Development of SMEs in Malaysia

maturation of SMEs in MalaysiaThe Global EnterpriseIntroductionMalaysia is a developing nation with a population of 30 one thousand million and currently classified 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 in like manner comprises of countries such as Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, as well as Thailand and Vietnam (ASEAN, 2014). Malaysia is a unique inelegant as it is made up of a variety of hotfoots such as Malay, Chinese and Indian as well as indigenous races, qualification it an ethnically heterogeneous nation. This thus sets a very diverse and vibrant cultural backdrop in Malaysia.Important Benchmark in the Malayan economical 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 ec onomical activity along racial boundaries. Malayas main economic drivers at the time were tin mining and harvest-homeion of synthetic 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 business organizationes becoming shopkeepers, peddlers and petty swoprs in the towns. The Malays were mainly intemperate in the agricultural sector and were the only ethnic-group that was allowed into the bureaucracy. However, only members of the royal or upper-class families of the antithetical states of Malaya were ordinarily allowed into the administration, whereas the legal age of Malays were limited to the low-income agricultural sector. This resulted in a very multi-layered society, segregated economically and racially with the major(ip)ity of Malays (Bumiputras) at the bottom rung. To rectify the economic disparity that exi sted within the country, the representatives of the three major ethnic groups (Malay, Indian and Chinese) agreed that upon independence from colonial rule, the Malays would be given certain particular rights in the fields of religion, political thriftiness 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 balanced 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 about the economic inequalities betwixt the Malays and the other 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 (K uala Lumpur Government ask, 1972) The NEP emphasised on increasing impressive Bumiputra ownership and participation in the corporate sector, improving Bumiputra participation in high-income occupations, as well as narrowing income ine prize and eradicating poverty. within these bragging(a)r 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 preparation Unit, 2001) is deeply prevalent. This has become the backbone of Malaysias strategy for strengthening national entrepreneurship, and all related policies and strategies stimulate to take this into consideration. However non-Bumiputra entrepreneurs go not been completely neglected.The State of the Malaysian Economy (2013-2014)Malaysia has a medium-sized only if rapidly growing economy. It is self-sufficient in important natural resources, including gas and anele, and has a con ducive environment and climate for the takings of various crops (oil palm being one of those). Her especially strategic location provides farther advantages for the development of its international trade.As of 14 August 2014, Malaysia has posted a crude(a) Domestic product (GDP) of 6.4%, amounting to RM262.8 billion. This is a very encouraging sign for the national economy. This is a slightly marked improvement from the archetypical 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%), floriculture (7.1%), private consumption (6.5%) and pet graphic symbolum and mining (2.1%) according to The feature (2014)An additional point to note the geminate 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 world energy prices, although the rising cost of domestic help gasoline and diesel fuel, has hale the administration to begin to address fiscal shortfalls, through initial reductions in energy and sugar subsidies and the proclamation of the 2015 implementation of a 6% goods and run tax. The government is also trying to lessen its reliance on state oil producer PETRONAS. The oil and gas sector supplies about 32% of government tax income in 2013. Bank Negara Malaysia (central bank) maintains healthy foreign exchange reserves, and a well-developed regulatory regime has limited Malaysias motion-picture show to riskier financial instruments and the international financial crisis. Nevertheless, Malaysia could be vulnerabl e to a fall in commodity prices or a general slowdown in global economic activity because exports be a major component of GDP.In order to attract increased investment, the blush Minister of Malaysia Dato Sri Najib Razak earlier raised mathematical revisions to the special economic and social preferences accorded to ethnic Malays at a lower place the New Economic Policy of 1970, but retreat in 2013 after he encountered significant opposition from Malay nationalists and other assigned interests. In family 2013 Najib launched the new Bumiputra Economic Empowerment Program (BEEP), policies that favor and advance the economic condition of ethnic Malays, just 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 combine the worlds leaders in some fields although in many another(prenominal) areas of manufacturing, it relies on imported technologies and foreign investme nts. In the 1990s, it became the worlds third-largest producer of integrated circuits and one of the leading producers of domestic appliances. Agriculture is still an important export earner. Malaysia is the worlds southward largest producer of palm oil behind Indonesia, amounting to 39% of the worlds palm oil production (Malaysian Palm Oil Council, 2014).Malaysia has always been very open to foreign investment (FDI), especially for export-oriented manufactures, with relatively a couple of(prenominal) restrictions and easy return of profits. This has prompted some of the worlds largest corporations, such as Dell and Microsoft of the United States, NEC and Mitsubishi of Japan, and others, to set up production branches in Malaysia.Small Medium Enterprises (SMEs) in MalaysiaNormah Mohd Aris (2007) says thatThe Malaysian economy is driven and influenced by many factors. Some of these factors include 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 regular 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, pabulum and beverages, metals and metals products and wood and wood products sectors. The majority of manufactu ring companies are located in the central parts of Malaysia and around the countrys major industrial regions.Challenges 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 include recession, barrier from global sourcing, low productivity, lack of managerial capabilities, and lack of financing, difficulty in admittanceing 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 merchandising techniques, branding, customer loyalty and also lack of good contacts with others local 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 overcome 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 understanding the role of SMEs, the governments commitment towards the development of SMEs was emphasized when the National SME Development Council (NSDC), was established i n 2004. This Council embodies the highest-level policy do body to chart the direction and strategies for the development of SMEs. Some of the initiatives announced include the formulation of targeted strategies for the development of SMEs crosswise all sectors the establishment of a comprehensive National SME database and the expansion of development support programmes and facilities to enhance access to financing and accessibility of markets for export (Bank Negara Malaysia, 2006). The Small and Medium Industries Development Corporation (SMIDEC) was also set up, with the object of developing capable and resilient Malaysian SMEs to be competitive in the global market.In 2007, the NSDC refractory 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 data and advisory ser vices 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 helping SMEs. These areas include1. create Access to MarketsThe Malaysian External Trade 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 prospect 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. Research Development (R D) and InnovationA total of RM280million was allocated to the Industry Research and Development Grant Scheme (IGS) and Commercial ization of Research and Development Findings (CRDF) schemes under the 8th Malaysian Plan.5. productivity and QualityAssistance programs are aimed at encouraging 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 Financing and GrantsThe government has allocated square funds for borrowing by SMEs.8. Supply of Skilled LabourIn regard to SMEs, SME Corp. Malaysia collaborates with around 20 skill centres to provide training 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 building blocks for economic growth. http//www.statistics.gov.my/ crowd/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 Education 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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