This article first appeared in The Edge Malaysia Weekly on August 26, 2019 - September 1, 2019
CONFIDENCE among CEOs remained muted as the soft global economy and trade tensions continued to pose challenges for the Malaysian economy and their businesses. This is reflected in the VISTAGE-MIER CEO Confidence Index which, at 90.2, is relatively unchanged from the prior quarter’s 90.1. The Index has been in the red for four quarters now, indicating a lack of confidence amongst CEOs who have been adopting a wait-and-see attitude to the economy and the prospects of their firms moving forward.
The latest current economic conditions index picked up three points on the quarter to 71. This is the fourth consecutive quarter that this index has remained below the 100-point optimism threshold, suggesting that CEOs’ sentiments on the economy have improved recently, but they are not optimistic yet that the economy has performed better. Of the 670 CEOs who responded to the survey, 13% rated the economy favourably while 45% saw no change and 42% said it has worsened in 3Q2019. Their projections of the economy are equally cautious, as shown by the expected economic conditions index which, at 109, has lost two points from 2Q2019. 30% of the CEOs opined that the economy will improve soon, down from 32% in 2Q2019.
CEOs are keeping expectations of their businesses on low key for the months ahead. Except for revenue, all the other indicators pertaining to expectations shifted lower from the previous quarter. The expected index for revenue rose seven points from 2Q2019 to 132 lately. Although the 51% planning to inject more capital into their businesses soon are almost the same as the 52% formerly, those planning to reduce theirs have shrunk to 19% in 3Q2019 from 27% in 2Q2019. The index for planned fixed investment fell to 124 from 127 in 2Q2019, implying that capital expenditure is expected to be rationalised in the next quarter or two. 40% planned on increasing their capital soon, down from 43% a quarter ago. Lower profits are also anticipated for the coming months, with the expected profitability index shedding three points quarter on quarter to 119. While those looking forward to higher profits soon remained at 42% as in the last quarter, those expecting otherwise have grown to 23% from 20% previously.
Hiring plans are also expected to be moderate for now. This is shown by the index for expected employment which, at 127, has little changed from 2Q2019’s 128. 41% of the CEOs are planning to increase their headcount soon while 45% will put theirs on hold, compared with 40% and 48% in 2Q2019, respectively. Weaker domestic and external demand are weighing on local and export orders which are expected to wane for the second quarter in a row.
43% in 3Q2019 are expecting an increase in local orders soon, down from 45% in 2Q2019 and 46% in 1Q2019. Orders from abroad are projected to increase by 30% of the CEOs in the near term, down from 31% and 35% in 2Q2019 and 1Q2019, respectively. Selling prices will remain stable for the rest of the year, amid signs of an uptrend going forward. 63% of the CEOs will maintain their prices in the coming months while 22% will raise theirs, up from 16% in 2Q2019.
Three major business decisions in the next 12 months
The three major decisions that CEOs are planning to make regarding their businesses in the next twelve months are sales (38% votes), hiring,recruitment and sourcing (33%) and market development (29%). These are followed by, in descending order of responses totalling 22% to 17%, strategic planning, marketing, performance management/human resource, productivity and execution, as well as retention and engagement. Only up to 4% of the CEOs will likely make decisions pertaining to ownership and governance, economic/future trends and infrastructure in the next twelve months.
Three major investment plans in the next 12 months
Topping the list of major investments CEOs are planning for their businesses in the next twelve months is market development (29% responses), followed by hiring, recruitment and sourcing (28%), and sales (25%). 16% to 23% of the CEOs have plans to invest in marketing, technology, productivity and execution, strategic planning and employee development. Ownership and governance, economic/future trends, risk management and communication and alignment will be invested by only 1% to 4% of the CEOs.
Sales trend: 2018 performance vis-à-vis 2019 projection
Most (31%) of the CEOs opined that their sales last year have increased and they are projecting another increase this year. 13% sold more last year, but they foresee otherwise for 2019. Sales are expected to increase this year for another 13% of the CEOs, albeit their lower sales last year. While 12% described their sales last year as flat, their projection for 2019 is favourable. Almost 5% experienced lower sales in 2018 and they are predicting the same for this year as well. Sales last year were flat for more than 4% of the CEOs who are also expecting their sales to decline in 2019.
Ranking of selected indicators
On a scale of one (strongly disagree) to seven (strongly agree), most CEOs rated all selected indicators with a scale of six (quite strongly agree). Of these seven indicators given, serving new customers/markets received the most votes (40%) while providing new products/services and incremental innovation (improvements on existing products/services) generated the second and third highest responses of 34% and 33%, respectively. Next on the list were the development of new processes of making/providing existing products/services (32%) and the creation of operational efficiencies that result in reduction of time and/or cost (32%). Radical innovation (for example, novel products/services, major technological breakthroughs) was ranked six by 24% of the CEOs while 21% also quite strongly agree with the development of new technologies (patents).
Facilitation of innovation
To facilitate innovation in their companies, most (64%) CEOs considered it best to listen/respond to customer needs and focus on continual improvement. Employees was third on the list in terms of total responses, followed by corporate culture and incentive/reward programmes.
Hindrance to innovation
Focusing too much on existing work was, to most (32%) CEOs, the greatest hindrance to innovation in their companies. 20% believed resistance to change/management change was their biggest hindrance while 19% named limited capital investment and 17% said it was low employee engagement.
Top 3 factors affecting cost of doing business
The top three factors affecting CEOs’ cost of doing business were, namely, the shortage of skilled employees (52% responses), higher salaries and higher costs of raw materials. The fourth factor (by total responses) was financial costs. Inefficient bureaucracy was next, followed by excessive regulations, the sales and services tax (SST) and corruption.
Labour shortage
When asked if they faced any problems of labour shortage in their businesses, 59% of the CEOs confirmed they do. In terms of skilled labour, most CEOs face shortages in sales, technical/engineering, production and marketing. For unskilled labour, the shortages are more prevalent in production and sales. Where professional staff are concerned, CEOs encounter shortages in the areas of sales, technical/engineering, marketing and production.
Top wishes for Malaysia Budget 2020
For Malaysia Budget 2020, CEOs were asked to list down their wishes, both business and personal. On a business level, the wish of CEOs in general was predominantly tax-related, especially corporate taxes which they hoped would be reduced. Lower import and excise duties, interest rate for business loans and credit facilities, sales tax for raw materials and stamp duty for properties were also on their list. CEOs also hoped that higher grants from the government will be included in the Malaysia Budget 2020, especially for SMEs and research and development. They also called for an increase in the government development fund, allocation for schools and hospitals, incentives and loans to SMEs, double tax deduction, food export, budget for higher education/professional studies, tax allowance and incentives and import tax. Other suggestions included the abolishment of the SST and reintroduction of the GST at a lower rate, and provision of incentives for digitalisation, innovation, capital reinvestment, green technologies, adoption of technologies/IT transformation and food production. It is also the wish of CEOs that more be done to attract FDIs, besides calling for the foreign labour issue to be addressed, provision of export incentives to ASEAN countries and strengthening of the ringgit.
Most wishes of CEOs on a personal level were also tax-related. In particular, CEOs have suggested for a reduction in personal taxes, real property gain tax, rate for bank loans, SST, tax on imported cars, import duties on cars and bikes and toll charges. Higher personal tax reliefs, incentives, exemptions and rebates, parental care, insurance allowance, deductible allowance for healthcare and children’s education, educational tax reliefs were also on their personal wish lists. While some CEOs proposed for an improvement in public transport, education policy/system, government services, education tax rebates and national security, others called for a better fuel subsidy, healthcare insurance and services, as well as an elimination of the domestic travel taxes and taxes on hybrid and electric cars.
About the CEO Confidence Index
Since its inception in 2003, the CEO Confidence Index, a quarterly survey of VISTAGE members in Malaysia, has become a leading indicator of what leaders of small and mid-sized companies are thinking about and planning for the future. These insights provide a leading indicator for employment, capital expenditure, sales and revenue trends. Each quarter, VISTAGE International polls its membership in Malaysia, the US, Canada, the UK and Australia.
About VISTAGE Malaysia and Mier
VISTAGE Malaysia is a licensee of VISTAGE International, the US, the world’s leading chief executive leadership development organisation, providing unparalleled access to issue resolution and better performance through monthly peer advisor groups, one-on-one business coaching, expert speaker presentations and extensive online connectivity spread over 1,800 cities in 22 countries with more than 23,000 members worldwide. VISTAGE Malaysia has more than 800 members with combined annual revenue of RM60 billion and employing over 100,000 employees. VISTAGE member companies grow, on average, 2.2 times faster than they did prior to joining VISTAGE. In 4Q2005, VISTAGE Malaysia entered into a strategic alliance with the Malaysian Institute of Economic Research (MIER) to co-brand the CEO Confidence Index. MIER is an independent, private, non-profit organisation, devoted to economic, financial and business research that would serve as a think tank for the government and private sector by providing an objective and impartial understanding of socio-economic issues of national, regional and global importance.
3Q2019 VISTAGE-MIER CEO Confidence Index Survey Questions
FINAL RESULTS — Malaysia
Response rate: 88%
Margin of error: ± 5.0%
1. Compared to a year ago, has the overall economic condition in Malaysia improved, remained about the same, or worsened?
Improved 12.99 87
Remained about the same 44.93 301
Worsened 42.09 282
Total respondents 670
2. Over the next 12 months, do you expect the overall economic condition in Malaysia to become better, remain about the same, or worsen?
Become better 30.15 202
Remain about the same 48.66 326
Worsen 21.19 142
Total respondents 670
3. Is your firm’s total fixed investment expenditure likely to increase, remain about the same, or decrease over the next 12 months?
Increase 40.00 268
Remain about the same 43.88 294
Decrease 16.12 108
Total respondents 670
4. Do you expect your firm’s sales revenue to increase, remain about the same, or decrease over the next 12 months?
Increase 50.75 340
Remain about the same 30.00 201
Decrease 19.25 129
Total respondents 670
5. Do you expect your firm’s profitability to improve, remain about the same, or worsen over the next 12 months?
Improve 41.64 279
Remain about the same 34.93 234
Worsen 23.43 157
Total respondents 670
6. Do you expect your firm’s total number of employees to increase, remain about the same, or decrease over the next 12 months?
Increase. 40.75 273
Remain about the same. 44.93 301
Decrease. 14.33 96
Total respondents 670
7. In the next 12 months, your new local orders for your product(s) and services will probably:
Increase. 43.34 291
Remain about the same. 38.96 261
Decrease. 17.61 118
Total respondents 670
8. In the next 12 months, your new orders from overseas for your product(s) and services will probably:
Increase 29.55 198
Remain about the same 23.88 160
Decrease 5.37 36
Not applicable 41.19 276
Total respondents 670
9. Your sales prices for your product(s) and services in the next 12 months will probably:
Increase 21.49 144
Remain about the same 62.69 420
Decrease 15.82 106
Total respondents 670
10. What are three major decisions you’ll have to make regarding your business in the next 12 months? Select the top 3 most significant decisions from the list below:
Hiring, Recruitment and Sourcing 33.13 222
Retention and Engagement 17.16 115
Performance Management/HR 21.19 142
Succession Planning 9.25 62
Employee Development 14.93 100
Marketing 22.24 149
Market Development 28.96 194
Sales 37.61 252
Customer Service 9.10 61
Product and Pricing 14.33 96
Technology 11.04 74
Risk Management 7.31 49
Productivity and Execution 18.51 124
Infrastructure 4.03 27
Manufacturing & Distribution 5.07 34
Mergers and Acquisitions 5.22 35
Economic/Future Trends 3.58 24
Financial Management; Budgeting,
Forecasting, Metrics, Reporting. 10.45 70
Capital/Cash Management 15.22 102
Ownership and Governance. 1.64 11
Mission, Vision, Purpose 4.18 28
Strategic Planning 22.39 150
Communication and Alignment 5.52 37
Organisational Culture and Values 5.22 35
Innovation 9.40 63
Others (please specify) 1.04 7
Total respondents 670
11. What are the top three factors affecting your cost of doing business? (Choose THREE only.)
Higher salaries 48.06 322
Corruption 7.46 50
Inefficient bureaucracy 28.21 189
Excessive regulations 19.55 131
SST 16.12 108
Inadequate supply of skilled employees 52.09 349
Increased cost of raw materials 39.85 267
Financial costs 38.66 259
Others (please state) 0.06 42
12. Do you face any problems of labour shortage in your business?
Yes 58.81 394
No 40.00 268
Total respondents 662
13. What are your top three business wishes for Budget 2020?
• Reduce corporate taxes, import and excise duties, interest rate for business loans and credit facilities, sales tax for raw materials and stamp duty for properties
• Higher grants from the government, especially for SMEs and R&D
• Increase government development fund, allocation for schools and hospitals, incentives and loans to SMEs, double tax deduction, food export, budget for higher education/professional studies, tax allowance and incentives and import tax
• Abolish the SST and re-introduce the GST at a lower rate
• Provide incentives for digitalisation, innovation, capital reinvestment, green technologies, adoption of technologies/IT transformation, and food production attract FDIs and provide export incentives to
ASEAN countries
• Address foreign labour issue and strengthen the RM
14. What are your top three personal wishes for Budget 2020?
• Reduce personal taxes, real property gain tax, rate for bank loans, SST, tax on imported cars, import duties on cars and bikes and toll charges
• Higher personal tax reliefs, incentives, exemptions and rebates, parental care, insurance allowance, deductible allowance for healthcare and children’s education, educational tax reliefs
• Improve public transport, education policy/system, government services, education tax rebates and national security
• Provide better fuel subsidy, healthcare insurance and services
• Eliminate domestic travel taxes, and taxes on hybrid and electric cars
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