THE PINK ELEPHANT & MERGER INTERRUPTUS
"We did not anticipate the extent to which SingTel's proposed transaction evoked the kind of public reaction, the populist sentiment that got reflected in the media." Lee Hsien Yang, president and chief executive of SingTel, SINGTEL ADMITS HK SUSPICIONS OF C&W BID, Financial Times March 7, 2000.
This was more than a stoic assessment of a promising commercial venture slipped away; it exposes a possible lacuna in Singapore Inc.'s vast commercial armada. As impressive as Singapore's state-linked enterprises are domestically, generally, they appear to shoot blanks or misfire when competing overseas. It could be argued that Singapore Inc., either can't make a deal (C&WHKT), or even if they make one, they can't make it stick which is usually the bitter result of a bad deal being made in the first place (Suzhou). This piece will examine the former inability and my exposition on the latter disability will be in an akan datang discourse.
These thorny abortive commercial endeavors include the 1999 loss of Singapore Airlines to Air New Zealand in a high-profile bid for News Corp's 50 per cent stake in Ansett Airlines, the Australian carrier. SembCorp Industries, a behemoth created by the merger of the Sembawang conglomerate and the technology subsidiaries of Singapore Technologies, and the equally diverse Keppel Corp. had written off a total of US$320 million in bad assets.
Malaysian cellular networks Binariang and Celcom declined past SingTel acquisition offers. As a result of the C&W HKT non-deal, Rupert Murdoch's News Corp., quickly canceled plans to purchase 4% of SingTel for US$1 billion. Some analysts have surmised that SingTel failed to reach a potential deal with Deutsche Telekom because one of the German group's associates in Malaysia did not want it entering into the equation.
The sharpest spike is the commercial crown of thorns is the Singapore government-inspired Suzhou debacle that was mercifully put of out its misery before it metastasized into something more miserable. In all fairness, there were some notable successes with Singapore Airlines' purchase of a stake in Virgin Airlines and DBS successful overseas acquisitions. Even SingTel has found some success with Belgacom in Belgium, Globe Telecom in the Philippines and Thai cell phone operator Advanced Info Services (AIS).
But the freshest wound is definitely British-owned Cable & Wireless HKT walking away from SingTel's cash-and-stock takeover offer after nearly three months of negotiations. C&WHKT was the proverbial big one that got away since acquiring it would have been SingTel's signal entry vehicle into the gargantuan mouth-watering China telecommunications market.
THE PINK ELEPHANT
Nevertheless, it is telling of SingTel's ingenuousness of not "anticipate(ing) the extent" of the populist backlash unleashed by its bid of C&WHKT. Transnational acquisitions are always political and subject to attack. The longer the merger negotiations dragged the greater the room for mischief making by Hong Kong populist figures and media. It is not unknown that there is a seething commercial, political and cultural rivalry between both cities that was periodically stoked by Singaporean politicians' unilateral, long-running hectoring and lecturing about how Hong Kong should or shouldn't be governed pre and post 1997.
In today's increasingly globalized marketplace, it is fundamental that not only the hardware of multibillion multinational acquisition deal should be in place, i.e., the swarms of slick but slippery lawyers, packs of perspicacious predatory investment bankers and the bevy of boring bean-counters. There is also the software side of M&A 101 with touchy-feely public relations consultants, flashy media reps and corporate communications spin-doctors. This sort of corporate PR is akin to US airpower used to soften up the Iraqi and Serbian opponents before success was achieved in Operation Desert Storm, Bosnia and Kosovo. Just like modern warfare requires the softening up of military and political resistance, modern transnational mergers & acquisitions require some softening up of the feelings and attitudinal adjustments of the population.
When US auto giant General Motors' bid for Daewoo Motor stirred up nationalist backlash against the idea of selling a major South Korean company to an American multinational, the Americans retooled their approach. GM spent some serious coin in an aggressive advertising campaign featuring a Caucasian pitchman wearing his hair pulled tight in a topknot in traditional Korean clothes, kneeling with palms pressed submissively to the floor and bowing. Whether these sort of PR strategies would be successful remains to be seen but it does demonstrate the need for charm offensives when dealing with foreign acquisition targets.
The apparatchiks behind SingTel's abortive bid for C&WHKT should reasonably have been able to foresee that the ingredients of a potential bitter populist backlash was raring to happen in view of SingTel's government pedigree. SingTel may have invested more wisely in paying such media and PR operatives who should have been on the ground in Hong Kong trying to define the proposed deal and SingTel before the local HK media defined them. But no amount of spin doctoring, even the very best Clintonian kind, can camouflage that pink elephant of the Singapore government grazing at the negotiating table whenever companies like SingTel go after a choice or plum corporate target in Asia.
Aside from charm, something that may be in scarce supply amongst Singapore's political-business elite, the popular conventional wisdom is that there is some stigma attached to Singapore government connected companies when seeking strategic tie-ups with Asian partners. TIME magazine unflatteringly characterized SingTel's bid had "an albatross around its neck from the start" since SingTel is 76% owned by Temasek Holdings, the Singapore government's main investment apparatus. No matter how purely commercial the intentions of SingTel's bid may have been, there was definitely the pink elephant of the Singapore government in the negotiating room of SingTel and C&WHKT.
To presume that C&WHKT's directors would not factor this issue that they basically dealing with a foreign government would have been an exercise of hopeful naivete as it would have been hard to ignore that SingTel's largest shareholder is a foreign government. The fact that C&WHKT wanted to cap the voting rights of Temasek Holdings in the proposed merged entity to just 29.9 per cent rather than the estimated 40-45 per cent stake could be C&WHKT's gambit for political cover against scrutiny from Beijing or Hong Kong SAR.
REGIONAL ENVY & PRICKLY POLITICS
One other aspect of this apparent failure to find A-list suitors in the region is Singapore's often prickly political relations with its neighbors exacerbated by the not infrequent belittling lectures by Singaporean politicians of how best to run their countries' economies and societies. Perpetual wariness and testiness in Singapore-Malaysia relations have always been fanned by impolitic outbursts south of the Causeway exemplified in Johor's alleged notoriety "for shootings, muggings and carjackingsî and the publication of THE SINGAPORE STORY. The wayang kulit of getting CLOBbered, CIQ and the just plain testiness on both sides of the Causeway may be a bridge too far to actually cross.
There were also less than charitable comments about the management or lack thereof of Indonesia's economy, the Thai Prime Minister not being part of the information age exacerbating Thailand's economic crisis, the Philippine fetish with democracy's excesses like a virulent free press have not been spared. Naturally, this breeds hostility and any government linked company seeking to do business in that country will have a tough job in selling the idea not only to the directors, shareholders and finally to the national population. This dovetails neatly into the question of envy that Singapore's neighbors feel for her well-managed and highly successful rival - a form of nationalism that seems all that more palpable when competitors are next door, rather than around continents.
Simmering beneath these man-made grenade throws is something more basic and that Singapore is largely ethnically Chinese. There is anecdotal evidence that Indonesian companies, for example, will talk about going with Dutch or US partners when a Singaporean link appears more sensible. Despite the amount of goodwill and fondness that Singapore showers on Indonesia, Singapore is still regarded with some circumspection by its Malay-dominant neighbor, which has its dominant Chinese minority to deal with the rest of Indonesia's teeming millions of less well off non-Chinese.
Contrast all this badmouthing of Singapore's neighbors that actually have functioning national economies with the glowing testimonials that Singapore politicians have showered on Myanmar's ruthless and authoritarian military dictatorship. We praise a nation that has a GNP per capita that is equal in value to twenty kilograms of Koshihiraki premium Japanese rice. Presumably, when that future day arrives if Myanmar develops a non-basketcase economy, Myanmar could even have a teleco utility that can be acquired by Singapore Inc. without stirring that populist backlash since Singapore's leaders were so generous with their praise of Myanmar's military generals.
Bruce Gale of Political & Economic Risk Consultancy fame, said "Singapore is probably going to do better in link-ups with major western companies than in expanding in the region." SINGTEL'S FAILED BID HIGHLIGHTS LOCAL PROBLEM March 2, 2000 Financial Times. Feel good news that Singapore is Number One in corruption-free or speedy justice are occasionally mined and eagerly waited from PERC's reports. Such flattering tales have been slavishly parroted and slobbered over by the local Singapore media and politicians. The authority of PERC is akin to a primary school report card of the measure of how well little Singapore is doing, and now apparently, how much better Singapore could be as well. One may even be so bold to say that this better success rate with westerners observation may be the corporate equivalent of those sarong party girls who can or want to only get it on with Western men rather than Asian types - but I digress.
MERGER INTERRUPTUS
More disturbingly, the lack of consummation of Singapore Inc.'s deals could also be traced to the cultural gap between Singapore and the rest of Asia. This is in spite of the intellectually bankrupt assertion of superiority of "Asian values" that most Singaporean politicians and apologists have been espousing & reiterating ad nauseum. These Asian values that Singapore Inc. will allegedly help clueless European and American companies whom want to do business with Asian countries. Another fallacy is that foreign enterprises can test bed their ideas in Singapore with Singapore government linked enterprises before implementation in the mother of all Asian markets, China. Judging from a less than inspiring track record from a showcase example of this endeavor, Suzhou, this business paradigm of a moneymaking menage a trois has been less than satisfactory.
The irony is that orderly Singapore is largely inoculated from the labyrinthine corruption-spiced business environment that is the rule in most parts of Asia like China. In fact, the only lesson from Suzhou is that it is the formula of how not to get things done in China. Singapore should be justly proud as a society where every meaningful commercial and non-commercial activity that matters is legislated, regulated, supplemented, educated and enforced by the government through an effective phalanx of laws, rules, regulations and OB markers. This is an environment geared for getting Western businesses into Singapore when the costs of business are low but an environment that cannot be transplanted or cloned outside of Singapore.
We are indeed an oasis of order in a very disorderly domain. However, the Singapore government's command and control structure that created this oasis also feeds a bureaucratic belief system that frustrates companies trying to scale that hi-tech mountain and expand overseas. Such a bureaucratic environment leads to a deadening, not a quickening, of the decision-making derring-do. Those who reside too much in this oasis may entertain mirages of Lawrence of Arabia like conquests in the harsh volatile but maddeningly rewarding Asian business terrain, witness Richard Li's coup in snatching C&W HKT right from underneath SingTel's noses.
Most managers in state-linked enterprises have pint-sized practice skills in the rough-and-ready world, outside their tightly controlled statutory board or freshly privatized one. Giants within Singapore's safely regulated shores but pygmies in Asia's piratical business shoals. More often, technocrat-execs behave like the typical secure civil servants there were thoroughbred to be, more concerned with obeying top-down directives rather than with pumping profits and pulling deals. This sort of belief system would be shaken if bureaucrats were not in some secure platinum (no more iron - in view of those plush superscale salaries) rice bowl situation.
A JAPANESE LESSON
As for the limits of the effectiveness bureaucrats in business or politicians directing bureaucrats in business, Singapore would be well advised to learn from Japan. For many years the Japanese people had idolized their country's civil servants as members of an elite class, believing such a talented group could never err and since the Japanese bureaucracy is staffed by highly talented, capable people. At two times in history, this unquestioned faith in the bureaucracy had led Japan to ruinous results.
The first instance was militarism. After Japan's Meiji Restoration where the best and brightest enter the Army or Navy Staff College. The alumnus formed the nucleus of military establishment where, prior to World War II, scored impressive victories in the Sino-Japanese War of 1894-95 and the Russo-Japanese War of 1904-5. Japan was confident that the military organization that had led it to victory against such regional foes like China and Russia would triumph over the United States and Great Britain as well. Unfortunately, they led Japan into the devastation and destruction of Japanese civilian life in World War II, Hiroshima and Nagasaki, the climactic humbling occupation by the victorious US forces and the lingering pariah status of nation that never really came clean on its World War II record.
The second unfolding lesson is bureaucratic sclerosisation of the Japanese economy. In the postwar era, the bureaucracy helped achieved Japan's rapid economic recovery and subsequent growth. Under the Finance Ministry's leadership, not a single bank failed. And under MITI's guidance, Japan's automobile and electronics manufacturers grew into world-beaters. But as Japan's long-lingering writhing and painful recession, financial scandals and continued inept bureaucratic incompetence and near criminal negligence has shown, successors differ from their predecessors, and success in the past does not guarantee success in the future. Times and circumstances change. The current Japanese bureaucracy would like to repeat an early success, but organizations, even more than individuals, are apt to be blinded by their past victories. Just as failure can pave the way to success, success can pave the way to failure.
Prior to the Asian currency crisis in 1997, when the Japanese and Asian economies delivered nothing but good news, it was possible to delude oneself that the alleged planners of those economies knew what they were doing. Now the truth is revealed.
One need not elaborate that Singapore's impressive record of success is due to political leadership coupled with a largely corruption free and efficient state machinery, led by an elite Administrative Service. The current Singapore bureaucracy is the proud custodian of this service tradition that has served Singapore well; so they, too, must be highly capable individuals. But just as Singapore has learnt from Japan's successes, it must draw equally compelling lessons from Japan's failures. Faith in government bureaucrats in business is yesterday's formula for success.
Any semblance of government involvement is anathema to these aggressive, nimble and unpredictable companies that thrive in the e-economy. The appointment of John T. Olds, current chief executive of Development Bank of Singapore (DBS), may have shown the way with his management shakeup reassigning powerful civil servants in January 1999 and bringing in four outsiders to raise DBS's operations to global standards.
But I remember my SJI school days where I learnt that one swallow does not a summer make. Olds' appointment is, well, old news. There are still quite a lot of other powerful, state-owned companies in Singapore Inc.'s vast commercial armada that may require some re-engineering or a change in captaincy in the management of the companies.
Singapore Prime Minister Goh Chok Tong's observation in light of the failed C&WHKT acquisition that Singapore may consider "dilution of the government stake and more independence for the management" SINGAPORE MAY SPEED DISPOSALS, Financial Times, Mar 13, 2000 is to be welcomed. It remains to be seen whether the pink elephant of Singapore government control may finally be put out to pasture away from Singapore Inc. For Singapore to revamp itself into the knowledge-based economy it lusts for and re-engineer state-linked local companies into multinationals, the Viagara Singapore Inc., needs is a divorce between the state (the government and her agents) and business.
John Tessensohn in Osaka, Japan