US-China Trade War: Will Malaysia Be On Sale?

By Michael Hermens, Group Managing Director, APP Timber


I assume all of you are well aware about the ongoing trade war between the US and China and, likely, most of us have been affected either positive or negative. 

Vietnam is probably the biggest winner from this trade war, but this could be relative short-term as I already mentioned in the July/August issue. 

Surely, many Mainland Chinese manufacturers are rushing to Vietnam to open new factories and some are starting sawmills, buying American logs and selling the lumber back to China for domestic consumption. 

We do hear about Mainland Chinese companies interested to venture into Indonesia and Malaysia, but there are some obstacles. 

The current factories in Indonesia are predominantly using solid lumber producing products for the medium and high-end export markets and there are not many panel furniture producers in Indonesia who can cater for the low-end panel furniture being produced in China. And language might be a problem in Indonesia as few speak Mandarin. 

Malaysia has many factories using local Rubberwood producing low to medium-end furniture, as well a good number of panel furniture manufacturers and both could produce the Chinese products. 

However, Malaysian manufacturers are already facing labour challenges due to the fact that there is not sufficient local workforce willing to be employed in the woodworking factories, at least not at the current salaries. 

All work is currently done by foreign workers from Asian countries such as Bangladesh, Myanmar, Pakistan, etc. and many Malaysian factories owners are complaining about the lack of workers, the social problems they inhibit and the high cost to bring them into Malaysia. 

On a side-note, many Malaysian solid wood factories have invested far too little on automation and their labour costs have become relative expensive in relation to the final unit cost price of the products they produce. But the advantage of Malaysia woodworking is that it has an existing infrastructure predominantly owned and managed by Malaysian Chinese which makes is easier for Mainland Chinese to operate in here. 

Some mainland Chinese have come to Malaysia to set-up new factories which is probably well-liked by the Malaysian government, but not by the Malaysian factories owners since this could mean direct competition with them on foreign workers and the supply of local lumber. However, a good number of our Malaysian customers have shown serious interest to sell their companies during the last few years—many are ‘tired’ as it has become very difficult to retain the same profit margins as in the previous years and many of these owners are in their 60’s and unable to find successors willing to take over the business since their own sons and/or daughters prefer working in different industries. 

Very few of them succeeded in selling their factories but it seems that there are now good opportunities for them to sell their factories to Mainland Chinese. This does not just apply to furniture factories, but also to engineered door and engineered flooring factories. 

The advantage for the Mainland Chinese owners would be that they have a fully operational plant complete with workers and local Chinese management and, for the Malaysian owners, they finally can retire with some cash in the bank after many years of hard work. 


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