YOU couldn’t get a stronger shareholder than reclusive tycoon T. Ananda Krishnan. But having a giant corporate figure does not guarantee a success story.

Astro All Asia Network plc ventured into Indonesia in 2006 with pay-TV joint venture (JV) partner, PDTV. It has been an endless journey of regulatory issues and sunken costs.

Earlier this year, Astro wrote off the entire Indonesian investment for RM687.4mil.

Apart from its 20% stake in Sun Direct TV, Astro is the second largest private direct-to-home provider in India that is only expected to break even in three years.

Its other overseas investments include 100% of Hong Kong-based Celestial Pictures Ltd that owns the Shaw Brothers film library and distributes content in the region, including China.

Then there is the country’s largest bank, Malayan Banking Bhd (Maybank), that embarked on an aggressive regional shopping spree which received massive disapproval from shareholders and the investing community.

Maybank spent RM11.1bil acquiring three banks just before the financial crisis engulfed much of the world.

First, it was the acquisition of a 15% stake in Vietnam’s An Binh Commercial Joint Stock Bank (ABBank) for RM430mil in March. A few weeks later, it announced that it was buying Bank Internasional Indonesia (BII) for RM8.6bil, or at 4.65 times price to book value, making it the biggest merger and acquisition exercise for the banking industry.

It announced that it was buying a 15% stake in MCB Bank Ltd, the fourth largest bank in Pakistan, for US$686mil (RM2.17bil) from the Nishat Group.

The acquisition of BII involved a long drawn out process that went through several regulatory hurdles both in Malaysia and Indonesia.

A year down the road, Maybank continues to be punished for its perceived unwise corporate move.

Earlier this week, the press grilled Maybank for its 76% drop in net profit for the year ended June 30 to RM691.87mil from RM2.92bil a year earlier.

The bank paid impairment charges amounting to RM1.97bil for its Indonesian and Pakistan acquisitions.

Compulsory to go overseas?

Companies that do well overseas are normally those that are savvy and cost efficient« TERENCE WONG

CIMB head of research Terence Wong says companies can be looking for trouble by going overseas.

“They are going to be competing with the multinational companies and the homegrown champions. There is a price to pay, and losses may be incurred,” Wong says.

He says companies that do well overseas are normally those that are savvy and cost efficient. Having a local partner does not guarantee success as there are many overseas JVs that do not turn out favourably.

It can be a double-edged sword. On the one hand, there may be growth. A company needs to be mindful of all the challenges involved. Hence, competency takes immense precedence.

HwangDBS Investment Management Bhd head of equities Gan Eng Peng says the rise of companies venturing overseas is sometimes driven by market saturation.

“Companies can become global giants by operating solely within large markets like the US, Japan, or China, and need not venture beyond those borders.

“However, the Malaysian market obviously cannot support such an ambition. As a result, many local companies go overseas,” he says.

Gan says another factor is that certain companies become naturally more competitive as they become regional. “Banks benefit from regional and global expansion as they capture regional flow of capital and grow with their clients.Meanwhile, telecommunication companies benefit from being a bulk purchaser, increased network traffic and increasingly interconnected markets as a result of globalisation,” he says.

Private equity banker Sherilyn Foong says that in line with globalisation, the trend of Malaysian companies venturing abroad has been clearly on the rise.

While she feels it is not compulsory to go overseas to succeed, companies looking to grow to the next level often see a need to increase and diversify their market share.

For instance, Green Packet Bhd is already thinking of exporting its high-speed wireless Internet expertise to emerging Asian markets and further develop the company’s offerings, a move deemed crucial to have a headstart in an untapped global business.

Green Packet is eyeing a presence in Asean and South Asian countries, in anticipation that policymakers will start issuing more WiMAX licences. While Green Packet’s major market began in China, it has diversified into Taiwan, Hong Kong, Bangkok, the Philippines and the Middle East in the last two years.

In 2006, China was contributing 80% of its revenue. Last year, it dropped to 25%.

Companies fail partly because they do not understand the local culture and the way of doing business« SHAHIN JAMMAL

ECM Libra Investment Bank Bhd deputy CEO Shahin Jammal says companies fail partly because they do not understand the local culture and the way of doing business.

They also need to be of a certain size before they are able to compete internationally.

It is important to have local expertise and knowledge. Lots of Malaysian companies operate under subsidised sectors and are not prepared to compete.

In China, there is always a need to have good local partners and you have to ensure it is always a win-win situation.

In India however, the problems are more bureaucratic in nature.

Then there’s the issue of management. Often, the best managers of the company are unwilling to relocate to places like the Middle East or Vietnam, especially when their families are settled in one country.

“This forces the company to choose less capable second tier managers to do the job, and hence sometimes not the best results are achieved,” says Shahin.

Foong says that despite meticulous planning, one cannot overlook or underesimate nationalistic sentiments, which is a qualitative factor that cannot be measured.

“Malaysians are well educated, technology-savvy and entrepreneurial. There are definitely local small cap companies that have the potential to become regional and global champs in their business segments,” she says.