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3 Key Notes Before Entering a New Market [Video & Transcript]

3 Key Notes Before Entering a New Market [Video & Transcript]

The above is a video taken during one of 2iB Partners master class where our advisor Mr. Richard Eu answers a question on “3 Key Notes Before Entering a New Market” by a business owner, Mr. Peh Zheng Yang.

 [Begin Transcript]

Mr. Peh: You mentioned something like for more traditional businesses, like my retail business with a product and when you’re looking to expand regionally, you talked about either buying or organic growth. So, well you mentioned that there are very key differences to look out for. So, I’d like to know, what are 3 important things to look out for – perhaps like processes to look out for or potholes we need to avoid.

 

Mr. Richard Eu (2iB Partners):

The People Problem

 

Actually, the main thing is the people problem. You get the right person, anything can work. In most cases it is very hard to find the right person, that’s one.

 

Aligning existing operations

 

And the other thing is that, if you start out in a new country, you have got to give a lot of effort, backing and support from your existing operations. So are your existing operations prepared to do this and spend time doing stuff, not beneficial for them, you know and to help out this new territory. So I come, you know, in my case, we have situations where the people from one country wouldn’t support the other one because they are looking at their own bottom line. So you have got find a way of aligning everybody else in the organization to ensure the success of that operation. So it is some compensation scheme you have to think of, right?

 

Navigating regulatory issues

 

And then the third one I would say is probably, in our case particularly – regulatory, getting over regulatory issues. But generally speaking, every time I go to a new territory, requirements will be different and you’re going to need somebody who can navigate the stuff locally. I won’t say paying bribes, but you’ve got to know who are the right people to deal with. Especially in the emerging countries, it’s a lot more difficult to do that.

 

[End Transcript]

 

Investing in the right instruments – Human Capital

Investing in the right instruments – Human Capital

Human Capital

Human capital may be defined as a measure of the economic value of an employee (from a contractor to the CEO). Measured by his skills, contribution, value and cost to his company. But if it is only measured by economic value, then the potential of that employee at different stages of his life or career is destroyed.

Before we proceed, let us make a simple differentiation between human resource and human capital. Human resources deal with the present. Managing what is there and applying it in the right silos. It is tactical. Human capital deals with all three tenses. It is strategic and should take into consideration issues beyond logic as well.

Data and statistics as we know only measures what was and projects on what it will be based on what was. So, if the employee makes a mid-career change that is far more profitable (even in terms of economic value), it cannot and will not be taken into consideration. One of the main reasons that I am no longer interested in chess is that while it used to be a game of strategy, today it is merely arithmetic and only measures your memory. Just like IQ tests only measure your ability to take an IQ test and not really your intelligence. I apply this analogy to measuring an employee merely by his current skill sets. Try getting a computer to put a value to a signature of Van Gogh at his time or a painter who just might be the next Pablo. Ergo, data will always be insufficient.

Some Observations Questions Hypothesis & Analysis

 

Digital Displacement

Investments should be made in people first, ideas next and issues last. I have been subject to a few interviews in my life by recruiters for jobs. But they were enough to make a lasting impact. My first observation was that interviewees to them are merely a database. The focus is always on the employers. Perhaps it is merely the law of supply and demand. After all, it is the employers that pay the recruiters. It is human tendency to think within the box, act on instructions and use forms and precedents to arrive at a hiring conclusion. In the fast approaching age of digital transformation, such boxers like the recruiters are ironically going to be displaced by technology first. This can be extended to similar professions like property agents, financial advisors, etc.

 

The Senior Professionals, Managers, Executives, Technicians (PMET) Conundrum

Another problem with human capital is the PMET Conundrum. Do we lay off PMETs or upskill and utilize them? Singapore has made valiant efforts to remain relevant by upgrading the silver workforce with SkillsFuture. While I fully endorse the effort, I am not sure about its intended outcome. Sometimes I see it as teaching an old dog new tricks. It is difficult. However, with due credit to Singapore, they at least offer you the opportunity and availability. Such efforts to upgrade one’s self must come from within the individual. Indeed, learning only stops when you are dead. So, can such persons and individuals be recapitalized or should they be invested in?

I believe redefinition and reallocation of their roles and change in perception is necessary. After all, persons like recruiters and PMETs also have the added advantage of being data points for future applications. If you haven’t discovered the worth in your employee, then the fault is yours solely.

Human capitalization and re-capitalization can be aggregated and deployed. The experiment comes later.

Concluding Points

Human capital, in my definition, is the analysis and application of resources from schooling to silver learning and investment therein. So, while this may not be achievable by and within a company or organization, it must come from various combined sources.

Every employee is equal to the mass of their experience and knowledge; and their contribution to company and society. The employee’s relative skill, worth, experience and knowledge changes over time and this need to be capitalized. The human capital is invested to provide profits or just more capital.

Persons such as recruiters, financial advisers, compliance experts, etc., should transform themselves into corporate psychologists to realign and relocate human capital. With all their recruiting experience and interviews, they should be in the best position to understand and differentiate the strengths and weakness, truth and cover ups, wheat and chaff of candidates.

PMETs should be recognized for their gold mine of practical skills, information and experience. They are a crucible of knowledge. A plethora of mentors. Their relative contributions over time should be thoroughly exploited. Fitting an engineer into the finance sector brought tremendous change in the way stock markets functioned. This is way I desire human capital seeing tapped and recapitalized.

Displaced, retrenched or redundant employees need not form part of a “Cost-Savings + Efficiency” exercise. Human capital should be redeployed into different sectors and the categories above serve that purpose efficiently.

Application of all of the above by a collection of companies – in the context of Singapore and other first world countries, export (on a reimport basis) and international interaction of this human capital to other countries, developed, developing and under-developed – will make a change to world economy as we know it.

So, invest in your people – your human capital and your great minds. Ideas will follow. The capitalized employee will fetch ideas which are after all an aggregation of data, thoughts – logical and illogical (takes 100 bullshit ideas to fertilize one good one) and a eureka moment. A good and smart investment, in terms of money or effort, in human capital will provide exponential returns to a group of companies. At least valuation of human capital is better realized than tech valuations. It is long term and not an exit strategy like some recently listed tech companies. Unless, I should wait for an application where I could upload all the collective experiences and knowledge of human capital onto a cloud platform and run algorithms.

 

Yang Yen Thaw- Managing Director, 2iB Partners

For partnerships, speaker and general business enquiries with 2iB Partners:

Contact Person Dylan Tan
Designation COO
Email Dylan@2ibpartners.com

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When Mergers & Acquisitions don’t work

When Mergers & Acquisitions don’t work

Mergers and Acquisitions (M&A) aim for financial stability of a business and wealth maximization of shareholders. It provides a potentially bigger and diversified market share. In these days, it is the most commonly use methods for the growth of companies. M&A are a dominant means of globalization and is key to scaling up and internationalization.

The potential problems of M&As are aplenty. Ego issues, inflated books, race against time, misrepresentations, etc. As long as the business looks profitable, the merged / acquisition parties are happy but when profits go south, then the finger pointing begins.

M&As should be familial not financial. If M&As are driven purely by finance, it is going to be a disaster for the business. Finance in business rarely takes a long-term view. It is the maximization of profits in the shortest time. Finance people laugh all the way to the bank. Maybe it is solely driven by time value of money. But great businesses are the greatest collateral damage if such a view is adopted.

M&A Reasons

Collaborations and synergies, often touted as reasons for M&As, are highly advantageous to M&A parties. This brings in, among other things, cost savings + efficiencies (CSE), value, returns and profitability. CSE brings in sharing of resources, centralization of corporate functions and systems, elimination of duplicate overheads, optimization of over-capability, shared networks, business op­timization, managing financial risk, elimination of double incidence of taxation, shared technology and human resource reallocation. These can bring about high profitability by itself.

M&A Headaches

i-contact

Though the term “merger” implies a creation of a single entity from two or more equals this does not work in practice. There is no i-contact – both in terms of seeing eye to eye and discarding egos; both of speaking on the same eye level and equal egos. In most merger discussions, getting the two to see eye to eye itself is a daunting task. There will always be a bigger equal in terms of higher revenues or profits, or in terms of potential growth or their war-chest. And when the captains of the business come to an understanding, the professionals will come in with their own set of needs and wants to potentially scuttle the deal. This is worse in an acquisition. There will always be a difference of opinion in every aspect of valuation depending upon the buy or the sell side. Warren Buffet’s “price is what you pay, value is what you get” would probably be the anti-thesis of such business deals.

Non-prima inter pares

The big problem and headaches for M&A reasons are many a times the perception of primus inter pares. There is always the issue of one being bigger than the other. Whether it be in terms of revenues or profits or growth or talent or arrogance of cash. Substantial amount of time is spent in sorting out the babel from benefits. Hence when 2 or more parties get into a room, it is very difficult for them to have a balanced discussion or negotiation and this leads to high protraction of deal completion.

Human Capital

Human capital (HC) deals with all three tenses – past, present and future. It is strategic and takes into consideration issues beyond logic as well. HC is probably the first collateral damage in an M&A. While M&As are supposed to bring in CSE of scale, paradoxically, most of the valuable existing experience in a company is lost in redundancies, lay-offs, retrenchment, human resource conflicts. This capital which has high return on investment, must be captured and reallocated in an M&A.

Professionals assisting in M&As are also part of HC. If the professionals’ vision is not aligned with M&A parties, the M&A is headed towards dangerous times. Such professionals, even with good intentions, will take the M&A one step forward, but 3 steps back.

On a different note, an interesting development in HC companies getting into an M&A would be the development of big data and analytics and its application on the experience of individuals. With most interested individuals expressing / uploading their thoughts in some form of the other on the web, one day sufficient processing speed and bandwidth can give us the benefit of this experience.

Time

Time is money, time is the enemy. But it is a long-term investment. In the haste to close a deal, most M&As gloss over critical issues. Time is also the culprit in closing deals over weekends resulting in missing out potential added costs, disputes, rushing go-to-market, pushing to agreements without careful consideration and relationship building (cf. guanxi below). Time is not speed and speed is not time. What is important, is speed based on calculated timing. An M&A built on relationships takes time, but it calculates the long-term benefits of working well together resulting in a high average speed.

Legal

The importance is always understated and misunderstood, especially in international M&As.

Merged & Acquired – Solution

  • M&As are delicate subjects. In these cases, I say that the shortest distance between two points is never a straight line. Diplomatic skills, EQ, empathy, motivational theory applications, change management and cultural integrations are pre-requisites for a successful M&A. This actually saves time in the long run and are the multiple points that in fact bring the main 2 points together.
  • Capture and reallocation of HC in merged or acquired companies. This capital which has high return on investment in an M&A.
  • Guanxi – Like most Chinese expressions, guanxi is complex. Simply put, it means “relationships” (but without hierarchy). Build understanding and acceptance before M&A. It forms what I call Human Due Diligence.
  •  Find professionals that give you the paradoxical and elusive “Collaborative M&A with Organic Growth” that consider contribution by all parties to an M&A to help each other increase output, increase customer base, improve and develop new products and successfully deploy HC.

 

Yang Yen Thaw Managing Director – 2iB Partners

 

For partnerships, speaker and general business enquiries with 2iB Partners:

Contact Person Dylan Tan
Designation COO
Email Dylan@2ibpartners.com

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