Kartar Singh Thakral

Singapore

It would be easy to mistake Kartar Singh Thakral for just another conservative businessman in a city-state full of them. Except for his blue turban, the shy, slightly stooped executive is at first glance about as distinctive-looking as a bowl of rice. A thin, soft-spoken 63-year-old, he exudes caution and deference. But Kartar Singh Thakral is no corporate wallflower; he is one of Singapore's most daring entrepreneurs. And the Thakral group he leads is no ordinary family business; it is a dynamic, multibillion-dollar empire-one of the Sikh world's biggest--- spanning two dozen countries and employing 8,000 people.

If equity investors remain largely ignorant of Thakral, it's little wonder. Not so long ago, this publicity-shy company was best known for the electrical appliances it sold to Indian tourists from its retail outlet at the corner of Singapore's North Bridge Road and High Street. Few took of Thakral was busy establishing its core business: becoming the largest distributor of imported consumer-electronics products in China, where it enjoys preferential treatment rarely accorded foreign firms. Last December, it listed those China operations in Singapore, to a chorus of kudos. "With its head-start and strong distribution network, Thakral . . . is well-positioned to ride the boom," enthuses a recent report from G.K. Goh Research, a Singapore-based brokerage firm. Kartar, a devout Sikh who spends an hour each day at the temple, almost seems surprised by his own accomplishments. "When you try something, you have to be committed, have devotion," he says. "And along with that you have to have luck." Shrewdness helps too.

Analysis who follow Thakral say it expanded from North Bridge Road to China largely on the strength of Kartar's flair for penetrating promising markets early. "There's no denying that Kartar can spot opportunities long before his competitors do," says an analyst with a European firm. That foresight, more than anything else, explains how what remains essentially a family affair (Thakral employs Kartar's older brother, four sons and three nephews) has expanded so quickly and so successfully. It also shows how a family concern can thrive even in a market as difficult as China, so long as it's sensitive to trends and seizes opportunities. It's a perpetual challenge: Thakral has to cope with fears among some analysis that it may be banking too heavily on China's volatile consumer-products market. Still, Thakral has an enviable track record.

A 10 year old orphan, Sohan Singh Thakral

Kartar traces his business acumen to his father, Sohan Singh Thakral, who as a 10-year-old orphan migrated to Thailand from the Indian state of Punjab. Sohan hawked textiles on the streets of Bangkok for several years before opening his own retail shop-the Punjab Store-in 1905. In 1936, he opened a branch in Japan to buy textiles. The fifth of Sohan's seven children, Kartar was groomed from an early age to lead the family business. In 1952, Sohan brought the 19-year-old Kartar to Singapore to open an office for what became known as Thakral Brothers. His father, Kartar says, realized early on the need to go regional. "He was a very humble man," Kartar says of his father, who never attended school. "From his experience, we learned how to adjust to life." Most of all, says Kartar: "He taught us that honesty is very important, that you should respect your creditors and honour your word." In 1973, Thakral Brothers was registered as a limited-liability company, and the next year diversified beyond textiles into electronics. Thus began a period of rapid growth. In the early 1980's, Thakral began pumping television sets, mostly Japanese-made, into India. When that market closed to foreigners, Kartar made what would prove a profound decision.

When one door closes another opens

Kartar had visited China and established contacts there, mainly in the textile industry, as early as the 1960's. As the 1979 reforms started firing up the economy, he began to sense China's enormous potential. The group set up its first office there in 1984, established a distribution network and recruiting staff, and began selling the same Japanese goods into the Middle Kingdom. That foresight and groundwork has come in handy. Today, Thakral accounts for almost half of all the videocassette recorders sold in China and more than 50% of the imported televisions, according to Merrill Lynch estimates. While China's TV imports fell 2% a year from 1993 to 1995, Thakral's TV sales there surged 30% annually. Thakral has such name recognition in the country that it markets VCRs under its own label. But it's Thakral's distribution network in China that impresses observers most. Spearheaded by Inderbethal, Kartar's 37-year-old, Cantonese-speaking son, the group has cobbled together a customer base of 1,500 dealers, distributors and retailers in 75 major cities. "Not many players have a distribution base to cover all of China," notes Daiwa Institute of Research analyst Peggy Mak. Its network has prompted major Japanese manufacturers such as Panasonic, Sharp and Sony to anoint Thakral as their main wholesaler of audio-visual products in the world's fastest-growing consumer-appliance market. (Kartar says there are about 32 people to every TV in China, about 10 times as many as in Hong Kong or Singapore.)

The success of Thakral's China play prompted the December listing of Thakral Corp. on the Stock Exchange of Singapore. For the year ending on March 31, the subsidiary posted revenue of HK$6.5 billion ($844 million), up 11.5% from the previous year. Net profit surged 56% to HK$314 million. Inder Bethal believes digital videodisk players will power the group's next growth spurt. Japanese manufacturers are expected to launch a DVD capable of showing feature-length movies with cinema-quality pictures ans stereo sound by year's end. G.K Goh Research says DVD players will push Thakral's Corp.'s turnover to (HK) $10.7 billion in the year ending March 1998. Singapore officials are so bullish on the group that the Government Investment achievements demonstrate that "you don't have to be Chinese to do business in China, " Singapore Prime Minister Goh Chok Tong said on a China visit last year. "Our race is Indian, but our brains are Singaporean," says Kartar. "I don't find a difference between Chinese and Indians in doing business. Business is business." But the tycoon believes coming from Singapore gives his company a boost in China. "The Chinese trust Singaporeans," he says. "They find Singaporeans to be straightforward people."

Despite its success, Thakral hasn't stuck solely to trading. Over the past decade, the group has ventured into property and hotels, manufacturing, ware-houses, consultancy and finance. Its tentacles stretch from Shanghai to Sydney in Asia, Moscow and Bucharest in Eastern Europe, Dubai in the Middle East and Lagos in Africa. But China remains its single biggest revenue source. Thakral formed a joint venture with state-owned Shanghai No. 3 Radio Factory in 1992 to produce VCRs using the Panasonic label belonging to Japan's Matsusita. Most foreign-owned manufacturers are required to export 70% of their output, but as one of nine state-designated VCR makers in China, Shanghai Thakral Industrial Corp. is allowed to market all of its units domestically. It can also source componets locally; most other foreign firms must import them. Boosted by a second joint-venture TV plant in Chengdu, manufacturing in China is expected to provide one-fifth of the China operation's pre-tax profits within five years, up from only 5% today. Among its other China operations, Thakral has a 50% stake in The One Electronic City, which is opening a chain of retail outlets across China to sell consumer-electronic goods. The group owns 75% of Beijing Orient Air Service, which operates helium airships bearing airborne advertisements over the Chinese capital. And Thakral owns 45% of a 500-unit electrical-appliance market now under construction along the Suzhou-Jiaxing Highway.

How did Thakral establish such a lucrative niche in such a notoriously difficult market? By getting there early, and by making the right connections. A key move was hiring the former vice-director of the Ministry of Electronics to run its manufacturing operations. 'This makes it easier to get licences," Inder Bethal says. "But the main thing that helped us was our early entry into China. We're always treated as a friend of China." It's making friends elsewhere too. At least five brokerage firms have studied the group's China operations in recent weeks and all have recommended buying Thakral Corp. shares. "An overlooked and undervalued stock that deserves a re-rating," G.K. Goh Research writes, noting that, at 72 U.S. cents, the share price is only 7.5 times earnings. "The present low valuations offer investors an opportunity to build positions in the company cheaply," adds a European brokerage.

Why is Thakral's share price low? After all, competitors such as Hong Kong-based Wo Kee Kong sell at 12 times earnings. Analysts say Thakral hurt itself by listing in Singapore while operating in China and Hong Kong. "it's not easy to cover the company," says Merrill Lynch analyst Leong Chan Wai. "If more analysts were covering it, it would create greater awareness among investors." To be sure, they might still have cause for concern about the company. For all its early-bird initiative, it hasn't always caught the worm. In 1994, Thakral attempted to break into the production and marketing of personal computers in an alliance with Singapore-listed WBL Corp. But business was tough, prompting the venture to shift to distributing third-party computer brands such as Compaq and IBM in China, Malaysia and Indonesia.

Australia's Hotel Industry

And several years ago, the family was involved with an American firm in an illfated plan to buy a hospital on the east coast of Singapore. "The location wasn't good," Kartar says. "It didn't make money." So he sold the hospital. A more serious problem may be the perception among some analysis that Thakral is overexposed to China's electronics market, in itself a volatile sector. "it's a concern," says Daiwa's Mak. "In the next five years, they're all right. After that they'll have to target some other low-income countries, but that will affect their margins." To address such concerns, the group has been expanding into other markets, particularly Australia, where it is the country's largest hotel operator. Including its 1994 acquisition of the All Seasons Hotel Group, Thakral controls more than 4,500 hotel rooms there. Two years ago, the conglomerate listed its Australian operations, Thakral holdings Group, on the Sidney Stock Exchange. The family retains 42% of the shares.

A return to India

The group is also returning to its ancestral roots in India. The company has stakes in a factory producing men's suits with Marzotto of Italy, has launched a ship-breaking operation with NatSteel of Singapore, and has begun developing the Gurgaon Technology Park near New Delhi with several local partners. "The next century belongs to China and India," enthuses Sanjiv Ahuja, one of a growing army of professionals hired to run Thakral's rapidly expanding network. Despite the family's roots, Thakral is much more cautious regarding its Indian ventures than it is about China. "India is still opening up," says Ahuja, who travels often to India on Thakral missions. "One gets faster implementation time if he goes in with partners who know the area very well. We're still not attuned to local realities. As the economy liberalizes more, becomes more transparent, maybe we'll do more projects alone."

Despite the group's worldwide exposure, Thakral has never abandoned its home in Singapore. It has investments in luxury condominiums, operates an equipment-leasing outfit, and runs Add-on brokerage. Unlisted Lim Manufacturing may sound Chinese, but the warehousing, packaging and transportation operation is fully owned by Thakral. Kartar has never contemplated leaving Singapore, despite the soaring cost of doing business in the city-state. "Is there anywhere in the world you can match the speed and efficiency of Singapore?" he asks. "It's got a first-class staff, government and infrastructure. We're now in 26 countries, and we still find Singapore the best country to work in."

Despite the group's rapid expansion and globalization, it remains very much a family-run business with what emploment." Ahuja, who heads the Singapore warehousing operation, says this congenial atmosphere helps him keep staff despite the critical labour shortage in the city-state. Kartar headhunts professionals for Thakral's top management posts, but he hopes his children will continue running the conglomerate. "They're professionalizing very fast, but the family touch is still there," Ahuja says. "There's a humbleness about the owners that the staff like very much."

The Thakrals next challenge is to avoid the third -generation complacency that often dooms family-run enterprises. Each of Kartar's four sons and several of his nephews started working in the firm in their late teens to begin learning the ropes. "I went to university under my father to get first-hand training," says Inder Bethal, who runs the China operations from Hong Kong. His brothers head the group's real-estate, industrial and trading activities out of Singapore. Kartar's older brother and a nephew are in charge of the company's business in Japan.

Kartar himself is confident the company will escape the third-generation curse. "They're very able," he says of his heirs. "They can take care of the company." That will mean managing such risky ventures as Thakral's latest, a plant assembling TV's and hi-fi equipment in Cambodia. Kartar isn't put off by the chaos there, despite political infighting within the ruling coalition and the unending demands for bribes.

"It's a challenge to us. We've gone to all these places the moment they opened up," he says, noting that Thakral went into China and the Soviet Union back in the 1960s. "If Iraq opens, we'll be the first to be there. Trading margins come only when you're an early bird."

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