By CHEN ZHAONAN TOBIAS, KAY CHEW MIN JOYCE and LIM WEI XIANG ERVIN

AS ONE enters the offices of Wee Tiong Pte Ltd to interview Tan Wee Beng, director of the Singapore-based rice and sugar trading firm, one sees a sign on the front door that reads: 'Please Remove Footwear'. Inside is a conference room filled with towering stacks of filed invoices and papers. Mr Tan sheepishly apologises for the mess, explaining that auditors have just completed their work. The word 'easygoing' springs to mind.

The policy to remove footwear is part of an effort by Wee Tiong to make staff and customers feel at home. After all, as Mr Tan says, Wee Tiong's corporate culture revolves around trust and familiarity.

These are two traits highly regarded in the commodities trading industry. His words are underpinned by the fact that most of his employees have been with the company for a long time as full-timers and his major customers and suppliers have been doing business with Wee Tiong for many years.

Redesigning

While cultivating long-term full-time employees is fairly straightforward, managing customer and supplier relationships is comparatively more contentious. Asked to share his secret for handling tricky relationships, Mr Tan says that there's no 'home-grown secret formula' but a continuous effort to understand the needs of customers and suppliers. 'To do so', explained Mr Tan, 'redesigning our traditional business model was a must'.

One major change that Wee Tiong has made to its business model was incorporating up-to-date financial tools, enabling the company to make accurate business decisions.

The need for this redesign stemmed from the shortcomings of its old business model. In the past, the lack of information made it difficult for retailers and manufacturers of rice and sugar products to establish connections with suppliers. Wee Tiong was able to leverage on its established reputation as a trustworthy intermediary, and its business prospered.

However, with the onset of the Internet, this form of guan xi became less important because data, prices and contact information could easily be obtained. This threatened Wee Tiong's position as a middleman. Furthermore, the large influx of cash coming from the financial markets into the commodities market made the prices of commodities more volatile, giving rise to a new problem of customers and suppliers backing out of the contracts when the agreed-upon prices were no longer favourable.

In order to bring fresh ideas into the company, Mr Tan, an electrical engineering graduate from Nanyang Technological University, was roped into the family business by his father and brother in 2002.

After the first few months, Mr Tan soon realised that for Wee Tiong to remain competitive, there was a need for it to take positions in both the futures and physical commodities market. He took several night classes to improve his knowledge about the commodities market and financial systems.

Six months later, armed with up-to-date financial tools, Mr Tan formed a team of traders to conduct extensive research into the global supply and demand conditions for commodities - specifically rice, sugar and flour.

The trading team allowed Wee Tiong to supply value-added information to customers and suppliers and helped the company to remain relevant.

Mr Tan said that the information generated by the trading team was often conveyed to major suppliers and customers for free. The information helps the customers and suppliers make informed decisions to buy or sell. He also added that the information is invaluable because the 'financial markets in developing countries where trade is conducted are not as robust as Singapore's' and most of their major customers and suppliers do not have the access to such value-added analysis.

This service has allowed Wee Tiong to help strengthen its relationship with customers and suppliers.

The purpose of the trading team is not just to provide value-added advice to customers and suppliers. It has also been key in helping Wee Tiong maintain its reputation in the industry as a trustworthy and reliable company. This is especially pertinent in the face of wide fluctuations in commodity prices.

Price fluctuations often lead to suppliers and customers reneging on contracts because the contractually agreed price point is no longer in their favour. As a trustworthy middleman, Wee Tiong has always, at all costs, upheld its contractual agreement to both suppliers and customers. This is a huge financial commitment for the company because if a supplier backs out of a contract, Wee Tiong would have to source in the open market to honour its agreement with the customer. Sometimes, this can result in losses running into millions of dollars but Mr Tan still insists that maintaining Wee Tiong's reputation is paramount.

Hedging

The trading team helps to hedge Wee Tiong against potential losses due to contractual defaults by taking up active positions in the commodity options and futures market. Mr Tan said that this hedging has allowed Wee Tiong to significantly cut down on losses and hence increase its profits.

As a result of the redesign of its business model to incorporate financial tools, the company's yearly turnover for the past 10 years has averaged between $200 million to $300 million, and has won Wee Tiong recognition as one of the top 50 enterprises in Singapore.

In addition to the prestigious Enterprise 50 award, Wee Tiong is also a member of the Global Trader Programme and the Refined Sugar Association based in London, both of which require consistent good trading performance as a prerequisite to membership.

Mr Tan acknowledged that value-added information does not provide a large enough bargaining chip to maintain supplier and customer relationships, and that more needs to be done.

He added that in order for Wee Tiong to remain competitive in the South-East Asian market, the company would need to move either up or down the value chain. Mr Tan hinted at plans to open a sugar refinery in Indonesia in partnership with the company's major sugar suppliers.

Mr Tan believes that this endeavour would mean wider profit margins and greater control over the supply of sugar.

Applying modern techniques to traditional business models in a bid to remain relevant was an eye-opener. And for this company, the future promises to be exciting too.

The writers are students of the NUS Business School

This article was first published in The Business Times.