Don’t rush to expand your business in another land

THE EDITOR: Recently the Prime Minister of Barbados stated that companies are entitled to grow, in relation to the recent developments regarding the recapitalisation of Sagicor and the acquisition by Republic Bank of Scotiabank branches in the region.

The objective of the board and management of a corporation is primarily to provide value for shareholders. In the dim past this meant merely increasing profits. Later, expansion by way of acquisitions became prominent.

But readers will recall the disastrous attempts by groups in Trinidad to grow by entering markets of which they knew little. There was the acquisition of an auto insurance company in England by a local insurance group. Similarly, there was the joining of prestigious “names” by a similar insurance group.

Banks have also made poor acquisition decisions such as the one to acquire a bank in the island of Hispaniola. Another bank had to exit the reggae land.

In aggregate, these decisions wiped out billions, not millions, of dollars, not counting the opportunity cost of months of management time that could have been more productively utilised.

So whereas shareholders may be pleased at the impetus for growth, the reality is that many of these decisions are made at the board level without consultation with the owners who have to suffer the unwelcome results.

It is therefore imperative that companies learn the lessons of history, tread carefully and include in the due diligence exercises a full and qualitative appreciation of the markets in the countries where they wish to invest the funds belonging to shareholders. Access to country is far easier than access to markets.

BENEDICT ANTHONY, St James