Week in Review: Double edged sword called DFTZ

• Malaysian SMEs in consumer space will feel heat, up digital game to compete with China
• Senheng MD, Lim Kim Heng, speaker at What’s Next urges SMEs to move up value chain

AS I write this week’s column, Jack Ma is launching the world’s second Digital Free Trade Zone in Malaysia, suitably located by the Kuala Lumpur International Airport (KLIA). And while the Malaysian government is hailing the launch of the DFTZ, officially called, KLIA Aeropolis DFTZ Park, as a major step forward for Malaysian small and medium enterprises (SMEs) to expand their markets globally and to China, I have been getting different vibes on the ground.

There is a sense of unease and worry that the DFTZ, Alibaba’s first regional eFulfillment hub outside China, will serve more as an entry point for Chinese SMEs to penetrate the Malaysian market, than the other way around for Malaysian SMEs to penetrate the Chinese market.

Why should this be so? According to one entrepreneur, it is simply because Chinese SMEs are more savvy in using digital tools and more experienced in eCommerce than their Malaysian counterparts. They are also closer to the source of where most of the goods are made and will have a price, scale and speed advantage over their Malaysian competitors.

The same fears were also shared by an entrepreneur in the logistics space. The widespread belief is that Malaysian SMEs dealing in products for the consumer market, where there is a comparable Chinese competitor, will lose out. And while a big deal is being made of the fact that 1,972 export-ready SMEs are gearing to capture greater export markets, we will have a clearer picture a year down the road on how successful they have been from the setting up of the DFTZ.

And I do sense that our products based SMEs are beginning to feel the heat and will have to respond now, and I think that’s great. A former technocrat I spoke to shared how he failed in three years to get a single SME to sign on for a government programme designed to help them go digital – for free. The reason? It included digitizing their supply chain and accounts the SMEs did not want their sales and inventory to be made transparent.

Well, with a hungry Alibaba in town and having successfully opened up the Malaysian market for its SMEs, any Malaysian SME entrepreneur that still wants to think of hiding sales, inventory or anything else about the business instead of going digital, will sooner rather than later, not have a business to worry about.

And as Lim Kim Heng, cofounder and managing director of Senheng Electric told me yesterday, our SMEs have to move up the value chain into higher quality products to compete with the Chinese. As the owner of the largest retail chain business in Malaysia, Lim says that for businesses such as his, the only way forward is to embrace the offline to online or O2O model. Lim though calls it, “new retail” the term that Ma himself has coined which encapsulates retail as being about the integration of online, offline, logistics and data.

Lim himself has gone online selling his goods, having introduced his eCommerce site last year. A humble man, he just smiled when I told him that the design of his site was poor. Already aware of this, in response, in March he is taking a group of his managers, numbering close to 30, to the Alibaba headquarters in Hangzhou, China for a week of classes in the Alibaba university to get them all up to speed as digital-savvy managers. He is taking part himself. “I am the leader, I have to.”

You can listen to more about what Lim has to say about how his chain of 130 retail outlets has to adapt to the new reality of retail by grabbing your ticket for What’s Next: The Business Impact of Disruptive Technology conference on Nov 9. Or call Suraini at 0132953498.

Lim is not the only Brick & Mortar leader who will talk about their digital journey. There is a billion ringgit property company CEO, the CEO of a leading insurance company, a leading logistics company CEO who grew his father’s business from RM1 million to over RM500 million today and has himself gotten into eCommerce in partnership with a company in the Alibaba stable of companies, the chief strategy officer of the largest banking group in Malaysia and many others, including some startup founders.

And if you are lucky, you may even get an invitation to the speaker’s dinner on Nov 8!

With that, I wish you a restful weekend and a productive week after.

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