MTI proposes ‘New Business Conglomerate’ for Sri Lanka’

Invites strategic investors and partners :

The emerging Sri Lankan economy will offer many ‘new world’ business opportunities - that will require an entirely new mind-set and model to reap the benefits.

While the larger businesses in the country certainly have the ‘muscle’, they also carry with them a lot of ‘baggage’.

Most of the current business groups/conglomerates in the country either took shape in the colonial era and then built-on incrementally or started off as a small family businesses (with the founder’s ideas) and then scaled-up with successive generations.

The argument being that they were not ‘purpose built’ business conglomerates for the new economic opportunities that Sri Lanka will offer in the next decade.

Over the last six months, the MTI team has been studying the emerging business opportunities in Sri Lanka, including comparisons to other emerging economies.

The opportunity identification was based along the following lines:

What will be the needs of the local economy/local consumer?

What services will be needed to enable these businesses?

Given our capabilities (based on natural resources and human resources), what can offer the world?

What are the gaps in the market - current and emerging?

The focus has been on identifying niches that offer significant potential opportunities and preferably not with exceptionally high capital/ infrastructure investments. Building from ‘Ground Zero’, MTI proposes a new Sri Lankan Business Conglomerate to capture the opportunities that the Sri Lankan economy will offer in the next decade.

The conglomerate will look for opportunities in the entire value chain of the high growth industries, not just the front-end of the industries and in businesses needed to enable the conventional industries. It will be a modern conglomerate - based on contemporary management practices, with a lean business model and ‘laser beam’ bottom-line focus. It will establish strong international alliances and partnerships - to bring the ‘best-in-class’ practices to Sri Lanka

7 high growth sectors have been identified and several high growth ventures have been identified with these sectors

The Holding Company will be the ‘Investment Banker’ to the sectors and ensure strategic and financial accountability. The sectors will have several businesses and will focus on the core business function only. A shared services unit will provide all the enabling services to run the business - as a profit centre

Education

There exists an opportunity within Sri Lanka for a more focused educational experience to be on par with international standards. The shortage of good schools, the projected growth of the sector, and also the lack of support for teachers contribute to the impending need for a focused educational provider. Sri Lanka is limited in its education options in relation to management education.

Although many local institutes exist they lack quality programs and delivery mechanisms and many students are looking at options abroad. In capitalizing on the gap in the market, there is scope for a fully fledged Management University in Sri Lanka offering undergraduate BBA and MBA programs.

This would fulfill the need in the Sri Lankan economy and capture the emerging opportunities in the education sector.

At present there is an acute shortage of good English language schools that offer students comprehensive English programs to gear them for the competitive market, instead we find large number of mushroom options cropping up that are lacking in scale, quality and credibility.

This creates an opportunity for a focused English School in Sri Lanka which would deliver quality programs and curriculum which would fulfill the need in the market.

The hotel and allied sector within Sri Lanka is being held back by the limited local options for the required scale of operations, given the projected growth in the hotel and allied sectors and the current shortages, MTI has identified an opportunity in this sector for a Hotel School. Such a Hotel School is necessary in light of Sri Lanka’s emphasis on tourism and hospitality.

The acute shortage and the need for qualified teachers have created the demand for Teacher Training programs. The Sri Lankan educational system does not have support infrastructure for its teachers and trainers and this initiative would be the first step to fill the gap in the market.

Healthcare

The changing dynamics of the health care industry in terms of the increasing consumer spend on health care, increasing penetration of medical insurance and the ageing population has created the need for a specialized health care provider. In considering the opportunities critical to the growth of the healthcare market in Sri Lanka, MTI has identified three areas with significant scope being Diagnostic Health Centers, Nursing Schools and specialized Medical Schools.

The liberalization of medical schooling in Sri Lanka opens up the opportunity for specialization schools in the medical line. At present there are significant gaps between the needs of the health care sector and the options currently available to support the profession.

There is scope for a specialized Medical School to fill the current medical services gap in the Sri Lankan market and also target international students from the region.

Diagnostic Health Centers with a country wide network is another area of interest, as the current network is highly fragmented in terms of ownership and inconsistencies in quality thereby creating an opportunity for a trusted island-wide health care brand to be built.

This is a cost-effective business model which aims to capture the health care market, without the high investment in hospital infrastructure.

There is opportunity to develop a Nursing School which would target the local and international students from the region. The projected growth in the healthcare sector and the ageing population contributes to the demand for a Nursing School on par with international standards.

International marketing

Most Sri Lankan organizations that rely on exports and international marketing find it quite challenging to access international markets, given the relatively small scale in the global context of Sri Lankan products and services. There is an impending need and a significant scope for international centers that Sri Lankan exporters and international marketers can access as a means of reaching global markets.

The centers will be actively involved in promoting Sri Lanka’s strengths across many sectors on a global platform. Such a unit can also act as the international marketing arm of this conglomerate’s products and services in addition to taking on 3rd party products on a commission basis.

Niche financial services

With the economy progressing, the demand and prices for real estate are beginning to take momentum, making this sector highly attractive for investment. Sri Lankans too have a preference for land and real estate as a primary investment options for the future, however there are challenges posed in terms of managing this process, whereas the Real Estate Trust venture (REAT) will provide an opportunity to get a share of this growing market.

The Real Estate Trust would be a reliable mechanism for international investors who are in search of new and attractive markets for real estate and are looking at Sri Lanka as a prospective market for investment.

The scope of the Islamic Finance and Investment Banking sector in Sri Lanka is positive; being an emerging market highlights potential and significant opportunity in this sector.

Experience in countries like Malaysia shows that, Islamic Banking innovative products can be very attractive to non Muslims as well.

There are opportunities to tap into the Middle East and Malaysian markets for inbound investments making this a highly attractive investment mechanism.

Knowledge-based domains

The need for knowledge based industries in Sri Lanka stems for the trends in global context. Outsourcing practices and global economic growth provide significant opportunities to this sector.

The nature of the BPO industry in terms of concentration, low margins and a ‘commodity’ game; leaves opportunities for Sri Lanka to leverage its strengths and focus on more specialized niches and compete more effectively in these areas.

Although Sri Lanka cannot offer mass numbers, its strength lies in its focused attention and quality. The focal point of the specialized KPO business will be on high value work and high value staff providing expertise in processes. This business could even be extended to the training and education of specialized skills, which will form the supply chain of such a business.

Along with economic and business growth, will come the need to apply a higher level of technology creating a requirement for highly skilled specialists. Sri Lanka has a skill base of technology specialists, who could be an ideal platform for emerging markets looking to make the technology ‘leap’. The focus of the business initiative in this area would be to utilize the capacity of skilled specialists and create a technology base as a source of insight and expertise.

Energy, environment and infrastructure

The infrastructure sector has opportunities in two broad areas, energy and environment and logistic industry.

Renewable energy will be key to the energy needs of the country, with hydro being an obvious choice, followed by experimentation of other forms from wind to paddy husk which are abundantly available in the country.

The management of carbon credit and emergence of allied businesses creates a necessity for newer innovative sources of energy and creates a demand for companies to take a more energy efficient stance. There is an opportunity for the business to manage and develop the energy solutions for the Sri Lankan corporate sector.

Opportunities in the logistic sector are fuelled by the many developments that are underway in the North, South and Eastern regions of Sri Lanka.

These infrastructure projects demand a full range of logistics, from ports services to freight management to warehousing.

While there are many players with the ‘brick and mortar’ model, there is opportunity for a total solutions approach, which includes advisory and consulting. With the development of the ports, Sri Lanka will also open opportunities as a trans-shipment point and the opportunities that come with it.

Agro

The changing dynamics of the agro industry has brought newer opportunities in terms of product offering and Sri Lanka has the strengths to capitalize on this.

Three areas of interest with significant scope for growth within this sector are exotic fruits and vegetables sector; tea extracts based products and niche fish for exports.

There is global demand for organic niche fruits and vegetables and Sri Lanka’s agricultural strengths can be utilized to compete more effectively in this sector. The environmentally friendly practices employed and the conditions that it offers would attract front end brands and propel the agro industry into the international market.

Focusing in tea extracts and using tea as a base ingredient in product offering would be in-line with Sri Lanka’s quest to add significant value tea as a means of getting better returns.

The growing health benefits and the awareness of tea and the opportunities for tea extract based ingredients in a range of food, beverage, nutritional and pharmaceutical applications make this a venture of significant focus.

There is an increasing global demand for niche ornamental and exotic fish for exports and the Sri Lankan industry can capitalize on this.

Currently there is unexploited potential for fishing in Sri Lanka and the small scale nature of most current operators makes this a highly competitive venture.