Small-medium firms need to think big

Malaysian small-and-medium enterprises (SMEs) are by-and-large, an inward-looking bunch, as they largely cater to the domestic market, or they are part of the supply chain of much larger businesses who have dealings with overseas markets. Very few of them are exporters.

So, when the government announced measures during a special parliamentary session recently to help SMEs who are exporters cope with the tariffs unleashed by US president Donald Trump, there were those who question the absence of support for larger exporting firms.

For them, the reasoning is clear. SMEs account for only 12.2% of total exports in 2023 although they are an important source of growth to the economy, contributing almost 40% to gross domestic product (GDP) and 48.5% to employment.

However, their GDP contribution underscores the role SMEs play in the supply chain, the domestic economy and the services sector especially.

Most exporters are larger firms, many are either domestic or foreign multinational companies with supply chains comprising a string of SMEs.

There are concerns that the headwinds on the external front and weakening exports will eventually impact these companies, mainly manufacturers, which then will affect SMEs when job losses from the manufacturing sector leads to more job losses in the more domestic-oriented services sector as aggregate demand falls.

Among those calling for a broadening of the measures to include larger exporters is the Malaysian International Chambers of Commerce and Industry, whose chairman for the southern region, Lee Ting Kiat, said at a luncheon held recently that the chamber hopes for funding to be made available to exporters keen to ramp up production quickly to capitalise on the front-loading of imports taking place in the United States.

There could be more measures for the larger exporters, but this is pending the outcome from the discussions being held between Malaysia and the United States, United Overseas Bank (M) Bhd senior economist Julia Goh and Socio Economic Research Centre executive director Lee Heng Guie say.

Lee expects the government to review the measures and roll out new initiatives to support businesses and workers.

“These include loans rescheduling and restructuring, the employment support scheme and providing export rebates for companies seeking new markets,” he adds.

But Lee says the government made the right decision to help SME exporters as they are part of the supply chain integrated with the larger exporting firms and will be affected if the larger exporting firms face a drop in overseas orders.

“Hence, if their customers (the large exporters) are impacted by the tariffs policy, there will be spillover effect on SMEs,” he points out.

There are concerns among SME chief executive officers (CEOs), and the Vistage CEO Confidence Index for the first quarter of 2025 (1Q25) measuring the sentiment of SME CEOs shows sentiment has declined year-on-year (y-o-y) and quarter-on-quarter.

The gauge shows that sentiment among these CEOs remain muted, with the slower growth seen in the advance 1Q25 GDP data released by the Statistics Department mirroring the decline in CEO confidence.

The preliminary 1Q25 GDP data will be released on May 16, together with a revision for the annual GDP.

The key indicators of the index, while remaining positive, have seen declines across the board despite sentiment, for now, still holding up on future economic performance.

Indicators such as business sentiment have declined since peaking in 3Q24, CEOs are cutting down on fixed investments, while profitability expectations have also dropped.

And the list goes on, including declines in local and exports orders, although still in positive territory, suggesting a potential slowdown in domestic and external demand.

Among SME owners, there continues to be lobbying for government support in helping them penetrate markets such as the United States and Europe, where the trade war and tariffs have opened up opportunities.

For Datuk Liew Bin, deputy president of the Malaysia Retail Chain Association, whose members mostly operate domestically, the geopolitical and supply-chain shifts provide Malaysian SMEs opportunities to expand abroad.

“The US-China trade war leaves a vacuum in consumer products since the 145% tariff imposed on Chinese goods imports to the United States will mean there will be no deals soon. There are opportunities for Malaysian SMEs to export goods such as food and cosmetics, in which we have strengths and we are price-competitive,” he noted.

He adds that the escalating trade war between the United States and the European Union is another opportunity not to be missed.

Liew believes Malaysian SMEs must now look outwards and have a mindset that emphasises manufacturing with overseas markets in mind.

“The times have changed for us. Our SMEs have been known to lack interest to compete abroad, even the Chinese pointed it out, but with the help of government agencies such as Malaysia External Trade Development Corp (Matrade), we can start, even with steps such as promoting our products on platforms such as Amazon,” he says.

Matrade was given an extra RM50mil as part of the measures supporting Malaysian businesses venturing into non-traditional markets such as Russia, Africa, Middle East and South America.

Malaysia’s strategy to diversify export markets began as early as 2000, according to one Bank Negara report from 2011, and has been growing in tandem with the growth of emerging economies.

Last year, these non-traditional markets saw exceptional growth in exports, according to Matrade data.