KUALA LUMPUR (Dec 1): Malaysian businesses are cautious on growth outlook as up to three quarters (76%) of them only expect to return to pre-Covid profitability levels by the end of 2022, a survey by HSBC showed.

According to HSBC global survey Navigator: Now, next and how, which surveyed more than 10,000 companies across 39 markets in the world, Malaysia’s businesses have lowered their growth expectations, but they are still more positive than their regional peers.

Although more Malaysian businesses say they are thriving (30%) than the global average (24%), their outlook mirrors the overall decline in global optimism, the survey showed.

Malaysia’s future growth expectations have also slipped since 2019, but by a much smaller amount than globally.

The proportion of Malaysian companies projecting growth (74%) is also well above the average for Asia Pacific (APAC) (60%), while around one fifth of businesses (16%) expect to return to pre-Covid levels of profitability by the end of 2020.

Meanwhile, a minority of less than one in ten (6%) say they are already ahead of their own pre-Covid levels.

“The resurgence of Covid-19 is the primary threat to recovery for Malaysian businesses. But its knock-on effects (including a decline in consumer demand and difficulty entering new markets) are also concerns,” the survey said.

HSBC Malaysia chief executive officer Stuart Milne said in a briefing the companies that are more likely to take longer time to recover are those involved in the service sector.

“Manufacturing will bounce back more quickly, but companies in the services sector, particularly those in tourism, are going to take longer to recover,” he said.

He also said the bank is optimistic in terms of Malaysia's economic prospects, as it expects the Malaysian economy to contract 5.1% in 2020, and bounce back in 2021 with a growth of 6.2%.

In line with global trends, the events of 2020 have not dampened the inclination of most Malaysian businesses to invest to grow, as more than three quarters (78%) intend to increase investment in their business in the next year over the two thirds seen globally.

Furthermore, 25% intend to increase their investments by more than 20% compared with 13% globally.

The survey also highlighted that companies will focus their investments on three fundamental areas in 2021 — cash flow and capital management, marketing, and sales channels.

To support these areas, they plan to increase investment in technologies that help target consumers, improve customer experience and promote collaboration.

Malaysian businesses remain optimistic despite the unprecedented year. Almost three quarters (74%) of Malaysian businesses have undergone changes in the last 12 months.

Behind these changes are the need to reduce costs, future uncertainty and change in ways of working.

Looking ahead, Malaysian businesses view innovation and collaboration as the top two characteristics of a successful future business.

Despite projecting difficulties in 2021, Malaysian businesses remain positive about international trade going forward, as 80% of companies expect their international trade prospects over the next one to two years to be positive.

Malaysian companies are confident about the benefits and opportunities of international trade. More than half (55%) believe it makes their businesses more competitive, 47% see it boosting product and service development, while almost half (43%) feel that it leads to greater choice for consumers.

Overall, a slightly higher proportion than globally have a positive outlook for the next one to two years. This is in spite of eight in ten businesses feeling that international trade has become more difficult, and over half (56%) expecting the trend to continue in 2021.

Protectionism continues to be strongly felt, and selling through digital channels is seen by Malaysian companies as the key strategy for combating it, the survey showed.

The proportion of companies operating internationally has increased marginally since 2019. Intra-regional trade has also grown: 86% of Malaysian companies are trading within APAC, an increase of 10% since 2019.

China continues to retain the top spot of current trading partners, followed by Singapore and Indonesia.

HSBC Malaysia’s commercial banking head Andrew Sill said international trade prospects are expected to be positive given the added boost of the recent Regional Comprehensive Economic Partnership (RCEP) signing.

“With the recent RCEP signing, we will continue to see an increase in intra-Asian trade, which is already larger than Asia’s trade with North America and Europe combined,” Sill said, adding that this increase will continue to power global economic growth and pull the economic centre of gravity towards Asia.

Meanwhile, nearly all Malaysian businesses (98%) have concerns about their supply chain, with the key issues being supply chain instability and increased costs.

In response to these issues, 99% of Malaysian businesses have made adjustments to their supply chain. More than half (57%) of Malaysian businesses are also expecting that reshaping their supply chain will reduce costs. Other benefits include improved supply chain visibility and increased speed to market/moving closer to the end buyer.

Additionally, some of the more popular changes Malaysian businesses have undertaken have been the increased usage of digital technology, diversifying to work with more suppliers and choosing suppliers for their operational resilience and ability to deliver quickly.

According to the survey findings, three fifths of Malaysian businesses will make it their immediate priority in 2021 to focus on usage of digital technology (56% versus 48% globally). This underpins the importance of digital innovation to businesses in the coming year.

Social focus is also an increasing trend in Malaysia as Malaysian businesses seek to improve sustainability.

According to the survey, 99% of Malaysian companies think there are multiple opportunities for their business from improving their environmental and ethical sustainability

At least two thirds of companies in Malaysia have set a wide range of environmental, social and governance (ESG) targets.

Between one third and half have annual targets in place — the most common targets have a social focus. A further fifth to a third have set targets for 2025.

This reflects the fact that 99% of Malaysian companies recognise the business opportunities of becoming more sustainable. For them, the most important are: promoting new ways of working, improving employee wellbeing, attracting more investment and increasing customer demand.

What’s more, 97% of Malaysian companies (86% globally) expect their sales to grow from a greater focus on sustainability.

Supply chain partners, governments and employees are the most likely to increase the pressure to become more sustainable over the next 12 months.