Wednesday 25 June 2008

Local Revenue, Global Cost

I have been observing this phenomena in Malaysia that we are increasing paying cost that reflects the global cost while still earning, generally, local revenue. The recent increase in the fuel price is an obvious example. Other example includes the increase in food prices, be it rice or vegetables. The recent lifting of ceiling prices of steel and cement is also an indicator that we could no longer shield ourselves from paying what others from other parts of the globe are paying.

The issue about brain drain to be is principally driven by the fact that we are not paying the global cost for local talents. The easy way out for them, especially Generation-Y, is to go elsewhere and get paid better for the same amount of contribution that they provide to their employers. What more if they get better deal in work-life balance and better amenities and facilities in foreign land.

Unless your business earns foreign revenue through export, or selling locally to foreigners at the prices they are paying in their own country (like what some of our cabbies normally do), you are going to face tough challenges in balancing between revenue and cost.

How could our businesses be re-structured to manage this risk?

First, we should look at maximising return from the production of goods and services that are generated from our businesses. Could we export if we are not exporting yet? Or, could be increase our export if we are an existing exporter. The whole idea is to get more from the same amount of output since out cost to generate the output is increasing as well. we could also have another serious look at the market segment that we are selling at. Could we move up the chain and re-package our products and offer new value proposition to get better demand and pricing? Increasing revenue is about selling more to existing market and selling to new market that was not served before. What about the way you distribute your products and services?

Second is about productivity improvements. Could we generate more with the same resources? This may require product re-designing, process review, increase training and motivation among the employees and perhaps investing in new technology which would allow you to run your business differently. Its all about identifying opportunities for improvement and having the attitude of not accepting everything as given and untouchable.

Improvements in your supply chain is the third avenue which may enable your businesses to be more efficient. Under the present cirsumstances, the concern is not just about buying at the right price, but security of supply and product quality are also critical. When was the last time you review your supply chain?

I am sure you could also figure out other options that you could consider in making you businesses more resilient and sustainable. The key issue is to understand the shift in the business landscape and review your strategies before the environment turns against your business.

Under the present circumstances, I do not believe that entrepreneurs are not forewarned enough about how much more challenging the future would be. Ignorance is not an excuse, and you'll be paying dearly when your businesses lose their viability.


Anonymous said...

I am only an associate but i like to read business people thought, opinions in their writing...
I'm trying to understand, equip myself with economic, and even political situation because i always believe that these two factors are closely related (correct me if i'm wrong).
Although my previous experience in manufacturing wasn't much but still i was able to see the 'real world'..
I agree with you that supply chain improvement is a critical issue to look at besides having to state in place the quality of the products.
Being in the Japanese management before, i believe that the theory book is more than useful that we thought it is.
Total Quality Management (TQM) is a critical philosophy to look at...Basically, it does covers everything a business should have.
and perhaps i can share something that i learned before.
A Japanese philosophy called 3G :

Genba - Actual Place
Genbutsu - Actual Thing
Genjitsu - Actual Time

This 3G may help in solving problems and also in maintaining quality which i believe also can be a part to achieve TQM.

Hasyudeen said...

What are you doing as an associate? Auditing pribate companies?

Hasyudeen said...

Opps, I meant PRIVATE companies?

Anonymous said...

Currently i'm in Transaction Services, doing the Due Diligence.