UNDER the leadership of CEO Sunny Verghese, Olam International has come a long way, growing from a small trading firm to a global player in the agriculture industry.
Clearly, Mr Verghese fits the bill of an entrepreneur. Yet, to him, entrepreneurship is not innate but is nurtured by learning through experience.
After graduating with an MBA, Mr Verghese started his career in India with Unilever as a management trainee. Four years later, he accepted an offer from the Kewalram Chanrai Group to work in Nigeria as a project manager. The post involved building a greenfield cotton procurement and processing centre as well as handling the import and export of goods manufactured by the group in Nigeria.
The next three years proved to be a training ground for Mr Verghese as he developed the business.
When the group's chairman tasked Mr Verghese with sourcing products to market out of Nigeria, Mr Verghese suggested the export of agricultural raw materials such as cashew and cotton. At this point, there was 'significant deregulation of the commodities markets', which were 'being dismantled because of International Monetary Fund (IMF) and World Bank pressure', he said.
The group agreed to fund the business, which led to the setting up of Olam. Mr Verghese also went to great lengths to ensure that Olam was professionally managed, although it was funded by a family business. As such, he had an upfront agreement with family shareholders that if Olam garnered profits of more than 25 per cent in its ROI, it would be shared by management instead of being distributed to shareholders as dividends. Only profits under 15 per cent would be returned entirely to family shareholders, while profits of between 15 per cent and 25 per cent would be distributed to shareholders on a sliding scale.
Mr Verghese later approached the Kewalram group to purchase a 15 per cent stake in Olam. Further down the line however, he gave up 6 per cent of the 15 per cent so that his employees could have shareholdings in the company and would feel a sense of ownership.
Olam's strength lies in its business model in that it is adept at sourcing the products at the origin and also has an end-market presence, which results in an integrated trading house. In comparison, its competitors tend to excel in either one arena or the other, but lack the infrastructure to do both. According to Mr Verghese, Olam's key strategy is 'out-origining' the competition.
The deregulation of the commodities markets when Olam was starting out presented a huge opportunity, one that Mr Verghese was keen to capitalise on. Olam's track record of delivering goods on time gave it an air of reliability and credibility. As such, established names like Nestle, Cadbury's and Mars chose to do business with Olam.
Olam also widened its sourcing to other countries in West and East Africa, and increased its portfolio to include cocoa, rice, sugar, sesame, coffee and timber.
Success did not come without some trial and error. To mitigate losses early in the business, he had to shut down non-performing business lines to focus primarily on the core business.
Today, Olam's portfolio weighs in at 20 products, of which 17 are primary food raw materials and the remaining three industrial raw materials. Aside from West and East Africa, it also has operations in South Africa, India, South-east Asia and Central Asia.
Mr Verghese said that Olam will 'continue to expand its reach both in existing and new origins as we increase our sourcing market share in existing products and also enter into new adjacent products such as wheat and rubber'.
As Olam continued to thrive, it chose to set up its headquarters in London. However, in 1995, the headquarters was moved to Singapore in order to take advantage of the approved international trader status, which translated into a concessionary tax rate of 10 per cent. Mr Verghese also felt that Singapore's strategic location would facilitate expansion into Asia.
Olam continued to grow. However, when Mr Verghese started to look into publicly listing the company, he still had to work to 'transcend misconceptions' that the company would not be professionally run as it was linked to a family business.
He brought in private and institutional investors, which eventually led to Olam's successful listing in 2005, where it was oversubscribed by 15.16 times. Since then, Olam has also successfully raised A$200 million in term loan facility and issued $300 million worth of convertible bonds.
At the same time, Mr Verghese remains keenly aware of the impact of Olam's presence in developing countries. As such, he strives to practice corporate social responsibility by taking long-term stakes with suppliers. Olam also provides direct farm inputs, micro-financing schemes for farmers, seed capital for local buying agents as well as advice for improving farming practice and post-harvest care. For example, the cashew factory in Tanzania develops the skills of workers through training and also creates employment opportunities for 2,000 women.
Mr Verghese is currently chairman of International Enterprise Singapore and CitySpring Infrastructure Management. He also serves as one of the three Singapore representatives appointed by the Minister of Trade and Industry to the Asean Business Advisory Council. Previously, he had served two two-year terms on the Singapore Government's Tax Advisory Committee.
Still, the title of Entrepreneur of the Year - Commodities Supply Chain remains very much a group effort in the eyes of Mr Verghese.
The award is a 'testament to our work as a team', he said. 'It is recognition of what the entire Olam team has achieved.'
This article was first published in The Business Times on November 28, 2008.
