Economic Outlook 2021: SMEs resilience the way forward

  • Economy
  • Friday, 06 Nov 2020

KUALA LUMPUR: The Covid-19 pandemic has exposed underlying problems in the way SMEs conduct business.

The pandemic has also created a new normal in business practices, which includes adopting digital business models, re-orientation in supply chains and embrace the shift in consumer behaviours.

SMEs need to improve their capability and capacity to be more resilient, agile and flexible to face uncertainties, according to the Economic Outlook 2021 report.

The SME Corp undertook a series of internal surveys between March and May 2020 to assess the impact of the MCO (Movement Control Order) on SMEs.

The surveys indicated that cash flow disruptions were the main challenge to SMEs during the Covid-19 crisis, followed by lower demand, supply chain disruption and legal issues.

The surveys revealed that nearly 60% of SMEs reported not having any sales during the MCO period, while 39% experienced lower sales.

They also claimed not having money to pay staff salaries and benefits, business loan repayments, rental, utilities,raw materials and packaging.

More than 90% of SMEs are expected to survive up to five months with their cash-in-hand.

The SME Corp surveyed showed that only 34% were able to continue operations as essential services providers.

Majority of SMEs had to undertake various actions including negotiating with employees on salary and benefit cuts (37%), retrenching (34%), limiting business trips (33%) and working from home (33%).

For SMEs to retain their pre-crisis growth momentum, assistance other than commercial loans are necessary. This includes soft loans, deduction on corporate and business tax and a dedicated government agency as SMEs focal point.

Hence, all the initiatives under the stimulus packages, the wage subsidy programme, six-month loan moratorium, free internet services and special relief facility initiatives were impactful.

A total of 72% of SMEs are anticipated to rebound within a year and the rest, more than a year.

Moving forward, among the initiatives that will enable SMEs to endure any crisis are accelerating digitalisation, adopting strategic financial planning and enhancing branding.

Accelerate digitalisation

The adoption of digitalisation is necessary to transform SMEs to be more competitive and resilient. Only 62% of SMEs are connected to the internet, 46% have fixed broadband and 18% have a web presence of some kind.

Adopt strategic financial planning

More than 70% of SMEs financing needs are sourced internally or from personal savings; the rest obtained from banks and development financial and microcredit institutions.

Many SMEs lack awareness and know-how to conduct effective and efficient budgeting including alternative financing.

Enhance branding

Currently, local SMEs contribute only 18% of total exports due to lack of knowledge on market access and readiness in exporting.

Insufficient funds for brand and marketing is the top internal challenge for SMEs. In contrast, the high cost in brand communication was the main external challenge.

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