1. Definition of SMEs in the Malaysian Context

Since 2005, a common definition has been adopted across Ministries and agencies, financial institutions and regulators involved in SME development. Given that there have been many developments in the economy such as price inflation, structural changes and change in business trends, a review of the definition was undertaken and a new SME definition was endorsed at the 14th NSDC Meeting, chaired by the Prime Minister of Malaysia in July 2013. The new SME definition which came into effect beginning 1 January 2014, raised the qualifying threshold for sales turnover and employment of SMEs for all economic sectors. Businesses are considered as SMEs based on:

o For the manufacturing sector, SMEs are defined as firms with sales turnover not exceeding RM50 million OR number of full-time employees not exceeding 200.

o For the services and other sectors, SMEs are defined as firms with sales turnover not exceeding RM20 million OR number of full-time employees not exceeding 75.

2. SME Corp. Malaysia provides various Services and

    Assistance to SMEs in Malaysia 

SME Corp. Malaysia was established not only as the Central Coordinating Agency for the SME industry but also to provide various services and assistance to the SMEs in the form of funding, advisory services, market access, capacity building and others namely:

• Business Accelerator Programme (BAP 2.0)
Business Accelerator Programme (BAP 2.0) is an integrated assistance programme to enhance capabilities of SMEs through business advisory and financial support. The Programme supports a wide range of capacity building initiatives to assist SMEs to grow their businesses locally and abroad.

⇒Financing

   Two types of financing available under BAP 2.0
   – Partial Grant
   – Soft Loan 

⇒Eligible Expenses

a) Partial Grant
– Certification & Quality Management System
– Packaging & product packaging
– Innovation & product development
– Branding development & promotion
– Productivity & automation
– Purchase of machinery & equipment (40% grant of the total cost with  maximum grant of RM50,000 per company)
– Online applications, mobile e-Commerce, e-payment & ICT applications

b) Soft Loan
– Managed by SME Bank
– Purchase of machineries and equipment (including main software for services sector and commercial vehicles)
-Working capital (stock purchases/raw material/purchasing of package/ packaging materials/renovation)

• Soft Loan Scheme for Small & Medium Enterprises (SLSME)

The SLSME was introduced to promote the development of SMEs in the anufacturing and services sector. This Scheme assists existing as well as newly start-up enterprises in project, fixed assets and working capital financing and this programme is implemented by SME Corp. Malaysia through the Malaysian Industrial Development Finance Berhad (MIDF).

⇒Financing Amount:
– Minimum: RM50,000.
– Project Financing – Maximum RM5 million.
– Fixed Assets Financing – Maximum RM5 million
– Working Capital Financing – Maximum RM3 million
– IT Hardware/Software – Maximum RM500,000.

⇒    Items Eligible for Financing:
– Industrial/Commercial land and factory/business premises construction, ready-built factories/business premises, plant, machinery/equipment and IT hardware/software.
– Costs incurred for initial store renovation and upgrade of store display for retail trade.
– Working capital.

⇒    Percentage Financing:
– Fixed Assets/IT Hardware/Software:-
o Up to 90% of the cost of new assets.
o Up to 65% for used/reconditioned machinery/equipment which are not more than 5 years old.
– Working Capital:-
o Up to 100% for Purchase Revolving Credit.
o Up to 80% for Sales Revolving Credit.
o Up to 90% for Term Financing.
 

⇒    Interest / Profit Rate: 4% per annum on yearly rest.

•     Tunas Usahawan Belia Bumiputera (TUBE)

For start-ups, SME Corp. Malaysia has also implemented the Tunas Usahawan Belia Bumiputera (TUBE) since 2014. The three main objectives are; to foster the spirit of entrepreneurship among the youth; to shift youth’s mentality from employee to business owner; and to form a resilience entrepreneurs.
This program is targeted for Bumiputera youth aged 18 to 40 years. All successful participants that completed Phase 1 and 2 of the Programme will then receive RM15,000 worth of grant for them to start and realise their business plan.

As at 2016, 943 resilient entrepreneurs have gained extensive exposure in respect of the landscape and the challenges of the business world through the 3 significant stages that have been design for this programme. The young Bumiputera entrepreneurs engaged in the TUBE programme will be guided and monitored by SME Corp. Malaysia’s Business Counsellors and SME Advisory Panel (SEAP).

•     Bumiputera Enterprise Enhancement Programme (BEEP)

Specialised programme which aims to create and develop competitive, resilient and dynamic Bumiputera SMEs through a comprehensive integrated assistance with hand-holding approaches including strengthening their core business, building capacity & capability, increase productivity and facilitating access to financing through Matching Grant for:

– Training
– Packaging and labelling
– Certification and Quality Management System
– Innovation & product development
– Advertising, promotion and branding
– Purchase of machinery & equipment

The programme is being implemented at SME Corp.’s State Offices in collaboration with 11 State Governments namely Johor, Kedah, Kelantan, Melaka, N. Sembilan, Pahang, P. Pinang, Perak, Sabah, Sarawak and Terengganu.

• Galakan Eksport Bumiputera (GEB) – GEB is a new programme implemented by SME Corp. Malaysia in collaboration with Majlis Amanah Rakyat (MARA), MATRADE and Exim Bank. The program aims to improve the ability of pre-export and to increase the number of Bumiputera small and medium enterprises (SMEs) that are ready to penetrate international markets. The program is also aims to create business linkages among Bumiputera SMEs to seize the opportunities of the market under the Trans-Pacific Partnership Agreement (TPPA) and the ASEAN Economic Community (AEC).

Assistance is provided in the form of grants, including the components such as packaging and labeling, certification and quality management systems, product innovation and development as well as soft loan to enhance SMEs’ capacity. Training will also be given to companies that have the potential for creating awareness of the need for a particular national market. In ensuring the successful achievement of the target of the 400 Bumiputera SMEs to be groomed to become exporters by 2020, the program is supported by 8 Bumiputera business associations and chambers of commerce which will also monitor the development of the companies.

• SCORE – SME Corp. Malaysia developed a star rating programme or better known as SCORE (SME Competitiveness Rating for Enhancement) in 2007. SCORE is a diagnostic tool that rates SME performance at firm level. SCORE is being used to rate and enhance competitiveness of SMEs based on their performance and capabilities. The capability and performance are measured based on 7 parameters that vary across sectors. The programme, initiated by SME Corp. Malaysia’s own officers, has caught the attention of international organisations as a useful tool to measure SME competitiveness. A number of MNCs have in fact used SCORE for purposes of industrial linkages and their supplier programmes. Utilising this tool, SME Corp. Malaysia would be able to identify areas of improvement to ensure better efficiency and productivity of the SMEs.

• SEAP – In addition, SME Corp. Malaysia also initiated the SME Expert Advisory Panel (SEAP) which provides SMEs with expert advisory services in the areas of technology, productivity and process improvement, as well as conformance with international standards and ICT. These industry experts are ready to provide value-added services to the SMEs and at the same time share their vast knowledge and experience as the subject matter expert with the business owners. To date, we have 68 SEAP Experts ready to share their expertise and knowledge with the SMEs under this programme.

• One Referral Centre – One Referral Centre (ORC), located at SME Corp. Malaysia’s HQ office in Platinum Sentral, KL Sentral, is the focal meeting point for SMEs to get business advisory and information. Advisory services in SME Corp covered business matters as well as programmes available in SME Corp Malaysia and other relevant Ministries, Agencies, Banks, Development Financial Institutions (DFIs) and Associations.
To cater for SMEs which are not located at Klang Valley areas, SME Corp. Malaysia has a total of 11 State Offices which facilitate matters pertaining to SMEs. Through these initiatives, SMEs are provided with the latest information on policies, incentives, programmes and financial assistance provided by the Government.

• SME@University – The programme provides a structured learning opportunity to the CEOs’ of SMEs. The Programme is designed to help develop capable human capital that will drive diverse management innovation and creativity in developing business acumen among new and existing entrepreneurs. The Programme is based on the model of SME University of Japan, a hands-on approach, to ensure the participants gain knowledge on entrepreneurship and business tools. Since its inception, a total of 10 universities have embarked on this programme and this programme has benefited a total number of 440 CEOs/MDs. In 2016, we would be targeting to increase the participation in this programme and we are calling for all CEOs/MDs to grab this valuable opportunity in order to expand and enhance their knowledge and skills on entrepreneurship.

• SME-University Internship – This collaborative effort with Ministry of Higher Education is an initiative to link SMEs to the universities as part of the Government efforts to enhance the synergy between the industry and university to upgrade the SMEs’ capacity and capability. Apart from helping the university students to acquire the essential skills required both, either for working in small firm or to start their own enterprises upon leaving education, the Programme provide exposure on real life business environment among the students. Apart from helping the university students to acquire the essential skills required both, either for working in small firm or to start their own enterprises upon leaving education, the Programme provide exposure on real life business environment among the students. To date, a total of 1,714 students from 16 Universities and 338 SMEs have benefitted from the SME-University Internship Programme.

• National Mark of Malaysian Brand – In the effort to encourage SMEs to go global, SME Corp. Malaysia has introduced the National Mark of Malaysian Brand which is a certification process, audited and monitored by SIRIM. The National Mark depicts Quality, Excellence and Distinction of Malaysian products and services. Through this initiative, it is hoped that Malaysian brands are developed not just for the local market, but more important that it is able to penetrate international markets as well. To date, there are 120 companies that have be awarded with the National Mark of Malaysian Brand.

• The 1-InnoCERT Programme – 1-InnoCERT is a programme to identify and certify innovative enterprises and SMEs. The 1-InnoCERT certification process involves a two-stage assessment. Potential innovative companies are required to conduct an on-line self-assessment to gauge on their preparedness to be certified as a 1-InnoCERT company. Upon reaching a score of more than 700, the company can apply for a compulsory on-site innovation audit to be conducted at their premise. Upon a successful passing of the on-site audit, the company can then officially apply to be certified as a 1-InnoCERT certified company subject to approval by the committee. As of end of year 2015, a total number of 167 companies have been certified under the 1-InnoCERT Programme.

• Enterprise 50 Award – Since its inception in 1997, the E50 Award Programme has been acknowledged by industries as a prestigious and coveted Award that symbolises achievements in business and entrepreneurship. The Award has been successful in promoting and showcasing competitive and resilient enterprises, capable of facing global challenges in the true entrepreneurial spirit as well as enhance the visibility of companies. This year’s E50 has never been so significant to signify the resilient of SMEs in achieving success despite the domestic economic reforms.

To date, the Programme has established a fraternity of 621 companies. From the past E50 winners, a total of 60 companies have been listed, with almost 77%  of companies on the Malaysia Bourse and remaining 23% companies on the ACE Market (formerly known as MESDAQ) which adds to the prestige of the Award. In addition, the winners of the E50 Award will also automatically gain entry to other award programmes, including the Industry Excellence Award and the National Productivity Award. Further information about E50 Award Programme, kindly visit www.e50.com.my.

• SMIDEX’16 – The SME annual showcase, or better known as SMIDEX, this year marks its 19th year of its organisation by SME Corp. Malaysia. SMIDEX offers Malaysia SMEs a unique opportunity to network, seal deals and forge lasting business relationships. It is a dynamic avenue for Malaysia’s entrepreneurs to display their ability to match their products, services and technologies to the fast-changing demands of the evolving national, regional and global markets. Concurrently, new business opportunities and technologies are also made available for companies under one roof. SMIDEX 2016 will be held from 17-19 May 2016 at the Kuala Lumpur Convention Centre.
 
• SME Week 2016 – Spearheaded by SME Corp. Malaysia, it is an institutionalised annual event held nationwide where all related Ministries and Agencies, State Governments, financial institutions, corporate bodies, hypermarkets and industry associations align their SME activities throughout the week in support of the campaign. This year, SME Week will continue to be the highlight of the industry from 23 May – 3 June 2016 throughout the country. We hope that SME Week will be able to foster a culture of entrepreneurship among Malaysian and also act as a platform to disseminate information on the financing and development programs provided by the Government, agencies and the private sector.

• International Cooperations – In reaching out to potential partners and link Malaysian SMEs across borders, SME Corp. Malaysia embarked on a strategic approach by formalising bilateral Memoranda of Understanding (MoU) with international counterpart agencies, namely from Iran, Thailand, Korea, Japan, Syria, Oman, Bangladesh, Pakistan, Turkey, Brunei, and Egypt. Areas of cooperation under the MoUs include exchange of information on policy measures adopted for the promotion of SMEs, establishment of business contacts, linkages and networking, as well as co-organising trade promotion activities in the respective countries.

3. An overview of Small and Medium Enterprises in

    Malaysia

Latest statistics indicate that the long-term growth trend of SMEs in Malaysia since 2004 has remained, with SME GDP growth continuously outpacing that of the overall economic growth of the country. In the period 2006 – 2014, based on constant 2005 prices, the average compounded annual growth rate (CAGR) of SMEs was 7.1%, which is higher than the CAGR of the overall economy of 4.9%. As a result, SME contribution to GDP increased from 29.4% in 2005 to 35.9% in 2014 due to redefinition of SMEs effective January 2014.

SMEs in Malaysia constitute 98.5% of total business establishments in the country, 90% of the SMEs in Malaysia are classified in Service sector, and only 6% of them are in manufacturing sector.

Based on the study for the SME Masterplan 2012-2020, SMEs in Malaysia demonstrated four key characteristics which influence their performance to leverage their brand and to expand their business to oversea market:

⇒ Low productivity compared to large firms in Malaysia and SMEs in developed countries. SME productivity per worker averaged RM47, 000, which is about one-third the productivity of large domestic enterprises. SMEs in the United States and Singapore are seven and four times more productive respectively than Malaysian SMEs;

⇒    Relatively low business formation compared to high income countries. Formation of limited liability companies is a yardstick to reflect private sector dynamism and level of entrepreneurship in an economy. In Malaysia, while business formation has been relatively robust, they comprised mainly sole proprietorships and partnerships and less of limited liability companies;

⇒     Small number of high growth firms contributes the most to the economy. Findings showed that the fastest growing firms accounted for 70% of the additional GDP and 46% of the additional employment created during the period 2000 – 2005;

⇒    Material share of informal sector in the economy. It is estimated that the informal sector accounts for 31% of Gross National Income (developed countries: 14%; US: 9%; Singapore: 13%).

The Masterplan marks a new beginning in SME development, focusing on a fresh approach to bring SMEs to the next level by accelerating growth through productivity gains and innovation. The target is for SMEs to achieve an average GDP growth of 8.7% per annum in the period 2012 – 2020 and this is depicted in the theme of the document entitled “Catalysing Growth and Income’.

The SME Masterplan envisions to create globally competitive SMEs that will enhance wealth creation and social well-being of the nation through the four strategic goals:

⇒ Increase business formation to facilitate a constant stream of new entrants into the market (target of 6% per year increase in registration of companies);\

⇒   Expand the number of high growth and innovative firms (10% per year) as they generate bulk of employment and output in the country;

⇒ Raise labour productivity of SMEs from RM47,000 in 2010 to RM91,000 in 2020; and

⇒    To intensify formalisation to promote growth and fair competition (informal sector reduced from 31% of GNI to 15% in 2020).

All these 4 goals will be the drivers of growth as we focus our energy in harnessing higher productivity from SMEs as well as expanding number of high growth and innovative firms in order to achieve the leap-frog growth in order to become a developed nation status.