The SME Association of Malaysia (SMEAM) is urging the Government to make Budget 2027 a turning point for small and medium enterprises (SMEs), with policies that ease operating costs, raise productivity and strengthen local business competitiveness.
The call follows SMEAM’s Quick Business Survey: Minimum Wage Review 2026, which gathered 333 responses from businesses across manufacturing, services, retail, wholesale and trading, food and beverage, technology and other sectors. Businesses employing 50 people or fewer accounted for 73.3% of respondents.
The findings highlight mounting pressure on businesses. Some 61.6% of respondents said conditions had worsened or worsened significantly compared with 12 months ago.
SMEAM National President Dr Chin Chee Seong said the results should not be interpreted as employers opposing better wages. Instead, businesses want wage growth to align with productivity, company performance and broader economic conditions.
Most SMEs Cautious About Raising Minimum Wage to RM2,000
The survey found that 45.9% of respondents disagreed or strongly disagreed with a potential increase in the minimum wage from RM1,700 to around RM2,000.
Another 21.3% supported higher wages in principle but believed the increase should be deferred until business and economic conditions improve. Meanwhile, 15.3% said wages should primarily reflect market conditions, skills and productivity.
A further 9.6% would support an increase if it were linked to productivity or business performance. Only 6.6% directly supported raising the minimum wage to around RM2,000 at this time.
SMEAM acknowledged the importance of improving workers’ incomes and living standards. However, it argued that sustainable wage increases depend on stronger businesses and higher productivity.
Wage Increases Could Trigger Wider Cost Pressures
The impact of a minimum wage increase could extend beyond the additional RM300 per employee.
According to the survey, 92.8% of respondents expect some pressure to adjust salaries for employees already earning above the proposed minimum. Employers may need to preserve reasonable pay differences between entry-level workers and experienced employees, technicians or supervisors.
This could create a cascading effect across salary structures and increase overall labour costs.
Businesses also identified several potential consequences of higher operating expenses:
- 76.9% expect significantly higher operating costs.
- 59.5% anticipate lower profit margins.
- 57.4% may increase prices.
- 44.1% may reduce or slow recruitment.
- 42.9% may reduce their workforce.
These figures reflect respondents’ concerns and anticipated actions, rather than confirmed future outcomes. Nevertheless, SMEAM said policymakers should take them seriously when assessing the cumulative cost of doing business.
SMEAM Says Productivity Must Support Wage Growth
When asked what should guide future minimum wage adjustments, 63.7% of respondents selected employee productivity. Overall economic conditions ranked second at 56.2%, followed by a company’s ability to pay at 54.4%.
SMEAM said Malaysia should aim to create higher-skilled, better-paying jobs rather than remain a low-wage economy. Achieving that goal requires businesses to become more productive, innovative, automated and competitive.
The association wants Budget 2027 to support this transition through stronger investment in technology, workforce capabilities and business development.
Its proposals are outlined in Strengthening SME Competitiveness and Building Future Malaysian Champions, which calls for a shift from announcing funding allocations to measuring their actual impact on businesses.
1. Assess the Cumulative Cost of Doing Business
SMEs face several cost pressures at once, including labour, utilities, financing, sales and service tax (SST), e-Invoicing, licensing and regulatory compliance.
While individual changes may be manageable, their combined impact can weaken cash flow, reduce margins and limit investment, recruitment and expansion.
SMEAM proposes a Cumulative SME Cost and Regulatory Impact Assessment before the Government introduces major policies that increase business costs.
The assessment would consider the combined impact on different sectors and company sizes. It would also involve meaningful SME consultation, better sequencing of policy changes and reasonable transition periods.
In this context, SMEAM is calling for any further increase to the RM1,700 minimum wage to be deferred for now. It wants the Government to prioritise productivity, automation, workforce development and business expansion.
2. Match SME Financing to Business Needs
SMEAM argues that businesses at different growth stages need different types of financing.
A microbusiness seeking working capital has different requirements from a manufacturer investing in automation or a company preparing to expand overseas.
The association proposes an SME Life-Cycle Financing and Investment Framework. It would cover working capital, machinery, automation, digitalisation, artificial intelligence (AI), environmental, social and governance (ESG) initiatives, commercialisation, exports and international expansion.
The framework would combine grants, guarantees, debt, equity, co-investment and private capital according to each company’s needs and stage of growth.
3. Expand SME Automation, AI and Digitalisation
Budget 2027 should strengthen support for SMEs adopting automation, robotics, AI, cloud technology, data analytics, cybersecurity and smart manufacturing.
However, SMEAM stressed that assistance should extend beyond purchasing equipment. Businesses also need help with software, systems integration, implementation, technical skills and workforce training.
Support should deliver measurable improvements in productivity, operating costs, production capacity, quality, revenue and market access.
By helping SMEs produce more value, the Government can also strengthen their ability to offer better salaries and higher-skilled jobs.
4. Connect Malaysian SMEs to Global Supply Chains
SMEAM supports continued efforts to attract high-quality foreign direct investment (FDI). However, it believes Malaysia must do more to ensure local businesses benefit from multinational companies’ presence.
The association wants policymakers to measure how many Malaysian SMEs become suppliers, how much technology and knowledge transfer takes place, and how much domestic procurement is generated.
It proposes a Supplier Development, Localisation and Procurement Programme to connect capable Malaysian SMEs with multinational corporations (MNCs), government-linked companies (GLCs) and Government procurement opportunities.
The proposed pathway is straightforward: Match, Upgrade, Qualify, Procure and Scale.
The goal is to move beyond business introductions and help Malaysian SMEs secure actual contracts and build lasting supply-chain relationships.
5. Encourage Domestic Investment and Malaysian Business Growth
SMEAM said Malaysia should not rely solely on foreign investment to drive economic growth. Malaysian-owned companies must also have the support to reinvest, automate, innovate and expand internationally.
It is calling for stronger domestic direct investment (DDI), backed by suitable financing, guarantees, equity and co-investment.
Government-linked companies (GLCs), government-linked investment companies (GLICs) and institutional investors could also support capable Malaysian businesses through strategic partnerships, co-investment and growth capital where commercially appropriate.
The broader objective is to help local companies grow into stronger domestic and regional competitors.
6. Create a Single Gateway for SME Assistance
Although Malaysia already offers grants, financing, digitalisation initiatives, ESG programmes and market-access assistance, SMEs may struggle to identify the right support.
Businesses may not know which agency to approach or what assistance they need as they grow.
SMEAM proposes an integrated SME Development Gateway to coordinate existing programmes without creating another agency.
Its proposed model is: One SME, One Profile, One Diagnostic, One Development Pathway.
The gateway would connect businesses with relevant financing, technology, ESG, skills, certification, supplier-development and export programmes. This would give SMEs a clearer route from their current challenges to their next stage of growth.
Budget 2027 Should Measure Results, Not Just Allocations
SMEAM wants the Government to assess SME assistance based on measurable business outcomes rather than the amount of money allocated.
Key indicators could include higher productivity, increased automation, more skilled employment, new supply contracts, export growth and the development of Malaysian intellectual property.
The association also wants progress to be measured by how many businesses grow from micro to small, small to medium, and medium-sized enterprises into Malaysian mid-tier or regional companies.
This approach would help policymakers identify which programmes deliver results and where further improvements are needed.
SMEAM Calls for a Transformational Budget
SMEAM welcomed the Government’s recognition of micro, small and medium enterprises (MSMEs) as a priority in preparing Budget 2027. It urged policymakers to create conditions that help businesses become stronger, more productive and more competitive.
The association’s priorities include reducing unnecessary costs, supporting automation and AI adoption, improving workforce training, expanding access to appropriate financing, and helping Malaysian companies commercialise innovations and enter international markets.
SMEAM framed its proposed development journey as Survive, Formalise, Transform, Scale and Globalise.
Ultimately, the association believes a stronger SME sector will also benefit workers. More productive and profitable businesses are better positioned to create quality jobs and raise wages sustainably.
Its broader ambition is for Malaysia to do more than attract successful global companies. The country must also build its own business champions.
