AT a recent roundtable discussion hosted by the Malaysian Investment Development Authority (Mida) on the issue of declining domestic direct investment (DDI), it was highlighted that there is a need to boost local small and medium enterprises (SMEs).
This is premised on the fact that the bulk of local businesses are SMEs.
The panel discussion was moderated by AmBank Research’s economist Anthony Dass, while the panelists were made up of Sikh Shamsul Ibrahim Abdul Majid from Mida, Imran Yassin Yusof from MIDF Research, Lim Wei Yee from Vitrox Corp Bhd
and Siti Padillah Abdul Wahab from an SME called CG Global Profastex Manufacturing Sdn Bhd.
Below are excerpts from that discussion:
Dass: The focus on DDI is crucial to ensure sustainable growth. A big chunk of our businesses are SMEs, which generate a significant amount of the country’s gross domestic product (GDP) and create employment.
DDI has been coming off of late, especially from 2015 onwards. This is in part due to the trade war, geopolitical risks and labour and talent issues. We must grow our SMEs.
Could we look at a hand holding concept. If we can just help 10% of the micro SMEs (MSMEs) and migrate them into SMEs and then they can become larger companies. Also there needs to be a focus on environmental, social and governance (ESG) for these MSMEs.
How can we take our DDI to the next level, from this hand holding concept and also help these companies get into ESG?
Shamsul: Mida has been having these hand holding programmes, where we try to create awareness through seminars and so on.
We need to step up the game and provide this platform regularly for the MSMEs to come forward and listen, and for us to support them through incentives, grants and other programmes that might be useful for them.
Dass: It can be a challenge raising the MSMEs to become SMEs. We should also be focusing on helping SMEs to become larger companies.
Siti Padillah: SMEs have a critical role to play if we are to renew, transform and rebalance our economy. SMEs are the backbone of Malaysia’s economy and industrial development. Automation and digitalisation are the cornerstone to drive SMEs recovery into the next level of growth.
The government is committed to jump-starting our DDI by promoting the eCommercialisation, digitalisation and automation of our SMEs.
I strongly believe that our government remains committed to nurturing a pro-business and investment environment toward accelerating the growth, not only in foreign direct investment (FDI) but for DDI as well.
Lim: In the year 2000, 22 years ago, Vitrox was founded by two engineers. They came from multinational companies (MNCs) and were very passionate about machine vision technology and borrowed money for their start up. They hired their first engineer who was a local graduate who could easily have found a job with an MNC.
The founders told the engineer that they could only assure him of six months salary but convinced the engineer that the company was going to do great things. The three of them have since then grown the company to what it is today, with it having a market capitalisation of some RM7bil.
Today we have about 900 employees, 75% of our employees are technical level people, holding diplomas right up to PhDs. We have invested heavily into research and development (R&D).
Over the years, we have received support from the government, especially Mida. The incentives we received enabled us to be more aggressive in our R&D.
We were able to hire more engineers and develop products that helped us quickly capture the global market.
As we grew, we also helped build the ecosystem of local companies, working closely with Mida to assist a lot of good potential SMEs. We could do that because we went through that journey.
There are some good Malaysian technology companies in the industry we are in.
One good example is Inari Amertron Bhd, whereby years ago, a United States company had come to Malaysia and set up a plant and started working with them and eventually gave Inari all their manufacturing jobs.
So Inari then invested in their factory, growing it to become a top global company, and this is part of the country’s DDI. This is also how FDI and DDI work in tandem.
Dass: We need to focus on this cluster development and along that line, we cannot say FDI is not important. The DDIs need to collaborate with the FDIs. A good success story is the country’s electrical and electronic products (E&E) sector. How is Mida facilitating the creation of these ecosystems and clusters?
Shamsul: We have dedicated domestic investment divisions that try to connect local companies with the MNCs and large local corporations.
This investment team has about 30 anchor companies comprising MNCs and large local companies . We go through screening processes of local SMEs. But not all local SMEs can make it. They need some hand holding.
Dass: How does MIDF support local companies?
Imran: One of the areas to solve is financing for SMEs. Many SMEs are facing difficulties in this.
We have a few schemes. The investment bank has a development finance division. We help companies to get financing. For bigger size companies, we go to the capital markets.
During the pandemic we did give them moratoriums. We have a new scheme called SME revitalisation financing, a financing scheme implemented by MIDF where government funds are channelled through SME Corp for SMEs’ adoption of technology and modernisation.
It offers financing of up to RM250,000 or up to 90% of total costs of eligible items. As of Sept 30, 2022, we had 161 applications approved, amounting to about RM29mil. We have another scheme called Jumpstart Financing for companies to restart business after Covid-19.
This is funded by the Ministry of International Trade and Industry (Miti) and managed by MIDF and is available for SMEs in the services sector. It’s up to RM500,000 for working capital financing.
Dass: Siti and Lim tell us about your businesses.
Siti: I have been involved in electronics manufacturing for the past 20 years. I knew of Mida while working for a Japanese company in Penang. I realised then what incentives are given for FDI.
When I started my business six years ago, I approached Mida and they helped me even though I thought it was difficult to access them. CG Global began operations providing services using second hand equipment taking on small and difficult jobs not preferred by MNCs.
When the United States and China trade war began in July 2018 it led to more opportunities for CG Global. Mida read the situation well and led the way by advising the government on policies of FDI and DDI to provide grants and incentives such as for the automation of local companies.
Lim: We also worked with SMEs trying to get them help. Many of them thought that incentives were only for MNCs bringing in FDI. They also gave up after realising they had so many forms to fill in for incentives.
We guided them through this. In the last three years, Vitrox focused on three things.
Firstly, to enhance our connection and communication with our customers, many of whom were worried that they may not get the equipment they wanted even though they had a lot of order as computer sales were up.
So we ensured that our customers were well informed of delivery times and so on.
And since we are in an era of digitalisation, we managed to remotely ensure our machines at our customers sites were working well, such as remote troubleshooting.
Secondly is with regard to the supply chain constraints. So we do our best to sort out issues there.
Lastly, we took care of our employees. We ensure our premises were fully sanitised, our meeting were virtual when possible and we encouraged all employees to get vaccinated.
Dass: How is the shortage of foreign workers and of talent impacting companies in Malaysia? Lim: For Vitrox, we don’t have operators in our factory. We only hire technicians and above. Then the next thing is how to hold onto the engineers. A few years ago, we were paying our talented engineers more than what MNCs were paying.
But then the MNCs also caught up. So it is a challenge. So we try to do more. We have a lot of in house training, and provide a lot of guidance.
We also create core values in our operations to help the new generation of engineers. Sometimes people work more than just for the money, especially the new younger generation. You got to give them a purpose.
Siti: We face the same problems. While we also don’t hire operators, what we do is we give them a career development package.
Shamsul: This is a global issue that there is no quick fix.
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