If you had to rate the importance of research and development (R&D) on a scale of 1-10, with 10 being ‘extremely important’, what score would you give it?
Many small to medium-sized enterprise (SME) owners do not understand, or at least underestimate, the importance of R&D and it is all too often pushed aside to make way for aspects of the business which are deemed more crucial.
However, R&D provides a platform for creativity and innovation to flourish in an organisation, and many innovative breakthroughs have only occurred as a result of countless years of R&D.
On a larger scale, R&D is also vital for the development of the country and to maintain our competitiveness in the international market.
The dynamism of the business enterprise sector plays a large role in whether Malaysia will achieve its target of a two per cent gross domestic expenditure on R&D (GERD)/gross domestic product (GDP) ratio by 2020.
In the 2015 Unesco Science Report: Towards 2030, it was reported that while the private sector participation in R&D in Malaysia had risen significantly since 2005, it was still relatively low compared to other dynamic Asian economies, such as Singapore and the Republic of Korea.
Compelling reason to change
Segamat Panel Boards (SPB) originally specialised in high quality, thin panel medium-density fibreboard (MDF), but the product has become commoditised over the years with fierce competition coming from neighbouring countries such as Thailand, Indonesia and Vietnam.
As business cycles grew shorter, the company realised that its business model was quickly becoming outdated. This was partly due to the dwindling availability of rubberwood, the natural resource used to produce MDFs and other wood-based products.
“It’s not just our business model; it’s really a challenge for the Malaysian timber industry as a whole,” says SPB managing director Peter Fitch. “This issue has been highlighted over the years, but the progress in terms of finding a solution for the industry has been very slow, or not happening at all.”
“Fortunately, the Ministry of Primary Industries (MPI) finally seems to understand that this is a real issue, and now the focus is on having the private sector lead the change, instead of the government institutions.”
Challenges in R&D
Fitch says that the private sector – especially SMEs – are the birthplace of innovation, and the next phase of growth will come from these innovative ideas.
However, they are often held back by the fear of failure and tend to play it safe, preferring to be followers rather than leaders in the industry.
“They (SME owners) will see what others are doing, and they’ll do the same, with the mindset that ‘maybe we can be one or two per cent better because our labour costs are a bit lower’ or that they can do things a little bit better in other ways,” says Fitch.
Fitch believes that this mindset is – to a certain extent – created by government policies that seem to penalise, rather than support businesses in the industry.
“Many of these policies seem to be about how to restrict industries with all the rules and regulations, and this is all stifling innovation and the development of new businesses. There’s so much red tape that SMEs hesitate to step out and take a chance.”
For this to change, Fitch says that government agencies must realise that innovation and scalability originate from the private sector, and because the industry players know best, their advice should be heeded when it comes to creating policies that will directly impact the industry.
He shares an example of his experience in Thailand: “I attended a meeting between agencies from the government and private sectors, and it was very clear to see that the direction for innovation, changes, and any policies was coming from the private sector.
“The government agencies were told to support and facilitate those changes, to help the private sector develop further and reach their commercial potential.”
Fitch believes that this should be the case in Malaysia as well. Government agencies should facilitate the industry’s efforts to be innovative, instead of dictating its direction.
“If we make this change, it’s going to be a huge shift in mindset and more innovation will definitely start to come through,” says Fitch.
Unlike the majority of SMEs, SPB does not shy away from innovation. Faced with the decline of its main source of raw materials (rubberwood and tropical timbers), the company sought an alternative that would be more sustainable in the long term.
Through collaborations with researchers from several European universities, SPB successfully identified oil palm trunks (OPT) as a viable source of raw material.
At the moment, oil palm biomass – which includes OPT, empty fruit bunches (EFB) and palm fronds – is the most abundant but underutilised natural resource in Malaysia, as they are considered waste products.
Fitch says that several Malaysian institutions have worked on projects to utilise oil palm and oil palm biomass. “However, they kept coming to a dead end in terms of how to commercialise the process, so this is where we had to think out of the box – how we can use this material in a new way to create a product that would not just replace timber, but be more superior to it.”
He shares that the research conducted by the European institutions was originally on coconut palm, but they soon realised that some of this research and technology could be applied to develop timber-type materials from oil palm as well, since the two resources are similar.
“The clue was to try to use it in a similar way as other people have used coconut palm,” says Fitch when asked about the idea behind using OPT.
SPB’s long term vision is to synergistically combine the existing products (thin panel MDF and decorative papers) with an OPT core to produce an engineered panel that is superior in properties compared to wood panel products that are currently available.
According to Fitch, this new product has many advantages such as being light weight and having greater physical strength. It is also fire retardant and has minimal impact on the environment as it has low formaldehyde emission.
Fitch elaborates: “The beauty of this product is that it is extremely versatile and can be engineered for specific purposes, all achieved in a cost-effective package. Once the business model is proven, it can be scaled very quickly due to the abundance of raw material.
“We currently don’t have the facilities to process OPT on a commercial scale, but we have already secured the necessary funding and the first phase of production is scheduled for completion by the end of 2019.”
Fitch eagerly adds that the development would not just stop at producing engineered OPT core panels; the company has plans to develop other structural products from OPT, such as glue laminated beams (glulam) and cross-laminated timber (CLT) – both of which are trending globally as eco-friendly building materials.
Innovative green products should be the next driver for the industry’s growth, as this will help Malaysia maintain its edge in an increasingly competitive global market.
Dedicated R&D opens up many opportunities for innovation, and with traditional sources of raw material for the timber industry on the decline, it is even more crucial that businesses seek sustainable alternatives to help the industry grow further.
Segamat Panel Boards Sdn Bhd won the grand prize in the AmBank BizRACE 2018, beating close to 1,000 SMEs to win the AmBank Business of the Year 2018 title. Visit spb.com.my to find out more about them.