1997 turmoil prepared Malaysian SMEs to face new crisis

Most SMEs in Malaysia learned some hard business lessons after the 1997 Asian financial crisis. How does that experience compare with the current global economic and financial turmoil? The results of a recent survey offer some clues.
Malaysia has so far avoided the fate that has be fallen other countries that have stumbled badly in the current global economic and financial crisis. But with thousands of workers being retrenched, cost of most raw materials climbing and companies scrambling for new orders, local businesses are clearly taking a hit.
To take the temperature of small and medium enterprises (SMEs) here and how they are bearing up under the crisis, the Small and Medium Industries Development Corporation (Smidec) and the Federation of Malaysian Manufacturers (FMM) jointly carried out a survey involving 1,143 SMEs in December.
The results showed that SMEs are preparing for the worst - close to 80 per cent of companies in the manufacturing sector have lowered their production costs and half of them are looking for new markets for their products.
More than 70 per cent of SMEs in the services sector have changed their business plans, while 22.2 per cent are putting them on hold indefinitely.
They are also asking for a number of concessions from the government, including a reduction in corporate and sales tax and local assessment rates, export rebates, either a reduction or exemption from import duties and further improvements in the public delivery system. The government has already announced several mitigation measures and is expected to unveil a second economic stimulus package in Parliament next month.
The fact remains, however, that beyond a certain point, companies will need to rely on their own strengths to survive. About two-thirds of the companies surveyed have been in business since the last bout of economic turmoil which hit the Asian region in 1997/1998.
How will that experience help them deal with the current economicpredicament? Of the 741 manufacturing SMEs polled, 72.4 per cent of companies withan annual turnover of more than RM25 million (Type A) and 47.6 per cent of companies with an annual turnover of less than, or equal to, RM25million (Type B) considered themselves moderately prepared for the current crisis after having survived 1997/1998.
At the time of the survey, 56.8 per cent of Type A companies reported that the severity of the 1997/1998 crisis paled in comparison with this year's economic turbulence, while 46.1 per cent of Type B companies withheld judgment and said it was still too soon to tell.
It could be that their smaller size and nimbleness naturally shelters them from the vagaries of import and export trends, but it would be interesting to observe if their response to the question has changed now, just two months later.
SMEs are seeing other dimensions of their business being affected, with77.5 per cent of Type A companies and 58.7 per cent of Type B companies saying their production volumes will drop.
Meanwhile, 77.9 of Type A companies and 57.5 per cent of Type B companies expect to see their number of new orders affected.
The scenario was reflected in the services sector, which was outlined by the answers given by 402 SMEs in the survey.
When asked about their performance in the last quarter of 2008:

* 35 per cent said their production volumes had already been affectedby the crisis;
* 38.5 per cent said their number of new orders had dropped;
* 34.5 per cent said their average sale price had been affected; and,
* 31 per cent said their non-wage costs had gone up.

Although 99.2 per cent of businesses in Malaysia are SMEs, they contribute to 32 per cent of the country's gross domestic product, 36 percent to employment and 19 per cent to total exports.
While this is significant, their potential remains largely untapped, a fact that Smidec intends to change.
"We are closely monitoring the situation and we want to ensure that SMEs will not only survive this crisis, but will continue to have an increasingly significant presence in Malaysia's business landscape," said Smidec chief executive officer Datuk Hafsah Hashim.
"SMEs need to be resilient and should take advantage of the opportunities that the government provides."
Smidec is pushing its roster of products and services to SMEs to help them cope with the present economic and financial crisis.
These include training grants - which Smidec recently increased from 50 per cent to 80 per cent of the training costs - and services from its SME Expert Advisory Panel (SEAP).
The panel is made up of mostly retired industry experts, whose advisory services are available to SMEs at a minimal cost.
Global economic circumstances have been changing rapidly in recent months, and both Smidec and FMM recognise that the survey's results, though insightful, are only relevant for a specific period of time.
To continue tracking how Malaysian SMEs are weathering the financial storm and to help identify what other mitigating measures can be put in place, the two agencies intend to carry out another joint survey next month.

Note: Article was featured in the New Sunday Times dated March 1 2009.