Amidst tougher competition from regional and global competitors, Asian conglomerates will thrive if they continue to add value and remain open to change.
Jaime Augusto Zobel de Ayala II, president and CEO of Ayala Corporation, remains optimistic about opportunities for growth available to such far-thinking conglomerates. At the helm of the one of the country’s oldest and most diversified business houses, Zobel believes that a holding company continues to play a key, nurturing role in the success and transformation of its core businesses.
Zobel observes that a leading domestic player can more quickly assemble talent, ideas, business partners and capital than a foreign or new entrant who lacks the same networks. “Our great strength is our ability to pull together all the elements required to build new businesses: the business concept, strategic partners, talent, capital and disciplined implementation of world-class governance and management processes.”
Ayala Corporation has interests in real estate, banking, telecommunications, information technology, utilities, and automotive. Zobel cited several instances when Ayala Corporation’s timely interventions and use of its balance sheet were instrumental in the development of its businesses. Ayala Corporation was able to turn Globe Telecom into one of the most successful companies in the country by attracting strong strategic partners in Singapore Telecom and Deutsche Telekom and by putting a strong management team in place.
This same model of value creation also facilitated affiliate Bank of the Philippine Island’s (BPI) acquisition of Far East Bank and the entry of the Development Bank of Singapore as a partner as well as many of Ayala Land, Inc.’s (ALI) joint ventures in property development. Backed by the Ayala name, BPI and ALI were seen as partners of choice and have become leaders in their respective industries.
Creating value, building trust
The group’s success has not gone unnoticed by international investors. Ayala Corporation, ALI, and BPI now account for 37 percent of Morgan Stanley Capital International (MSCI) Philippine basket, up from a previous weighting of 12 percent. MSCI identifies companies that represent the local market and is closely monitored by global institutional investors. In the local market, the combined market capitalization of Ayala Corporation, ALI, BPI and Globe is P363 billion, comprising approximately 30 percent of total market capitalization of all listed shares.
A recent study by Merrill Lynch suggests that the holding company’s value is greater than the sum of its parts.
Ayala Corporation has also consistently ranked high in surveys of leading regional publications. Institutional investors and equity analysts surveyed by FinanceAsia recently named Ayala Corporation as the best company in the Philippines and the company most committed to corporate governance. This supported the latest survey of Far Eastern Economic Review which ranked Ayala highest for long-term vision and second in business leadership in the Philippines. BPI, Globe, and ALI also figured prominently in the surveys.
Zobel says that these developments indicate a vote of confidence from the international market: “These are clear indicators that we have achieved a significant amount of trust and respect among the global investor community which has been critical to our long-term success.”
However, Zobel believes that Ayala Corporation must be ready to respond to new challenges posed by globalization if the conglomerate is to continue to thrive in the increasingly competitive regional and global market. Early this year, the company announced a new corporate direction to actively manage its existing and future businesses. This new strategy is being driven by a new division called AC Capital, which will take over responsibility for all Ayala businesses except BPI, Globe, ALI and Ayala International. AC Capital will take charge of evaluating and managing the Ayala portfolio by bringing in partners and building regional alliances.
The company’s new strategy is supported by an internal reorganization that will result in a significantly leaner but more sharply-focused workforce. Ayala Corporation also intends to eliminate duplication of activities by its subsidiaries and let go of businesses where it is no longer deemed as the natural owner, or where its performance criteria are not met. Zobel cited the sale of Pure Foods as a good example of this new philosophy.
As part of its corporate restructuring, Ayala Corporation is committing itself even more to the ideals of good corporate governance. It has already adopted accounting changes mandated by the Philippine Accounting Standard Council disallowing the deferral of foreign exchange losses by 2005. While Ayala Corporation’s early adoption of the changes resulted in lower retained earnings in 2001, it has made clear its desire to maintain high level of transparency in its accounts. The move is also in line with the company’s ongoing debt reduction program to improve the health and stability of the company’s balance sheet and cash flows in the long-term.
Meanwhile, the company has made social and national development initiatives part of its franchise. These projects are managed by Ayala Foundation, Inc. and include youth and community development, arts and culture, education, and environmental conservation. The foundation is constantly on the lookout for innovative projects that will create a lasting impact on Philippine society. This stems from the belief that to be truly successful, businesses must exercise good corporate citizenship.
Concludes Zobel: “Our aspiration is to build an enterprise that will truly transcend all traditional notions of the Asian conglomerate. Our core values, trust, respect and commitment to nation building, remain unchanged, but the way we manage our businesses will.”