Distributors are considered some of the worst-hit when it comes to an economic slowdown. Given Malaysia' weak economic outlook, local companies are looking at options to weather the storm.
Distributors are considered some of the worst-hit when it comes to an economic slowdown. This seems to be quite true in Malaysia, where several local distributors maintain a rather pessimistic view of their short-term prospects. Most of them admitted their desperation at the dire straits, stating the future could take any direction.
“It’s a very challenging time for the Malaysian market,” said Dato’ Avent Yap, MD of AAC Distribution. “The economy is looking bad, overall market is slowing down, and the currency has dipped much more than anyone expected. I’m yet to see light at the end of the tunnel.”
Indeed, the national economic projections so far have been bleak, with the World Bank forecasting a 4.7-percent growth for the year, way lower than the 6 percent recorded in the previous year. Only by 2017 the World Bank expects the economy to see some significant activity, when it is expected to expand 5 percent.
This fragile macroeconomic picture is compounded by a political crisis. The country’s Prime Minister Najib Razak is accused of corruption, prompting protests and calls for his resignation. Ryan Tan, Executive Director at Entry Pass explained this has complicated business outlook for the industry.
“We are affected by the political instability and the currency depreciation that has created uncertainties about the future and worries that business may be affected,” Tan said.
Bryan Liew, Marketing Director of DotCom Engineering echoed similar sentiments, adding that the current year is not looking good for the industry and end users.
“This year might see a 20 to 30 percent drop in overall revenue,” Liew said, giving an approximate idea of the seriousness of the situation. “I think the fourth quarter will be lower,” he added.
Ongoing projects and demand — calm before the storm?
The economic concerns cannot be ignored, but for most local distributors and systems integrators (SI) the issue is not as much about this year as it is about the coming years.
Ryan Tan, Executive Director at Entry Pass said that the current year is still better than the previous year as there is still revenue from the businesses of last year and the year before that. “Right now what we can see is that the business is continuing to grow, compared to the previous year,” he said.
Renee Goh, Manager for Marketing and Communications at Sensorlink said that the year 2015 has actually seen more business enquiries, albeit at a slower pace. “Because of the economic concerns a lot of end users are cautious on their budget, but there are still business enquiries,” Goh said.
AAC’s Yap further added that most of the Malaysian security industry is in the outdated analog technology and the market is still in the transition stage to IP. This has created some demand which the distributors and SIs are trying to exploit. Yap said his company’s sales have largely remained flat over the year.
Raymond Chew, MD of Xyreon too agreed that the current year is not the real concern as there are a lot of backlogs for deliveries and projects from the previous year. “In 2014 to 2015 we are seeing a growth of about 2 to 3 percent, but 2016 may not be this good,” he said.
Such opinions aside, some distributors pointed out that the real reason of growth this year is a recent change in government policy and not any rise in market demand.
Philip Saint-Pere, MD of Stratel, agreed that the financial year that ended in March was better than the previous. But according to him the inflated figures are hardly an indication of positive business sentiments.
In April this year, the Malaysian government had implemented a Goods and Services Tax (GST), placing a hefty 6-percent levy on products. In an attempt to avoid having to pay this, many customers placed their orders before April, boosting the numbers for the then-concluded financial year.
“During the month of March, we had almost three times the regular monthly sales, because everybody was buying to avoid paying the 6 percent,” Saint-Pere said. “After that April, May, and June were rather quiet because people had already bought the stock.”
He too pointed out that the ongoing political and economic concerns have delayed a lot of projects and even forced some projects to be cancelled. If these issues are not sorted out soon, the next year may not see improved revenue.
Local businesses strategize to weather the storm
Opinions differ when it comes to the best options to protect businesses in the current situation. AAC’s Yap said that lower customer confidence has prompted higher demand for low-cost products and this has prompted them to give priority to Chinese brands. Others are thinking of more diverse options. Raymond Chew, MD of Xyreon said that since the coming years look dull they have to use the time to work on improving their products and selling them abroad.
“We have two choices,” Chew said. “Either we use this period to further enhance the R&D for our projects, or, at the same time, look for overseas markets.”
But according to some industry players there are some aspects of a weak economy that could be advantageous to the security industry. Preparing for a weak economy is important for the end users as well and to this end they are doing their best to optimize operations and minimize the costs.
“In a downturn, businesses want maximum productivity with minimum staff, so the owners are thinking out of the box to find solutions,” said T T Teoh, Founder and Group MD of Global Top Technologies. To this end, businesses tend to look toward several security options that might assist them in easing the pressure.
There is also a more practical factor at hand. Verghese Thirumala, MD of Maxitulin pointed out that when the economy slows down, crime rate tends to increase. This boosts demand for the security industry.