This is the second part of the interview with Panasonic Malaysia managing director Cheng Chee Chung.
Question: How has the consumer electronics (CE) business changed in Malaysia over the past few years?
A: Those days, (when) we had six to seven per cent gross domestic product growth, we were called a developing country. Every year, demand was growing because more and more houses were being built. The middle-income group was expanding, urbanisation was taking place and people were getting more educated. But when the market is growing, it attracts competitors at the same time. So over time, competition becomes keener. For example, 20 years ago, a one horse-power air-conditioner cost RM2,000. Today it costs RM800. So where does the margin go? How to survive in this business? Things change because of competition.
Q: Do you have an advantage over your competitors?
A: We have an advantage over those who are importing because our products — the air-conditioners, televisions and small appliances — are locally produced. Sony has a plant in Bangi, but Samsung has already closed its plant in Senawang and has gone to Vietnam.
Our raw material is denominated in the US dollar. That is part of the cost that is going to increase because of the weak ringgit. However, the salary is still being paid in ringgit and some other costs are also in ringgit, so it’s not that bad.
Q: What is the demand outlook for CE in the current financial year?
A: There was a rush because people thought with the Goods and Services Tax (GST), the prices will go up. So after April last year, demand dropped drastically. From April last year to March this year, overall CE sales dropped 20 per cent.
Q: But you said total revenue went up?
A: Interesting isn’t it? Because we sell our products to the dealers. The demand came from dealers.
What happened was, at the end of March before the GST started last year, all the dealers cleared their stock in the warehouse due to the changing tax system. Otherwise it would have been very difficult to claim back. So their stock level was very minimal as at end-March. When April started, they had to replenish their stock. Our dealers usually keep a one-month stock. Therefore, our sales grew, when in actuality demand dropped.
Q: How do you judge your performance?
A: We have to look at market share to judge our real performance, which went up. When I took over, I changed a few things in this company. The total operations had to be reviewed.
Those days, we had both sales and marketing departments. Marketing people were in charge of product development, and would discuss with the factory on when the new model was coming out, what price to set, what promotion and advertising activities needed to be done.
Then they carried out the PSI (purchase, sales and inventory). They would buy the products and then get the sales people to sell. There was always a conflict between sales and marketing. So I crisscrossed the tasks and involvement between sales and marketing people.
This had drastically increased the forecast accuracy on buying the right product, the right model and the right quantity. Although not 100 per cent accurate, it was much closer than it was previously.
We have also reviewed the marketing approach. Because we are a household brand, we target everybody then. I thought that was not the way to do it. So we had discussions with the sales and marketing people and our agencies, and set up target groups.
One is the Malay marketing group, for obvious reasons. They are the biggest population and their income is growing. But in the CE business, most of the suppliers are Chinese and many Chinese run the electrical shops. There was no focus on the Malays.
We needed to study their behaviour, what kind of media they looked at, etc. So after some study, we decided to go for money marketing activity.
Another focus group is on female marketing. Why? To differentiate ourselves from our competitors.
We are strong in cooking and beauty products... something our competitors does not have. These products appeal to the female gender. Based on statistics, females today are getting more intelligent than males. More and more university graduates were females. They are becoming more influential and involved in the corporate world. Their earning power is also increasing.
Therefore, why not engage the female customers? So we embarked on female marketing, set up cooking studios and engaged beauty bloggers to promote our products.
Men are not so loyal to a brand, while women are. They are faithful and that’s my way of looking at the market.
We are also shifting from traditional media to digital marketing. We have strongly promoted our products through Facebook and Youtube. Last year, our Facebook page garnered the highest number of fans among our peers in the industry. So we made those our KPIs (Key Performance Indicators).
For branding, we are doing a bit of sport marketing. Panasonic globally has been an Olympics partner for many years for all the audio visual equipment, closed-circuit televisions, signages and others.
Q: Do you expect to maintain revenue growth this year?
A: In April, May, June, July and August our growth was at around five per cent.
Air-conditioners contributed the most to growth. Since January, we’ve had a heat wave, and when the weather’s hot, there’s demand for air-conditioners.
We are also growing quite good in the beauty products area, where our market share is increasing. Things are getting more challenging. The gross domestic product dropped during the second quarter to four per cent from 4.5 per cent.
So we are a bit concerned about the coming months. Up to this month, we are still okay. We are surpassing the target as we speak.
Q: Is it a perception or reality that people are holding back on white goods (large electrical goods) purchases?
A: During the Hari Raya period, sales were not as good as expected, particularly in big-ticket items like fridges, washing machines and TVs. Air-conditioner sales were okay because of the weather. But for the three big-ticket items, sales were not as good as expected.
Small items — blenders, juicers, rice cookers — were doing very well. This could mean that people don’t have a lot of money now due to the rising cost of living, especially food.
The amount of money may not be enough to buy big ticket items, but people still buy as it is the festive season. It’s all got to do with the purchasing power, which is now a bit reduced and people are more cautious. They don’t spend unnecessarily.
Q: Now that the property sector is a bit slow, perhaps demand has dropped because people are not moving into new houses or upgrading?
A: We don’t think it will happen now. People are moving into their new houses now because they bought the properties two years ago. We are worried about two years from now, because property developers are scaling down their launches as people are not buying and the demand is dropping.
Maybe in one-and-a-half or two years’ time, fewer people will be moving into new houses. Then we’ll face challenges.
Q: 2017 Budget is coming up. Is there a wish-list from the industry? What could the government do?
A: One of the issues is the rising cost of living. This has hampered growth in demand in a big way. People don’t have enough money to spend. Because of the slowdown in global economy, China is also going down. This has affected not only our exports, but also companies and people, too.
The government should look into how to increase people’s purchasing power. If you look at retail business, the food business is going up but other products are not. Even with three major sport events like the Thomas Cup, Euro and Olympics, TV sales is not growing. Besides that technology is reaching the maximum. From non-colour TV, tube TV to flat TV, now they have Full HD and 4K.
Q: Looking at the current economic situation, is Panasonic Malaysia considering resizing?
A: No, not at all. As I said, we are still growing. In fact, to prepare for the future, we will invest more in people. Now that we are moving to business-to-business (B2B), we need more technically-inclined people, we need more sales engineers. When we go to B2B the game is totally different. The skill sets are different. And when we go into project business we need project management people, we need people in legal areas so on and so forth. So we are not resizing.
We have no plan to leave Malaysia despite a lot of challenges. Some of our factories are expanding their capacity. Malaysia is going to be an important base for Panasonic. Last year in April, we set up the second headquarters called Panasonic Appliances Asia Pacific in Malaysia. Asia is seen as a growth engine for Panasonic, because we expect our entire business in Asia to grow. The manufacturing bases are all to be strengthened further.
Q: What is your business philosophy?
A: I think it should always be on mutual trust. We need to look at long-term basis, not short-term gains, because I can win now in the short term and lose on the long run.
So, together with our channel partners and our dealers, we always stress to them that we are not here for a year or two. We have been here for 40 years and we are here to stay. There are times when we have to accept setbacks. We are still here despite whatever that has happened.
Moving forward, we are closely engaging with Panasonic channel partners to help them develop their second generation. Some of them are not interested in doing retail after studying aboard. We will bring them to Japan for study tours. We will continue to expose them to the potentials of this business.
On my 50th birthday recently, I told my staff I want to work harder to improve the happiness index of my staff. I believe if they are highly motivated and happy they will be able to lead the company to greater heights.
Because when you look at the technology of consumer electronics, the products and prices are almost the same.
What is comparative of Panasonic is in the human quality — how our people can compete with other companies when the products are the same?