Thursday, 27 August 2015

Weak ringgit a concern but let's address it objectively

In reality economies throughout the Asia region and the rest of the developing world are suffering from currency devaluation against the US Dollar. The quantum of devaluation may vary from one country to the other but their respective currency has depreciated nevertheless.
Many economists are in agreeable that despite the daily “beatings” on their currencies andSTOCK MARKET, the countries are now more able to with stand the shock, thanks to the lessons learned from the 1997/1998 financial crisis.
There are three primary factors as opined by economists to be the reasons for the current currencies turmoil.
Since two decades ago economies throughout Asia and the rest of the developing world have become dependent on China for their exports, such as; minerals, energy resources, timber and other commodities.
China has had astronomical double digits economic growth for most of the years since 1998. Beginning 2003 the nation’s GDP stood at 10% and peaked at 14% in 2007 and thereon not far off 10% each and every year. Until lately, in 2012 China’s GDP slideto 7.7% and began to slide further to 7.4% in 2014.
China growth has slowed further this year with the expected achievement of 7% and as such, as a counter measure, the Chinese government has recent moved to devalue the Yuan.
The devaluation of Yuan has since inflicted pressures on and hence depreciating other currencies especially the nations that depend on China for their exports. Malaysia is of no exception.
On the other hand, over the last five years, while the Chinese economy has been getting weaker the US economy instead has been getting stronger. This results in the Chinese government no longer required to intervene in theCURRENCY MARKETto ensure weaker Yuan, while the nation continue to enjoy export boost with cheaper Yuan dictated by the market force.
The above observation supports the second hypothesis as to the reasons for the current currency turmoil worldwide, particularly the Asian region.
The US economy has since been expanding for several years now, and the Central Bank of United States is now looking into tightening its monitory policy by increasing the nation interest rates, which is zero rates now, in the coming months.
The foreseen increase in interest rate by the US government has mooted investors investing in this region to begin moving their investments to the US.
The moves have resulted in the sliding ofSTOCK MARKET PRICES as well as currency devaluation within the region. Malaysia too has not been spared to suffer from this investment migration to the US and hence its currency depreciation.
Conclusively, the devaluation of the Yuan and the soon to be implemented interest rate increment by the US government, are largely attributed to the current currency turmoil in the Asian region and the developing world.
In the case of Malaysia, the nation is further hit by the declining oil prices to the current level of about USD42 per barrel. The nation being a small oil producer the current price is simply uneconomical for export. This has resulted in higher devaluation of the Ringgit relative to non-oil production nations.
Understanding the currency devaluation phenomenon amongst the general public will ease the fear of its potential outcome. However, circulation of false news and opinions through the social media may elevate the public fear which is uncalled for. Instead positive perception and true analysis would be more helpful for the nation to ride the tide.
The current Ringgit depreciation is without doubt will have an impact on Malaysia industry, automotive inclusive. Various imported materials for parts productions will surely increase and are estimated to range between 8% and 20%.
It is commendable as to date the local automotive manufacturing community are able to bear the Ringgit depreciation. Perhaps they owe it to the lessons learnt from the 1998 financial crisis.
However, on the part of the government, monitoring on the impact of Ringgit depreciation on the automotive sector continues and measures are being debated should the situation necessitates for action.

Thursday, 20 August 2015

Impact of weak ringgit on auto industry - then and now

The Ringgit began to rapidly devalue upon the onset of the Asian financial crisis in July 1997 by some 50% from its original value of that time, which was RM 2.50 to a US Dollar.
The crisis was attributed to the role played by currency speculators. The currency than remained erratically fluctuating between RM3.80 and RM4.40 to a US Dollar leading to the government’s decision to peg the Ringgit, in September 1998, at RM3.8 to a US Dollar, thirteen month after the crisis began.
The de-pegging of the Ringgit in 2005 has resulted in the currency to steady appreciate almost immediately.
Fluctuations do occur from time to time, but the appreciation curve continued and settled at RM3.05 to one US Dollar as at September 2014.
It was at the same time that the global crude oil price began to cascade downward at a constant rate from slightly below USD100 down to the lowest value of about USD45 per barrel in February 2015.
The price began to erratically pick up and leveling at USD60 per barrel from April to the end of June 2015.Beginning July, the price again began to slide to the current value of about USD42 per barrel.
A simple analysis on the profile of oil prices against the values of ringgit from September 2014 to date clearly shows that the value of Ringgit was closely on same trail with the global oil price, where Ringgit devalues as the price of oil drops and visa-versa.
The effect of the 1997 financial meltdown on the local business community was devastating plunging the country into recession. The manufacturing sector shrunk by 9% and automotive industry was badly affected.
Prior to the 1997 Malaysia economy was enjoying a significantly high growth rates and the automotive industry in particular was rapidly expanding.
Massive investments on capital assets were on-going in pursue of the growing capacity requirement by the industry.
As the local industry is dependent on imported capital assets, all investments were made on financial borrowings in US Dollar.
The onset of the financial crisis has devastatingly affected the investments rendering many of the automotive companies to suffer huge debt as the Ringgit devalued.
The situation was bad mainly due to the fact that most local automotive parts and components producers were only dependent on local market with very little export activities.
While earnings were in Ringgit their debt financing were in US Dollar, rendered their cash flow deficit tremendously.
The current Ringgit devaluation is bearable relative to the 1997 episode as most of the local automotive players are established having amortised most of their assets and are very prudent in their investment ventures.
However, procurement of raw materials, parts and components and manufacturing tooling which are import dependent may affect their cost of production,and hence cash flow situation and profitability, unless sales prices adjustment are possible within the local market condition.
In economic terms, companies that are export oriented will benefit more with the Ringgit devaluation, and this is especially true if their input raw materials are from local resources.
On the other hand companies that are majorly dependent on local market will not benefit from the Ringgit devaluation, but will be affected should their raw materials are imported.
In the light of the NAP 2014, promoting exports activities by the local automotive players and encouraging their development and employment of locally available raw materials and tool making capability are among the priorities.
These may ensure their ability to face future challenges should Ringgit devaluation may at any time ensue.

Thursday, 13 August 2015

Euro 5 diesel crucial to EEV initiatives

“Green fuel” revolution for automobiles was gaining its momentum when the United States introduced unleaded petrol as early as 1971.
Malaysia began to regulate the reduction in lead content of the nation's petrol supply in 1985 and further reduction was enforced in 1990. Nine year later, in 1999, the nation petrol supply was declared totally unleaded.
It took some 14 years before the harmful leaded fuel was removed from the nation supply network.
One primary consideration for the gradual removal of leaded fuel from the market was the existence of vehicles that were dependent on leaded fuel for their propulsion's, particularly those engines that used lead to enhance octane ratings and help with wear and tear on valve seats within the engine.
While unleaded fuel supply infrastructure and network were being organised automotive manufacturers were intensifying their production of unleaded engines for their vehicles.
Gradually the unleaded vehicles were replacing the leaded ones and during the period of fourteen years the leaded cars and fuel ceased to exist in the country.
Similarly, European nations began to implement the Euro 1 standard in 1994 replacing their leaded fuel with the unleaded version, with an additional requirement of fitting the universal catalytic converters to their petrol cars to reduce carbon monoxide (CO) emissions.
The European Community began their focus on limiting carbon monoxide emissions of vehicles through the implementation of Euro 2 fuel standards in 1996.
Euro 2 also initiated the emission limitation for other environmentally harmful gaseous such as unburned hydrocarbons and oxides of nitrogen for both petrol and diesel vehicles.
Substantial reduction of sulfur contents in fuels were also regulated under Euro 2 limiting the content to a maximum of 500ppm for diesel engine.
Sulfur is naturally present in fuels. Sulfur combines with water vapor that formed during engine combustion transforming into sulfuric acid which is emitted into the atmosphere though the vehicles exhaust.
The corrosive compound of sulfuric acid is not only harmful to the engine parts, its emission is a major environmental pollutant returning to earth in the form of “acid rain”. This contaminated rainwater is now recognized to have destroyed or degrading vast agriculture land.
Thus Euro 2 marked the beginning of a major part of vehicles emission control programs on removing sulfur from vehicle fuels in many nations.
Implemented in 2000, Euro 3 stipulated further reduction in sulfur contents for diesel and petrol set at 350ppm and 150ppm respectively. Further reductions of the above mentioned harmful gaseous were also enforced.
Euro 4 and Euro 5 fuels standards were respectively implemented in 2005 and 2009 ensuring further reduction in sulfur contents of 10ppm and harmful gaseous emission in vehicles.
As of September this year, all new petrol and diesel cars sold in Europe must meet the Euro 6 standards, imposing a further 67 per cent reduction in Nitrogen Oxides exhaust emissions compared to that of Euro 5 for diesel engines, which is a significant challenge for many automotive manufacturers to fulfill.
Malaysia motorists have been accustomed to Euro 2 diesel fuel since 2009.
In 2014 some 13 stations in the southern part of Malaysia began to sell Euro 5 diesel marking the beginning of high end fuel quality entering the country.
Beginning August, Euro 5 diesels will be available in Klang Valley and nationwide in the third quarter of this year.
The introduction of Euro 5 diesel fuel into the local scene is integral with the Energy Efficient Vehicle (EEV) policy as outlined in the National Automotive Policy (NAP) 2014.
To achieve the engine efficiency and emission levels required of EEVs fuel quality is absolutely important.

Friday, 7 August 2015

Exercise wisdom when sourcing info from social media

“The saddest aspect of life right now is that science gathers knowledge faster than society gathers wisdom”, an interesting observation by Dr. Isaac Asimov, an American author and a professor of biochemistry.
It is indeed true that today’s internet provides information of all sorts from around the globe. Information is the source of our knowledge, science or otherwise, readily accessible via modern electronic gadgetry; desktop computers, Lab-top, iPad and hand phone.
News and information travel fast through the social media and spontaneous public reaction is attainable carving opinions on any issue posted. Gone were the old ways of obtaining public feedback through surveys and reports compilations for issues raised.
On the other hand, with the ocean of knowledge and information now accessible to us a question arises is that are we able to use the information wisely, accessing the truthfulness and accuracy of what is being informed or discussed in the social media on any issue in question.
Most industries are now impacted by social media and automotive industry is of no exception. Vast discussions on all aspects of automotive from; vehicle purchases, repair and maintenance issues, quality of vehicles and their parts and components, and vehicle performances are available on the social media and the internet.
A study showed that some 38% of vehicles new buyers resort to social media in search for information to assist in their decision on vehicles makes and models prior to purchase. Moreover 41% claimed that posts on Facebook have somewhat influenced their vehicles purchase selections.
Some 25% of vehicles owners use social media to source information, opinions and experiences of other vehicle users on the aspects of post purchased related issues such as repair and maintenance, vehicles modifications, etc.
Typically automotive manufacturers attained their vehicles quality feedback through their respective vehicle tests and inspections procedures, warranty claim reviews, dealership service records or insurance claims database.
The advent and widely used of social media by the public in recent years have convinced some automotive makers to resort to social media as one of the means to obtain feedback on their manufactured vehicles. Social media now assist these vehicles manufacturers to gather customers’ complaints and to identify quality issues long before they become crises.
Locally social media has to a certain extent now taken the front seat as information source for automotive users and enthusiasts. A positive trend no doubt but not without concern of its impact on public perceptions on various issues being promoted and discoursed.
Glaringly, while greater percentage of social media users in the advanced nations promote intellectual discourse on all issues related to automotive discrepancies, local social media participants in general prefer to highlight grievances and negative criticisms.
Perhaps such conundrum behavior among local social media participants may be attributed to them not being knowledgeable enough or lack of skill and expertise on the technicalities of the subject under discourse. However perceptions that are created can be damaging.
Conclusively, the use of social media should be encouraged and social media should be in the public domain as a source of information. However, users must exercise their wisdom in digesting the information presented by segregating poor assessments and opinions against validated and truthful views of experts.

Monday, 3 August 2015

Introverts can be both good workers and leaders

Reminiscing about my recent Raya celebration with some childhood acquaintances and former colleagues in Sibu, Sarawak, one of the things that did not change was the warm welcoming feeling my family felt when visiting them.

While many of them were inquisitive about global happenings, they are quite happy and in fact preferred to stay and make a living in Sibu.

The two days of Raya were enjoyable. However, many of my old colleagues were as reserved as ever, preferring to listen than to talk.

A good description of their behavior is that they are "introverts".

Contrary to popular belief, introverts are not persons who are shy but prefer to listen and enjoy thinking and exploring on ideas in any situation, conversation or group undertaking.

Extroverts on the other hand are outspoken individuals who talk through their thoughts, outgoing, assertive, bold, and are at times even domineering.

The observation that I made about my childhood friends and ex-colleagues strikes me as something that would never have crossed my mind, especially with regards to people management.

The question that arose in my mind is have we been ignoring the introverts in our workplaces and depriving them of workplace advancement and leadership positions?

Customarily, in the workplace, extrovert leaders tend to stand out, be recognized and even rewarded. Businesses have not even realized that in certain circumstances, introvert leaders can be more effective.

Research has shown that groups of passive workers are better led by extrovert leaders, while proactive teams were found to have performed better when led by introverts.

This is so as proactive workers are naturally self-confident needing less direction and prefer a leader who is less assertive, but more participative.

The introverted "quiet achievers" are more often pushed to the background by their silent nature, while the extrovert workers who are more visible will get all the attention and reap most if not all the rewards.

Organizations that fail to recognize this human nature in their workplace would not be able to maximize the potential output their establishment has to offer.

By fostering a work environment where people are encouraged and feel free to speak up and be proactive, the organization is creating the right place for introvert leaders and workers to surface and contribute.

Japan has historically and culturally embraced introverts.

Asian societies, particularly the rural populace, are generally introverts placing a high value on remaining calm, well-mannered, attentive and paying attention to details in their social fabric.

Malaysia's rapid industrialization has seen urban migration into established industrial zones.

The local automotive sector for one has drawn the rural population into cities seeking jobs and many are involved in the vehicle assembly lines and vendors' component production.

Perhaps being introverts, as a legacy of their rural heritage, these workers may shy away from contributing ideas in the workplace that could lead improved performance or better business practices.

The introvert nature of these automotive sector employees may retard the competitive drive that the automotive industry is so keen to foster. This phenomenon may require examination and resolution by industry managers and leaders before the automotive sector can reach its full potential.

We often expect corporate executives to conform to certain extrovert characters in order to lead and face the challenges ahead, but there are many introvert chief executive officers (CEOs) who are successfully able to push their organizations to greater heights.

These introvert CEOs are non-confrontational in handling conflicting issues, believing that "silence can sometimes be the most eloquent reply" on issues raised.