The Making of Kwek Leng Beng - Commoncog Case Library
How the son of an Singaporean tycoon cut his teeth in the game of business.
Note: This is Part 14 in a series of articles and cases on Asian Conglomerates. Read Part 13 here. You may read more about the Asian Conglomerate Series here, or view all the published cases here.
We’re starting to reach the end of the Asian Conglomerates Series. In these last few instalments I want to show you a handful of interesting instantiations of tycoon skill. After which we’ll close the series with what I think is the most salient property of these individuals (and one that we can copy).
But first, a quick recap.
In How to Become an Asian Tycoon we examined the ‘core arc’ of the Asian tycoon. That arc is, in many ways, the heart of the entire series. I shall reproduce this here, so you don’t have to go back and reread the essay.
Every Asian Tycoon becomes a tycoon in the following way:
- They get their start in business, which is almost always some form of trading. The fact that it is trading is actually an accident of history. In all the tycoons we’ve examined so far, and in nearly every tycoon we will examine in the future, trading is the only business activity available to them in their youth — either due to colonialism or war. But the fact that it is trading that they get their start in is not important. What is more important is what they learn from trading. These skills are almost always 1) calibrated risk taking, 2) a nose for demand, and 3) an intuitive understanding of deal leverage. Perhaps these skills are obvious: you cannot succeed in business if you swing too hard and blow yourself up. But you are also unlikely to succeed if you don’t develop a keen sense of opportunism — that is, you must learn to swing big when it counts. Every tycoon we will study spends their twenties developing this sense. Trading, as it turns out, is a good place to learn these skills, though we will also examine tycoons — especially second generation family members — who learn this skill through other means. This first step is what differentiates Asian tycoons from political cronies, who prosper only for the duration of their sponsor’s political career.
- At some point, every tycoon realises that competition is for suckers. Not every merchant realises this. The typical pattern for a businessperson of this era, and in this region, is aggressive expansion into whatever seems like a decent business. But blatant opportunism is not enough to become a tycoon, because not every business is a decent business. Most businesses are actually traps: they suck up years of your life for only a decent return, and are very competitive. No, the traders who become tycoons — perhaps due to intuition, or perhaps through some chance exposure — demonstrate an early desire to find markets that are both lucrative and defensible. They begin to think about how to keep competition at bay, so that they may prosper without constantly watching their backs. Note, however, that not every tycoon is able to reason about the underlying factors that make one business better than another. A lot of them are just doing things intuitively. It is the rare tycoon who is sufficiently reflective about business opportunities; we shall meet only a handful over the course of this series.
- They seek out or stumble onto a moat-protected business. This is usually — though not always — a government-granted monopoly. We’ve already talked about why, in developing countries, it is usually inevitable that monopolies are government granted. This monopoly may be granted outright, or it may be through indirect means — such as with Dhirubhai Ambani’s ability to control REPs initially, before dictating the Indian government’s trade policy. Power is usually a factor. Corruption — or at least political favour — is undoubtedly part of the picture.
- They now have a source of cash flow that is unassailable. They use this to expand outwards. A government-protected monopoly is a position of immense strength. (In the language of Hamilton Helmer’s book 7 Powers — which describes the seven possible moats in business — this is a Cornered Resource). From here on out it does not matter what business mistakes the tycoon makes, so long as this core cash cow remains intact. From this position, they harvest cash and expand into other businesses. Why do these tycoons expand outwards? Academics will say things like “the cost of capital is lower in a conglomerate structure”. This is almost certainly the wrong way to look at this. The reasons are more prosaic and we may guess at them: partially tycoons expand for security, because diversification is wise and many of these tycoons grew up under the uncertain conditions of war. Some would say that it is due to greed — the types of businesspeople who seek out lucrative and defensible markets are by nature greedy opportunists. A third reason is that they are given opportunities to expand due to their closeness with political power, and the risks for expansion are low given the certainty of their core cash cow. (In the case of South Korea, it is sometimes the case that they are ordered to grow, because economic development was directed by dictators until 1997). But I will propose a fourth reason, which emerges from our discussion of power: power is controlling something people want. To simplify crudely, politicians want money; tycoons want protection from competitive arbitrage. In a complex, decentralised government, there will always be more stakeholders to appease than resources available from growth, unless you are in an extremely lucrative business. Expansion becomes necessary to ensure you always control something that politicians want.
- They survive. Because their core cash flow is determined — in many cases — by government protection, the tycoons that survive and prosper over multiple decades are careful not to get too tied up in any one set of political players. Often the shrewd move is to position their businesses as important to broader interests. A viable strategy is to become so important to the economy or security of a country that you can’t be taken down, as Stanley Ho learnt after the war, and Samsung’s second generation leader Lee Kyun-hee discovered, to his great advantage. Power is controlling something people want. The tycoons that don’t understand this eventually fade away. The ones who do continually seek to control new resources that are desired by political players of the day, whoever they may be.
After introducing this idea, I then challenged you to read all the prior cases in the Asian Conglomerate concept sequence, in order to evaluate the core arc. We have since introduced two new tycoons, and traced how they expanded their careers:
I had mentioned that there are exceptions to this core arc. The Tatas is a good example of an exception — Jamshetji Tata was so idealistic and incorruptible and pro-worker that in so doing, almost by accident, he founded a business empire that was moat protected precisely because some of his lucrative early businesses were founded for good of India.
Today we’re going to look at another tycoon, one that is useful to study — first, as an example of business skill development, and second, as another exception to the core arc.
To appreciate how this tycoon might be exceptional, let’s pause for a moment and talk through the example of the Tatas. The Tatas are weird when seen through the lens of the core arc because:
Today, we’re going to look at another tycoon who is an exception to the core arc. How he deviates from this core arc is interesting, and worth studying:
We’re going to talk about Kwek Leng Beng.
Kwek Leng Beng is a second generation Singaporean businessman. We last talked about him in The Absurd Deal That Led to Republic Plaza — a wonderful example of deal leverage, albeit one that was initiated by his father.
This instalment covers his development as a businessperson. Quite simply: it gives us an idea of how he got good. The goal of this piece is to get you to read the following case:
The case clocks in at around 5,600 words, and it stands for itself. You might want to read it before continuing here.
In the next intalment, we’re going to look at what Kwek Leng Beng does with the skills he picks up in his 20s and 30s. For now, however, I have some observations.
I find it notable that Kwek had to learn calibrated risk taking. The father had to learn it by necessity; he started during World War II. But the son grew up in peacetime and was cautious by nature. He was hammered for it by his dad as he got his start.
Calibrated risk taking is a skill that can be learnt. How fortunate for Kwek that his first major assignment was a lending business.
Second, notice how hungry he was. Kwek grew up the son of a rich man; he had a passion for nice cars for most of his life. And yet he was always willing to get his hands dirty. For years afterwards — especially the older and more accomplished he became, Kwek would repeatedly talk about ‘needing to find more people who are entrepreneurial.’ It’s unclear to me if he knew its importance back when he was younger; much of this case is constructed from his biography, which was written when he was in his 80s. An appreciation for entrepreneurship certainly colours his assessment of CDL’s original management:
As he did so, he realised that CDL’s management didn’t seem to know how to negotiate with the tenants, and were thus held to ransom. “They kept spending money, beautiful amounts of money, on beautiful designs. But they could not build.” Kwek later told his biographer. “That’s why I said they were good professional people with good plans, but they were not business people who could solve problems on the ground.”
The third thing I thought was notable was the throwaway comment Kwek makes about the CDL takeover:
In 1972, Hong Leong acquired a majority stake in CDL, in a Western-style corporate takeover. Kwek was pleased by this — he planned and executed the exercise, saying later he was “excited about the concept of takeovers both in theory and practice”. In 1973, just as the oil crisis hit, Hong Leong took full control of the management of the company. Kwek Hong Png became the chairman in 1974, and Kwek Leng Beng was made managing director. CDL rapidly expanded beyond residential property, diversifying into industrial and commercial properties over the next few years. Over the course of the 80s, CDL would build a reputation as a serious player in real estate in Singapore.
The 70s was a period of takeover mania in the United States. Any serious student of business would’ve been paying attention. Kwek certainly was.
My fourth and final observation is to notice how long all of this took. Much business coverage today is about startups, which is the fast twitch version of business. But skill in this domain is long gestation. Kwek started at the age of 22. He completed his first takeover at the age of 33. He learnt the hotel business over a period of a few years, in his early 30s. Hong Leong Finance became the largest finance company in Singapore — the aftermath of a fierce bidding war for rival Singapore Finance — when he was 38.
All of these experiences set him up for his next act, which unfolded on an international stage in his 40s and 50s.
It takes a long time to get good at this game. Somehow we don’t seem to talk about that as much. This case is as good a reminder as any. We’ll see what Kwek does with his skills very soon.
This is Part 14 of The Asian Conglomerate Series. The next part is incoming.