Insight - Regeneration: Sustainability of family enterprises

Taking a hit: Grab riders pick up deliveries from a restaurant in Kuala Lumpur. Last year, the GDP of SMEs contracted 7.3% to RM512.8bil, in comparison to the national GDP decline of 5.6%. — Bloomberg

THE clock says that it’s 6pm – two hours before the mandated closing time for his restaurants for the past few months.

These days restaurants are no longer buzzing with family and friends dining together, laughing and exchanging stories over hot steaming meals freshly prepared in the kitchen.

Half the tables and chairs are piled up in the corner of the restaurant, unoccupied and lonely.

Packed food is placed on the counter, to be picked up by delivery riders who will deliver the food to his customers waiting patiently in the comfort of their homes.

Tan stared into the distance, thinking about what the future holds for his restaurants and his two children who will spearhead the family business once he hands over the reins.

He misses the old days but deep down inside, he knows that in order for his family business to survive, he must be resilient, innovative and above all, ensure that the business stays relevant beyond this pandemic.

What needs to be done?

Storm clouds or silver lining?

Questions such as “Is it safe to open my shop today?” and “How long can I keep my business afloat?” echo in the mind of many business owners alike.

The extraordinary behavioural changes of consumers and the extreme unpredictability caused by the Covid-19 pandemic have forced business owners to relook, reassess and ultimately reinvent themselves.

Small and medium enterprises (SMEs) are the backbone of the Malaysian economy.

SMEs contributed almost 40% of the country’s gross domestic product (GDP) and provide employment to two-thirds of the Malaysian workforce.

SMEs are also the group that is most severely affected by the pandemic.

Last year, the GDP of SMEs contracted 7.3% to RM512.8bil, in comparison to the national GDP decline of 5.6%.

Despite the seemingly never-ending curve balls, businesses are hoping for a turnaround in 2022.

The Pre-Budget statement issued by the Finance Ministry (MoF) on Aug 31 provides hope that 2022 will indeed be a better year with bold measures to stimulate investments, support the adoption of digitalisation, create new job opportunities and encourage consumption to help spur the economy.

Digitalising the business

Studies show that adaptation to online purchasing by consumers has increased tremendously during the pandemic. However, the adoption of digital solutions and automation by SMEs is still lagging behind compared to larger organisations, as reported by Bank Negara.

Therefore, SMEs need to re-evaluate their business models to keep up with digital transformation trends.

Automation will help SMEs to improve their supply chain diversity and resilience, enhance customer experience, widen market outreach and speed-up deliveries.

In fact, digitalisation is not an option, it is an imperative. In a world where customers expect flashy websites where they can find all the information they need about a product, have all their questions answered and where they can place orders and make payments with the click of a button, businesses which do not digitalise will find it extremely challenging to survive, let alone thrive.

However, digitalisation comes at a cost.

The government must continue to incentivise SMEs to automate their operations, production and trade channels through the provision of digital grants, digital training support and tax incentives.

Empowering human capital

One of the ways in which SMEs have been impacted by the pandemic is the ability to retain employees.

Although this challenge was alleviated by the wage subsidy programme rolled out under the Pemulih stimulus package, in which the eligibility conditions were gradually relaxed, the extension and expansion of similar programmes would be welcomed by the SMEs.

On a positive note, businesses are upskilling and reskilling their talent pool, rehiring retrenched employees, especially those in the B50 group, and embracing digitalisation.

Manpower efficiency and the use of technology will increase productivity through enabling a strong focus on value-adding activities and reducing the country’s reliance on lower skilled foreign workers.

Training grants, allowances for industry-specific training courses, additional tax deductions on the costs incurred to upskill and reskill employees, and the provision of further deductions on the cost of rehiring of retrenched and financially distressed persons from the B50 group will help to support businesses.

A monitoring system should be set up to ensure that the intended objectives of the government support are achieved, without abuse or leakage in implementation.

Creating a safe environment

As Malaysia prepares to transition to a Covid-19 endemic phase, protecting staff and customers requires business owners to embrace more stringent health and safety protocols. Having clear protocols in place and diligently implemented must become an immediate priority to deal with present and upcoming challenges.

Preventive measures such as Covid-19 screenings for employees, the purchase of protective equipment, the sanitisation of business premises and the observance of physical distancing area among the steps taken by businesses to support the country in controlling the pandemic.

Further initiatives and assistance such as the granting of special leave for employee vaccinations and quarantines where relevant, and the subsidy of employee vaccination costs and other Covid-19-related bills should be adopted by SME businesses, to create a safe and supportive working environment.

Consequently, the double-tax deduction announced recently by the government should not be limited to only Covid-19 employees detection tests but should cater to a more holistic pool of costs.

Family businesses are here to stay

Staying relevant in an ever changing business environment is vital for a sustainable and resilient family business.

As the objectives of Budget 2022 are aimed to protect and drive the recovery of the lives and livelihood of Malaysians, rebuild the economy’s resilience, and catalyse socio-economic reforms, SMEs are looking forward to a more inclusive Budget to be announced.

Together, let us pave the way for future generations.

Bernard Yap is the EY Private Tax and Financial Services Leader in Ernst & Young Tax Consultants Sdn Bhd. The views expressed here are the writer’s own.

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