THE COLLAPSE of several heavyweight financial institutions as the result of the global financial tsunami has triggered a worldwide economic recession that has spilled into most industries.

The most urgent issue facing companies of all sizes across the world at the moment is how they can survive the financial crisis and eventually emerge from under its cloud.

Banshing Industrial is one Singapore company that has been impacted by the economic crisis.

Focusing mainly on plastic and metal stamping operations, Banshing Industrial produces products like mobile phone casings, walkie-talkies, medical devices and automotive parts. Its main customers include Motorola, Siemens, Philips, Sanyo Electric, Flextronics and Bosch.

The company has seen its group earnings fall nearly 50 per cent from 2005 due to the global economic downturn, moving the company into the red. Apart from the drop in revenue, the company also had to face the challenge of rising costs.

Banshing Industrial has been in business for around 35 years. The company has only sustained losses twice during this period, with this being the second time.

Company founder Albert Cheng said that the current economic crisis has been the greatest challenge the company has encountered.

The impact has been even more significant than those of the 1997 Asian financial crisis, the bursting of the internet bubble in 2001 and the SARS epidemic in 2003.

However, Cheng admitted that the company had been seeing a slide in revenue even before the start of the economic crisis.

This is due to its major customer, Motorola, gradually cutting production in recent years as it slowly ceded its number one position in the mobile phone industry. This has greatly affected the revenue of Banshing Industrial, causing it to see losses in 2006 and 2007.

The current economic downturn has further added to its woes and prevented the company from recovering its profitability. It has also hampered the company's other operations.

Banshing Industrial is also involved in product design, R&D, mould assembling and mass production.

Banshing Industrial began manufacturing firt in Singapore but later expanded its production by opening plants and offices in Penang and Johor in Malaysia and Shanghai, Tianjin and Xiamen in China so as to cut costs.

The company also has a sales office in North America targeting the European and American markets. Its other markets include Australia, China, Japan and South Korea.

Banshing Industrial saw its revenue peak in 2005 when its annual earnings hit nearly $120 million.

Even though the economic crisis has dampened its earnings, Mr Cheng feels that the company is still fortunate because it did not take out substantial bank loans to invest in the property and stock markets when the economy was doing well. Instead, it focused on developing its core operations.

Mr Cheng also considered taking the company public in 2005 but dropped the idea after the company saw a weak performance in terms of orders in 2006.

In retrospect, Mr Cheng believes that this was a wise move because it has given the company more time to focus its resources in order to grow surely and steadily.

Mr Cheng, 61, was born in Shanghai but grew up in Hong Kong. He joined a local plastics company after completing his studies in 1972 and set up a joint venture with a Japanese trading company a year later to engage in the electronic components trade in Singapore and Malaysia.

The shortage of supporting industries such as plastic and metal stamping companies in Singapore's electronics sector in the 1970s and Singapore's pro-business environment led him to entertain the idea of starting a business here.

His father helped him by investing $300,000 to set up Banshing Industrial in 1975 when he was 27-years-old.

Mr Cheng's father was serving as the managing director of Sanyo for Singapore and Hong Kong at the time. Sanyo was also the first customer to do business with Banshing Industrial.

The company produced casings for Sanyo's products such as televisions and radios and later expanded its operations to cover other consumer goods, industrial products and medical devices, as its customer base continued to grow.

The faltering of Motorola has had the biggest impact on Banshing Industrial's plant in Tianjin. The plant specialises in manufacturing Motorola's mobile phones and has seen its revenue fall by nearly 80 per cent compared to 2005.

Motorola has been a leader in the development of the mobile phone industry in Tianjin since 1992. Motorola's plant in Tianjin has already become its biggest mobile phone production base in the world and the number of mobile phones produced there accounts for one third of the company's worldwide production.

Apart from Motorola, Samsung, Sanyo and other brands have also moved their mobile phone production operations to Tianjin, effectively making the city the "capital of mobile phones in China".

Banshing Industrial is actively seeking new customers in the region to help cushion the impact of a slump in orders at its Tianjin plant.

The company's Penang plant has been most directly affected by the economic slowdown. The plant mainly produces casings for walkie talkies, computer and electronic products. The plant's revenue has fallen 15 per cent since the economic slowdown.

Mr Cheng said that despite the decline in Motorola's mobile phone business, the company still has a very big share of the walkie talkie market. Following the transfer of the walkie talkie production base from the United States to Malaysia, Banshing Industrial's Malaysia plant expects to see an increase in revenue.

As for the company's plant in Shanghai, the economic crisis has had little impact on the company because it started operations only in 2006. The plant mainly produces casings for automotive components and consumer products.

Banshing Industrial's plant in Singapore produces high value products, such as casings for medical devices. There is little change in the revenue of this plant when compared to the period before the economic downturn. However, increases in utility and raw material costs and wage costs have caused production costs to go up, turning profit into loss.

In the face of the economic crisis, Banshing Industrial's strategy is to look for new customers, provide more value-added services, diversify sources of income and cut costs, as well as maintain cohesiveness among employees.

Banshing Industrial recently obtained new orders from Siemens to manufacture casings for hearing aids. It is believed that the company's performance will improve this year because of these orders.

In addition, the company also provides existing customers with high value-added services such as spray-painting and sub-assembly.

POLICY OF NO LAY-OFFS DESPITE COST CUTTING

TO CUT costs, the company has taken measures to save on electricity usage and reduce employee overtime.

So as not to affect the morale of employees, the company has stayed firm on not retrenching staff or cutting pay. Banshing Industrial employs a total of more than 1,000 staff, with approximately 200 to 300 based at its headquarters in Singapore.

In addition, the company has already applied for bank loans under SPRING Singapore's New Bridging Loan Programme to strengthen its operating capital and upgrade capacity.

When asked about what lessons Banshing Industrial has learnt from the economic crisis, Mr Cheng said: "We were thinking that we should have taken on more risks in earlier years when the economy was doing well to make more money. However, in retrospect, I feel that it is better to be more conservative when doing business. Even though we are making losses now, at least, that is the company's money, not money from the bank."

Banshing Industrial has been rather conservative all along, reinvesting its earnings in the company; therefore, it still has substantial cash and not much need to borrow money. It has been relatively buffered from the credit crunch and has thus not been affected too much by the credit crunch.

Looking ahead, Banshing Industrial said that it will continue its conservative approach. In the short term, it will also continue to expand its plant in Penang.

ASK OUR EXPERTS

Companies more aggressive in expanding overseas markets

For companies such as Banshing Industrial which have markets overseas and whose business is cyclical in nature, their overseas operations will be hit in an economic crisis thereby impacting their overall performance. In the wake of the recession, can and should companies continue to develop their overseas markets in order to increase their customer base?

IE Singapore is the government agency that helps local companies expand their operations overseas. IE Singapore's director of Electronics & Precision Engineering and Infocomm Technology Divisions Thian Tai Chew feels that as the outlook for the manufacturing sector in the next few months is expected to remain gloomy, companies in this sector and related fields should all the more spread their wings at this time to look for new markets overseas.

To facilitate the internationalisation of companies, IE Singapore has launched a series of programmes aimed at helping companies set up networks overseas and find partners, developing their capabilities, and providing them with help in financing. Such programmes include the Internationalisation Capability Development Programme, International Partnership Programme and Internationalisation Finance Scheme.

In addition, IE Singapore has also organised study missions, leading businesses to interact and set up cooperative relationships with companies in foreign markets. At the same time, it has also actively supported overseas trade shows organised by Singapore business groups. If local companies plan to expand their business overseas, they can seek help from IE Singapore.

For more questions and answers on doing business in Singapore, see our Ask the Experts section.