The Future Singaporean Sembcorp Company

Case Study: Singaporean Sembcorp Company
According to the case study by Chong & Lee Gilbert (2017), the Singaporean Sembcorp Company is a partially-owned government company with interests in the utilities, marine, and urban sectors. Utilities has recently surpassed marine-based interests as the company’s greatest profit generator. The company is currently focusing on offering sustainable solutions to the developing nations of the region, as an alternative to nonrenewable fossil fuels. Its current challenge is to address the needs of the various countries into which it is expanding with the correct investment vehicles. For example, working with China has been relatively straightforward, due to government ownership of much of the land which is the source of the company’s water treatment and power facilities. In contrast, India’s land is privately-owned and has generated numerous obstacles due to legal red tape.
Summary of Situation
Strengths
The government ownership of the company is a source of sustained competitive advantage because of the stability of funding, versus a company solely dependent upon private revenue. There are many nations seeking sustainable power in the region willing to back up the company with similar resources. The company is diversified not only between the nations into which it is expanding but also having a financial interest in several industries. It specializes in financing and acquiring as well as generating new power plants which is a source of diversification.
Weaknesses
Singapore is a nation of very limited natural resources. The government-owned company is highly dependent upon foreign expansion for its future. Significant capital is needed to build the power facilities which are the source of the company’s primary areas of growth.
Opportunities
The limited natural resources of its home base has forced the company to engage in substantial ingenuity, generating sustainable solutions which could be very valuable in the emergent green economy.
Threats
Coal use has shifted to Asia, and despite Sembcorp’s emphasis on sustainability, cheaper and nonrenewable fuels are still attractive. Additionally there has been a weakening of interest in environmental solutions, thanks to a weakened commitment by the United States and other key players.
Strategic Alternatives and Recommendations
One of the greatest dilemmas facing Sembcorp at present is the question of into which nations it should expand. While India is power-starved and should be an attractive market for green power, given the multiple environmental challenges afflicting the nation, the logistical obstacles of basing itself in a corruption and red tape-ridden nation have proved to be daunting. Still, India’s sheer size and growth make it an attractive long-term prospect. China is more attractive in the short-term, given the government’s greater ability to accommodate Sembcorp’s needs and a greater degree of cultural understanding and synergy. It is also a very large nation with expanding demand and concerns about environmental fallout due to development. But demand has contracted to a certain degree given the excess of thermal power. Given these factors, it seems wise for Sembcorp to focus its resources on multiple rather than a handful of nations, given that sustaining multiple sources of revenue is a necessity in the still-unstable green electricity market.
This then brings up the question, however, of what types of financial vehicles into which to expand its influence. Sembcorp has shown concern about using joint ventures into which it has a minority equity stake; advocates of a more aggressive expansionist policy have suggested that this is a source of lost value and Sembcorp could benefit from being the majority stakeholder itself. But in nations such as India and others where the bureaucratic and financial landscape is more opaque, using joint ventures seems wise. This is not simply as a way of balancing risk, but also using the partnerships as a source of cultural knowledge. In contrast, in nations such as China where the company can move with greater assurance, taking the risk of being the majority stakeholder in firms seems wiser.
Reference
Chong, Y. & Lee Gilbert, A. (2017). Sembcorp Corporation: Powering sustainable growth in
emerging markets. AsiaCase.com.