Downturn could spread from Singapore’s ships to shore

November 6, 2009
Singapore Democrats

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Kevin Brown & Paul Betts
Financial Times

Anyone wondering why Singapore has remained calm and prosperous while its economy gyrates wildly should raise their eyes from the streets and look offshore.

Singapore has suffered its worst recession since it gained independence in 1965. The economy contracted by 10 percentage points in the four quarters to March, but has recovered most of that in the six months to September.

Packed bars and heaving restaurants appeared to give the lie to the numbers, even after allowing for a fiscal stimulus amounting to about 6 per cent of GDP. Offshore though, hundreds of ships lie at anchor, some of them part of the estimated 10 per cent of the world container fleet idled due to lack of business.

The number of containers going through Singapore’s port is down about 15 per cent this year, which will be hurting hauliers and brokers as well as shipping lines.

Now half the banks that used to provide finance for shipping companies have pulled out of the market. It could get worse: hundreds of new ships are on order, many unfinanced. That could help push the proportion of idle box ships as high as 20 per cent next year.

No wonder, then, that the trend rate of growth in the city state is likely to shift downwards to somewhere below 5 per cent over the next decade, as Tharman Shanmugaratnam, finance minister, told the Financial Times the other day.

Eye on the long term.

Peter Brabeck, the chairman of Nestlé, and Xavier Fontanet, the head of Essilor, are both directors of L’Oréal. At a recent meeting of the leading shampoo maker’s board, Mr Brabeck told Mr Fontanet that the giant Swiss food conglomerate shared at least one thing in common with the French eyeglass maker. Both, he suggested, had unbelievably complex global structures with a multitude of business units scattered round the world.

The two companies have other common characteristics. They are both committed to long-term strategies and have deeply rooted internal management cultures. They are highly successful and have weathered the recent crisis better than most. In short, as big corporations go, they are distinctly sui generis.

Mr Brabeck last year split his role as chairman and chief executive, handing over the latter position to Paul Bulcke, a long-standing Nestlé manager who headed the food group’s US operations. Mr Fontanet is about to do the same. In January, Hubert Sagnieres, who also happens to have spearheaded Essilor’s development in North America, will take over as CEO with Mr Fontanet remaining non-executive chairman. Eventually, Mr Fontanet will step down altogether with Mr Sagnieres assuming both the top roles once he has put his top team in place.

The management changes at Essilor have been carefully prepared with Mr Sagnieres groomed for the top job during the past years. “We tend to operate in 20-year cycles,” explains Mr Fontanet. This long-term approach has been part of the French company’s secret of success. The company not only prepares its successions well in advance but is also pretty unusual in directly involving its employees in the choice of their future boss.

Indeed, Essilor employees voted last year overwhelmingly in favour of Mr Sagnieres’ appointment. The new CEO won 82 per cent of the staff vote. This intricate system of employee participation in the affairs of the company – employees are also informed and vote on strategic and industrial decisions – reflects the company’s unique history and evolution.

Essilor was formed in 1972 following the merger of two French optical products companies – Essel and Silor. Essel was established as an eyeglass makers’ guild in 1849. It combined capitalism with progressive labour policies, forging a reputation for professionalism and employee involvement continued to this day. In the 1980s, the French company started becoming an international player. Under Mr Fontanet’s watch it has grown into a global enterprise focused on innovative optical products. It is the global leader today with more than 400 business units spread around the globe as well as research and development centres.

Mr Sagnieres says his task is to sustain Essilor’s global growth momentum and he has earmarked emerging markets as the company’s next big challenge. In the world there are about 7bn people and around 5bn have sight difficulties. But only one fifth of the world population wears glasses and the proportion is even smaller in emerging countries.

For Mr Sagnieres this is not merely a business opportunity. It is also a significant opportunity for Essilor to contribute in its own way to sustainable and ethical development. Given the company’s track record and vision of progressive capitalism, this should not be cynically regarded as mere eyewash.