Monday, November 24, 2014

Conglomerates Are Slimming Down

I read that Europe’s biggest conglomerates are slimming down and discarding units that either don’t make enough money or don’t fit with how they see the future. This development is not new but of late – the shrinking phenomena has become more pronounced. Of course, it makes sense to concentrate on fewer industries that are strategic to businesses they see as their future.

Germany’s Bayer AG and Netherlands’ Royal Philips NV are abandoning their century-old business roots in a form of Schumpeterian creative destruction.

Bayer plan to spin off their plastics business by mid-2016, abandoning an industry they’ve been in for more than 150 years and that contribute more than a third of sales. The cost of capital for the unit, which Bayer call MaterialScience, is higher than the returns. Their revenue declined by 2.3% compared with a 3% gain for Bayer’s heath-care business and 5.25% for crop sciences.

Philips are melding their health-care and consumer divisions into a HealthTech unit, selling products that will equip people with data about their own health, exercise and nutrition through personal technology. The lighting business from which Philips sprang 123 years ago will become their own separate company, though the split units will have a “sibling” relationship, with the lighting products still featuring in their health-care equipment.

Another German company Siemens AG is giving up at least five businesses this year to focus on what they call “electrification, automation and digitalisation”. And that’s after more divestments in 2013 than any European industrial company, according to Bloomberg Intelligence.

Siemens are allowing partner Robert Bosch to take over their appliance business by selling Bosch a 50% stake for €3 billion (RM12.53 billion). Siemens are also selling a health data unit for $1.3 billion (RM4.34 billion), a clinical microbiology division for an undisclosed sum, an alarms-and-video surveillance maker, and a hearing-aids business that could fetch more than €2 billion.

On the acquisitions side, Siemens are muscling up in the markets on which they want to target. They paid $7.6 billion for Dresser-Rand Inc in September 2014 to bolster the oil-field equipment division, and $1.3 billion in May for a unit making gas turbines and compressors from Rolls-Royce Holdings.

And along with this corporate “re-arrangement” – the workforce pays a price. Bayer has shed more than 3,000 employees last year. Philips hired 117,000 people at the end of 2013, down from more than 121,000 five years ago. And Siemens has 362,000 workers, a fifth fewer than in 2005.

There is a lesson we must pay heed to. Change is inevitable. In employment terms, it can bring painful consequences. Yet we have no choice but to cope.
On Friday, there was a wee celebration. The occasion was Chong How Yee’s birthday. A round of drinks at Chili's and burger and chips at KGB in KL's MidValley. Check out the photos below:


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