INVESTMENT abroad is not necessarily confined to conglomerates with strong financial muscle. Smaller companies are also going overseas to broaden their earning base, and for survival.
When globalisation gains pace, companies not only have to work hard to defend their home market but also have to seek new income sources. One way is to invest abroad.
Licensed investment adviser iCapital.biz managing director Tan Teng Boo said that globalisation was definitely driving Malaysian companies to invest overseas.
“Given the small domestic market and rising foreign competition at home, Malaysian companies will have to look to new markets for growth,'' Tan said, citing the increasing number of local companies investing abroad.
Big names that recently announced overseas investments included Genting Bhd, which invested in three British gaming companies to ride on the anticipated liberalisation there; Tanjong plc, which formed a joint venture to operate online lottery games in Moscow; and YTL Power International Bhd, which just completed its acquisition of a 35% stake in Indonesia's second largest independent power producer, PT Jawa Power.
Lion Diversified Bhd, which has a strong presence in China's retail business, announced on Tuesday it has been granted a licence to operate retail outlets in Vietnam.
Some smaller companies have made investments abroad quietly – not hitting the headlines given the investment size – and are reaping good results.
They include Mulpha International Bhd. Executive chairman Lee Seng Huang said the group had had a very solid record in investments overseas. It is now the largest Malaysian real estate company in Australia.
According to Lee, foreign revenue accounts for 80% to 85% of Mulpha's income, and profits derived from abroad more than make up for the losses at its Malaysian operations.
“Our initial investments of RM300mil to RM400mil in China, Hong Kong, Singapore, Vietnam, the Philippines and Australia in the past 10 years or so have ballooned to an asset base of over RM3.6bil (according to current market value),” he said, adding that the appreciation of foreign currencies had also brought benefits.
Wah Seong Corp Bhd is another of the smaller companies that found good returns from investing overseas.
“Our overseas ventures are all profitable. By venturing overseas, we have a wider market and a more stable income stream,” said managing director and group chief executive officer Chan Cheu Leong.
Wah Seong has three pipe coating plants in China, and is in the process of acquiring a 51% stake in US-based Deepwater Corrosion Services Inc and Inter Resources Inc. It also acquired a 60% equity stake in Driltools International FZCO in the United Arab Emirates for RM13.88mil this month.
And the group is eyeing more ventures overseas.
Chan said the group was interested in companies with a presence in the Asia-Pacific and the Middle East, and those in non-pipe coating oil and gas related businesses like corrosion protection of pipelines and infrastructure services.
Labour-intensive garment manufacturers have gone offshore to take advantage of low production costs.
Hytex Integrated Bhd managing director Saw Kim Hock said the group would be investing US$25mil over the next two to three years for its China operations.
The garment maker, which started production in Cambodia five years ago, is currently setting up a plant in China, which is expected to be operational at the end of next year.
“We expect the plant to contribute to revenue by the year ending March 31, 2006. The plant will expand capacity by another 500,000 pieces every month, adding to the current 900,000 to one million pieces,'' he said. “We are very optimistic about our investments overseas.”
Fraser & Neave Holdings Bhd is also stepping up its offshore investment.
Chief executive officer Tan Ang Meng said the group was focusing on the Asean region and China, and planned to increase its investments in businesses it was familiar with, like glass manufacturing and dairy products.
“The bigger markets overseas will provide the group with a lot of opportunities. We want to increase our regional footprint, as well as revenue,” he said.
The group currently has stakes in a glass manufacturing plant in Vietnam, and another in China, and will be investing about RM88mil for a 70% stake in a new glass manufacturing plant in Thailand.
Johor-based apparel manufacturer PCCS Group Bhd is another company that comes to mind when talk turns to investing abroad and earnings diversification.
PCCS Group decided to diversify into the non-apparel business, as it does not want to be dependent on one core business. So it took over loss-making Blopak China Private Ltd for RM4.12mil and turned it around within a year.
It intends to invest US$14mil in a new plant in Guangzhou, China, which is expected to be completed early next year. It is not a garment manufacturing plant, but a plastic packaging factory.
Blopak is the fifth largest plastic bottle supplier in China.
Investing overseas is also considered a natural progression for companies.
“When a company has reached a certain size, it will need a bigger platform, which is the regional or global market, to nurture future growth,'' said TA Securities head of research C.K. Ngu.
In addition, investment analysts noted, companies' efforts to establish a footing in the global market would make them more attractive to investors, particularly foreign funds, compared with those that only depend on the home market.
GENTING : [Stock Watch] [News] TANJONG : [Stock Watch] [News] YTLPOWR : [Stock Watch] [News] LIONDIV : [Stock Watch] [News] MULPHA : [Stock Watch] [News] WASEONG : [Stock Watch] [News] HYTEXIN : [Stock Watch] [News] F&N : [Stock Watch] [News] PCCS : [Stock Watch] [News]