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Surviving and Thriving in a Downturn

Published on 05 June 2020

Whether it’s the protracted trade war between the U.S. and China, Brexit or the threat of COVID-19, the prospects for the global economy don’t appear promising for the rest of the year.

What does this mean for a trade-dependent region like Southeast Asia?

The 10 countries that make up the Association of Southeast Asian Nations (ASEAN) have not been as impacted by recent global recessions: real annual GDP growth in the region slowed from 6.7 to 2 percent between 2007 and 2009, keeping it clear of the recession that afflicted peers in the Organisation for Economic Co-operation and Development (OECD). (Source: Economic Intelligence Unit and IHS Global Insight)

However, a recent Bain & Company report has suggested that Southeast Asia will feel the effects of the next global downturn, albeit to a varying extent in each country. Why? Today, the region is more vulnerable: – economic growth rates are lower, the current account balance is lower because of a decline in net trade, the region is exposed to slower growth in China and commodity prices have dropped.

Recessions and downturns are unavoidable in economic cycles, but for small and medium- sized enterprises, the downturn is trickier to navigate given their size and access to financing.

“SMEs are a significant part of Southeast Asia’s economies; generating major employment and income as well as driving innovation and growth. Many of these companies however are more vulnerable to changes in the business cycle, as they are less diversified and have a weaker financial structure,” said Marc Leong, Head of SME Banking at Maybank Singapore.

As a leading institution across Asia since 1960, Maybank has worked alongside SMEs for the past six decades, helping to scale businesses into multinational companies. The bank has leveraged its strength in doing business locally and knows what it takes to see businesses through thick and thin, with a humanising touch.

The experience of The Brewerkz Company is a case in point. This Singapore-based SME operates a portfolio of restaurants, a brewery and caters at large-scale outdoor events. In the past 18 months, the company has witnessed consumers holding back on discretionary spending – a common theme across the Food & Beverage sector – but it didn’t stop them investing.

“We invested in a state-of-the-art beer canning line and also executed a re-launch of our flagship outlet,” said Tan Wee Tuck, Executive Director at The Brewerkz Company.

“For example, we were concerned about the effects of the U.S.-China trade war and how that impacted sentiment, especially consumer spending. If these projects were less imperative and smaller in scale, we would have deferred them,” Tan added. “However, we decided to proceed regardless, as these investments were strategic and mission-critical to our future – and over two decades of experience in the space gave us the confidence to succeed.”

Being prepared for a downturn is the first step, but what follows can give your business the competitive edge. From their experience working with SMEs during downturns, Maybank suggests six tips:

  • Manage cost wisely.
    This is a crucial step that leaders must take and they can start by looking at areas where they can streamline their operations, reduce the volume or simplify certain processes.
  • Invest in innovation, instead of reducing R&D efforts.
    For savvy leaders, a recession could be the perfect opportunity to differentiate a product or service offering. For instance, it might be investing in a technology solution that would make your customers’ lives easier.
  • Ensure you have the right banking partner to support your journey.
    Every business has good years and bad years and Maybank knows the importance of being as dependable in the tough times as it is in times of growth.
  • Diversify into new product and distribution lines to manage revenue risk.
    It’s easy to stay in your comfort zone, but having more than one revenue stream provides more of a cushion during a downturn. If one business or channel is underperforming, other parts can make up the difference.
  • Consider M&A to boost your portfolio, or exit businesses that do not align with your strategic goals.
    If you’re sitting on a nice pile of cash, a recession could present an opportunity to add to your business units. Alternatively, it might also be worth divesting non-core assets. Yes, you might fetch a higher price in better economic times but those conditions may never return to the same level that quickly.
  • Gaining insights from your customer.
    Spending habits change during a recession and gathering data from your customer is essential to your company’s survival and long term reinvention.

For small businesses, being aware of the big picture is important. It may not have a direct impact but risks like trade disputes and political uncertainty can have a direct impact on economic sentiment.

With SMEs as the backbone of its economies, Southeast Asia’s economic outlook weighs heavily on its enterprises. Unlike previous downturns, the region’s economy can no longer count on China’s strong growth and global demand for commodities to boost its prospects.

Singapore, widely seen as a bellwether for global growth as it relies heavily on international trade, downgraded its economic forecast for the full year. The city-state reduced its forecast range for negative GDP growth from its previous 1.5 to 2.5 percent projection.

To help SMEs tide over this challenging period, Maybank, as Asia’s leading financial institution since 1960, offers SME Loan Repayment Relief Package and provides support to Medical Care and F&B Merchants.

Maybank has navigated many of these uncertainties alongside their SME clients, not only helping them survive but also thrive during economic downturns.

Key take-outs:

  • Recent global recessions have not impacted Southeast Asian economies but a Bain & Company report suggests the next downturn could affect the region.
  • SMEs shouldn’t just hope for the best that they will survive a downturn – they should position themselves to thrive during the subsequent upturn.
  • Maybank’s 60 years of working experience with SMEs makes it well positioned to help companies navigate the downturn.

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Click here to find out more about SME Loan Repayment Relief Package.


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