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8.3 Diversification

  • SOEs may wish to broaden the nature and scope of their existing activities by diversifying their technological, product and market portfolios, and extending the time horizon over which they seek to capture a return on investments.
  • SOEs will be responsible for establishing how they can achieve this, and for preparing robust business plans that can preferably be funded off their own balance sheet and that meet the relevant criteria.
  • The relevant criteria include:
    • Diversification must be based on an effective utilisation of existing core competencies and into adjacent technologies, products and markets.
    • New activities should have a demonstrated potential to enhance the competitive competencies of other firms and industries (ie, spill-over benefits).
    • Other than in very rare circumstances, the diversification should be able to be financed off the SOE's existing balance sheet.
    • Any revised scope of business must be accompanied by robust evaluation processes using explicit performance indicators, leading to a clear exit route for ventures that do not meet expectations.
    • Given that any investment utilises funding that may otherwise be available for distribution to the Crown, it should be demonstrable that any diversification will in due course produce superior risk-adjusted returns to the Crown.
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