5/2017 Random events, facts, thoughts…

by Tan Thiam Hock

Saturday, 4 March 2017

Life is full of surprises. Random activities have been happening at the same time in Malaysia.

From nerve gas assassination to a diplomatic row with North Korea and the visit of a generous donor from Saudi Arabia. I was almost expecting a long range missile landing in our Straits of Malacca as part of a test launch!

Then there were many random discussions from various chat groups. From RU355 to KL Bar Council Elections to parents telling their children not to come back after graduating overseas. There was also a lot of chatter about Chatime, La Koffa, Loob and how to pronounce Tealive. Teeleaf or teelife?

However you pronounce, it is going be a major legal tussle between these two parties.

Unfortunately my minute brain is not able to process all these issues at the same time.

My poor brain has gone random. Worst time to go random as I sit myself down to write this article. This article will be disjointed, filled with fake news, mish mash of alternative facts and devoid of common sense.

Just like the current state of affairs in our country.

Random fact – Malaysia’s civil service employs 1.6 million people or about 11% of the labour force. According to our Second Finance Minister, there is one civil servant for every 19.37 people in this country. Just compare to our neighbours – Indonesia at 1:110 and Singapore at 1: 71.4.

Annual payroll for civil servants have risen to RM74bil or about 25% of our government expenditure budget. There is another RM19bil in pension payment annually supposedly paid from various pension funds.

There has been a recent call by a top retired civil servant to downsize the civil service and other calls to downsize the bloated cabinet. It will not happen for two reasons. The general election is round the corner and civil servants are mired in personal debts up to their necks.

For the past 10 years or so, civil servants had access to easy personal loans from non bank financial institutions (NDFIs) which are not regulated by Bank Negara. One can borrow a personal loan for a 20-year tenure with a repayment not exceeding 60% of their monthly salary. With the cost of living increasing at a relentless pace no thanks to GST and the falling ringgit, one wonders how the civil servant with a maximum personal debt make ends meet every month. Perhaps this is one of the major reasons why more and more civil servants need to supplement their salaries with alternative incomes.

Entrepreneurs should take note that the single biggest customer in any country is always the Government. Whether it is office space, financial services, stationery, computer systems, car fleets to catering for tea breaks and luncheons, a 1.6 million head count organisation is a big customer.

Humongous will be a more appropriate description. Competition for our government supply contracts is keen amongst the qualified bumiputra entrepreneurs. Besides competitive pricing, the right political connections can help determine the winners from the losers. Margins and markups will depend on the various level of middleman in the supply contract.

The government supply chain business has taken on new competition lately. Politicians of the ruling party or their family members are now competing with the genuine bumiputra entrepreneurs for the same contracts. Creative politicians can create new business opportunities through new government rulings and what-nots.

This political battle for market share is intense and divisive. What was once shared amongst colleagues has turned into a winner take all contest. Hence the massive political infighting drama that we get to see on a daily basis. Away from the government business, it has certainly been refreshing to see bumiputra entrepreneurs being highly successful in the private sector. In the traditional brick and mortar business, Al Ikhsan Sports has built the biggest sportswear retail chain in the country. With 120 retail oulets and a sales turnover of almost RM300mil, it was valued at RM200mil when Ekuinas took a 35% stake last year.

In the e commerce scene, FashionValet.com is certainly the most exciting startup that has scaled exponentially over the last three years. Fadza and Vivy, the young couple entrepreneurs started the FV site by promoting local designer clothes and apparels and since morphed into a major fashion and beauty e commerce web site. As part of their O2O strategy, they have set up retail stores in Pavillion, Bangsar Village and Orchard Road, Singapore. Exciting times ahead for this enterprising couple as they continue to expand their vision.

Another random piece of news that caught my eye was the proposed set up of the digital free trade zone (DFTZ) in Malaysia. The DFTZ is expected to merge physical and virtual zones and participants will enjoy tax exemptions and tax free imports (via e commerce purchases) worth RM1,200 and below.

Guess no tax means no 6% GST imposed.

Obviously, the DFTZ idea must have been proposed by Jack Ma who is digital adviser to Malaysia.

It is good to know that since April 8th last year, China imposed new tariffs on cross border e commerce which means that Chinese consumers will have to pay the local VAT of 17% on inbound e commerce purchases.

The Chinese government is encouraging Chinese citizens to buy domestic goods not foreign.

Possibly Ma had whispered into some powerful ears in Beijing as Alibaba consolidated its local e commerce business. Another random thought just came up. Imagine Alibaba either directly or through Lazada (which they bought last year) bring their top 1% supplier (out of two million) from China via their e commerce website and these 20,000 suppliers have their virtual office in our virtual DFTZ and warehoused their products in our physical DFTZ zone.

With a known production cost that is at least 30% cheaper than Malaysian producers, they can virtually set up a superior physical supply chain that will undercut all existing B2B and B2C businesses.

First to be disrupted will be the Malaysian importers who has been paying import duty and GST to our government, then the local manufacturers and local distributors and finally the collapse of our brick and mortar retail stores.

Thankfully, the government contracts will be spared the Alibaba disruption. But then with Alipay, their virtual payment gateway, anything is possible.

After all it bypasses our banking system and disappears into the virtual unknown. Nah … that thought was just too random.

Published: http://www.thestar.com.my/business/business-news/2017/03/04/random-events-facts-thoughts/

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