It is natural that every business owner aims to grow their business.
While larger companies can leverage their financial strength and capacity to grow, small and medium enterprises (SMEs) may not have it as easy expanding their businesses given their limited resources.
Nonetheless, SMEs are important to the country’s economy as they contribute significantly to Malaysia’s gross domestic product (GDP) and employment market.
SMEs are estimated to contribute 59% to employment in Malaysia and 32% to the country’s GDP.
While the numbers look impressive on their own, the contribution of local SMEs to the economy lags those in developed countries.
For example, SMEs also make up about 59% of the private sector employment in the UK but SMEs there generate about 48.7% of total public sector turnover.
Fozian Ismail, SME Corp senior director and business counsellor’s advisor, says, as such, short of spoon-feeding them, there must be a concerted effort to help boost local SMEs to another level of growth and increase their contribution to the economy.
The SME Masterplan (2012-2020) was launched in July for just such a reason.
“The masterplan is meant to take the SMEs from point A to point B to increase their collective contribution to the economy and employment,” Fozian says.
The masterplan aims to increase the contribution of SMEs to Malaysia’s GDP from 32% to 42% by 2020, employment from 59% to 62% and exports from 19% to 25%.
These are modest targets by most standards and Fozian says they are certainly achievable.
“In many countries, SMEs contribute about 60% to GDP. Here, they are only contributing about 32%. That is why we launched the SME Masterplan. And 40% is quite a normal target. The normal range is about 40% to 60%, so our target is a modest one. But once we have achieved that, we will be in line with other countries,” he explains.
According to the SME Corp’s economic census for 2011, there are 645,000 SMEs operating in Malaysia, making up 97.3% of the country’s total number of business establishments.
Grooming these companies would mean giving a much needed boost to a large number of businesses.
The SME sector consists of a diversity of businesses ranging from petty traders, grocery store operators and medium-sized contract manufacturers to professional-service providers that sell their services to overseas markets.
About 87% of SMEs are engaged in the services sector while another 7% and 6% respectively are in the manufacturing and agriculture.
One of the key issues with SMEs in Malaysia is that productivity in the sector is relatively low.
While it is typical for SMEs to have lower labour productivity compared to their large counterparts even in high-income countries, the productivity gap in Malaysia between large firms and SMEs is rather telling.
According to findings in the SME Census, SME productivity in 2010 is estimated to have averaged RM47,000 per worker.
This is a third of the productivity of workers in large establishments which averaged RM148,000 per worker.
The numbers look even more dismal in comparison with other countries.
SMEs in Singapore are four times more productive than Malaysian SMEs.
Additionally, Fozian points out that a large percentage of SMEs here are microenterprises. This means that only a small number of SMEs make meaningful economic contribution to the country.
“Out of the number of SMEs we have, about 20% of them are in the medium segment and they provide up to 80% of the contribution from SMEs to the economy,” he said.
The SME Census also found that, of the companies that existed in 2000, some 14% of the medium-sized companies had grown to become large firms by 2005. However, a comparable share of large companies also fell back into the small and medium category.
Given the current SME landscape in Malaysia, it is vital that greater effort is put into implementing the plans that have been laid out for the sector to ensure that firms do indeed grow not just in size, but ultimately in helping to boost the country’s revenue.
According to Fozian, the development plans for SMEs are being undertaken by 17 ministries and 60 agencies.
The SME Masterplan has drawn up 32 high-impact initiatives.
“We want to provide the right assistance to these companies. We do what we can to educate them on how they can grow their capacity and make use of the resources that have been provided,” Fozian said.
But at the same time, Fozian said SMEs need to be adventurous and take the initiative, to look for information on their own, to be equipped with problem-solving skills and to achieve growth.
The key focus areas under the SME Masterplan to boost SMEs are innovation and technology adoption, human capital development, improving access to financing and market reach and ensuring a conducive legal framework and infrastructure.
For microenterprises, Fozian says the focus is to help them with building capacity to ensure that they have the muscle to sustain a growing business.
“It is not wrong to be small, but it is wrong not to grow,” said Fozian.
And while there are more people who are turning to SME Corp’s business counsellors, Fozian notes that the number of entrepreneurs who actually seek aid from available resources is relatively low as most are either not aware of what is available or prefer to go their own way.
“We need to look into how to get them committed to this game plan. They don’t realise that it is for them and they can leverage on the master plan and elevate themselves to another level, and that we are here to assist them,” Fozian said.
SME Corp also runs business accelerator programmes that help businesses identify problems and craft out action plans.
Small businesses are the bedrock of the private sector in Malaysia and play an important role in our economy.
In the US, small businesses account for nearly 98% of all US exporters.
In 2010, the value of exports by small US businesses accounted for over US$380bil (RM1.13tril).
While this number is not yet realistic for Malaysia, many would agree that SMEs in Malaysia have the potential to grow bigger and do much more for the country’s economy.