Timber in the phase of ‘slowbalisation’

Lee Heng Guie said Malaysia’s economy was moving towards the early stages of the recovery phase after having stabilised from the initial “demand and supply shocks” on the onset of the pandemic,

KUALA LUMPUR: Economies around the world are no longer operating in a benign environment where global trade was somewhat predictable.

Since the Covid-19 pandemic, business-related uncertainties have been hurting profit margins as globalisation gives way to “slowbalisation.”

The Malaysian timber industry, which benefited immensely from globalisation over three decades, needs to transform its business operations to one that centres on digitalisation, technology, innovation, and branding, if it is to maintain its stake in the nation’s economic pie, said Malaysian Timber Council (MTC) deputy CEO Wong Kah Cane.

Wong was speaking at an Economic Affairs webinar on Oct 8, organised by the Council.

The webinar also featured award-winning economist Lee Heng Guie. Lee is executive director of the Socio-Economic Research Centre (SERC), the think tank of the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM).

Lee said Malaysia’s economy was moving towards the early stages of the recovery phase after having stabilised from the initial “demand and supply shocks” on the onset of the pandemic.

Lee, in his presentation titled “How The Timber Industry Survives The Covid-19 Crisis?”, said that although global economic recovery was underway, the strength of recovery was dependent on the future path of the virus, how well it is being contained and the availability of a vaccine.

“The downside risks continue to outweigh the upside risks. When we track high frequency indicators like Global Purchasing Managers Index for the manufacturing and services sectors, retail spending and labour market conditions, there are signs of stabilisation and early recovery but the rising number of Covid-19 cases are a cause for concern, ” said Lee.

In terms of global inflation and interest rates, Lee said central banks all over the world will keep interest rates ultra-low or even at a negative until the economy gets back on track.

He also outlined major risks that may dampen global recovery which are the US presidential election on Nov 3; renewed lockdown measures worldwide; premature withdrawal of fiscal stimulus and the accommodative mode of central banks; sudden reversal of investors’ positive optimism towards the stock market; the US-China trade tensions and geopolitical upheavals.

He also added that it was crucial to watch the path of the US dollar as the currency has a major impact on global financial markets and industries. He said central banks around the world have a substantial amount of the US dollar in their foreign exchange which would influence financial flows and asset returns.

Lee added that Asean would continue to consolidate its economy though many member countries have slumped due to the pandemic. However, there are rising stars as Vietnam, Indonesia and the Philippines are showing great economic potential.

He said Malaysia’s GDP will decline by 4.0% this year with an anticipated rebound in growth of 5.0% in 2021. However, should the number of Covid-19 cases spike and lead to a wide scale targeted Conditional/Enhanced Movement Control Order, the GDP is expected to further decline between 4.5% and 5.0% this year.

The pace and strength of economic recovery will also depend on the confidence of consumers, households, and businesses as to how well the Covid-19 virus is being contained and how soon a vaccine will be available.

Lee said the timber industry, which was operating even during the MCO, had benefited from the increase in demand for home improvement-based products.

However, he said it was more important for the timber-based manufacturers to focus on long-term gains rather than the short-term demands.

Lee added that it was vital for industry players to produce more sustainable products and incentives should be provided to encourage the manufacture of such products.

He also highlighted the need to promote the adoption of digital technologies that focus on improving data access and using Big Data analytics to strengthen business operations.

Wong said timber industry players were not ready to embrace IR4.0 or digitalisation as much as they should be, which prompted MTC to conduct a study on ICT readiness among timber-based companies.

MTC had commissioned SERC to conduct the study and preliminary findings showed that only 22% had placed digital technology as a top priority for growing their business while 57% considered innovation and digital technology as important but not urgent.

These manufacturers, however, agreed on the benefits of e-commerce but only 25% had integrated it into their business model.

It was also found that there was a digital gap between the founder and successor as most of these timber-based companies were family-owned. Wong said the lack of a succession plan that involved technological advancements was devoid in these companies and this was a turn off for the younger generation to continue the family business.

Wong said MTC has carved out a three-year business transformation plan from 2021 to 2023 that centres on business continuity.

“The timber industry is considered a manufacturing sector and yet you can hardly find engineers in the factories. The middle management in these companies must have the right talent pool to elevate the operation processes to boost growth and business for the timber sector, ” said Wong.

He added that in the past, one of the main ways of securing businesses was by visiting trade fairs but with the pandemic, this was no longer possible. “We are now looking into online exhibitions. However, we are not being overly ambitious at the moment as not all timber-based products can be taken onto e-commerce platforms but at least, we can prepare these companies to showcase smaller products online, ” he said.

Wong said MTC is willing to help manufacturers who are keen on transforming their business operations.