Pandemic Recovery – Realising Business Challenges

THE Socio-Economic Research Centre, a think tank of the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) released the Business and Economic Conditions Survey (M-BECS) Report (2H 2021 and 1H 2022F) earlier this month.

The bi-annual survey, conducted between April and June this year, indicated that while economic recovery continued unevenly among the sectors, our economy continued to recover in the first half of 2022, thanks to improved domestic demand and strong exports.

With lingering concerns about both external and domestic headwinds, a majority of respondents (70.4%) were “neutral” about economic conditions in 1H 2022, while only 14.7% indicated “better”.

As for 2H 2022, expectations have improved, with 25% of respondents expecting a “better” economic outlook and 56.5% feeling “neutral”.

From recent survey reports, we can see that companies have repeatedly been facing the same challenges and problems: 

High operating costs and cash flow problems have always been among the top issues affecting companies, while the raw material price increase is a major factor affecting their cash flow. All these are compounded with the continuously weakened ringgit, making things worse for companies.

Besides, labour shortage problems have worsened in the past year. Although the government agreed to heed businesses' request to defer by two years the implementation of the 80:20 local-to-foreign workers ratio to give them more time, such a flip-flop in policy change left industries at a loss. This was especially apparent from the inept coordination between the Human Resources and Home Ministries earlier. From Indonesia's sudden suspension of its workers to Malaysia following a memorandum hiccup to the last-minute two-week suspension of the MOHR foreign workers recruitment system, all of which have left companies in misery. Although the Minister of Human Resources has announced that the freeze will be lifted and all the earlier applications to hire foreign workers to proceed accordingly, the repeatedly flip-flop policies have caused chaos to the industries.

We know that our embrace of the Industry Revolution 4.0 needs to pick up speed, especially in labour-intensive industries such as manufacturing and agriculture. Automation and going electronic are a must to reduce labour dependence. However, the IR4.0 adoption in various sectors in Malaysia has been slow. According to the M-BECS Report, businesses perceived that only 12.7% of Malaysia’s manufacturing sector has gone into the IR4.0 phase. The figure is even lower than the data cited by the Penang Technology Development Centre (PSDC) in 2019 that only about 15% to 20% of Malaysian enterprises have adopted IR4.0 technology and were all multinational companies.

The M-BECS report said industry players perceived that half (51.3%) of Malaysian enterprises are still in the IR3.0 phase, and 26.2% are still in the IR2.0 phase. A survey last year also revealed that less than half of the companies had gone digital or adopted automation. When asked about their reluctance, the top three reasons cited were: Not ready or having other pressing areas to focus on, there was no need for digitalisation or automation, or the industry was not suitable.

From here, we can see the need to step up effort, be it from the government, chambers of commerce or trade associations or the industry players, to encourage these enterprises, especially the SMEs, to take action. However, considering the overhanging issue of cash flow constraints, how our SMEs should allocate funds for IR4.0 adoption, automation, digitalisation, or even R&D remain the biggest challenge.

Despite the various assistance and counselling available for enterprises over the years from government agencies, such as the Malaysia Productivity Corporation (MPC), Malaysia Digital Economy Corporation (MDEC), Standard and Industrial Research Institute of Malaysia (SIRIM) and SME Corporation Malaysia, the results have been appalling/lukewarm.

The ACCCIM's SME Committee has recently paid a visit to Tunku Abdul Rahman University of Management and Technology's (TAR UMT) SME Centre. From the preliminary discussions with them, the discussion focused on how to assist SMEs with digitalisation and automation through the university's Business Incubation and Entrepreneurship Center. SMEs that are too small to hire the relevant IT staff can receive the necessary technical support from the centre's shared services and other support and training related to human resource management, law, market research and others.

The point of contention will always be whether enterprises should make a profit before investing in automation, digitalisation and IR4.0 technologies, or they should find ways to invest before making more profit for further development. Many have also opted for the status quo due to a lack of funds despite their wish to change. Since the government has agreed to defer the implementation of the 80:20 ratio for local to foreign worker quota, enterprises have no reason to delay changing. They should utilise the two-year buffer period to lessen labour dependence. Even if they cannot be fully automated, they should gradually do so in stages. Otherwise, they will soon find themselves left behind due to labour issues and rising workers' costs. This will leave Malaysia's future economic outlook and business recovery from pandemic way worse than just "neutral" but pacing behind other countries in the region.

- this article is published on The Star "Insights" on 19th Aug 2022

Written by:
Koong Lin Loong
• Managing Partner, Reanda LLKG International
• Treasurer General cum Chairman of SMEs Committee, The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)