Transcript Implications for SMIs

CHALLENGES TO SMIs IN
OVERCOMING THE GLOBAL
ECONOMIC TSUNAMI
Steven C.M. Wong
Assistant Director General
ISIS Malaysia
[email protected]
OUTLINE
1.How does the global economic crisis impact SMIs?
2.What are the immediate and medium-term
prospects for the global economy?
3.What are the immediate and medium-term
prospects for the Malaysian economy?
4.Is the global crisis receding?
5.Implications for SMI
1.
How does the global economic crisis impact SMIs?
Households
Corporations
Government
1.
How does the global economic crisis impact SMI
activities?
•
Income effects, i.e. nominal (money) discretionary
incomes – prices matter; bonus payments; gross national
income
•
Wealth effects, e.g. share portfolios, unit trusts, bonds,
land value (esp. retirees)
•
Changed employment status – unemployment; part-time;
emigration/immigration
•
Personal & corporate expense curbs, decline in
corporate sponsorships
•
Government policies – positive/negative fiscal impulses;
borrowings
2.
What are the immediate and medium-term prospects for the global
economy?
2008
2009(f)
2010(f)
US
1.1
-2.8
0.0
EU
0.9
-4.2
-0.4
Japan
-0.6
-6.2
0.5
China
9.0
6.5
8.0
India
7.3
5.1
7.5
ASEAN-5
4.9
0.0
2.3
World
3.2
-1.5
1.9
International Monetary Fund, 22 April 2009
2.
What are the immediate and medium-term
prospects for the global economy?
•
Greatest economic crisis in modern history averted
through financial bail-outs and demand management
•
But ‘V’-shaped recovery? Still too early.
Height of the ‘bounce’?
Depends on effectiveness of government
stimulus packages
•
Many problems still not resolved
•
Toxic financial assets
•
Income and wealth destruction
•
Record budget deficits, debt overhang & excess
liquidity levels, etc.
What are the immediate and medium-term prospects for the
Malaysian economy?
- GDP MALAYSIA'S REAL GDP & INDUSTRIAL PRODUCTION,
2000-2008
25.0
20.0
15.0
10.0
5.0
2008
2007
2006
2005
2004
2003
2002
(5.0)
2001
0.0
2000
3.
(10.0)
(15.0)
(20.0)
GDP (2000=100)
Industrial Production Index
3Q08: +4.7%
4Q08: +0.1%;
Official 09: <-1.0%
IMF 09: -3.5%
- Industrial Production –
3Q08: -1.6%
4Q08: -15.6%
1Q09: -16.3%
- Exports –
3Q08: +15.1%
4Q08: -14.9%
1Q09: -20.0%
3.
What are the immediate and medium-term prospects for the
Malaysian economy?
- Active Job Seekers 3Q08: +88.7%
4Q08: +109.0%
1Q09: +130% (Est.)
CONSUMPTION INDICATORS (% CHANGE)
2000-1Q2009
80.0
70.0
60.0
- Bank Loans Approved 3Q08: -1.2%
4Q09: -23.7%
1Q09: -17.8%
50.0
40.0
30.0
20.0
10.0
0.0
(10.0)
2000
2001
2002
2003
2004
2005
2006
2007
2008
(20.0)
Sale of passenger cars
Consumption credit
Consumption goods imports
Outstanding bal of credit cards
IQ09
3.
What are the immediate and medium-term prospects for the
Malaysian economy?
MALAYSIAN WEALTH INDICATORS (% CHANGE)
2000-1Q2009
IQ09
2008
2007
2006
2005
2004
2003
2002
2001
2000
(40.0)
(30.0)
(20.0)
(10.0)
0.0
Malaysian Housing Price Index
10.0
20.0
Market capitalisation
30.0
40.0
Second Stimulus Package – RM60b
19
2
7
10
15
25
10
29
Reduce unemployment
Ease rakyat's burden
Fiscal expenditure
Tax incentives
Assist private sector
Build future capacity
Loan guarantees
PFI & other projects
Equity investment
3
4.
Is the global recession receding?
•
YES - Global economic crisis seems to be bottoming
•
NO – Global economic recovery is still some distance away
•
Recovery will have to first be signalled by significant pick-up in
world private consumption/exports/capital investment – at least 4
quarters away.
•
RM60bn mini-budget is seen by most to have positive but limited
cushioning effect on economic growth (bet. RM5-7b of additional
fiscal stimulus must be injected in 2009)
5.
Implications for SMIs
•
Challenging business environment through most of 2009 and
possibly into early 2010
•
Near-term ‘V’-shape recovery is possible but not very likely
•
Business consolidation and rationalisation are underway in many
sectors; affects business segment of market
•
Very high-end facilities cushioned by client affluence but middle
market will probably find it tough and unrewarding
•
Pitching for post-Crisis business will be the single most
important task for senior management
5.
Implications for SMIs
•
Cutting back on product & service quality will most likely be
counter-productive
•
Look for ways to increase revenue yields through direct & crossselling and promotion strategies
•
Develop client communities and increase value-added services
•
Finances need to be strong; be realistic - more debt is not the
answer; maintain positive net equity
•
Use down-time to sharpen competencies and master new skills
(e.g. IT, language, etc); invest in new relationships
5.
Implications for SMIs
• Monitor/manage three critical variables (a la Du Pont)
- Operating profit margins (Net Profit/Sales)
- Asset turnover (Sales/Assets)
-Gearing (Assets/Equity)
5.
Implications for SMIs
• In event of a long recovery (‘flat-U’), access to working capital will
be critical
• Loading up on debt, however, is not necessarily the answer
• Implicit cost of equity is high; raise/diversify shareholdings
• “Lighten-up” assets – hire/lease assets where possible
• Expand only where project returns IRR 8%>
• Expect steepening of the longer end of the yield curve
5.
Implications for SMIs
• Maintain efficient gearing ratios (look at sales turnover)
• Reject temptation to operate loss-making businesses; dispose
businesses that do not meet minimum return requirements
• Budget and live by the numbers!
• Be prepared to cut overheads by up to 20%; operating costs by
10% a year; realise that cost-cutting alone is not the solution!
• Think yields and productivity, and not turnover alone
5.
Implications for SMIs
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12.
1.
Revenue Growth
Product and Service Innovation
Enhancing employee skills
New market expansion
Partner relationships and Channel expansion
Customer Satisfaction
Technology investment
8.
Product Innovation
Process Innovation
Business Model Innovation
Packaging/Bundling Innovation
Pricing Innovation