- 2 days ago
- #considerthis
As global supply chains come under strain, shortages in petrochemical inputs could ripple across the economy, eventually spilling over into consumer products and everyday household items. How prepared are we for the downstream impact of supply disruptions? On this episode of #ConsiderThis Melisa Idris speaks with Dr Chin Chee Seong, National President of the SME Association of Malaysia.
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00:10Hi, welcome back to Consider This. I'm Melissa Idris. Let's continue our discussion about the
00:15global supply crisis and the impact on businesses, especially small and medium enterprises.
00:22Could rising costs and tighter supply affect production and pricing and ultimately survival?
00:29Well, let's ask this question to Dr. Chin Chi Siung, who's the president of the SME Association
00:36of Malaysia. Dr. Chin, thank you so much for joining us on the show today. It's good to
00:40have you back. We've been talking in this episode specifically about how the global supply crisis
00:46is affecting plastics input and plastic supply. But I'm curious to know how, from an SME perspective,
00:55from a business perspective, how these disruptions, not just limited to plastics and packaging,
01:00but how all of these supply disruptions are impacting businesses. What have you heard from
01:05your members?
01:07Okay, I think we all know that the plastic product relies a lot on the resin from the petroleum
01:16by-products. So it is very important that we have a good source and also a cheaper kind
01:23of supply. But at the moment, we all know that prices have high up and many SME, in fact, are
01:29very much exposed to all this hype in the material. In fact, it's not only the manufacturer, it's
01:36not only the plastic manufacturer. In fact, we have a lot of plastic manufacturers have been
01:39complaining already, right? But more to more is for SMEs, we are a lot in now, F&B businesses,
01:47right? The retailer, and a lot are e-commerce reseller, and manufacturer as well. And in various
01:55fields like pharmaceutical, you know, logistics, and many of us also do a lot of export, and all
02:02depend on this plastic packaging in one way or another. So we have been facing the issue
02:09right from, in fact, we've really feel it since last month. You know, one of the members
02:13telling me the material, the raw mat of the plastic has gone up almost as much as 30%. So what
02:21do they feel is that the supplier who's doing especially on the plastic packaging industry, we
02:27have a, I have a so-called members who are doing chocolate product manufacturing, right? And
02:34he has put out the PO months ago to, you know, to purchase plastic packaging, everything. The
02:40supplier came back and returned the PO to him. Sorry, we cannot accept your order anymore. You
02:45can take back your PO even decide to accept it. So because the hype is too high, they cannot afford
02:51to give the old price. So they have to come out with the new costing to all the customer they
02:56have. So that part, in fact, a lot of increase from even up to 20% of the packaging product.
03:03So
03:04for many of us, we are difficult to adjust the price because our, our many of our products
03:09already out there, and the price are fixed. And we have also, you know, a lot of our distributor,
03:16retailer are selling the price that have been fixed. So there's hard for us to increase the
03:21price right now. So we have to absorb it. And really, we are trapped.
03:25Okay. So what I'm hearing is that margins are being compressed on the SMEs, for the SMEs. Can
03:31you tell me what you're seeing, Dr. Chin, in terms of signs within, within industry, within
03:40businesses? Are they, are they, you know, cutting production? Are they reducing their output?
03:45Are they delaying their orders? What, what has been the contingency plan to manage with some
03:52of these price hikes and supply disruptions?
03:54I think many of us are beginning to, to hold on the production. You know, the output for sure,
04:02that's number one. And number two is that because of this, this cost of the increase in all the
04:09cost, not only because of plastic or all the packaging increase, because we are also facing
04:15the transportation charges, the fuel costs, right? And also utilities are all been going up.
04:22So that's where most of us have to tighten our expenses. You know, we beginning to, you know, keep,
04:28not to spend so much or even we stop hiring. Many of us have stopped hiring. And if they go
04:34back to our,
04:35our, our supplier and asking for more, better terms and better, you know, negotiate for better,
04:42you know, costing and rather than increase the price yet. So like I say again, it's not only we,
04:48we lack of sales. We can see that, you know, last, last couple of months and also because of work
04:54from home,
04:54many of us are suffering, right? Especially in F&B. I have one or two Muslim F&B customer,
05:03and also our members are complaining, you know, his sales dropped more than 30% during this period
05:08and how he could survive, you know, and the business cost is the same, right? The renter SST
05:13you have to pay, the renter never go down and everything is up. So what we need now, in fact,
05:20to manage our cash flow, most of us are having a really cash flow problem.
05:25Okay. All right. Just a couple of questions on what you've mentioned, some follow-up questions.
05:30When you talk about tightening expenses and you mentioned stop hiring during this period,
05:36can you talk to me a little bit about that? How these, the current supply chain disruptions
05:42or the crisis around supply is affecting planning and investment decisions for businesses,
05:48but also what are the risks to employment? Is there risk of layoffs, risk of closure of businesses?
05:58Talk to me about that, Dr. Chin.
06:00Okay. It depends on which business are we in. I can see that many of our F&B customers, our
06:07members,
06:07they are not hiring anymore. If there's any staff who are going to resign or retire,
06:14they are not going to even replace them. So the first thing they do, right?
06:18And then for the fact that coming to delivery costs, you know, I know one distribution company
06:26who is doing sort of fraction material distribution, delivery for their client,
06:31and because of the diesel hype, all, you know, some of them, they use a lot of Hilux,
06:37and the Hilux cannot move now. And they have to, you know, provide a less customer service to their customer
06:43because they want to consolidate deliveries. They're trying to bring down their costs by using other way,
06:50because there's no choice, right? And because of that, you don't need many delivery people.
06:56So a lot of them also start looking into contracture out, subcontract it away.
07:01You don't do it themselves, all right? And where you contract out, then you terminate the service of your own
07:06staff.
07:07So that is where many, many of us have to do it, no choice, because the first thing we need
07:14to do is cut our basic costs, right?
07:17The basic is where we can move it. The variable, we really can't really touch it, right?
07:23Petrol go up, diesel go up, we have no control, right? We have to absorb it.
07:27And if you are using a third party, you know, especially when you are using freight services for instance right
07:34now,
07:34when freight services have been increasing, air freight, sea freight of course, right?
07:39The air freight also increased. And many, many issues we are facing, right?
07:44And all this add to what should SME do? What should the owner do right now, right?
07:50If you face a short in your revenue and you face a high in your costs,
07:57the only logical thing to do is minimize your basic overhead, right?
08:02And we are definitely, we can see a lot of companies start, you know, reducing their staff.
08:08And you can see that the last report, right?
08:12I think if not mistaken from the DOSM, that the amount of job loss has increased, right?
08:20I mean increased. That is where we see all come from the SMEs.
08:24Are you concerned that the impact could be similar to or reminiscent of the pandemic,
08:31the COVID time impact on businesses?
08:35I think it is not as bad as COVID, but it is rather something that we have to take extra
08:43precaution
08:43because we don't know when the war going to end, right?
08:47At the same time with COVID, we don't know when it's going to end.
08:49So we will continue to be very cautious.
08:52And in the meantime, those companies are not doing well.
08:55For instance, many of our SME members, they couldn't even get financing.
08:59Even government announced the 5 billion facilities going to announce by Bandegara.
09:04But even the Kuskok have given some loans, you know, to the SME to ease their cash flow.
09:11But those people that get access to this fund, are those companies doing well?
09:17Because the banks still go back to their basics.
09:20You know, when I assess the company performance, whether you are capable to pay or not,
09:26whether you are able to pay back and then you want to see your project,
09:29are you running any project that coming, you know, on the way,
09:33or you need some fund to make some profit.
09:35So that taking into consideration that so many of the loans are not accessible by many SMEs.
09:42Okay. So what kind of support would SMEs need most from the government?
09:46You mentioned that, yes, there are, you know,
09:48there's all these initiatives and measures being announced.
09:51But if they're not getting to the businesses that need them the most, then the point is moot.
09:57So how should the government readjust or tweak so that these measures are actually impactful?
10:03I think first thing is, at least you have a less stringent kind of assessment,
10:09meaning you cannot use the normal commercial bank assessment to the company who facing issue, right?
10:16And sit down with them using whatever knowledge that you have from your assessment team.
10:22Because all these go back to commercial bank, right, the loan.
10:25So the commercial bank team always has the SOP.
10:28You got to have, you know, you have to qualify for this.
10:32For instance, the CTOS report.
10:34You need this report. You need that.
10:36And finally, I need your sign as a personal guarantor.
10:39Right? Okay.
10:40Even you're willing to sign personal guaranty.
10:42Then they say, oh, sorry, you have signed a few personal guarantors for a few facilities.
10:47You cannot afford anymore.
10:49So those are the things that maybe government can have a special team with the bank.
10:54Sit down with each company.
10:56Look at their past performance.
10:58Are they able, possibility to repay you back with their past business performance?
11:03And also their future projection, right?
11:06And give them a lifeline.
11:09Maybe you don't have to give so big amount.
11:11For instance, government announced $750,000 a max for those $5 billion things.
11:15But you can give a smaller, you know, $200,000 or $300,000 of a fund.
11:19So they're easy to access.
11:21And then give them a longer period to pay back.
11:23And not so stringent on the guarantor.
11:25Because if you ask them to sign a guarantee, no issue.
11:28But you still say that you're not qualified.
11:31So these are the things that I see can be more helpful to them.
11:37So that they can ease over this period of problem.
11:40It's a buffer to get through some of these difficult times, right?
11:45Dr. Chin, thank you so much for being on the show with me today.
11:48Dr. Chin Chi Siong there from the SME Association of Malaysia.
11:52Wrapping up this episode of Consider This.
11:54I'm Melissa Idris signing off for the evening.
11:56Thank you so much for watching and good night.
11:59Thank you, everyone.
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