News From : DagangHalal.com (05 Oct 2009)
Their Production Costs Are High: Ghanim
Bandar Seri Begawan – Bruneian companies production cost has affected their chances of being immediately considered for inclusion in the list of food makers whose products would be marketed under the Brunei Halal brand.
At the moment, Ghanim International Food Corporation Sdn Bhd is not looking at local food producers due to the high operation and production costs, Noel Shield, interim chief executive officer at Ghanim, said in an interview with The Brunei Times.
“We are not concentrating on local production and nearly all of the companies we are working with now are all international companies, about 90 per cent,” said Shield.
“(This) for the simple reason that they’ve got fairly big production scales now,” he explained. “I’ve kept local companies on a separate list because I started to look at the local SMEs (small and medium enterprises) and went to visit them at their factories. I haven’t fully got into pricing structure, but what I’ve done is see how it is done and see where we can rake cost out of their current business.”
Once the brand’s marketing strategies get on stream though, it should be easier for high-cost SMEs to get on board.
Joseph Sequeira, technical director of Hamidjojo Development who has been researching markets for over 20 years, said companies with operations in Brunei do have to deal with higher costs in shipping their goods overseas.
“From my experience, average operation costs have to be broken down and compared to other countries before deciding how we fare in the market,” said Sequera. ‘The most important categories to compare are power, labour, transportation and raw material costs.
“In terms of power costs, Brunei is definitely lower and is one of the lowest in the region, but with labour, we are lower than Singapore but higher than Indonesia and Thailand,” he said.
One aspect of production that adds to fairly high operation cost is the Sultanate is raw materials and shipping.
“Almost everything is imported and with food and beverages as well, I believe. We do not really produce a lot of mw materials in Brunei and shipping adds to the cost of raw materials,” he said.
There is no direct shipping route to Brunei from common sources of raw materials. “So raw materials that come in from … Japan, China or Europe would have to stop at Singapore and then take another ship to Brunei, and this makes costs go up,” said Sequeira.
Shield said Ghanim’s strategy will be to build the brand so that it will be easier to introduce (later) local food under the brand.
Manufacturers that will be licensed to use the Brunei Halal brand are expected to easily penetrate growing Muslim markets.
Ghanim at the moment is working on accrediting mostly snack items due to their high visibility and volume sales.
“Niche products won’t do that for you,” said Shield, “but that’s part of the whole umbrella. So you’ve got niche products, snack products, fast moving products, impulse products and some local SME products,” he said.
“Niche products will be looked at in the next stage … because being a niche product, your sales aren’t going to be extremely high,” he said.
Shield added that by working with a good global retailer and by introducing a big range of products, it becomes easier to bring some of the local high-cost SMEs into the whole process.
“You’re never going to get a high-cost local SME into a major retailer without already having some strength. That’s why (local SMEs) are going to find it difficult, but I do think that there is somewhere to go and we have the potential to do this,” he said.
“We are still targeting the high disposable income market, that hasn’t changed in our strategy, such as Europe or the United Kingdom for the first stage,” he said. He added that the idea is “to get as global as possible”, but should other countries come online quicker, then their business model is flexible enough to consider those markets. “For example, we’ve had approaches from South Africa, where there is a big Muslim community, and it may be easier to establish the brand in South Africa than, maybe, Germany,” he said.
— Courtesy of The Brunei Times