Furniture industry associations call on gov’t to hear concerns


  • SMEBiz
  • Monday, 06 Apr 2020

Ong believes the Covid-19 outbreak severely impacts production lines. Photo by the Muar Furniture Association.

From the time tensions over trade between the United States and China began in 2018, China’s furniture exports to the United States became subject to tariffs of up to 25% by 2019, prompting many manufacturers to shift their positions to set up factories in Malaysia, followed by numerous buyers who have transferred orders to Malaysia.

This is the view of Muar Furniture Association (MFA) president Ong Yeou Huan, who, together with numerous other representatives from the association plus similar other associations, is hoping to have the concerns of the furniture industry heard by the Malaysian Government in light of the unexpected impact of the Covid-19 pandemic on businesses.

“Last year, the total value of Malaysian furniture exports contributed nearly RM10 billion to the country, ” said Ong, adding, “80% of Muar’s furniture industry comprises mainly small and medium enterprises (SMEs). The industry contributes nearly 60% of Malaysia total furniture exports to the country per year.”

As one of the beneficiary countries under the trade war, Ong said, the association had originally expected that the total export value of furniture this year could reach RM12 billion.

However, the Covid-19 outbreak has highly impacted production lines, and various industries are also in a bleak business situation. Ong believes new orders cannot be obtained immediately even after the epidemic passes.

Additionally, as the world is affected by the epidemic, Ong feels overseas buyers are temporarily unable to place orders. “As a result, the prospects are dim, ” he says, “and we employ many foreign workers, but the government has not considered the livelihood of workers in the Bantuan Prihatin National (BPN) stimulus package. Hence, the responsibility for these workers is fully undertaken by furniture manufacturers. This will only worsen the economic situation of the manufacturers. The operators will face export problems, decline in orders or failure to deliver on time. I believe that a wave of closure will occur within these few months.”

Ong is also of the view that as the furniture manufacturing industry in the past 40 years has formed a huge industrial chain in Muar, if the government does not aggressively and actively launch a plan to support enterprises, decades of industry “will be ruined.”

He cites a recent survey report conducted by MFA about the furniture industry which shows that the cash flow of 48.5% of the operators means they can only cope until March 2020; 37.9% of the members stated that they would lose RM1 mill to RM5 mil in the next six months; 91.3% of the members indicated that the government's BPN could not aid the industry to maintain their business, and 95.1% of the members predicted that these companies would face losses in 2020.

Ong says as the government is not providing a useful and powerful BPN for SMEs, 44.7% of the members will persuade employees to take voluntary salary reduction, while 41.7% of MFA members say they will lay off employees or reduce their employment, even as 61.2% of the members provide salary in advance or allowance in the period of factory shutdown, and 58.3% of the members stated that they would not send back of foreign workers after the movement control order.

Neo believes companies can make full use of technology to address certain issuesNeo believes companies can make full use of technology to address certain issues

For MFA executive advisor Neo Chee Kiat, the view is that furniture manufacturers must face the challenges brought by the epidemic, with practical actions.

“We are facing the transformation of electronic technology or e-commerce, ” he says “If we can make a full use of technological convenience, it will reduce dependence on cash, foreign labour and various manufacturing fields’ cost burdens.”

To withstand the epidemic, says Neo, besides stabilising employees, “We must also change our thinking model, seek innovation, and pay more attention to action and efficiency. To make team goals consistent and positive, as employees are the first element. Therefore, it is necessary to take care of the psychology of all employees, ” he says, “so that employees maintain a positive attitude and work. In practice, we should always track and share some of the latest policies and information, formulate related action plans, reduce unnecessary costs, enhance understanding of the current market situation and customer conditions, prepare for the formulation of corresponding action plans, and look for new business opportunities.”

Although the government has implemented the economic stimulus package to promote the sustainable development of the country, Neo thinks that industry players should be brave enough to innovate and accept challenges. “Businesses not only need to be mentally prepared to face future economic shocks, they must also be fully prepared to ensure that the business is sustainable.”Tan believes that the epidemic has exposed many industries to challengesTan believes that the epidemic has exposed many industries to challenges

MFA executive advisor Desmond Tan Boon Hai chimes in with the view that the epidemic exposes many industries to unprecedented challenges, and the furniture industry is no exception. In addition to losing revenue due to the MCO period, Tan feels it will face a severe decline in future export orders. “If the government does not send charcoal in the snow, ” says Tan, “bankruptcy is very likely to happen.” The Muar furniture industry has been developing the last 30 years, with, originally, a bright outlook. However, if the epidemic causes extensive damage without government policy and economic aid, the effect on the development and survival of the industry, is as unpredictable as the impact on the local economy. “It is hoped that the government can pay attention to the difficulties faced by private enterprises, ” he added, “especially by SMEs, and provide resources to assist affected enterprises as soon as possible.”

In addition to helping the business community to survive, while retaining the jobs of the majority of employees, Tan hopes for the government to provide SMEs with benefits post-epidemic, to restore vitality and provide more favourable business policies. For example, more flexibility for foreign labour policy in the furniture industry, so that permits can be obtained in time, better controls, and official approvals simplified to reduce resource wastage.Eng hopes the government can help SMEs in this difficult timeEng hopes the government can help SMEs in this difficult time

In Muar, says MFA deputy president Eng Chong Yeu, the strong relationship between 650 sub-contractors and 150 main contractors is a key factor in Muar's success. Among these SMEs, 81% of sub-contractors have annual revenue of less than RM2 mil and employ 20-50 employees, producing furniture parts for main contractors, and salaries account for 40-50% of company expenses. “If these SMEs still need to pay their employees full salaries without any revenue, they will face a situation of ineffective capital turnover and fail.” Their failure will then indirectly affect the Muar supply chain which depends mainly on exports.

“Because in Muar, ” adds Eng, “the sub-contractor is regarded as the main party that helps main contractors share the tedious processes in processing, ensure quality, and shorten the time from raw materials to shipment. This allows main contractors to focus on finding and taking more orders.” If sub-contractors "crash", says Eng, the entire market will be turbulent, as companies need to bear huge costs for procurement, warehousing, and inventory, leading to the rapid accumulation of inventory, the continuous depletion of the capital chain, and the continued decline of the market, overwhelming the enterprise. “It is hoped that the government can help SMEs through this difficult time, ” said Eng.

Goh feels SMEs have been overlookedGoh feels SMEs have been overlookedMFA secretary-general Goh Song Huang feels the government’s RM250 billion Bantuan Prihatin National (BPN) has not targeted SMEs to help them overcome the difficulties, especially the Muar furniture industry in which about 80% are SMEs.

“The government's RM600 assistance for employees is more favored by individuals and civil servants, and it does not include foreign workers, ” says Goh. “This will seriously increase the burden on employers, because in the furniture industry, foreign workers account for most of the total number of employees. Since it is necessary to assist businesses and SMEs, the government should revise and improve the relevant revitalisation packages and assist all employees equally, ” he says. “Otherwise, there may be a wave of layoffs and even a collapse of enterprises in our country in the future.”

With the Covid-19 epidemic spreading across the country and many suffering, Goh predicts our economy will decline in the first quarter, while the global economy will also be impacted. “The epidemic and outbreak pose great challenges to related industries and companies' first-quarter and even annual performances, ” Goa says. If the resumption of work in the furniture industry chain is delayed, he shares, a company's order delivery and acceptance in the first quarter cannot be carried out normally. Both revenue and profit fall sharply, and the company's cost and expense ratio rise, which negatively affects the company's production and operations.

Goh also fees because of the movement restriction, with consumers staying indoors, there will be a huge blow to the world economy. “After all, there is no production without consumption and no orders, ” he says. “The furniture industry, which is heavily dependent on the export market, will bear the brunt.”

Sin feels the stimulus package does not take employers into account Sin feels the stimulus package does not take employers into account

While the economic stimulus package proposed by the government benefits employees, MFA deputy secretary-general Sin Wi Sern feels it does not take into account employers. “The furniture manufacturing industry is closely related to the machinery enterprises, ” he says, and “the outbreak has had a lot of impact on the woodworking machinery manufacturing industry and the furniture industry in the short term.”

On the one hand, he adds, part of the upstream supply chain is blocked, and it is difficult for machinery companies to resume full production; “On the other hand, the furniture industry is delayed, and the short-term operating pressure of downstream customers is increasing, while some new orders are on the sidelines, ” says Goh.

Although most furniture industry firms has paid deposits for the procurement of machinery, the epidemic has delayed the resumption of furniture manufacturing in various places, and despite the lack of income, wages and social security still need to be paid, along with repayment on procurement.. “The machinery trading industry may face the risk of overdue repayment by customers, ” adds Sin, “affecting the revenue of the entire quarter.”

He predicts the numbers of new orders in the machinery industry to decline, as customers wait and consider. “The furniture industry's resumption time is uneven, coupled with factors such as traffic control and logistics obstruction, some production materials cannot be in placed in time, and some orders in hand cannot be produced as planned.” Under such economic instability, he believes, orders to purchase machinery will fall significantly in order to reduce expenses and costs.

Yau says that SMEs need to be considered in the economic stimulus packageYau says that SMEs need to be considered in the economic stimulus packageThe association’s treasurer, Chris Yau Kok Siang, recognises the government's economic stimulus package benefits citizens, but wonders if it has overlooked the need to implement corporate support packages, and feels it should take care of SMEs too.

“Each enterprise has many long-term sources of income for the local people, ” says Yau, “and SMEs have not been operating and earning income during the movement control order, but they still have to pay company loans, personal loans, rents and salaries.” Once the company faces economic difficulties and collapses, he adds, and if the company cannot survive, it will result in layoffs of its employees. “The domino effect will cause more people to lose their jobs and cause more social problems.”

Batu Pahat Furniture Association president Lim Hee Tiang echoes Yau’s view that the economic stimulus package “has ignored SMEs.” Lim goes on to emphasise that SMEs are the backbone of economic growth and employment opportunities in the country.

Lim says SMEs are the backbone of economic growth in the country Lim says SMEs are the backbone of economic growth in the country

“The extension of the MCO by another 14 days to 28 days means SMEs were barred from operating, but salaries and other expenses had to be paid. This has brought a heavy burden on the cash flow of SMEs, especially since wages account for a large part of the operating costs of SMEs. If this situation continues, we expect that many SMEs will not be able to continue operations, ” says Lim.

The wage subsidy of RM600 in the stimulus package requires that revenues fall by more than 50% from January 1,2020, says Lim, “which is completely unnecessary.” He adds that the 28-day absence of business will “definitely have an impact on the finances of most SMEs; RM600 per worker and three months of income are not enough to cover the wage costs of SMEs, so we urge the government to remove the “revenue drop by more than 50%” condition and modify subsidies to cover the total wages of each affected SME. The percentage is at least 50%-80%.”

Another condition that needs to be cancelled, he feels, is that the employee must be a user of the employee insurance scheme (EIS). “We must emphasise that wage subsidies are designed to help SMEs overcome this difficulty so that they can continue to survive and provide employment opportunities. Whether an employee is an EIS user should be ignored.”

He urges the government to allow employers and employees to make arrangements to offset half of the working day with unpaid and annual leave within 28 days of the effect on employees' actual wages.Ng hopes the government can grant tax and sales tax deductionsNg hopes the government can grant tax and sales tax deductions

From the perspective of the furniture retailer/ manufacturer/ manufacturing industry, says Johor Baru Furniture Association president Ng Chien Hsing, “We expect that after the opening of sales, we will face fewer Singaporeans inbound consumption.” He hopes that the government can grant various tax and sales tax deductions to ease the impact on businesses in the next few months.

“The retail industry is facing the greatest pressure, ” says Ng, for the period without sales in the future. During this period, most employers lose their order of importing and exporting to Singapore and the completed goods could not be delivered as scheduled, resulting in the order on hand not being completed as expected, the economy being unfavourable, and the buyer may cancel the order. “Therefore, ” he adds, “it is suggested that for six months, SST be suspended, that there is reduction of electricity charges, an exemption of import tax on goods/ accessories, plus free commercial assessment 2021, and subsidies without clauses to help SMEs, ” he said, hoping this will enable factories to resume work and avoid order cancellation.

During the movement control period, local employees and foreign workers are required to be paid full salaries. “The government has stipulated that they cannot lay off workers or allow employees to take unpaid leave, ” he noted. “The so-called subsidies provided by the government are just the tip of the iceberg. It is hoped that the Levy of foreign workers (Levy) can be reduced to 50% (for one year) and other related expenses such as simultaneous reduction of GST from 6% to 3%. It is hoped that the government can consider this, ” said Ng, “from the perspective of manufacturers, the government and employers, and that each employee is paid a third of the salary or is open for discussion with employers to replace it with annual or unpaid leave.”

Ng hopes that more economic packages can be issued loosely to help SMEs, “to harmonise corporate finance, ” he says, “in addition to processing salaries, corporate finance can also handle supplier payments, because presently some companies use this as an excuse. This is very unhealthy.”

Goh urges the government to ‘loosen the conditions for loans’Goh urges the government to ‘loosen the conditions for loans’

For the Kluang Furniture Manufacturers and Traders Association president Goh Then Sing, the subsidy measures proposed by the government should loosen the conditions for loans. “Interest should be reduced from the original 3.5% to a minimum of 1%, ” he said, adding, “major companies have always paid taxes, and the government should assist in this extraordinary period. At the same time, the factory rent is automatically reduced and special benefits or tax deductions are given to the owner to achieve a win-win situation.”

Echoing the fact that most SMEs still need to pay salaries, utilities and other expenses, taking into account the sharp drop in sales, Goh said “It is hoped that special discounts will be given during this period; during the movement control period, operators cannot lay off workers, so we believe that July to September will be the biggest challenge, as the wave of layoffs will come. I hope that the government can pay attention to enterprises to avoid facing economic losses.”

For the Kluang Furniture Manufacturers and Traders Association president Goh Then Sing, the subsidy measures proposed by the government should loosen the conditions for loans. “Interest should be reduced from the original 3.5% to a minimum of 1%, ” he said, adding, “major companies have always paid taxes, and the government should assist in this extraordinary period. At the same time, the factory rent is automatically reduced and special benefits or tax deductions are given to the owner to achieve a win-win situation.”

Echoing the fact that most SMEs still need to pay salaries, utilities and other expenses, taking into account the sharp drop in sales, Goh said “It is hoped that special discounts will be given during this period; during the movement control period, operators cannot lay off workers, so we believe that July to September will be the biggest challenge, as the wave of layoffs will come. I hope that the government can pay attention to enterprises to avoid facing economic losses.”

Chia hopes for more support for SMEs from the governmentChia hopes for more support for SMEs from the governmentSegamat Furniture Manufacturers and Traders Association president Datuk Seri Chia Ling Suang feels that as most of the furniture industry in Segamat is retail and retail sales, “The government did not provide much subsidy to the remedial economic measures proposed by them, ” adding that “We still need to pay full salary, rent and other items without income -- expenses are definitely worse for our merchants.”

He hopes that the government “will give us more support to help our SMEs, and I also hope that the government can adopt more policies of neighbouring countries to help various industries.”

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