THE grass always looks greener on the other side. But is it? Spurred by the success of others, it is natural for Malaysian firms that have not taken that step to venture abroad.
However, depending on timing, market conditions and many other factors, success is not always guaranteed.
In 2005, plastic injection company Hil Industries Bhd managing director Milton Ng was toying with the idea of expanding operations to China.
Hil was already in the process of going high tech by venturing into the advanced plastic injection moulds segment, with a focus on the information technology (IT) segment.
Back then, Hil was serving multinational companies (MNC) and local clients when Milton noticed MNCs in Malaysia were moving to China.
“At that time, we wanted to support our client Ericsson but we also observed the trend of MNCs going to China . . hence the huge potential of serving their needs there,” he says.
Hil started operations in Suzhou, China in the third quarter of 2005. The foray paid off two years later when full operations kicked in. By 2008, Hil’s sales figures had doubled from what it achieved in 2005. For its year ended Dec 31, 2008, Hil delivered a record net profit of RM27mil, almost four times more than the previous year’s RM7.76mil.
For its second quarter ended June 30, net profit increased 12.96% to RM9.7mil. on the back of a 35.16% increase in revenue to RM42.39mil.
Hil today has a net tangible asset of 89sen and cash of RM31.84mil in its coffers.
Milton’s brother, executive director Malcolm Ng, says this was due to the continuous demand for IT products despite the global recession.
“Another catalyst was when Hil started producing personalised plastic tops for Dell in end 2007,” says Malcolm.
This segment is now growing and contributing close to US$1mil per month in revenue. Hil at present has two plants in Shah Alam and one in Suzhou, China.
Its latest factory in China began operations in March this year, and will be running at full capacity by the end of the year.
Since the commencement of its second factory in China, product orders have increased by an additional 30,000 to 40,000 per month.
Based on indicative orders, analysts say earnings should pick up, with the personalised laptop orders by Dell being the key growth driver.
“We’re getting orders every week. So far, we’ve bought 15 injection mould machines for our new factory and this is likely to increase to 100 machines by end 2010,” says Milton.
“With the second factory up and running, Hil should be able to match, if not exceed, last year’s earnings,” says an analyst who tracks the company.
A company that has done well abroad is chipmaker Unisem (M) Bhd. It ventured into China in 2005 and spent the next two years investing in capacity and buying over competitor Advanced Interconnect Technologies Ltd.
Unisem’s efforts appear to be bearing fruit. Due to rising demand, Unisem’s Chengdu operations is expected to double its production capacity by the fourth quarter of 2009. In line with this, research house UOB KayHian expects a 110% increase in net profit by 2010.
Currently, the demand from China-based customers for its integrated circuit assembly and test services have been robust, accounting for about 50% of Unisem Chengdu’s revenue.
Having achieved economies of scale, the group’s margins should improve significantly in the third and fourth quarter reflecting improved utilisation rates, as well as stable average selling prices and raw material costs.
Another success story in China is Lion Group’s retail gem, Parkson Holdings.
Its Hong Kong and China operations have been key growth drivers over the past few years, contributing 69% to Parkson’s earnings, while Malaysia and Vietnam contributed 27% and 4% respectively for financial year ended June 30, 2008.
Not surprisingly, Parkson’s 53%-owned Hong Kong listed subsidiary, Parkson Retail Group’s (PRG) first half to June 30 net profit of RMB462.1mil was within consensus estimates.
“PRG’s huge customer base, strong brand name, and favourable domestic consumption are able to sustain future growth. China’s total retail sales grew 15% to RMB 5.87 trillion in the first half of 2009,” says MIDF Research.
China’s retail sales are expected to be higher in the second half due to the government’s RMB 4 tril stimulus package.
Following the recovery in the economy, Parkson’s management will scale down discount activities and focus on providing better products. It also plans to remodel its stores in order to offer an improved shopping experience for customers.
Dialog Group started expanding overseas in the 1980s focusing on the Asia Pacific region.
The oil and gas integrated specialist and technical services provider also has a presence in Europe and the Middle East. They went over there two years ago. They headed to the USA at the end of 2008 and South Asia/Africa a year ago.
Its global business currently contributes about 50% to group revenue.
For the year ended June 30 (FY09), Dialog’s net profit rose 22% to RM92.2mil while revenue hit RM1.10bil; a jump of 39.7% year-on-year.
Chairman and group MD Ngau Boon Keat says the group’s aim is to continue strengthening its global presence by growing its business in existing markets and penetrating new ones.
He plans to grow the group’s catalyst handling services overseas in Europe, the United States, the Middle East and South Asia.
The division contributed about RM47.7mil to revenue in FY09. Ngau admits that challenges abound for companies venturing overseas. It is crucial to learn the local laws and regulations as well as adapt to each country’s ways of doing things – its culture and business dealings.
“We try to work with local partners and adapt to local conditions. Our twin success factors – we are mindful of the sensitivities of the locals and we have the technology,” he says.