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SME growth tips for 2010
BUSINESS AGENDA ACCA By DATUK MOHD NASIR AHMAD, March 11, 2010
IS the worst over for the Malaysian economy? Prime Minister Datuk Seri Najib Tun Razak last month announced that the country had emerged from the economic crisis, chalking up gross domestic product (GDP) growth of 4.5% for the fourth quarter of 2009. Although the economy shrank by 1.7% for the whole of 2009, this performance was far better than the expected 3% contraction.
Moving forward, prospects for 2010 look bullish, with GDP growth projected to exceed the official forecast of 4%, barring unforeseen circumstances, as the Government’s stimulus mechanism continues to unfold efficiently amidst easy credit and improved consumer confidence.Buoyed by the general mood of optimism, businesses – particularly small and medium enterprises (SMEs) that constitute a major engine of growth – are encouraged to embrace growth.
The 1,702 financial professionals surveyed in the Association of Chartered Certified Accountants’ (ACCA) latest Global Economic Conditions Survey released in November 2009 advised small businesses to emerge from survival mode and leverage on growth opportunities as recovery picks up. Further, Malaysian accountants surveyed view the recovering economy as an opportunity for small businesses to become more efficient and compete internationally.
What strategies should SMEs adopt or retain to succeed in the changed business landscape? Consistently, across almost all sectors and regions surveyed, accountants stressed the need for stronger focus, diligence and improved financial controls. In other words, SMEs should remain alert and avoid distractions, tighten internal controls, manage or avoid risks, and establish policies and apply them consistently.
SMEs are also advised to monitor costs and gearing, which were the downfall of many businesses during the crisis. Small businesses should also take heed of planning and business strategies to identify and capitalise on sources of competitive advantage and distinguish between core and peripheral activities of the organisation.
Accountants also recommend that SMEs pay attention to the prudent management of cash, receivables, working capital and inventories, to safeguard solvency and liquidity. Finally, SMEs need to emphasise quality and customer service to improve quality outcomes such as customer satisfaction, quality management and/or associated strategic decisions to enhance global competitiveness.
Apart from these broad recommendations, it is interesting to note that advice to SMEs from accountants differs according to which category an accountant falls into, which also relates to his or her region of origin and the rate of economic recovery there.
According to the ACCA report, Living Up to Expectations: Accountants and Small Business in the Recovery, financial professionals and their advice can be grouped into three distinct categories based on the issues they chose to emphasise: strategists, competitives and defenders. However, each category’s advice is valuable for small businesses.
Strategists, more common in dynamic Asia, believe that the recovery is already underway and that small business owners need to take the time now to look at the big picture and make robust plans for the future. They advise small businesses to seek out opportunities as markets begin to recover, to invest and to explore new or niche markets. Alongside investment, they emphasise the value of retaining or developing key people and skills and advise small businesses to be as flexible and innovative as they can.
Competitives believe that the downturn offers an opportunity for smart businesses to build competitive advantage. They advise on competitive pricing, achieved by cutting costs or building more efficient operations, as well as on maintaining or improving quality and customer service.
All other things being equal, accountants in the Americas are more likely to fall into this category, as are accountants working for multinationals. However, competitives are rare among very large organisations, from government and large financials to the Big Four. Unlike strategists and competitives, defenders are not counting on a recovery any time soon.
They are preoccupied with maintaining strong cash flow, improving financial controls and reducing reliance on other organisations, including lenders.
Defenders tend to be older and more experienced, and many are from embattled developed regions such as Western Europe.
They have been adjusting income expectations for their own organisations regularly and are acutely aware of how unstable the economic environment is. They are likely to have survived previous recessions and are sceptical that the current recovery could be a “false dawn”.
More than their colleagues anywhere else in the Asia-Pacific region, respondents in Malaysia see the global downturn as an opportunity for small businesses in the country to become more efficient and compete internationally. By regional standards, the competitive segment is over-represented in Malaysia, while defenders are under-represented.
This spirit of optimism among financial professionals based here augurs well for Malaysia, which is on the threshold of the shift towards becoming a higher value-add and higher-income economy.
It is hoped that SMEs will be able to capitalise on the advice mentioned above to become more efficient and competitive internationally, while supporting the country’s paradigm shift.
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