San Miguel's paradigm shift

"Strategy is seeing what everybody else has seen and thinking what nobody else has thought." – Sir Acid After a stunning surprise last year, the Philippine's leading food conglomerate San Miguel Corporation (SMC), in its effort to find "new engines of growth" would seem poise to undertake another corporate shake-up, which may see it sell part of its core food and beverage unit and more of its flagship beer operations. SMC Chairman Eduardo M. Cojuangco, Jr. has told in a stockholders' meeting that: "The restructuring may require the divestment of part of our interest in our major subsidiaries through either an IPO or follow-on offering and strategic partnerships with existing partners and other industry leaders... In the event that we do pursue such a partnership, San Miguel would retain controlling interest of at least 51%." SMC is said to be keen on venturing into power, mining, property and infrastructure businesses. However, the company has yet to make a major acquisition in those heavy industries, which perhaps has prompted Mr. Cojuangco, who has a 17% stake in SMC, to add: "Fellow stockholders, it may seem far too much is fluid. One year on, we are still on the lookout for potential and prospective investments... and we will report to you as soon as something concrete materializes." It's a paradigm shift for SMC! I'm sure most of us would not have thought, or dreamed of SMC would let go its lucrative beer business. And we may view such move as a nightmare. But there are few persons I know who thinks otherwise. Most vocal among them is Thads Bentulan, a Business World columnist who tagged himself as the Street Strategist. He is also a self-proclaimed future Nobel Laureate in Economics for his work on the Hyperwage Theory. His book Strategy Myopia, written in 1998, may have persuaded the current board members of SMC to embrace such a radical change. Here is what he told about SMC in his book: "SMC is a unique company. It was the single most qualified private entity to lead the country into economic prosperity. It had all the chances to bring this country into high tech value-added manufacturing or services. It had the clear chance to lead but it failed to grab the baton. "Unfortunately, it was content with being just a beer company instead of being the global world-class powerhouse it could have been. "SMC could have created its own computer brand for domestic and export markets in a technological partnership with HP or Intel... Instead of Acer or Compaq, we could have been using SMC laser printers and computers this time developing Filipino new technology along the way. "SMC could have gone into power generation. This is not too remote for its management as it already owns and operates power plants for internal use. Even granting it has no expertise at all, then it could have partnered with BC Hydro – not that I'm passing judgment on BC Hydro, but I liked their beautifully landscaped offices in Vancouver. "San Miguel could have gone into banking and financial services maybe by first issuing SMC Visa credit cards after all it had 20,000 employees as captive market. It could have gone into telecom, software, and infrastructure... For what it's worth, SMC could have gone into record producing, or book publishing to promote Filipino talents to the world. "SMC was poised to be the economic messiah; could have been the benchmark for Filipino companies with global ambitions; could have been our first chaebol... Can the country's only world-class, albeit single-sector, company afford to be myopic in its vision?" It seems that SMC is following the path drawn up by the Street Strategist. To continue, here are more excerpts from the book: "After 107 years, SMC is not a major regional player yet? You would have thought SMC would have moved on to bigger playing fields and developed new technology and diversified away from beer. The problem with beer is that it is consumption-oriented, hence counter-cyclical to the push for savings needed for a strong economy. Beer technology is mature, therefore being ahead does not translate into an advantage. It is not a basic human need and very volatile in terms of demand particularly for low-income countries like the Philippines. "By the way, how much is SMC's market capitalization? A mere US$2.7-billion... But Hyundai transformed itself in only 50 years from an auto repair shop into a US$93-billion group with artificial satellites, magnetic levitation trains, ships and semiconductors, oil refineries and stockbrokerages giving employment to 200,000 people. Why could SMC, after 107 years, only do US$2.3-billion employing only 18,500?" So there. Anyways, the name San Miguel seems flexible enough to carry its future businesses. It sounds pleasing to hear a corporate name such as San Miguel Electric Co. (SAMECO) or San Miguel Power Corp. (SMPC). Ditto with San Miguel Mining Co. By the way, follow this link if you want to know more about the books published by the Street Strategist: http://streetstrategist.googlepages.com