A finger in many pies
David James reports on the PNG trend of companies diversifying across different industry sectors.
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.