Does the DFTZ mean hi or bye for SMEs in Logistics?
TL;DR – Will the launching of the Digital Free Trade Zone mean more opportunities for SMEs in the logistics sector, or will they lose out to the big boys?

November 2017 saw the opening of the Digital Free Trade Zone (DFTZ), a joint-venture between the Malaysian government and the Alibaba Group Holding Ltd, the well-known Chinese e-commerce conglomerate.

Touted as the first e-logistics hub outside of China, the DFTZ comprises several key components; an eFulfillment Hub and the eServices Platform, both being a means to capitalise on the confluence and exponential growth of cross-border eCommerce activities taking place within the digital economy.

In layman speak the DFTZ is a means for Malaysian SMEs to sell their products to the international market. Everyone gets a slice of the pie, and everyone goes home, content and happy. But is that truly the case for SMEs in the logistics sector? Several mainstream media such reported that the main benefi ciaries from the DFTZ will be large logistics players such as Pos Malaysia, Malaysia Air Holdings Berhad and Tiong Nam Logistics. Thus the question remains: what about the SME-sized logistics players? How much of the pie are they actually getting from the DFTZ?

According to Alvin Gan, the Head of Digital Strategy for KPMG Malaysia, SMEs operating in the logistics sector should shift their focus towards developing a comprehensive digital strategy to support their core business and innovate external solutions to decrease vulnerability and the negative impact of disruption.

“The stronger focus on operational IT issues by transport companies could be explained by greater budget constraints in comparison to other sectors, but this focus may distract from exploiting wider IT-related opportunities.

“Most strikingly, new forms of customer engagement are the primary source of digital disruption within the sector. Customers are thus exerting pressure on operators to innovate and provide new solutions,” he said in an interview with MALAYSIA SME®

When asked about additional opportunities for SMEs with the launch of the DFTZ, Gan said that the set-up will facilitate seamless cross-border trade while at the same time enable local businesses to export their goods.

“This screams digital disruption and in our view, DFTZ is a direct consequence of that. Specifically, a way to adapt the changes and transformation occurring due to the fourth industrial revolution – which can only lead to more opportunities for SMEs in the logistics sector,” he said.

It is his belief that with new disruptive technologies, products, services and business models being introduced on a daily basis, SMEs have to take charge of their organization’s response to secure long-term business success.

According to him, with the arrival of the Fourth Industrial Revolution, driven by the rapid introduction of diverse and disruptive technologies, there would be new opportunities for new and existing technologies.

These technologies also have signifi cant societal impacts as smart-phones and apps saturate the developing world and a more techsavvy population eagerly adopts the latest new thing.

“In my opinion SMEs that do not dive in stand to lose, and will fi nd it ever more difficult to catch up as technology advances. Understanding the impact that digital disruption will have on a SME’s products, services and business model is the first step,” he said.

When asked about government initiatives to better the development of the logistics sector, Gan stated that there were already ongoing and future programs and initiatives by the government to support the growth of SMEs in Malaysia.

“The setting up of DFTZ certainly underscores this intent further. In my view, to further spur growth, all direct and indirect stakeholders need to play their part on the development of SMEs in the logistics sector.

“Whilst we see programs and initiatives rolled out by the government, SMEs ought to embrace disruption and use technologies to drive innovation and compete effectively against both traditional competitors and new entrants.

“We at KPMG opine that SMEs ought to prioritize the degree of digital disruption embraced, based on a combination of anticipated level of effort, size and timing of the benefi ts, and the overall likelihood of success given the SMEs’ skills and capabilities,” he said.

Meanwhile, RS Baskkaran, Managing Director of Tigers Global Logistics Sdn Bhd, stated that local logistics companies were not moving at all as they were not aware of the mechanics of e-commerce logistics.

“Talk to any local delivery company and they’ll tell you that they can only deliver the package from point A to point B, that’s it. “Many of them don’t even know what is ‘return logistics’ and that’s why education is very important,” he said, further adding that even though there were 1 million SMEs in Malaysia, most of them were old-timers.

He lauds the DFTZ objective of providing SMEs with the ability to go global, something which SMEs had to take note of, as ignorance could prove fatal for business.

“SMEs need to be prepared; they must be suffi ciently financed, they need to think globally, and logistics companies need to be with these people because that is a means of benefi ting as a logistics provider.

“Logistics companies have to engage themselves with the DFTZ and these companies need a starting point,” said Baskkaran when interviewed after his presentation on the second day of the Malaysia E-commerce Expo 2017 Conference. With regards to mainstream media reports of larger players benefi ting from the DFTZ, Baskarran said that these companies had quick access to the DFTZ because of the location, but other companies like GDex, City Link and Aramax were growing steadily, thanks to the e-commerce.

“At the end of the day, there are three factors to be considered: the cost, the service and whether the company has a global footprint. Only with a global footprint can people recognize you. So it’s not only domestic, but it’s international as well,” he said.

According to Prime Minister Datuk Seri Najib Razak, the DFTZ would create 60,000 jobs. When asked about how many percent involved the logistics sector, Baskkaran stated that this would be ideal for those seeking blue collar jobs.

“Such jobs would not require a lot of thinking as they would just be picking and packing items, and using the computer to ensure the last mile delivery is done, so on this matter it’s just a question of how many people are willing to do it.”

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