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Bidding adieu to the idea of a core business - for now

WHEN Singapore Press Holdings put its landmark Times House site up for sale years ago, a senior executive vice-president then said: "We consider property assets as non-core and have said that we will divest them in a manner that would maximise shareholders' value."

That was back in 2003.

Today, the group, which still publishes this newspaper and bills itself "Asia's leading media organisation", has three shopping centres and one condominium under its belt - to say nothing of its nursing home and pre-school investments.

Whether we are talking about building a multi-cultural society or buying portfolio assets, the goodness of diversity cannot be gainsaid. Diversifying from the core was once frowned upon, but is now accepted, for the present at least, as a valuable growth strategy in battling cyclical or structural challenges. In an age where punchy start-up "disruptors" are sprouting like mushrooms after rain, and heavyweights fight to keep their head above water, the strategy of diversification has been pushed into the spotlight. Even for smaller players, diversification seems a good idea.

Electronics company Serial Systems entered into a durian investment joint venture last September, and egg producer Chew's Group spent two years with a stake in the Chinese sea cucumber industry.

Via organic growth

Besides the odd dabbling in new pies, diversification sometimes takes the form of organic growth. Singtel, for instance, has moved into digital marketing and cyber security, building on the corporate network of its core telecoms business.

But at what point does your side hustle become your main job? Revenue from activities related to e-commerce made up more than half of national postman Singapore Post's turnover in its second quarter. Similarly, the majority of Keppel Corporation's recent earnings came from its property projects - not the offshore and marine business that was once a mainstay of the group.

Even the private Cathay Organisation last year sold off its iconic Singapore cinema operations, and will focus on its real estate holdings.

The practice of diversifying, of course, is nothing new. The evidence is around us in big, familiar names. The term "consumer giant" belies the mass of tentacles extended by multinationals such as Unilever, which can house everything from margarine to deodorant under a single corporate umbrella.

Rapid diversification

The Philippines' family-owned Ayala Corporation went from a distillery during the Spanish occupation to a real estate, financial services, water and telecommunications group. And if you look at Singapore-listed Jardine Matheson Holdings today, you would have to be well versed in colonial history to guess that the conglomerate started life as an opium smuggler.

Across the pond, telecoms incumbent AT&T has famously made a play for entertainment company Time Warner, in the hopes of cementing vertical business integration. This is - albeit on a much larger scale - the same deal as Singapore-listed film producer mm2 Asia's Cathay Cineplexes acquisition.

How much non-core business is too much - especially for blue chips that made their name on a particular schtick?

It challenges investors too. Traditional portfolios used to be neat, with drawers like telcos, property, media, banks, and tech, for instance. To diversify, investors put some money into each sector. But when companies are rapidly diversifying themselves, that's becoming less clear.

Buying tech could mean investing in anyone from semiconductor manufacturers to - as the latest European Union ruling shows - would-be taxi operators, to say nothing of banks and telcos.

Buying into offshore could mean buying property as well. Good old-fashioned pure plays are becoming increasingly rare. So just as diversification often challenges companies, investors too face the question - just what are you buying into?