Malaysia: SME’s in the Halal sector

from MALAYSIA SME magazine

By Chan Ching Thut

The halal sector is more than just about food products as it also includes various types of services offered to the Muslim population. World Halal Forum director Abdalhamid Evans feels more trained personnel with relevant skills and knowledge related to the halal sector is needed and this is a big opportunity for Malaysia.

In addition to that halal is not merely being compliant with regulations set by authorities and getting relevant certification in order to sell halal products and services. These products and services must also meet international standards to supply high quality products with consistency so that it will be easily embraced by consumers in international markets. Malaysia strives to position itself as a global halal hub and Evans thinks that it has to recognise its own real strengths and weaknesses in the halal sector to become a true global player.

As the country once again hosts a series of events throughout Halal Malaysia Week, including the World Halal Forum from April 4 to 5, Evans tells MALAYSIA SME about the local halal sector, the misconception and challenges faced by SMEs in this sector and how the government can further develop it.

MSME: It is often said the global halal markets offer significant opportunities for businesses to tap into. What exactly are those opportunities by taking into account of the world population and the type of products and services that is required?

Evans: The Muslim consumers make up around 25% of the world’s population and this percentage is rising year-on-year. If you consider the value of goods and services used by this demographic, then the market is clearly huge. Halal products such as meat and poultry non-meat food, personal care, cosmetics, pharmaceuticals and health products, and services including Islamic finance and takaful, travel for pleasure, education and healthcare are the obvious entry points into the market. Of course, there are plenty of other subsectors like media, consulting, events, online services, software development, logistical services, lab testing and many other things that can all benefit from the growth in the overall halal sector.

MSME: What is the global market value for the halal sector in terms of trade?

Evans: The most recent figure that has come out from the World Halal Forum secretariat is US$661 billion for the global halal food sector. This figure is of course much higher if you consider the non-food elements in the halal market that I have mentioned before. For the food and non-food goods and services market, there is an estimated value of over US$2 trillion globally. The interesting point here is that this market is expanding. Demand far outstrips supply, especially in the developing Muslim minority markets in the western world, where the consumers have high disposable income and not a great deal of product choice. The halal market used to be solely focused on meat and poultry products, but the parameters of what constitutes the halal product sector is now more diverse.

MSME: What is the market value of the Malaysian halal sector in 2009 and 2010?

Evans: Malaysia’s halal food market was US$8.2 billion in 2009 and US$8.6 billion in 2010.

MSME: Currently, what are the sub-sectors of the halal sector that Malaysian SMEs are actively involved in? Are there any sub-sectors within the halal sector that is not fully explored?

Evans: Food manufacturers in Malaysia still have a big opportunity to fill in some of the import gap. Malaysia is a net food importer; that represents an opportunity for local companies. SMEs are always encouraged to look for export opportunities but I think that there is a big opportunity to serve the domestic market as well. As the Malavsian market is already familiar with many non-food products being halal-certified, there are many developing sectors that are also good opportunities. The personal care, cosmetics, toiletry, healthcare and pharmaceutical sectors all offer opportunity and some local SMEs have been very successful in these sectors. I think there are still very good opportunities in the halal-related services sector also. There is a global need for more trained personnel with skills and knowledge relating to the halal sector and this represents a major opportunity for Malaysia. There are parallels with the Islamic finance industry in this respect and some lessons can also be learned from them.

MSME: What are some of the hurdles faced by SMEs to enable them to realise the full potential of the halal sector?

Evans: I know that the major retail chains operating in Malaysia are looking to stock more local produce, but many local SMEs have trouble meeting the consistency of quality and supply that the big retailers demand. However, these goals have to be met in order to get the products onto the retail shelves. Many SMEs go to the overseas trade shows, come back with some big orders and then are unable to supply their buyers. The local SME manufacturers really have to move up to the next level, for example, to be more on par with Thailand. The service sector has to step up a notch and emulate Singapore. The examples are right there, next door. There are difficulties for Malaysian food producing SMEs with raw material supplies. Cost and availability present challenges, and these have to be overcome. This is where government support is needed, not in terms of it halal financial support, but of making changes to remove some of these generic disadvantages.

MSME: What are the strengths of Malaysian SMEs in the halal sector?

Evans: There is no question that Malaysia still has a strong reputation in the halal sector, globally, and a Jabatan Kemajuan Islam Malaysia (Jakim) halal certification is still strong in a market that is often confused about whether halal logos are really authentic. However, this has to be translated into high quality products, and in this respect, it is the same for the mainstream food sector. It is the right product with right taste and right packaging on the right shelf. I still do not think that Malaysia has been able to leverage on its potential advantages.

MSME: What is the misconception among SMEs in relation to the halal sector? What is being done to overcome this perception?

Evans: Malaysian SMEs have to start thinking outside the box. There has been, in the past, a general idea that if products have a Jakim logo, it will get their products into the global market. This is really not the case. If you cannot meet international standards and supply high quality products with consistency, then the export markets will always be very challenging. Some of the changes that are really needed have to do with attitude, in a way. From the perspective of the international market – and this really also applies if you want to get into the big retails chains locally – the challenge is not the halal certification. The challenge is to produce to international standards, like British Retail Consortium (BRC). If you produce to that standard, the halal compliance is easy. It is an add-on, really. Sometimes, there is a tendency here to think the other way round. If I have got halal certification, I can gain market access and this is not the case. The real challenge for local food producing SMEs is to meet international standards. This is why our neighbours are more successful, both in the products as well as the services sectors. It is no good thinking that just because Malaysia is a global halal hub, then everything will magically open up. Life is not like that.

MSME: The Malaysian government has been supportive in developing the country as the global halal hub. What other measures should the government undertake to further boost the halal sector in Malaysia?

Evans: I think that Malaysia’s halal initiative started very well in 2004, say until 2007, at which point it lost focus. Money and politics came into the picture, and the vision of the goal was lost to some extent. So, even now, in 2011, if you are to ask people in the halal sector what Malaysia’s halal agenda is, no one can really give you a clear answer, either from the public or the private sector. It is natural to face difficulties moving from vision to implementation; this is always the case. However, in order to reach the vision, you have to first put capable people in charge and give them the necessary political, financial and human resource support. Secondly, you have to not lose sight of the vision. This is not just a matter of “sticking to the plan”, because life itself does not stick to the plan. You have to be able to revisit the vision and assess whether you are on track and make the necessary adjustments in the right direction. I think Malaysia has yet to recognise its own real strengths and weaknesses in the halal sector. If this is not achieved, there will be a lot of wasted time and money, and the success will inevitably be limited. After so much publicity about halal coming out of Malaysia, all the competitors have developed their own plans and there is a danger that Malaysia may become slightly marginalised unless there is a revitalised strategy and implementation to go along with that.

MSME: Do you think the halal industry still require financial assistance or incentive for it to develop further? Why do you say so? Can you please give some examples of financial assistance or incentive that is still given out by the government to help SMEs in becoming halal producers of products and services?

Evans: There are various incentives, grants and soft loans that are available to Malaysian SMEs that are all listed on various government websites. However, in my experience talking to local SMEs, there seems to be a lack of connection between the government incentives and the needs of the SMEs. There is general reluctance among SMEs to go for, say a matching grant, as if they are unsure whether they would ever see the grant money! Thailand has been very successful in developing SMEs for the international market, and I think there is sometimes a slight complacency in Malaysia that needs to be overcome in order to be really competitive in the market.