Eastern WAVES, Inc Case Study Sample
The situation in Malaysia concerning the steel industry is disheartening among investors. The case study of Eastern Waves, Inc, that is a downstream steel manufacturing company that produces angle steel products defines this sad situation in the mentioned country. The government of Malaysia following the 1997 Asian Financial Crisis introduced unfavourable policies in the Malaysian steel industry sector. These bizarre policies included trade barriers on import of raw materials (steel billets) for steel production in an effort to rescue large state-owned manufacturing companies. The reason behind the introduction of these policies according to the Malaysian government is to foster economic development and growth for the local businesses and create a good investor climate. Frankly speaking this is not the case as downstream steel companies such as Eastern have been adversely affected due to inflated prices of standard billets domestically.
Malaysia is located in South East Asia neighbouring Singapore, Thailand and Indonesia. Recently it has transformed itself from a producer of raw materials into an emerging multi-sector economy on the bright side. However, the recent government policies tend to make it very difficult for downstream steel manufacturers to operate. The policies have made steel billet prices in the country to skyrocket creating a huge gap between the local price and international price. Domestic billets are sold at approximately 760 Ringgits (RM) per metric ton (MT) compared to the international prices that range between 600RM and 680 RM per MT. This puts the small-medium sized steel manufacturing companies at a competitive disadvantage as they meet very high costs in getting the raw material for steel production as compared to foreign steel companies.
There are also labour issues that have arisen due to the harsh government policies that regulate employment by steel product manufacturers to be limited to domestic workers excluding foreign workers. Eastern has preferred foreign workers who are cheaper and easier to handle compared to the domestic workers who are difficult to manage. The Employment Act 1955 which regulates the minimum terms and conditions of service of an employee earning less than or equal to RM 1500 per month strongly protects the domestic workers in Malaysia. The majority ethnic group Malay is immensely favoured by the government, even though, most business elites describes them as less efficient and not disciplined. The domestic workers would always demand payment whether they have worked or not. They also are very quick to get into strike action unreasonably whenever there is a slight delay in payment of their salaries. This is clearly absurd and ought, not to be tolerated.
I would recommend that the supportive government policy in Malaysia be implemented in a manner that is equitable and impartial. The small players in the steel industry sector should be taken into consideration as they are also stakeholders in the industry. Economic development cannot be enhanced by appealing a certain sector and oppressing the weaker side that is still growing and needs to be cushioned from inflated prices and operating costs. The labour laws should be applied effectively and promote ethics in practice among employees. Lastly, the trade barriers on imports of steel raw materials should be made less stringent to allow the small-sized medium companies to be of a competitive advantage for the rest of the steel industry sector.
Global sourcing is advantageous in a way, but it also has disadvantages. Eastern has global sourced all of its employees. This has brought them certain expenses that they need to incur. They have to pay half of the airfare expenses of the employees and provide them with adequate housing. They also have to incur extra expenses in government taxes and immigration expenses. Despite these demerits, there are also merits of global sourcing in Malaysia. The foreigners can easily be managed as they could be dismissed without any legal problems whenever the company is experiencing low production and not operating at full capacity. The workers are also under a contract of two years, and their work permit visa expires after two years of service. The foreign employees do not commonly quit their jobs as they prefer the quality of life and pay in Malaysia compared to their homeland. Global sourcing is clearly a prudent alternative that can help save on costs in the steel industry sector in Malaysia.