Lesson from the pandemic: companies must diversify

By ZAIDI ISHAM ISMAIL
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Everybody is familiar with the adage : Don't put all your eggs in one basket. Everyone is also familiar with the reason why : if the basket accidentally tips over, all the eggs will break. So spread the risk.

This saying rings very true now amid COVID-19.

A lot of companies are suffering or have even closed shop due to the pandemic. During this time, aviation and tourism companies are hard hit by the virus compared to food and technology firms.

Thus it is not surprising that ever since March, a multitude of companies began to diversify into rubber gloves manufacturing and vaccine. They include MQtech Berhad, Vizione Berhad, Howah Genting, and so many others.

These companies have jumped on the bandwagon as they know that demand for rubber gloves will be strong well into 2021.

Already partnerships are being forged by various companies to start rubber glove production lines or prepare for a vaccine production facility.

Business philosophies are now thrown out of the window as the new normal dictates what chief executive officers should do.

Companies delving in one industry cannot focus in one core area anymore. We may scorn at conglomerates in the past for being jack of all trades and a master of none.

But it is proven that firms which are diversified are the ones able to ride over the pandemic.

Granted profits are low and some are making losses but these diversified companies are still around and still standing. They include DRB-HICOM Berhad, Sime Darby Berhad, PPB Group Bhd, Lembaga Tabung Haji, Felda and so many others.

All these companies have operations spanning from automotive to property, hotel, plantations, cinemas and others. The idea of being diversified is for one business division to cushion the blow should another business division is hit with a slowdown.

So when the property business is hurting, the plantations operations will be able to mitigate the impact.

It is true that diversifying one's business is easier said than done. It's not easy for a company delving in the travel business to suddenly venture into technology.

But we live under a new normal and companies have to think out of the box and diversify.

If they don't, they will be floored like what is happening to the aviation and tourism companies at the moment.

As for companies which are doing well right now during COVID-19 which include technology and logistics firm, don't gloat and remain complacent.

They should expand now to create a buffer zone to absorb the effects of COVID-19.

Companies should not just diversify. They should also spread their tentacles to other countries to widen their earnings. If things are not okay back home, the strong business operations in Thailand or New Zealand can help keep the company afloat.

It is obvious that firms cannot just rely earning an income from just the domestic market. Companies must widen their earnings base to mitigate the effects of the pandemic.

That is why rubber glove companies such as Top Glove has operations in Thailand while Supermax has a presence as far as Brazil. Scientex Berhad meanwhile which has a plastic packaging business has its very own property project called Taman Scientex in Johor.

For companies which have yet to make its maiden foray, it is still not too late. Experts predict that COVID-19 will persist as late as 2022 unless a vaccine is found.

Admittedly it is not easy for any concern to diversify. But it must be seriously considered amid the new normal. Companies must expand. The long term survivability and sustainability of companies depend on it. - DagangNews.com

The writer is former NST Business assistant editor.