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16 Aug 2019 Updated 10 Sep 2019

Flying into headwinds, firms find silver linings in the trade war

The Business Times Annabeth Leow

Ernie Koh BT Koda

 SINGAPORE - Homegrown furniture company Koda freed up capacity at its factory in Vietnam to serve new customers, and is looking to start manufacturing in Indonesia or another neighbouring country in the next two years.

Going by sales and marketing director Ernie Koh's plans, one might not notice that there is an ongoing global trade war.

Factories here are hurtling towards recession, and trade-related sectors are suffering, but the government expects smaller segments like food manufacturing to hold up. Some small and medium-sized enterprises, such as main board-listed Koda, have found that all is not doom and gloom - thanks to diversified markets, defensive goods, well-laid plans and sheer good luck.

Mr Koh said: "In the short term, there are many US customers that are sourcing from other parts of the world."

Chua Yiyong, executive director of electronic parts supplier ASPT, said the United States-China trade war is "possibly good for us, because those who are affected... may not be comfortable procuring directly from China, so they may come to Singapore instead".

US President Donald Trump's protectionist streak may have also helped Rim Polymers, the polyurethane solutions division of industrial supplier Chee Eng Hang Group; it makes speciality machines for manufacturers in the automotive and other industries.

With Mr Trump a loud proponent of getting American automakers like Ford to stay in the US, Rim Polymers executive vice-president Oei Han Tjing told The Business Times (BT) that his company, which manufactures in Singapore and China, has stepped up its presence in the US in recent years.

Outside the world's two biggest economies, companies are moving into this region and further afield.

Thomas Pek, managing director of local soya sauce company Tai Hua Food Industries said: "Although we are doing a lot of digitalisation and innovation, internationalisation is still the most important."

Naming the Middle East as a key market, he said Tai Hua plans to take part in more overseas trade fairs this year to boost export growth.

PBA Group, which provides robotics solutions to industrial clients, was tweaking its portfolio even before the trade war started to bite. On top of serving regional manufacturers, it has entered hospitality and retail robotics in markets such as Thailand.

Resilient sectors have reported uplift, said Singapore Food Manufacturers' Association president David Tan, who is managing director of Par International, a flour, rice and sugar trader and wholesaler.

"We have members who tell us that, in a recession, their business fares better because people cut down on travel or eating out in restaurants," he said.

ASPT's Mr Chua said the company, which supplies air-conditioner and refrigerator parts to distributors and repairmen, has turned to developing markets such as Bangladesh and Indonesia, given that its regular clients are not likely to want to change appliances when the economy is bad, he said.

He told BT that business has softened, but that ASPT is using the downturn to lay the groundwork for growth, especially since costs are lower. For example, the company scored big discounts on rental when it opened a Shanghai office this year.

ASPT also plans to diversify into software for consumer platforms such as those for e-commerce; Rim Polymers is teaming up with the parent group's automation division to share expertise in serving smart factories.

PBA Group chief executive Derrick Yap told BT in an e-mail: "We believe it is healthy to have a downward cycle, though we suspect there will be market consolidation as a result of this.

"We are focused on using this slowdown to build and fortify our internal operations. We were growing aggressively in the last few years, and while this happened, we did not have the chance to strengthen our core."

Association president Mr Tan has advised food manufacturers to invest in products such as low-sugar and gluten-free foods: "If members are able to focus on these innovations, then by the time the markets turn better, we may be able to find new markets to reach out to, because these are premium products."

By and large, the companies told BT that they welcomed the aid from government agencies such as Enterprise Singapore, which support innovation and overseas expansion.

But, with robotics tech talent harder to come by, PBA Group's Mr Yap hopes for more help with skills upgrading, "so that we can better prepare ourselves for the next upward cycle in the economy".

Rim Polymers' Mr Oei suggested that agencies do more to get local manufacturers and suppliers ready for research and development in new areas such as electric cars.

All the same, despite the silver linings, global trade developments remain cloudy. Trade and Industry Permanent Secretary Gabriel Lim has noted that growth sectors "are not as big... in terms of the share of (value added)" for the economy.

The SFMA's Mr Tan told BT that exports depend on customer sentiment, and that customers are now being cautious about ordering; longer-term orders of three or six months are being cut to a month or less, as "they do not want to over-commit".

Mr Oei, who had hoped to double Rim Polymers' 2016 annual revenue of S$25 million by 2020, has pushed back the target by at least two years. The company is worried as sales by its Chinese automotive clients have fallen by up to 15 per cent - that's too close for comfort to break-even margins.

Source: The Business Times © Singapore Press Holdings Limited. Reproduced with permission.