OYL Industries Bhd is revved up for growth as it sees demand rising in key markets, said the company's chief operating officer Foo Say Jan.
The company is contemplating shifting its Malaysian production plants from Shah Alam to Sungai Buloh, which would triple output from the country, and is expanding its plants in China to cater for not only the massive Chinese market.
Speaking to StarBiz in an interview recently, Foo said China ranks tops in growth for the company but he believes there is still much potential in Southeast Asia.
We also believe growth in the Asean countries is coming back. Countries like Thailand, Indonesia and even Australia are interesting, he said.
The Middle East is another important market for OYL and Foo said Europe, in certain ways, was still growing. The company is trying to make further inroads in the massive American market.
Foo said there was a project team studying whether OYL should move its factories in different areas in Shah Alam to its 28-arce in Sungai Buloh that would increase factory floor space by 50%, reduce waste and improve efficiency.
The new factory in Sungai Buloh would be operational within 18 months after a decision to relocate is made.
We will sell the land in Shah Alam and use the money to build the new factory, he said, adding that there would be minimal need for extra cash from the parent company to fund that expansion.
Foo said OYL would keep operations in Malaysia as it was a benchmark for efficiency and productivity and important for future export plans.
About 60% of the products from its Malaysian plants are exported and the facilities here would support the group's exports and diversity in product range in the future.
OYL's most famous brand in Malaysia is York, which is manufactured on a joint venture basis. The company also sells its own Acson brand here. Worldwide, the OYL group promotes the McQuay name aggressively, a brand that it owns. OYL is also heavily involved in the air filtration business.
Tapping the Asean market is not new for OYL where it has operations in many countries. The company, apart from increasing stakes in companies involved in the air-cond business in Mexico and Italy, recently set up a joint venture company in Thailand to distribute and market OYL's McQuay brand.
To be successful in this business, you must have the reach to the marketplace, and control of distribution. We have identified certain key markets where we must have our own distribution network, he said.
Thailand is one of the key markets in Asean. We see the potential of Thailand (because of its population size) to be at least twice of that of Malaysia in the long term.
But the real potential for the group lies in China. We have continuously seen high double digit growth in China. Turnover in some areas are seeing 40% to 50% growth, he said, adding that OYL has about 20 branches in China.
OYL has two plants in China one in Shenzhen and the other in Wuhan catering for not only the large Chinese market. The Shenzhen plant has been expanded and that the relocation of the Wuhan plant to a bigger area would be completed before October. The Wuhan plant would also make the big chiller units for export to Southeast Asia.
He said OYL is setting up another plant in Suchow to make components such as compressors. The plant would be ready by April next year. Apart from the cost advantages for OYL to have such a plant, Foo said the components manufactured there could be exported. Expansion of OYL's China operations would come from the Chinese company's own retained earnings.
China is very busy, he said, adding that OYL's plants in China make the full spectrum of goods but was, at the moment, less focused on the residential market.
We are more focused on the light commercial and commercial product. One survey says we are one of the leading brands in China in that segment and we are increasingly looking more at the centralised air-cond systems, the chillers, he said.
Foo said the firn, because of the type of products it was pushing in China, adopts a different marketing strategy like approaching developers, consultant engineers and architects to make its brand name felt.
He said OYL would eventually give the residential air-cond market in China a go but not until there was a shakeout in the industry there. The residential air-cond market in China is cluttered and stiff competition has led to manufacturers trying to undercut each other.
We have intentionally avoided that sector at the moment and there will eventually be a consolidation. A few good brand names will survive and then we will come back and there will be opportunity for us acquire some of those companies, he said.
One of the success factors of OYL's foray into China is the way it started the business in the country. When OYL started 10 years ago in China, we went in on a low-key presence and worked with the people there to build a cohesive team. That has helped over the years to mould a Chinese team rather than a Malaysian team, although a few key positions are held by Malaysians, he said, adding that that the team in China was willing to take on all sorts of challenges today.
Foo said business in Europe was improving year to year but not as fast as the company would like.
Again, we have to look at some specific products that will meet their market requirements, he said.
For the US, Foo said OYL has identified the big rooftop air-cond units seen in shopping malls as a target market.
This is a US$1bil a year market in the US alone. Our position today in that market is small and we reckon that if we make the right product that is cost effective, and with our channels there, we can participate in that market, he said.
Selling air-conds over years have also grown OYL's business of maintenance and replacement, something that has proved to be more essential in matured markets, and for big equipment, rather than in growing markets.
To safeguard our sustainability of our market presence, the only way is with service income. During the good and bad times you can survive through service income. And this is the precise formula we have found in Malaysia, he said.
Although service income is more prominent in matured markets, it was a lifebuoy for OYL during the Asian financial crisis when sales of equipment in Malaysia slumped by more than 50%.
The company did not have to lay off a single employee because of service income.
We have built enough service income to cover the whole company's expenses and yet still have a profit, he said.
The beautiful part about the air-cond business is service income. In our business, we must have the complete bridge. As a big industry participant in the global business, Foo said OYL was constantly scouting for opportunities and will eventually enter the world's second most populous market.
India is a big market and we have not gone there. We have yet to seriously put our plan for India together although we all recognise that it will be the next big market for us, he said.
India definitely has to be on our agenda for us to be a global player, and we must built at least a plant there.
While OYL does get a lot of accolades, the company, in perspective, is still a midget when compared to the top global names.
Carrier Corp, the world's largest air-cond company, has a turnover of nearly US$9bil. The second largest is Trane, part of American Standard Companies Inc, whose revenue is about US$4.7bil. OYL in totality generated revenue of about US$1.4bil.
In terms of size, we are small. There are opportunities for us to grow using our Asian base. Being an Asian company, we have a better understanding of the Asian markets and therefore, we should be able to position to fight against competition, he said.