News & Events

[ 28-08-2013 ]
Major shift seen in SME landscape
Clarion call for SMEs:They need to innovate or consolidate in view of the sector's liberalisation.

Clarion call for SMEs:They need to innovate or consolidate in view of the sector's liberalisation.

PETALING JAYA: Small and medium-scale enterprises (SMEs) will need to reinvent the way they do business in light of the sector’s liberalisation, said SME Corp chief executive officer Datuk Hafsah Hashim.

“We are likely to see a major shift in the landscape, as the Government gradually liberalises the sector by 2015 in line with the obligations under the Asean Free Trade Agreement,” she told StarBiz.

Forty-five segments of the various services sub-sectors have been fully liberalised: 27 in 2009 and a further 18 in 2012.

The highest concentration of SMEs is in the services sector (580,985 or 90%), and close to 80% of them are micro enterprises. The share of the micro enterprises in the overall SME landscape is 77%.

According to Hafsah, this shows that at present many of the services sub-sectors are fragmented and dominated by small firms, but with huge potential in the future.

They refer to business services, including professional services, logistics (transportation and storage), tourism-related services as well as retail.

“Building domestic capacity prevents the hollowing out of existing players from competitive pressures, and facilitates the shift towards a services-based economy, as the services sector is expected to be the main growth driver of the economy, with its share to gross domestic product (GDP) projected to rise from 54% to 65% by 2020,” she said.

She added that the SME master plan (2012-2020) was crafted to create competitive SMEs to increase their contribution from 32% to 41% to GDP by 2020.

To achieve this, Hafsah said, SMEs in certain fragmented sub-sectors might need to consolidate to strengthen their position to benefit from economies of scale, greater efficiency and product differentiation.

“Rationalisation or consolidation is usually market-driven, and business associations can identify segments that were ready for consolidation.

“They could set up their own research unit to assist their members in their respective fields and areas of business,” she elaborated.

Malaysian Investment Development Authority deputy chief executive officer 1 Datuk Azman Mahmud said that one of the strategic thrusts in the third industrial master plan was encouraging mergers and acquisitions, consolidations and strategic partnerships among industries.

“Malaysian companies should outsource some of their low-end operations to other countries. In certain industries, such as the electronics sector, some companies have relocated or expanded their labour-intensive operations in China, while maintaining their high value-added activities in Malaysia,” he said.

Under the domestic investment incentive package announced last year, the Government has introduced an incentive package to encourage mergers among small service providers in professional services.

The merged entity would pay a flat corporate tax rate of 20% for five years and stamp duty exemptions on legal documents related to the merger.

“During the consolidation period, there may be some disruption in activity and additional cost, and the incentive would be helpful to cushion the impact,” Hafsah said.