THE Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) recently released a survey report on Malaysia's business and economic outlook for the second half of 2023 and the first half of 2024. The survey results indicate that despite nearly 40% of respondents expecting better business prospects in 2024, the global economic growth outlook remains weak due to tight monetary policies, ongoing geopolitical tensions, the withdrawal of fiscal support, and the lagging impact of extreme weather conditions.
Among the factors that affect respondents' business performance in the second half of 2023, "currency volatility" tops the list at 51.8%, followed by "rising raw material prices" (45.0%), "high operating costs and cash flow issues" (38.6%), "declining confidence of businesses and consumers" (35.8%) and "declining domestic demand" (35.1%).
For businesses, their main concerns are the decline in consumer purchasing power (91.9%), continued cost pressures (90.6%) and the weakening of the ringgit (90.3%). Over the past two years, 52.7% of respondents have coped with the ringgit's depreciation by bearing higher costs or increasing sales prices. The majority of respondents state that stabilising the ringgit (58.0%), reducing operating costs (52.0%) and providing clear and consistent pro-business policies (41.1%) should be the government's top priorities.
Based on the above data, the Malaysian economy's post-pandemic recovery continues to see restraint following international conditions and the weakening ringgit. While these may not directly impact most small and medium enterprises (SMEs), their ripple effects pose a significant challenge for SMEs.
Besides, Malaysia will face new tax measures in 2024, including the implementation of a 10% low-value goods tax from January 1, capital gains tax, the impending introduction of a 5% to 10% high-value goods tax in May, and the gradual implementation of electronic invoicing. Meanwhile, the government has abolished diesel subsidies, increased household water and electricity tariffs and raised the service tax from 6% to 8%, all of which have affected disposable income and suppressed economic growth to a certain degree.
Furthermore, compliance with ESG (environmental, social and governance) requirements has become an inevitable shift. SMEs must adhere to the ESG framework and requirements in their operations to overcome obstacles and meet customer demands, as well as to apply for financing, incentives or bidding for any projects.
In such a challenging environment, SMEs in 2024 will continue to face issues such as rising labour costs, business operations pressure, weak talent attraction and difficulties matching talent development with demand. Due to inflation, salary increases for employees must keep up with the inflation rate to retain them. However, SMEs face significant challenges in maintaining gross profits. This means that SMEs in 2024 must strengthen their sources of revenue, explore new markets, increase sales and at the same time, improve cost efficiency and reduce operational expenses.
With competition from peers worldwide, SMEs need to not only retain existing markets and customers but also explore new markets and increase sales by enhancing the quality of their products or services. This makes research and development (R&D) crucial. SMEs have a significant advantage in terms of flexibility and market perception. To take on the current economic and industry situation positively, they should actively invest in technological innovation and R&D to enhance the technological content of their products.
Let us take a look at China's government-developed direction of cultivating its “Specialised, Refined, Distinctive and Innovative” (SRDI) enterprises.
According to statistics released by China in 2023, SRDI enterprises invested an average of over 31mil yuan in R&D in 2022, with an average R&D intensity (R&D expenses/revenue) of about 6.3%. This is twice as high as China's national R&D funding intensity for the entire society in 2022, which was approximately 2.6%.
Undoubtedly, R&D costs are a burden for SMEs, but they are a necessary investment. SMEs can collaborate with universities and colleges to jointly conduct R&D work for mutual benefit. Additionally, they can utilise the increased government resources and apply for various relevant tax incentives and low-interest loans to alleviate financial burdens. Accelerating the transformation of Malaysian SMEs towards specialisation, refinement, distinctiveness and novelty is the only choice for their sustained development. Otherwise, they will only be left behind and eliminated.
Furthermore, businesses must ensure that their products and services meet market demands and trends, aligning with the 2030 New Industrial Master Plan (NIMP), the National Energy Transition Roadmap (NETR) and the 12th Malaysia Plan's development strategies. Only by doing so can enterprises seize opportunities and rise with the momentum.
The Malaysian government has been promoting the Multimedia Super Corridor (MSC) programme since 1996. From the second to the third Industrial Master Plan, leading up to the recently announced NIMP, the government has continuously encouraged the industrial shift towards information technology, automation and adopting Industry 4.0 practices. Also, to encourage market expansion, the government has been assisting in various aspects, including organising domestic and international trade fairs through the Malaysia External Trade Development Corporation (Matrade), providing market information and offering consultation services. Moreover, Malaysia and Singapore signed a memorandum of understanding on January 11 for the development of the Iskandar Malaysia-Singapore Special Economic Zone (SEZ), aiming to jointly establish an economic zone to leverage complementary advantages and strengthen the commercial ecosystems of both countries.
Buzzwords such as automation, Industry 4.0, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have constantly appeared in government documents, media reports and the discourse of various business groups. Have our SMEs seized the opportunity to embark on the path of reform, to change their mindset and operational methods, or to let these policies and measures remain on paper? This is our biggest challenge moving forward.
In the past week, we have all immersed ourselves in the vibrant atmosphere of the Chinese New Year, welcoming the Year of the Wood Dragon. According to feng shui principles, the Wood Dragon marks the beginning of a new “Period Nine” (jiu yun) cycle. Several auspicious Chinese New Year greetings have been popular of late, featuring several rarely used characters and wishing everyone a bright future, an abundant life and a successful career as the dragon rises. Let’s hope that the Malaysian economy and everyone's fortunes can align with this greeting and embark on a new journey in harmony with the cycle of Period Nine fortunes. May we soar like dragons, with a bright future, abundant lives and successful careers!
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This article is published at Star Biz dated 19th Feb 2024
Written by:
Datuk Koong Lin Loong JP
• Managing Partner, Reanda LLKG International
• Treasurer General cum Chairman of SMEs Committee, The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)