Man­u­fac­tur­ing

Pa­pua New Guinea’s man­u­fac­tur­ers are find­ing dif­fer­ent meth­ods to deal with tough mar­ket cir­cum­stances.

Business Advantage Papua New Guinea - - Contents - By David James

PEO­PLE ARE TAK­ING MAN­U­FAC­TUR­ING IN­DUS­TRIES OF A SIG­NIF­I­CANT SCALE INTO THE HEART­LAND. Chey Scov­ell

The strate­gies busi­ness lead­ers adopt in dif­fi­cult eco­nomic cir­cum­stances de­ter­mine both the com­pany’s ca­pac­ity to sur­vive and abil­ity to ben­e­fit when the econ­omy im­proves.

Many of Pa­pua New Guinea’s man­u­fac­tur­ers are fac­ing just such a pe­riod. Some are em­ploy­ing highly de­fen­sive strate­gies; oth­ers are more prospec­tive.

‘You are just more con­ser­va­tive,’ says Stan Joyce, Man­ag­ing Di­rec­tor of SP Brew­ery, PNG’S largest brewer. ‘You pro­tect what you have got, which is still a lot more than what we had be­fore we started out on this won­der­ful jour­ney. We will wait for the next wave to come through.’ Com­mod­ity prices Man­u­fac­tur­ing ac­counts for about seven per cent of PNG’S GDP, ac­cord­ing to the In­ter­na­tional Mone­tary Fund. The econ­omy’s heavy de­pen­dence on re­sources in­dus­tries means that the fate of man­u­fac­tur­ers is heav­ily af­fected by what hap­pens in the global com­mod­ity mar­kets.

Nowhere is this more ev­i­dent than in the avail­abil­ity of for­eign ex­change. Chey Scov­ell, Chief Ex­ec­u­tive of the Man­u­fac­tur­ers Coun­cil of PNG says some PNG man­u­fac­tur­ers are strug­gling be­cause they can­not source their in­puts.

Michael Kingston, Chief Ex­ec­u­tive of KK Kingston, says get­ting for­eign cur­rency is the num­ber one is­sue. ‘The big­gest chal­lenge on ev­ery­one’s lips, and we are no dif­fer­ent, is for­eign ex­change—ob­tain­ing suf­fi­cient for­eign cur­rency to pay our raw ma­te­ri­als sup­pli­ers,’ he says.

‘ We are a fairly di­verse com­pany so there is quite a long list. We are not just grin­ning and bear­ing it, we are try­ing to find so­lu­tions to make the sit­u­a­tion a bit more bear­able.’

At the same time, some man­u­fac­tur­ers are ben­e­fit­ting from the lack of for­eign ex­change as PNG com­pa­nies and cus­tomers pur­sue lo­cal op­tions. ‘ We have clients who don’t want to go through the has­sle of get­ting the for­eign ex­change,’ says Frank Mcquoid, Chair­man of steel fabricator Steel In­dus­tries.

‘ We have five new in­dige­nous man­u­fac­tur­ers of saveloys lo­cated through­out the High­lands— some­thing we have never re­ally had be­fore,’ Scov­ell tells Busi­ness Ad­van­tage

PNG. ‘Peo­ple are tak­ing value-added and man­u­fac­tur­ing in­dus­tries of a sig­nif­i­cant scale into the heart­land where peo­ple are. It is re­ally pos­i­tive.’ The kina Mikael Ruben, Man­ag­ing Di­rec­tor at paint man­u­fac­turer Ak­zono­bel PNG, says the level of the kina af­fects his com­pany’s profit mar­gins. ‘ We pay in US dol­lars, so that means that ev­ery­thing will be­come much more ex­pen­sive,’ he says.

‘ We have sev­eral ex­pats work­ing in the com­pany who get paid in for­eign cur­rency, so of course if the kina weak­ens that is also an ad­di­tional op­er­a­tional cost.’

Joyce says one re­sponse is to move to lo­cal sup­pli­ers when pos­si­ble. ‘There is no doubt we are do­ing that, you can do those things to mit­i­gate it.’ In­fras­truc­ture The qual­ity of in­fras­truc­ture is an area of great con­cern to man­u­fac­tur­ers, al­though Scov­ell says there have been many ad­vances, es­pe­cially with the roads. He says the gov­ern­ment has in­vested in in­fras­truc­ture ‘re­ally for the first time since In­de­pen­dence’.

Ruben says the prob­lems are on­go­ing. ‘ We have all the in­fras­truc­ture mat­ters: power cuts, wa­ter short­ages, and high op­er­a­tional

costs, ship­ping around the coun­try to our cus­tomers,’ he says. ‘That im­pacts on all the op­er­a­tional chal­lenges of the com­pany.’

Joyce agrees, point­ing es­pe­cially to the high cost of the in­ter­net and the lack of con­sis­tent power. ‘There are al­ways lo­gis­ti­cal chal­lenges. The High­lands High­way is an­other one.’ Dif­fer­ent strate­gies The ap­proaches of PNG’S man­u­fac­tur­ers dif­fer de­pend­ing on the na­ture of their busi­ness and their po­si­tion in the mar­ket. Jean-michel Le­je­une, Gen­eral Man­ager at Goodman Fielder PNG, says the com­pany is tak­ing a long-term view and em­brac­ing a counter-cycli­cal strat­egy.

Ruben says Ak­zono­bel is look­ing to re­gain mar­ket share that it lost dur­ing the con­struc­tion of the PNG LNG pro­ject, when other com­peti­tors en­tered the mar­ket.

Kingston says K K Kingston’s mix of of­fer­ings pro­vides a ‘use­ful hedge’. ‘When min­ing is down, for­tu­nately our ex­po­sure to the more gen­eral con­sumer mar­ket and the gen­eral com­mer­cial in­dus­trial mar­kets acts as a nice buf­fer against the down­turn in the min­ing sec­tor.

‘That said, when there is a down­turn in the min­ing sec­tor it even­tu­ally flows through to the con­sumer sec­tor and the com­mer­cial and in­dus­trial sec­tor as well.’

Scov­ell says many man­u­fac­tur­ers de­vel­oped in­ef­fi­cien­cies dur­ing the boom, which they are now ad­dress­ing. ‘This down­turn has put them in a po­si­tion where they have had to max­i­mize all their ef­fi­cien­cies—in­vest a lit­tle bit more in up­skilling some of their peo­ple so they can im­prove their pro­duc­tiv­ity a lit­tle bit.’

S P Brewery’s Stan Joyce

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