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More SMEs are trading with MNCs
MORE small and medium enterprises (SMEs) in Malaysia are trading directly with large companies - be it the middle market enterprises (MMEs) or multinationals (MNCs) operating locally and abroad. This growing trade relationship has a symbiotic relationship with Malaysia's favourable economic growth on the back of relatively strong domestic demand, exports and the inflow of foreign investments.
This year, the Government predicts the economic growth to be about 5% compared with its earlier forecast of 5% to 6%. It achieved 6.3% growth last year. Analysts and economists concurred that high energy and palm oil prices would continue to provide a buffer for the economy although weak global demand may affect the country's key electronics exports.
Moving forward, they expressed optimism on the country's economic outlook partly due to its strong fundamentals.
Coupled with the Government's stance on growing Malaysia's international trade business, the business relationship between SMEs and MMEs/MNCs had surged, hence giving rise to the creation of what is termed by bankers as the Financial Supply Chain (FSC).
What is FSC all about and why is it important for an SME to understand its mechanism?
The FSC deals with the entire order to cash cycle from the time purchase orders are placed on the SME supplier till the point the SME then invoices for goods shipped and is paid.
It mirrors the physical supply chain, which deals with the physical movement of goods and services.
Therefore, it is important for an SME to understand the changes taking place on the MME/MNC buyer side that have a knock-on effect on its business.
By having a clear picture of the present and anticipated external factors affecting the MME/MNC buyer's business and the planned changes (the buyer is likely to make in its FSC), the SME supplier would be able to adapt and be in a better position to grow and boost its business sustainably.
This sustainability of business growth was key to assist ambitious SMEs who strive to become a Category A supplier - one that works like a partner with its MME/MNC buyer by becoming a key supplier to them.
The key changes taking place in the FSC in Asia was that most international MME/MNC buyers are now consolidating their supplier base in the region.
This means that they intend to conduct their dealings with only Category A suppliers that are able to meet their demand over the medium term and understand their business dynamics.
Another important trend in the FSC was that most large MME/MNC buyers locally or abroad were not only investing in Enterprise Resource Planning (ERP) systems, but also expected their key SME suppliers to get connected to these systems.
This connectivity enables the buyer/supplier to move away from paper based ordering and invoicing to electronic data driven settlement.
How can then banks help SMEs to ensure the successful forging of FSC partnerships with MMEs/MNCs and help grow their businesses?
HSBC Bank Malaysia Bhd director, trade and supply chain Vivek Gupta said: “As the world's local bank, HSBC has the unique ability to understand the needs of both SMEs and MME/MNCs since we have appetite to bank both.”
“From our deep industry knowledge gained on a global basis, we are best positioned to offer valuable advice to SMEs on changes happening in the buyers FSC and the relevant adjustments they need to make to grow their business.”
“Through its experienced commercial banking relationship managers in Malaysia, the bank was able to create awareness among SMEs and advise them the right way to deal with MME/MNCs,'' he noted.
He added the discussion with SMEs does not straight away revolve to what type and amount of working capital that the SME needs, but was a more rounded, in-depth discussion around the business model. “Given that the focus for SMEs was typically to protect their profit margins and growing the volumes with MME/MNC buyers, the SMEs need to start thinking about making investments in key areas like sourcing, upgrading their accounting systems and identifying key buyers (that they need to grow with). They need to work with HSBC to help them realise their ambition to make the transition to a Category A supplier status.''
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