Homegrown business with a global reach


  • Business
  • Friday, 22 Dec 2006

IOI Corp Bhd’s overseas plants are located in three strategic locations but its business has global reach, says group executive director Datuk Lee Yeow Chor. 

Fighting a tough consumer market, Guinness Anchor managing director Theo de Rond is confident the group’s diverse portfolio of brands will continue to appeal to a wide range of consumer taste. 

At Suria KLCC, general manager Andrew Brien sees a challenging year for the consumer market. Consumers are looking for value which he defines in various categories. 

 

 

DATUK LEE YEOW CHOR 

Group Executive Director 

IOI Corporation Bhd 

 

What overseas investments does your group have currently? 

IOI Group’s current overseas investments are primarily in its palm oil downstream business, specifically refineries and specialty fats plants. Our plants are in the Netherlands, United States and Canada but our business is global in reach, spearheaded by our global network of marketing offices and agents across five continents. This is the business that we principally acquired from Unilever N.V. about four years ago, which has a long tradition of research and product development excellence and approved supplier accreditations with major food companies worldwide. Over the last three years, we have expanded the business by setting up a new plant and acquiring an existing plant in addition to expanding the present plants. 

 

Has 2006 been a fruitful year for your overseas business? 

The year has been largely fruitful for us although we also faced some challenges. After some corporate restructuring, strategic realignments and capital investments that we undertook in the early years after our acquisition, we are beginning to see the early signs of success from our efforts. 

Our plants are all running at full or near full capacity and our sales margins have improved. We have managed to convert our entire business into a palm oil-based one from the earlier reliance on a few types of oil, including soya bean oil. This is utilising our strong position in the upstream production and supply of palm oil, thereby satisfying consumers’ increasing demand for traceability, food safety and sustainability. We are especially proud of the pioneering efforts that our US-based operations have made in introducing palm oil based fats to the bakery and confectionery business in the US, the largest consumer of oils and fats in the world. This is aided by the opportune change in food labelling legislation which highlights the health risks of trans fatty acids. Today, palm oil is used by almost all the top 10 food companies in the US, whereas none of them used palm oil as recent as two years ago. 

In addition, our palm oil refinery in Rotterdam, which is a new overseas business for us, managed to achieve full capacity utilisation in just a year, about two years earlier than targeted, and has taken many multinational customers away from our more established competitors in Europe. 

 

Is your group realising profits from your overseas ventures? How much of the profits are invested overseas and how much repatriated? 

This seems to be a favourite question in view of the many failures experienced by Malaysian companies overseas. I must admit that in the early years after our acquisition of overseas businesses, we faced many challenges and had taken longer than expected to achieve the improvements that are required to bring the business to the levels of efficiency and cost optimisation that IOI Group is accustomed to. 

Nevertheless, we have been making operational profits every year after our acquisition. At the same time, we also have to put in additional financial resources for working capital and also investments for a new plant, plant acquisition and plant expansions. As a result, there have been net capital outflows to our overseas businesses during the last four years. We expect that, from next year onwards, there would be some capital inflows after allocating some expenditure for normal plant improvements. 

 

What are the prospects for your overseas business in 2007? 

We expect 2007 to be a good year for palm oil and palm oil-based products. The demand for palm oil as food will continue to grow at a healthy pace, especially in developing countries; and in the developed countries, there will be significantly higher demand for palm oil as fuel against a backdrop of limited growth in global vegetable oil supply. In the US, increasing concerns over trans fatty acids have led certain states there to start imposing restrictions on the food service sector represented by the likes of KFC, McDonald’s and Wendy’s, and that will lead to another substantial growth in demand for palm oil, although we will not be able to immediately capitalise on it as our plant capacity in the US is fully utilised. 

In short, 2007 should be a better year for our overseas business than in 2006. 

 

What are some of the interesting lessons and observations gleaned from your venture overseas? 

First and foremost, whatever overseas venture that a Malaysian company finally decides on should be similar or related to its business in Malaysia.  

A lot of Malaysian companies, especially during the 90s, believed that since they were going into an entirely new arena anyway, they could start from scratch and basically start any business that they thought was attractive and yet somehow, were not able to enter into earlier.  

To some extent, they thought that this was a golden opportunity to diversify into a business they were not be able to have in Malaysia due to the timing or the cost of owning one here. 

This is, of course, a flawed and misguided premise which has led many Malaysian companies to fail overseas. Having to learn and adapt to the foreign country’s environment and system is already a very challenging task and if one has to deal with the vagaries of an entirely new business as well, the challenge is often too big to overcome. 

Secondly, familiarity with the foreign country’s administrative and legal systems or their resemblance to Malaysia’s systems is an important success factor. In many instances, the decision to invest in a particular foreign country is based on the general popularity or general economic growth figures of that country (e.g. China and India). Not enough prior research is being done to investigate the suitability of the foreign country’s environment and systems to the particular business that a company is undertaking there. 

Lastly, understanding and adapting to the foreign nationals’ customs, behavioural patterns and value systems is also very important.  

Having said that, in the context of acquisition of an existing business, while respecting the existing business’s traditions, a change in some of the business’ strategic direction and business practices is often necessary to “revitalise” that business.  

An ownership change in the business is a good time to introduce such changes to align the acquired business’ culture and practices with those of the acquiring company and generally bring improvements to the performance of the business. 

 

THEO DE ROND  

Managing Director  

Guinness Anchor Berhad 

 

How has the consumer market been in 2006? 

Three successive years of excise duty increases prior to 2006 resulted in the malt liquor market (MLM) contracting by nearly 8% last year. This, coupled with increased fuel prices and electricity tariffs, exerted inflationary pressures and curbed consumer spending to a certain extent. This contributed further to the contraction of the MLM. 

Fortunately, the MLM was spared an increase in excise duties in Budget 2007 and this provided some relief for the market, albeit not much. The MLM does not need any more increases in excise duties next year to allow it to stabilise further as one year of relief is not enough for the market to recover. 

 

What are the challenges faced by the company in getting more sales? 

The MLM is constantly faced with the threat of an excise duty increase. This is one perennial concern and the challenge for the MLM is to address this overhanging possibility and grow the market under such circumstances.  

Malaysia, as has been repeatedly pointed out by us, has the highest excise duties imposed on beer and stout in this region and only second to Norway in the world. Malaysia should not have this dubious honour considering that its annual per capita income is US$5,000 compared with Norway’s US$40,000. 

In addition to the challenges of excise duty increases, the MLM is constantly faced with smuggling and low-price imports eating into its market. The high excise duties have made it even more lucrative for smugglers. 

I foresee the implementation of the Ninth Malaysia Plan projects strengthening domestic demand. Coupled with the good macro-economic fundamentals, like the strong private sector and the sound and accommodative monetary policy, the economy is likely to improve. However, factors such as oil price, increased electricity tariffs and toll charges may potentially take the steam out of an uptake in the consumer market. 

 

Which market segment is your priority? Are you going for new segments?  

An inherent GAB (Guinness Anchor Bhd) strength is our diverse portfolio of brands. This diversity gives us the distinction of having brands that consumers can relate to and satisfy every drinking moment. We have brands for everyone and every occasion, thus fulfilling the needs of many market segments. 

We have been constantly working on building brand equity and the focus has been to make our brands contemporary, appealing and relevant. In this context, you have seen a lot happening for Tiger, Guinness, Anglia Shandy and Malta. Through brand innovation, we introduced the Smart Tap draught beer dispensing system, the five-litre keg of Heineken draught and the limited edition 1.5-litre Magnum bottle of Heineken that saw us creating new market segments. Our brand development efforts saw the introduction of Anchor Strong to carve our niche in the higher alcohol-content beer market segment. 

Through these efforts, we managed to outperform the market, grow our market share and brand. Tiger is the fastest growing lager brand in Malaysia. Heineken is the world’s No. 1 international premium brand. Guinness is the top selling stout in the country and Anchor is a popular and growing local brew. 

Our priority going forward is to continue to satisfy consumer needs and build strong relationships with our consumers across all cross sections. 

 

What do people look for these days – bargains, gifts, discounts, memberships or holidays? Why is this happening? 

Consumers nowadays are more affluent and knowledgeable whereby they look for different brands for different drinking moments.  

At GAB, we believe in investing our time and resources in meeting our consumers' needs. Our diverse marketing and promotional activities have proven to be a success in creating a myriad of right drinking moments and experiences. Examples of these are Tiger FC, Tiger’s award-winning programme raved by football fans throughout the country, the Guinness Insider Relationship marketing programme with over 30,000 members throughout Malaysia, and the Heineken Green Room sessions. 

Tiger FC stands out for its unique concept of Tiger bringing wholesome viewing experience of top class football matches. Underscoring this is the “Best of the Best” Award 2005 by the Direct Marketing Association (DMA) of Malaysia. It also won the Silver Award at the DMA International Echo Awards. 

 

 

ANDREW BRIEN 

General Manager  

Suria KLCC Sdn Bhd 

How has the consumer market been in 2006? 

The market in 2006 has been a little more challenging. With such a wide choice for consumers to spend their hard-earned ringgit, you have to give them what they want to ensure that you grow your market share. We are happy to say that at Suria KLCC, we have been able to deliver to the consumers what they want. This is demonstrated by our strong double-digit sales growth. This growth is well ahead of the general growth of the economy and GDP. 

 

What are consumer trends nowadays? 

No matter what market segment they are in, consumers want value. Value has different meaning to different people. In retail, it could mean that they want to purchase the latest item in the store and be sure that their purchase is of high quality, whether it is for themselves, family or friends.  

Value is often represented by a brand in the consumers’ mind. With so many great brands available at Suria KLCC, we are well positioned to give our consumers value. They are also becoming more “house proud” – this means that many consumers spend more time and effort to explore home fashion and will redecorate more often than in the past.  

 

What are the challenges in getting more sales? 

The main challenge is to ensure that you understand your customers. We spend a lot of time and effort to understand them. We strive to be customer centric at all times.  

This has led Suria KLCC to continue growing ahead of competitors and be the retail centre of choice for leading retailers throughout the region. We must continue to understand our customers in order to continue the success of Suria KLCC and always offer our customers something new. 

Which market segment is your priority? Are you going for new segments? 

As I said before, we strive to be customer-centric at all times. This means that no one customer segment is a priority; rather the needs of our customers are our priority.  

Obviously our retail mix attracts certain types of customers that are interested in what Suria KLCC has to offer. As Suria has the world’s best brands in one convenient location we cater to many different segments by offering an unsurpassed range of goods and services. With regard to new segments, we will continue to listen to our customers and grow with them to ensure we satisfy them fully.  

 

What do people look for these days – bargains, gifts, discounts, memberships or holidays? Why is this happening? 

Consumers want value. This may mean a discount to one person yet a high-quality item at a regular price to another. Consumers also want great customer service. We need to continually work to improve our service. It is a focus here at Suria KLCC that we and many of our retailers hold regular customer service workshops. All of us are working longer hours and want to enjoy our leisure time to the maximum.  

When customers walk away satisfied with their purchase, it is usually because they got what they wanted, were served in the way they expected and would probably want to repeat the experience. We have over 40 million customers per year because we understand our customers today and are working to ensure we keep delighting them with the best variety of brands, in the best environment and with the best service.  

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