Case Analysis for 3 Entrep Clans by Rocky Gabatin Spentrep

Rocky Gabatin
SPENTREP – S09

Case analysis: Three Entrepreneurial Clans in Asia

THE ADDITION PROCESS

Raiva Siblings and Spouses

     Adding significant complementary businesses to the core business entails maximization or monopolization of the supply chain. Using the by-product (egg yolk) of the bakery business, for example, Raiva siblings and spouses were able to come up with another product line for their business as they are able to produce Thai desserts. What seemingly is a “waste” of another business function becomes a profitable venture for the company. Furthermore, the group was also able to implement forward integration by distributing finished goods as well as raw materials to other businesses. This approach enabled the Raivas to expand and grow very rapidly because they are able to exercise more control over the supply and value chain. They have better command of the prices because the raw materials are also within their control. As a result, this allows the company to be more cost-effective by eliminating excessive markups generated by resellers or suppliers. Eliminating the “middle-man” entails huge cost savings. More importantly, the company is able to generate profits from each point in the supply chain—upstream, core business, and downstream. The Raivas, in effect, expand its core competency.

Melawar Group

     Melawar Group’s strategy revolves around acquiring as many businesses as possible. It adds businesses regardless of the industry—making the group as diverse as possible. Diversity is an important component in risk management, so the more companies it acquires and the broader the range of industries, Melawar Group effectively reduces risks from unexpected events, economic downturns, and even the losses from bankruptcies. Adding different companies from different industries to the mix also allows Melawar Group to flex its muscle in terms of sheer size. Economies of scale reduces the cost of production by adopting a larger scale of production. Melawar Group now has the capability to develop the added companies in order to maximize their profitability.

Blue Bird

     Blue Bird implements both the supply chain integration of the Raivas and the establishment of a business different from the core business. The Holiday Inn nicely complements the taxi business of Blue Bird because it ensures a steady stream of customers. That is, taxis can drive people to the hotel, for example, from an airport. Meanwhile, adding brake and clutch assembly manufacturing to the business allows Blue Bird to reap the benefits of cost-effectiveness because it takes care of the maintenance of the taxis.

THE MULTIPLICATION PROCESS

Raiva Siblings and Spouses

     Since the Raivas were able to vertically integrate their supply chain, they have the capabilities to multiply their numbers in terms of branches and bakery shops. This entails broader geographical reach, and thus would improve overall profitability of the business by establishing its presence on a much wider scale. This multiplication process can result to penetrating new markets and even acquiring customers from competitors.

Melawar Group

     Melawar Group’s multiplication process came into play when it clustered similar industries into groups. This way, each industry can grow substantially through economies of scale, but more importantly, through synergy. The businesses can enjoy natural growth by combining best practices of each “company.” It is also effective in acquiring a larger market share because the customers of the each company are consolidated under Melawar Group.

Blue Bird

     There is one key element for Blue Bird in implementing the multiplication process—achieve economies of scale. Multiplying the number of taxis would ensure that the business will generate more income, and thus, allow them to purchase more vehicles. More importantly, this has a dramatic effect on the bargaining power of Blue Bird because it can negotiate for lower prices for raw materials, and this is particularly beneficial for the clutch and brake assembly line of the business: It can further reduce cost on maintenance of the vehicles and maximize both profit and market share.

THE SUBTRACTION PROCESS

Raiva Siblings and Spouses

     Holding back on the idea of franchising the business maintains the quality of operations. This means that the Raivas remains in control of the entire business. Furthermore, rather than adding potential outside ownerships through public offerings, the S&P Group effectively avoids “contamination” of the business when “new blood” comes into the mix. The sheer success of its addition and multiplication strategies, there is no pressure on the business to remove anything.

Melawar Group

     The aggressiveness of the Melawar Group in acquiring companies will eventually result to failed businesses. These failed projects had to be subtracted from the entire conglomerate. However, subtraction does not necessarily mean a disadvantage because selling the business can also yield profits, just as when Melawar sold the TV broadcasting company.

Blue Bird

     Similar to Melawar, the subtraction process made by Blue Bird entails removing businesses that do not complement its core competency. The agribusiness venture did not last long because it does not seem to be relevant to the taxi business of the family. Divesting this venture is important in mitigating losses for the entire business before it can damage it further.

THE DIVISION PROCESS

     This process is virtually the same for the three family conglomerates. The theme revolves around prevention of conflict among the family members in the future.

Raiva Siblings and Spouses

     It becomes an important element in business to place executives or managers where they can exercise their core strengths or capabilities. It can be in a form of a skill, a geographical location, or even a specific product line. The Raivas implemented this very well, so there is very little room for organizational conflict among the family members—because they are where they belong.

Melawar Group

     In this case, the division approach is necessary for the Melawar Group to be able to multiply. It divided the entire company into industry groupings, a move which also complements the fact that the members of the family are coming from different marriages. This division also acts as a precaution if any family dispute arise in the future: The company can be split simply among the siblings.  

Blue Bird

     Ibu Mutiara is working towards being able to provide her children and grandchildren with a “fair piece of the pie.” This ensures that there will be no conflict that will arise from each member of the family.   3

Three Entrepreneurial Clans in Asia: The Addition, Multiplication, Subtraction and Division of Family Conglomerates

Situation Analysis

The case described three prominent families in the Southeast Asian region – two matriarchs from Thailand and Indonesia and a patriarch from Malaysia. The case started at the founding times of the conglomerates and showed its roller coaster-like ride throughout the years.

First is the matriarch food business giant S&P. It started as a hobby of the Raiva sisters. The Thai market proved to be a fertile ground for their business. They reaped exponential returns and used it to expand their business. Their strategy was to expand vertically – expand throughout their supply chain. It gave them more focus, control and dominance in their market.

The second family discussed in the case was the Royal patriarchal family of Tunku Abdullah. Although blessed to have been born with a royal blood, he still tried to make a name of his own.  He entered business and politics. Later on he quit politics and focused more on building his business empire. He invested and founded a diverse range of businesses. He journeyed to many business endeavors - the travel industry to the high-tech computers manufacturing industry and almost everything else in between.

The last family featured was the matriarch family of Ibu Mutiara. Their businesses were related to transportation. They started out as a taxi operator then ventured to other related and non-related businesses.

All the families seemed to have close family ties considering their high-profile status in life. They were able avoid serious feuds within their family who are also the top management in their respective companies. All of the succeeding generations were highly educated thus continuity of their businesses was no longer a problem.

Problem Analysis

With conglomerates as big as theirs, strategic decisions are very important. They might have all the resources they need to start any business they want but they need to also consider their current roster of companies to have a more synergic effect. A lack in the strategic planning and placement of their businesses often result in “subtraction” or liquidation like what happened to the Malaysian family who ventured in very diverse and risky businesses. The Indonesian family also experienced this problem when they ventured into agriculture when they were best at managing their transportation-related business. The Thai family showed a good example of how to strategically establish complementing businesses. Lack of market study and knowledge of the technicalities of the business also played a big role. With unlimited resources at your finger tips, it’s very tempting to invest it in any possible business or to anyone with a good proposal.

Alternatives Generation

Here are the alternatives I have thought of:

1.)    Always conduct heavy market research especially when the business is beyond your core competency. With businesses as large as those, growth within your current market is limited. You’re already a dominant player and expanding in your current market might not reap you exponential returns. Having said those, it’s really hard to limit the entrepreneurial spirit of those families especially if they have the drive to expand their money-making empires.

2.)    We see tycoons venture in unknown business territories. It’s what differentiates a tycoon from a regular businessman; you cannot just stop a tycoon or entrepreneur from exploring new ideas and business concepts. To provide them with more confident analysis of their new business idea, they should either conduct heavy market research, as mentioned above, and hire consultant and industry experts or partner with current industry players. Exploring in an unfamiliar territory is tricky and you need help from industry experts and players to get you moving. With their extreme wealth they can definitely afford to hire consultants and invite industry partners easily.

3.)    Do not move into industries they are not familiar with. To save them from unfamiliarity which often leads to high losses, only operate in a market you know very well.

Decision and Action Analysis (Deciding on best alternatives)

It is not impossible to thrive in different industries and markets. In fact, we’ve seen many tycoons become market leaders across diverse industries. John Gokongwei, for instance, has successfully established and managed a leading airline (Cebu Pacific), consumer foods manufacturing company (URC), telecommunications company (Sun Celluar, before it was acquired by Smart) and property development (Robinsons mall and residences) among others. It is possible to operate in industries as diverse as that and still become one of the main drivers and players in each industry. All you need to do is find the right people to help you understand and jumpstart your idea and business. Options one and two above are what I think the three families need to further expand their conglomerates. It’s not wrong to start a company totally unrelated to your previous one. You just have to know the relevant information, technical know-how or just have consultants and industry experts guide you. Stopping at where you are and what industry you play in is not what an entrepreneur aims to achieve. The unending learning and exploring of possibilities will ultimately fulfill a real entrepreneur’s heart; being scared of the unknown is not a characteristic of an entrepreneur. They just have to be cautious in making tough decisions especially when big investments are involved.

I admire how the matriarchs and patriarch of the featured families brought up their children and grandchild. They were able to instill discipline and rapport within their family members. Having weak family bonds and lacking knowledge and education of the succeeding generations will cause their conglomerates to collapse eventually. Good thing they groomed the next generation to become tomorrow’s best tycoons.

Submitted by: The Great White