipment into new
ones.
Division
The Raiva clan
divided its business among its family members according to function, product
line, and geographic location. It has also opened itself to non-family members
by hiring professionals to fill in the middle management positions.
The Melewar
group eventually divided its enterprises into industry groupings. This is
advantageous for the clan because the siblings came from different marriages. The
patriarch also designed the division in such a way that the children control
80% of their respective groups which will come handy when friction rises.
The Blue Bird group has been divided across
all of its family members – from children to grandchildren. The children were
also sent top MBA schools abroad to groom them to manage the different product
lines.
Problem
Analysis
The problem for the Raiva clan is that it is
too conservative with its expansion and operations. It is very restricted by
the matriarch which limits them to fully expand their business. They are also
prevented from taking advantage of the opportunities available to them given
their wide expertise in the food and baking industry. Also, it does not have an
extensive overview and future plans for its succeeding generations unlike the
Melewar group and Blue Bird group. Without a contingency plan, it risks its
enterprise to be managed and eventually divided to non-family members.
The problem for the Melewar group is its
shotgun approach. It ventures to all the opportunities offered to it even
though it is already outside their expertise and difficult to manage. Because of
this, it loses focus on its profitable enterprises such as those in
construction and services. This shotgun approach is also costly for the group.
The Blue Bird group is balanced between the
other two clans. It is not too conservative but it has slightly lost focus on
its main business which is transportation.
Alternatives
Generation
Raiva clan
can either continue with its conservative approach or expand its business
related to food and baking. They can also allow outsiders to join the
management team and risk the occurrence that someday, the enterprise will be
handed over to an outsider or they can already limit the hiring of outsiders
and focus on grooming its family members.
Melewar clan
can continue to pursue various opportunities even though it’s not related to
their business because it can be the door to another big business or it can
limit itself and focus its resources in its most profitable enterprises which
are the construction and service industries.
Blue Bird
group can continue its current operations, venturing into various industries
even those not relating to their current business or they can just focus on
their main business and expertise which is transportation.
Decision
Analysis
Riva
clan should be less conservative because it has already established itself in
the food and baking industry. It has already mastered these so they should be
willing to try to create new products relating to food and baking. In terms of
management, they should focus on grooming their family members. They have a lot
of potential and these can be greatly taken advantage if they educate and groom
their succeeding generations.
Melewar
group should limit the use of shotgun approach especially if the business is
hard to manage, risky, and out of their expertise because it is very costly for
them and they will lose focus on their main business (construction and
service). As indicated in the case, the strengths of the second clan are the
life experiences and strong connections of Abdullah. He can use these to
develop a large empire on the construction and service industry.
Blue Bird group should find other ways to
develop its transportation business instead of venturing into unrelated
industries. Transportation has a lot of opportunities especially since vehicles
can be used as a cashcow. They can also try to venture outsourcing of trucks
and other transportations.
Action
Analysis
The three
clans should always evaluate if their businesses are aligned with their expertise.
They should also evaluate if they prioritize keeping the business within their
clan or if they are open to non-family members in driving the growth of their
businesses.
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