Introduction


            Oil palm is among the most essential species of genus Elaeis that is part of the Palmae family. It is an erect monoecious plant, which generates separate female and male inflorescences. Cross pollination is utilized to grow oil palm along with weevil, its main pollinating agent. Within the oil palm industry, the aim of most producers is to improve their total yield in terms of the oil’s content, quality, height increment as well as tolerance to diseases. According to Kushairi and Rajanaidu (2000), various planting materials are also being produced by the industry in order to meet the industrial and market needs for oil palm. These include the development of dwarf palms, production of high unsaturated oil with increased iodine content, production of high lauric oil as well as development of oil with increased carotenoid value. Aside from these, the palm oil industry has also embarked on various genetic engineering efforts in order to improve the production of oil palm worldwide.


            Malaysia is the world’s largest palm oil producer and exporter in the world. In addition to obtaining the highest revenue from oil palm production, the country also has the latest technology, research studies and agencies that support the industry’s further advancement. Despite being a leader in the world, Malaysia also encounters several hurdles and challenges that directly affect the output of its oil palm industry. In order to maintain its global status in terms of palm oil production and trade, the country, its major producers and relevant agencies must work together in order to overcome these business issues. In order to develop appropriate strategies, it is essential that the situation of the industry is analyzed. Thus, in this paper, the analysis of the Malaysian palm oil industry’s strengths, weaknesses, opportunities and threats will be conducted. The results of the analysis will then be used to develop useful recommendations that would improve the palm oil industry’s global status.


 


Industry Overview


            The commercial production of oil palm in Malaysia started as early as 1917. However, it was not until the 1960s when large-scale cultivation of the product was done; this was in fact part of the diversification strategy of the Malaysian government so as to lessen the country’s reliance on rubber goods. Since then, the plantation for palm oil production had increased significantly in the country. Based on 2001 statistic report, nearly three and a half million hectares makes up the total area planted with oil palm in Malaysia. Fifty-nine percent of this is at the Peninsular Malaysia, 29% in Sabah and 10% in Sarawak. In terms of geographical distribution, Pahang, Johor and Sabah were considered the largest oil palm growing Malaysian states. Expansion of the oil plantation in Peninsular Malaysia had decreased due to the increasing limitation of new areas for oil plantation; thus, future expansion efforts would be concentrated on Sarawak and Sabah. Should there be a continuous growth country’s palm oil industry, it has been said that Sarawak’s oil palm area would reach up to a million hectares by 2010 (Abang Helmi, 1998).


            Along with the increased oil palm plantation area in the country, annual production of palm kernel and palm oil in Malaysia has also increased considerably. Sabah, Johor and Sarawak also served as the largest oil palm producers. Increased production in the coming years is expected from these states as additional planted areas mature. The continuous growth of Malaysia’s oil palm production allowed the industry to become a major economic contributor, especially to the country’s export revenue. The industry also played an important role during the late 1990s financial crisis when Malaysia’s gross domestic product was very low. The contributions of the oil palm industry have also been significant in the eradication of poverty in the country. Land and state development agencies had coordinated with the industry in order to put up settlements for people below the poverty line (Cheng Hai, 2000).


 


 


SWOT Analysis


            While the industry shows great potential for future growth and development, it is still vulnerable to several factors that could cause its decline. This then makes the analysis of the industry’s internal and external environment imperative. The analysis of the industry’s environment can be done through SWOT analysis. Situational analysis, where the SWOT technique is applied, is an integral procedure and a very powerful tool for businesses in an industry to instigate effective business plans. The situational analysis aims to comprehend the environmental as well as the organizational influences that surround a particular business or industry. There are actually two parts of situational analysis, both are equally significant.


The internal situational analysis focuses on the identification of the company’s distinctive competencies, expected growth, their assets as well as their liabilities. The internal analysis also illustrates the core values of a company, and in what ways can these values be enhanced or beneficial to the market plan (Cooper, 2002). The evaluation of the internal environment of the company involves the analysis of the company’s structure, culture and resources.


On the other hand, the external situational analysis is focused on the analysis of the business or industry’s customers, market and competitors. Relevant information regarding the company’s market segments, their competitor’s relative weaknesses and strengths as well as the industry as a whole. An analysis of the industry takes a look at factors that have a more direct bearing on the business. Hence, in addition to analyzing the competition other groups must be similarly evaluated to ascertain that no opportunities or threats within the environment are overlooked (Buhler, 1994). Below is the SWOT analysis for the Malaysian palm oil industry:


 


Strengths


- The Malaysia palm oil industry is considered the largest in the world. Approximately 61% of the total world exports and 51% of the total world production of palm oil is accountable to the country’s palm oil industry. Based on the 2002 reports, 11.9 million tons of palm oil had been produced by Malaysia, indicating a growth of 6.4% compared to the production value of the previous year (CEE-Foodindustry, 2004). This is considered a strength as this enables the industry to cover local and major global markets. In fact, having a significant percentage for world exports indicates Malaysia’s strong hold for global palm oil demands.


            The country has indeed, a number of significant patrons abroad. Among its major market are the Pakistanis. For several years, Pakistan has bee Malaysia’s major consumer and importer of palm oil. About 1,100,000 to 1,540,000 tonnes of palm oil are imported by the country from 1988 to 1993. This makes the country the second largest importer of Malaysian palm oil during this time. China was also among the country’s major importer (Ali, 1996). The Ukranian market is also considered as Malaysia’s primary consumer. Ukraine now accounts a considerable portion of palm oil exports, resulting to a market value of €180 million. In 2003, half a million tons of palm oil were exported to Eastern Europe; the Russian market accounted for 300,000 tons whereas 100,000 tons went to the Ukranian market (CEE-Foodindustry, 2004). The Malaysian Palm Oil Council (MPOC) also noted that Malaysia is also distributing palm oil to about 90 countries worldwide (Ali, 1996).


 


- The Malaysian palm oil industry is greatly supported by its local government. In order to help the industry maintain its strong global presence and overcome business challenges, the Malaysian government openly supports the palm oil industry by developing essential agencies and legislations. One of which is the establishment of the Malaysian Palm Oil Board (MPOB). This was formed by merging Palm Oil Registration and Licensing Authority (PORLA) and Palm Oil Research Institute of Malaysia (PORIM); the merger was done under Act 582 or the Malaysia Palm Oil Board Act 1998. The board’s main responsibility is to help develop the country’s palm oil industry by conducting researches relevant to pal oil plantation, production, extraction, processing, use, consumption and marketing (PR Newswire, 2000).


            Aside from the MPOB, the country’s palm oil industry is also supported by the MPOC; this department on the other hand, is in charge of conducting promotional and educational activities in order to enhance the image of palm oil and palm oil products. The aim of the department is to improve palm oil’s marketability as well as to gain higher confidence among local consumers (MPOC, 2006).


 


- Palm oil itself is a resource that is used for the production of diverse products. The oil has a unique composition, making it a versatile resource for the production of food, chemical, pharmaceutical and cosmetic products. In the food industry, it is the prime choice for producing solid fat products such as margarine and shortening. The oil is also used for frying various snack foods. It is also a useful resource for producing detergents, surfactants and soaps; it is also used for fatty alcohol, fatty acid, glycerol and other derivative production to make various industrial, cosmetic, household and pharmaceutical goods. This indicates that the Malaysian palm oil industry cannot only gain revenue from distributing the oil itself but also in supplying various manufacturers of the said product lines. This makes palm oil an indispensable resource for both local and international consumers.


 


Weaknesses


- The industry is very much vulnerable to uncontrollable affective factors. Aside from economic issues, changes in the weather patterns worldwide can affect Malaysia’s palm oil plantation and production. The effects of these weather changes had been demonstrated by the El Nino incident from 1996 to 1997 that caused a 6.5% reduction in palm oil production in 1998. It has also predicted by a study that more frequent occurrences of El Nino and La Nina would be experienced in the next 20 years (ISTA, 1999).


 


Opportunities


- The support of the country’s government and agencies to the industry is an opportunity for uncovering useful research findings that would promote further growth. This opportunity is further stressed by several development noted by MPOPC. For instance, the department was able to discover a food and nutrition technology that would help improve pal oil’s image especially to the American market (de Guzman, 2002). The MPOB has also been working with the Amersham Pharmacia Biotech (AP Biotech) in order to use the microarray technology, which can be useful in ensuring the competitiveness and viability of Malaysia’s palm oil business (PR Newswire, 2000)..


Threats


- The oil palm industry in Malaysia faces significantly growing competition with other foreign producers. Among its great contenders is Indonesia, which is considered the second largest producer in the world for palm oil. In 1994, Malaysia was able to achieve a 6.4% growth rate from its palm oil exports. However, though Indonesia distributed a smaller amount of oil to global markets, it was able to achieve a considerably higher growth rate of 10.7% (CEE-Foodindustry, 2004). According to Chandran (2000), Indonesia’s competitiveness within the palm oil industry is also indicated by its well-managed plantation and low cost of production. The Malaysian palm oil industry is also threatened by the presence of other oil producers that distribute oils and fats at a lower price.


 


- The country is also experiencing lower land availability for future expansion for oil palm plantation. As indicated in the overview of the Malaysian palm oil industry, the availability of the land for planting palm oil is becoming more and more limited, especially in Peninsular Malaysia. In Sarawak, more land is available for plantation expansion; nonetheless, land tenure relevant to the Native Customary Rights (NCR) can be a problem to the development of the industry in the future.


 


- Shortage of labor is one of the main threats of the palm oil industry in Malaysia. This is considered a major constraint as the industry largely depends on foreign staff. There had been efforts done in order to minimize labor needs such as mechanizing milling and filed operations; however, it has been found that progress on this was slow. Moreover, it will be difficult to develop technologies that would address other labor-intensive operations such as the harvesting process.


 


Recommendations


            From these SWOT findings it is clear that there will be several factors that would hinder the enhancement of the global operations of the Malaysian palm oil industry. Based from this, certain problems that affect the industry had stood out. The following recommendations could possibly assist the industry to ensure future progress and growth:


 


  • MPOB should consider conducting researches that would protect palm oil plantation areas from the extensive impact of weather changes. This would prepare the industry should the forecast does occur. This could be a new plantation or storage breakthrough for palm oil. The government agriculture department should also consider developing alternatives for palm oil companies in the country if there would be major reduction in palm oil production.

  • MPOC should exert greater efforts in finding other global markets for Malaysian palm oil companies. Moreover, as this agency is focused on palm oil education, extensive efforts should be done to promote the nutritional value and health benefits of palm oil.

  • Palm oil companies should continuously conduct their own researches. They should consider improving their respective research and development sectors if necessary. This recommendation should be done to promote constant development of new products that requires palm oil. This would help in making palm oil popular in other parts of the world. This could also help in meeting other needs of local and foreign consumers. Aside from being an advertising medium, development of new products can help the Malaysian palm oil industry in overcoming major competition in the business.

  • The government of Malaysia should consider making legislations regarding land use. This would help in protecting the land for future expansion palm oil plantation. Other states that could be used for plantation can also be identified to increase land availability. The country should also consider finding land areas abroad that is conducive for growing palm oil. The Malaysian government and its labor department should also develop relevant workforce regulations. For instance, rather than depending on foreign laborers, the country can promote the recruitment of local employees.

  • Palm oil companies could employ useful technologies that would enhance palm oil production and global distribution. This will support the industry’s aim to achieve greater profit and market growth



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