Playing Things Safe at San Miguel

I was reading the Business Section of yesterday's issue (October 29) of the Inquirer when I was struck by an event that was reported in this article. The article reported on the UK-based investment firm Ashmore Group's move to increase its control over Petron. I have no problem with foreigners increasing their level of investment in Filipino companies as long as the investment would lead to the creation of more jobs and better incomes for our countrymen.

However, I was not too happy to find in the same article that San Miguel Corporation, that long-time food and beverage conglomerate, has plans to buy into Petron too. In fact, reading further, I found that San Miguel was seeking more than 50% control of Petron, this planned move was announced right after acquiring a 27% stake in Meralco last Monday.

I am no strategic genius or business whiz but San Miguel's foray into power distribution and its planned entry into the oil refining business should not impress any serious student of Philippine business. This company has been able to lord it over the Philippines for many decades due to its sheer size and lack of true competition. Given its reputation and the resources at its disposal, I expect a lot more from a multi-billion dollar corporation who has been around since 1890. But aside from the Philippines, its premier product, San Miguel Beer, still does not have a significant presence in any foreign market save for Hongkong.

I love San Miguel's beer and I strongly believe that the product has the potential to compete with the world's best. But San Miguel's management hasn't done a very good job of introducing and marketing its premier product into different foreign markets. It seems content playing a conservative game of marketing San Miguel Beer only in places marked by a large Filipino presence. Instead of trying to compete in the global market against foreign brands, San Miguel's management seems content to just play it safe within its home grounds.

In my humble opinion, this is the problem when a company the size of San Miguel has never operated in an environment where it had to seriously compete to either maintain or expand its share of the market. Although the security afforded by a protected business environment may seem reassuring to a company's investors, the lack or absence of challenges or fights from a serious competitor never truly forced San Miguel to seek greater efficiency in resource allocation to lower its costs and boost its market share. It never had to mount a serious counterthrust to any competitor's moves. In short, it has a management that by international standards has never been truly battle-tested.

Instead of growing the company's revenues organically by expanding the market share of its products locally or by expanding into foreign markets either through strategic acquisitions or strategic alliances, San Miguel's management decided to pursue the path of least resistance by growing the company through investments into other industries WITHIN the Philippines even if these companies are in businesses outside of San Miguel's core competency. Even its selection of industries to invest in (power distribution and oil refining) are "safe" industries in the Philippine context. Both are practically cash cows and both are environments with limited or no competition.

In a previous job many years ago, I had the chance to be part of teams that analyzed parts of San Miguel's operations in a couple of its divisions. Typical of problems in a virtual monopoly, we found bloated bureaucracies, operational inefficiencies, waste, and even corruption. Due to the absence of competitive market pressures, we sensed no urgency on the part of both management and employees to fix their problems. I don't mean to paint a broad brush but a culture of complacency certainly prevailed. The place ran like a government office. I have no reason to believe that such mediocrities and problems have gone away because the environment San Miguel operates in remains virtually unchanged.

San Miguel is a company that can do more and achieve more. A lot of foreigners I know who have tasted its beer love it. Aside from beer, it has a wide array of products that are of high quality that competing in foreign markets and gaining the acceptance of foreign customers should not be deemed an insurmountable challenge. Instead of pouring its resources into businesses it knows next to nothing about, the company ought to focus its energies on its core competency. Instead of focusing on protecting its local market share and stifling local competition, San Miguel's management owes it to the country, the Filipino people, and themselves to prove that the people behind San Miguel are made of sterner stuff. The only way to do so is to unleash the competitive spirit within them and do competitive battles on foreign shores.