Singapore companies have always competed locally. For the successful ones, the reward can be significant. For instance, local telco StarHub Ltd (SGX: CC3) generated almost S$2.4 billion in revenue in 2016, all of it from Singapore. Transportation firm ComfortDelGro Corporation Ltd (SGX: C52), which is a leader in Singapore’s taxi, bus, and vehicle inspection markets, had over S$2.5 billion in revenue come from within Singapore in 2016. Yet, there are signs that competition is no longer just local for Singapore companies. It is also coming from beyond the Lion City’s shores. This should worry any Singapore company. The cable cowboy…
Singapore companies have always competed locally.
For the successful ones, the reward can be significant. For instance, local telco StarHub Ltd (SGX: CC3) generated almost S$2.4 billion in revenue in 2016, all of it from Singapore. Transportation firm ComfortDelGro Corporation Ltd (SGX: C52), which is a leader in Singapore’s taxi, bus, and vehicle inspection markets, had over S$2.5 billion in revenue come from within Singapore in 2016.
Yet, there are signs that competition is no longer just local for Singapore companies. It is also coming from beyond the Lion City’s shores. This should worry any Singapore company.
The cable cowboy
Global competition is not just a Singapore problem. To explain the threat in more exact terms, I would defer to John Malone, the Chairman of the US-based Liberty Media.
Malone may not be a familiar name here, but his career achievements in the world of business are nothing short of extraordinary. Nicknamed the “Cable Cowboy,” Malone had a big hand in building and consolidating the US cable industry. In 1990, Malone’s Tele-Communications Inc was the largest cable operator in the US. Today, he is considered to be one of the most influential people in media. He is also someone we can learn from.
(As a side note: John Malone’s story was chronicled in the excellent investing book The Outsiders. Click HERE to learn how you can win a copy of the book.)
It has always been about scale
As Malone puts it, the media business has always been about scale.
In simple terms, if a company’s user base is the largest, it will be able to serve the same service or product at a cheaper cost. This is because the company would be able to spread the cost of the service or product across its user base. Malone understood the importance of scale early on, as he moved to consolidate the cable industry.
But for all his achievements, even Malone did not anticipate how the rise of the internet will impact the equation of scale in a profound way.
The two scariest words
In a recent CNBC interview, Malone talked about the biggest change he experienced in the media world during his tenure:
“Well, I would say the biggest change is the globalization, which was really empowered by the standardization of the internet.
I mean, we never used to have a global footprint and global standards against which you could create software, hardware services. We have that. And I think that probably is the most powerful impact.
And then those people who have developed services that ride on that platform and that global ambition explode in size. The Facebooks of the world, the Amazons and so on, because they have this now interconnectivity that is essentially the whole planet. And the penetration of that is— is growing every day.”
Although competition was mostly confined to local arenas in the past, the advent of the internet has heralded the arrival of companies such as Facebook, Amazon, and Netflix that compete on a global level.
The proliferation of internet access around the world has enabled internet-based companies to extend their reach far beyond their home country. In other words, these companies have the capacity to reach a vast market and build a scale that has not been possible in the past. Malone continued:
“So I’d say in my—in my career, that’s the biggest change, is the denominator is up by at least a factor of ten to one in terms of scale.”
As you can see, even for Malone, the arrival of the internet has changed the definition of scale in profound ways. In this context, the two scariest words for any Singapore company would be “global scale.”
Software is eating the world
Today, StarHub’s Pay TV business has the largest subscriber base in Singapore with 467,000 customers. But, it pales in comparison with Netflix’s global subscriber base of nearly 110 million. Similarly, Facebook’s 1.37 billion daily active users pulls a huge shade over the subscriber reach of Singapore Press Holding Limited’s (SGX: T39) newspapers.
With Singapore’s mobile penetration rate at 150%, and its population spending half their day on electronic devices, it is likely that more services from internet companies – not less – are likely to come.
So, where does it leave Singapore companies?
Perhaps, their ambitions have to become more global, rather than local. Perhaps, companies will have to find new ways to solve customer problems that internet companies cannot reach. Perhaps, they need to partner with global firms to maintain their share of the local market.
None of the above is guaranteed to work, of course. It might even be tempting for local companies to play it safe, take less risk, and see how things unfold. But in my book, it is far riskier for local companies to maintain the status quo. Because one thing’s for sure, business as usual is not going to cut it.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.The Motley Fool Singapore has recommended shares of Facebook and Amazon. Motley Fool Singapore contributor Chin Hui Leong own shares in Facebook, Amazon and Netflix.