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Recharging the SME industry

[ 12-10-2012 ]
Recharging the SME industry

THE small and medium-sized enterprises (SME) industry has been getting a lot of attention as of late, which is understandable, given the fact that it is considered the backbone of the Malaysian economy.

In July, Prime Minister Datuk Seri Najib Tun Razak launched the SME Masterplan (2012-2020), describing it as a “game changer” to take the SME industry to a higher level.

Industry experts believe that while having a masterplan in place is a good move, ensuring that certain perennial issues are addressed is vital so that the masterplan meets its objectives.

Associated Chinese Chambers of Commerce and Industry Malaysia SMEs chairman Koong Lin Loong believes that there has to be a “better understanding” between SMEs and policymakers for the industry to strive.

Fruitful discussion: (from left) Koong, Adissadikin, Soo, Kumararajah and Kang. While having the SME masterplan in place is a good move, experts believe that certain perennial issues must be addressed so that the plan meets its objectives.
Fruitful discussion: (from left) Koong, Adissadikin, Soo, Kumararajah and Kang. While having the SME masterplan in place is a good move, experts believe that certain perennial issues must be addressed so that the plan meets its objectives.

“What is needed is a better understanding between SMEs and policymakers. The policymaker needs to come down to the ground level to understand SMEs better, while the SMEs need to understand what the policymakers are doing.

“Without this understanding between both parties, the gap will get bigger,” he says during a panel discussion titled “An Appraisal of the SME Masterplan 2012-2020,” earlier in the week.

The panel discussion was organised at Menara Star in Petaling Jaya in conjunction with the upcoming the Star Business Awards 2012 (SOBA).

The other speakers were Malaysian Associated Indian Chamber of Commerce and Industry assistant general secretary Dr A.T. Kumararajah, SMI Association of Malaysia deputy president Michael Kang and Exim Bank managing director and chief executive officer Datuk Adissadikin Ali.

The discussion was moderated by The Star's deputy executive editor Soo Ewe Jin.

Kang feels that Malaysian SMEs need to change the way they conduct their business before they can make an impact.

“All this while, SMEs have been going about doing business their own way. The issue is how to change them. The way I look at it, it's all about the mindset.

“They must change themselves, especially in this new era. A lot of things have changed. It's not like in the 1970s and 1980s where the Government had its own policies and SMEs had their own way of running things and both parties worked separately.

“The roads have been running separately and they need to converge. So the mindset needs change and both parties have to work together.”

Kumararajah feels that there has to be a “realignment of resources” to assist the “micro enterprises” in Malaysia.

Micro enterprises, according to him, are defined as business concerns with less than five full-time employees and an annual sales turnover of less than RM250,000 in the manufacturing sector and RM200,000 in the agricultural and services sectors.

“The game-changer (for the SME industry) is that there should be a realignment of resources, both quantitative and qualitative, towards the micro enterprises.”

Kumararajah also says the “realignment to help the micro enterprises” has to be done as soon as possible.

“Everything should have been due yesterday, because we only have seven years left (under the SME Masterplan). As far as we're concerned, 2012 is already as good as done.”

The SME Masterplan has proposed six high impact programmes, reinforced by other key initiatives to boost the SME sector within the next eight years.

The six programmes devised are the integration of business registration and licensing, the technology commercialisation platform, SME investment programme, going export programme, catalyst programme and inclusive innovation to empower the 40% of lowest income earners.

These programmes would enable the sector to achieve what is set out in the masterplan, based on a new SME development framework.

Under the new SME development framework, the masterplan targets to increase new businesses by 6% per year and the number of high growth and innovative firms by 10% per year while raising labour productivity from RM47,000 (2010) to RM91,000 and speed up the formalisation of businesses by reducing the informal sector to 15% gross national income from 31%.

The SME Masterplan also aims to expand SME's share in national employment and exports to 62% and 25% from the current 59% and 19%.

Aside from the programmes, there are four thematic measures to promote resource pooling and shared services, create demand for SME products and services, reduce information asymmetry and build capacity and knowledge.

Specifically for the business environment in east Malaysia, the initiatives proposed also include improving connectivity and basic amenities, reviewing restrictive laws and policies and easing market access.

Other macro supportive measures are the completion of the integrated trade clearance and facilitation system, implementation of the Bankruptcy Law to give entrepreneurs a second chance, review of SME taxation policy and synchronisation measures on productivity enhancement technologies with other relevant labour policies.

Adissadikin notes that funding is often a big issue for SMEs. Therefore, he believes that more proactive steps need to be taken to assist the micro enterprises.

“For many of these (SME) players, to produce what they are producing is already a challenge,” Adissadikin says, adding that funding should not only be made available for the “top-rung” SMEs.

“Funding-wise, we can't just look at the top-tier, but at the bottom-tier as well. We need to be sensitive to their needs to help them move up the curve.”

Koong says bankers should be more than just financial providers to SMEs.

“SMEs need to listen to someone that can be their adviser, and bankers are quite close to them.

“Instead of just lending them money, bankers should also advise them on how to grow.”

He says that if the SMEs don't get the necessary assistance, many would go out of business.

Citing the latest census report on SMEs, Koong points out that SMEs currently represent 97.3% of total business establishments in the country, which was a marginal drop from 99.2% previously.

According to the SMEs Census 2011 report, a total of 645,136 SMEs were operating their businesses in Malaysia in 2011, representing 97.3% of total business establishments.

The results showed that 90% of the establishments were in the services sector, 5.9% in the manufacturing sector and 3% in the construction sector.

The remaining were in the agriculture sector (1%) and mining and quarrying (0.1%).

SMEs in the services sector were the largest, with more than 580,000 establishments representing 98.2%, followed by SMEs in the manufacturing sector, 95.4%.

Meanwhile SMEs in the construction sector represented 87.1% of the total establishments in that sector.

The census showed that the percentage of micro establishments remained the same as compared with the census of 2005. Overall, the majority of SMEs or 77% were micro-sized establishments, followed by small establishments (20%) and medium-sized establishments (3%).

The services sector recorded the highest percentage of micro-sized establishments (79.6%) followed by manufacturing and agriculture 57.1% and 56.3% respectively.

SMEs in the mining and quarrying sector were mainly small in terms of size, registering 42.1%.

The census findings also showed that most of the SMEs were concentrated in Selangor, Kuala Lumpur, Johor and Perak, representing more than 50%.

Meanwhile, SMEs in Sabah and Sarawak represented 13.1% of total SMEs in Malaysia. From 645,136 active SMEs in operation, 19.7% were owned by women.

According to the census, SMEs contribution to gross domestic product increased from 29.4% in 2005 to 32.5% in 2011.

Meanwhile, the 2012 SOBA promises to see some significant enhancements. For one, the awards are divided into two broad categories the top-of-the-class awards and outstanding achievement awards. There are eight sub-categories for the former and three for the latter.

Now in its third year, the awards will reward winners with almost RM1mil worth of advertising space and airtime.

Exim Bank is the presenter of the awards, supported by Bursa Malaysia. The Royale Chulan Kuala Lumpur is the official hotel partner. Red Tomato is the official Chinese newspaper, while the official radio stations are 988FM and RedFM. The awards auditor is BDO.