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2-Cent Rant

Why Are Companies Like NuffNang So Complicated?

 

Last week, SMRT Ltd (Feedback) reported that Nuffnang was making losses, only for Nuffnang to respond that this is incorrect. Nuffnang countered that its parent company Netccentric Pte Ltd owns many subsidiaries that, collectively, are generating profit for the company. So what is Netccentric all about?

Let’s take a closer look at the information released on Nuffnang’s blog in order to better understand the company.

 

Why is Nuffnang’s corporate structure so complicated?

According to Netccentric’s group structure, the company owns fifteen entities in all. Those with similar names (e.g. Nuffnang Pte Ltd and Nuffnang Sdn Bhd) basically refer to entities domiciled in different countries.

Group CEO Ming Shen also explained that Churp Churp, Nuffnang and Reality TV provide different types of services for clients.

 

Question 1: Why did the CEO want to separate the various subsidiaries in the Group rather than to lump them together?

By separating them, it is easier for the CEO to manage each entity individually. He can allocate resources, identify poor performing business units, and reward staff that has consistently performed well.

More importantly, if a subsidiary fails to do well, it can be closed down without affecting the rest of the company.

 

Question 2: What is Nom Nom Media actually for?

Nom Nom Media is merely the “cashier” of the business. Assume you are purchasing a TV from Harvey Norman and that this Harvey Norman does not have a cashier. The salesperson would then have to explain to you the different type of TV they have, confirm your choice of TV, bring that TV to the cash register and also settle your payment.

Wouldn’t it be more efficient to have a cashier so that the salesperson – who is proficient with selling the TV – can spend more time making money for Harvey Norman?

Having Nom Nom Media allows Churp Churp, Nuffnang and Reality TV to do what they do best without burdening themselves with collection of money from their clients.

 

Question 3: What do we make of “The Numbers” that the CEO has provided?

This gets interesting, but only for the stakeholders (bloggers, staff, management, clients) and stockholders of the company.

 

Question 4: Why does it not concern the rest of us?

Netccentric is not a publicly traded company. Hence, you can’t just buy shares of the company on SGX.

 

Question 5: Why is it interesting for the stockholders?

Assuming the profits of FY2013 released by Nuffnang on their blog post are the net profits, the profit margin of the group is 21% and 4% for Malaysia and Singapore respectively.

 

The stockholders should be pretty pleased with the results of their Malaysian arm, as this profit margin is pretty decent when compared to large blue chip firms.

As for the Singapore arm, not much can be said about it because there is no good sample of companies to compare their profit margins with.

 

Question 6: Why is it interesting for their stakeholders?

Comparing the company’s profit margin in Malaysia to that in Singapore, we can see that the Malaysian business is a lot more lucrative. It is interesting to note that they are not doing as well in Singapore, where their HQ is at and where they originally started out.

That being said, we also know that the cost of business in Singapore is much higher with the higher rental cost of office spaces and labour wage. It is also possible that the Singapore office is taking some additional overhead such as the salary of the CEO and other top management.

 

In a nutshell 

Netccentric Pte Ltd is not out to hide accounts, evade taxes or create havoc. They are here to do business. The complexity of its structure creates great synergy for both its management and staff.

Ultimately, the survival of this firm is not a concern for non-stakeholders and non-stockholders. Unless it is immoral, we should not scrutinize its methodology of doing business.

 

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