A fin­ger in many pies

David James re­ports on the PNG trend of com­pa­nies di­ver­si­fy­ing across dif­fer­ent in­dus­try sec­tors.

Paradise - - Strictly Business -

Con­glom­er­ates are a rare breed in de­vel­oped economies; the strat­egy of di­ver­si­fy­ing across dif­fer­ent in­dus­try sec­tors tends to be pun­ished by in­vestors who pre­fer spe­cialised play­ers.

But, in Pa­pua New Guinea, in­dus­try di­ver­si­fi­ca­tion is com­monly used as a way to grow.

The con­glom­er­ate strat­egy is partly a re­sponse to the rel­a­tively small size of PNG’s econ­omy. When com­pa­nies achieve a size­able mar­ket share in one mar­ket sec­tor, they of­ten find it dif­fi­cult to grow fur­ther, so to ex­pand they look fur­ther afield.

PNG’s for­mal econ­omy is also small when com­pared with the in­for­mal econ­omy. Sub­sis­tence farm­ing ac­counts for the bulk of eco­nomic ac­tiv­ity and the for­mal em­ploy­ment base is nar­row.

As that changes, and the for­mal sec­tor ex­pands, new con­sumers come into the mar­ket. Com­pa­nies that are po­si­tioned as con­glom­er­ates are more able to tap into that new growth.

There are sev­eral ways to di­ver­sify a com­pany’s op­er­a­tions. Some­times the new sec­tors cho­sen ap­pear to be close to the com­pany’s ex­ist­ing ac­tiv­i­ties, at other times less so.

KK Kingston, a man­u­fac­turer, has di­ver­si­fied in part be­cause it is pur­su­ing vertical in­te­gra­tion (com­bin­ing two or more stages of pro­duc­tion). The com­pany re­tails its man­u­fac­tured house­hold con­sumer prod­ucts and sup­plies spe­cialty chem­i­cals to com­mer­cial cus­tomers.

KK Kingston has also di­ver­si­fied into ser­vices. The com­pany has a hire ser­vice arm for in­dus­trial and con­struc­tion equip­ment, and it sup­plies in­dus­trial con­di­tions are dif­fi­cult. For ex­am­ple, when the min­ing sec­tor be­comes weak, the com­pany’s ac­tiv­i­ties in the con­sumer mar­ket and com­mer­cial and in­dus­trial mar­kets may mit­i­gate against the worst ef­fects.

A sim­i­lar logic – of not be­ing over-ex­posed to the cycli­cal na­ture of the re­sources sec­tor – drives the di­ver­si­fi­ca­tion of re­tailer Bish­ops. Gen­eral man­ager Len Pianta says the com­pany has a core prod­uct range of per­sonal pro­tec­tive gear. Its op­er­a­tions are split be­tween the re­sources sec­tor and the rest of the econ­omy.

Pianta says the firm set up an in­di­vid­ual of­fice to han­dle the LNG side of the busi­ness, keep­ing it sep­a­rate from the dayto-day busi­ness. That en­abled the com­pany to keep good re­la­tion­ships with its gen­eral cus­tomers.

Main­land Hold­ings, which breeds chick­ens and farms croc­o­diles, also used to be a cof­fee grower and man­u­fac­turer, with a mill in Lae. To trans­port the cof­fee it even owned air­craft.

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