Whither Singapore Inc?

Dr. Lai Kok Fung is currently CEO of BuzzCity, a Singapore-based multinational company specialized in mobile advertising. He is also adjunct professor in the school of computing at the National University of Singapore. He started his career as an applied researcher in the Information Technology Institute, a now-defunct applied research institute funded by the government of Singapore. His writings on innovation are collected in a blog titled Innovation.

I published a pair of articles recently on two stewards of ‘Singapore Inc’ – SPH and SingTel. These are local giants of media and telecommunications. Their success, or lack of it, considerably impacts Singapore’s startup ecosystem.

In terms of SPH, I compared this pseudo media monopoly to Naspers, a dominant media group based in South Africa. I argued that the lack of competition has caused SPH to underperform. Protected by the monopoly, SPH has taken the easy way out to shore up its financials by leveraging its capital base onto the property business. In contrast, Naspers was more successful in transforming from a traditional newspaper business. It has become a major ecommerce player in emerging markets and currently owns significant stakes in Tencent (maker of QQ and WeChat) in China and Mail.ru in Russia.

When it comes to SingTel, I questioned its execution on the acquisition of Amobee. SingTel has failed to realize the investment thesis: combine Amobee’s agency and platform business to monetize SingTel’s digital assets. With a huge operating loss, SingTel will have spent a whopping S$1 billion (US$800 million) on this acquisition by next year. SingTel’s failure stems from its gatekeeper mindset, demonstrated by its CEO’s recent appeal to regulators to give carriers the power to charge WhatsApp and Skype for use of their networks.

I received a good amount of meaningful feedback on the articles. A senior figure of Singapore Inc objected to my characterization of SPH’s performance, saying, “Naspers had only one good investment in Tencent.” He repeated a common refrain that Naspers was only lucky to have invested in Tencent in the early days. With 34 percent ownership of Tencent, which generated US$3.15 billion in profit last year, Naspers can stomach huge losses from their other internet ventures. Those other ventures lost money big time – about US$220 million last year. To mischievously paraphrase him: “Naspers also sucks.”

Little room to maneuver

Through the ensuing conversations, I managed to glean useful insights on the mindset of Singapore Inc. These points should be relevant to local startups looking for investment or an acquisition from government linked companies (GLC).

SPH is unwilling to incur big losses in new digital ventures. With annual profit of S$400 million (US$320 million), it could perhaps get away with S$20 million (US$16 million) write-off before being punished by the stock market. Moreover, if one discounts the contribution of ad bundling (where sale of digital ads are bundled with print), SPH’s digital business is not profitable. Consequently, SPH measures investment by incremental benefits to its media business. On this yardstick, small investments on ShareInvestor and HardwareZone are performing well. The jury on SgCarMart is still out. Chope is underperforming.

Starhub’s cable business is hanging on by a thread. Its cable content can still command revenue only because services like Netflix are hampered by copyright in Singapore. Many consumers, however, have found legal or illegal ways to circumscribe the constraints. With innovations like Google’s Chromecast, Starhub’s position will continue to weaken.

See: SingTel ushers cyber surveillance era into Asia with video analytics for businesses

In a no more enviable position is M1, Singapore’s smallest mobile carrier. With annual profit at about S$150 million only, M1 has even less room to maneuver by the “we shall not be punished by the stock market” axiom. It can perhaps avoid becoming a dumb pipe by venturing into media. Unfortunately, as proven again by SingTel’s forays into HungryGoWhere, mobile carriers possess little media skill. How about using rich user profiles to add value to mobile advertising? Mobile carriers know little on post-paid users and next to nothing on prepaid users. Besides, their analytics suck. Bottom line: the most valuable assets of Singapore’s mobile carriers are their inherited cellular spectrums. They will exploit these assets to milk as much profit for as long as they possibly can.

SingTel, with annual profit of about S$3.5 billion (US$2.8 billion), is the most well-placed GLC to take meaningful risks in digital. Unfortunately, it succumbed to the “instant tree” mentality and placed a big bet on Amobee. Ominously, an insider whispers that the Tai-Chi game of “I didn’t sign off on this deal” has begun. It will be a long time before SingTel will invest S$1 billion (US$800 million) to support Singapore’s indigenous startup ecosystem.

12 years a slave of fortune

In an article also titled “Whither Singapore Inc” in 2002, The Economist opined that Singapore’s unique brand of state capitalism needed an overhaul. It reported that then Deputy Prime Minister Lee Hsien Loong repeatedly lamented Singapore’s lack of entrepreneurism, and that “an awareness is sinking in among the island’s ruling elite that a model that turned a swamp into a metropolis may not work as well when it comes to turning the metropolis into a citadel of the knowledge economy.” Twelve years have passed. Apart from a few “instant trees” (such as an exit through an entrepreneur who relocated to Singapore because of his wife), can we honestly say that we have made meaningful and systematic progress?

The Economist concluded there were two main options that Singapore can take. The first is the way of Jack Welch, attempting to run the GLC stable with management genius to boost profits and create winners. The second is Margaret Thatcher’s way: breaking up the GLCs and liberating the corporate sector from the government shacklers. The Thatcherite approach is much simpler, but also much bolder, breaking with Singapore’s tradition.