Financial Times

Timidity and insularity vs. the Telekom IPO
By Nous
The ability of a Malaysian company to succeed spectacularly in the telecommunications sector in this country does not reflect terribly well on the foresight, courage, and resolve of our own leaders in business and finance.
After all, the successful harnessing of opportunities by Dialog Telekom was not something that was driven either by proprietary technology or by powerful R&D capabilities or by imported managerial skills.

It was driven rather by the search for new opportunities and new ways to create and realise value. Indeed the present makeup of the telecommunications sector signifies much more than a missed opportunity for our leading firms. It signifies above all their reluctance to initiate and manage the search for new ways to create and realise value.

Moreover, the failure so far by our own organisations to make the most of the opportunities offered by the deregulation of the telecommunications industry stands to unravel the belief that our economic backwardness is largely the result of political venality.

The power to change the economy fundamentally rests with the financial sector, though still dominated by banks, and with the so-called premier blue-chip-conglomerates.

Yet anyone who has had the good fortune to discuss a business plan with the financial sector, especially with the banks, knows that business strategies are evaluated simplistically on the basis of the market as it is. And any business plan that involves doing more of what is already there readily receives the blessings of the financial sector.

The market transformational power of, or the capacity for value-creation by entrepreneurship has no place in the analytical models of the financial sector.
As Sumantra Ghoshal and Peter Moran wrote: “Grounded on the market-failure framework, we have built a theoretical infrastructure which views companies as inferior substitutes to the ‘marvel of market.’

The negative framing of the raison d’etre of the institution, supported neither by causal argument nor any systematic evidence and justified simply as matter of analytical convenience, has been the springboard for developing ideas about company strategy, organization, and management that are equally negative.”

Adhering as banks traditionally do to practices and analytical tools derived from theories that fail to discern clearly the value-creating or market-transforming role of companies (or entrepreneurship), it is customary to hear such statements as this from the banks:

• ‘The market is not yet ready to go digital.’
• ‘You need deep pockets to play a role in a market where competitors are big and strong.’
• ‘Do not invest in a shrinking industry or one that is in a lousy shape.’

No role for innovation and entrepreneurship has been envisaged in the statements attributed above to the financial sector. Or in those, the logic of entrepreneurship has been subordinated to the logic of market efficiency.
To cite Ghoshal and Moran again, “if all we had were markets, no matter how efficient they were, relatively little value would be created from a society’s given endowment of resources.

Companies, because of the very different institutional context and logic they create within themselves, are able to broaden the conditions of viability and are therefore able to engender resource combination and exchange, i.e., value creation in a manner that markets cannot.”

It is difficult to see what imaginable role the financial sector can have in transforming our economy so long as it envisions entrepreneurship as profit chasing within the framework of market efficiency. Such a view may be justified by the organisational behaviour of our conglomerates. But their pathologies should not be allowed to obscure the world-transforming role which the spirit of enterprise could play.

The recent developments in the telecommunications sector are a wake-up call to our powerful conglomerates. Without an all-encompassing entrepreneurial ethos, our venerable conglomerates will cease to perform the task of being the chief actors in our economic progress.

However, no entrepreneurial ethos could be developed, if conglomerates remain merely collections of parts, or merely portfolios of independent activities.

For, without a strong base, a strong core business, and synergy in diversification, it is easy to cut and run when a part becomes mired in difficulties.

There has to be much more than the will to maximise profits in creating value.
As a society, we have much more political, civil, and economic liberty than most societies in this world. But we lack guts, ideas and an enlightened financial sector.

(The writer could be reached through ft@sundaytimes.wnl.lk)

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