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Enlarging boundaries to tap network effects
PHILLIPCAPITAL Group executive chairman Lim Hua Min is mindful of what his real battles are in order to win in the cut-throat business of financial services.
Today's competition is no longer product against product but ecosystem against ecosystem in the long run, he says.
Harnessing the power of network effects has been a cornerstone of growth in PhillipCapital, privately held by Mr Lim and his family.
Take the group's expansion into the US market for example. Starting with the futures market in the US in 2011, the group has since obtained a self-clearing licence for equities.
Having a presence in the US market enables the group to project itself as a gateway to Asia for US clients. Outside of the US, PhillipCapital serves as a gateway to the US for non-US clients, Mr Lim explains.
Similarly in Japan, PhillipCapital's foray through an acquisition of a Tokyo Stock Exchange brokerage firm in 2002 has positioned it as a gateway for Asian clients into Japan and a conduit for Japanese clients to access other parts of Asia.
Through Agility Asset Advisers, a property management firm that the group acquired in Tokyo two years ago, many Asian companies can gain access to Japan's property market.
"In essence, we have to move step by step. In a new market, we have to find a niche," Mr Lim says. "We are strong in the global markets, so we take advantage and build upon our network effect and stretch our uniqueness and strengths."
In each market, it is crucial to build up a "sufficient ecosystem", Mr Lim adds. "You can be singular when you enter the country but you cannot afford to remain singular."
The 72-year-old chairman has helmed the group since 1975, after using his personal savings and borrowings from the bank and partners to acquire a dormant brokerage firm that was suspended by the authorities.
The brokerage firm has since morphed into an integrated financial institution serving retail, corporate and institutional clients. Besides securities trading, the group's businesses now include fund management, insurance & financial planning, investment research, financing and property consultancy.
With its headquarters in Singapore and operations spanning across 17 countries globally, PhillipCapital has 3,500 employees and over one million clients.
Its assets under custody or management total more than US$35 billion, with shareholders' funds in excess of US$1.5 billion as at Dec 31, 2017.
Stressing the need to continually push the envelope, Mr Lim says: "Why do less when you can do more? That I can't understand but too many of us are doing that."
As a pioneer in the Singapore stockbroking industry with more than 40 years of experience, Mr Lim revolutionised the industry by introducing the first Internet stock trading platform, POEMS, in Singapore in October 1996.
In 2003, PhillipCapital was the first to introduce CFD to Singaporean investors widening clients' investment options. Later in September 2016, Phillip Capital Management launched its first Exchange Traded Fund - the Phillip SGX APAC Dividend Leaders Reit ETF - the first Reit ETF to be listed on the Singapore Exchange.
The journey of diversification has moved PhillipCapital from being single product and single market to selling multiple products on multiple channels.
It has also evolved from being product-centric to customer-centric, and is now increasingly moving from being trading and brokerage-driven to asset-based financial services such as life insurance and fund management.
"As we build the insurance product and the fund management product, we will grow the wealth and financial advisory as well. You can't have the salesman without the product or the product without the distribution.
"So we keep shifting our model and become more holistic. As we build all this, we also build our geographical spread and end up building a network," Mr Lim says.
EXPANDING ITS ECOSYSTEM
Mr Lim feels that one of the major bugbears among corporates here is being too Singapore-centric. "We need to be more regional- centric or global-centric whereby you create the global network. The power of the network effects is more significant than the individual battles to compete in each country."
Mr Lim says the group's focus now is to expand the ecosystem and the network effects.
Plans are afoot to build further inroads into the developed markets of the US and Europe, as well as Australia. In the US, for instance, the group is keen to expand from its current outfit in Chicago to New York.
But the group will still concentrate its efforts in Asia, where the growth is. Asia-Pacific now accounts for 60 per cent of the world's economic growth. "With that, we will still be building up very much in Asia and building that strength to permeate into other parts of the world," Mr Lim adds.
In this region, the group is currently entrenched in Singapore, Thailand, Indonesia, Malaysia and Cambodia and has just started commodities trading and fund management in Vietnam.
"Vietnam is the world's No 2 producer of coffee, so we want to build commodity trading in Vietnam and logistics," Mr Lim says.
In many countries in Asia, however, licensing is a barrier to entry. The group has managed to enter markets like Thailand and India through opportunistic acquisitions. By turning the fortunes of these companies, it has also gained credibility with the local governments.
In Thailand, for instance, PhillipCapital took over a life insurance company Finansa Life Assurance through capital injection after it failed to meet the regulatory minimum capital adequacy ratio. Now, the company has a clean bill of health, well exceeding the required regulatory capital.
Similarly in India, the group bought a majority stake in the Indian subsidiary of the beleaguered US futures brokerage firm MF Global in 2012 at below book value. PhillipCapital has since grown the profits of the company and added new product offerings for the Indian market.
ONE SIZE DOES NOT FIT ALL
Mr Lim notes that the group was able to add value to these companies in ways that many multinational companies (MNCs) are unable to. This is because many MNCs often apply a one-size-fits-all model to every new market they enter and expect the acquired company to conform to the same mould.
"In our context, what we did was we looked at the country and say every country has its own landscape," Mr Lim explains.
"We are a network and our method of management is by provocation rather than by directive. Therefore, we do not insist on one-size-fits-all. We insist on you looking at best practices and keep asking yourself how it applies to your country."
PhillipCapital conducts two full days of brainstorming sessions each year where all the top management of its network firms gather to learn what is happening in various markets and consider what can be applied to their own local markets.
"The Americans cannot be following what is happening in Cambodia and vice versa because one size doesn't fit all. So, they learn what is best done by every country and in so doing, adapt to their own environment."
With such meticulous deliberation over each market and spreading of risks, the group has not clocked a single year of loss since its founding. This is deemed a considerable feat for a company that has gone through four major crises - namely the Pan-Electric crisis when several broking firms closed down overnight, the Asian Financial Crisis, SARS and the Global Financial Crisis.
Underscoring the group's ability to weather these storms is prudence. Put simply, the group will not bite more than it can chew, Mr Lim says.
"For our overseas subsidiaries, I tell them to cut according to their cloth. Simple things like this helps make a difference, to put things in perspective."