Let’s do our part to help build Malaysia

Hedging naturally

Very few companies in the country are like Kuala Lumpur Kepong Bhd (KLK). They have been around for 110 years, growing from a palm oil and rubber plantation business back in the day to one of the largest oleo-chemical producers in the world.

To get to know them better and upon the invite of KLK’s Chief Executive Officer, Tan Sri Lee Oi Hian, I paid them a visit. Ten minutes in, it became clear to me that what sustains the century-old pulse of this company was the deep importance its leadership placed on innovation.

A soft spoken and true gentleman at heart, Tan Sri Lee shared an impressive evolution of KLK, from humble plantation company to its ambitious ventures downstream and going global. It is interesting to note that even a company with such heritage and established business practices, innovation is integral to their business strategy and processes.

When the Palm Oil and Rubber lab happened in 2010, we challenged the industry to expand more aggressively downstream. The industry at the time was predominantly upstream, where exports were three times greater than that of the downstream sector.‎

The KLKOM and PEMANDU team

The KLKOM and PEMANDU team

The problem with this was when commodity prices dropped, the industry was hard hit. Expansion into the downstream is seen as a form of natural hedging. ‎KLK, together with the other large companies responded positively to the challenge.

Therefore, EPP6 and EPP8 were set up to incentivise companies to go downstream, specifically into oleo derivatives. KLK was one of the first to jump on this boat. Very quickly, they devised their biggest move in innovation. They began to be very focused in prioritising efforts that will capture the lucrative downstream oleo-derivatives segment.

They began heavily investing in their downstream R&D. Over the past years, KLK engaged in projects to increase the capacity and introduce new downstream specialty products. New technologies were acquired. The best people were brought in.

This was not just a domestic strategy. KLK looked to Europe.

In recent years, KLK made two strategic investments in Germany. The first acquisition was in 2010 when KLK bought a plant on the river Rhine in Germany, now known as KLK Emmerich GmbH. The plant, which is also over 100 years old with world-scale assets, has production facilities which manufacture a range of fatty acids, hydrogenated fatty acids and glycerine by splitting of vegetable oils.

The KLK Emmerich GmbH Plant

The KLK Emmerich GmbH Plant in Germany

In 2015, KLK bought a plant in the City of Dusseldorf, which is the centre of a very key chemical region in Germany, also along the River Rhine. This plant produces both vegetable-based as well as tallow-based oleochemicals, giving KLK a much more complete oleochemical portfolio in the European region.

By making this move, KLK is strategically situated close to key customers and raw material supply routes in the heart of Europe. They have become a major oleochemical manufacturer and supplier to new European markets.

Going back to the big picture of the industry, we anticipated that crude palm oil prices would decrease at some point, and we were not far off the mark, as prices have fallen by 53% since 2011.

Production of downstream products also proved to be more lucrative per unit revenue, at 50% more compared to up/mid-stream products. If companies did not diversify and go downstream, they would not have benefited from these larger margins.

Our economic sectors have the potential to diversify, but R&D and innovation is critical. There are many individuals like Tan Sri Lee and companies like KLK. Companies can range from 110 years old to 10 years old to perhaps five, but the underlying spirit to succeed is to realise that you don’t always have to fight for the pie, but to broaden your horizon.

The KLK Plant in Malaysia

The KLKOM Plant in Malaysia

Megatrends exist in all economic sectors. The Palm Oil industry is no different. KLK has not just survived but capitalised on such movements in the commodity market.

Crude Palm Oil (CPO) prices are cyclical. If entirely focused on upstream activities, business performance is over reliant on and will fluctuate according to the health of CPO prices. This sparks the impetus for players to go downstream to build resilience and unlock new value. This is the megatrend.

KLK’s strategy was to go downstream, is what I like to term as, being naturally hedged.

A little bit of KLK is in everything we consume, from the moment we wake up to the time we go to sleep. They are like the “Intel” of the Palm Oil industry. For example, the toothpaste and skincare products that we use in the morning contain palm-based glycerine and emulsifier. Our breakfast and lunch are prepared with cooking oil made from palm olein. For general health, tocotrienol makes a very potent anti-oxidant supplement.

Throughout the day, the various detergents and cleaning products are filled with surfactants. Not forgetting that our diesel contains 7% of palm biodiesel, a sustainable source of clean energy. Our lovely wives use body and hair care products that contain fatty acids and emollients – these are just to mention a few.

Today, KLK stands globally competitive, selling to 123 countries at last count, which would roughly be 63% of the world’s countries. This is truly a Malaysian company that has made it.

Tourism: A key economic sector

When times are tough, some industries can be more resilient than others. Tourism is one such sector.

Malaysia has plenty to offer tourists – whether it is about exploring the Mulu Caves in Sarawak, diving off Pulau Tioman, shopping at the Pavilion, attending a literary festival in the quaint streets of Georgetown, Penang or just soaking up the sun in Pulau Langkawi.

Boasting a wide-range of attractions, it is easy to surmise that Malaysia’s tourism industry can thrive despite the occasional global socio economic challenges.

As part of Malaysia’s growth plan towards high income status, tourism was selected as one of the National Key Economic Areas (NKEA) under the National Transformation Programme (NTP) in 2010. It was envisaged to be a quick win in terms of drawing in tourist spending. Recognising this potential, we drew up a detailed implementation programme on how ambitious yearly targets running up to 2020 would be met.

The tourism industry is expanding at a tremendous pace. In 2015, tourism was the second highest private investment contributor at RM24.5 billion and the third largest GNI contributor at RM67.1 billion.

This year, we are aiming to attract 30.5 million tourists to our shores from 25.7 million, contributing RM103 billion worth of tourist receipts from RM69.1 billion.

In parts of implementing the programme over the last five years, we had found that the absolute number of tourists arriving could be further maximised, as we saw an evident six percent drop last year in 2015. One of the key factors was the exacerbated haze problem. Something had to be done to sustain this industry or our NTP targets will not be achieved and that would not be a good outcome for our economy come 2020.

The Government made a conscious effort to get to the bottom of the problem, identify issues and figure out solutions to attract tourists back to Malaysia again. As a result the Ministry of Tourism and Culture sponsored a 6 week lab early this year, which included sectoral and industry players. Here, we revisited the plans made in 2010 to determine what worked and what did not.

We found that we have been losing a huge number of Chinese tourists to other countries over the past few years, whilst Thailand was seeing an uptrend of Chinese tourists. This was because we had a complicated visa process for them. Thailand, on the other hand, had eased entry requirements.

We have since eased the entry of Chinese tourists. Chinese tourists visiting the country for under 15 days would not need a visa to enter Malaysia between March 1 and December 31, 2016. We also proposed to fast track the implementation of the e-Visa system, which was deemed more convenient as it allows tourists to apply directly online and this has also been made operational since March 1. All these are done with compliance with our security priorities surrounding our immigration process.

Additionally, lab participants also agreed to focus on new initiatives to attract top carriers in the world to use Malaysia as an ASEAN hub. Focus will also be put to encourage airlines to ply new overseas routes as well as targeted promotions to increase travel inflow.

Overall, the lab proposed 65 initiatives, of which 25 are new. More specifically, lab members explored about 40 opportunities to improve current initiatives, expanding coverage and developing new offerings, facilities and incentives. Led by the private sector, Malaysia is expected to unlock RM2.7 billion worth of further investments in order for us to attain our 2020 target of attracting 36 million tourists and in the process, raking in RM168 billion worth of tourist receipts.

For industry players, there are three important areas that we must focus on to get tourism back on track.

First, we must deliver a hassle-free experience to tourists to begin with. All segments of the industry must think of alleviating stress factors for travellers whether it is the airline, the airport, immigration, transportation or accommodation services providers. People who enjoy a seamless and hassle-free holiday will spread the good word.

Second, the authorities should be more open and tolerant to activities that appeal to tourists such as concerts featuring international artistes, performances and even art shows. We must see tourists for what they are – people who are looking to have an enjoyable holiday. I am not saying there need not be limits, but let us not drive them away from Malaysia because we are too rigid in catering to their interests.

Lastly, products and services must be top-notch. For example, tourist guides must be good story-tellers, having had adequate training to handle tourists with the utmost sense of professionalism. Taxi drivers are possibly first point of contact for many of our tourists, making them as ambassadors of our Malaysian hospitality. Therefore, integrity and the desire to deliver top notch services must be their priority while leveraging on their deep knowledge of the city. Holiday packages though competitive, must not compromise on quality of the experience of the tourist.

I am reminded of this time when I was at Malaysia Airlines, when the team was trying very hard to figure out how our planes as national flag-bearers of the country could symbolise the warmth and generous hospitality often associated with our Malaysian culture. After many discussions, we realised that we had been staring at the answer for the longest time. The code for our flights begins with MH and up till then it was nothing, just part of a code.

And that was how we landed the tagline ‘Malaysian Hospitality’ – a simple expression anchored in gravitas to truly convey the Malaysian way. It brought new meaning to the work we did and everyone in the company – engineers, pilots, stewardesses, management or ground crew – embodied its very spirit in the areas of their work.

If all Malaysians could come together to embrace this spirit of Malaysian hospitality as we receive tourists from all over the world, I am convinced that our tourism industry will realise their aspirational targets. Whether it is simply recognising signs that a tourist is lost and pointing them in the right direction, introducing them to local delicacies or explaining our culture, it is important that we realise it is within us to be able to make it a better experience for them.

So the next time you come into contact with a tourist, I hope you’ll remember that you’re another flag-bearer representing Malaysian hospitality.

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