Will Malaysia's 6% GDP growth in 2022 revive ad spend in the country?

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Malaysia's economy is expected to grow at 6% this year, according to the Asian Development Bank's (ADB) Asian Development Outlook report, and moderate to 5.4% next year. The country's GDP growth recovered in 2021, supported by rising global demand for manufactured exports and terms-of-trade gains from exports of natural resources, and strong domestic demand. A robust health system and high vaccination rates against COVID-19 further supported the recovery. Rising imports from a pickup in domestic investment trimmed the current account surplus.

Malaysia's borders reopened at the beginning of this month as part of the country's push toward an endemic phase. Domestic travel bubbles were also created late last year, much to the delight of Malaysians. At first glance, this proves to be a positive sign for Malaysia's ad industry.

However, UEM Sunrise CMO Kenny Wong said he does not think that economic growth equates to an increase in ad spend. He told A+M that this is evident especially with the increased focus on digital ad spend in branding and marketing activities, where ads are relatively cheaper, easier to track in terms of effectiveness and more targeted. "Hence, if we are to strategise our ad spend carefully, it is possible to increase brand awareness without increasing our ad spend," he added.

On the other hand, dentsu Malaysia's CEO Tan Kien Eng said Malaysia ad spends have correlated with GDP historically, and a higher growth forecast does definitively mean a better forecast for ad spends as well. This would also mean that the industry might see lesser leaner quarters than in previous years.

"Over the past two years, the gap between the haves and have-not has sharply widened. The haves with the pent-up appetite to spend and the have-nots tightening on expenses," he said, adding that it will take some time for the gap to close and for the middle-class to bounce back. However, household spending will improve supported by the recovery in employment as the market improves.

Another important variable is consumer confidence, Tan said. According to him, moving into the endemic phase casts light at the end of the tunnel and this would see a shift in their overall spending. Earlier this year, dentsu forecasted ad spend in APAC to grow by 5.9% this year to US$255.4 billion. Revenue for the next year is predicted to grow by 5.6% to US$269.6 billion.

In Malaysia's case, Tan said tourism has historically contributed to 14% of the country's GDP and the prolonged lockdown as a result of the pandemic has had an adverse effect on the whole industry. Malaysia's move into the endemic phase will boost the overall confidence across the entire travel supply chain such as airports, road and rail transportation, accommodation, F&B, entertainment, retail, health tourism, and education.

"We are already seeing a gradual increase with some sectors preparing to increase spending in anticipation of the in-flow of tourists and local holidaymakers. There is still a lot of cautiousness amongst consumers but the overall impact on online spending is at a minimal as consumers are spoilt by the convenience of online facilities," Tan said, adding:

But we will definitely see consumers returning to offline spending and eventually overall marketing adex growing as well.

Similarly, Fan Chen Yip, chief investment officer of Mediabrands Malaysia also foresees "more aggressive spending" by clients with the reopening of the economy now that consumers and Malaysians, in general, are adapting to life in the endemic phase.

"This will especially be seen across digital advertising which reached 60% of total 2021 advertising budgets. Digital spends will continue to accelerate at an even greater rate, more so across eCommerce as brands ramp up their use of social and search formats," he said.

MAGNA's global advertising forecast released last year said that 2022 ad spend in Malaysia is predicted to grow by 12%, hitting US$1.5 billion. Last year, the country's ad revenue increased by 18.2% to hit US$1.2 billion. By 2026, digital formats will represent 72% of total advertiser budgets in Malaysia.

The economics behind higher ad spend

Chanchal Chakrabarty, CEO of GroupM Malaysia, told A+M that most assessments of the ad industry's performance begin with a view of the broader economy, usually relying on GDP as a proxy for its overall health. This approach is rooted in strong historical correlations between the growth rate of advertising and overall economic activity in the markets.

However the recovery from the pandemic seems to have thrown this correlation somewhat tenuous. "Like we saw worldwide as well as in Malaysia, in 2021 the advertising industry recovery paced much better than the economic recovery of the markets," Chakrabarty said.

In Malaysia, GroupM witnessed adex drop by about -18% in 2020 and then recover almost the whole of it back in 2021, whereas the economy could only recover half of its drop in the same period. GroupM is projecting the Malaysia adex to grow by about another 10% this year, which Chakrabarty said is unprecedented given that adex here has been mostly stagnant in the five years preceeding the pandemic.

"So clearly whatever the quantifiable relationship, a growing economy should be supportive of growth in advertising spending and, on that basis alone, we can say that the current economic environment is very favourable for the industry—far stronger than any experienced so far," he explained.

In fact, GroupM has seen client spend recover at the beginning of Q4 2021 when the lockdown was relaxed. With Chinese New year and Ramadan/Hari Raya in the first half of the year, Chakrabarty said the ad spends "have been good" and the team is hoping the momentum would continue based on the assumption that the war in Ukraine will be limited to Russia and Ukraine, and supply chain disruptions and energy or commodity cost impacts will abate as 2022 progresses.

However, if the war and crude oil price hike persists, this could then mean energy costs or inflation causing real (not nominal) declines as this could result in supply chain issues, increase in cost of producing goods, and hence, potential impact on marketing budgets, Chakrabarty explained.

Until now, as observed, correlations between energy costs and inflation with nominal advertising are positive in most countries.

He further explained that higher energy costs are often due to heightened demand while input cost inflation has the potential to cause advertisers to reduce ad spend. However, when high inflation allows marketers to generate more revenue, and when advertisers tend to budget for advertising as a percentage of revenue, inflation will cause more spending on advertising not less.

Which brand categories will double down on ad spend?

Mediabrands Malaysia's Fan said he is "cautiously optimistic" that almost all categories will increase their spends in the coming year.

F&B, hospitality and travel/tourism, and retail-related categories are likely to be the biggest spenders.

"Already anecdotally, we are seeing these categories coming back right now. Some big-ticket items, i.e. automotive, may also see an uptick in advertising activities as, after two years, consumers are finally coming around to purchasing these deferred items," he explained.

Meanwhile, dentsu's Tan said the highest-spending categories have been retail, personal care, and F&B, and these categories are still expected to see continuous growth, with the addition of travel and hospitality. The automotive sector also saw marginal growth due to the sales tax exemption window which is slated to end on 30 June this year.

Likewise, Professor Tuck Siong Chung, associate professor of marketing at ESSEC Business School, Asia-Pacific, also expects an increase in ad spend from the tourism industry. "Like most Southeast Asian countries, the pandemic demonstrated the importance of eCommerce and digital marketing as more consumers adopted online purchases as the new normal. Thus, ads spent to maintain, and increase online sales will also continue to grow," he added.

Aside from eCommerce, e-wallets, travel and leisure, as well as retail, GroupM's Chakrabarty expects new advertisers who entered the economy during the pandemic, including delivery players, to continue their acquisition and hence spending.

Brands in the telco and consumer electronics sector, such as Huawei and Samsung, which were impacted by chip shortages due to supply chain issues last year, as well as physical retail are expected to bounce back with potential launches which were initially delayed, he added.

Type of talent and skills needed for the future

Last year, the country launched the National Trade Blueprint aimed at addressing objectives such as validating the concerns on enhancing Malaysia's trade competitiveness and identifying the challenges, as well as enhancing Malaysia's export competitiveness. As part of the blueprint, the government plans to develop a national branding theme for a more consistent, less fragmented approach to market Malaysia’s products internationally. Malaysia also plans to increase the adoption of B2B eCommerce among Malaysian businesses via collaborations with international players such as Alibaba, eBay and Amazon.

The Edge Markets reported recently that Malaysia's eCommerce revenue is expected to achieve RM1.65 trillion by 2025. Quoting MDEC CEO Mahadhir Aziz, The Edge Markets said the country's eCommerce revenue surpassed RM1 trillion last year. At the same time, Malaysia also currently has its MyDIGITAL initiative which aspires to transform the nation into a high-income country that is focused on digitalisation and is a regional pioneer in the digital economy.

To keep up with the push towards a digital future, Mediabrands Malaysia's Fan said digital, data and analytics talents will continue to be in high demand, especially with the acceleration of digitalisation efforts across all sectors. Additionally, Malaysia as a trading nation is very closely connected to the global economy.

With the massive upheavals over the last two years and current geopolitical tensions spilling into the global economy, strategic thinkers who can see issues beyond just the day to day or short-term will be critical to propel Malaysia forward.

Meanwhile, dentsu's Tan said the country's ad industry is on an always-on learning curve and in the past 12 to 18 months, the industry seen more need for data scientists, coders and developers, AR/VR, digital transformation consultants, project management, business planning, eCommerce and analytics skills.

All these skills continue to be crucial as Malaysia transitions into the world of Web3.

But amidst the short-term goals, we need to ensure the longevity of brands by building trust, relevance and differentiation from others through the magic of entertainment. Therein lies the need for talents to ideate, innovate, and craft what at dentsu terms as 'modern creativity'.

Agreeing with Fan and Tan are ESSEC's Professor Chung, who said talents in eCommerce, digital marketing, digital transformation, and information technology will remain to be highly sought after and needed to support Malaysia’s growth.

Making Malaysia an attractive hub for MNCs

To solidify its position in the future economy, JobStreet Malaysia's operations director Ashwin Jeyapalasingam said the government needs to implement general policies that inspire business and investor confidence, such as combating corruption and the ease of setting up a business.

According to him, the government needs to focus on ways to reduce steps in permit application, such as work and employment, tax, licensing, and building, and coordination between various involved government authorities as well as GLCs such as infrastructure providers. Barriers to access to talent should also be lowered when wanting to attract new businesses to the country.

"Looking at global trends, the digital economy is definitely here to stay, but we should also be looking emerging economies that we can set up Malaysia to be leaders in," Jeyapalasingam added. One such example is the care economy which will only grow as global populations age.

"Focused policies and incentives targeted to attract businesses, as well as nurture and grow local innovation in this area will set us up well to be a regional champion, to export our expertise to our younger neighbours in the future as population trends evolve there too," he explained.

To stay ahead of the curve, a combination of technical and soft skills is required to keep both companies and employees relevant and nimble. The roles advertised on JobStreet are becoming increasingly specialised. In the past, organisations might have preferred hiring for generalist positions such as digital marketing. However, roles today are now being carved separately in terms of specific job scopes where candidates are expected to be masters of their craft.

However, candidates cannot expect to stay in the same role forever. "Candidates must be able to think critically, have strong interpersonal skills and connected thinking mindset to bridge the gaps between their current understanding and what is required in their next role. Likewise, companies would require leadership teams with this mindset in order to steer them in the right direction and remain ahead of the curve," he added.

Also weighing in on the conversation was Dan Cullen, partner at search recruitment firm Heidrick & Struggles Singapore and regional managing partner of the global Technology and Services Practice in Asia Pacific and the Middle East, who told A+M that the technology markets in countries such as Malaysia, Thailand, and Indonesia are relatively smaller than developed nations. As price models are often lower, they require the use of distribution ecosystem channels and intermediaries to reach customers via local presence.

"Because in-market relationships are important, tech businesses will need to hire individuals with managerial capabilities, tech knowledge, as well as strong professional networks," he explained.

According to Cullen, there will always be a need for interconnectors between a global MNC and local markets. COVID-19 revealed both weaknesses and strengths in company capabilities and in this region, relationships are critical and there is a limited supply of top executive talent. This has resulted in a higher premium on top talent in Southeast Asia, he said.

Heidrick & Struggles has seen MNCs undertake heavy succession planning projects, searching for locals who can fill next-generation leadership roles in countries such as Malaysia, Indonesia, Thailand, and Vietnam.