Will SPH Succumb to “Creative Destruction” ?



SPH might be the best case to study the “ corporate reinventing “ in local context as it try to evolve from traditional printed media to a more creative digital world . Corporate Reinventing has happened at such long-term leaders as IBM, Xerox, and Samsung. 

Over the past century IBM has gone from manufacturing adding machines to inventing the PC to earning the majority of its revenue from services. 



When Xerox began, it was so closely identified with photocopiers that its name became not only the eponym for its product category but a common verb. Then the company went on to invent Ethernet, and today it competes in areas such as mass-transit ticketing systems and e-discovery solutions. Just 10 years ago Samsung was known only for consumer electronics; today it spans advanced technology, construction, petrochemicals, fashion, medicine, finance, and hotels.



SPH has just released its financial result for FY16 on 14 Oct , Operating profit downed by -13.7 % and operating revenue from Media sector downed by  7.6 % while revenue from Property and Others increased by 4.6% and 11.4 % respectively . But due to higher impact on revenue from Media , resulted PL of -11.4% before “Fair Value change “.



SPH has been trying very hard to diversify and reinventing itself by moving from old printed media to property , digital world , startup media etc , but the result yet to be seen and could be reflected in their stock price movement for the past 12 years .





Will SPH Succumb to Creative Destruction ?


Concept explained : Creative Destruction by Wikipedia & Investopedia


Creative destruction (German: schöpferische Zerstörung), sometimes known as Schumpeter's gale, is a concept in economics which since the 1950s has become most readily identified with the Austrian 

American economist Joseph Schumpeter[ who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle.

According to Schumpeter, the "gale of creative destruction" describes the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one". 

In Marxist economic theory the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism. 


Schumpeter described a certain deus ex machina for free market economies with his theory of creative destruction. “The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process,” he wrote in Chapter VII of “Capitalism, Socialism and Democracy.”

To Schumpeter, economic development was the result of forces internal to the market and created by the opportunity to seek profit and property. This fits neatly alongside similar theories about how economic markets naturally evolve, including the “spontaneous order” of F.A. Hayek and the theory of the entrepreneur by Israel Kirzner.

Economics as Organic and Dynamic


By its very nature, the creative destruction philosophy treats economics as an organic and dynamic process. This stands in stark contrast with the static and highly mathematical models of Cambridge-tradition economics. For example, the treatment by Schumpeter does not consider equilibrium to be the end goal of market processes; instead, many fluctuating equilibria are constantly reshaped or even replaced by dynamic innovation and competition.

By using the word “destruction,” Schumpeter directly implies the process results in losses alongside profits and there are losers in the creative destruction. Unlike other economic theories, many of which ignore the entrepreneur and technology entirely, the process of creative destruction does not assume markets generally tend toward equilibrium. Instead, entrepreneurs and technologies actively create disequilibrium and highlight new profit opportunities that did not previously exist.

Many historical examples lend credence to Schumpeter’s insight. Henry Ford's assembly line not only revolutionized the automobile and manufacturing industries, but it also displaced many older markets and forced many laborers out of work.



The internet and internet-based “dot-com” companies of the 1990s led a similar revolution in both social and economic organization. The losers were the old economy companies that could not adapt in time to take advantage of the new technology.

The point, as Schumpeter noted, is this evolutionary process rewards profitable adaptations and innovations and punishes less efficient ways of organizing resources. The process can be bumpy and unpleasant for some, but the trendline is toward progress, growth and higher standards of living.



< Dividend pay out from SPH has been in decreasing trend since 2012 , exclude the special dividend paid in 2013 >


While shareholders of SPH would happily collecting their dividend of 4-5 % p.a ( and special dividend in 2013 from spinning off some of their property into REIT ) , question need to be asked as on long term basis , will the company success in their reinventing process ?


A Serious question to ponder !

Cheers !



< Disclaimer : This is not a call to buy or sell on any particular stocks and please do your own due diligence before making decision . Stocks mention are just the opinion of writer and I do not own directly or indirectly any of this stock at the time of writing. >



“ Creative Destruction is the essential fact about  Capitalism “ by Joseph A. Schumpeter

Comments

  1. Hi STE

    Agree with you.

    This SPH has been a very loyal and good dividend paying master for a super long time. I think shareholders who owned this for some time has been well rewarded.

    I divested this back in 2014 (i think) and it was a time bomb since in terms of their operating performance. It's a bit sad to see them going down rather hard and has to slash dividends but I do hope they can somewhat reinnovate and succeed again.

    ReplyDelete
  2. Hi B,
    Yup ! Let's hope that they will successfully reinvent their business in near future .. :)
    Cheers !

    ReplyDelete
  3. IMO, SPH has anticipated the IT threat long ago and thus they diversify into property business.

    Will SPH be a victim of 'creative destruction'? I think it is unlikely.

    Nevertheless, SPH growth is over the hill. It is a Cash-Cow company. Still generate strong cash flow and should be able to maintain the dividend.

    (not vested)

    ReplyDelete
    Replies
    1. Hi Ray ,
      Yah. Their cash flow seems strong but the worrying part is the decreasing trend in dividend pay out, let's hope that their property sector and others could cover the drop of revenue from media and successfully reinvent itself. .
      Cheers.👍

      Delete

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