Editor’s note: This article originally appeared in the Oct. 22, 1979 issue of Fortune. Some of the language in this article from Fortune’s archives reflects the cultural assumptions and biases of its era.
The young nations of the so-called Third World are notoriously touchy about the vestiges of colonialism, especially when it comes to exploiting their natural resources. All too often, they have seized foreign-owned property, paid a fraction of its worth, and booted out the managers who knew how to run things. The usual result is deterioration of the operations and discontent for everyone concerned. Refreshingly, however, the former British colony of Malaysia, the world’s biggest supplier of rubber and palm oil, has broken the pattern by developing a system that provides for local ownership while retaining foreign expertise.
A plantation company called Sime Darby was the essence of the colonial scene and seemed a perfect candidate for nationalization. Three Scotsmen, two Sime brothers and H. M. Darby, founded the enterprise in 1910 to grow rubber and send the profits home. From faraway London, the company dispatched managers to the plantations, where they ruled like demi-princes and lived isolated, though rather splendid lives. The old British bosses were enthroned in cane “planter’s chairs,” which were long enough to hold their feet and had holes in the arms for the omnipresent gin and tonic. Their reign was brutally interrupted by the Japanese invasion of World War II and later by the bitter struggle against Communist guerrillas that preceded the formation of the independent state of Malaysia in 1963.
Instead of nationalizing such companies and putting them under a bureaucracy, the Malaysian regime adopted a capitalist policy. It has gone into the stock market and bought their shares—30 percent of the equity in Sime Darby’s case. Most of the corporation’s remaining shares have gradually slipped out of British hands into those of private investors in Asia, leaving the Malaysian government the biggest single stockholder. But management of the company is still left to professionals who are predominantly Westerners. Since they are highly enterprising managers, Sime Darby is flourishing under Malaysia’s pragmatic brand of nationalism, and so is the country’s economy.
The corporation’s business is still centered on its lush plantations, vast domains that cover 200,000 acres of the fertile Malay peninsula. Today the biggest crop is the reddish fruit harvested from a special variety of palm tree and processed into cooking oil (see the painting above). Sime Darby is one of the world’s largest producers of palm oil. The acreage it puts into rubber has been declining but is still substantial. And cocoa, a relatively new crop for Malaysia, is rapidly gaining in importance.
The plantation scene is little changed from colonial times, and a visitor driving up to meet the corpulent British manager feels as though he is stepping into a Somerset Maugham story. The work force still includes a lot of Indians, descendants of those brought over by the colonial overseers. The boss addresses them in melodious Tamil and Malay as they move through the endless groves, harvesting with hand tools. “These trees,” says the manager, “are growing money.”
But increasingly, Sime Darby is putting the cash flow from the plantations to work in other businesses, transforming itself into the most aggressive conglomerate in the Orient. With a seemingly insatiable appetite for expansion, it has amassed more than 200 enterprises that operate in twenty-two countries, making it Malaysia’s first multinational corporation. Its increasingly integrated agricultural business converts palm fruit to cooking oil and markets it all the way to grocery shelves in the Middle East. Spreading through Asia like a hardy tropical vine, the corporation operates an industrial park in Indonesia, bottles Pepsi-Cola in Hong Kong, and will soon be assembling Ford buses in China. It is also one of the leading Caterpillar tractor distributors anywhere on the globe. “About the only thing that we don’t own is a brothel,” says Tun Tan Siew Sin, Sime Darby’s proud Malaysian Chinese chairman.
Chairman Tan subscribes to “the American philosophy, expand or perish.” Over the past decade, diversification and internal growth have increased sales more than sevenfold, to $835 million last fiscal year, while boosting profits sixteenfold to $59 million.
The policy of retaining Western expertise has left James Scott, an entrepreneurial Scotsman of forty-eight, in charge of operations, with the commanding title of chief executive. He strongly resembles his own characterization of the company’s Scottish founders—”tightfisted, hardworking, go-ahead individuals.” Two years ago, Scott left a senior post and a seat on the board of Dunlop, the British rubber manufacturer, because the opportunities at Sime Darby seemed irresistible. He explains in the slight burr of his native Lossiemouth, “We’re unashamedly hungry for growth and have plenty of money to buy new things.”
Drawing on generous loans from both local and international banks, Scott has embarked on a continuous shopping spree. Among other things this year, he has gained control of the biggest general-insurance underwriter in Malayasia, snared the lucrative B.M.W. auto-sales franchise in Singapore, and bought a big share of a British-owned plantation company that owns as much land as Sime Darby. Scott is also plunging into joint ventures with other multinationals, such as Electrolux and Honeywell, that want to sell, manufacture, or do both on Sime Darby’s home turf. “We know how to structure deals that appeal to the powers that be,” he boasts.
The powers that be are certainly receptive. Malaysia’s deputy premier, Dr. Mahathir bin Mohamad, says: “We trust them, even though we could make or break the management.” The regime wants to do nothing that could frighten away foreign investment. Sime Darby serves as both a flag carrier for what Malaysia terms its “new economic policy” and a symbol of its adherence to free enterprise.
This unusual form of state capitalism is aimed at solving an endemic racial problem that exploded into riots a decade ago and remains a national obsession. Malaysia’s politically dominant Bumiputras (literally “sons of the soil” and largely ethnic Malays) hold a smaller economic stake than the rest of the citizens, ethnic Chinese and Indians. A sweeping affirmative-action program is supposed to give the Bumiputras, about half of the population, roughly 30 percent of the nation’s jobs and corporate equity by 1990. Officials plan to accomplish this through economic growth, not by taking anything away from other ethnic groups. The government plans ultimately to sell its shares in companies to the Malays.
Paying for the ambitious program has not been much of a problem for Malaysia, which has fewer than 13 million people and handsome tax revenues from its exports of agricultural products, tin, and crude oil. Its G.N.P. came to nearly $16 billion last year, and real economic growth has been running at about 7 percent a year. But the social scheme—and political stability—depend on maintaining that rapid pace. As Dr. Mahathir, himself a Malay and medical doctor, explains: “We didn’t go into Sime Darby for national pride or to have another Chrysler on our hands, but because we need a successful company.”
The corporation became Malaysian through a series of turbulent events befitting a modern novel of Oriental intrigue. In 1970, an executive recalls, “Sime Darby was Dennis Pinder,” the autocratic chairman who launched its daring expansion drive. He gobbled up eighteen companies—from Hong Kong to London—in eighteen months, faster than they could be digested. He was in a hurry to cash in on a bull market in the Far East, where the stockbrokers’ offices were crowded with housewives and amahs (servants) gambling their savings. After the stock markets collapsed in early 1973, Sime Darby’s outside auditor was found stabbed to death in his bathtub in Singapore. The police ruled it a suicide. A wider investigation sent Pinder to jail for misappropriating $1 million in corporate funds. As Britons unloaded their suddenly depressed Sime Darby shares, intermediaries for Malaysian government institutions quietly began buying.
James Bywater, a Briton who had worked under Pinder, had to take over as chairman, says one former colleague, “to restore law and order to the company.” A newcomer to Asia, Bywater unwittingly provoked another corporate upheaval by rankling the Malaysians. He curtailed investments in plantations, funneling money into industrial ventures in Europe that went sour. In mid-1976, the Malaysian government, through Pernas, its state trading corporation, revealed that it had acquired equity in Sime Darby and wanted an Asian majority on the board. Bywater reacted coolly. One director recounts, “He was foolishly not on speaking terms with Pernas, our most powerful stockholder.”
The Malaysian authorities used their muscle subtly in their first and only confrontation with the company. Pernas armed itself for a proxy battle by hiring H.M. Rothschild & Sons, the London merchant bank that had previously advised Sime Darby. Rothschild helped Pernas to cleverly outmaneuver Bywater. One of his executives publicly accused the regime of attempting “backdoor nationalism,” but the Malaysians defused that charge by refraining from installing government officials on the board. Instead, Pernas nominated three prominent Asian businessmen, only one of them a Malaysian, who were voted in. None of them could be validly labeled government stooges, but their business interests in Malaysia give them ample motives for cooperating with its policies.
At a dramatic meeting held around midnight on December 9, 1976, Tun Tan, already a director, emerged as what he calls “chairman almost by accident.” He was the only candidate acceptable to both British and Asian board members. Tun Tan proved to be the ideal front man for the corporation, then so scarred by scandal and controversy that its popular nickname in the region was “Slime Darby.” His mere presence as chairman helped restore respectability. A government minister for nearly two decades, Tun Tan (Tun is a Malaysian equivalent of “Sir,” denoting a knighthood) still rides in an official chauffeured car and has a bodyguard because he is nominally a consultant to the finance ministry. His status in Malaysia, where he guided fiscal policy for fifteen years, is roughly comparable to that of a penny-pinching Alexander Hamilton. He refused to change the shabby carpeting in his ministerial office, and the Premier only half-jokingly warned him that the tips he left when traveling abroad were so meager that they might be returned. Tun Tan now says, “I’d take them back, though I really didn’t tip so badly.”
His business qualifications are impressive, too. A sizable stockholder in Sime Darby, he is also chairman of nine other Malaysian companies, including a bank in which American Express owns 20 percent. No one in the country has suggested that there might be a conflict of interest. Tun Tan’s reputation for flinty incorruptibility is perhaps only matched by his well-developed ego. He uses his prestige on behalf of Sime Darby. By talking to bureaucrats on “an old-boy basis,” he says, “half the battle is won.”
The chairman recruited Scott as c.e.o. Scott maintains that Sime Darby is run as “a totally commercial enterprise.” He likens it to British Petroleum, which is 51 percent government-owned but is left pretty much alone. “I think the government here has bent over backward not to get involved in our affairs,” Scott says, but then adds: “We know what is right politically—uhh, I mean,” smoothing over the bald frankness, “from the profit point of view.”
Scott is capitalizing on Sime Darby’s new Asian identity. Previously, the company was incorporated in Britain and managed from Singapore, even though most of its profits came from Malaysia. “Why, it was like a satellite floating around the sky, accountable to no country,” he says. “We’ve brought it home to Malaysia, which is doing good things for us.” To tighten the Malaysian ties, Scott has recently filled a few key positions with distinguished local executives. The most notable is his own deputy, Tunku Dato Ahmad bin Tunku Yahaya, a British-educated Malay prince and nephew of the nation’s first Prime Minister, who was one of the directors selected by the government. Scott brought him in as an executive from Dunlop’s Malaysian subsidiary, where the two had become friends.
The benefits of being Malaysia’s commercial flagship appear to be virtually endless. Acquiring additional land is all but impossible for most plantations, but Sime Darby has no difficulty, as one executive observes, “now that we’re not a foreign company.” Sime Darby’s new corporate headquarters, a $32-million skyscraper in Kuala Lumpur, is being financed by the timber-rich Malaysian state of Sabah. Scott insists that it is strictly a business deal. The state government expects to profit by leasing the building to the corporation, which figures that its capital can yield better returns elsewhere. Being solidly based in Malaysia, which has valid Islamic credentials, also helps Sime Darby open doors in the Arab world for attractive projects, including a paper-carton factory in Dubai.
Much of the company’s money is going to bolster the business that Scott says “we know best,” the plantations. Flourishing on strong commodity prices during the past several years, they provide about 55 percent of Sime Darby’s earnings. “Every company has its central tricks,” the chief executive maintains, “and we’ve got them for plantations.” For one thing, shifting its land from rubber to oil palm and cocoa yields higher profits per acre. Sime Darby is also trying to introduce a bit of assembly-line efficiency into tradition-bound forms of agriculture.
The estates are still a curious blend of the fading past and a future that Scott envisions. Less than two hours’ drive from the capital, rifle-bearing Nepalese Gurkha guards patrol the twenty-square-mile Sungei Buloh estate against thieves that often prey on its cash crops. But usually the plantation is serenely industrious. Indian women, wearing shawls to protect their heads from the shimmering heat, stoop among the cocoa bushes to pluck the mature pods. The beans inside the pods are processed at a plant on the estate, where a grizzled old man laboriously sews shut the burlap bags of cocoa with a needle and thread. Amid the seemingly infinite rows of tall oil palm, wiry Malay and Chinese harvesters search for ripe bunches of fruit and cut them down with razor-sharp knives mounted on long poles. Their only mechanization, recently introduced, is a buffalo cart to carry loads of the forty-pound fruit bunches down to the road. The palm fruit is trucked to a modern Sime Darby mill, which uses discarded palm fiber as fuel and efficiently extracts the vegetable oil.
At the office of the estate manager, Ron Armstrong, technicians recently installed the newest tool of a profit-conscious corporation, a Datapoint minicomputer programmed to monitor all the operations. Armstrong, who is nearly fiftyfive and has worked on plantations most of his adult life, is plainly uneasy about the whirring machine. “I’m ready to retire,” he says. “I came out to be a planter, not a damned accountant.” He and other British estate managers are destined to leave anyway, for the government has decreed that Malaysians must gradually take over their jobs. But the mini-computers, which are being put into all forty-six Sime Darby estates, will actually free managers to spend more time out among the trees. “By keeping them in the field,” says Jack McLean, the plantation finance director, “we expect to gain 1 percent more crop.”
In the same calculating manner, Sime Darby is moving more than 800 miles across the South China Sea from the Malaysian peninsula into the frontier state of Sabah (on the island once known as Borneo). The company is investing $14 million to acquire and develop 10,000 acres of land. Planting it with cocoa is expected to bring a 12 percent net return during the seventeen-year productive life of the first crop. The company’s best plantations along the fertile western coastline of the peninsula deliver a 26 percent return on sales. Chairman Tan asks rhetorically: “Can you tell me any other business that yields this rate of return?”
The downside risk, of course, is a drop in commodity prices. One vital protective hedge is what Sime Darby calls “downstream activities,” processing its crops into finished products. As Scott says, “You’ll notice that the prices of soap and margarine, which are made with vegetable oil, rarely come down.” Consequently, he recently acquired control of a small Australian company to obtain its know-how for making surfactant, a cleansing agent in detergents. Now Sime Darby is using Malaysian palm oil to make the bubbly concentrate for soap manufacturers.
As recently as several years ago, Sime Darby could find no buyers for about half of its potential output of cooking oil. Then Kwok Kian Hai, a chemist at its Singapore plant, became general manager and decided to go after “the people who could buy.” Without introductions or sales experience, he flew to the Arabian Gulf states and took samples to every merchant who would see him. “It was mostly a matter of winning their trust,” he says. On one early sales trip, an Arab customer who had paid $1 million for cooking oil threatened to have Kwok jailed because the shipment hadn’t arrived. Kwok arranged both a quick refund and another shipment, reaping invaluable customer loyalty. The plant, which has expanded its capacity, now sells 85 percent of its cooking oil to the Arab world.
The company’s biggest potential may lie in China, where it has an edge over other multinationals. Its forty subsidiaries in Hong Kong deal in many of the products the Chinese seem to want, and they are managed by ethnic Chinese who have demonstrated their ability to strike deals with the People’s Republic. During his visit to the U.S. this year, Vice Premier Deng Xiaoping surprised Henry Ford II with the news that China would soon get a “Ford plant.” As a Sime Darby executive tells it, “Henry Ford wondered what the hell was happening because his company wasn’t building a plant.” Harpers International, a Sime Darby auto dealer and assembler, is actually building the plant. It will turn out Ford and Mitsubishi buses, trucks, and eventually cars just across the Hong Kong border in Shenzhen.
A generally conservative stockbroker in Asia, who closely watches Sime Darby, predicts that once the China market matures, the company’s Hong Kong division “could outstrip the profits of the plantations.” That would be quite a leap, but the forecast is based on Sime Darby’s formidable position in Hong Kong, where it provides a big share of the colony’s construction equipment and air conditioning for new buildings. The company is in an ideal position to benefit from Peking’s new policy of tapping skills in Hong Kong to build the economies of nearby Chinese provinces.
All together, Sime Darby’s chief executive admits, “there are an awful lot of balls in the air.” The one Scott most wants to catch is doubtlessly the Guthrie Corp., an old-line British outfit that owns plantations in Malaysia and a variety of manufacturing operations in the U.S., Canada, and Britain. Its takeover would instantly fulfill many of Sime Darby’s corporate ambitions—doubling its agricultural acreage, nearly doubling its annual sales to about $1.4 billion, and broadening its diversity.
Scott fumbled on his first attempt to take over Guthrie this past spring. “Our timing was impeccably wrong,” he acknowledges, and so were his tactics. Sime Darby executives failed to master the complex takeover rules of the London Exchange, on which Guthrie’s stock is listed, and wound up with only 30 percent of its shares. Scott, who has learned much from the episode, cannot mount another bid for Guthrie until March of next year under the London rules. “Then we’re back in the game, if we choose to be,” he says. He spent about $85 million on Guthrie shares, and has already made a paper profit of $10 million. Sime Darby seems very likely to win in the end—because of its special relationship with Malaysia. Nothing prevents state-owned Pernas from independently purchasing Guthrie shares and selling them to Sime Darby next year. A director confidently asserts: “It’s only a matter of time.”
No other corporation has so swiftly sprung up from roots in the Asian jungles to become a genuine multinational. Sime Darby seems to have practically everything going for it. But where is it heading by marching in so many directions at once? Scott talks vaguely of making it “a powerful global force.” His colleague, Chairman Tan, says that the overall strategy is “playing it by ear.” He peers at a world map speckled with colored pins indicating the corporation’s reach. “We have to act on intuition,” he remarks. “I doubt that J. Paul Getty or Howard Hughes could have explained their strategies to the satisfaction of the Harvard Business School.” If Sime Darby keeps adding pins at its present pace, its executives may get invited to lecture there anyway.
