Managing Business In Challenging Times - Malaysian Experience (Part I)

By Tan Thai Soon

1) Introduction

1.1) Economic Slowdown
The global financial crisis started in U.S. had spreads to Europe, Asia and the rest of the world. Malaysia economy is no exception for the following reasons:

i) The fall in demand for oil by the world major economy have resulted the fall of crude oil price from above USD 140/ barrel to below USD 40/ barrel have affected Malaysia petroluem revenue.

ii) The low demand and the fall in the palm oil price from above RM 4000/ton to below RM 2000/ton together with the drop in other commodities prices have affected Malaysian export revenue.

iii) The fall in demand from U.S. and Europe for our electronic , electrical, and manufacture goods have cause the slow down in production activities, increase idle machine time, surplus of labour forces, and thus the revenue and growth.

iv) The fall in revenue by Malaysian companies from oversea projects due to cancellation and deferment, particularly from East Asia and emerging economy, have affected the performance of many organizations in Malaysia.

1.2) In Summary
Like any other global economies, Malaysia had already facing the economy slowdown in 4th quarter of 2008, and the outlook for the current year is particularly challenging due to the above factors. The official GDP forecast for Malaysia in 2009 is 3.5%, with other research institute indicate a smaller growth at 2.5% in 2009. We should not expect a quick fix or short term recovery, but rather a medium term economic recovery cycle.

During this challenging time, the government financial assistance and more liberalise open policy would help Malaysia Government effort to overcome economy crisis in the medium term. Malaysian companies must be position and ready to export again when the global financial crisis is over. In addition, Malaysian must welcome the return and additional foreign investors into Malaysia. The present and future Malaysian leadership and vision is important to help Malaysia to recover from current recession and compete in this challenging, changing and competitive global environment.


2) Economic Policy

2.1) Fiscal Management
The government has in 2008 allocate a sum of RM7 billion stimulus package, the intention is to inject additional sum into economy particularly for infrasture, development, research & and education sectors. The initial package is by far too little to have any significant impact in the medium term economy recovery, but it does help as an immediate short term measure. The government has consider introducing further stimulate package in the near future. The speed and the amount allocate for the next stimulate package is critical in view of lose of revenue by the private sector and government link companies.

2.2) Bank Negara's Policy
Bank Negara Malaysia has adopt the low interest rate policy and statutory research requirement with intention to encourage borrowing, consumption and investment. As national income is a function of consumption, the later includes payment of wages, rental of fixed assets, and reinvestment of any profits.

Malaysian private commercial banks together with state owned financial institutions have taken the initiative by providing micro financing to the petty traders. The amounts of financing ranging from RM2,000 to RM50,000, without collateral, and quick approval within one week subject to completeness of documents. For example, Bank Simpanan National have proposed to increase its allocations for micro financing from RM50 million (2008) to RM250 million (2009). The other factor need to be considered is the cost of finance, the interest rate ranging from 10% p.a. to above 24% p.a.

However, the medium size enterprises, such as developers, contractors and traders are experiencing difficult to obtain loans, especially the bridging loans and term loans for development projects. According to one observer "Malaysian banks are not heeding the central bank's advice".

2.3. Bank Negara Soft Loan
The government may consider reintroducing "soft loan", the same package introduced in late 1980s, through Bank Negara to financial institutions, into properties development sector. This will relief the hardship of hundred of thousand of existing purchasers who saw theirs incomplete houses being abandon by the developers. At the same time, this would help to stimulate the development sector, particularly the related SMEs enterprises.

2.4. Private Development Sector
Private development sector is one of the prime mover in the economy. The Malaysian properties value is still very much lower compare to other big cities in Asia. Therefore with a more open policy by the government on property sector, we will be able to attract foreign inverstors in the medium term.

It is worth noted that, the incoming of foreign investors would help to create more revenue through investment. As the same time help to create more employment opportunities through joint ventures, transfer of technology in manufacturing, engineering and ICT sectors; help to develop our education sector; and other outsource service sector.


2.5) In Summary
The stimulus package and Bank Negara policy will no doubt benefits many Malaysian enterprises. The government with limited resources during financial crisis should focus in stimulate the economy and not to invest in the shares stocks or properties stocks, unless it involve national and public interest. As one observer rightly put it, the government should "focus on creating more value to our economy". Similarly the government can further help the local enterprises and economy by having a more open policy in investment security sector and further liberalise the Foreign Investment Committee (FIC) guidelines on property sector. Malaysia would be able to attract foreign investors in the medium term when the world economy recover.

3) Human Resource Management

During the economy slowdown, many companies when facing liquidity problem and surplus of labour force may opt for termination and retrenchment. However, if the skills workers have been retrenched, they may be lose forever. During the economy slowdown, training and retraining the idle skills workers may not be easy, partly due to the cash flow constraint.

The human resource fund set up by the human resource department play an increasing and important role during this challenging time. The government may consider additional financial assistance to encourage human resource development during this period. In addition, the existing double deduction tax incentive for approved training of employees in the specific sectors should be allowed to all organizations during this challenging time.

Training during this challenging time provides employees with motivation, leadership development, and to position themselves when the economy recover.

4) Innovation and Creativity

Innovation and creativity can help Malaysian organizations create new products and services for the new market. The sustainability of the Malaysian brands can be achieved through value innovation and continuous value innovation.

Through MSC Malaysia pre-seed fund programme, the government have help Malaysian business to fast track their business and innovative ideas through ICT. The government will provides grant of up to a maximum of RM150,000, to be utilised within 12 months upon approval of application. The programme is intended for a short period of time. However, in order to encourage Malaysian innovation and sustainable innovation, financial assistance is paramount important, government should extend the programme for longer period. In addition, the amount of grant approved should be increased.


5) Brand Management

Branding like any other types of advertisement will cost money. Many MMC have cut their advertising expenditure and sponsorship during economy slowdown. The small and medium size enterprise in Malaysia may take the advantage, during the absent of big brand name, to promote their brands and to position their products and services when the world economy recover.

The expenditure on promotion during this challenging time may not be easy. The brand promotion grant set up by Malaysian External Trade Development Corporation play an important role in helping the Malaysian businesses. The grant is for the development and promotion of brand by Malaysian businesses as follows: (i) 100% reimbursable grant of RM 1 million per company for SMEs, (ii) 50% reimbursable grant of RM 2 million per company for non-SMEs, and (iii) 100% reimbursable grant and a 50% reimbursable of up to RM 2 million per company for SMEs.

The Malaysian government should continue and increase the allocation of the grant during this challenging and difficult time. The grant would help Malaysian businesses to prepare, be ready and to position themselves when the world economy recover in the medium term.

The Global Financial Crisis - The Effects (Part I )

Introduction

The global financial crisis started with the U.S. Subprime mortgage meltdown in 1997. The Subprime crisis has direct impacted the financial sector and stock market in U. S. The financial crisis started in U.S. and spreads to Europe, Asia and other developing economy.

The Effects of Financial Crisis
i) Real estate sector in crisis, with fall in the housing sector and mortgage sector in U.S.

ii) Financial sector in U.S. face an unprecedented crisis. According to former Federal Research Chairman Alan Greenspan "the system is flawed''. The major European banking sector is no exception to this crisis. The crisis also affected financial center in Asia likes Singapore and Hong Kong.

iii) The financial sector has a drastic effect in the stock market. The lack of confidence and fear by investors and shareholders have cause a fall in market capitalization of up to 40% in most market through out the world.

iv) With the shortage of liquidity and fall in sales, the U.S. car industry need a major loans to avoid bankruptcy. The export oriented Japanese cars companies have to withdrawn from the sponsorship in Formula 1 sport, and South Korea Ssangyong motor company filed for bankruptcy protection.

v) The energy and oil industries see a drastic drop in demand, the crude oil price fell from a record high of above US$140/barrel to below US$40/barrel.

vi) U.S. and Europe experiences a slow down in products sales and demand in domestic market. The decline in demand have resulted in decline in production and economy growth, with some observers predicting a short to medium term recession in the economy. The fall in products demand in U.S. and Europe have a major impact on the China and Asean manufacturing sectors. The slow down in China manufacturing sectors have resulted in low demand for raw materials and commodities from Australia, Asean and other developing countries.

vii) The demand of raw materials, such as steel, platinum, copper and zine, with the exception of gold, have fallen by 45%. The fall in demand in commodities affect many developing countries. Similarly, Malaysian has seen palm oil prices soaring to historic heights to above RM4,000 a tonne, but to drop by half within a short period of time. Indonesian is not exception to the impact of low demand in commodities.

viii) The natural results of this economy slow down has seen many financial institutions and corporations retrench and fire their staffs force , with financial sector in U.S. and Europe take the lead, and follow by the manufacturing sector in Asia and other developing countries. The unemployment rate has increase in U.S., Europe and the rest of the world.