With the economy going through a cycle of booms and busts every 10 years or so, businesses need to diversify and look for opportunities to move up the value chain in their respective industries. JOY LEE reports.

BUSINESSES are employing various cost-cutting measures to weather the current weak economy. But PKT Logistics Group Sdn Bhd CEO Datuk Michael Tio says small and medium enterprises (SMEs) should also look into other strategies, such as diversification and moving up the value chain, in order not only to survive but to thrive.

“Every 10 years or so, we are faced with a crisis. It is a cycle,” he opines.

“So SMEs should manage their risks of being only in one market and learn to diversify. This is the reality, and now we see that we need it,” he says.

Following the Asian financial crisis of the late 1990s, Tio explains, PKT decided that it would no longer put all its eggs in one basket to avoid being wholly dependent on one product or one market alone.

Thanks to its diversification strategy, PKT managed to ride out the challenging market at the time. When sales dropped drastically in 1998, the logistics provider quickly moved into recession-proof businesses, such as the fast-moving consumer goods sector, instead of focusing solely on the automotive industry.

The move has proven to be a boon for PKT as it helped to open up new market segments for the group after the economy recovered. The group also moved into other markets to counter slowing sales in its existing market.

However, Tio cautions that companies looking to diversify their businesses should remain focused on their respective industries and not stray too far from the core business.

“Over the years, as we diversified, we have always stayed focused on the logistics industry. The logistics industry itself has a very long supply chain. What we are doing is to move up the supply chain. From just doing custom broker and truck operations, we could go into trading, assembly, packing and re-packing and so on.

“It’s about high-value logistics business. It’s not just about how many trucks you have to show how profitable you are,” says Tio.

He notes that the local logistics industry is not particularly well-known for moving up the chain into higher-value businesses.

“For logistics, moving up the value chain means we are not just moving the box but what is inside the box,” he adds.

For example, customers who do not want to hold large stocks may ask logistics providers to carry out the purchasing, warehousing and shipping when stock is needed and pay for full logistical services rather than just for delivery services.

Tio also notes that as the local industry pushes to be a regional hub, there are opportunities for logistics providers to offer more services and make better margins.

This is not just an advice for the logistics industry, says Tio, because it applies to other businesses as well. SMEs should look into the supply chain in their various industries to identify gaps that they could fill and grow by taking those opportunities.

Don’t just sit and suffer, says Tio

Instead he urges SMEs to look at all options and to try and remain aggressive to ensure that their businesses remain operating even when market conditions are not ideal.