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| Strategies for a Downturn |
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| by Errol Oh from The Star Online |
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| Kuan: Difficult to cut spending unless you can switch to
cheaper alternatives |
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GIVEN the behaviour of the stock markets and the economies of the world these
days, should we head for the hills, brace ourselves, dig in, batten down the
hatches, tighten our belts, gird our loins, hunker down, assume the foetal
position or do all of the above? |
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The last option is the safest thing to do, but in business, the safest is not
necessarily the best. Merely weathering the storm may not be enough. |
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That is easier said than done, of course. It takes a lot to be
forward-looking and aggressive when sales are shrinking, costs are increasingly
burdensome and the uncertainties turn even the best-laid plan topsy-turvy. |
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In fact, some people are convinced that the companies that are the most
positive during the tough times will fare better in the long run. The argument
is that these corporations will be in a better position to react once the
economic pendulum begins its upswing. |
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Whatever the outlook and attitude, entrepreneurs and top executives will need to
be at their best when deciding the strategies and directions for the rough
weather ahead. In an economic downturn, the margin of error is thinner and
markets will be harsher in punishing mistakes. |
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There are no easy decisions. Some may only appear to be no-brainers. Cost
cutting, for example, will be a universal trend. However, the best managers know
that it is perilous to just slash expenditure across the board. Pulling back
funds from critical areas can cripple a business. |
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Deferring projects for fear of weakening demand and higher costs may seem
entirely logical, but what do you do about cash flow and earnings growth in the
interim? It may be prudent to shelve expansion programmes, but what if the
competitor exploits that to gobble up market share? |
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At the same time, it is important to spot the silver lining in the economic
cloud. Some sectors and companies may suffer less than others. For the more
innovative and agile businesses, the gain may well outweigh the pain. |
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BizWeek spoke to the bosses of several listed companies in diverse
industries to get a feel of the thinking on the challenges and opportunities
during these trying times. |
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Piong: Be more prudent in spending |
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| Green Packet Bhd Group Managing Director Puan Chan Cheong |
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Overall, I see more positives than negatives for the global economy with the
possible recession in the US as they (the Americans) need to adjust their
unsustainably high level of consumption and strength of the US dollar, which to
some extent has hampered the growth of emerging markets. |
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Siti Fatimah: We’re going clean
and green |
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Of course, businesses and consumers will be spending less during an economic
downturn, due to weaker consumer sentiments. |
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However, I believe Green Packet and P1 (subsidiary Packet One Networks (M)
Sdn Bhd, a wireless broadband provider) are well positioned to not only weather
the storm but to seize the many opportunities that present itself during these
times. |
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A particularly attractive opportunity for our talent-driven industry results
from the US finding a new position in the global economy. |
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This will be free up of substantial talent and expertise to migrate to
Malaysia and inter-dependent markets. Funds and innovation are also moving into
“markets of opportunity”, and we’re on the lookout for partnerships. |
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We may not have gone through a recession, but we’ve gone through the Internet
boom, which was even more challenging for us as it was specific to our industry
and sector. It almost wiped out Green Packet. |
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Having survived that and grown to what we are today is evidence that we can
adapt well in tumultuous times.
In fact, I think our business model and strategy is built on an acute
awareness that the wind changes direction easily and sometimes without
warning. |
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That’s why we invested in building our WiMAX pillar, which presents us with a
longer-term recurring revenue business in the high barrier to entry
telecommunications industry. |
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The same sensibilities led us to our geographical diversification to focus on
emerging markets with high growth potential. Furthermore, while personal
experience is the best teacher, we must be able to capitalise on the learning
and experience of others. |
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We believe that the global interest in WiMAX technology and solutions
continue to be promising, and is in fact accelerating alongside the development
of the WiMAX ecosystem. |
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Hii: Education is generally resilient |
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| From a consumer standpoint, the fact that they need advanced connectivity, a
richer Internet experience and a better alternative to the incumbent remains to
be the same, and will become more pressing as we progress forward. P1 WiMAX is
able to offer that. |
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| Hartalega Holdings Bhd Executive Chairman and Managing Director Kuan Kam
Hon |
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Puan: WiMAX technology and solutions continue to be
promising |
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Our outlook has not changed. Consumption (of gloves) in the medical industry
stays the same. The strengthening of the US dollar and the drastic drop in
commodity prices have benefited us, but these are probably temporary. |
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In the healthcare market, it’s difficult to cut spending unless you can
switch to cheaper alternatives. |
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Latex gloves are alternatives to nitrile gloves (Hartalega’s main products),
but it’s difficult to see which is cheaper because the prices are
correlated.
The volatility creates opportunities to gain market share and to position
ourselves for the future. |
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It’s those who can react to the swings and downturn who will be strongest. We
have done well and we will continue to perform well. We are in a good position
because of our profitability and prudent spending. |
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We have gone through the boom and bust cycles. The glove people have learnt
to survive the tough times. |
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| Kotra Industries Bhd Managing Director Jimmy Piong |
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We have reviewed our strategy and decided that there is no need to change it.
We will, however, be more prudent in our spending to make sure every sen is
spent well. That’s a key area.
We don’t expect much impact on our prescription products because these are
essentials. In consumers products, yes, people will be more careful in their
spending but our products are mainly vitamins and supplement, which are
essential as well.
Also, we focus on products for children. From our experience, it’s the
spending on the needs of adults that is reduced first in a slowdown. The
spending on children’s products is usually the last to be cut.
We do see opportunities. In the good times, the industry attracts players who
are more interested in quick gains and who often don’t play by the rules.
This causes disruptions in the industry. We expect the long-term players to
fare better in a downturn. They observe the law and the market is more stable
that way. It’s easier to gauge the competition.
We have decided not to defer our factory expansion. We believe the capital
expenditure is for the long term.
We can’t allow a short-term crisis to derail our long-term needs, which have
been well mapped out.
In the long run, the smaller boys will drop out. Investments in the
pharmaceutical industry is all long-term. Long gestation periods are the nature
of industry. If we halt our plans now, it will take a long time to resume our
cycle. |
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| Octagon Consolidated Bhd Executive Director Siti Fatimah Mohd
Shariff |
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We are in industries (manufacture of coating, waste management and
renewable/alternative energy) that require heavy capital expenditure. There are
issues in raising security and getting debt funding. The process is slow right
now. It’s a global crisis.
We’re looking at several options. For example, we have workable assets such
as our coatings manufacturing business and continuous process pyrolysis plant
(which will process waste tyre).
A lot of people are looking at the industries we are in. Waste management,
for example, is a business for the future. We’re going clean and green. I’m sure
there are opportunities. Everyone will be thinking of consolidation. We just
need to hang on during the slowdown. |
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| SEG International Bhd Datuk Group Chief Executive Officer Clement
Hii |
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Education is generally resilient, even in a recession. There’s always a need
for it. In fact, a downturn may be good for us. Parents may find it hard to send
their children overseas for further studies and will instead enrol them in local
institutions. Working adults who face slimmer prospects for promotions and
salary increments tend to go back to school to upgrade themselves. If you know
how to package your products accordingly, you can take advantage of this new
demand. One way is to make financing more accessible to these students.
We have spent the last few years focusing on programme in niche areas in the
job market and on rebranding. Now, we are reaping the fruits. I believe that the
downturn is a good opportunity for smaller and innovative players to go into
niche areas. |
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