When more is less business

SHELDON Cooper, the genius yet eccentric character of the popular Big Bang Theory series, once argued that more is not merrier.

“If there were 2,000 people in this apartment right now, would we be celebrating? No, we’d be suffocating.”

This logic, interestingly, applies to the business world as well.

Theoretically, the emergence of more business players should raise competition and provide consumers with more options.

However, as an industry, overcrowding erodes individual businesses’ ability to sustain over the long-term.

It’s all about survival of the fittest. Eventually, the weaklings would fail and only a few capable players will be left in the market.

Take the Chinese car market for example. With over 150 car brands, manufacturers had to focus on gaining market share rather than making profits on the sales of their cars.

Xiaomi, for instance, reportedly lost US$9,200 for each US$30,000 electric car it sold.

The brutal price war resulted in only two Chinese electric car makers being profitable, as reported last year.

Even so, the profitable carmakers – BYD and Li Auto – had to make do with thinner margins as they kept churning out new models. Experts foresee an impending consolidation in China’s car market.

What’s the impact on the consumers who bought cars from the failing makers? What will happen to the warranty and after-sales services?

Malaysia, too, is not alien to price wars and their debilitating effects.

The classic examples are homegrown courier players Pos Malaysia Bhd and GDEX Bhd.

Now mired in losses, both Pos Malaysia and GDEX suffered a big impact when foreign parcel delivery players slashed prices to capture market share domestically.

The reality is, it is not easy to compete when your business rivals are flush with cash and are ready to offer services at ultra-low prices or in many instances, at zero cost.

It is, therefore, not unfathomable when the government finally decided to raise the floor price for delivery of parcels of below 2kg to RM5 from RM4 previously effective since Dec 1, 2024.

Then again, was the measure a wee bit late? Will it have enough firepower to help the struggling homegrown players?

The courier industry is not the only one facing tough competition following the entry of foreign players.

The Malaysian steel and automotive industries are also feeling the heat.

Amid intense competition from major steel producers such as China and Vietnam who often undercut Malaysian players by selling below normal market value, it limits the local steel industry’s ability to sustain and expand.

In the automotive sector, the influx of Chinese brands is turning up the heat on existing players in the country.

The Chinese carmakers’ ability to offer a variety of features at attractive pricing is tough to beat not just for Proton and Perodua, but also for more established European brands.

In 2024, for the first time in history, two Chinese auto brands – Chery and BYD – emerged in the top 10 list of most cars sold.

When it comes to auto parts, Malaysian vendors for Proton are also crying for help as they complain that the national carmaker is sourcing parts from China.

Beyond the heavy industries, the influx of Chinese brands into the bubble tea landscape is also glaring, with the mushrooming stores of Mixue, Bingxue and Chagee.

Mixue, which is en route for an initial public offering (IPO) in Hong Kong, has over 300 stores in Malaysia despite only entering the market in 2022.

Chagee, founded in Yunnan, has over 150 stores across Malaysia after opening its first local outlet in 2019, according to its LinkedIn profile.

The Malaysian bubble tea landscape, which was once dominated by Taiwanese brands, is slowly being populated by Chinese brands.

As Chinese tea brands eat up local market share, it is perhaps not surprising that Tealive is expanding its footprint actively beyond Malaysia.

Earlier this month, it announced its venture into the world’s most populous market – India.

This follows the company’s penetration into the United Arab Emirates last October.

Had Tealive remained only a local brand, the rising competition in the domestic bubble tea market would surely affect the company’s quest to get an attractive valuation for its IPO, which was supposed to have happened late last year.

Quoting Creador chief executive officer Brahmal Vasudevan, Bloomberg reported previously that Tealive planned to go for its IPO in the final quarter of 2024.

Creador is the private equity firm that backs the company.

Whether it is a bubble tea business or automotive industry, the massive influx of foreign players or products is a double-edged sword for local entrepreneurs and supply chains.

On one hand, more competition pushes local businesses to innovate and to embrace economies of scale. The bottom line is, productivity must move north.

They may have to also lower their selling prices to compete with foreign players who do not mind having a lower profit margin.

This in turn is beneficial for consumers who, for a long time, have been paying for overpriced products.

Local business owners must be agile to make their operations more cost effective, in order to lower product pricing without affecting their fat margins.

In short, it cannot always be business as usual.

Local business players should not always cry for help without taking the first step or risk to fight neck and neck without new market entrants.

That said, the government must acknowledge the fact that improvement in productivity alone cannot help a local business compete with a strong and established foreign rival.

An up-and-coming homegrown company may not have all the resources at its disposal, especially monetary backing, to compete and to build economies of scale.

In the case of Xiaomi, which is deliberately selling its EV at a loss to capture market share, can a Malaysian EV producer, with minimal financial backing, compete with it?

There must be adequate protectionist measures to help Malaysian businesses sustain their operations.

However, learning from the mistake of protecting Proton for decades prior to the entry of Geely as the major shareholder, any protectionist measure should have its own timeframe and be based on certain key performance indicators that must be met.

The government has to be proactive and move fast enough to address predicaments faced by local businesses due to dumping or overcrowding of foreign competition.

What happened in the courier landscape should serve as a lesson where actions to introduce floor pricing should have been undertaken earlier.

A nation cannot run on liberal economic policies alone, especially when the other parts of the world are subsidising their products or are introducing protectionist measures in the form of tariffs.