It’s always business first in Singapore. Bereft of natural resources on which to draw down on in times of need, commerce has always been the lifeline of the country. From the earliest days of its founding by Sir Stamford Raffles, trade had always been at the forefront of our raison d’être.
(Featured Image via The Accountancy Partnership)
As one of the region’s first duty free ports, business was the chief motivation. A hundred and forty years later, as the region’s first containerised port, the conversion was likewise prompted by commercial pursuits.
With the shipping industry playing a pivotal role in the history, traditions and economy of Singapore, it was a particularly bitter moment when the national shipping line, NOL (Neptune Orient Lines) was fully transferred to French carrier, CMA CGM and delisted from the SGX (Singapore Stock Exchange) to eventually be broken up into its separate divisions and spun off (WSJ, Sep 2016).
From its heyday in 2007/2008 and as a constituent stock of the STI (Straits Times Index), to its unwinding at the metaphorical shipbreaking yards of the corporate hock shop. The reality is that, the current economic climate is a turbulent sea, leaving many companies struggling to keep an even keel.
Against the backdrop of the time worn adage that change is a constant, there are a variety of reasons why companies fail; even once mighty, seemingly infallible ones. With the advent of globalisation and the increased communication links that it engendered, competition from companies on a global scale challenged the local business landscape.
Inflationary pressures and drastic cost structure shifts especially in the areas of overheads like staff cost and office rental have continued to chip away at company profits. Internally, some corporations were dealt the death knell from the inside with vicious politics or poor succession planning.
Let’s take a closer look at some local corporate giants that were lauded household names one day but referred to only in hushed tones the next.
American President Lines (APL), wholly owned by NOL (Neptune Orient Line)
(Photo via MarineLink)
NOL (Neptune Orient Lines)
NOL was the port city of Singapore’s foray into liner shipping. As recently as 10 years ago, it was counted among the 5 largest global shipping companies and the largest listed shipping company on the Singapore Exchange. In its prime, the company spearheaded the move to containerisation of freight in the 1970s and even expanded its expertise to terminal management.
The company, once regarded as a national cash cow, underpinning the success of the nation itself, found itself floundering after acquiring American President Lines (APL) in 1997. This key event, combined with the wider industry trend of consolidation that led to chronic depressed freight rates put a hefty strain on the company’s viability. Ultimately, it was the inability to maintain a net position between cash flow that put NOL out of business.
In recent years, the company lacked continuity in leadership, seeing 4 changes in its top position in just 10 years. Consequently, many of its largest problems were not addressed expeditiously, such as improving profitability which, it seemed to ignore by doggedly plying the least profitable routes and taking on mountainous debts. It failed to streamline its operation to ride out the lean years, buoyed by overconfidence in the bountiful ones and ultimately ran itself aground.
Frequently confused with another major bank with strikingly similar initials, Overseas Union Bank (OUB) was one of the 4 largest banks in Singapore up to the beginning of the early 2000s and even the 4th largest bank in South East Asia. In the 1970s, the banking industry in Singapore underwent its first phase of liberalisation and the sector was opened up to foreign banks for the first time.
This increased competition necessitated a change of management style to a more structured format and individuals not related to the founding family were brought into the ranks of the board of directors to take control of the helm. At the same time, computers were introduced and forays into investment banking and fund management were made, making a dramatically positive impact on profitability.
Despite its stellar growth through the subsequent years until the early 2000s, it still retained its position as the smallest of the country’s 4 largest banks and In the local banks rush to meet the challenge of increased competition, became a target of a hostile takeover bid by DBS.
Fraught with acrimony, this bid was ultimately outdone by UOB, which subsumed OUB by 2002. OUB can’t be faulted for its fate. At the end of its days, it was a successful, international entity and a force in the banking industry in its own right. However, not enough success or not large enough a scale of those successes was the major factor that left OUB in the dust.
(Photo via Jason Ludt’s blog)
Asia Pacific Breweries (APB)
As a slightly sordid matter of national pride, most Asian countries have a national brewery, churning out a local alcoholic concoction of a golden brown hue. Asia Pacific Breweries (APB) was founded in 1931 and found its way into the hearts of people within the region and then globally with Tiger Beer, ABC Extra Stout and Beer Bintang (itself, mistakenly taken to be Indonesia’s national brew). In 2012, its parent company, F&N was sold off to Thailand drinks maker, Thaibev. APB was itself further spun off to Heineken.
While some of the lustre of Singapore’s local brews was lost to foreign competition, changing tastes and demographics, flagship brands like Tiger beer gained ground in developing nations in the region, and even in further flung markets like Taiwan, the USA and even the Solomon Islands.
One factor in APB’s success lay in its practice of exclusive partnerships, which was found to be illegal in 2015. In this model, which proved eventually to be a double-edged sword, APB would assist aspiring proprietors with their set up but compel them to peddle only brands under the APB marque at the exclusion of other brands. APB had also been losing market share as its products such as Tiger Beer and ABC extra stout could not keep up with consumer tastes.
It lost the connection it had with its audience and that could be seen in one of its latest effort to regain the love of the people. It’s efforts to reach out to the younger generation with recent guerilla campaigns and others with a local flavour failed to win any loyal fans and were instead met with resounding online jeers.
Once considered a blue chip stock, Nobel Group has become one of the latest riches to rags story, worthy of a broadway musical. The one time stock index benchmark counter is now struggling to stay listed on Singapore’s main trading board, the SGX. (Business Times, Mar 2016)
The commodities conglomerate stock price went into a nosedive in 2015, on the backs of continued speculation into its accounting practices and lost 65% of its value. In the same year, it reported net losses of US$1.7 billion and began spinning off parts of the company just to stay afloat – a move that was seen as a tragic last ditch attempt at survival, as it lost the very business diversity that a conglomerate depends on to survive and weather a storm. The enduring slump in commodities prices and the company’s highly leveraged position, which stands at US$4.2 billion or 3.6 times of its 2015 EBITDA isn’t helping the situation.
Ken Air Leisure Group
Rounding up the list of corporate obituaries is Ken Air Leisure Group. The home-grown travel agency that became a household name since its inception in 1973 closed its doors abruptly and declared bankruptcy in 2008. Up until then, Ken Air Tours was one of the major agencies providing international tours to the USA and Europe and had offices in Suntec city with 200 employees
Over the years leading up to its demise, it faced numerous challenges to its key business segment such as the 9-11 attacks, the mad cow disease epidemic and the dot-com bubble burst. However, the nail in the coffin was its loss of is endorsement from SIA as official ticketing agent, although it was consistently averaging US$ 2.6 million of ticket sales.
The pioneering visionary of long haul package holidays and merging the internet with businesses, closed its doors with US$ 16 million in debts after failing to find an angel investor to bail the group out. Upon closer inspection, aside from the company stated reasons for its closure which, no doubt were catalysts, there were other factors that contributed to the demise of the once vaunted institution that gave most Singaporeans their first taste of Europe and the Americas. With ambitious expansions into theme parks, car rental, groceries, video and film distribution and loyalty stamps, the company diversified itself into oblivion and lost out to more aggressive and focused upstarts like Chan Brothers Tours.
Like evolution and natural selection, the extinction of corporate weeds out the weak from the strong. In an open, competitive economy the ones that can most efficiently and effectively rise and employ those limited resources will reap the rewards of being able to continue in business for another day. The economy and the consumers will also ultimately benefit as a whole with better value, quality and availability. At the same time, the process of destruction and creation can serve as lessons to other entrants to the world of business and ultimately lead to the formation of companies that are more robuts and better equipped to take on future challenges.