Malaysia is highly dependent on international trade. Therefore, it is vital for it to stay in touch with the global trends. One of the growing trends is a shift towards sustainability. What does this mean to Malaysian companies already exporting or planning to go global?
Sustainability in the local context
In one of the meetings, the Malaysia External Trade Development Corp (Matrade) organised recently, an industry representative asked a very simple but important question – “What does sustainability really mean? What does this word mean to us businesses?”This is a simple yet a very relatable question to majority of Malaysian companies especially the small and medium enterprises (SMEs) and mid-tier companies (MTCs). There seems to be a disconnect in the understanding of sustainability and its relation to running a business among Malaysian companies. Based on our conversation with the local companies there are still many who perceive sustainability as a far-fetched goal and to quote some “too high-end for me”.
Sustainability in business means the company’s management, operation and financial efforts are focused on ensuring the company is responsible towards the environment, social and is ethical too. These characteristics of environment and social responsibility as well as good governance, collectively form the three central factors that define a company’s practice of sustainability – also known as ESG or environment, social and government. They are sometimes referred to as the triple bottom line. Such a concept is the complete opposite of conventional motivation in doing business which focus solely on making profits.
Sustainability for Malaysian exports would mean products that are deemed to have been produced by businesses which are more responsible for protecting the environment as well as prioritising the interests of the safety and welfare of stakeholders involved, including its customers, its employees, its vendors as well as the community at large. The lack of awareness of sustainability among Malaysian companies is quite apparent given the low interest shown by SMEs to embark on sustainability. Unlike the publicly listed companies that are required to submit their sustainability report to Bursa Malaysia, there is no requirement for the 98% of Malaysian company population in Malaysia, to engage in sustainability reporting. Hence, it is no surprise that the “bigger boys” are more accustomed to sustainability compared to the SMEs whose reporting are on voluntary basis. This lack of understanding in sustainability can also be seen through what the sustainability experts termed as “greenwashing” or “SDG-washing” among the SMEs. These are terms associated with companies that think sustainability is achieved as soon as their brands invest in activities such as tree planting or any other CSR initiatives. Hence, it is important for companies to remember that key pillars of sustainability are the ESG and not limited to a one-off event. The substance is key in this respect.
However, there are a number of Malaysian companies that get this definition right. In fact, their core business stands by sustainability. One common trait that these companies have – they are serving the global market place.At our recent Sustainability-Ready Exporters (Su-RE) Conference 2019, we hosted more than 500 participants, mostly SMEs who are keen to understand more about sustainability and its value for their export business. A survey we conducted for the event found that 48.4% of the respondents have adopted sustainability efforts while 51.6% of the companies have yet to do so, of which 32.9% from this intend to adopt sustainability in the near future.
Sustainability as a strategic advantage international trade
Currently, the world looks to the United Nations (UN) for sustainability standards and the UN has in 2015 introduced the “Sustainability Development Goals” or the SDGs as a reference for the world community to understand sustainability parameters. There are 17 SDGs listed and businesses can champion any of the SDGs, whichever that is most relevant to their business.
Malaysian exporters are now faced with having to deliver assurance of meeting the standard of ESG to convince buyers from around the world that their products and services meet the requirements of sustainability. This has never been more pertinent as we have seen a growing number of reports of shipments being denied entry into certain markets. Interestingly, a global survey done by the New York based research body Cone Communications has revealed, in its Ebiquity Global CSR Study, that 91% of global consumers expect companies to do more than make a profit, but also operate responsibly to address social and environmental issues. Apparently, 84% say they seek out responsible products whenever possible. While 90% would boycott a company if they learned of irresponsible or deceptive business practices.
These are strong indicators that highlight the need for us to future proof our businesses, failing which we can face the risk of being left behind in the global marketplace!
In the 70s, when Malaysia began having Multi National Companies investing in the country, the Malaysian industries benefitted from the various technology and knowledge transfer from the investments. This in turn in the 80s, have increased their capabilities and the booming local industries were able to increase their outreach beyond the domestic market, to reach the overseas market. Our manufactured goods were of good quality and were competitively priced too. Then come the 90’s, our industries became more adaptive to new technologies and the 2000s saw our industries started investing in eCommerce. Malaysia’s transformation over the years was exemplary and we were made a benchmark by many Asean partners.
Fast forward to today, we realised that we can no longer compete merely on quality and price. Companies need to remain relevant and future proof their business. Exporters need to transform themselves into a pool of exporters who adhere to sustainability and make sustainability a value proposition for them to remain relevant in the long run.
Matrade’s initiative to drive growth in sustainability
Realising the need to prepare Malaysian exporters for this future trend in business, Matrade has embarked on an affirmative action plan to build sustainability as a focus for Malaysian exporters. Simply called Save – or Sustainability Action Values for Exporters. The programme was launched on Oct 9,2019 and is essentially designed to support the drive of our businesses to be sustainability-ready.
The strategic approach is to focus on a partnership programme whereby Matrade bridges our SME exporters with an expert panel of role players to help build the capacity of our exporters. This will include mentoring, training and knowledge sharing through conferences, training programmes and workshops. This may seem like an ambitious programme, but it is in fact a structured five-year plan to be followed by business matching with global buyers, Awards and an introduction of a National Mark.
It must be established that Matrade’s Save programme is very much aligned with the government’s Shared Prosperity Vision (SPV), which is the focal point of the next phase of the national economic development plan, the 12th Malaysia Plan. The bulk of this plan strongly correlates with the 17 SDGs by the United Nations (UN). The government is one of the signatories to the UN’s Agenda 2030, which is a commitment by signatory nations to strive towards achieving the 17 SDGs by year 2030.
Through Save, we are working with the Government agencies, UN Agencies and sustainability experts as well as financial institutions to organise a series of exporters capacity building programmes for SMEs in the area of sustainability. The capacity building activities will be open to companies who are registered with Matrade and aim to boost the understanding of risks in sustainability among exporters as well as areas to overcome or mitigate these risks so companies can come up with solutions for their businesses. We hope through these efforts, Malaysian exporters’ understanding of sustainability will not only be enhanced but well-guided too. Upon achieving this, they must then work on their own business action plans and be certified and recognised by various globally-recognised standards. There are more than 230 standards around the world such as EU Eco Label, Energy Star, Fair Trade, Better Cotton Initiative and at our homefront there are Sirim Eco-Label and Sirim Life Cycle Assessment. Interestingly, there are also nine halal standards recognised by the International Trade Centre Standards Map that focus on sustainability.
I am optimistic that with more interest shown by Malaysian companies to adopt sustainability, more facilitation from government Agencies will be introduced. At Matrade, local sustainable businesses can always utilise our market development grant or services export fund to access the world markets. These facilitations are also open to all eligible Malaysian companies.
It is equally important for SMEs and MTCs to make sustainability reporting a must for their business. Currently, there are a few benchmark reporting available such as global reporting initiative (adopted by listed companies), SDG action manager partnership and future fit. Currently, Matrade is in discussions with the UN and a few sustainability experts to identify a reporting template most suitable for our Malaysian exporters. We are also exploring the possibility of incorporating sustainability reporting in our very own exporters readiness assessment test.
Matrade places special emphasis to Malaysian SMEs in all our programmes. Inevitably, they will be a little slower to adopt sustainability, due to lack of awareness, as well as a tendency to be more wary of adoption of new process for fear of additional expenses. On this point, I would like to urge the SMEs that investment in sustainability does not necessarily mean coming up with something that is entirely new, but it can be about adding value to what they already have in place. Think of it this way –with or without sustainability, money will be spent. The difference is; should they move towards sustainability, they are spending the fund differently – on sustainability efforts that is. The Save initiative is being designed with an end objective to re-position Malaysia’s branding and that is it being a source of sustainable products and services for the world.
Opportunity for Malaysian exporters
Malaysian exporters play an integral role in the global supply chain for products and services. Our SMEs are well-known suppliers to international B2B buyers, as we are regarded as a reliable source of quality products with a strong price advantage.
Building on this value is the opportunity to drive towards penetrating new market segments that demand sustainable products. Among the high-value sectors where our exporters are able to translate inherent strengths into competitive advantage includes oil and gas, building and construction, plastics, renewable energy, aerospace, halal and automation – among others. We have observed a strong demand for sustainable products and services from high-value markets namely the developed nations.
At our recent Sure conference, Callum Chen from Malaysian Plastics Manufacturer Association who was one of our speakers at the event shared that plastics has always been attributed to be one of the “villains in the pack” as being an industry that contributes toward pollution of the natural environment as well as causing harm to marine life. However, he shared that our Malaysian plastics exporters have been able to carve out an area of growth by promoting the platform of the “circular economy”, which prioritises the use of recyclable and reusable plastics in place of single-use plastics. The latter being the harmful polluting material. By extension, our plastics industry, by prioritising the circular economy, has also been able to position its members, Malaysian plastics exporters, as valuable players in the global markets for related industries as well, including the use of plastics in automation and aerospace.
The demand for new green energy is also serving as a pivot for Malaysian exporters who have built their business through years of investment in R&D as well as product innovation. This includes solar panel manufacturers, renewable technology that produces energy from waste, hydrogen fuel cell suppliers as well as bio-fuel suppliers.
Sustainability will also be the hallmark for our halal industry. Malaysia is well-established as a global hub for the sourcing of Halal products and services. It is a fact that many of the key values of halal certification is consistent with the 17 SDGs.
Sustainability promotes responsible businesses and good practices that emphasise responsibilities towards the environment, social and governance. Halal and sustainability when practiced together will lead to the Halalan Toyyiban lifestyle and we need to articulate this to the world through efforts such as Matrade’s Malaysia International Halal Showcase (Mihas) that is set to take place from April 1-4,2020.
This is indeed a very relevant alignment, and it is a strong advantage for our halal exporters to also position themselves as suppliers of sustainable products and services.
Driving new market growth
Clearly our nation’s path towards the sustainability agenda will be a most challenging one. We are focused on the process and investments that are needed to instigate our SMEs to start actively embracing the agenda. Balancing immediate business needs with longer-term strategy can be tricky. Often the short-term issues take precedence, with decision making for the future postponed to less challenging times. However, Matrade is inspired to see the level of enthusiasm and readiness by many of our SME exporters to start taking active steps toward the sustainability agenda. It is very heartening to see business owners and CEOs of many SMEs starting to take cognitive action about the important role that business can play in addressing environmental impact, social challenges and improving national outcomes. Slowly but surely, it’s becoming the new normal for businesses to move towards sustainability.
This is the way to create resilience for businesses and for the growth of our nation. As we usher in the new year, let’s all think about this seriously and join forces to make good things happen.
Datuk Wan Latiff Wan Musa is CEO of Matrade. The views are the writer’s own.
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