Lim Wing Hooi reports on the story of how a 58-year-old Malaysian biscuit company’s success came on the back of lessons learnt the hard way
SOME people start a business due to a passion or the simple belief that an enterprise has the potential to become a multi-million dollar business one fine day.
But whether that belief becomes reality is dependent on foresight, vision and sometimes luck.
Having said that, nothing is as solid a principle as financial prudence, and being respectful of the society one operates in.
This is the case with a homegrown brand that started in the Malay village of Parit Linau Kecil, Bukit Pasir in Batu Pahat, Johor, in late 1950s,
Four brothers of the Kerk family, and another partner, decided to pool together RM1,500 to start a business using vans to go from town to town to sell confectioneries such as biscuits.
They formed a partnership called Hup Seng in 1957, and the following year rented a 1,500sq ft shop lot in Batu Pahat, where they began “research and development” for the biscuit company that is today one of the most enduring brands in the country.
That early venture is described as a stepping stone by Datuk Seri Kerk Choo Ting, chairman of what is today known as Hup Seng Perusahaan Makanan (M) Sdn Bhd (HPSM).
Choo Ting says the company’s early days of operating from a village with more than 100 Malay families and only seven Chinese greatly influenced how the company worked and grew. The company officially became HPSM in 1974 and expanded its biscuit production facilities.
“We were respectful of the ‘pantang larang’ of the Malay culture and our biscuits were ‘halal’ from day one,” he tells SMEBiz.
He readily admits the recipes used when the company decided to manufacture its own biscuits in 1964 were influenced by the varieties of kuih that he had tasted during Hari Raya.
“We began by testing different amounts of flour, sugar, palm oil and other ingredients to come out with our first cream crackers which were sold mainly to sundry shops which would then sell them to consumers,” he says.
The company went on to win Malaysian taste buds with its Cap Ping Pong cream crackers, which first came out in 1958. The crackers were so named because that happened to be the year that China became table tennis world champions.
HPSM, which was set up to produce biscuits, is today part of the listed entity Hup Seng Industries Bhd. Hup Seng Industries was listed in 2000 and is headed by Choo Ting’s brother, Datuk Kerk Chu Koh, 72.
The name Hup Seng, which means “unity is success”, mirrors how the company continued to thrive during challenging moments of its long history.
Today, two generations of the Kerk family work together with hand-picked professionals to look into the development of new biscuit recipes, sales, logistics, packaging and other aspects of the company’s operations.
Choo Ting, a former Deputy Agriculture and Agro-based Industry Minister, added that the company faced financial turbulence several times. One instance of this was the heavy cost of setting up a five-acre factory in Tongkang Pecah, Johor, in the early 1980s.
The commissioning period and the time it took for the factory to start generating revenue was longer than expected. The company had to continue paying the interest on loans while there was no new income. On top of this, suppliers shied away from the company because of its difficulties.
In all of this, lessons learnt from Choo Ting’s grandfather, who took on debt to purchase land and invest in infrastructure for a plantation in Batu Pahat between 1929 to 1931, served as a reminder of how badly things can go wrong.
“My grandfather was not able to service the debt and with a sharp collapse in commodity prices, most of the land was eventually auctioned off during the Great Depression of the 1930s. We learnt that some times hard work has no bearing on success. Vision plays a more important role,” he says.
And history repeated itself. During the collapse of commodity prices between 1985 and 1987, Choo Ting said the company almost failed due to its debt burden. Financial difficulties arose due to the inability to generate enough cash to repay the loans the company had taken.
“The first step we took was to recapitalise the company. This included all of us selling off our personal assets such as plantations, cars, houses and any other assets and pumping the money into the company to reduce our debt,” he says.
“Secondly, all earnings were ploughed back to the company until around 1990, when the company’s gearing became zero.”
Choo Ting, who reads widely, says he also learnt lessons from car manufacturer Toyota Motor Corporation’s playbook.
According to its latest balance sheet, the Japanese company has cash and cash equivalents of over US$18bil (RM77.3bil). It’s said Toyota keeps a healthy cash reserve on hand after having gone through the experience of laying off workers due to an economic downturn in 1950.
Choo Ting says by the time the Asian Financial Crisis of 1997 came around, Hup Seng Industries had learnt its lessons and was sitting on top of a RM20mil cash pile. The company was even getting discounts from suppliers because it was able to pay for goods in cash.
Today, the company operates from an 8-acre factory in Kawasan Perindustrian Tongkang Pecah, Batu Pahat, with about 1,900 staff.
It reported revenue of RM262mil last year.
Choo Ting says that since he left his political career in 2006, the company has put in place informations systems to guide the decision making process.
“This results in better cost efficiency and each discussion is based on the same financial data, leaving personal agendas out of the picture.”
Number of employees: 1,900
Revenue for 2014: RM262mil