IF one’s business is still intact, 2022 will be the year of cautious recovery.
As the world economy continues to open up, there is high expectation that the worst may be over. From the Penang perspective, there are many opportunities in the horizon as the backlog of supply created by the supply chain disruption will continue at least for another year before normalising.
The challenge is to fulfill order rather than short of order. Companies that have local supply chain will be winners.
Other favourable factors are:
- The technology transformation from 4G to 5G; Industry Revolution 3.0 to 4.0 (IR 4.0); and the drive for automation due to labour shortages will keep the demand of semiconductor, electronic components and finished products elevated for the medium term.
- As part of the global semiconductor supply chain, Penang’s electric & electronic (E&E) industry together with companies in the supply chain will continue to do well.
- Trade tension and the COVID-19 pandemic has seriously impacted the global supply chain. The ‘just-in time’ manufacturing process under globalisation is now replaced by regionalisation that prioritises supply security over time and cost efficiency.
This new normal gives Penang-based companies great opportunities to fill-in the broken supply chain which was previously denied to them.
Risks
However, the road to normalcy may be long, winding and full of challenges too.
As Penang moves up the technology value chain, the demand for talent will become more acute.
This challenge is multi-dimensional which covers the quantity and quality of the young workforce that enters the market as well as the need of imported labour to supplement the local workforce.
The outward migration of talent which is not matched by inbound migration are just but a few major contributions towards the human resource crunch that plague the Malaysian economy post-pandemic.
While waiting for the Federal Government to put together an inter-ministerial holistic national human resource plan, the Penang state government has embarked on the journey to attract talents to the state.
With the resort environment striking a work life balance lifestyle, Penang is working towards attracting 150,000 talents to the state over the next five years to sustain its economic growth.
A point to note is that as Penang moves up the technology value chain, a shift in the type of talent the state needs has become obvious.
As competition for talent intensifies, production cost is expected to rise unless the increase is matched by higher productivity.
Apart from an increase in labour costs, other costs of doing business have increased too. Raw materials, freight and holding costs for inventory have also increased.
All these will eventually feed into the higher costs of the end products which higher price may or may not be passed on to the consumers depending on the elasticity of the demand.
Self-harm narratives
The Government’s decisions to force local logistics companies to divest 51% of the equity to Bumiputera; raising the bars for the Malaysia My Second Home (MM2H) visa holders; and taxing monies repatriated from overseas are sending the wrong signal to the international investment community about the suitability and security of investment in Malaysia.
These negative narratives will definitely affect Malaysia and Penang as a destination of choice for investment.
Moreover, environmental, social and governance (ESG) issues have increasingly become more important in the corporate world.
As most of the Penang companies – be they local large companies or small medium enterprises (SMEs) – are in some way part of the global supply chain, ESG compliance will be mandatory for them to stay in business.
Furthermore, ESG compliance will ensure that these companies will not be shut out from the capital market to raise the necessary funds for expansion or getting the necessary financing from financial institutions.
ESG compliance will be favourably regarded by the millennials as companies they wish to associate with in terms of employment or products preference.
Conclusion
As we emerge from the pandemic, 2022 presents Penang with fresh opportunities as well as challenges. On the investment perspective, growth will be led more by re-investment of existing companies rather than by new foreign direct investment into the state.
Companies that take the opportunity to strengthen and improve their internal control; subscribe to the ESG business ideology; adopt and adapt digitalisation processes will stand in good stead to reap the benefit in the new normal environment. – Dec 25, 2021
Datuk Seri Lee Kah Choon is special investment advisor to the Chief Minister of Penang and director of Invest Penang, a non-profit entity of the Penang state government whose primary purpose is to promote investments within Penang.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia
