Malaysia Oversea Ventures - GLC, Lion Group, UMW, IJM
The world is their oyster Malaysian companies venturing overseas in search of greener pastures have been on the rise in the past two to three years. StarBiz takes a look at some of the successful and not-so-successful overseas ventures and the lessons learnt TALK to the top management of any local company and venturing overseas is likely to be on their “to do” list as part of the strategic plan to grow the business. With globalisation, Malaysian companies, big and small, are looking at the world as their oyster – venturing overseas to expand their target sales markets, increase production capacity, lower production costs and diversify geographical business risks. The value of overseas mergers and acquisitions (M&As) involving Malaysian companies grew more than 40% per annum between 2004 and 2006 to RM21.8bil last year. From Left: Tan Sri William Cheng, chairman and ceo Lion Group, Datuk Abdul Halim Harun, group md and ceo UMW Holdings and Datuk Krishnan Tan ceo and md IJM Corp.
Net direct investment abroad by Malaysians is also on the rise, with a 72% increase in 2006 to RM22bil. The momentum going into 2007 is encouraging with close to RM5bil in the first quarter alone.
“We have been advising a growing number of Malaysian companies who are contemplating venturing overseas. The number has clearly been on the up-trend in the last three years,” said PricewaterhouseCoopers Advisory Services Sdn Bhd (PWC) senior executive director Tan Siow Ming.
“The concentration of deals is in India, China and South-East Asia. The number of cross-border deals that we have worked on has more than tripled from 2004 to 2006.”
Tan noted two separate waves of players venturing overseas.
“In the big league, the large listed or private and Government-linked companies (GLCs) are into sectors that require larger investments such as telecommunications, energy, utilities, infrastructure, financial services and real estate development.
“The second wave comprises Malaysian companies that are looking at smaller investments in manufacturing, oil and gas support services, retailing and services,” he said.
According to him, the drive to go abroad for large conglomerates and GLCs is due to the limited growth potential in the country's mature domestic markets.
The smaller Malaysian players, however, seek a regional footprint to leverage on lower labour costs or to access new markets for growth.
However, as in all businesses, Malaysian companies venturing overseas have experienced some runaway success stories and some failures.
A success story of overseas expansion is Lion Diversified Holdings Bhd's retail business under Parkson Departmental Store in China.
The company now hopes to replicate its successful Chinese business model in Vietnam.
A company spokesperson said Lion Diversified's expansion plans for the Parkson retail business in Vietnam had been progressing positively over the last two to three years.
In mid-2005, Parkson opened its first store in Ho Chi Minh City, Vietnam followed by a second store in Hai Phong City in January this year. The third store opened in June in Ho Chi Minh City.
“We invested about US$4mil to US$5mil for each store in Vietnam and are currently the only foreign-owned department store in Vietnam.
“Although the Vietnam operations have not begun to contribute substantially to group revenue at the moment, we foresee a growth in its contribution in the near future,” the spokesperson said.
Fortress Capital Asset Management (M) Sdn Bhd chief executive officer Thomas Yong said the country's saturated telecommunication sector had pushed Telekom Malaysia Bhd and Maxis Communications Bhd to venture into new markets in Asia.
Maxis acquired a 51% stake in a greenfield celco (start-up mobile phone operator) PT Natrindo Telepon Selular in Indonesia in January 2005 for US$100mil.
“Operating in Indonesia, however, has been difficult as regulatory issues delayed services roll-out and as a result, Natrindo is still making losses,” Yong said.
However, he pointed out that not all foreign ventures were fruitless.
In January 2006, Maxis acquired a 74% stake in Indian celco Aircel Ltd for US$800mil. Aircel has contributed positively to Maxis's bottom line since the day it was acquired.
Yong highlighted the local gaming sector, which expanded overseas due to growth-restricting domestic regulations.
He noted that the Genting group had acquired several British casinos amounting to RM5bil in investments, spent another RM6bil in Star Cruises and will spend a whopping RM11bil (when completed) on the Sentosa Integrated Resort in Singapore.
“While the business rationale appears logical, the overseas ventures have yet to match its hugely successful domestic track record,” he said.
Construction companies are another group that have moved offshore in a big way, as Malaysian construction activities slowed down in the last couple of years. The main shift has been to India and West Asia.
Almost all the larger construction companies (WCT Engineering Bhd, Gamuda Bhd, IJM Corp Bhd and Zelan Bhd) have taken up overseas projects.
Yong said banks had also expanded overseas but via investments into existing banking entities instead of setting up new operational start-ups.
The CIMB group acquired a 51% stake in PT Bank Niaga, Indonesia, in 2002 for RM435mil.
Public Bank Bhd similarly acquired a 100% stake in Asia Commercial Bank (ACB), Hong Kong, in 2006 for HK$4.5bil. ACB has been able to deliver tremendous loans growth of 24% in the first half of the year compared with Public Bank's domestic loan growth of 7.7%.
This investment has been an immensely successful means for Public Bank to tap the fast-growing China market via Hong Kong.
iCapital.biz Bhd chief executive officer Tan Teng Boo is calling for more Malaysian companies to spread their wings overseas.
“The pace is still slow. There are many exciting opportunities outside Malaysia although the challenges could be huge. Smaller companies should also try to explore the overseas market to grow their business,” he said.
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