With The Economy Shrinking, Here’s Why Now Is The Best Time To Expand Your Business

By Terng Shing Chen, CEO and Founder of SYNC PR,

Developed economies are beginning to feel the effects of the looming recession, which will likely result in decreased capital spending and much reduced nominal investment. Even if Malaysia’s economy slows in the second half, the recession is not anticipated to affect the nation’s economy yet, according to local experts. 

According to Bank Negara Malaysia, although inflation is anticipated to range between 2.2% and 3.2% this year, the speed of Malaysia’s economic recovery is anticipated to pick up as the country’s economy and international borders are reopened. Higher vaccination rates and improved management of the ensuing pandemic could result in a reduced impact on domestic economic activity and spending in the case of resurgences. Malaysia’s economy is anticipated to increase by between 5.3% and 6.3% as a result of the continued rise in global demand.

However, during this uncertain financial period, companies and consumers will become more cautious about their investments and spending power.

A closer look at the emerging trends

Reduced market investment and diminished purchasing power are expected to occur. According to Pitchbook, venture capitalists in the United States raised more money for new funds in the first quarter of 2022 than they did in the entire year of 2019. However, those additional funds did not result in greater investments being made in start-ups. Instead, after reaching record highs the year before, global venture capital investment plunged in the first quarter due to the Ukraine war, inflation, and a looming recession.

The same issues that affected venture capitalists in the United States are now being felt throughout the European Union, as experts warn that another recession is inevitable. Now that the region’s economic development is stagnant, fewer venture capitalists are willing to support potential startups, and they are increasingly advising start-ups in their portfolios to cut costs and freeze employment. Many of the most successful start-ups in Europe are currently laying off large numbers of employees and significantly putting a stop to their expansion plans. T

he Swedish financial behemoth Klarna, which was valued at $46 billion in June and rose to become Europe’s most valuable start-up, stated that it is planning to lay off about 10% of its global workforce. The company is currently seeking funding at a $6.5 billion valuation, which is a steep decline and would slash the company’s valuation by one seventh.

However, this does not mean that companies in Southeast Asia are immune to the effects of a slowdown in the global market. The region’s slowing economy and the current financial crisis have driven many to cut back on their spending and take even more dramatic cost-cutting measures. Numerous start-ups in the area have let go of hundreds of staff in recent months, including Sea Limited, the owner of Singapore-based eCommerce site Shopee.

This also shows that companies in Southeast Asia are currently feeling the effects of a slowing economy in their region, with some likely feeling the repercussions more severely than others given their reliance on foreign markets. As interest rates rise and economic uncertainty looms, companies are being pressured to focus on profitability rather than scalability. 

Malaysian businesses will not be immune to the bear market and we are likely to see hiring freezes and an overall slowdown in the market. 

Why slashing marketing budgets is not a great idea 

Recessions affect marketers and marketing budgets because they cause a considerable decline in consumer demand, which lowers sales, cash flow, and profitability for the majority of companies. Consumers delay, and occasionally even avoid, making purchases during recessions as their buying power decreases and their uncertainty about their future purchasing power increases, which lowers the demand for those products, leading them to delay and sometimes even avoid buying products. 

Most companies will start cutting their marketing budgets as an inevitable knee-jerk response to the uncertainty in the face of decreased customer demand and purchasing power. However, many businesses don’t realise the genuine value their marketing contributes to their company, especially in these uncertain times, as it is usually seen as a cost and a luxury. With a reduced spend on marketing, sales will fall in place of more efficient expenditure, with reduced spending leading to diminished consumer confidence and weaker sales. 

However, cash flow is critical at this point, so investing in growth is critical. Companies must be cognizant of the effects that a slowdown can have on their current business, their ability to gain a foothold in the future market, and their brand’s reputation in light of these challenges.

What should companies do instead?

Businesses that survived the recession fared better than before because they realised there were other sources of funding besides investment dollars. Instead, these companies capitalise on and expand through their current goods and services. Pivoting might be necessary, but marketing is essential to educate and grow a company’s audience.

Due to the intense rivalry for consumers’ money during a recession, businesses must make significant investments in their marketing plans. In fact, the best time to invest in marketing and innovation is during the recession, as it will help drive growth in profits and expand market share during the recession and beyond. Apple is a prime example of a business that increased marketing spending during previous recessions to gain earnings or market share. Compared to the same time in 2007, it increased its marketing spending over the final three months of 2008, which resulted in an increase in its share by more than two per cent.

Companies should adopt smart marketing strategies by moving to low-cost acquisition methods or allocating funding to certain areas of the business. By doing so, these companies are adapting their marketing strategies around the constraints of the current economic landscape, which helps them invest in growth strategies to not only survive but also have the best chance of succeeding in the post-recessionary months ahead.

Invest in the future of your company

Nobody has ever been able to forecast when a recession will occur, how it will affect economies and societies, or how long it will persist. The recession, however, is not a new occurrence. Based on experience, there are measures that businesses may take to prepare for it. 

The future of a company will be defined by how much money it spends today, so businesses should not panic and try to cut expenses by forsaking growth. To help them navigate through these uncertain times, they should concentrate on pivoting, efficiency, and building trust for the next stage of growth.

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