Sunday, January 4, 2009

Dancing In The Rain

That's all, 2008...hello there, 2009! How diminutive this statement is, yet its nuance so profound. To abridge the last 12 months of living, endeavours, disappointments, attainment, discontent, realization, angst and triumph into two (3) words: that's all - is such an understatement in bringing forward these cultured mementos into the new year.

Be that as it may, 2009 will indeed be a tumultuous and volatile affair indeed. Its very capricious nature will be true tests to all individuals, families, companies, corporations, governments and nations alike.

As a person, a citizen or an individual, how much do we know of the global economy today? Some will claim to know it all and rightly so, but others couldn't care less and that's where the danger lies. You have to plan right to make things happen for yourself. The world will not be so merciful in the many months ahead.

The face of global economy as we see it is changing. It is morphing into an unstoppable and cruel entity. It is currently in its state of sub-prime crisis. Banking illiquidity is sprouting everywhere. Falling asset prices are their best friends. The market volatility is sweeping across the continents and the tide of recession is already hitting major economies worldwide. High food prices is one of the major symptom and shaken consumer confidence one of the main reaction. Then there is of course the mounting of unemployment or underemployment. Headcount chop or headcount freeze if you're fortunate. Growth in nucleic economies and its dependent subsets are slowing down.

When I try to make sense of our economy in the next 12 months, here is what I thought:
It could be worse.
It is a game of survival.
Cash is king.
Delayed consumer spending.

To manage the hard times ahead, you have to switch your thinking cap from a micro view to a macro outlook. You have to think big. Ask yourself this: if you were an Executive Committee, the crème de la crème in your company, what would your top 3 priorities in managing the business in the next 12 months be?

I think you have to understand the bottomline and protect it. 2009 is not the year to grow the business, it is the year to protect the business. Protect the MNI. With lower A&P for most companies in 2009, they have to manage the SG&A. It is just not affordable to throw away the GP and spend on A&P. Cost cutting is another infamous method but just for the sake of being politically correct, we will call it optimized spending here. Selective investment is another way but can only be accomplished with the utmost discipline. Increasing productivity, not just in the sense of output from a factory but also in terms of work contribution is a key strategy. Less for more. Finally, the acquisition of company is a sure bet. You will see in the months ahead there will be major takeovers or merges worldwide. Cash is king and don't be surprised that an unknown royal in Eastern Europe, a sheikh from the Middle East or a multi-billionaire businessman from China suddenly buys over Citibank. Let's not go down the list of possibilities.

I do want to highlight that the electronic and electrical industry will be the first indication to be hit. When you have less money, luxury wants are the first to go from your shopping list. 45% of an individual's wants consist of electronic/electrical items alone. That says a lot.

Many people among us still believe we are immune to this global threat. Our nation's leaders claim that we will not be affected. I am unconvinced. In Q3 2008, our country's net real export of goods and services declined by 14% (vs. 20% growth in Q2). The Consumer Price Index soared to 8.4% in Q3 (vs. 4.8% in Q2), with a backdrop of GDP slowing down to between 4.5% and 5.0% by 2008 closing. For your info, our country's GDP is valued at approximately USD200 billion.

According to FMM (Federation of Malaysian Manufacturers), 4 straight quarter year-on-year decline in orders are to be expected in 2009. Last October, exports slid for the first time in 15 months. The numbers have been dipping since.

The chart above shows our GDP growth in 2007. Take a look at our 2008 GDP growth below:

This is a great example where two pictures paint a thousand words. The steep decline in our GDP within the last few months is staggering. Our government's GDP projection of 2009 closing is only at a 3.5% growth, mainly coming from their RM7 billion spending on infrastructure for 2009.

For the last 5 years, our nation has been experiencing a double digit spending growth vs. year-on-year until last October. For the first time in 5 years, our spending growth was flat and in November, it was negative. These are all signs of things to come. You may still see families flocking to shopping malls as though the global economic crisis never happened. That is because it is festive season now with Chinese New Year coming. Once that has passed, I will be very curious indeed to see what the latest numbers are.

We cannot continue to live our life thinking this nation is protected. We are the Top 30 trading countries in the world. Therefore, we cannot make stupid statements saying that although other key world economies are declaring recession, we will make it through the year without one.

In short, 2009 will not be business as usual. We have to make focused choices to maintain a healthy business and a sustainable livelihood.

Life isn't about waiting for the storm to pass, it's about learning to dance in the rain.


Ling said...

nicely written and well summarized. if i know anyone who needs to get up to speed on our economy outlook, this is the entry i'd recommend :)

sploj said...

wise post

Han said...

Ling: spread the word! let me be heard! lol! dunno whether can kena ISA or not :P

sploj: thanks...thought of writing something not about me for a change. finally care to comment eh? must've struck some chord in u somewhere :)

gina said...

Too bad you are not in the "correct" race to be PM. Haha!

Han said...

lol, gina! dont really know wat u mean...what race am i in then? OR what is the "correct" race to be PM? aiyo...all these mon blues eatin up my brain cells :P

Am said...

haha! "optimized spending", i like that :) nvr realized how bad a shape we're in until reading this. actually dun really care bout economics but the way u put it makes me wanna plan too. agree with ling, u dont mind me forwarding to my frens?
gina, u dont want to put this guy in office, lol!

Han said...

by all means...go ahead [shit, sure kena ISA wan] :)
yeah, my colleague taught me about optimized spending, and many more politically correct term to use in corporate environment, maybe one day i'll compile a list and share, haha. who says i'm a running candidate? ish!

daniel said...

yea man! cash is king...i will buy over AIG and give all you free premiums. wtf is a&p, gp, sg&a? y u no speak english wan...haha!

cindy said...

Optimized spending??haha...guess u shudn't buy urself d ipod touch d=)
nways, wat a good entry,han!...although i dun entirely understand d whole MNI,A&P.....SG&A ;) U'll have to tutor me =) haha

Han said...

daniel: can buy Man Utd or not? then gimme all their jerseys :D go find on google...dun be lazy. type wat u want to find and end with "define" and magic will happen, english enuf for u? hehe!

cindy: eh shhh...ipod touch supposed to be secret, now ppl know i'm hypocrite liao :P but thanks ya! will explain to u further face to face if u wan la, haha! i also simply bull wan.

yuin said...

chimniara trench this one is. so complicated. looking forward to a version for ADD ppl like me :)

Han said...

chimniara...that's a new word...thanks for sharing. what does it mean? btw u can find ur ADD version at for ur personal enjoyment :P

yuin said...

chimniara = chim till the depths of the mariana trench.

Han said...

that's a new word...submit to Oxford, man.

Kelly said...

kinda feels like poetry in economics ;)

Han said...

i like how u see it...haha..."poetry in economics", that's nice!