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Malaysia's LSS expanding, sees work migrating from China

By: Steve Toloken

March 11, 2014

Malaysian packaging maker Lee Soon Seng Plastics Industries Sdn Bhd is investing nearly $5 million for a new factory in the country, driven both by local markets expanding in Southeast Asia and what it says are global customers looking for alternatives to rising costs in China.

Publicly-listed Lee Soon Seng, which has nine extrusion lines and 40 thermoforming and vacuum forming machines at several factories in Johor, Malaysia, said the narrowing gap between costs in Malaysia and China is helping to drive its investment.

The company plans to open a new 100,000-square-foot factory this year in Johor that will boost its capacity by 15 percent, according to Business Development Manager Tai Chin Lian, during an interview at the company's booth at the Plastics & Rubber Vietnam 2014 show, held March 4-6 in Ho Chi Minh City.

“We can see a lot of investors from the U.S. and Europe, they start to focus on ASEAN,” he said, referring to the 10-nation Association of Southeast Asian Nations bloc, which includes Indonesia, Malaysia, the Philippines, Singapore and Thailand.

LSS's sales have risen steadily from 61.7 million Malaysian ringgits ($17.1 million) in its fiscal year ending April 30, 2009, to 96.7 million ringgits ($31.6 million) in the year ending April 30, 2013, the company said in its most recent annual report.

Profits in that period rose from 5.2 million ringgits in 2009 ($1.44 million) to 7.8 million ringgits ($2.54 million) in 2013, the Johor-based company said.

“Aggressive marketing to broaden customers … also helped in line with higher demand from growing Asian markets despite a challenging external environment,” the company said in the 2013 report.

“Successful penetration into the U.S. market also helped to boost revenues significantly,” it said. “The new machines purchased last year helped to expand production capacity but new machineries may be needed to be acquired soon to cope with demand.”

In the interview at the PRV show, Tai said the company will invest 15 million ringgits ($4.9 million) in additional extrusion lines and thermoforming and vacuuming forming capacity for the new factory this year.

He said the company is growing because it focuses on improving packaging design both for functionality and manufacturability, and believes it has advantages by providing a full range for services from design, tooling and manufacturing under one roof.

The company does not plan to add significantly to the 400 employees it has to handle the new capacity, instead relying on more automated equipment, he said.

Wages in Malaysia are also rising – the country implemented its first minimum wage policy in 2013, which the government said pushed up wages more than 30 percent for affected workers, to about $300 a month, That included about 20 percent of the manufacturing workforce.

But Tai said that the gap with China is shrinking, as over the long-term, Chinese wages have risen much more. A decade ago, average Malaysian factory wages would have been two to three times the Chinese levels, but now they are similar, he said.

“The feedback from my customers, for the past 10 years, they all go to China because of the China cost,” Tai said. “Now they realize that the China cost is going up… That's the main reason for the global buyers, they transfer, they ship out from China, they go to a third country. Malaysia is one of the options.”

The company makes a range of food packaging from materials including PS, PP, PET and HIPS. It's 100 percent owned by SCGM Bhd, an investment company which is listed on the Bursa Malaysia Securities Berhad stock exchange in Kuala Lumpur.