Building Resilience for Malaysian Businesses

By Sharwin Mohammad Mohan

The Covid-19 crisis has been a tumultuous time for all of us; with a spread of fear and panic not just about contracting the disease, but also the socioeconomic implications that arise out of the Movement Control Order (MCO). The implications to business have been drastic, with firms having to brace for a difficult time of temporary closures or lower volumes of patrons to physical stores.

However, this is also a ripe time for businesses to adopt the principles of sustainability for survival in the short-term and to thrive in the long-term; as relatively sustainable firms (leaner, holistic and immensely valuable to society) have proven to be more resilient during the MCO. This coupled with the public realization that our planet has been healing due to reduced economic activity, presents an opportune position for the Malaysian private sector to accelerate its sustainability plans.

2020/ 21 Economic Projections

Various think-tanks have released projections for the state of the Malaysian economy come the end of 2020 and 2021; with it likely to take a hit in terms of GDP growth this year due to the pandemic, but poised to recover in 2021:

Agency

2020 % GDP Change (Expected)

2021 % GDP Change (Expected)

IMF

-1.7

9.0

Fitch Ratings

-1

5.8

Moody’s Investors Service

Between 0 and 1

5

 

The PRIHATIN stimulus package is expected to help cushion 2020’s GDP decline by 2.8%, helping the economy weather the storm for this year and positioning it for recovery in 2021.

Biggest concerns for Malaysian businesses during the crisis

The most vulnerable stakeholders in the private sector are the SMEs, comprising 98.5% of all Malaysian businesses and the bedrock of the economy, as they report not being able to operate during the MCO, coupled with operating cost burdens such as salary and rental expenses. The following diagrams show results from a special survey conducted by the Department of Statistics Malaysia (DOSM) on the effects of Covid-19 on the economy. 4,094 businesses (7.2% large, 9.1% medium, 40.4% small, 43.4% micro) responded to the survey for the period 10th April – 1st May:

Figure 1 Source: DOSM

The majority of respondents reported not having any sales or revenue during the nearly 2-month MCO period, with 68.9% of businesses using savings as the main source to accommodate operating cost/ working capital, with 19.8% using loans and 11.3% using capital injections. However, these figures are set to change as the Conditional MCO is now in place, allowing for more businesses to operate.

3 Main Issues/ Challenges

Issue

% of respondents

Salary Payment

76.6

No Customers

65.5

Rental Payment

61.4

Source: DOSM

Figure 2 Source: DOSM

Most businesses are expected to take from 4 to more than 6 months to recover from the crisis, citing concerns such as salary payments, lack of customers and rental payments as the main stumbling blocks. 83% of respondents require financial assistance in some form and 67% need tax reductions.

A sustainability perspective: What Malaysian businesses can do to weather the storm and see sunnier days

  1. Become leaner but leave no one behind

This entails reducing operating cost burdens to make business leaner, via rental and salary negotiations that prioritise continuity in an uncertain future; and strategizing to rejuvenate sales to minimize loss and to reach breakeven sooner.

Rental negotiations – Tenants should be transparent about business performance during the crisis to allow for flexible negotiation. From a legal standpoint, most rental agreements contain force majeure clauses that allows for non-performance of the contractual obligation (i.e. exemptions from rent payment) due to unforeseeable circumstances. Alternatively, tenants can refer to the Doctrine of Frustration for rental expense relief.

Salary negotiation – It is key for employers to be transparent on budget availability and to be future-minded when renegotiating Covid-19 salary packages with their employees, to inculcate a cooperative mindset within the organization during these troubling times. Moreover, businesses that keep their employees during times of crisis are proven to be more resilient in the long term, as it builds loyalty and trust within the organization, as well as increasing the likelihood of generating productive ideas that can be useful in overcoming difficult times.

  1. Turn digital and contactless

Businesses need to turn digital to engage more consumers, and with the rise of e-commerce platforms such as Lazada, Shopee and social media marketplaces; along with the proliferation of express and contactless logistics services, time is ripe for Malaysian firms to do so. A study by CPA Australia found that Malaysian SMEs are well-positioned to transition to the digital, contactless economy:

Only 18% of the SMEs reported not having earned any revenue from online sales, implying an estimated 81% e-commerce penetration rate for Malaysian businesses. This puts Malaysian businesses in prime position to turn digital to rejuvenate sales.

  1. Support local and work from home – crisis-proof your business once and for all

Firms and industries must work together and as a community. The prospect of more border restrictions, greater preference for local over global products and services, and the need for resilience across supply chains are driving moves to bring sourcing closer to end markets. This would entail working more with local suppliers, which will require agile cooperation to ensure quality products can be manufactured and delivered within stipulated lead times. This is a blessing in disguise, as local supply chain rejuvenation will have positive spill-over effects in terms of restoring business and sales, offsetting job loss and overall economic recovery.

The MCO would entail subjecting employees to working from home, as limits on the number of people allowed in office spaces and social distancing measures have been imposed. Employers will need to optimize and become familiar with the use of virtual conferencing tools to ensure productivity can be recovered and eventually restored. Work from home regimes could also be blessings in disguise – as virtual meetings force teams to rethink how discussions are conducted, making them more efficient and purposeful as well as reducing overall carbon footprint as there is lesser need for travel.

  1. Redefine relationships with stakeholders

During these unprecedented times, with increasing localization, greater valuation for resiliency and increasing public scrutiny towards “bail out-worthy” businesses, it is now more important than ever for the private sector to safeguard its relationship with the government, society and local supply chains. Malaysian businesses are now reliant on government stimulus packages and grants, and on supportive consumers who are willing to spend in uncertain economic times to survive and thrive. Hence, the societal value of firms will come under increased scrutiny, forcing them to re-evaluate, identify and focus on delivering said value. Firms that build a positive relationship with society via contributing to the national crisis response or by developing products and services that are of greater need will find themselves having greater customer loyalty and less scrutinised access to government grants. Those that adopt the culture of ‘not leaving anyone behind’ will find themselves thriving as they become more favourable to the various stakeholders in society.

 

 

 

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