Matrix aims to be global player

MATRIX Flavours and Fragrances Sdn Bhd is Malaysia’ largest manufacturer and exporter of chemical flavourings. It has taken Tan Chee Hong chemist, entrepreneur and founder over 35 years to build the company.

But he is now at a crossroads. He is 71 years old and has to plan for the future.

Two questions are uppermost in his mind. How to make sure the business continues to grow? How to ensure control stays within the family?

Like most entrepreneurs, Tan is a highly driven person and a very hands-on manager. He exercises full control over what he does and sees himself as key to its success.

But can he plan his own exit strategy? And who will execute it?

Scientist to entrepreneur

Tan was born in Klang and received his bachelor’s and master’s degree from University of Malaya. He studied in the United Kingdom under a Natural Rubber Producers Association Fellowship programme and graduated with a Ph.D. in biochemistry in 1967.

Upon his return, he joined the Guthrie plantation group and was put in charge of research and development. He helped set up the company’s Chemera Research Centre in Seremban Malaysia’s first palm oil research laboratory, he calls it.

Rubber was the dominant plantation crop at that time but palm oil was quickly coming into its own. Guthrie, British-owned and one of the biggest plantation companies in the country, had moved aggressively to acquire land to plant palm oil.

“But I told them that was not good enough. I said they should go downstream, into refining, because that was where the future of the industry lay,” Tan says.

“But the British weren’t interested. They were comfortable with being just planters,” he added.

In 1974, Lee Loy Seng had taken over the Kuala Lumpur Kepong plantation group and had announced plans to go into palm oil refining. Tan joined the group as head of manufacturing and marketing.

But the plan to go into refining did not materialise and Tan left to strike out on his own.

In 1976, he formed Matrix Sdn Bhd to sell palm oil refinery equipment. The palm oil refining business was just taking off and the Government was issuing licences to build refineries.

“My start-up capital was RM10,000 and I felt we had a good chance to succeed because the timing was right and we had a good brand of equipment to sell.

“Besides, I knew the science behind the palm oil business and I could talk the same language as the refiners who were our customers.

“We did quite well and by the 1980s, Matrix had grown to become the biggest player in the equipment line. We were selling to all the major refineries in Malaysia and Indonesia,” Tan said.

“But selling equipment has its limitations,” Tan pointed out. “It is a one-time business. You strike a good deal the first time you sell to a customer but he probably won’t be buying anything from you for another 20 or 30 years.

“It was a good business when the refining industry was growing but after that, you knew that sales were going to plateau out and perhaps slow down.

“So Matrix had to look to do other things. I ended up focusing on the manufacture of flavours because of my background in organic chemistry.”

“Flavours” are chemicals used by manufacturers of food products such as ice cream, seasonings and drinks to impart their flavour of choice. When used in the manufacture of cosmetics and detergents, they are known as “fragrances”.

“The manufacturer tells us what flavour they want, we create it in our laboratory and then manufacture it for them. This becomes our intellectual property,” Tan said.

“I started the flavours business in 1979. At that time, apart from the Japanese, there were probably no other Asians in this business.

“We did quite well right from our early days,” Tan says. He has not looked back since. He has since extended his company’s product range and now manufactures oleochemicals and fragrances too.

Like all others in this business, Matrix has had to comply with guidelines governing the production of halal products, and has received the assistance of the International trade and Industry Ministry to settle some compliance issues.

Last year, company revenue topped RM80mil, and 70% of this came from overseas sales.

“The domestic market for our product is limited. The decision-making centres of all the major manufacturers of foods, detergents and cosmetics are located overseas. So growth will come from abroad,” Tan points out.

He expects export revenue to exceed RM100mil by 2014, and increase exponentially after that.

What does the future hold for the Matrix Group?

“We want to be a global player,” Tan says.

“We have the skills to be as good as any flavouring house in the West. We have a very good track record of being able to produce what our customers want. As far as the technology is concerned, I am confident we can be competitive,” he says.

“We are also spending RM25mil to increase our manufacturing capacity, so I don’t anticipate meeting future demand will be a problem either.”

What, then, are his key challenges as he tries to become a world-class player?

Tan says it is marketing and financing.

“Right now, we are selling to our overseas customers through agents and we pay these agents commissions.

“To be a true global player, I think we must be able to deal with our customers directly, not through agents. We must have our own sales office overseas and our own staff working out of these offices, people who can deal directly with the customers.

“Doing it this way will increase our costs. But we will have eliminated the middle man and save on commission payments. We will also be able to deliver a higher level of customer service and that should result in increased orders. All this, I believe, will more than compensate for any increase in operational costs,” Tan adds.

Funding a major issue

But Tan admits that doing all this will require a considerable sum of money, something he hasn’t got enough of at the moment.

One way to circumvent the problem would be to look for joint-venture (JV) partners overseas. In India, Matrix has teamed up with a partner in Kerala to develop the business in the sub-continent.

But he has been less successful looking for a partner in China. “A lot of people think it is easy to do business in China. But there are a lot of risks and uncertainties involved, and unless you find a partner you can really work with, you have to think twice about setting up shop there all on your own. “So in China, we still sell through agents,” Tan says.

But he does not rule out doing a JV in China if he can find the right party to team up with. “China and India together make up 40% of the world’s population, so these are markets we want to be in.”

How about bringing in some new shareholders on board? They could inject some badly-needed cash into the company.

Tan is ambivalent about the wisdom of such a move. “Many parties, local and foreign, have approached us about a possible tie-up. So far, we have chosen to remain independent.

“The point is this. We have spent more than 30 years building up the business and now we manage it the way we want. Once you bring in other shareholders, they will have their own ideas about how this company should be managed, what direction is should take, and so on.

“So we have to think very carefully about this. I don’t want to lose the company just because I have a cashflow problem now!

“At the moment, I think we can grow a bit more using internally-generated funds,” Tan says.But there is no doubt the longer term will continue to play on his mind.

Succession in play

As he looks towards the future, Tan also has to worry about succession: who will eventually helm his business. He himself is a fit 71 years old and is fully involved in all major decision making. He says he has a competent management team in place.

Last year, his 31-year-old daughter, Tina, joined him. She has a doctorate in organic chemistry from Melbourne University and takes charge of manufacturing and product development. Later this year, his son, who now works for a bank overseas, will join the company.

Is the succession plan in place?

“I am aware of this saying among the Chinese that the family wealth won’t last for more than three generations,” Tan says.

“The problem is this: there is a difference between management and ownership. I don’t get confused about this. Your children may not be the best managers. They have to prove themselves.

“You have to look at the issue of ownership and management separately. Many people cannot, and think that just because they own the business, they must also necessarily manage it. This is a fallacy.”

This article is part of a series on Winning Companies companies that have achieved outstanding success by being creative and innovative. Research for the article has been supported by the International Trade and Industry Ministry as part of a project to promote public discussion of issues relating to national economic competitiveness.