Corporates urged to upgrade, expand for survival

LAHORE: The companies should not get carried away by the constant growth revenue and should use that to increase the capacity or to diversify into other fields to ensure long term survival and prosperity, experts have suggested.
They pointed out that growth is essential for survival of the corporation, as large companies that grow below the GDP growth criteria for a period of seven years dilute or are taken over by successful competitors.
Large companies should give equal importance to both top and bottom line growth and through cost cutting measures the companies can improve earning and shareholder value in short term, they said.
“But if the companies fail to improve their top line growth they have lesser chance of survival,” experts said, adding that total return to a shareholder is important but these returns would dry down if fresh investments are not made.
“Look at some big names of the past like Valika, Adamjee and most of the renowned construction companies of 60’s and 70’s that exist no more today,” said entrepreneur Almas Hyder.
Companies like Nishat and Atlas not only survived but are thriving as well, he said, adding that the strategy adopted by these corporate houses was the continued upgrading of the technology. “When they saw that investing in their business sector was not advisable at a certain time they diversified,” he added.
Nishat started as a basic textile company and from the accrued savings diversified to financial sector, cements sector, power sector, aviation sector, hotel management sector and now recently to value added apparel sector. “This group now is better placed to survive ups and downs of the economy,” he said.
Similarly, Atlas started with business machines marketing company, it is now producing batteries, passenger cars and is the largest producer of motorcycles in the country, while also having its foot in the power production business, he said.
In contrast the companies that accumulated profits to fatten reserves have seen dilution of their savings as rupee constantly declined, Hyder said, these companies may survive for a while but their failure to invest has made their competitors stronger enough to edge them out of the competition.
Another entrepreneur M I Khurram said some businessmen that excel in a specific sector are reluctant to diversify their investment portfolio even in times when investing in their preferred sector is not viable. While indicating this as a major fault, he said instead of passing on the entire profit to shareholders or increasing reserves it is more advisable to try other investment avenues.
The companies should take cue from a famous saying in business circles i.e. not to put all eggs in one basket, he said, advising that as long as there are opportunities in their preferred sector they should go on upgrading the technology, however, they should constantly look to diversify the investment to shield their company from pressure if one of the sector comes under pressure.
Khurram said that he started a small knitwear unit about 30 years ago, as the exports grew, he continued to upgrade technology and from the capital accumulated, he acquired two sick spinning units, as both have separate cyclic pressures. Now, the sector performing according to aspirations helps to cover the losses of the sector that is under pressure, he added.
Another entrepreneur Nabeel Hashmi said for diversification of investment the entrepreneurs in the country should analyze the fastest growing sector of economy. For instance the sectors that have seen robust growth above the annual GDP fold include financial sector, telecommunication, fertilizer, retail and pharmaceutical. These sectors have registered higher earnings than GDP growth of the country in last one decade. However, he pointed out that few companies in each of these sectors came under pressure because they continued to pay dividends to their shareholders but did not upgrade their technologies.
He advised repositioning portfolio of the business, products and customers is needed to create a mix with a higher potential for growth.
Hashmi said for larger companies it is critical to find proper location to compete. “Choosing the right place means matching its distinctive capabilities to the businesses, customers and products,” he added.