THE VALUES INTEGRATOR

Do business and charity mix? Consider the tremendous work of Chew Hua Seng who has pledged S$100 million to a foundation that rides on the success of the small business he spun into a multi-million dollar education conglomerate

To get to the CEO’s office at the Raffles Design Institute campus on Beach Road one goes through a succession of stairs and narrow corridors flanked by offices. Although the place has the orderly hum of a school campus, it also has the arty flourishes one expects from a design institute. Instead of a bank of trophy- and pennant-filled cabinets, the bright street-level lobby features show windows brimming with what are probably the best efforts of its fashion design students. Glass-enclosed meeting rooms line one wall and can be seen immediately from a concierge-style information counter. A former police headquarter, and successful model of adaptive reuse, its bright yellow shutters and orange feature walls announce to anyone within a mile that it has been taken over by a less regimented, perhaps younger, and more enthusiastic force.

I have a 10am appointment with Chew Hua Seng, founder, chairman and CEO of Raffles Education Corporation (REC), which owns and operates the design school. In 2008, Forbes named Chew the 12th richest person in Singapore, and shortly after, he made news again for pledging S$100 million to be handed out over ten years through his self-named foundation. But shortly before my appointment, REC itself was in the news in connection with financial reporting anomalies at Oriental Century, a mainland China education provider where its holds nearly 30 percent stake. As news of Oriental Century’s trading suspension broke out, REC shares suffered an expected, momentary plunge, but it has since rebounded as investors realiSed that contributions from the Chinese company were insignificant.

Chew calmly walks me through the general issue, avoiding certain details as the matter is under investigation, and hands me an almost philosophical verdict: “We cannot generalize these things because there are experts doing business in China. I invested in a public listed company, one with a proper set-up, board of directors, CEO, CFO, COO and a whole team of people. There’s also periodic reporting; internal and external auditors are there.” But when fraud is involved, he adds evenly, the mechanism that they have put in place will never be sufficient to stop it. “We’ve all sorts of law in Singapore and elsewhere.”

Chew is among the biggest investors in China, especially in educational ventures. “All my investments in China are in education. Oriental is an associate of our company, but we do not run it—all others are managed by us, except this one. But whatever happens, it’s not going to affect our businesses there.”

Back-to-Back Success
I came to see Chew specifically to talk about the Chew Hua Seng Foundation that he set up in 2007, with an express mission to provide opportunities to disadvantaged youth in the Asia-Pacific region mainly through education. But as the private foundation survives on the performance and profitability of REC, it makes perfect sense that he shows me around this multi-million-dollar machinery. In 2008, REC posted a turnover of S$190 million.

Chew grew Raffles Education from one campus offering fashion-related courses into a regional behemoth of 29 design colleges and business education institutes spread out across Asia Pacific. His acquisitions of Hartford Holdings Limited and eventually of Oriental Century Limited, China Education Limited, Shanghai Zhongfa Education, and Oriental University City were instrumental in rapidly enlarging his business footprint particularly in China.

But this is getting ahead of Chew’s story, one that has been told several times, and doubtless romanticized, by the press. Chew had previously launched a successful timber export business that literally went under when a huge shipment sailed through a storm at sea. But the extreme difficulty of waiting for insurers to reward him the money that he then handed over to his creditors also made him stronger that when a new opportunity presented itself, he was ready. Investing in an education business, in which he had neither previous experience nor inclination (Chew obtained a BA in Business Administration from the Singapore University), only proved that he has already gone past previous failing.

I’ve seen Chew a couple of times before, and from a distance he appeared cordial as many men of his status often do in social gatherings. Besides his colorful tie and red frame eyeglasses, he did not stand out from a platoon of businessmen in dark suits. In his office, almost severe in its minimalism—a large hand-hewn desk, a lamp or two, and some “arty” ornaments—nothing prepossessing stands out. His clothes, by now almost a recognizable uniform, are a black shirt and slacks, and immaculate black leather shoes. He speaks in an even, deliberate tone, never hesitating, but patiently waiting for the right words to come to him.

“You cannot legislate morality”, he says, returning to the Oriental Century incident. “You learn through these trials in life, these trials and tribulations. If you come out of it whole, the imperfect becomes perfect; injustice becomes justice. I believe that sometimes bad things can become good if they come with blessings in disguise. We go through the journey of life and these are things you learn along the way. It’s water off the duck’s back.”

If Chew has any misgiving about the incident, it has to do with the students. “One thing we can be sure of is that we will do what is socially responsible for our shareholders and for other shareholders of Oriental Century. The other stakeholders, the students, have to be taken care of. We must look after our customers, the students, who are completely innocent. When we get involved, it must be to establish our responsibility — we have to undertake and perform for them.”

Focus On Education
Today, Chew is tightly focused on education. He may have some investments here and there, but they are small. The passion he has for education, a business that he has built up for the past 20 years, is compelling. “Education as a business is a good bloodline; it’s non-polluting; it trains people for a better life.” Most Asian societies, Chew observes, are elitist and education is the preserve of the upper class. But Chew counters that education is “what brings a person to the next level; he may be a dropout but he can realiSe his potential through vocational education, or college graduate can go into a university. We hope to excel in what we do to bring a better life for people.”

And this is why his foundation is focused on education. “Education as a lifeblood cannot just be for the rich.” The son of a fisherman and a homemaker, as most stories written about Chew use as counterpoint to his success, knows what it’s like to be on the other side of the divide. “But it is true,” he assures me. “You can only become an entrepreneur if you have that hunger. It’s not necessarily the pain of having nothing when you’re growing up, but the craving for something better. I grew up not knowing the difference between the rich and the poor. We were a happy family; I had no wants. It was only later that I realized how things can be better not just for us but for everyone.”

The Chew Hua Seng Foundation is self-funded. “We don’t take money from anyone. We have pledged an amount to be invested into the foundation in ten years. The money will be invested and the return on investment will be utilised to fund the activities of the Foundation. I estimate that even if we put our shares into the Foundation, the dividends that we derive from it will be able to fund between $3 and $5 million of returns to be given away.”

With the Foundation now on its second year, Chew admits that they are still learning how to run it. “We have a lot to learn because we’re a new foundation. My wife is more involved now than in the beginning; our children are learning too so that in the years to come we will know how to do it as well. Someday they can take over the running of the foundation. It’s like education in itself. We learn by doing; in this case, by giving.”

Chew prefers the meaningful to the lavish when it comes to giving — quality over quantity — although his pledge to the Foundation is arguably among the largest ever made by a single donor. “For me it’s not building monuments and things like that. It’s the soft things that you do for people; you have to give in a way that makes an impact on the lives of the recipients.”

REC dividend flows into the Foundation. “Eventually, when all money is invested, the Foundation will have its proper management team. For now I just want to see that it is invested properly and on a long-term basis.

“What I’ll put into the Foundation are the shares of the company dealing in private education. They’re now earning dividends. Most of my commitments still come from my investment in education, my shares in the company. After that we’ll see what other areas we can invest in. We’ll put the money in an interest-bearing instrument. We know that it will give returns for many years to come. Meanwhile, in education business, we’re relatively safe.”

Foray Into Education
There are no plans to change tack in the years to come, confirms Chew. “In fact, this is the time when the bigger players will be out in the market. In Asia, as a whole, demand for education is very high. I foresee an expanding market. The initial shock of the market during the global economic downturn will destabilize any business, but with a focus on the long term, this will be a stable. In 20 years time, it will even be even more established.”

Chew is bullish about his business, predicting that it will get strong and remain reliable for a very long time. “The school has been established for 20 years; there’s always a student body that comes along. And, more importantly, we are building our capacity to operate it well. We constantly lift up the standard to make it relevant.”

REC has over 10,000 students in design courses alone. “That’s bigger than in any institution anywhere in the world,” Chew beams. “For a guy who didn’t know anything about design, and has produced hundreds of design teachers and practicing designers, that accounts for something.”

Chews entry into design education is well thought out, not a desperate attempt to move into another business. “Asia remains focused on developing the left brain,” he theorizes. “I focus my business on the right side, the creative part. Twenty years ago, when I began my business, Singapore was a country with no sense of design to speak of.”

In traditional education, “people follow a very specific route starting from primary, secondary, etc., then to college then to university. The system in Asia is also very academic; it’s about learning Mathematics, memorizing things and then regurgitating them. It’s never about using your hands and being creative. If you are an artist or an artisan you learn to work with your hands. Most Asians educators focus on the development of the measurable mind, the logical, compliant, disciplined, part. Creative people, being creative, are not so inclined towards these and they often drop out.

“Who gives them the alternative to stay in school? Raffles Education. We pride ourselves in giving these people an alternative education that maximizes human resource. People think design is not important, but from the moment you wake up to the time you close your eyes, you’re surrounded by it. We tend to focus on the manufacture of things, but focusing on this alone means that we are missing out a lot. We only derive value from one aspect, but there is great value to be derived out of design, out of distribution.”

By focusing only on certain aspects of production, most Asian economies limit their benefits. “How much do you think a pair of Nike shoes costs to produce? Maybe 10 bucks. Then add another 50 bucks for design. And that’s the aesthetics of the moment, and it will change from one period to another. Design input will always be required. Distribution and advertising cost even more. If Asian economies focused on manufacturing alone, Asian workers get paid much less as a result. The only thing we’ll be able to offer is labour. The other aspects of creating products get little attention and participation from Asians.

“As economies move on, more and more is added to production from the soft side. Look at China, why China got hit so badly? Because China is involved only in manufacturing. The whole time they’re just waiting for orders to come from the outside. Hence, they’re only paid for labour. And to make labour competitive, its cost gets lower and lower. It’s the workers who suffer in the end. Cost of raw materials commands a certain price in the global market. Capital also has a certain price in the global market. But manufacturers work with systems where they find cheap land and labour.”

Making Good of Chances
Chew started his education business by chance. “I did not plan it. It’s a journey of life that leads you to where you’re you are. I was doing business in timber and I was quite successful; the money was good. But I think education is an easier business than timber; it definitely has more enriching elements. When I realized that I made a stand to move.”

Starting out in alien territory was tough. No one knew Chew and he was a small and insignificant player; his biggest competitive advantages were his finely honed management abilities and expansion capabilities, two areas that very few among his competitors were able to do.

Although Chew believes that resources are important to grow the business, he also realized that attracting and retaining people are equally important. He pursued people who are competent in their area of discipline. “Instead of looking for stars, I looked for competencies. Stars come and go, and when they leave, the business shatters.”

During the first six years since he started his second business, Chew admits he knew nothing about education. He had to keep learning. “But I knew about running businesses and people. You have to bring in sales, the bums on the seats. If you don’t have students, even if you have the best teachers and the best curriculum, but you have no business. The reverse is also true: even if you have students but your curriculum does not help them, you lose them in the end. It’s a combination of things that make education work.”

Chew went through difficult times initially. “Those were trying times. I had to be courageous, but most of all humble. There were so many thing that I didn’t fully understand about the business, things that I needed to learn.”

Investing S$375,000 gave Chew a running start but did not get him very far. “In this business, the probability of losing is higher than making money is very high especially in the beginning. We have to be prepared to lose money for a few years every time we start a new venture. But eventually, we conditioned ourselves into the cycle: you start one school, you lose money, then eventually the new school becomes profitable. Then you find yourself in another market ready to start another school, only this time you use the money from the previous venture that has started to turn in profit. The one venture is now helping finance your second venture, and the cycle goes on.”

Chew admits that although it may be easy to understand, growing the business according to this model does not happen overnight. “Maybe it took you six years to grow the first one, and seven and a half years to set up the second one, and maybe nine years to get the third going. It takes longer to get the succeeding ones off the ground. But meanwhile, your management matures and your competency goes up. So while there’s always a waiting time for the business to develop fully, there are benefits to reap along the way and important lessons to learn. By the time you’re setting up your fourth and fifth school and so on, you would have amassed resources and capabilities that will make it faster and faster.” This year, Chew set up five schools in one go. “I have the people and the financial resources in place. Today, if there is no issue about licensing and getting permits, we can easily put up a business with the model that we have developed.”

The work, however, is not half done. “Every new market requires a new model. Each time you go into a new market, you adjust what you have already developed. If you are setting up a second or third school in the same country where you already have succeeded before, you have fewer problems. But if it’s a new territory, there’s always the culture that must considered.

Chew believes that in essence people look for the same things in education wherever they may be. Most often, it’s viewed as a step towards the betterment of one’s lot. What there is a shortage of is the alternative type of education that REC seems to have tapped on well. “This absence or shortage is what we build on,” Chew concludes.

Demonstrating Intentions
Despite tremendous work done on Raffles Design Institute, the original architecture asserts itself beneath the layer of paints and structural modifications. The formal symmetry, the familiar balance and lightness, the colonial interpretation of tropical architecture are writ large on the height of the ceiling, the gaping fenestrations and well placed courtyards. We are outside the building to photograph Chew who obliges with the ease of someone who has done it several times before. “This is a serviceable building,” he says as we walk past bright corridors. In effect, the Government is his landlord, and fittingly, his design school business started out as an investment towards a Government scheme.

Students in all manners of fashionable attire dart in and out of air-conditioned rooms. Teachers, not older or stodgier than students, lead the packs. “Our design students tend to come from higher income families,” Chew casually informs me. “Both lower income and higher income families expect a job or a career out of their education, but those who come from a higher income family tend to rely not on education alone. They can go into more creative pursuits.”Chew agrees when I asked if it’s like an ascending hierarchy of needs. “With an expanding middle class (in China), we have no problem with regards to market; the challenge lies in getting there. Our fees are not cheap; we don’t enroll thousands of students. The design institute takes in a smaller number of students than the more normal type of education, our technical and IT institutes, and so on.

I ask Chew about branding and promoting his business, after all RDI is an established brand and REC is Asia’s largest private education provider. “We don’t spend money to promote ourselves. We have our students and successful graduates who do that for us. The costliest part of our operation is human resources, and 20 percent of capital that goes into it. Don’t forget that we are of a certain scale. Without that scale, human resources would cost probably more.

“We’ve done well in China for 16 odd years, and that market is growing tremendously in size and sophistication. In our field, the right environment is also important. The government will always impose regulation on education, and rightly so. We need to demonstrate that we can deliver results and our intentions are good.”

He will not have a tough time doing that.