The Next Frontier

Creating Sri Lankan Multinationals

October 2019
 The need to expand and penetrate new markets

The transition to middle income country status and a more mature economy requires corporates to re-
think their strategies and become more open to globalization and becoming internationally competitive.
Those which take up the challenges, will thrive and grow into the next 25 years and beyond; while others
unable to cope with the competition that globalization brings will fade away. As life cycles of business
become shorter, the 100 year corporation will increasingly become a thing of the past.

Upper middle
income status New Opportunities One of the best and most logical forms of
for some corporates expansion for most corporates would be:
Transformation Exporting
of the economy
and business and / or
Limited room for
growth for others Expanding beyond the home market and
investing overseas.

As an economy transits into a more

affluent and mature one, consumption
and investment patterns can
significantly change.
Requiring corporates to become more
• Cost efficient
• Innovative
• Quality & service oriented
• Agile to change

Combination of reasons for expanding overseas

Become more
cost competitive

Exploit superior Take advantage of

management scale economies
capabilities

Proximity to Access larger

customers in new markets
emerging markets
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 Taking advantage of market size

This remains by far the most compelling argument for internationalization. A nation of twenty million plus
can only present a limited market opportunity, regardless of how much a firm may try to innovate, upsell,
premiumize or cross sell products. Scale will increase the need for technology and automation facilitating
innovation, thereby enabling higher margins.
Given that we have immediate neighbours (and the broader Asian-African region) boasting populations in
excess of 50+ million people per country, and GDPs below USD 2,000 + per capita; the potential to expand
business volume by entering growing economies remains an interesting proposition. Companies with
superior management capabilities can do this effectively. This will be further enhanced if we invest in
countries which enjoy free trade agreements either regionally or internationally.

Larger markets with a larger

Small Market with limited • Some potential
population and access to
sectors
population neighbouring markets.
• FMCG
• Financial services
• Utilities

Proximity to a growing customer base in new emerging

markets

Shifting base overseas may permit Sri Lankan companies to access a growing customer base in new
emerging markets. Where being close to the consumer enhances competitiveness, early attempts at
outward investment into growing markets, makes sense.
For example, shifting one’s tourism business to markets that are newly opening up, will enable securing
first mover advantage and gathering expertise in that market. Similarly opening up operations in an
investor friendly African country may enable gaining experience in the next global growth wave in Africa.
Many pioneering Sri Lankan firms have already ventured into power generation in Africa and financial
services in developing Asian countries.

Some potential Close proximity to a growing

sectors customer base in high growth
Sri Lanka’s relatively mature
customer base in some emerging markets
• Hospitality
industries
• FMCG
• Power and Energy
• Financial services

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 Exploiting superior management capabilities

Some of our neighboring countries rank below Sri Lanka in their human development and quality of life
indicators. Therefore, as a nation we can boast of reasonably better healthcare, education and access to
technology than some of our neighbouring countries. As such, many Sri Lankan companies command
reasonable management competencies in some sectors, which can be effectively deployed elsewhere in
the region.
Particularly with regard to financial institutions and capital markets, the sound regulatory framework,
technology availability and HR skills have ensured that Sri Lankan companies are disciplined in their
management approach. These skills can be exploited elsewhere in lucrative markets.

Taking local management skills

Strong management
to less developed countries than
capability
Some Potential sectors ours.

• Healthcare
• Education
• Financial services
• IT

Access low cost operating bases

Cost competitiveness is a critical factor if you intend on exporting to larger markets, and particularly if
you’re in an industry that competes on low cost. Therefore, appropriate location decisions are required to
have access to lower priced resources which assist in scale up and greater competitiveness.

Expensive operating base Many cost effective locations outside

Potential sectors
of SL where resources are better
(high labour cost, high taxes and • Apparel priced
high energy costs)
• Commodities

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Reasons why local companies are reluctant or unable to take
the plunge….

Inadequate financial resources

Entry, setting up, supporting and nurturing overseas STRONG FINANCIALS

markets can be expensive and long drawn. This • Freeing up low productive resources
requires a strong balance sheet, extensive financial • Using third party capital
resources and ability to form effective strategic • Being open for joint ventures and
alliances. alliances

Limited management capability

Venturing out requires grappling with new laws, GLOBAL SKILL SETS
regulations, financing, joint venture partners and Training people who can think
strategic alliances which require astute negotiation, globally and act globally with global
cultural understanding, broad minded thinking and being exposure and confidence to take on a
open to working with foreigners new market

Difficult regulations for outward investment

SUITABLE REGULATORY
As a country subject to capital account controls, obtaining FRAMEWORK
approval for significant outward investment is • Strike a balance between capital
cumbersome. There is a need for regulators to take a controls and need for sufficient
broader perspective on enhancing the competitiveness of outward investment to create global
local firms when approving outward investment, rather corporations
than a narrow focus on currency movements alone.
Presentation Title 5
October 2019
Lack of market intelligence and strategic Global firms such as PwC with
assistance offices across the world, stand
ready to help such clients.
Studying the market, finding the
Most local companies will not have the knowledge and
right route of investment, joint
expertise to take the plunge on outward investment on
venture partners and sourcing
its own. They need to understand markets, find partners
finance in a scalable and
and ensure the entry process is well facilitated.
sustainable manner are
important considerations.

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 Laos
GDP = USD 17 Bn

Myanmar Vietnam
GDP = USD 69 Bn GDP = USD 223 Bn

Thailand
GDP = USD 457 Bn

Cambodia
GDP = USD 22 Bn

Which of these markets would best fit Sri Lankan

corporates looking at cross-border ventures? An analysis
of the region, in our next article…

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