EY survey: Covid-19 is a game changer for digital transformation

• Over 80% Malaysian firms had difficulties with communication, infrastructure during MCO
• Over 30% of businesses accelerated adoption of technology in response to the pandemic

To recover and thrive in the New Normal of a Covid-19 world, business leaders in Malaysia are focusing on leveraging technology and digital, a survey by Ernst & Young (EY) found. The EY Covid-19 business impact survey received responses from nearly 700 companies that go from large to listed, as well as SMEs. 

“Covid-19 has emerged as a game-changer for digital transformation. Where previous initiatives and programmes to go digital have met with lukewarm responses, particularly from the SMEs, Covid-19 has spurred Corporate Malaysia to accelerate its digital transformation,” says Ernst & Young PLT Malaysia managing partner Abdul Rauf Rashid.

According to the survey, the movement control order (MCO) has revealed that businesses in Malaysia are insufficiently equipped to transition to a more digital-enabled work environment.

During the MCO, most companies (83% large and listed companies; 84% SMEs) experienced difficulties with online connectivity and communicating with their suppliers and customers, in addition to issues with infrastructure.

Businesses have accelerated the adoption of technology in response to the pandemic. 37% of SMEs and 32% of the large and listed companies surveyed said they have taken steps to expand or upgrade their technology capabilities.

Close to 30% of businesses (30% large and listed companies; 26% SMEs) have also invested in Work from Home hardware and software to ensure connectivity with their employees and improve employee productivity.

EY, however, feels that substantially more effort is needed from businesses. “To support this demand and enable digital transformation, there needs to be significant enhancements to the businesses’ and nation’s digital and communications infrastructure, online connectivity and broadband speed, besides ensuring the stability of the technology infrastructure,” says Ernst & Young Advisory Sdn Bhd’s Malaysia financial services consulting leader Shankar Kanabiran.

“About 40% of the respondents have identified better and less costly online connectivity as areas for intervention.”

Shankar adds that the government can take the lead in digital transformation by transitioning its own processes and operations to be more digital-enabled – to handle online transactions, for instance, or accepting digital documents for import clearances.

The increasing need for higher technology capabilities to connect businesses, customers and supply networks is fast-tracking the world into digitalization. Malaysia must not be left behind,” he notes.

Relief and policies towards recovery

Almost half (48%) of the large and listed respondents and 40% of the SME respondents say that they will need direct government aid in the immediate future to restore financial strength and liquidity in preparation for economic recovery. Then only can they consider investment and development priorities for the new normal.

At the same time, nearly half (52% large and listed companies; 48% SMEs) of the respondents have already initiated cost-cutting measures to maintain cashflow and operations. These, according to the survey, include deferring capex and payments, managing indirect overhead costs and implementing cost improvement measures.

The survey found that some have also leveraged the Economic Stimulus Packages. However, businesses say they need more support in the form of financial reliefs from the government to restore financial strength and liquidity.

“Financial aid, technology grants, incentives, tax reliefs, easing of tax compliance, lower interest rates and extending moratoriums on principal repayments are among some measures sought by businesses. There is also a call for greater flexibility on the part of banks towards businesses impacted by the crisis,” Shankar adds.

Additionally, over half of the companies (60% large and listed companies; 56% SMEs) have also cited the urgent need for the easing or lifting of the MCO in tandem with other measures in order to resume business operations and relieve financial burden.

Circling back, Abdul Rauf says that corporate Malaysia and the government will need to work together to weather through the pandemic.

“Given the impacts of the pandemic and restrictions on people's lives, jobs, businesses and the wider economy, recovery is likely to be lengthy, challenging and multifaceted. The start of the journey towards economic recovery is contingent on rebuilding trust and confidence in the public and business realms and the deliberate intervention by the Government,” he says.

“Businesses need to work hand-in-hand with the Government to resume operations and kick-start economic activities through well-considered, decisive and effective measures.”