Piercing the bamboo network-Kartar Singh Thakral's secret empire.
Anil:
Here is good read about one of our boys form Asia Inc magazine.
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(How a Sikh from Singapore won big in China and the world)
BY KEVIN HAMLIN
CALL IT KARTAR SINGH THAKRAL'S secret empire. Virtually unheard of until five years ago, when it listed in Sydney what was Australia's biggest hotel chain, the Singapore-based Thakral Group is still so low-profile that it either slips by unnoticed or is dismissed as just another Indian trading house.
Another Indian trading house it is, in essence. But what a trading house. Quietly, it has grown into a multinational corporation with more than 12,000 employees in 32 countries and annual turnover estimated at more than $2 billion.
Thakral now makes televisions in Chengdu, Sichuan province, and video compact disks in Shanghai. It uses helium airships to hoist advertising billboards over Beijing and recently began working with leading Hollywood and Chinese studios to manufacture entertainment software in Beijing and Hong Kong.
Yet by far the most amazing secret hidden within the sprawling empire of helmsman Kartar Singh is the way a Sikh family business came to dominate the distribution of branded consumer-electronics products in China. Thakral is living proof that foreigners do not need a ‘bamboo network' of overseas-Chinese contacts or the guanxi (connections) that flow from ethnicity to win big in the notoriously complex mainland market.
The secret of how Thakral penetrated China is also a secret that illuminates the reasons behind the group's global success, for the qualities that made a Sikh family business successful in China are the same qualities that made it successful in Eastern Europe, Russia, Australia, Nigeria and much of the rest of the globe.
In China, as elsewhere, Thakral's success was built on an old-fashioned recipe of hard work, patient relationship-building, entrepreneurial flare and calculated risk-taking. It is perhaps an untypical success story in modern Asia, a place more recently weaned on the rags-to-riches tales of fast-talking entrepreneurs and their flashy skyscrapers.
There is nothing flashy about Kartar Singh, 65, or his group. Simply dressed in a white shirt, dark blue trousers and a blue turban, he talks from the heart, seemingly somewhat bemused by interest in his business success.
FAMILY ATMOSPHERE
His headquarters is based in low-key and low-rise Colombo Court, an old-ish complex in the shadow of Singapore's glitzy Raffles Place towers. Instead of an oak-paneled private office, Kartar Singh chooses to sit with colleagues in the center of an open-plan work environment. Thakral executives talk proudly about the family atmosphere at the company and boast that the group has virtually no staff turnover. Says Elie Baroudi, Thakral Corp.'s deputy chief executive officer: Kartar Singh treats everybody, irrespective of whether it's the messenger, the driver or the most senior executive, with respect and dignity.
Understated and humble, Kartar Singh is a devout Sikh who makes daily visits to the temple and meditates regularly. When you read about religion it teaches you that you should not be too greedy, that you should be content, he says. You should not take advantage of others. When you follow this kind of life it always produces very good fruit.
Fruit has been plentiful for Thakral Corp., the group's Singapore-listed arm that focuses on the distribution of consumer electronics in China and Hong Kong.
It is estimated to account for about half of all the videocassette recorders and more than half of imported televisions sold in China. Its distribution network spans 149 mainland cities and towns and has a customer base of about 1,550 wholesalers and retailers. Thakral Corp.'s net profit rose 3 percent to $44 million in 1997-98 on sales of $696 million, down from $776 million in 1996-97.
Revenues like that did not materialize overnight, Kartar Singh points out. Thakral first did business with China in the 1960s, before the Cultural Revolution, when it bought textiles to sell in Southeast Asia. Kartar Singh says proudly: We never canceled an order.
Soon after China reopened to the outside world in 1978, Thakral was back, appointing a Beijing representative in 1982 and opening an office in 1984. It moved into the China market because cutthroat competition in consumer- electronics markets in Southeast Asia caused profit margins to evaporate. Thakral's inventories were piling up and it was desperate for new markets.
Today, China is the centerpiece of the empire. Thakral distributes more than 15 international brands, including Sony, Panasonic, Sharp, Casio, IBM and JVC. Its distribution network is so extensive that Thakral added manufacturing facilities in Chengdu and Shanghai, mainly to provide a broader range of products for its buyers. Still, manufacturing remains a secondary activity for Thakral Corp., accounting for between 4 and 6 percent of its income.
How did Thakral build such a dominant distribution business in China? Kartar Singh attributes the group's success to painstaking efforts building sound relationships with suppliers and customers, year after year, in good times and bad.
Most distributors, he says, mistakenly squeeze higher prices out of customers when times are good. But if a distributor is to win customer loyalty in the long term, it must resist that temptation and continue to deliver at a fair price.
Summarizing why Thakral is China's most successful distributor of branded consumer electronics, Kartar Singh adds: We are like a fragrance; we have a good smell. When people ask about Thakral, they are told that we are good people.
Of course, during its years in China Thakral has built excellent connections that have contributed much to its success. The People's Liberation Army is Thakral's partner in its 75 percent-owned Beijing Orient Air Service Co., which leases helium airships as advertising billboards over Beijing, Shanghai and Guangzhou. The Ministry of Culture is a partner in a recently established entity that manufactures entertainment software in Beijing, while a former deputy director of the Ministry of Electronics heads Thakral's manufacturing operations in the PRC.
Contacts like that help smooth out the bumps. But do they give Thakral an inside track in China? We don't have big clout there and we don't have big connections, Kartar Singh responds. ‘We are only a business. If we want something, we have to wait a couple of years. We don't need to do anything for which we need the help of other people.
Thakral executives say its success in China is based on a tried and tested formula that has been used to conquer other emerging markets. They went to China very early, they made the necessary commitment, they invested, they were not put off by the setbacks, says Thakral's Elie Baroudi. There was hard work, commitment and very strong strategic partnerships. The reason the company is successful in China is the same reason as it is successful in Eastern Europe and Russia, where the same Indian family has succeeded in a Western environment where almost everybody has blue eyes.
Kartar Singh sniffs out promising emerging markets ahead of the crowd to avoid competition and gain thick profit margins. At such times, Thakral earns margins of between 25 and 30 percent, compared with not more than 3 percent in mature markets such as Singapore. In the early years buyers don't ask questions because they need the goods, Kartar Singh says. Later on they become very aware. There's a lot of competition and things change.
Although his constant forays into emerging markets make him appear an intrepid adventurer, Kartar Singh is a cautious man whose golden rule is to start modest, never big.
If you go into a market in a big way you can have a setback which can have a very big impact on you, he says. If you are a billion-dollar company, you can afford to lose $50 million. But if you are a $100 million company and you lose $50 million, it might ruin you even though you can afford the loss. People will say you were imprudent and because of that you might be going to lose another $50 million very fast.
Thakral rarely commits to big investments in emerging markets, although it has made some small manufacturing forays in China, Cambodia, Romania and Hungary, and also made an uncharacteristic investment in the Beijing Exhibition Center Hotel in 1987. Look at our portfolio, says Kartar Singh. Investments are always in solid, stable countries like Australia and Singapore.
The group has made substantial investments in Australia, where Thakral Holdings Ltd. is the country's biggest hotel operator. It owns or manages 6,734 rooms in 39 hotels, among them Melbourne's Hilton on the Park. The company's net profit rose 10 percent to $16.7 million in the 1997-98 financial year after a 57 percent surge the previous year. Net assets are valued at more than $300 million.
Kartar Singh's careful, conservative approach to risk is one reason the group so far has come through Asia's financial turmoil unscathed. Although Thakral Corp.'s share price was sold down by more than half to stand at S$0.55 a share (US$0.33) last November, the company has a cash hoard of $135 million and predicts solid profits this year.
Thakral Corp. was lucky to have no exposure in Indonesia, Thailand and South Korea, but its exposure in China was worrisome. It buys most of its electronics products in yen - a currency that has fluctuated considerably of late - and sells primarily in Hong Kong dollars and renminbi. On an average day currency exposure stands at about $140 million. Thakral had previously hedged at least 50 percent of that. Now it is fully hedged. We're anticipating that there may be some movement, even in these two currencies [the Hong Kong dollar and renminbi], Baroudi says. Even if there is only a 10 percent probability that something will happen, we can't afford to just sit idle and watch it happen.
Although Kartar Singh always tries to minimize risk, he has suffered his share of setbacks. In Chengdu, for example, Thakral Corp. is trying to dig itself out of a hole. In 1997 its television manufacturing plant lost $1.5 million.
The opportunity had looked perfect. China's most populous province has a market of more than 100 million people. Yet Chengdu is so far west of major coastal cities that the cost of shipping televisions to the coast is prohibitive. Working with technical assistance from Japan's Matsushita, Thakral figured it could enter the market in a small way and make a tidy profit, at the same time enhancing its distribution capability. But two weeks after Thakral opened its plant in April 1996, Chengdu's biggest local television manufacturer slashed its prices by 27 percent. Then it doubled capacity from 2 million units annually to 4 million. Later, it upped capacity again, to 6 million units a year.
Thakral, which had capacity to make just 200,000 televisions a year, was being brutally squeezed by a competitor determined not to yield a centimeter of market share. If I were to do it again, I would do a lot more homework and understand how my competitor might act before opening the plant, says Kartar Singh's son, Inderbethal Thakral, group managing director of Thakral Corp. in Hong Kong.
Still, because Thakral started in Chengdu in a modest way, the losses make barely a dent in the company's China income. Colleagues say Kartar Singh prefers to view such reverses as a form of research and development expense. It's an attitude he inherited from his father, Sohan Singh Thakral, an orphan who migrated to Thailand from India's Punjab state when he was 10 years old.
Sohan Singh had worked as a shop boy in India and started life in Thailand as a domestic helper. He then sold textiles on Bangkok's streets before setting up what he called the Punjab Store in 1905. Ninety-three years later that little shop has blossomed into the multinational Thakral group.
Born in Thailand as the fifth of Sohan Singh's seven children, Kartar Singh had his education interrupted by World War II and most of what he learned was passed down by his father and other relatives. He made his first buying trip to India in 1950 when he was just 17. Two years later, Sohan Singh set up Thakral Brothers (Pte.) Ltd. in Singapore and sent Kartar Singh from Thailand to take charge of what today remains the group's main private arm. The same year he played an instrumental role in taking Thakral into the former Soviet Union, helping it become one of the biggest importers of textiles from that country.
And Kartar Singh's adventurous spirit has not dimmed over the years. He has opened offices in cities from Phnom Penh to Prague, Amman to Almaty. He also has been progressive in transforming Thakral from a family-owned and run business into a professionally managed multinational. He began recruiting expatriate professionals in the 1980s and since has added 200.
The entire Australian operation [which employs about 4,700 people] is managed by professionals, says Thakral Brothers Director Prithvi Raj Ahuja. There is no family member there.
Nevertheless, eight Thakrals, one of Kartar Singh's brothers, four sons and three nephews, are employed by the group. And family members continue to play a key role in the group's management. As well as Inderbethal in Hong Kong, family members also control pivotal operations in Japan and Thailand.
Now we have offices in 32 countries but only four are run by the family, says Kartar Singh. In fact, many seasoned professionals have joined Thakral. Among them is Baroudi, a former American Express Bank chief in Asia. Baroudi had known the family for nearly seven years before joining the group. After 22 years of working for a highly disciplined multinational bank, Baroudi was seeking a more entrepreneurial environment. He found that at Thakral.
I'm using my nose more often now than I used to in the past, he says. Here you have a situation where to a large extent you use your gut feel, your intuition, your instinct. Quite often we make decisions on the basis of having a good feel for the business.
Professionals like Baroudi and George Lau, the group's general manager (projects), are thriving in Thakral's entrepreneurial cauldron. But while they get to use their noses a lot, their job also is to provide the objectivity and discipline that multinational enterprises must have. Kartar Singh has got so many years of experience that he doesn't need an MBA to tell him what to do, says Lau. But he's very open in looking at things and he doesn't come in and block everything. He's such a humble man that he still asks for your views to counter-check that he's thinking in the right direction.
Two recent projects demonstrate well the group's openness to new ideas. The idea to sell advertisements hoisted over Chinese cities by helium-filled airships was suggested by a family friend. Executives examined the idea and concluded that the required $1 million investment was well worth the risk. Besides, the airship venture could complement Thakral's distribution business by advertising the consumer products it sells.
TAKING ON THE PIRATES
Thakral tested the market with one airship. That is now leased to telecommunications giant Nokia of Finland for two years. Three more airships will be added to the fleet in early 1999 and Inderbethal predicts that by 2000 the group will have 10 airships flying China's skies. By then, he forecasts the business will produce an annual profit of $2.4 million.
Another new venture is Thakral's move into the manufacturing of entertainment software for video compact disk (VCD) and digital versatile disk (DVD) players. It has signed agreements in Hollywood and China to license film titles for reproduction and began manufacturing in Hong Kong early this year. Production began in Beijing in April.
The move was prompted by a belief that sales of VCD and DVD players were being held back by a lack of software in China. Thakral chiefs intend eventually to establish a retail network in the country. They believe it can make a profit of $4.2 million before tax in its first full year of operation and expect annual growth of between 25 and 30 percent in subsequent years. Our intention is ultimately to provide an alternative to the pirate market that now dominates in China, says Baroudi.
It's impossible to quantify just how much the entrepreneurial spirit that nurtures ideas like these has contributed to Thakral's success. That it is significant is not in doubt. That it is the key ingredient that differentiates Thakral from the many would-be Asian multinationals is a distinct possibility.
Modest as he is, Kartar Singh admits his knack for trading might be a gift from God. Investment I don't know, and many other things I don't know, he says. But trading is a gift, something that gives you intuition. It's like being an artist: For some, no matter how hard they try they cannot draw a picture. For others, it's a gift.
asia-inc.com
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