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A Value Chain Analysis of a Palm Oil Exporting Company in Peninsular Malaysia, Malaysia: The Case of Selangor Palm Oil Sdn Bhd (SPOSB)
Field Study Abstract:
The oil palm industry in Malaysia has played a vital role in agricultural diversification and is now considered the most important export crop. Malaysia is currently the world’s largest producer of palm oil and palm kernel, with Indonesia ranking second.
Strong market competition is one of the main reasons why the Malaysian oil palm industry has been plagued by market instability and price fluctuation giving a negative effect to the export demand. Furthermore, Malaysian palm oil also faces numerous trade barriers in the world market. Consequently, the local and overseas government’s policies are very sensitive to the export demand for palm oil.
SPOSB was established in Malaysia on 1 August 1975 as a corporation. It is a subsidiary of one of the biggest government-owned companies with a paid-up capital of MYR303 million, which has 10 alliances. The function of SPOSB is to buy palm oil fruits from the company-owned, small-scale and government-owned plantations.
SPOSB’s main products are crude palm oil and crude palm kernel oil. In relation with SPOSB, the value chain analysis was divided into four main groups of steps: (a) customer analysis, (b) firm analysis, (c) sectoral analysis, and (d) linkage analysis. The analysis showed how the performance of one company can be improved by creating values anywhere or everywhere along the chain, from consumers to the traders to the company itself. Ultimately, the results of the application of the findings in the value chain analysis were measured in financial terms.
From the SWOT analysis, it was found that SPOSB had few weaknesses such as general reluctance to venture offshore, and too much dependence on the government agencies for marketing and research and development (R&D). Additionally, most estates (suppliers of palm fruits) were still depending on immigrant labor. There were also several threats, including strong competition from soybean oil in the international market, stringent environmental regulations, few global giants dominating the industry (oligopolistic competition), and perceived over-investment (excess capacity).
Based on the findings using the value chain and SWOT analysis, the overall strategy of SPOSB should be to maintain its performance in areas where it is strong and improve its performance where it is weak.
The SPOSB products were homogenous—in which the level of quality was very difficult to determine by simply looking at the physical appearance of such products. It was quite impossible for SPOSB to try lowering their costs as compared with other domestic exporters or foreign exporters especially from Indonesia because of the difference in input and production costs. Therefore, focus strategy is the best strategy to be carried out by SPOSB.
Every player in the industry should focus on market segmentation, new product development and innovation, positioning in the chain, and market specificity.