BUSINESSES affected by the movement restrictions to curb Covid-19 need to reorganise their operations by cutting costs and stopping the bleeding to become sustainable again, said industry players.

This advice comes at a time when businesses affected by the MCO now face the tough task of restarting after six weeks of closure, especially those that are in the non-essential sectors.

Facing the brunt of the problem are small and medium enterprises (SMEs), which comprise about 98% of companies in Malaysia.

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)’s SME committee chairman Koong Lin Loong told The Malaysian Insight most SMEs were unable to do business during the MCO period.

“If businesses want to continue operating, the first thing they need to do is to reorganise and trim the fat. The priority is to cut costs, and they have to pay attention to both income and expenditure.

“If a department’s work can be outsourced and there is no need for certain employees, then the workforce can be reduced. If certain customers are owing money, then businesses have to be vigorous in getting it back to avoid it becoming a bad debt,” Koong said.

He said these businesses have no income during the MCO but still have to pay overheads such as rent, tax and workers’ salaries.

Such businesses, Koong said, are now relying on bank loans to stay afloat and they now have to consider how they are going to conduct their operations in the next six to 12 months.

Some of these companies started operating again yesterday under the conditional MCO, where almost all businesses are allowed to resume operations under stern health and hygienic conditions. The MCO, meanwhile, is to end on May 12.

The MCO was enforced on March 18 to break the chain of Covid-19 infections, which has so far infected 6,353 and killed 105. 

Putrajaya yesterday loosened the MCO to allow almost all sectors of the economy to reopen but this has yet to be taken up by all business operators as stringent standard operating procedures (SOP) have been put in place.

Going digital

Koong also said digital technology is now vital to maintain communications between businesses and their customers amid the MCO, or it will be impossible to resume operations.

“Products that make the most profit should be resumed as soon as possible to improve cash flow.

“Right now, SMEs only have enough money to sustain for two to three months, and this is mostly cash loaned from banks,” he said, adding that businesses should rely on themselves instead of the government.

A SME is a business that has an annual turnover of less than RM500,000 and employs fewer than 200 workers.

Koong said micro-businesses employing five or six workers are safe if they receive government assistance and small loans, but larger businesses employing 20-100 employees may be in trouble.

He said this is because their expenses are much greater and these enterprises risk closure once the six-month moratorium on bank loans is over.

Koong, who is also a tax expert, said the tourism and hospitality sectors are bearing the brunt of the Covid-19 pandemic, but many non-essential sectors are hit hard as well, including clothing, handbags, jewellery, mobile phones and entertainment businesses.

Real estate agents and tour guides are also reeling from the pandemic, he said.

“There’s no one vacationing now, and there’s nobody staying in hotels, or buying clothes. Those most likely to survive the pandemic are the medical sector, those involved in producing daily essentials and those in the food and beverage sector.

“However, many restaurants are facing hard times too. After the MCO ends, many will still be worried and will not dine-in at restaurants, and they similarly will not go to theatres to watch movies either. Hotel chains are likely to survive,” he said.

The Covid-19 pandemic has sent the domestic economy tumbling, and many businesses are prioritising restructuring and planning future operations.

Industry players are also urging the government to assist businesses with cash flow issues and to formulate a mid-to-long-term economic revitalisation plan.

Many businesses will fold

Koong estimates that 50,000 to 60,000 SMEs will close in the near future.

“There’s not much small businesses can do to recover, so they’ll close. I don’t think it’s possible that many small businesses will survive.

“After this upheaval, Malaysian businesses will be more robust. This is a time for reshuffling, and there will be new business models emerging from this crisis,” he said.

Koong said Malaysia will experience recession for a period, but businesses dealing with critical items such as food and beverage, clothing and other daily essentials will continue to exist, but consumers’ attitudes towards such items will likely change.

In the long term, he said, the government should focus on plans to revive the economy, including by attracting more investment.

“There is enough help for businesses, but we need to reorganise. There is too much red tape and this needs to be reduced, such as by setting up a one-stop centre for SMEs.

“We cannot return to the past, it is already the new normal,” he said.

Koong also believes that Minister in the Prime Minister’s Department Mustapa Mohamed, who is in charge of economic planning, will intensify efforts to attract foreign direct investment by creating a business-friendly environment.

He said there will likely be a slew of policies intended to stimulate the economy in next year’s budget, which will be revealed at the end of the year.

Federation of Malaysian Manufacturers president Soh Thian Lye, meanwhile, told The Malaysian Insight in the medium term, the government should reduce the rate of sales and services tax so businesses can purchase raw materials at competitive prices.

Soh had also previously told The Malaysian Insight that manufacturers could not complete 60% of their orders due to the MCO.

He hopes the government can reduce regulatory costs for industry players.

“In the long term, we need to rebuild e-commerce, especially for SME exports,” he said.

New way of thinking

Malaysian SME Association president Kang Hua Keong said businesses now must think of how to remodel themselves.

“SMEs cannot maintain their old ways of thinking and complain all the time, they should find ways to change their businesses for the future.

“In the coming days, everyone will be facing the same issues, but some will be more proactive than others, thinking of ways to better themselves so they can recover faster and lessen their own economic burden,” he said.

Asked about businesses that are run by older individuals and whether they may be resistant to change, Kang said it is now a requirement.

“If they don’t adapt then they should be prepared to close shop, because they will be eliminated by the competition,” he said.

Kang also said the economy will undergo drastic changes in the near future, and so will the ways of doing business.

“The government should find out how to help businesses meet these new challenges, and assist SMEs to change and adapt, especially in terms of using the internet, automation and modernisation to improve competitiveness.

“The reconstruction of the supply chain is something the government must work on and SMEs must complement that,” he said.

On the opportunities of growth in the future, Kang said it might be beneficial for industries at different levels of the supply chain to group together in different regions to ease management and logistics.

“If a whole sector is in one spot, then this will increase the amount of resources shared, productivity, and economic value.

“All these have to be done eventually and we are in talks over it. That is the direction SMEs will head toward in the future,” he said. – May 5, 2020.