By Rangsan Thammaneewong
What does Corporate Finance and Strategy have to do with chickens and eggs? It sounds like I am making fun out of such a serious subject. To me, I think it is one way of looking at the issue of Corporate Finance and Strategy, a subject I have been involved with for over 25 years.
The concept of togetherness of Corporate Finance and Strategy in any company I would say is very much like the concept of chickens and eggs on this planet. The reason I say on this planet is because I am not aware of other planets that have chickens and eggs. Even if there are chickens on other planets, eggs might not be the reproduction means of the chicken-like creatures of those planets.
As much as chickens need eggs to continue their future generations, corporations also need good strategies to keep their continuity for several generations. This could raise a few questions. The first question could be which one is more important in the pair of ‘Corporate Finance and Strategy’.
Do we need big financial resources to determine how elaborate our strategy would be or do we actually need a good strategy to determine how full our corporate vaults would become or how successful our organization would be financially? What comes first: corporate finance or strategy?
Someone would say if we have a good strategy it determines how wealthy we could be. A case in point is Bill Gates before he built Microsoft. He was not as wealthy when he started off Microsoft with a strategy to be a software company supplying operating system for personal computers.
While many would say if you are a mom and pop grocery store, your financial resources would limit what you can craft as a strategy to fight head on with super stores in your home town. That is to say strategies need to be realistic in terms of the funding required to implement them.
A number of factors like how good you are in your business and how fast are changes in your industry also come into play. That is if you have so much money you might be able to afford a few flops than if you have excellent strategies with little money to overcome the hiccups in the execution.
It is hard to tell which is more important but I would say they are indispensable from one another in the long run if you are to create a great and long lasting corporation.
The message I want to make here is that they are inseparable in a great company and the facts that they must be aligned cannot be less emphasized. A total alignment of corporate spending and company strategies and directions is very important to long-term well-being of any corporation.
Surprisingly, many companies, not only in Thailand, but the world over, do not fully understand the nature of the industries they are in. They start a business with a drive or passion and a great idea.
Without having a well-defined set of strategies or mission they turn themselves into ‘jack of all trades’ with an objective to go after anything that makes money when they have cash to spare. Many have done well growing in the beginning but after a while got caught and don’t know which way to go.
Many conglomerates also keep buying many businesses that do not fit their strategies or mission. In good times with plenty of cash, they would buy anything regardless of whether the acquisition is related to the core business. In bad times when the money was tight, they would say sell the acquisitions usually at much lower prices than they acquired them at, and call that “divestiture” of non-core businesses.
Corporations sometime end up forgetting or even knowing what they can do well or what their DNA’s are and what they are passionate about doing for their community or the world they are serving. Without the right strategies, these corporations would find themselves no longer in existence like many well known companies in the past.
I cannot help to think of one very strong Corporation that I think is using their corporate finance as a strategy to achieve an ultimate mission that is to be a global business force. Many western analysts have given this corporation a very poor grade in their investment management, judging from the mediocrity of return on investment. Nonetheless, I see it quite the opposite to the mainstream analysts.
The corporation I am referring to is the Temasek Corporation, an investment arm of the government of Singapore. One of the corporation’s additions to its shopping basket was the controversial purchase of the Shincorp Group shares, which belonged to an ex-Prime Minister in Thailand among several strategic investments in India and Indonesia.
Judging from the pace of development of Singapore over the past forty years from a port town to a fully developed first world country today, it is hard to judge the performance of Temasek alone without looking at the context of Singapore’s development strategy.
It is difficult to ignore that Temasek is an investment arm of Singapore Government thus investments of Temasek should be looked at as an integral part of Singapore strategies or even a Geopolitical Investment’ to drive Singapore to be a global business force in several countries in sectors like banking and telecom that are vital to any economy.
Besides, many Singaporean corporations benefited from Temasek’s influence from its investment in the industries of other countries. Can we say that Singapore is using Temasek as part of a strategy to drive its prosperity into future generations?
Another question we could ask: Is Corporate Finance the chicken or the egg? Many would say Corporate Finance is comparable to the chicken. Since chickens and finance can be said to be equivalent to a corporation’s assets.
Chickens are livestock like cows, goats or sheep for farmers which were considered assets. In the old days, we determined how wealthy farmers were by looking at the portfolio of their livestock, since they can be converted to cash by selling them.
If Corporate Finance is considered assets, then we say eggs are analogous to strategy. Good eggs not rotten ones breed more and healthier chickens to be sold as livestock for more money. Thus eggs are strategy to breed future generation of chickens here.
You could also take the opposite approach and say that eggs are actually equivalent to assets in the corporate vaults, just like our childhood story of the “goose that laid the golden egg”.
More eggs mean more income and more money in your vaults since you can sell them for cash especially if they are golden eggs. If eggs are equivalent to corporate finance then in this case the goose or in this case chickens are a form of strategy that helps you lay the golden eggs and create abundance in the corporate finance vaults.
If I try to make any more arguments if chickens or eggs should be strategies or finance, I think it will only serve to confuse you! Trying to answer this question is no different than trying to find the answer to the question of which should come first in the pair, chicken or eggs.
The message here is that they are inseparable in a great company and that they must be aligned and its importance cannot be over emphasized. A total alignment of corporate spending to company strategy and direction is very important to the long term well being of any corporation just like good eggs come good chickens or good chickens come good eggs, whatever that is . Good luck with the alignment of your corporate finance and strategy.
As appeared in Asian Affairs Magazine [May-Jun 2009]