Fourth Quarter 2017 – A recent trip to Singapore revealed several companies as paragons of how to respond to a revenue and profit recession.
What we observed:
- The response of several Singaporean companies to recessionary conditions in their respective industries demonstrated a willingness to confront the issue directly as well as unusual creativity.
- The initiatives undertaken by these companies go well beyond the traditional corporate response to recessionary conditions, and go against the prevailing wisdom of avoiding the consequences of recessions at all costs.
- The strategies employed by these Singaporean companies are of import to economies as a whole because they recognize the salutary role a recession plays in the overall development of an economy over time.
I was very impressed with several of the company meetings I held during my recent visit to Singapore. The reason I was impressed is that these companies are embracing their profit recession by seeking to increase productivity through innovation. I realize this phrase employs overused terminology to the point that it risks being meaningless. After all, what company does not make a claim to focus on “productivity” and “innovation.” The reason I find it important to write this note is that (1) what these Singaporean companies are doing is exemplary, (2) their approach is the exception rather than the rule, and (3) the initiatives undertaken by these companies are of import at the macro level.
There is nothing unusual about companies experiencing a period of shrinking revenue and profit. It is during such periods that an investor may better differentiate among companies based on their response to the crisis. These responses tend to fall under one of two categories: those that simply wait for the cycle to turn; and those that question their product, service, or management processes in order to adapt to a new set of circumstances. More often than not, the higher quality management teams tend to choose the latter alternative. What I found in Singapore went beyond the second course of action.
One of the management teams I met with operates in a global, heavy industry that is suffering from reduced demand for the company’s products and services. Having followed this corporate and its competitors over the years, the historical response to a recessionary period has invariably relied on shifting production to a new product type that happens to enjoy relatively more demand at that point in time, together with cost control in order to attain the wherewithal to survive until the next expansionary period. What this company is doing goes well beyond this sensible course of action, by actually rethinking the way the business works. More specifically, this company is working on a unique approach, one characterized by a focus on the complete value chain and how it may participate in all stages of said chain. The approach went beyond an upstream and downstream perspective, and included a well-thought-out view on recurring and non-recurring sources of revenue, as well as the associated capital structure. I have never seen the orchestration of a one-stop-solution in this industry, where difficulties related to scale and coordination with disparate parties appear insurmountable. This company’s approach to securing its own future is as ambitious as it is innovative.