Reference no: EM133186849

Pensonic Holdings Bhd

Japanese made electrical products have been around for so long that most Malaysians embrace them and think of them as reliable. Few would think to build a local brand to compete against them. But this was precisely what Datuk Seri Chew Weng Khak did in 1982 when he founded Pensonic in Penang - a company that today posts annual revenue close to RM400mil. Vincent Chew, Weng Khak's son and now managing director of Pensonic Holdings Bhd, remembers how his father came to found the company. While the brand stands proud with many other international electrical brands today, Pensonic was not built overnight. It started as a small shop in Balik Pulau, Penang, under the name Keat Radio & Electrical Co, selling electrical goods from Japanese brands.

In the early 1980s, Chew Weng Khak noticed that Japanese producers were gradually pulling back their distributorship, which put the future of his business in jeopardy. So, he decided to build his own brand of electrical appliances, which he named Pensonic. Many mistakenly think that Pensonic was named after a similar-sounding Japanese brand, but Vincent says this was not the case at all. According to him, "Pen' in the name stands for Penang, while "sonic" refers to the fact that Keat Radio distributed car stereo products.

In the early days, Pensonic did not manufacture but mainly sold OEM products under its brand. It was difficult to produce their own appliances as there was a lack of supporting industry to go into manufacturing. Vincent Chew says his father used to take appliances apart to see how they were put together. Eventually, the senior Chew brought in parts from Taiwan and hired technicians to put them together to make his own products. The family's backyard soon became home to Weng Khak's manual assembly line. The first product that Pensonic successfully produced was the slow cooker. Since that breakthrough, Pensonic has gone on to produce myriad other electrical products such as refrigerator, lamps, vacuum cleaner and television.

Business grew quickly for the company over the years with the support of a good distributorship network. In the late 1990s, hypermarkets started to mushroom, particularly within the Klang Valley, and the group made a decision to move its headquarters out of Penang to Kuala Lumpur to tap into the growing hypermarket trend. The move has been beneficial to Pensonic as sales grew significantly after the brand started retailing its products through hypermarkets. Vincent notes that revenue has grown from RM60-70mil in 1997 to RM385.5mil for the year ended May 31, 2015, thanks to its strong presence in hypermarkets. He adds that the group's brand-building efforts over the years has helped to grow the company by leaps and bounds in the local market. Pensonic's products appealed to the wide range of Malaysian customers as their products are perceived to be of quality and reasonably priced.

While Pensonic's aggressive approach paid off and it seemed to be headed for continued strong growth, Vincent decided to take things down a notch a few years ago and concentrate on improving margins. Three years back in 2012, the group went through a consolidation exercise to boost efficiency. Pensonic focused on operational efficiency, closed down non-profitable units, imposed inventory controls and decentralised a lot of its operations. Efficiency and cost cutting measures were crucial for the company to be able to compete with other more established brand and competitors.

"We have tried many things over the years. There have been success stories and, of course, failures as well. But I thought we had been moving too fast for so many years. A lot of people wanted to remain aggressive but I slowed things down. We were so used to chasing top-line numbers and strong sales growth. But along the way, we sacrificed the bottom-line. There was no point making big sales if your profit was going to be small," he explains. Vincent's efforts have borne fruits as the group's profit grew to RM17.4mil for the financial year ended May 31, 2015 from RM2.7mil a year ago.

Pensonic plans new business model

Pensonic also plans to adopt a new business model to market its latest smart power bank device under the fonebud brand, which had received positive reviews and response from the recent Consumer Electronic Show (CES) held in Las Vegas, USA in July 2015. The strategy was to offer the ownership of the fonebud brand to distributors, who had hit a consistent sales target over a two-year period. Pensonic was the only Malaysian exhibitor among the 3,000 international exhibitors with a display booth at the CES.

"Other major brands don't make such an offer to their distributors. Once they are the brand name owners, the distributors can co-develop the future range of fonebud smart device products with us. They can give us their inputs, based on customers' feedback in their respective countries, so that the smart device can be designed with features to suit the needs of the customers. In this business model, Pensonic becomes the product developer and supply chain manager," said Vincent.

The fonebud smart power bank has also received good reviews from the US-based online IT magazine. "What caught their attention was the colour, the user-friendly features and the functions," he added. Vincent said Pensonic was targeting for 100,000 units of fonebud to be sold worldwide in 2015. "Based on the response at the CES, we are confident such a sale target is achievable. About 70% of the fonebud will be sold in Malaysia, while the remaining is targeted at overseas market". Vincent also said the group planned to appoint 40 distributors worldwide.

Pensonic already establish a name that is well known in the local market due to their effective marketing method. This year is their 33th anniversary and they already set up RM7million on 25 weeks nationwide campaign through advertising on billboards and print, road shows, contest, television commercial. With the innovation and creative ways, the company is building stronger brand in Malaysia that eventually will establish their brand globally. Currently, Pensonic export to other Asian countries such as Singapore, Brunei, China, Hong Kong, Thailand, Myanmar, India, Sri Lanka, Vietnam, Iran, Yemen, Kuwait, Lebanon and Indonesia. With the experience of handling the business in the Asian countries, eventually the company is capable to handle international business and better equip for expansion.

Competition and growth

On its prospects, Vincent mentioned that the company anticipated that competition would remain intense. This is in addition to the current slowing down of the world economy and the imposition of GST in Malaysia. The domestic market has become challenging, making it necessary for us to be mindful of our strategy," Vincent said. For example, the group's Cornell brand recorded a 3.7% drop in sales from June to November 2014, compared with the same period a year ago. The reason has to do with the cautious mood consumer is adopting prior to the introduction of goods and services tax (GST).

"Pensonic will continue explore new market, product innovation, maintaining excellent customer relationship, placing emphasis in cost control, inventory management and overhead cost rationalisation. In line with Pensonic's effort in expanding to emerging markets, the company will carry on to promote and distribute its products to overseas customers through engaging more overseas distributors and business partners". The company will also continue to devote efforts in research and development of new products in order to keep up with the ever-changing needs of the electrical appliances' markets. Given the Pensonic's extensive experience in the industry, Vincent believes that the group can overcome the temporary challenges in the market and remain competitive for the coming period.

In addition to this, the current slow-down in the economy has come at the "right time" as the group now has stronger fundamentals and is in a good position to ride a recovery in the economy when the time comes. Vincent also hopes to take some time to build other brands under the group's umbrella, such as Cornell and the Lebensstil Kollektion which cater higher-end markets compared to the mass appeal of Pensonic.

Vincent is happy with how the group has progressed and notes that his father is proud of the growth in the company. Weng Khak, who is currently the executive chairman of the group, still takes an active interest in Pensonic. "He has come very far. He studied till Standard Five and did not speak English. He has been learning all his life, and he is very experienced, which is better than a lot of 'head knowledge' that people have. We often come back with sophisticated theories but he has proven to be right because of his experience in a lot of cases," says Vincent.

The Chew family still holds about 40-50% of Pensonic, following the group's listing exercise in 1995. But Vincent says it's not necessary for the family to keep running the show. "It can be run professionally as a corporate entity. At the end of the day, (what's important is) the brand remains," he says.

Discuss the type of business level strategy that Pensonic has implemented to be competitive. Justify your answer.