Development of SMEs in Malaysia

Development of SMEs in MalaysiaThe Global EnterpriseIntroductionMalaysia is a developing nation with a population of 30 cardinal and watercoursely assort in the upper middle income category. It is situated in the South East Asia Region and is part of the Association of South East Asian Nation which excessively comprises of countries such as Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, as well as Thailand and Vietnam (ASEAN, 2014). Malaysia is a unique country as it is made up of a variety of races such as Malay, Chinese and Indian as well as indigenous races, making it an ethnic in every(prenominal)y heterogeneous nation. This thus sets a very diverse and vibrant ethnical backdrop in Malaysia.Important Benchmark in the Malaysian economic PolicyIn their study of strengthening entrepreneurship in Malaysia, Ariff et al (2000) describes that during the British colonial rule of Malaya (pre-1957), the British implemented the practice of separating economical activity along racial boundaries. Malayas main economic drivers at the time were tin exploit and production of rubber. In order to streamline operations of the industry, Indian and Chinese migrant workers were imported to work on the rubber plantations and in the tin mines respectively. The Chinese were allowed to run certain businesses becoming shopkeepers, peddlers and petty traders in the towns. The Malays were mainly concentrated in the agricultural arena and were the only ethnic-group that was allowed into the bureaucracy. However, only members of the royal or upper class families of the different states of Malaya were usually allowed into the administration, whereas the studyity of Malays were limited to the low-income agricultural sector. This resulted in a very multi-layered society, segregated economically and racially with the majority of Malays (Bumiputras) at the bottom rung. To repossess the economic disparity that existed within the country, the representatives o f the three major ethnic groups (Malay, Indian and Chinese) agreed that upon independence from colonial rule, the Malays would be given certain special rights in the fields of religion, economics and politics. The main reason for this positive discrimination was to elevate the status of the economically marginalized Malays, and therefore create a more equitable and match society.Under the New Economic Policy (NEP) established in 1970, these special rights received more comprehensive enunciation. This was a reaction to the growing discontent roughly the economic inequalities between the Malays and the different races who were still gaining economic ascendancy. The main objectives of the NEP were to reduce and eventually eradicate poverty, and to accelerate the process of restructuring Malaysian society to correct economic imbalance, so as to reduce and eventually eliminate the identification of race with economic function (Kuala Lumpur Government get, 1972) The NEP emphasised on increasing effective Bumiputra monomania and employment in the corporate sector, improving Bumiputra participation in high-income occupations, as well as narrowing income inequality and eradicating poverty.Within these larger policies, the subject of constructing a Bumiputra Commercial and Industrial Community (BCIC), which involves fostering Bumiputra entrepreneurs, professionals and creating a Bumiputra middle-class (Economic Planning Unit, 2001) is deeply prevalent. This has become the backbone of Malaysias strategy for strengthening national entrepreneurship, and all related policies and strategies have to take this into consideration. However non-Bumiputra entrepreneurs have not been completely neglected.The State of the Malaysian Economy (2013-2014)Malaysia has a medium-sized but rapidly growing economy. It is self-sufficient in master(prenominal) natural resources, including gas and oil, and has a conducive environment and climate for the production of various crops (oil p alm being one of those). Her especially strategic location provides further advantages for the development of its international trade.As of 14 August 2014, Malaysia has posted a Gross Domestic product (gross domestic product) of 6.4%, amounting to RM262.8 billion. This is a very back up sign for the national economy. This is a slightly marked improvement from the first quarter of 2014 which was 6.2%. In the fourth quarter of 2013, the nation posted a GDP of 5.1% (Department of Statistics, Malaysia, 2014). This can be seen in chart 1. The construction sector was the main contributor to the GDP at 9.9%, followed by manufacturing (7.3%), agriculture (7.1%), private consumption (6.5%) and pet business officeum and mining (2.1%) according to The Star (2014)An additional point to note the twin tragic disasters that befell Malaysia especially Malaysia Airlines this year (flights MH370 and MH17 respectively) have not significantly affected Malaysias bullish economic performance. However, Malaysia Airlines (MAS) have been experiencing heavy losses in the 2nd and 3rd quarters of the year (Malaysia Airlines, 2014)As an oil and gas exporter, Malaysia has profited from higher universe of discourse brawn prices, although the rising cost of domestic gasoline and diesel fuel, has forced the government to begin to address fiscal shortfalls, through initial reductions in energy and sugar subsidies and the announcement of the 2015 implementation of a 6% goods and services tax. The government is also trying to lessen its reliance on state oil manufacturer PETRONAS. The oil and gas sector supplies about 32% of government revenue in 2013. Bank Negara Malaysia (central bank) maintains healthy foreign exchange reserves, and a well-developed regulatory regimen has limited Malaysias exposure to riskier financial instruments and the global financial crisis. Nevertheless, Malaysia could be vulnerable to a fall in commodity prices or a general slowdown in global economic activity b ecause exports are a major component of GDP.In order to attract increased investment, the Prime Minister of Malaysia Dato Sri Najib Razak antecedent raised possible revisions to the special economic and social preferences accorded to ethnic Malays under the New Economic Policy of 1970, but retreated in 2013 after he encountered significant opposition from Malay nationalists and other assigned interests. In September 2013 Najib launched the new Bumiputra Economic Empowerment Program (BEEP), policies that favor and advance the economic nail down of ethnic Malays, further strengthening the economic stature and power of the Bumiputras in the nation.Malaysia has a diversified and rapidly expanding manufacturing sector. Malaysia was able to join the worlds leaders in most fields although in many areas of manufacturing, it relies on imported technologies and foreign investments. In the 1990s, it became the worlds third-largest producer of integrated circuits and one of the leading produ cers of domestic appliances. Agriculture is still an important export earner. Malaysia is the worlds second largest producer of palm oil behind Indonesia, amounting to 39% of the worlds palm oil production (Malaysian Palm Oil Council, 2014).Malaysia has ever so been very open to foreign investment (FDI), especially for export-oriented manufactures, with relatively few restrictions and easy return of profits. This has prompted some of the worlds largest corporations, such as Dell and Microsoft of the United States, necrotizing enterocolitis and Mitsubishi of Japan, and others, to set up production branches in Malaysia. gloomy Medium Enterprises (SMEs) in MalaysiaNormah Mohd Aris (2007) says thatThe Malaysian economy is driven and influenced by many factors. Some of these factors take on Small and medium enterprises (commonly referred to as SMEs) have been the backbone of economic growth of an economy in driving industrial development. Due to their sheer numbers, size and nature of operations, the role of SMEs in promoting domestic sources of growth and strengthening the infrastructure for accelerated economic expansion and development in Malaysia has been recognised. The interdependence of SMEs and large enterprises in collaborating with each other has led to the further expansion of SMEs.According to the Malaysian SME Corp website, SMEs are defined by the following featuresManufacturing sector, sales turnover not exceeding RM50 million OR full-time employees not exceeding 200 workersServices and other sectors, sales turnover not exceeding RM20 million OR full-time employees not exceeding 75 workersSMEs are further divided into three different categories as shown in Table 1.SMEs in Malaysia are generally focused in the textile and apparel, food and beverages, metals and metals products and wood and wood products sectors. The majority of manufacturing companies are located in the central parts of Malaysia and around the countrys major industrial regions.Challe nges Faced by SMEs in MalaysiaAccording to Muhammad et al., (2010) many previous studies conducted by Saleh and Ndubisi (2006) Samad (2007) Abu Bakar et al. (2006) Aris (2006) Harvie (2004) Wang (2003) Wafa et al. (2005) Ritchie Brindley (2000) Decker et al. (2006) and Foon (2006) various challenges faced SMEs in a globalized environment. The SMEs should mainly concentrate in overcoming the challenges, which take recession, barrier from global sourcing, low productivity, overlook of managerial capabilities, and lack of financing, difficulty in accessing management, technology and heavy regulatory burden. In the same way, Teoh and Chong (2008) reasoned that the major hurdles to entrepreneurship development are lack of access to credit, formal business and social networks. Muhammad et al. (2010) identified that the main problems faced by SMEs in Malaysia are the lack of knowledge regarding marketing techniques, branding, customer loyalty and also lack of good contacts with others l ocal and international enterprises.How the Government is Helping SMEs in MalaysiaThe Malaysian Governments commitment to and involvement for the development of SMEs has been palpable since the early 1970s. The New Economic Policy, which mainly aimed to improve peoples welfare and restructure ethnic economic imbalances, was introduced in 1971. The governments commitment to the development of SMEs is also evident in the second Industrial Master Plan (IMP2), which is then followed by the Third Industrial Master Plan (IMP3) 20062020 to coincide with the countrys vision for 2020.The Malaysian Government has implemented various policies and strategies under these plans. (Saleh et al, 2006)Further reason the role of SMEs, the governments commitment towards the development of SMEs was emphasized when the National SME Development Council (NSDC), was established in 2004. This Council embodies the highest-level policy making body to chart the forethought and strategies for the development of SMEs. Some of the initiatives announced include the formulation of targeted strategies for the development of SMEs across all sectors the establishment of a comprehensive National SME database and the expansion of development foul programmes and facilities to enhance access to financing and accessibility of markets for export (Bank Negara Malaysia, 2006). The Small and Medium Industries Development club (SMIDEC) was also set up, with the goal of developing capable and lively Malaysian SMEs to be competitive in the global market.In 2007, the NSDC decided to appoint a single dedicated agency to formulate overall policies. SMIDEC was chosen to tackle this role and was transformed into the Small and Medium Enterprise Corporation Malaysia (SME Corp. Malaysia). SME Corp. Malaysia is now the central point of reference for information and advisory services for all SMEs in Malaysia. (Small and Medium Enterprise Corporation Malaysia, 2014)Saleh et al (2006) have also identified other key areas in which the Malaysian government have been back up SMEs. These areas include1. Developing Access to MarketsThe Malaysian External consider Development Corporation (MATRADE) facilitates the participation of SMEs at trade fairs and trade exhibitions by financing their participation costs. This gives the SMEs a platform to market and showcase their companies.2. Upgrading TechnologyTechnology provides SMEs with the opportunity to increase their efficiency and productivity with tools to better manage their business amidst the growing demands of the current market.3. Promoting the Application of ICTICT allows effective and speedy communications and can ensure timely responses to market requirements.4. enquiry Development (R D) and InnovationA total of RM280million was allocated to the Industry Research and Development Grant Scheme (IGS) and Commercialization of Research and Development Findings (CRDF) schemes under the 8th Malaysian Plan.5. Productivity and QualityAssistance p rograms are aimed at further SMEs to acquire quality standards (health, safety, environment and labour) that will assist them to leverage their strengths.6. Awards and RecognitionThe government introduced various award programs to acknowledge companies that have attained excellence. Such programs includeThe Prime Ministers Industry Excellence AwardProductivity and Quality management Award (PQMA)Enterprise 50 Award (E50)7. Access to finance and GrantsThe government has allocated substantial funds for borrowing by SMEs.8. Supply of Skilled LabourIn regard to SMEs, SME Corp. Malaysia collaborates with around 20 skill centres to provide bringing up to local SMEs in technical and managerial proficiencies. The Electrical and Electronics, automotive, machinery and engineering services are some of sectors receiving priority in terms of training.ReferencesAriff, M. and Abubakar, S.Y. (2004) Strengthening Entrepreneurship in Malaysia, pp. 2-12Aris, N. M. (2006) SMEs construction blocks for economic growth. http//www.statistics.gov.my/conference/download.php?cat=1id_file=22. accessed 20/10/2014ASEAN (2014) ASEAN Member States. http//www.asean.org/asean/asean-member-states accessed 15/10/2014BNM Bank Negara Malaysia (2004), National SME Council Meeting, Press Release, Bank Negara Malaysia.Foon, L. S. Eu-Gene, S. (2006) The Changing of schooling in the Globalized World. Proceedings of Persidangan Kebangsaan IKS 2006, Kuala Lumpur Universiti Utara Malaysia.Decker, M., Schiefer, G. Bulander, R. (2006). 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