NATIP: Zeroing on Thrust 3

In the 1970s, Malaysia's chief timber imports range from the export of round logs to sawn-timber,plywood and veneer. The industry has changed. Today,the nation exports boast value-added products such as high quality furniture and builder' joinery and carpentry.

Behind the advent and growth of these valued added industry is the use of machinery and skilled labour.

The current global timber industry is driven by competitiveness. On one hand, is the intense competition unleashed by the People's Republic of China(PRC) and Vietnam which specialises in low-end products.On the other hand, there is Japan and the Republic of Korea (ROK) which utilises high technology in their production of timber products. For Malaysia which is sandwiched somewhere in  between, its status as a a producer of comparative advantage based on cheap labour costs is but over.Its moment of truth is here.

Malaysia needs to reinvent itself if it is to maintain its stature as  a major exporter of timber products. The way forward will be through the adoption of technology. The industry must accept the reality that the industry now must be technology-driven. There is no longer any other option. Gone are the days of cheap labour or dependence of foreign labour.

The timber industry community must have an innovative mind. And the premise of an innovative mind is an innovative attitude.

As soon as timber industry players become  innovative and forsake quick gains for long term strategic advantage, will we then see them in  the driver's seat, spearheading technology adoption into the industry.

A corollary to an innovative attitude is the ability to take on risks. This is required if the nation is to successfully migrate  to technology intensive processes.

The timber industry is now at a crossroad. The situation is clear. Malaysia cannot compete with low cost producers like China and Vietnam. It is also no match for the technology-savvy Japanese and South Korean manufacturers. Local labour is not interested in the timber industry while foreign labour is fast disappearing.

What choice do the industry really have but to go technology?

The NATIP Wishes

Envisioning a greater role for the timber industry by 2020, the Government has commissioned a study to create a viable vision for the Timber industry from 2009 till 2020.

Known as the National Timber Industry Plan (NATIP), it proposes 7 thrusts for the achievement of its qualitative and quantitative targets.

The overriding mission of NATIP is that come 2020, Malaysian timber exports will achieve the value of RM53 billion. The qualitative vision is to achieve this target via a 40% contribution from upstream products and 60% from downstream products. Whether this is a tall order or need to be pruned to current realities will depend how the critical issues facing the industry can be effectively resolved.

The three critical challenges must be met strategically and expeditiously. Failing to do so with earnest will certainly makes such mission and vision a pipe dream.

The NATIP thrusts broadly embodies qualitative aspects. Each thrust incorporates a status report, a list of issues and challenges,the way forward and policy directions.

These are the thrusts:

Thrust 1: Industry Structure
Thrust 2: The Supply of Raw Materials
Thrust 3: Innovation and Technology
Thrust 4: Marketing and Innovation
Thrust 5: Marketing and Promotion
Thrust 6: Funding and Incentives
Thrust 7: Bumiputra Participation

Excluding the negative impact of exogenous factors, the 7 thrusts of the NATIP can be realisable and achievable  if they are passionately pursued i n an enabling environment.

The Timber Industry-The Crtiical Challenges

The challenges confronting the Malaysian Timber industry can be categorised into three. The first category is on raw materials while the second on labour resources. The third category is with regards to marketing and promotion of Malaysian timber products.

Of the three category, the most critical challenge is with regard to labour and then raw materials. The third category is a longer term challenge incorporating manifold strategies.

The shortage of raw materials current affect production as well as impede long term planning. While Peninsular Malaysia has banned the export of round logs, the export of logs is still allowed in both Sabah and Sarawak. This dichotomous situation has lead to the continuous outflow of raw materials in low value added form onto the international market from these two states while timber manufacturing companies from both Peninsular Malaysia and Sabah and Sarawak are facing acute shortages of raw materials to work on. On the long term, this demotivates investment into high value downstream processing of timber and puts a stump on the growth of the timber industry.

There have been concrete moves to promote forest plantation to resolve this raw material issue. However, the risk here are high and more need to be done to attract investment into this activity. To alleviate the risk issue, grants-in-aid from the government  as well as interest free loan should be made available to investors.

The research to identify other non-commercial species of timber is an on -going activity of the forest departments and the timber research fraternity. This is more a long term option.

Unless Sabah and Sarawak legislate to prohibit round log exports, the most ideal national plan document to move the industry forward  will only be delusional. There need to be some form of understanding between the Federal Government and the two state governments so that a planned cutback of timber log exports can be implemented for the growth of the timber industry.

The labour issue is the most contentious. An over-reliance over labour in this industry for such a long time is proving to be a bane as locals do not want to involved themselves in this industry and when  foreign labour has become a much sought commodity. Any policy measure to assist the industry from this aspect will be short term and relying on labour on the long term will be self-defeating. The way out is to go into mechanisation and automation processes.

To motivate industry players to pursue mechanisation and automation,the government must be innovative in its funding and fiscal initiatives. Suggestions like using part of the foreign worker levy to set up a trust fund to finance technology adoption, innovation and automation as well as a Commodity Bank to assist in this direction must be seriously considered by the Government.

Currently, general workers can be recruited from other source countries to work in the timber industry. Statistics from the Home Ministry has shown that lately, there are fewer foreign workers from source countries like Nepal and Vietnam. The fast growing economy of India has attracted Nepalese, Sri Lankan and Bangladesh to work in India which is closer to their countries. Similarly, the Vietnamese are staying home because of their rapid economic growth.

Even so, a good source country to consider on a longer term will still be Bangladesh. However, the government must take cognizant of the potential social problems that can be created in the recruitment of Bangladesh workers.

Marketing and Promotion is the third challenge confronting the industry. Where once industry were contented to be contract manufacturers for overseas firms, that kind of strategy will not be expedient in the long run. As skills are developed both from the shop floor and from industrial training institutes such as WISDEC, industry players must seriously think of positioning themselves as Malaysian product manufacturer in their own right. Issues like innovative designs and own brand manufacturing should be the next targets on the movement up the value chain. The time has come for more strategic marketing and promotion of  Malaysian timber products.

Apart from government support to showcase our global quality products at international timber product fairs, genuine attempts at strategic marketing and promotion alliance must be forged. Here, Malaysian timber promotion agencies and associations can play their role with their international counterparts to work out a win-win platform that is sustainable. On the part of government, FTAs would be a good place to start.

Timber Industry-Structure and Characteristics

This is the Character and Structure of the Malaysian Timber Industry

The industry can be divided into the upstream and downstream sector.  Whereas the upstream sector is chracterised by the systematic and sustainable harvesting of natural forest and forest plantation, the downstream features three levels of processing. Of the primary activities, this will include processing of raw materials (logs) into sawn timber, plywood, veneer, fibreboard and particleboard. Some 60% of these are exported.

Secondary and tertiary processing will include furniture manufacturing, mouldings, flooring, laminated timber, builders’ joinery and carpentry  Some 40% of these outputs are exported.

The industry currently continues to be labour- intensive. There is low mechanisation or use of automated systems. Of the 300,000 workers in the timber industry, about 175,000 or 58% are foreign workers.

                                     

Skewed Over-dependence on Foreign Labour in the Industry

While young local workers shun the industry because of its ‘dirty, dreadful, demeaning, dull and dangerous’ label and image, a looming issue is the current scarcity of foreign workers to be recruited from the source countries for the local timber industry. Foreign Indonesian workers are now harder to recruit. As the prices of most commodities continue to rise, the plantations in Indonesia are willing to pay higher wages to their nationals and this has stemmed the outflow of labour to Malaysia. This overdependence of the timber industry on foreign workers is critical at the moment and worrisome in the long run. It will negate the growth of this industry and its contribution to the national economy in many aspects.

The Malaysian Timber Industry

The Malaysian Timber Industry has its humble beginning as an upstream industry that export sawn logs, saw-milling and plywood. It was fragmented and characterised by small family-owned establishments mostly operating saw mills. They were labour intensive and do not use much modern mechanisation  and automation.

It was only when the furniture sub-sector became a runaway success story that the timber industry began to claim a more significant stake in growing the national economy.

In 2008, timber contributed 3.7% to total merchandise export with an export market value of RM 22.5 billion. It employed more than 300,000 workers (3.5% of total employment)and constituted 4.07% of the GDP of the nation that year.

If not for a total ban of cut log export from Peninsular Malaysia, the growth of the timber industry would not have been that momentous. This policy immediately cuts away the ground from which foreign competitors obtained raw materials from Malaysia to develop downstream products that actually competes with Malaysian wood products in the global market places. More importantly, for the first time, investors in the industry could plan to go into downstream processing because of a stable supply of raw materials.

Even so, investments in the timber industry has been on the decline. From investment statistics provided by MIDA, investments in 2009 has diminished compared to 2007 and 2008.  In terms of investment in furniture it has shrunk 43% from RM309.1 million in 2007 to RM174.7 million in 2009. Similarly investments in panel products have slid by 79%  from RM766.5 million to RM162.7 million in 2009 while investment in non-wood products had slipped 75% from RM233.8 million to RM56.7 million in 2009.

                                           Investments in Timber Industry 2007-09 (MIDA)

Apart from raw materials sourced from natural jungles, timber is also obtained from cash crop plantations such as oil palm and rubber estates. Lately, forest plantations are being developed to strategically provide  timber resources to the industrial sector that are not only sustainable but legal.