Melanie Stern is the former section editor of Families in Business.
A series of unfortunate events delayed Banyan Tree's IPO for six years. But they forced a risk management plan that will take one of Asia's top luxury spa brands onto the global stage
It's a little ironic that Singaporean spa and hotels operator Banyan Tree deals in sanctuary for the weary wealthy. The firm could probably do with some of that itself after the challenges of the last six years. Founder and chairman Ho Kwon Ping (he prefers KP) has seen his company through the regional tourism blows of the past few years – SARS, bird flu, the 2004 tsunami and recent political turmoil in Bangkok – which have delayed the group's plans to offer listed shares.
As an Asian-based tourism and hospitality group, Banyan Tree's revenues rely on its flagship property in Phuket as well as resorts in the Maldives, Indonesia, Seychelles and China. While Banyan Tree resorts were spared from the Boxing Day tsunami of 2004, tourism took a dive. However, the Banyan Tree group has never been stronger, and was barely affected by the recent bloodless military coup in Bangkok – in fact, its shares soared to a new high of S$1.69 in January 2007, with a posted net profit of S$4 million for the third quarter of 2006, from a loss of S$383,000 a year ago. You might say KP has his hands full with the current challenges.
But he's not bitter. "In my business we have to keep looking at the world in a 'glass half full' way rather than a 'glass half empty' way," says KP. "We first thought of going to market in 2000. But after that came 9/11, avian flu, the SARS outbreak and then the Asian tsunami. 2006 was the first relatively normal year in ages for our business and we're just glad we managed to get a listing up before the market collapsed." Still, investors were jittery when Banyan Tree came to market last June, and the shares traded at a discount on their first day.
As with so many other industries forced to change the way they do business in the new millennium, Banyan Tree has taken much from recent lessons. As a startup backed by a much older, larger conglomerate – commodities-to-property business Wah Chang Group, of which KP is also chairman – the firm's new strategy is all about creating diversification and strengthening by alliance. KP will be as ready as any company can to react and protect his firm to withstand the next series of catastrophies, which is as important from a business continuity point of view as it is from the perspective of a publicly-traded company.
"We are relatively used to instability in the global tourism industry now and it's not likely that the world is going to get a lot safer or less eventful any time in the future, compared to the last five years," says KP. "We know how susceptible we are to all kinds of problems and all we can do is make the business as diverse, and therefore as resilient, as possible to ensure that we can ride all these crises with minimum impact." His first job is to accept that relying on Thailand for 50% of the firm's annual revenues is folly. "So long as we diversify into other locations we won't be too heavily affected by things like the Thai coup," KP says. He has spoken in past interviews of his aim to build Banyan Tree's brand across the most exotic corners of the world "like a string of pearls". Now that cash is coming in from the IPO – it raked in some net proceeds of over S$100 million in its IPO – the firm is wasting no time embarking on its plan to open over 25 new resorts and over 35 new spas (some under its sister brand, Angsana) across countries including Mexico, Greece, United Arab Emirates (including Dubai), China and Morocco – all pencilled in to open by 2009. About $70 million of the IPO funds raised has been earmarked for this.
Some of the slew of new properties will be Banyan Tree owned, with some tie-ups with worthy players a part of the new order of risk diversification. Banyan Tree will be partnering with companies to manage the much-expanded network of resorts across the world under management agreements, rather than worrying about expanding its own staff roster or having to invest in the costs and risks that come with sustaining personnel to that scale. Currently, Banyan Tree operates the spa for Indian hotel group Oberoi at its Udaipur resort in Rajasthan, India: the spa scored an impressive 92% in Condé Nast Traveller's 2006 coveted spa awards. Banyan Tree already operates an Angsana Spa in Bangalore and last September signed up with Brigade Enterprises to manage a new development in India's Karnataka from 2008. It signed a second joint venture agreement with a Kuwaiti enterprise, Kapico Group, to manage a waterfront villa and luxury houseboat development on India's secluded and virtually unexplored Vembanad Lake in Kerala. An Angsana Spa is to open in 2008 at Gurgaon, near New Delhi, owned by local firm Vipul Limited. In Europe, meanwhile, Banyan Tree has a spa management agreement with Blarney Group to manage an Angsana Spa opening this January in Ireland's exclusive Bunratty Castle Hotel, in the rural setting of County Clare, and in the Middle East KP shook hands on a deal with Abu Dhabi-based ALDAR Properties to manage their forthcoming eco-spa, Al Gurm Marine Reserve, in the UAE. KP expects to open two resorts in Acapulco and the Mayan Riviera in 2008 in a joint venture with OHL, allowing it to tap the $10 billion Mexican tourism market, appealing to short-haul clients from North America and Europe's medium-haul holiday escapees. Banyan Tree has come a long way in its 12 years of existence.
A businessman artiste
As co-founder of the company with his brother, Ho Kwon Cjan, and his wife, Claire Chiang (also managing director of the firm's retail operations), KP is certainly enterprising. But he is from artistic stock too. Ho Kwon Cjan is an architect and heads up design for all of Banyan Tree's stunning resorts; KP's sister, Mingfong Ho, is a celebrated novelist. Quite unusually for a corporate chief, KP trained and worked as an economics journalist in the 1970s, and was once famously detained under the Internal Security Act for offending the Singaporean government with his articles. He was noted at college in America, Taiwan and Singapore for his political activism. But instead of being seen as a dangerous rebel, his father, Ho Rih Hwa, one of Asia's best-known business legends and philanthropists, didn't try to entice his eldest son into the business. KP, though, had quietly harboured a desire to become the family business heir most fathers pray for and, following the first of several strokes his father suffered, joined the firm in 1981.
It's down to KP and the formative experiences of his first married years with Claire that the Banyan Tree concept became part of the empire. The pair spent a lot of time backpacking as newlyweds and idealists. KP and Claire made their first home in Yung Shue Wan fishing village on Hong Kong's Lamma Island in the 1970s when it was virtually uninhabited – it still has only two roads that permit automobiles – and spent much of their time travelling on a shoestring budget and exploring Asia together. After growing tired of journalism – "being a correspondent, travelling and meeting ministers, and then becoming an editor, was fun for a while: but journalism is a very lonely enterprise" – KP started looking to do something new that reflected his passion for the island- hopping lifestyle. Having joined the family business and now looking for ways to diversify the firm, by 1994 he decided to build a luxury getaway hotel on a plot bought to live on in Phuket, and drafted in his brother to design it. "I came from a background where [our family] were always looking for that competitive advantage, but had no particular niche. By the time we were building our fourth resort I felt we should take the leap from building to managing hotels, because we needed the proprietary advantage of being owner-managers," KP recalls. "My wife and I loved travelling so we just threw that into our business approach and it became Banyan Tree." The name comes from the translation of Yung Shue Wan; the branches of a Banyan tree are famed for growing skywards, not into the ground.
A global enterprise
Banyan Tree will shift from being a mostly regional business to being a global chain by the end of this decade. Most crucially in line for change, perhaps, is the Banyan Tree brand. It's a double-edged sword: Banyan Tree has successfully created a well-respected luxury brand in a local market that draws in clients from all over the world, and provides the platform for a global brand roll-out.
Yet going global might end up diluting the quality of a closely-managed brand: homogeny might be the only answer for controlling a firm so large, à la Marriott, another family firm. How will KP, the very public figurehead of this business, keep a hold on this sprawling chain in which his family still owns nearly 50% after flotation?
KP's answer is unexpected. "I never wanted to preserve this firm as a family business. In my view there are as many downsides to being a family as there are upsides. The model often carries too close an association between the business and the family, so that if family members aren't that dynamic or critical to the enterprise itself anymore, it reflects badly on the business. As we grow bigger, I am trying to create a Banyan Tree culture and help my colleagues feel a sense of ownership of this business, which no doubt is headed by me … but I think one can have a family that owns an enterprise yet fosters a culture where non-family members feel actual ownership of that firm. That is the challenge we have now, as we open up hotels all over the world – instilling the culture where people feel part of being part of Banyan Tree, not being part of Ho Kwon Ping."
And he has clearly thought long and hard about how he plans to do this. "First of all we will go public and not dominate proceedings. Right now I don't think we are perceived that much as a family business, as there are only three of us here from the family – and only I sit on the board, although my wife and my brother have serious responsibility for the firm. I don't like to link individuals with the company. The Times newspaper once called me the Richard Branson of Asia. I thought it was a joke. It isn't something I am proud of. It is a necessary evil for me to be the front-man of this firm, but my pride is not in what I have personally achieved. We try to empower our staff and, in a way, being less of a family business helps. We have given $8 million of free shares to our colleagues and that is separate from existing share options plans and other incentive plans in place, for example. So one of the things about being a listed company is that you're really able to compensate people in a way that directly ties them in with the company and its aims."
It's obviously something close to KP's heart. "To me probably the best model to have is a listed company which is backed by a dominant family. Then you have a good balance between the need for objective management, distance between management and ownership, and a vision which is set out with the unique dedication of a family. That's preferable to a bunch of managers brought in to steward a company with little personal interest. At the same time, I think the Branson-style "cult of personality" may be a very effective model for the short term, but if you want to build something to last after you then building around your own personality … isn't it obvious that after that personality is gone the brand would take a hit?"
Removing family influence aside, KP still regrets not joining his father in business earlier – lamenting his father's moderate view that his children should not feel any pressure to be part of it – and is mindful of this in rearing his own children, two sons and a daughter, to be aware of their options. "I've told my kids how much I wish I had come to the business earlier because I felt I had lost time personally and professionally with my dad while he was still in his prime," KP admits.
"It was only when I joined that I realised how much he had wanted me to join. Although when I did, my father didn't really know what to do with me and I had to find my own way, taking on more of his responsibilities as his condition got worse. My kids know they are very welcome to join us in our passion and vision, but they know they should not do it out of any sense of obligation because they'll perform poorly – and we didn't spend our lives building Banyan Tree just to hand it to people who don't really love what they're doing." With any luck, Banyan will continue to be as much a haven for those with professional passion and talent as it is for those who have been chained to their BlackBerry all year.