The Bentulan Labor-Minutes: A New Comparison Index

In the book Hyperwage Theory serialized in the Manila newspaper BusinessWorld in 2005, Thads Bentulan, introduced the concept of labor-minutes.

This was in Chapter 8 (titled The Mispricing of Labor) published on June 23 2005.

Here is the definition of the Bentulan Labor-Minutes: The duration of work needed by a minimum wage worker to buy goods and services in his area.

For example, how many minutes of work is needed by a minimum wage worker in New York to buy a kilo of pork in New York?

Note that the reference wage is the minimum wage.

What is the use of the Bentulan Labor-Minutes (BLM)?

The BLM will be a very logical index for comparing the economic wealth of countries.

For instance, one of the most tricky conditions to define is how do you define "middle class" in London vs. Jakarta?

Should it be by dollars? Try to compare them in terms of the BLM. And you can see a better picture of the wealth of the Jakarta society vs. the London society.

A basket of goods and services can be better explained in terms of the Bentulan Labor-Minutes instead of the "constant dollar" consumer price index because the inflation rate and the exchange rates are eliminated from the problem.

We can then compare the wealth of the 1911 minimum wage worker vs. the 2011 minimum wage worker by computing the Bentulan Labor Minutes for a basket of goods and services for 1911 and 2011.

We can now easily compute today's basket in Bangkok vs Vienna.

For more examples and discussions read the book Hyperwage Theory (2005).

Thads Bentulan: President of the Global Filipino Nation?

from Sonny Filipino Feliciano
to Thads Bentulan
date Fri, Oct 29, 2010 at 6:22 AM
subject President of the Global Filipino Nation

Greetings!

I just finished reading your "Hyperwage Theory" treatise a few minutes ago (all 329 pages). I've never spent so much productive time ever with another book before. (Of course, I confess - being an amateur economist - that my understanding/grasp of your material is far from 100%, and will have to re-read your magnificent book several times, before I see the finer points.)

Your work is just too "magnetic","educational" and "thought-provoking" to set it aside even though it's ultra "hot" to handle, but it's also really a waste of time doing other stuff (like going to the bathroom) while trying to absorb your critical and important message targeted mainly for PhD wanna-bes, but a typical reader like yours truly's mind was opened wide anyhow. Although I'm a pretty difficult person to be convinced about theories and practices, in particular and someone else's beliefs, in general, I'm wholeheartedly sold! The past 4 hours, dealing with your literary masterpiece, must have been the most intellectually-draining time I have been challenged in my 55 years of life.

The world's historic existence is truly threatened by the truth that billions of people choose to ignore - intentional strategy of poverty employed/enforced by the powers that be! It's not a secret that the superior races of this universe have controlled the lives of the poorest of the poor so they can continue enjoying whatever automatically reaches their laps of luxury because of their class A economic status, mainly made possible by the masses of toiling laborers every which way one turns.

It's very timely that we crossed paths through your masterpiece. I'm not a real book reader, although reading is my number one hobby. I mainly rely on the internet to quench my thirst for knowledge. I'm pleasantly surprised that all is for naught and I do have a newly-found hope that things will improve in our universe, thanks to your foresight - provided that more followers can open their minds to your valid, albeit out-of-this world, but down-to-earth suggestions.

Although this missive is getting unnecessarily longer, I thought that it would help you understand where I'm coming from. (People say that I'm in an enviable position of being a U.S. pensioner enjoying the fruits of my long and hard labor in a 3rd world setting.) I retired about 2 years ago at age 54 from the United States Postal Service, having lived in Seattle since 1977. I'm in the process of implementing my reverse diaspora plan as we speak. I travelled to China (my wife is a Chinese citizen) and the Philippines from September 12, 2010 to October 11, 2010 and managed to open negotiations about buying my sister's Valenzuela property which paperwork is scheduled to close in December. I was in Metro Manila, Bataan, Isabela, Ilocos Sur and Baguio. (I escaped the wrath of super typhoon "Juan" just in time!) I've spent 5 days in Guangzhou last month - mainly concerning my wife's stuff, but I also had a chance to mingle with potential business partners
there.

I couldn't pinpoint whether you're based in the Philippines or somewhere else. I really wish to connect with you during this, our temporary lifetimes on earth. I'll return to the motherland for good in January 2011. I would be honored and humbled when the right serendipitous time comes that we potentially finally meet!!

Regards and May You Have More Successes To Come!

Filipino "Sonny" Feliciano
410 Broadway Ave. E., Seattle, WA 98102

Strategy Myopia

What is the Philippine's San Miguel Corporation doing lately? Are they following a strategic map? Who is their strategist? Exactly, 12 years ago, on June 2, 1998.... while everybody was praising San Miguel as one of the best managed corporations in the country, someone pointed out a different reality: SMC was a continuing failure, and he pointed out the solution - Strategy Myopia.

Of course, this idea was considered crazy a dozen years ago...




The genesis of a stormy idea and the birth of the Street Strategist

Strategy
Myopia

"Strategy is seeing what everybody else has seen and thinking what nobody else has thought.” – Sir Acid

One of the biggest thrills for a young person is meeting famous people.

Unfortunately, my experience of this kind is dismal – I haven’t met any famous people at all.

Oh, maybe jockeying with Richard Gomez for a taxi one late night in Kai Tak airport would count. Maybe handshaking with John Denver in Kowloon after a concert would count. Maybe calling out to Richard Branson to show him the walkway to Prince Charles’ royal yacht Britannia moored in HMS Tamar would count. Maybe getting an autographed poster from Jamie Rivera, because we stayed in the same hotel in Singapore, would count.

Or, maybe hatching out a plan to kiss Tetchie Agbayani in the Calesa Bar, which my friend successfully implemented while I sat wishing I did it myself, would count.

But these were nonsensical encounters. You can say mine is a pathetic case when it comes to meeting famous people.

One exception
There was a minor exception, though, during a student cocktail party. I was so young that I remember on this occasion I tied my hair into a ponytail. The champagne sure was better than the local gin I was used to.

Andres Soriano III was standing alone in a corner. I suppose he was trying in vain to be inconspicuous.

Looking back, it must have been really some important student cocktail party, or really some influential school, for San Miguel Corporation’s CEO to be present. I think Washington SyCip was there too. There were some corporate big shots but in my ignorance, I didn’t recognize a lot of them.

It was something like a “students-meet-corporate-bigshots” cocktails. It was a nice activity; all schools should have one.

Nobody talked to AS3. It was because we all knew it was AS3 and no one dared approach him.

For me, it was a rare moment. At that time, there was only one question burning in my mind. This was the same question that all students present wanted to ask the CEO of the biggest operation in the country.

The question of a hundred years
Anyway, I went over to AS3. We exchanged “hellos” and he was very polite. He can afford to be polite, he didn’t have anything he couldn’t win. I can afford to be intrusive, I didn’t have anything to lose.

Okay, that’s an unfair statement – I just wanted to say something witty. In truth, he really was a nice person and all. He was holding his champagne flute. I don’t recall if he was drinking wine, or water or beer. By this time, other students had milled around us, having seen the pied piper leading the way.

I asked the question of a hundred years: “Mr. Soriano, why is it that after 100 years, all that San Miguel can do is make beer?”

I knew I was speaking for everyone when I popped that question. This question was not an original. It was a common thread of thought among students and instructors who previously spent more than five sessions discussing SMC from its roots 100 years earlier through the Marcos years, to the present.

(By the way, that series should be required reading in all business courses as I know even SMC employees have not read it. It has very interesting behind-the-scenes accounts like when Cojuangco and Gokongwei waged board room battles with the Sorianos.)

Anyway, we never had the chance to ask this question except among ourselves. This was the chance for us to hear it straight from the horse’s mouth.

Incidentally, that year was also SMC’s 100th anniversary.

Holy management ground
He paused before replying. AS3 was now standing on holy management ground, which at that particular minute had the greatest density of the best young management talents per square meter in the entire country.

These were young people who thought they could function as CEOs of SMC, Metrobank, and Petron the next morning without flinching. If an earthquake swallowed that room, you’d think there would have been a management drought for the next five years.

Certainly, there was intelligent life out there but count me out, I was only biding my time, drinking their wine.
“We try to focus on our core competence. We still have room for growth even within our own business sectors. We still have so much to do.” This is not verbatim. I don’t recall if he used the McKinseyish term “core competence” or the phrase “what we do best.” But that was the gist of AS3’s reply.

The crowd grew larger, this time the other big shots and the other students came closer, too.
Jet Magsaysay, editor of World Executive’s Digest, who had been standing there for some time revealed himself to AS3, which prompted the latter to say in jest, “Oh, you might be hiding a tape recorder there somewhere.”

Magsaysay replied in the negative to assure AS3 that none of the conversations would see print.

There were some discussions on the SMC sequestration, and some discussions on SMC’s cost of capital. If you don’t know what “cost of capital” means, don’t worry, neither do I. Defining “cost of capital” is like defining “rate base” which MERALCO and the ERB are having religious battles about.

The CEO who only wanted to be inconspicuous was now reluctantly holding court. The foreigners feasted on his ideas, the other big shots extended their handshakes, and the black-tie waiters offered their drinks.

I felt a tinge of guilt. If I didn’t drag the guy into serious discussions, probably he would have been merrier simply exchanging hellos with the rest of us.

Once I asked the question of a hundred years, others chimed in with their own questions, testing their minds against AS3.

The perfect reply
Before you raise your objection that SMC is also into ice cream, bottles, and softdrinks – hear me out. That’s exactly my point. SMC is maybe Asia’s largest food and beverage conglomerate, but after 100 years is that all it can do?

AS3’s “focus on core competence” vision was the perfect reply. A company must not over extend itself beyond what it excels in doing. A company must first exploit the growth of its industry before it touches another business it knows nothing about. And, certainly, with its army of management consultants, this core competence strategy is the best option available.

Personally, I disagreed with his vision.

In my champagne-encouraged eloquence I privately confided to a few of my friends present, including one who ended up at Citibank and is currently one of the best young investment bankers in the country: “The vision of the CEO is the vision of the company. If the CEO limits his vision, the company’s future is limited by that vision. If his vision is limited to food and beverage, then the company will be forever in food and beverage. If he had the vision, he can easily buy talent to implement that vision.

As an example, if he has zero knowledge on high technology, then he can buy the brains who know about high tech.”

I saw that those companies in the best position to enter into high technology, value-added manufacturing or development were not into the game in a big way. SMC, for instance, was more focused on consumption-based not export-based industries.

Genius does what it must
After 107 years, SMC has only one world class product – San Miguel Beer.

Isn’t that a waste?

Talent does what it can. Genius does what it must. SMC merely does what it finds profitable to do – brewing beer. If we recall the parable of the talents, SMC was that person who merely buried his money in the ground, proud of his prudence, yet chastised by the master because he wasted his talent.

SMC is a unique company. It was the single most qualified private entity to lead the country into economic prosperity. It had all the chances to bring this country into high tech value-added manufacturing or services. It had the clear chance to lead but it failed to grab the baton.

Unfortunately, it was content with being just a beer company instead of being the global world-class powerhouse it could have been.

SMC could have created its own computer brand for domestic and export markets in a technological partnership with HP or Intel. If I assembled my own computer, there’s no reason SMC could not. Instead of Acer or Compaq, we could have been using SMC laser printers and computers this time developing Filipino new technology along the way.

SMC could have gone into power generation. This is not too remote for its management as it already owns and operates power plants for internal use. Even granting it has no expertise at all, then it could have partnered with BC Hydro – not that I’m passing judgment on BC Hydro, but I liked their beautifully landscaped offices in Vancouver.

Recently in Hong Kong, a bus network franchise was awarded to New World, a company with zero transportation experience.

However, the HK government saw it from the angle of New World’s management track record in other businesses coupled with the fact that its technology partner is one of the best bus manufacturers in Europe. The consortium that acquired MWSS is using this strategy. What did they know about water prior to this project? They brought in the foreign water brains.

San Miguel could have gone into banking and financial services maybe by first issuing SMC Visa credit cards after all it had 20,000 employees as captive market. It could have gone into telecom, software, and infrastructure. Don’t point me to ANSCOR which has an anemic brand name as against San Miguel’s.

For what it’s worth, SMC could have gone into record producing, or book publishing to promote Filipino talents to the world.

RP’s first chaebol
Indeed, it could have entered into anything just by the mere fact that its name was San Miguel. Which foreign company wouldn’t have cooperated, or provided technology expertise, or formed a joint venture with SMC?

All SMC had to do was to come up with an idea and everybody would have jumped into the project.

In Hong Kong, it is said that for every dollar you spend, 30 cents goes into Li Ka-shing’s pocket. That’s how diversified Cheung
Kong Holdings is. In Singapore, Temasek Holdings is leveraging its power into French bread, property, shipyards, media, and the internet.

Others are beating SMC to the draw. The Lopezes went into defensive investments as power, water, and telecom. While originally into media, now they added internet business. That Bill Gates signed an agreement with a Lopez instead of with a Soriano is a big blow to the country’s most popular brand name.

Concepcion wants to find out what a silicon chip looks like, and Sy knows shopping malls are not everything.

We have all these family-based groups yet all suffer from the same inward-looking syndrome. They are not aiming to become world-class players.

The Thais want to lay out our railways, the Indonesians are building our expressways, the Malaysians are buying our MacArthur suites and steel companies, and the Singaporeans would be erecting our office buildings.

Instead of San Miguel invading these economies, we are the ones being eaten. Come to think of it, we don’t even have the equivalent term of Korea’s chaebol or Japan’s keiretsu and sogo sosha.

Maybe AS3 was afraid that he would be spreading himself thinly. Does he really oversee the inventory of beer in Davao on a day-to-day basis?

Strategy Myopia
All told, SMC was poised to be the economic messiah; could have been the benchmark for Filipino companies with global ambitions; could have been our first chaebol.

Sad to say, even the biggest company sometimes depends on a single person’s vision.

Can the country’s only world-class, albeit single-sector, company afford to be myopic in its vision?

There could have been other factors that prevented SMC from getting into other businesses. Nationalization or outright confiscation under the Marcos regime could be one. Probably an unwritten code of not competing with its kin and friends who are in banking and property development could be another.

Strategy myopia could have been the greatest factor. Even during the Marcos years, San Miguel could have operated its worldwide expansion out of Hong Kong where it had a presence since the 1950s.

Salim of Indonesia used Hong Kong as its acquisition home base. Even now, that the political environment is business-friendly, what does SMC have in mind? Have you read SMC’s latest stockholder address? All talk about beer, milk, spirits, soda, and more beer, and a Johnny-come-lately act in property.

In March 1998 in New York, AS3 said that “although for the first 100 years we operated largely within the Philippines, and intend to continue our leadership in that market, we are transforming San Miguel into a major regional player.”

Hold it right there. After 107 years, SMC is not a major regional player yet? You would have thought SMC would have moved on to bigger playing fields and developed new technology and diversified away from beer.

The problem with beer is that it is consumption-oriented hence counter-cyclical to the push for savings needed for a strong economy. Beer technology is mature, therefore being ahead does not translate into an advantage. It is not a basic human need and very volatile in terms of demand particularly for low-income countries like the Philippines.

SMC’s too much dependence on beer is fragile. If I started a microbrewery tomorrow with a magic formula mixing chili and humulus lupulus that captures the palates of drinkers, creating the Viagra of beers, SMC could be out of business in five years.

Selecta’s assault on Magnolia is a harbinger of SMC’s beer future.

Chili beer – now that’s an interesting idea.

San Miguel could have been the Philippines’ answer to Hyundai or Daewoo. But then SMC’s management and external consultants would tell you that it should focus on its core competence.

San Miguel’s core competence
Let’s talk about SMC’s core competence. Let’s sit back for a moment, and look at the big picture.

Let’s answer the question: “Exactly what is San Miguel’s core competence anyway?” Is it brewing beer? Or making chocolate drinks or ice cream? Is that what you see?

In February 1998 in London, AS3 revealed that SMC relies so much on beer to a point that a huge portion of its total revenues, 38%, comes from beer sales.

In words and in deed, there’s no question San Miguel still talks, walks, and quacks like a beer company and will continue to be so in the near future.

Let’s take a snapshot of Samsung. In addition to foods, textile and chemicals subsidiaries, Samsung is the world leader in semiconductor memory technology. It is into computers, heavy industries, and other business sectors including financial services such as credit cards, insurance, and securities, and even fashion, hotels, movies, and magazines. Samsung even acquired universities.

We are not talking here about simply trading or distribution, either. We are talking about actually building, manufacturing or developing its own new technology.

The good thing about Samsung is that it has world-class quality. You think Intel manufactures the fastest CPUs? No, Samsung does with its Alpha 21264 CPU. You think only the US makes F-16 jets? No, Samsung makes it in Korea, too. It also makes helicopters, power plants and ships. It manufactures the world’s first 256 Megabit DRAM, the world’s first 128Megabit FLASH RAM, the world’s lightest PCS handset and the world’s first completely flat Braun tube. It is also the world’s largest manufacturer of color picture tubes.

Samsung Aerospace plans to build space stations in Mars. Now that’s vision. However, on Earth, Samsung Motors will first build automobiles. If Samsung followed the “core competence” strategy, then it would have remained selling fruits, dried seafood, flour, and noodles, and making beer as when it was founded.

After only 60 years, Samsung’s revenues is US$93 billion annually, while after 107 years, SMC’s revenues is a pitiful US$2.3 billion. In terms of contributing to the economy, Samsung employs over 260,000 in 68 countries compared to SMC’s 18,500.

Paradigm shift
Lubbock once said, “What we see depends on what we look for.” What do I see in San Miguel? You might have been thinking what a scatterbrain would suggest that SMC should have been producing Filipino rock stars.

Going back to core competence, here is my idealized vision of what San Miguel’s statement of core competence should be: “San Miguel’s core competence is not making beer but creating new businesses.”

I know that was easy, anybody could have seen that. What if nobody has thought like that? Seeing what everybody else has seen and thinking what nobody else has thought, is a talent I would like to have or anybody would like to have for that matter.

But it’s not easy.

Even if you have thought about it, it would have been hard to act on it. Even if you have the facts right, you’re not necessarily going to work on it. Facts alone do not form a belief.

Ever noticed cement companies are as inert as their products? They cannot change their mind-set away from being manufacturers of cement. They never thought of themselves as business creators.

Have you noticed we are contented with operating power plants instead of creating our own generators? We always thought of ourselves as users of technology instead of creators of technology.

How can we ride the paradigm shift if we are not aware what our real competence is?

Thinking that “creating businesses” is a company’s core competence is a revolution. This idea would not sit well with managers who are mostly inbred through years of evolution from the bottom ranks floating to the top.

If you spent 20 years breathing in and out thinking that your company has the best beer in the country, what would you say to somebody who tells you that it should open up a biotech division? You’d say, “What has sheep cloning got to do with Coke bottling?” Revolution from within is always the exception, not the rule. But can a company manage an exception?

Intellectual capital
Once you embed in your psyché that “creating businesses, not making beer” is your core competence, your perspective changes; your assessment of your intellectual capital changes; and your viewpoint on unrelated businesses changes. Things somehow fall clearly into their places.

You’d realize that your greatest asset is not the secret recipe of Pale Pilsen but your excellent management ability. No matter what the business may be, software or rocket assembly, it doesn’t matter any longer. You can go into banking or even into railway construction.

Usually intellectual capital stems from a company’s internally developed technology but since San Miguel failed to develop any notable technology after all these years, we can proceed to count its management skills.

Undoubtedly it has stable manufacturing skills, and if you heard AS3 in New York, he declared that SMC is one of the most efficient Coke bottlers worldwide.

The greatest intellectual asset of San Miguel is its brand name. Yet, one could sense SMC thinks that San Miguel is a beer brand and nothing more. If you shift your paradigm from “makers of beer” to “creators of business,” you’d begin to think your brand is no longer a beer brand but a management brand.

Cultural icon
San Miguel is probably the only corporate brand in the Philippines to qualify as a cultural icon. It is almost legendary. It is the most recognizable brand in the country enjoying instant recognition virtually anywhere. It has always been known with strong leading brands, high quality and excellent service. Its brand has no negative associations; not associated with bad management practice; not known for tax-evading practices nor linked to corruption. SMC has a clean and wholesome image.

To call SMC a beer company because it is famous for San Miguel beer is like calling Leonardo da Vinci a painter because he was famous for the Mona Lisa. Painting was only one of his talents and forgetting Leonardo’s other talents that made him the greatest genius mankind has ever seen is sacrilege. The same with San Miguel.

Consistently one of the most admired companies in Asia, it enjoys great respect and admiration. As such, it has the status of a super company – already a legend, an icon. SMC must cease thinking of itself as a food and beverage elephant. San Miguel should stop being a beer brand. San Miguel is a cultural icon and it should become a management symbol, a management icon.

Any project that carries the SMC imprimatur becomes golden, enjoying the support of the capital markets and technological partners. SMC is not an ordinary company that should focus on an operational activity such as making beer, as its core competence. It should rise above such mentality. It should leverage its excellent management skills, leverage the equity of its powerful brand, and leverage its access to capital to fire up other industries and sectors trailblazing the way for the other companies.

Portfolio management
Then SMC can dwell on the “portfolio management” approach to business. It can bulletproof its portfolio by business diversification so that cyclical downturns in other sectors can be softened by other sectors that are counter-cyclical. If the economy shifts from consumption mode to savings mode, meaning people drink less beer and put their money into banks instead, then SMC Bank would benefit from the loss of SMC Brewery.

Worries about spreading the CEO’s attention thinly can be answered by independently-managed businesses. I had the chance to meet in Seoul some senior treasury managers of Samsung Corporation (the trading arm) and during the discussion I realized that they had almost complete independence from the other subsidiaries of the group. Usually, treasury independence is a good indication of management independence.

Three days later, in my ignorance, I walked away from a meeting at Cheil wondering why one of Korea’s big companies was holding office in a Samsung building. Later did I realize Cheil was a subsidiary. You couldn’t have gathered that from our discussion, which centered on treasury decision making. I thought that was an isolated case but talking to treasury managers at Ssangyong Oil, Daewoo, LG, Sunkyong, Kolon and Tong Yang among others, made me think they are practically on their own, yet part of the same brand name established by the patriarch.

The corporate raider
Acquire or be acquired. Since SMC failed to acquire other businesses into its portfolio, it is now in danger of becoming just another balance sheet item of a corporate raider’s portfolio.

Currently, San Miguel is right for the picking. Filipino managers, originally trained as investment bankers, camping out of Hong Kong, using Indonesian money, could be hatching the biggest, most ambitious, most flagrant corporate takeover in Philippine history.

Cash is power
If you were raiding SMC, you’d probably generate much cash for your war chest. First, you’d sell off your telecom operations in Hong Kong, your stakes in a US bank, and your investments in Europe. Wait for the right conditions such as undervalued stock price, depreciating peso, and lower profits, which means stock valuation will go down further. Look out for stockholders in a hurry to offload their shares primarily those wanting to unwind from legally disputed holdings. Use stealth by pretending you have no intentions of a takeover while at the same time using the lull to consolidate your takeover strategy with your investment bankers.

Use foreign currency to your advantage. If you were sitting on US$2.5 billion cash, and if today the Philippine currency depreciates by one peso, then you have an extra PHP2.5 billion to buy more SMC shares.

Let’s visualize how large that windfall profit is. Assuming a town has 50,000 residents, you can give PHP5,000 for each man, woman and child of 10 towns. By doing nothing you earn that obscene amount of money in one day just because of depreciation.

We’re not even talking about the original US$2.5 billion itself which can buy six units of Tamaraw FXs each worth PHP400,000 for each the Philippines’ 40,857 barangays. Indeed if you were the chap who’s sitting on this money right now, you could have won the presidential election easily by giving one Tamaraw FX per barangay with tons of money left over.

This is not child’s play anymore. We’re talking big league power play here.

By the way, how much is SMC’s market capitalization? A mere US$2.7 billion.

Hey, looks like somebody is storing just about the right amount of cash to buy the entire SMC shares.

Power, the ultimate high
Why would you raid San Miguel?

One reason is that you, as a raider, probably realized what AS3 and his current management still does not realize – that SMC has underutilized its brand, skills and position in a global market place. You can unleash SMC’s huge goodwill value. You can create a world-class company with world-class technology with world-class products.

Another reason is that, if you really have to spend all that cash and energy acquiring companies anyway, why not focus the best part of it on the biggest game in the land?

However, the best reason for targeting San Miguel for a takeover has less to do with money. The second most famous person in the Philippines, next to the country’s president, is the CEO of San Miguel. Being SMC’s figurehead brings power, popularity, and respect not only from Filipinos but from the international players as well.

It’s not even about the money. Dealwise, you can generate more money from acquiring other companies in dire straits.

Salarywise, it’s not enticing. Has anybody ever heard of Manny Pangilinan?

Probably not, but he was the highest paid CEO in Hong Kong in 1997, one of the richest places on Earth, with a yearly pay of US$14 million. To picture that amount, if you are a kindergarten teacher earning PHP30,000 per month, it would take you 1,556 years to earn that money. Yet, Pangilinan is practically unknown.

There’s something more important than money: Power.

Whoever gets to be chief executive of San Miguel gets instant recognition as the most powerful private individual in the country. There’s no doubt about that.

You can forget money but you cannot kill ambition. Some people have money but no power.

That is the seed of ambition. Power is the ultimate high.

Break it up
SMC’s break-up value is higher than its current market value as a group. It means the stock market players suggest that SMC is better broken up into pieces.

By way of illustrating the concept of break-up value, take Korean Airlines. Its total shares in the stock market are only the equivalent of a few jets.

However, it has 29 Boeing jets, 34 Airbus jets, and 16 MD jets. Therefore, you buy all its shares in the stock market and then you sell off its jets, office buildings, and equipment. Selling “chop-chop” would be more profitable.

However, since market valuation includes so much psychological factor, it doesn’t follow that instead of acquiring new businesses San Miguel must break itself up, but the pressure is there.

Still there are others ways of achieving the goal of breaking up as a means to liberate the company’s stored value. One of them is listing its major divisions as separate companies on the stock exchange, still making use of the same powerful San Miguel brand name. Expanding while breaking up is not necessarily inconsistent.

If the current management wouldn’t do this, the corporate raiders might.

San Miguel is the perfect takeover target for several reasons mentioned above.

We are watching how the Wassertein Perellas of the world are going to defend SMC in this colorful possible takeover battle.

Currently SMC is trading in the PHP46 range which might be a good buy for two reasons – current undervaluation as it is given its strong position in the sector plus future stock price appreciation as a result of a takeover skirmish.

In the event of a takeover battle in the next 18 months, it might good to buy stock now and hold it for your child’s high school graduation as a gift.

Res ipsa loquitur
Sorry San Miguel folks, I hope you won’t be cross. It’s easy to generate ideas. It’s easy for ideas to be formed into words. It’s easy for words to be written down. Yet it’s not easy to run a business, so I might have been unduly unfair to you.

But Hyundai transformed itself in only 50 years from an auto repair shop into a US$93 billion group with artificial satellites, magnetic levitation trains, ships and semiconductors, oil refineries and stockbrokerages giving employment to 200,000 people.

Why could SMC, after 107 years, only do US$2.3 billion employing only 18,500? Quite frankly, the chaebol model is under attack, but not after they became engines of South Korea’s spectacular economic success.

I’m not saying that Hyundai or Samsung are the best models, but look at their results compared to yours.

Maybe you really did miss out on being the single most qualified Filipino private entity to create world-class businesses making world-class products developing world-class Filipino technology along the way.

Res ipsa loquitur – the thing speaks for itself.

SMC’s greatest enemy
San Miguel’s greatest enemy is itself – it has strategy myopia.

Snap out of it. You are a Leonardo da Vinci capable of anything. Buy the brains, buy the skills and leverage on the brand that is already a cultural icon. Do not change the way you manage your business, rather, change the way you think about your business.

Anyway, I’m no MBA-staffed McKinseys of the world who gets paid hundreds of thousands of dollars by the SMCs of the world to strategize for them.

I’m just a person in the street with naive opinions and wild generalizations; writing without thinking.

One nice thing though about street-based analysts is that we can freely dispense ill-informed ideas without having the corresponding punishment of losing our personal money if they bombed out.

Maybe that’s exactly why we are out here in the street merely talking about how to run SMC, instead of being in the penthouse actually running SMC.

Shades of the novel “Zorba the Greek” – there are people who want to write about “life” but those who are actually living “life” are too busy to write about it.

Just a precaution while I’m still here, please don’t take seriously what I wrote above. I have to say that because some ideas I wrote a while back about a fast food company wound up as clippings circulated among the senior management of its competitor, of all places.

On another occasion, I once wrote down some ideas privately to a friend which included creating a monthly strategy newsletter, and before I knew it the US securities house he worked in implemented it soon thereafter. Goes to show some guys take my words more seriously than I originally intended.

That’s bad and that’s why I have to warn you off. Spare yourself the trouble of analyzing and refuting my statements, as this is not a scholarly treatise. I’m just your unknowledgeable average armchair strategist with wild ideas that hopefully provided amusing reading, only this and nothing more.

Yep, quoth the Street Strategist, “Amusing reading, merely this and nothing more.”

Now, go to the world, start your own microbrewery producing Chili beer, and drink. I don’t.

Drink beer, that is.

Wait a minute, I started out with Richard Gomez so I might as well end with him.

I arrived from Taipei and he from Manila, one very late night. I didn’t know who it was until I saw a taxi coming and so I looked at my competition for the ride.

When I recognized Richard, I looked up at him, and he looked down at me, and then both of us looked at the taxi. We were about two feet apart standing side by side.

He probably was unaware that I knew he was a famous movie star; after all, he was a stranger in the city and I look just like the average Asian. I was torn between getting his autograph and getting a hard-to-find taxi.

In that area in Kai Tak, only alighting was allowed and the loading area was far away, one floor below, and easily an hour longer because of the queue.

The taxi stopped – it was not supposed to; Richard made his move, his lady assistant was too slow; I hopped into it.

Ah, sometimes boys can be petty when jockeying for a ride. Sorry Richard.

But then, I lost my Ormoc girl while you found yours. I guess life is more than just a taxi ride.

Then again, I found my best muse later anyway. And life can be so grand riding shotgun in the last taxi in Hong Kong.



(Exactly one month later, on July 2, 1998, Andres Soriano III resigned. Thads Bentulan, June 2 & 3, 1998.)
* * * * * *



streetstrategist@gmail.com

Hyperwage Is The Solution to the Budget Deficit

Question: Can Hyperwage address the issue of budget crisis that our country is said to be facing, considering a budget crisis would possibly hamper Hyperwage's implementation especially in the government sector?

Answer: Hyperwage is the answer to the budget deficit.  First, assume a Keynesian multiplier of 5 given a marginal propensity to consume of 80%. Please read the Hyperwage book on how this multiplier is derived.

Let us have some back-of-the-envelope calculations.

For an income of P2,000 per month, after the multiplier effect, the income to the economy becomes P10,000 per month. Subject this to an assumed income tax of 20% and the remaining 80% (P8,000) will have to be spent anyway, subject to a VAT of 12%.

P10,000 per month x 20% = P2,000 income tax per month

P8,000 x 12% = P960 VAT per month

The total tax collected per year is P2,960 x 12 = P35,520 per year

For 30 million workers, this could be P1,065,600,000,000 or P1.065 trillion

Under a Hyperwage minimum wage of P20,000 per month, then after the multiplier effect, the economy earns P20,000 x 5 = P100,000 per month. The tax collected will be:

P100,000 x 20% = P20,000 income tax per month

P80,000 x 12% = P9,600 VAT per month

Total tax collected per year is P29,600 x 12 = P355,520 per year.  (That’s P355T vs only P35T in taxes)

For 30 million workers, this could be P10,665,600,000,000 or P10.65 trillion

These are theoretical multipliers and taxation leakages are not accounted for.

Conclusion: Without Hyperwage, both income tax and VAT for 30 million workers is expected to be P1.065 trillion while under Hyperwage it is 10x higher at P10.64 trillion.

It is very clear, that the budget deficit will be reduced, and the fiscal position of the government will be increase. Again, reminder, the costs will not necessarily move up in the same proportion (the principle of non-linearity).

While the exact amounts are subject to refinement, the economic principles behind the calculations are the same.

Now, can you see why and how countries like Singapore have GDP higher than the Philippines despite their tiny land areas and zero natural resources?

High wages are the source of taxes, source of fiscal income, and source of deficit reduction, and source of high GDP.

The Man Who Saw Meralco's Future (Ten Years Ago)

Headline: May 25, 2010: MVP is Meralco's new CEO.

Background: 10 years before..... Read below

---------- Forwarded message ----------
From: robert punsalan
Date: Mon, Jul 20, 2009 at 10:40 AM
Subject: Re: The man who saw Meralco's future
To: Street Strategist at Gmail

Dear Thads:

 

Your prescient outlook and incredible knack of looking at things and determining new possibilities is the distinctive manner whereby knowledge is determined to be the most important path and means for power and resources.  In the book Powershift, Alvin and Heidi Toffler postulated on knowledge as the best source of power.  It adds and infers, is not used up both re-generates, etc.   Your articles since 1999 (gosh, how time flies!) resulted in the following developments (pardon me if I miss some, my memory is not that great anymore, age matters):

 

PLDT - taken over by the man you described in the Final Merger as the "fox in the ruthless business arena of Asia (Hong Kong)".  He has rebuilt the firm to a nimble and technology focused one that uses the "convergence" of techonologies to create a new meaning for communications.  Interestingly, the former firm is saddled with monopolistic tendencies that, as you correctly pointed out, "..is a monopoly, and having no competitors degenerates your creative brain cells..."    [ Perhaps that is the problem, having matured into a powerhouse and defeating all possible rivals, management expectedly sits back andgrows comfortable, all the while potential rivals are watching, learning, accumulating resources, and positioning themselves for the momentous struggle at a time of their choosing when they move on the takeover target. ]

 

SMC - still handled by the "elephant" (again in Final Merger) who with his political connections is now re-focusing the food and beverage conglomerate into a hard asset based monolith.  I never thought he would pounce on Petron (the linkage though is brilliant), Liberty Telecommunications (for his platform to jump into the internet) and his 3-way alliance with Meralco (Lopez family) and the fox (PLDT), and that he would be going into water control and dam operations (Laiban Project, although he will get his fair share of problems herein).

 

Your observations and insights are borne out within the decade.  Pity you don't write anymore for us disciples (enlighten us Master)  although if I am correct your mind is again communing with the Muses of Wisdom for new insights.  So what will it be Sir Acid, what other visions do you have that we can learn and build upon? 

 

Your loyal reader,

Robert "May we live in interesting times" Punsalan


...............................................................................................................


In which the Metamorpher conjures up a corporate metamorphosis for power brokers

Power Struggle

“Power is the ultimate high.”

– Street Strategist, Strategy Myopia

Power is the ultimate high. Power and control. That’s what it’s all about.

I recently had a power lunch with power engineers at the power restaurant on the top power floor of a power company. If that’s not enough power for you, I don’t know what is.

The engineers were probably thrilled with this lunch, after all it’s not everyday that you meet a famous Street Strategist.

Furthermore, it’s not everyday that one of them can claim to have almost flunked one. That’s an exaggeration but you get the picture. It was at this lunch that this article crystallized.

Pseudo-expert

Every time I meet foreign analysts who became instant experts on the Philippines after after a few visits to Makati, I found it expedient not to argue their “mere conclusions.” Eventually they talk about Ayala, San Miguel, or Meralco.

At this point I’d say, “ME-RAL-CO as in Manila Electric Company.” In maximum nonchalance and minimum speed, I’d voice out the syllables, without looking at them, pretending a soliloquy.

It never fails. It takes a few seconds to sink in, culminating in a confused look of a calculus that doesn’t add up – indeed the abbreviation doesn’t sound right. Enough of their expertise.

The final warning

The power lunch in the last week of March 2000 included one of the top five teachers I’ve had, and definitely the most mathematically brilliant, and coming from the Street Strategist, that’s certainly a statement – whether a good or bad one, you be the judge.

That he left the university in one piece was a minor miracle considering the number of students he flunked. He took the occasion to reveal that he found out after graduation it was me who complained to the German priest regarding his tough exams.

“I’ve written warnings about San Miguel and PLDT, and now I think that Meralco is a perfect takeover target,” predictably, I warned my hosts, one of whom heard of quaternion for the first time.

This is not the first time I aired this warning on takeover targets. In The Final Merger I theorized that PLDT could be the technology flagship that El Kapitan needed to complete his conglomerate. After devouring the former government depository and the oldest airline in Asia, his next logical strategic acquisitions could be the biggest food & beverage conglomerate and the biggest telecom player.

Yet again, in another instance of favorable timing similar to the publication of Strategy Myopia, the biggest takeover in Asian history occurred with a theme that eerily echoed The Final Merger scenario, barely three weeks after.

Forthwith, I wrote The Realization of Virtuality, detailing the travails of a huge telecom being swiftly swallowed by an unexpected acquirer.

In the light of these analyses and succeeding events, I warned my hosts: “Meralco is a perfect takeover target but not for reasons that you may have in mind, but for amusing reasons only the twisted Street Strategist’s mind can conjure up.”

The last days of Meralco

“You know who’s our chairman, right?” the host reminded me in an effort to paint that Meralco is powered by executives thoroughly schooled in maximizing profit opportunities.

With the advent of the power sector restructuring, Meralco is focusing hard on the opportunities, especially on buying power from cheaper generation companies (genco).

Well, he is the chairman of the power firm and the past president of the business school alright, who might as well be the author of “What They Teach You at AIM.” He is the epitome of the business school executive.

On the other hand, I’m the guy who’s going to write “What They Don’t Teach You at AIM.” I’m the epitome of the business school reject.

The divergence is tremendous. He may be pre-occupied with how to bring the power firm higher while I’m pre-occupied with what could bring it down.

M&A reasons

In b-school, there is a simple corporate and industry analysis framework called SWOT (strengths, weaknesses, opportunities, threats). The firm may have analyzed all the opportunities under the new regulatory regime with so many committee meetings.

But if they don’t have an anti-takeover committee, it means they are not expecting any threats. Actually, nobody in his right mind would attack Meralco, but let me invent the scenario.

Boring

The business of Meralco is one of the most boring in town. It is a basic commodity with no glamour at all.

It is a monopoly; and having no competitors degenerates your creative brain cells. It is a very predictable industry such that its capex over the next ten years are known. Its technology has not changed since the invention of nuclear power.

Even profitability is very predictable because the government sets the selling price. It is a stable business with no feast and famine cycles. The only exciting part of this business is actually predicting the dollar exchange rate.

Power and dominance

While definitely the privatization of Napocor is the holy grail of power investments today, as an M&A whiz, you may take over Meralco for its industry dominance, and your entry strategy is via the government’s 10% stake, soon to be disposed of. That’s if you are content with a company with only an 8% growth.

Meralco’s free float of 40% is fertile ground for a power struggle, but since the current charter allows only the Lopez group to own more than 10% of Meralco, an unfriendly takeover is unlikely. But hey, even the country’s constitution can be amended.

Operational efficiencies

On a favorable note, at least you can immediately save operating costs by removing the entire communications/marketing team because you don’t need to advertise and market a product whose demand is greater than the supply, compounded by being a monopoly.

Furthermore, to maximize cash flow to the firm, you can be innovative in fiddling with the parameter used by the regulatory board in power pricing, the return on rate base (RORB).

Maybe you have a strategy to reduce station and distribution losses, heat rates, and pilferage that should make your management more cost efficient.

Integration

If you are an independent power producer (IPP) another reason for a take over is vertical integration, precisely to smoothen the supply chain sine wave, meaning, those parts of the chain that are natural revenue “sinks” can be offset by other links along the chain that are natural revenue “sources.” What did I just say? I can’t believe I said that.

In simple English, I really meant that owning both a genco and a distribution company can allow you to cross subsidize costs.

However, since power utilities are regulated, vertical integration may be prohibited by legislation. Again, don’t let legal precedents stunt your imagination.

Distribution

Being aware that in investment banking, distribution is a powerful competitive advantage, I have always been fascinated by the distribution capability of electricity suppliers while at the same time fascinated by their sheer lack of imagination in realizing exactly what they possess.

After I wrote a dismissible industry analysis of the power sector as a student, I have always watched this particular competitive distribution advantage of Meralco, one not being enjoyed by Napocor, and one that definitely covers more ground than PLDT.

But I have always been disappointed.

Invasion

The most distinctive feature of a power company’s distribution capability is its invasiveness, going right through the privacy of the homes.

The distribution capability of Fortune Tobacco or San Miguel Corporation stops at the retail stores and there is no way to get further information about the consumer other than an inference from buying patterns on the aggregate.

With power utilities and telephone companies, the invasion provides information about the economic status of each individual family, information not masked by data aggregation.

Since power consumption, like phone bills, is a quantity that is consciously minimized by users, no other economic indicator can be as invasive while at the same time as truthful as power bills, barring bank statements which are inaccessible by law.

Proxy datum

As I have confessed in the article Quaternion asking questions has become my survival kit, and at one time I wondered: “Since I doubt the accuracy of the government’s income data gathering, what is the proxy quantity that is truthful, comprehensive and easily available?”

Indeed, many marketing companies seem to overlook the power of this proxy indicator. Survey firms, ad agencies, and political parties should stop using the population income profile provided by the National Statistics Office, which is tainted by interview exaggerations and sampling errors, and should start pushing for a power consumption profile from the power companies.

Economic profiling

Since power distribution is more comprehensive than telephone penetration, no other data come closer than the power bill in classifying families into Class A, B, C D or E.

Yes, the power bill is the proxy datum I’ve been searching for. But I have yet to hear of any research or campaign that is based on this more accurate and comprehensive classification.

X-selling

Now that we have established the accuracy and comprehensiveness of this proxy datum is, what next? Comes another favorite expression of mine, “Do I have to think of everything for you, guys?”

Let’s see: FPJ can send his campaign letters to Class D and E groups. Camella Homes can send its housing offers, and BPI can offer its appliance loans.

The power company may create its own direct-marketing subsidiary selling TVs and financial services. If the company is too lazy, the lame thing to do is to rent out its mailing lists to politicians, and credit card companies.

Since I have yet to hear of any company using the power firm’s mailing list on a massive scale, then I can only surmise that nobody has realized that it has the most accurate, most targeted, and the most comprehensive mailing anywhere.

Come on, guys, let’s form the Meralco Consumer Marketing Corporation. Sony, Sharp, Samsung and Electrolux are furiously knocking at our doors.

Marketing vision

Ah, you knew it was coming. Simply intoxicated with clam bouillon at the Lighthouse, the Metamorpher has engineered the transformation of a power company into a virgin marketing company having a client mailing list with the most comprehensive coverage, the most accurate addresses and the most accurate economic profile around, that is the envy of direct marketers and even politicians.

In addition, we uncovered the opportunity to create Meralco’s own marketing subsidiary.

The game has ceased to be a power game. It has become a marketing war. It’s no longer a war of engineering expertise. It has become a war of marketing strategy.

By the way, remember that entire marketing division that we sacked earlier? We need to recall them after all. We need the best marketing team in town.

This transformation is certainly one thing they don’t teach you at business school, otherwise we would have been buying everything from DVD players to toothpaste from Meralco by this time.

So that’s it guys, our takeover of Meralco is predicated on a marketing vision rather than an engineering one.

As I said earlier, nobody in his right mind would take over this firm, but since we used our left minds, we saw the immense political advantage of having access to a database of 3.3 million voting families. Bye. See ya.

The last mile

Hey, wait, guys, I’m not finished yet. Did you really think the above Street Strategist’s treatise on consumer marketing is what this story is all about?

I guess the foremost strategy in the minds of Meralco executives is how to profit from the restructuring of the power industry and the privatization of Napocor.

And you guess that the foremost strategy in the Street Strategist’s mind is how to profit from obscure visions. This is all about an asset that Meralco has not given any serious consideration.

Sometimes we know that we have a valuable asset but we don’t really have a full appreciation of how valuable that asset is, until somebody else goes after it.

Back to the power lunch, I said, “My reason for taking over Meralco is different from what you may be thinking. Remember those power line carrier telephones that are being used between substations? If that technology been revolutionized since I first saw it, then Meralco’s days are numbered.”

‘That technology is years away and costly,” one said.

“Okay, but I have to find out for myself. If the technology is viable in five years, then Meralco is the perfect takeover target.”

“Meralco is expanding its fiber optic network,” he replied, revealing Meralco’s telecom projects, “because its existing rights of way and its existing poles can be used to carry both power and fiber optic cables. Meralco then charges the cable or telecom companies for the use of such wiring.”

Finding Meralco’s fiber optic cabling project an economic redundancy, I insisted that the powerline technology deserves a second look, an unwise rambling on my part. These power engineers dismissed the technology yet I wanted to judge the technology for myself.

This was absurd because it presupposes that I have the capacity to understand telecom engineering and power systems, in order to go against their judgment.

But then that’s me. As much as possible I don’t accept the experts right away, although I use their judgment as my initial reference point. Being experts, they are almost always right; yet in isolated instances, I discover fresh viewpoints; and in all cases, I learn anyway. It’s a no-loss situation.

Powerline internet

In my research after the Manila weekend, I was overwhelmed by the astounding advance of the powerline technology, confirming my hunch that it has reached a viability worth struggling for.

Bear in mind that when I was rambling during that lunch, my principal concern was merely to maximize the strategic opportunities of the invasive access of Meralco for marketing, and now, for internet delivery.

I never had any idea that this powerline technology was being developed and is going to add a spice of reality to our strategy. I was only exposed to the primitive use of the transmission lines for telephony between substations.

Some call it digital powerline (DPL), some powerline communications (PLC), but I prefer to call it powerline internet (PLI), which should be a familiar term to end-users.

What I have in mind is the takeover for Meralco’s broadband opportunities, yet not for its fiber optic cables but for its power lines.

Here’s what I find ironic: Telecom companies like Nortel whose veins are made of fiber optics are experimenting with power lines, while power utilities like Meralco are dabbling with fiber optics. Confuse me guys, confuse me some more. Fiber optics might be the medium of the future, but powerline internet is certainly the solution of the present.

Again, in an eerie sense of timing, I can’t believe the coincidence that exactly on the same day we had our lunch proposing a takeover of Meralco for its last mile access, about 15 power firms from 12 countries gathered in Switzerland agreeing to hold powerline trials by June 2000.

The only Asian in the Ascom-sponsored trials is SP Telecommunications (a subsidiary of Singapore Power), in a field that included RWE Energie AG Germany, EDF France, and EDP Portugal among others.

Independently, Korea Electric Power has its own trials as well. Although, perhaps, the most publicized independent trials were conducted by Nor.Web.

I suspect Meralco is not even considering the powerline internet in its strategy. While it has publicly announced having the largest private frame relay network in the Philippines and having circuit kilometers of fiber optics being laid out, the only juxtaposition of the words powerline internet and Meralco occurs in this article not in its press releases.

Fourier analysis

The thought of having an internet connection with in-home invasiveness and worldwide pervasiveness is very seductive.

Ascom Powerline Communications in Bern described to me their implementation: “Our powerline communications system is in fact composed of 2 systems: the outdoor system and the indoor system. The outdoor system uses the utility's low voltage grid to provide the last “mile” access to the houses. The indoor system uses the electrical wires of the house for the transport of the information.”

Engineering-wise, the power line is one of the worst media to carry high frequency signals such as those needed in broadband communications. It is designed to carry electricity at 60 Hz, not signals at 10 Mhz. The power line has a pronounced non-flat frequency response.

This is a piece on strategy and not about technology, so I refer you to Meralco’s TJ to explain Fourier transforms (pronounced For-ye).

This undesirable Fourier transform of transmission lines is a minor inconvenience compared to the vast opportunities of having internet connection in each socket in the world. There are other technical problems like electromagnetic radiation, susceptibility to jamming, and even data security, but overall, an assistant vice president of Ascom Powerline concluded: “There are no stumbling blocks.”

The race is now on for the modulation techniques and integrated circuits to be used to deliver the broadband signal.

A director of Power Trunk Corp in Canada explained to me: “We have developed an adaptive communication architecture using Harmonic Multi Tone Spread Spectrum (HMT-SS) modulation. At the very highest level it is able to turn the electrical outlets in your home into “Ethernet networking” outlets and enable a complete network without the need to install wires around the home.”

PolyTrax of Munich described their implementation as follows: “PolyTrax I technology is based on a new, combined FSK (Frequency Shift Keying) and PSK (Phase Shift Keying) modulation method.”

The folks at Enikia of New Jersey think they have the right 10 Mbps solution, that only after signing a non-disclosure agreement can one learn of it.

Free lunch

Anyway, I’m amazed at the sparks of creative imagination that a two-hour power lunch can generate. What was a reminiscing of school days, eventually precipitated into an amusing flash of insight of morphing a rigid power firm into a hyperactive internet company.

One of these days, I might just apply my fancy imagination towards something really useful instead of something only for entertainment.

When I announced to friends via email that they too could have free lunch on a Meralco engineer, the latter demurred that it was not a zero exchange after all: “I had to pay for our lunch in exchange for a complimentary copy of the book “The Misadventures of the Street Strategist, Volume 1.” Watch out for it at the bookstores nearest your place.”

Isn’t it powerful to know that an autographed copy of a mere draft of my book compilation has the power of a checkbook?

Disconnection notice

Wait. You didn’t really think I was leaving you with a high note, did you? This is a rollercoaster ride, my friend.

Nortel’s spokeswoman from Canada told me: “As of late 1999, Nortel Networks and United Utilities, PLC of the UK had disbanded the joint venture Nor.Web. While the powerline access solution was technologically feasible, there were economic issues – meaning it was too costly for service providers to deploy.”

Uughh. So much for street strategizing, but at least for a while I stretched your imagination just a bit.

Since Meralco follows the American model of having 5 to 70 customers per transformer as against the UK model of about 300 per, it would face the same problem of having to put more powerline internet nodes.

Competing technologies providing broadband include xDSL which I am using, cable modems or broadband radio. HomeRF and Bluetooth are some alliances promoting wireless solutions.

The HomePNA technology using the telephone wire shows promise in the emerging home-networking industry. The standardization effort is well established and is under consideration by the IEEE and ITU standards bodies.

Secret vision

Hey, wait again. Don’t discount the powerline internet just yet. In February 2000, with its money, Microsoft recently voted in favor of this technology by teaming up with Itran Communications of Israel, who designs chipsets for the powerline internet capable of high speeds like 12 Mbits/sec.

On April 10, 2000, another vote for this technology was cast by the creation of the Homeplug Powerline Alliance, a non-profit association which counts 3Com, AMD, Intel, Panasonic, and Texas Instruments among others, as members.

This is a perfect motive to finally execute the takeover of Meralco, not by a competing energy concern like an Enron but by a virtual firm like streetstrategist.com transforming it from a firm with a P/E ratio of 13x to one with a P/E of 120x.

Altogether, we targeted Meralco not for its electricity income but for its unappreciated assets. The power struggle is for its distribution channels, for its last mile access and for its internet opportunities.

Our acquisition of Meralco is predicated on our vision to turn it into a marketing company. That should have been enough by itself.

Yet in a further twist of logic, we have demonstrated that our secret vision is to transform Meralco into an internet company with stratospheric valuations instead of having a defensive stock valuation.

Alas, Meralco perhaps spends all its time strategizing for the omnibus power law while we are spending all our time strategizing for its take over.

Paradox

Truth to tell, you would have been disappointed if the Street Strategist took the textbook route of acquiring Meralco, right? Thinking what nobody else has thought. There’s a nice ring to it.

It’s time for goodbyes. Hmmm, you know what I’m thinking? I’m going to teach at business school. Then using the same ideas, but now wrapped in ceremonial academic clothes, our street strategies might be viewed by the captains of industry as serious business strategies.

Additionally, I’m going to design and teach an elective course called exactly, “What They Don’t Teach You at Business School.”

A course taught in business school lecturing students what they don’t teach in business school. That would be a paradox, wouldn’t it? But then, isn’t the Street Strategist a living paradox in the first place?

(Thads Bentulan, April 20, 2000)

* * * * * *

 
...............................................................................................
Did the Street Strategist steal the idea?

Power Storm

I am the creator of storms, the conjurer of controversies, and the hawker of dissonance. 

If the truth be known, I don’t even have to exert any extra effort become such – I’m a natural.

You don’t know me well enough to concur with this declaration against self-interest but trust me on this one. If you really knew me, you’d know I’m speaking the truth.

Psychological contract

To avoid creating storms, I seek refuge in the discussion of ideas not personalities.

To avoid conjuring up controversies, I seek refuge in outlandish strategies that are not to be taken seriously. 

To avoid hawking dissonance, I stipulated in Lessons from Strategy Myopia the psychological contract between the reader and myself – what I am, what I write, and why I write this or that way. 

Imperfect timing

Don’t get me wrong but I’ve gotten used to receiving several reactions whenever I come out with a new article, but nothing quite prepared me for the reaction I was faced with when my article on Meralco came out.

“This is your best article by far,” swore one of my loyal readers over the IDD line. “This is very practical, unlike your now second best article,” he continued, referring to Strategy Myopia.

Don’t worry guys, I strongly believe Strategy Myopia will remain my insuperable masterpiece.

“But your timing is very, very bad,” he judged. “Who would be reading your article on a Maundy Thursday? Timing is everything.”

By the way he criticized my timing you could tell he is a banker. Frankly, that it was coming out on a holy day slipped my mind. 

All I wanted was to push Power Struggle out of my hard disk because I myself was excited of its bizarre dual strategy. 

I soon found out I wasn’t alone. The fun contaminated a few readers, some of whose reactions were eventually published by BusinessWorld, including that letter calling me a “dangerous” man.

Apparently, the powerline internet idea is still uncommon. 

The Intel country manager was surprised when I casually mentioned it over lunch at Oakwood several weeks ago. A mechanical engineer who is now a top investment banker was likewise surprised of the idea.

I have a few friends at Meralco and after the publication of Power Struggle my circulation figures thereat reached a new high. Some of its staff joined my mailing list.

Even the editors were not spared as they told me they received a few phone calls. I created a storm.

Strategy session

Just as the hyperbole was decaying toward its half-life over the months, out of nowhere a stockbroker told me: “Our senior analyst attended the recent meeting at Meralco. They announced that they are going into your idea of the powerline internet. Ha ha ha ha hah. I am really happy for you. They followed exactly your vision. You have to call your contacts there and tell them to pay you something like a fee for that marvelous idea. I want to write to BusinessWorld about it so I can share my remarks, comments on your Power Struggle article!”

Weeks ago, Meralco had its annual strategic planning session at the Manuel M. Lopez Development Center somewhere in the mountains of Antipolo. Some 76 young and brilliant employees were invited to take part in the three-day workshop.

Somebody who characterizes himself as an “avid fan” of the Street Strategist said that the company president revealed in that forum that some three or four entities have been talking to him and making proposals to pursue the project, and that MML is not averse to the idea.

A judge wrote me that I should definitely send Meralco a consultancy bill, which elicited this impertinent rejoinder from a CPA reader of mine: “Meralco should offer you a comfortable corporate home and directorial powers instead of consultancy fee. When it happens I will borrow money to buy Meralco shares.  Please don't fail to advise me. Happy for you ...”

Power storm

But no matter how I try to avoid controversies by focusing on non-controversial and innocuous topics, I heard rumors that some senior executives at Meralco’s corporate planning were slighted when Power Struggle was circulated there.  

The impression is that these persons felt bad about the article because the idea of “power line internet” never came out during the previous strategic planning sessions in the past two years. 

These persons seem to convey that this idea had been on their minds before I wrote about it. 

These persons find it ironic that the Street Strategist had to pick up the idea from Meralco employees at that, and had the cheek to write about it.

Picked up the idea from Meralco employees? That’s absurd. I didn’t pick up the idea from them.

In fact, they were surprised when I theorized the concept to them.

Ouch. I conjured up a controversy.

Perfect logic  

Of course, I don’t believe these grapevine rumors. I think the executives in question were simply misquoted.

For one thing, majority of my Meralco readers thought the article was amusing, nothing more than that.

In the second place, Meralco is hitching on fiber optics, not powerline internet.

I must admit the assertion that the Street Strategist may have stolen the idea from their own engineers may have some ring of merit to it at first glance.

A person who writes about the convexity of century bonds, or the dishonorable appropriation of the age-old concept of economic value-added by a New York management consultant, or the M&A implications of the elimination of pooling of interests, could not possibly originally think about power utilities.  

It is perfectly logical that I am a moron with respect to the power industry and that any article that I write about the power industry could have come from the Meralco employees.

Yes, perfectly logical but it is possible that what is logical could also be wrong. Truth is stranger than fiction.

I hawked dissonance.

Flashback

In case you failed to read the article, here are portions:

Back to the power lunch, I said, “My reason for taking over Meralco is different from what you may be thinking. Remember those power line carrier telephones that are being used between substations? If that technology been revolutionized since I first saw it, then Meralco’s days are numbered.”

‘That technology is years away and costly,” one said.

“Okay, but I have to find out for myself. If the technology is viable in five years, then Meralco is the perfect takeover target.”

“Meralco is expanding its fiber optic network,” he replied, revealing Meralco’s telecom projects, “because its existing rights of way and its existing poles can be used to carry both power and fiber optic cables. Meralco then charges the cable or telecom companies for the use of such wiring.”

Finding Meralco’s fiber optic cabling project an economic redundancy, I insisted that the powerline technology deserves a second look, an unwise rambling on my part. These power engineers dismissed the technology yet I wanted to judge the technology for myself. This was absurd because it presupposes that I have the capacity to understand telecom engineering and power systems, in order to go against their judgment. 

But then that’s me. As much as possible I don’t accept the experts right away, although I use their judgment as my initial reference point. Being experts, they are almost always right; yet in isolated instances, I discover fresh viewpoints; and in all cases, I learn anyway.

It’s a no-loss situation.

Escape hatch

As discussed above, yes, I had the guts to write about powerline internet, and yes, it was perfectly logical that the Street Strategist may have stolen the idea from Meralco employees.

Guys, I don’t want to create storms, conjure up controversies, and hawk dissonance.

At least not with the former president of the most famous business school, not with the founder of the largest accounting firm, and definitely not with a former Prime Minister.

But we might have left out one minor detail.

I may be a great miscommunicator because I failed to impress upon the readers that even the Meralco fellows I talked to thought I was crazy thinking about powerline internet.

I thought I wrote that clearly enough.

It was very clear that the chaps listening to me thought I was crazy when I said within the next 18 months their new CEO could be an 18-year old whose dotcom company just swallowed Meralco.

The principal reason I asked about the possibility of powerline internet, is that as usual, I tried to transplant some ideas I gathered from other fields to the instant case.

I exemplified this in applying the business model of delivering roses to Pizza Hut. 

I did this when I applied the concept of the newspaper subscriptions to Triple V.

Anyway, for several decades now, power companies have been using an equipment called the Power Line Carrier (PLC). This is a very expensive setup where the transmission line carrying 138,000 volts connecting the power plant to the substations is simultaneously being used as a telephone line.

As I have said a long time ago, I’ve never been interested in the answer as much in the question. 

Ultimately, in my quest for the perfect question, I learned of the perfect answer: That is, asking the perfect question is better than getting the perfect answer.

So I asked: “What happened to that technology?”  

By the way, what was that minor detail we might have left out?

The Street Strategist, though he hates to admit it, once installed, operated and maintained PLCs for some good years – an experience which some corplan people at Meralco may never have experienced at all.

Indeed, he wrote a technical paper published in Brisbane during a 12-country conference of the electricity and power supply industry; once wrote a paper on the financial strategy for a power utility; and used to work for a power company bigger than Meralco.

The Street Strategist was once a power systems engineer – albeit an incompetent one.

(Thads Bentulan, August 10, 2000)

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