World Furniture Confederation 2020 Outlook Report

World Furniture Confederation 2020 Outlook Report
                             Chapter on Malaysia

Statistics
     In the first quarter of 2020, the GDP growth of Malaysia moderated sharply to
0.7%, signalling the highest contraction since the third quarter of 2009, which registered
a 1.1% growth in GDP. Specifically, the furniture industry faced a challenge was well.
The quarterly furniture output reached RM 76.7 billion, only up by 0.02% year on year,
and sales were RM 338 billion, 0.02% higher than that of the last year. However, when
it is compared with the other sectors which are overall slowing down, the manufacturing
sector appears to be bullish. The exports of Malaysia increased from RM 236.1 billion
of the first quarter of last year to RM 238.7 billion in this year, and imports from
RM199.1 billion to 201.7 billion. Contrastingly, the furniture exports rose from RM
2.42 billion to RM 2.88 billion, showing a growth of 19.1%, and the imports reached
RM 733.5 million, up by 28.1%.

     According to the data from the IFRG (International Furniture Research Group),
the number of licensed operating factories of the first quarter of 2020 remained the same
with that of the last year. There are totally 2648 licensed operating factories.

     According to the IMG (International Manufacturing Group) report in collaboration
with IFRG, the number of employees decreased from 93,400 of first quarter in 2019 to
91,500 in the first quarter of this year, shrinking by 0.02%.

Industrial situation
     Regarding the COIVD-19 influence, the MFC has conducted 2 studies, with one

in mid-February and another in early May1.

      COVID-19 outbreak was well managed by the Malaysian government for many
weeks before lockdown orders were announced to commence on 18 March 2020. As a
result, findings of the two studies showed stark difference -- the industry sentiments
and concern did change, reflecting how a lockdown and a COVID-19 pandemic
globally affected business.

      In the first survey, 85.2% respondents cited supply chain interruption as a
challenge faced, while only 31.7% cited cancellation of orders. It is noteworthy that in
February itself, 65.5% of respondents already cited late delivery of orders and 48.6%
cited cash flow as a challenge. When it comes to what kind of subsidies or efforts they
find most useful, 52.1% preferred more trade and marketing promotion efforts, and
other stimulation packages mentioned included tax relief (78.2%), wages (76.1%), low
interest facilities (59.9%).

      The May findings are: only 15.6% expect recovery in 2020 itself, with 42.8%
expecting recovery in H1 2020. Corresponding to this, the industry will be requiring
additional amount of workers in H1 2021 compared to H2 2020. Besides, a sizeable
number of manufacturers in the medium to big category believe that they will stand to
lose more money in the H2-2020 compared to H1-2020.

      Generally speaking, though furniture manufacturing was recognised as an
important sector and could apply for permission to operate at 50% of their capacity

1 Sample size for February’s study was 142 furniture companies, while 147 companies participated in the May
study. The respondents comprised of furniture manufacturers and exporters ranging from micro to mid size and
subsidiaries of public listed groups.

during MCO subject to strict health and safety standard operating procedures (SOPs),
logistics, supply chain and port operations suffered some level of interruption, which
had some negative effect on the furniture industry. In essence, the industrial output was
reduced, as cost of production increased due to inefficiency in production, under-
utilized capacity, etc. Two major challenges faced by the industry were identified,
namely the disruptions in supply chain and the immediate cash-flow problems
associated to non-performing business transactions. Importers, distributors and retailers
experienced greater hardship as they were not permitted to operate during MCO.

     EFE and MIFF are the two main furniture trade shows in Malaysia. Both
exhibitions have had to postpone their initial March 2020 exhibition dates. The revised
dates are as follow:
     EFE 2020 has been rescheduled to 27 – 29 August 2020. EFE’s decision to
postpone was made on the back of a town hall meeting and voting session by the
exhibitors themselves.
     MIFF 2020 has been cancelled after announcing an initial postponement to June
2020. The next MIFF is scheduled to take place on 8-11 March 2021.

Action against the pandemic
     MFC conducted a donation drive in March 2020 to raise funds to provide medical
supplies for the front-line workers and provide necessities to the less fortunate whose
livelihood has been affected by the COVID-19 pandemic and stay-home orders. A total
of RM 121,700 was collected from the Malaysian furniture industry players.
     Furniture factories that were granted approval to operate since 22 March 2020
introduced and practiced health and safety precautions such as temperature monitoring
and recording, sanitization, distancing and operating at 50% capacity. When the

government of Malaysia had determined that the spread of Covid-19 was being properly
managed, companies were allowed to operate at full capacity from 4 May 2020 with
the same health and safety precautions
     The Government has taken pro-active and responsive measures in balancing public
health, economic sustainability and the livelihood of the people by allowing several
economic sectors to operate subject to strict adherence to health and safety guidelines.
     A total of USD 60 billion in 3 stimulus packages have been released to aid low-
income families and SMEs to cope with cash flow problems during these testing times.
About USD 6 billion is in the form of direct financial injection to assist targeted groups
with their expenses. Wage subsidies to off-set retrenchments, job losses and other
economic calamities were also given. Reduction in utility expenses, deferment of loan
repayment and tax instalments, automation and digitization of facility, special relief
facility at low interest rates, rental deferment, moratorium on premiums for insurance,
loans for 6 months, e-commerce related grants were also some of the other measures
put in place.

Prospect
     The Malaysian economy is set to go into a recession this year and the overall
economy is expected to register a reduction by almost 4%. Under such circumstances,
consumer spending on furniture is expected to nose-dive by almost 60% according to
the IFRG for 2020, although the market driven by construction activities is expected to
prop-up the local demand for furniture. Nevertheless, it is too early to evaluate the full
extent of the impact of the COVID-19 pandemic on the domestic furniture market.

     To strengthen the industrial recovery from the COVID-19 pandemic, MFC has
been engaging with the industry and has continuously brought industry feedback to the

government departments’ attention. The solutions that MFC has given to the
government include:
     increasing allocation for special relief facility,
     allowing companies to release foreign workers and allow companies who are in
need of foreign workers to absorb these workers,
     launching buy-domestic campaign,
     intensifying press relations,
     giving e-commerce grant and solutions,
     offering automation and digitisation subsidies,
     helping companies collaborate with designers to fetch more value through ODM
and OBM,
     renewing and intensifying engagement with Malaysian trade promotion bodies for
global presence,
     completing export credit insurance,
     giving salary subsidies,
     reducing business operating cost by fee-reduction in utilities, assessment, permits,
licensing, rental (through tax rebate), and decrease in employers’ compulsory
contribution to employees’ savings and retirement fund,
     Abolishing GST.

Longer perspective
     For the long time, the furniture industry in Malaysia faces such challenges in
labour force, international competition and materials. To address these challenges, the
industry is working on the following directions for future development:
     first, lifting the freeze on hiring foreign workers and promoting automation and
mechanisation;

second, increasing value of exports through ODM and OBM;
    third, diversifying export markets and exploring potential markets in Africa etc;
    fourth, focusing on domestic market and sales and deterring online international
purchase;
    last but not least, diversifying material base.

                                     Source: Malaysian Furniture Council (MFC)