News & Events

Intensifying the development of SMEs

Innovation is key for survival in any business, no matter the industry you are in.”
— Noor Azmi

Going into 2019, the respondents are staying optimistic about their business outlook, with 44% of them expecting the business to improve, particularly for SMEs in the manufacturing and services sector.

This could be related to the Government’s effort of encourage local SMEs to put more focus on exports this year, with numerous initiatives already being launched since 2018. During the Mid Term Review of the 11th Malaysia Plan, it was mentioned that the contribution of small and medium scale enterprises (SMEs) to the overall export market to grow to 23% by 2020 from the current 17%.

One of the initiatives under the Masterplan is internationalisation of export-ready SMES under the Going Export (GoEx) Programme. With the objective of addressing challenges faced by SMEs on new market entry overseas, the GoEx Programme has benefited 287 companies from 12 high value targeted sectors, namely oil and gas, electrical and electronics, healthcare, ICT, food and beverages, automotive, lifestyle, building material, aerospace and many more. To date, 90 SMEs have participated in market immersion activities in 37 countries with potential export sales amounting to RM471 million.

Under the programme, new or existing SME exporters are given customised support on venturing into new markets. The end game is for more local SMEs to have a global footprint and gain market share, hence resulting in SMEs’ contribution to total exports to increase from the 17.3% in 2017 to 23% by 2020. SME Corp will also play a role in promoting export activities among local SMEs with the implementation of the Galakan Eksport Bumiputera (GEB) programme, a collaborative effort with Majlis Amanah Rakyat (MARA), Malaysia External Trade Development Corporation (MATRADE) and Exim Bank. The programme aims to increase the number of qualified and high performing Bumiputera SMEs that possess great export market potential while helping them gain a network and supply chain among other Bumiputera SMEs.

In this, Noor Azmi believes that the exporting activities among local SMEs will continue to remain resilient as long as it is supported by favourable demand from major trading partners, especially with the backdrop of the global economy.

“Malaysia stands to benefit in the current trade dispute between China and the US, by acting as intermediaries to the global supply chain. This will undoubtedly increase exports from the country, especially in the electrical and electronics (E&E) industry,” he goes on.

SMEs needs to pick up the pace for IR4.0
With greater cross-border activities, comes the need for an increase in the adoption of digitalisation efforts, particularly among SMEs.

Noor Azmi opines that the sector needs to invest in more advanced digital technologies to enhance productivity. Transitioning from a traditional business to a digital business requires the conversion and automation of manufacturing processes.

Calling on his years of being an entrepreneur himself, dealing with technology and innovation, Noor Azmi says, “Innovation is key for survival in any business, no matter the industry you are in. Without new innovations or inventions, the business might not last long and has the tendency to be displaced.”

SME Corp and Huawei Technologies (M) Sdn Bhd commissioned a study and published a Whitepaper titles ‘Accelerating Malaysian Digital SMEs: Escaping Computerisation Trap’. It was meant to gain insight on the readiness of SMEs in the digital economy, which includes the use of e-commerce, the challenges and opportunities of digitalisation as well as support in terms of policy, infrastructure or development.

The report found that most of the 2,033 companies surveyed have barely even scratched the surface of utilising the full potential of technology as a growth driver for their businesses. Most of them merely computerised their operations, without fully exploring the potential of innovation, data and connectivity from other technology platforms.

“To be truly digitalised, SMEs must re-engineer their businesses by ensuring that their business strategies, processes and infrastructure are aligned and fully integrated to support their digital transformation,” Noor Azmi opines.

The usage of digitalisation enablers such as cloud, Internet of Things (IoT) and data analytics are also not common among SMEs. Those that do make use of such tools use them at a very basic level. Small businesses have yet to capitalise on data analytics to transform their operations or improve their product and service offerings.

On the other hand, it also shows that at least local SMEs are still receptive in adopting digitalisation in their business, since more than half of the respondents have already invested in technology to expand into new areas, reach new customers and increase sales.

Noor Azmi also points out the discovery from another SME Corp survey that only 32% out of 1,469 respondents were aware of IR4.0. Out of those numbers, 69% indicated that they were ready for IR4.0 implementation, while 62% cited
that they lack the knowledge and skills to do much about it and 45% complained about lack of funding and support.

Noor Azmi observed that financing is one of the biggest challenges of transitioning into a digital economy in the advent of IR4.0. As it is, many industry practitioners have already highlighted the misconception that moving towards digitalisation is an expensive affair. Many SMEs are not even aware of the alternative funding options that are made available for them to tap into.

On this, Noor Azmi believes it is time for SMEs to move away from traditional channels or methods of securing funds and look into conventional funding structures. This includes the concept of equity crowd funding, wakaf funding, peer-to-peer funding and many other hybrid funding methods.

“I think these channels still hold massive potential and opportunities for exploration, especially for SMEs,” he says. “With the advent of megatrends such as IR4.0, digitalisation, fintech and the emergence of new market-based funding, SMEs are expected to be more productive, efficient and they should be able to reduce the costs of doing business.”

The talent for transformation
Talent is an essential component to enabling a digital revolution and SMEs could do with some assistance in capacity building. As it is, SMEs are already having diffi culties in getting talent for the current operations of their business.

Citing a recent study by International Data Corp (IDC), Noor Azmi notes that small companies would need to develop their business and digital skills. Both the employers and employees would need to master ICT skills and balance them with interpersonal, problem solving and critical thinking skills.

“(Employers and employees) will need to be able to look at applications across sales, marketing, production, planning, finance, operations and IT. Undoubtedly, this could make talent acquisition and training more complicated in order to meet the broader needs of a certain company,” he adds, believing that instilling the interest of entrepreneurship among students would be one of the solutions to the problem.

In order to achieve this, Noor Azmi suggests on penetrating the education system for students in secondary schools or higher learning institutions. “We must continuously have programmes dedicated to creating entrepreneurs, apart from just training them. That’s how we can start building up their interest towards entrepreneurship at an early age.”

While the SME Masterplan’s target for SMEs to contribute 65% of employment has already been achieved ahead of the 2020 target, Noor Azmi states that the next focus will be on creating middle-to high-skilled workers as economic activities become more complex. “There will be efforts to ensure the creation of new job opportunities through upskilling and reskilling the human capital as well as enhancing skills in specific industries. We will also work on intensifying efforts to reduce dependency on low-skilled foreign workers, which will be replaced by automation and mechanisation, particularly in the manufacturing and agriculture sectors,” NoorAzmi explains.

Meanwhile, efforts will also be intensifi ed to improve the quality of Technical and Vocational Education and Training (TVET) in improving employability of TVET graduates. Emphasis will be given on examining TVET programmes offered by various institutions, implement harmonised accreditation systems and strengthen TVET as a preferred education option.