Chapter 10 Challenges and Opportunities of SMEs in Malaysia

Definitions of SMEs

Unique Features of SMEs have an owner/manager with few generic business skills or a particular technical expertise have personal assets committed as security for the business operate flexibly rather than on a strict observance of regulations have a vision and outlook that is bounded by the skills and experience of the founder/owner and tight resource constraints operate in provincial areas, be a key part of the social fabric of the community

Importance of SMEs The significance of SMEs is associated primarily with their role in stimulating economic growth. Other significant contributions of SMEs: Because they are labour-intensive, SMEs create employment opportunities. SMEs enhance regional development and create more equitable income distribution due to their location and ongoing expansion throughout the broader community.

Importance of SMEs SMEs play a vital complementary role in relation to larger firms--as suppliers and distributors. SMEs serve as a training ground for developing the skills of workers and entrepreneurs. The presence of SMEs curbs the monopoly power of larger firms and provides the structure of the economy with greater flexibility. Thus, a country can reduce its vulnerability to financial crises by strengthening its SMEs.

Some Facts and Figures A total of 99.2% (552,849 companies in operation) of all manufacturing and service businesses are SMEs and the majority of SMEs (86.6%) are in the services sector. Employment- SMEs accounted for 56.4% of the total workforce. GDP-SMEs contributed 33% of the total output. Total Export-SMEs contributed 19%. (Ref: SMIDEC 2009)

Contribution of SMEs to Gross Domestic Product, Employment, and Export by Sector in 2005

Composition of SMEs in Malaysia Based on Census on Establishments and Enterprise 2005, out of 99.2% of SMEs, the services sector comprise 474,706 (86.6 per cent), followed by 39,376 (7.2 per cent) in the manufacturing sector and 34,225 (6.2%) in the agriculture sector.

Contribution of SMEs in Services Sector, 2005 *Health include hospital, medical, dental and veterinary services, herbalist, homeopathy and foot reflexology

Contribution of SMEs in Manufacturing Sector, 2005

Contribution of SMEs in Agriculture Sector, 2005

Towards SME Sustainability: A Transdisciplinary Agenda Need to solve the equation between economic growth and SME competitiveness on one hand, and social and environmental issues on the other hand. HOW??? Encourage fusion between sciences and arts to meet the economic, social, environmental agenda of SMEs— the principle of “THE TRIPLE BOTTOM LINE”.

Triple Bottom Line Agenda of SMEs A concept that acknowledges the importance of economic, social, and environmental agenda (Colbert & Kurucz, 2008). ECONOMIC Transdisciplinary research to generate successful and sustainable SMEs SOCIAL ENVIRONMENTAL

SME Development Framework 2006 - 2010 Promote development of competitive and resilient SMEs in all sectors towards increasing SME contribution to the economy Economic Socio Economic Developing progressive and resilient Bumiputera SMEs and entrepreneurs Enhancing viability of SMEs across all sectors Promoting development of SMEs in knowledge-based industries Objectives - Key Message: The implementation of SME development programmes is guided by two economic objectives and one socio-economic objective to achieve an ultimate target of “promoting development of competitive and resilient SMEs in all sectors towards increasing their contribution to the economy”. The two (2) Economic objectives are: Enhancing viability of SMEs across all sectors; and Promoting development of SMEs in knowledge based industries. These objectives are aimed at developing viable SMEs in all sectors to ensure the achievement of broad-based and sustainable economic growth. Emphasis is given in promoting knowledge-based SMEs, being one of the key strategies in SME development.   In addition, in line with the aim of the Government to achieve a sustainable and balanced economic growth, socio-economic objective has also been set to develop progressive and resilient Bumiputera SMEs and entrepreneurs. Three objectives are supported by three strategic thrusts, namely: Strengthening Enabling Infrastructure for SME Development; Building Capacity and Capability of SMEs; and Enhancing Access to Financing by SMEs. In addition, NSDC endorsed a set of key macro performance indicators and targets for 2006 – 2010 to provide the direction for the development of SMEs and to monitor SME performance for the next 5 years. The targets are based on data obtained from SME Census on Establishments and Enterprises 2005 (the important key indicators include SMEs’ contribution to GDP, employment and exports). I. Strengthening enabling infrastructure II. Building capacity and capability III. Enhancing access to financing Strategic Thrusts 14

FUNCTIONS OF SME CORP. MALAYSIA To Coordinate Policies Formulation and Programmes Implementation Formulate broad SME policies across all sectors Point of reference for Government Agencies on SME related issues Monitor and evaluate effectiveness of policies and programmes To be ‘One-Stop’ Information and Advisory Services Channel to obtain feedback on SME issues ‘One Referral Centre’ of reference for SMEs To Disseminate Information and Research Liaise with domestic and international organisations to share best practices and relevant programmes on SMEs Manage National SME Database Publish SME related publications and statistics Undertake research on SME environment Secretariat to National SME Development Council (NSDC) Provide support and administrative services to NSDC Ensure decisions from the NSDC are communicated to all relevant stakeholders Notes: The functions is expected to accelerate the development and promotion of SMEs. 15 15 15

ORGANISATION STRUCTURE OF SME CORP. MALAYSIA NSDC MITI Legal Unit Media and Public Relation Unit Secretariat - Project Management Officer - Transformation Management Officer Members of the Corporation Internal Audit Unit CEO Deputy CEO I Coordination & Development Deputy CEO II Implementation Chief Operating Officer Strategic Planning Division Programme Coordination Division Corporate Communication Division Business Development Division Economic Division 12 State Offices Financing and Monitoring Division Information Technology Division Corporate Management Division 16

STATE OFFICES 17 17

PERFORMANCE OF SME DEVELOPMENT PROGRAMMES

Development Programmes STRENGTHENING ENABLING INFRASTRUCTURE Involves developing and enhancing physical infrastructure and information management, as well as creating conducive regulations and operation requirements for SMEs. Programmes available: Soft Loan Scheme for Programmes available:Factory Relocation – MITI Furniture Promotion Centre – MPIC Provision of Business Premises – MRRD Incubation Centre – MOSTI Urban Development and Growth Centre – MRRD Upgrade basic amenities and relevant infrastructure in kampungs – MOTOUR Landscape Industry Resource Centre – MHLG Halal Park Development – HDC Provision of Marketing infrastructure; Product Packaging Centre (PUSPRO); Distribution Centre; and Agricultural Marketing Centres - MOA

Development Programmes Programmes available: Matching Grant for Business Start-ups - MITI Computer Application in Business – MOE Train and Work Programme - MDTCC Matching Grant for Product and Process Improvement - MITI Quality Palm Oil Seeds Assistance Scheme for Smallholders in Sabah and Sarawak - MPIC Production of Specialty Pepper Programme - MPIC Produk Malaysia Citarasa Kita - MDTCC SME Brand Development Programme - MITI Training Programme for Budget Hotel Operators – MOTOUR Train the Trainer Programme - MOHR TUNAS (Tunjuk Nasihat Sawit) - MPIC Skills Upgrading Programme - MITI Biotechnology Entrepreneur Programme - MOSTI Commercialisation of R&D Fund - MOSTI Bumiputera Manufacturing Incubator - MRRD Franchise Development Promotion Programme – MOF Bumiputera Exporters Development Programme - MITI BUILDING CAPACITY AND CAPABILITY Includes entrepreneurship development, human capital development, marketing and promotion, advisory services, awareness and outreach, technology enhancement as well as product development.

CAPACITY DEVELOPMENT PROGRAMMES BY SME CORP INDUSTRIAL LINKAGE PROGRAMME 2. SKILLS UPGRADING PROGRAMME 3. SME COMPETITIVE RATING FOR ENHANCEMENT (SCORE) 4. ENTERPRISE 50 AWARD PROGRAMME 5. NATIONAL WOMEN ENTREPRENEUR AWARD (NWEA)

SME DEVELOPMENT PROGRAMMES 6. BUMIPUTRA ENTREPRENEUR ENHANCEMENT PROGRAMME ( BEEP) 7. SME – UNIVERSITIY INTERNSHIP PROGRAMME 8. TECHNOLOGY AND INNOVATION PROGRAMME 9. SME EXPERT ADVISORY PANEL (SEAP) 10. OUTREACH PROGRAMMES

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SME COMPETITIVE RATING FOR ENHANCEMENT (SCORE) Total SCORED - 1,183 SMEs

SME – UNIVERSITIY INTERNSHIP PROGRAMME 25 25

INNOVATION FOR SMEs INITIATIVES TO DEVELOP INNOVATION-LED TECHNOLOGY AND INNOVATION PROGRAMME INITIATIVES TO DEVELOP INNOVATION-LED TECHNOLOGY-DRIVEN SMEs NATIONAL SME INNOVATION FOCAL POINT UNDER IMP3 INNOVATION FOR SMEs STRATEGIC THRUST 4 – SME / TECHNOPRENEUR UNDER JTPIN 26

TECHNOLOGY AND INNOVATION PROGRAMME (Cont) MEMBERS OF THE INNOVATION FOR SME COMMITTEE

TECHNOLOGY AND INNOVATION PROGRAMME (Cont) Technology Database (in collaboration with MASTIC) TECHMART in SMIDEC’s Website - 270 technologies available for commercialisation - 18,413 researchers’ profile available Technology Roadmap - Completed Roadmaps → Electrical & Electronics → ICT → Biotech industry - Work In Progress → Automotive Sector → Plastics & Rubber Wood and wood-based

SME EXPERT ADVISORY PANEL (SEAP) Total Experts : 62 Total SMEs Participated : 59 29 29

Convention, Seminars/Workshops/ Technical Briefings OUTREACH PROGRAMMES Convention, Seminars/Workshops/ Technical Briefings 30 30

Business Advisory Services 31 31

Enquiries through E-mails Note : Officiated during SMIDEX 2003 32 32

Toll Free Line / Info Line (1-300-18-1801) Note : Officiated during SMIDEX 2003. 33 33

Publications 34 34

THE NATIONAL MARK OF MALAYSIAN BRAND The Mark of Quality

Development Programmes ENHANCING ACCESS TO FINANCING Involves the development and strengthening of institutional arrangements to support SME financing needs. Financial assistance is provided based on three stages of business cycles: early stage financing business expansion financing rehabilitation

FINANCIAL ASSISTANCE FOR SMES BUSINESS EXPANSION FINANCING EARLY STAGE FINANCING FINANCIAL ASSISTANCE FOR SMES BUSINESS EXPANSION FINANCING REHABILITATION

Financial Assistance (cont’…) EARLY STAGE FINANCING Examples: • Venture Capital Funds - MOSTI & MAVCAP • Business Effort Group Economic (TEKUN) - MOA • PROSPER, Retail and Graduate PROSPER - PUNB • DAGS Start-up - CGC

Financial Assistance (cont’…) BUSINESS EXPANSION FINANCING • Microfinance Scheme - BNM and participating Financial Institutions • Soft Loans for SMEs - MITI • Japan Bank for International Cooperation (JBIC) United Loan for ICT Fund - MOF • Special Fund for Tourism - MOTOUR • TNB Vendor Financing Programme - MEWC • Pemborong PROSPER - PUNB • Skim PKS - PUNB • Rural Economy Funding Scheme (SPED) - MRRD • Bank Rakyat Business Financing Scheme - MOF • PNS Franchise Financing Scheme - MOF • MARA Business Financing Scheme - MRRD • Co-operative Financing Fund - MDTCC • Rural Economic Assistance - MRRD • Overseas Project Fund – Exim Bank • Multi Currency Trade Finance (MCTF) and Indirect Exporter Financing Scheme (IEFS) – Exim Bank

Financial Assistance (cont’…) REHABILITATION Small Debt Resolution Scheme (SDRS) - BNM and participating financial Institutions

CONCLUSION The Government can play a vital and strategic role in supporting SMEs The roles should focus on capacity and capability development in terms of providing good infrastructure, information, coordination and some financial support The roles should complement private sector and be market friendly in its implementation The Government’s intervention must involved all relevant stakeholders The Government’s intervention can be permanent but must be flexible and responsive to new requirements of the business world 41 41

THANK YOU… 42