Session 2 - Small Medium Business in Malaysia

Small
Medium
Business in
Malaysia

Session 2

Background on SME
Definitions
• In 2005, the National SME Development
Council (NSDC) approved the use of
common definitions of SMEs in the
manufacturing, manufacturing-related
services, primary agriculture and services
sectors.
• These definitions are applied by all
Government Ministries and Agencies
involve in SME development, as well as by
the financial institutions

Background on SME
Definitions
• The use of common definitions for SMEs
will
 strengthen government efforts to create effective
policies and support programmes for specific
target
 make it easier to provide technical and financial
assistance to SMEs
 allow for the identification of SMEs in the various
categories and levels

Coverage of
Definitions for
SMEs in Malaysia
• For wider coverage and applicability,
definitions of SMEs will be based on two
criteria
 Number of employees
 Annual sales turnover

• Therefore, an enterprise will be classified
as an SME it meets either the specified
number of employees or annual sales
turnover definition

SMEs Sectors in
Malaysia
• Manufacturing - physical or chemical
transformation of materials or components
into new products
• Services and other sectors
 All services including distributive trade; hotels
and restaurants; business, professional and ICT
services; private education and health;
entertainment; financial intermediation; and
manufacturing-related services such as research
and development (R&D), logistics, warehouse,
engineering etc.

SMEs Sectors in
Malaysia
 Primary Agriculture
 Perennial crops (e.g. rubber, oil palm, cocoa, pepper
etc.) and cash crops (e.g. vegetables, fruits etc.)
 Livestock
 Forestry & logging
 Marine fishing & Aquaculture

 Construction
 Infrastructure
 Residential & non-residential
 Special trade

 Mining & quarrying

Broad Definition of
SME
• Manufacturing
 Sales turnover not exceeding RM50 million OR
full-time employees not exceeding 200
workers; and

• Services and other sectors
 Sales turnover not exceeding RM20 million OR
full-time employees not exceeding 75 workers.

Detail Definitions
for SME
Micro

Manufactur
ing

Service

Sales
turnover
of less than
RM300,000
OR
full-time
employees
less than 5

Small

Medium

Sales turnover
from RM300,000
to less than
RM15 million
OR
full-time
employees from 5
to less than 75

Sales turnover
from
RM15 million to
less than RM50
million
OR
full-time
employees from
75 to less than
200

Sales turnover
from RM300,000
to less than RM3
million
OR

Sales turnover
from
RM3 million to
less than RM20
million

Importance of SMEs
• Developing a group of diverse and
competitive small and medium enterprises
(SMEs) is central theme towards achieving
sustainable economic growth.
 SMEs are crucial to the economic growth process
and play an important role in the country’s
overall production network

• Some advanced economies have
succeeded because SMEs form a
fundamental part of the economy,
comprising over 98% of total

Importance of SMEs
• Although the numbers might be lower in
Malaysia, SMEs have the potential to
contribute substantially to the economy
and can provide a strong foundation for the
growth of new industries as well as
strengthening existing ones, for Malaysia’s
future development

Government
Strategies
• Constituting more than 99% of total
business establishments in Malaysia, it
clear that promoting a viable SME sector is
essential in the nation’s stride towards
broadening the sources of growth and
sustaining the growth momentum
• This is reflected in the national
development agendas, namely the
 Ninth Malaysia Plan (9MP: 2006-2010)
 Third Industrial Master Plan (IMP3: 2006-2015)
 Eighth Malaysia Plan (8MP: 2001-2005)

SME Growth Under
the Ninth Malaysia
Plan
• During the 9MP, the principal SME policy is
the development of a competitive,
innovative and technologically strong SME
sector that is able to contribute to the
domestic economy and compete globally
• Strategies will be directed at acquiring
technologies to propel SMEs up the value
chain in manufacturing, agriculture and
service sectors

SME Growth Under
the Ninth Malaysia
Plan
• These strategies include
 Outsourcing – Programmes will be
implemented to nurture SMEs as Research and
Development (R&D) partners. Collaborative
ventures among Multinational Corporations
(MNCs), Government-linked companies (GLCs)
and SMEs will facilitate technology transfer and
skills development and marketing
 Inter-firm linkages – Creating business links
between SMEs, GLCs and MNCs would enable
SMEs to be more competitive and become
reliable suppliers for global outsourcing networks

SME Growth Under
the Ninth Malaysia
Plan
 Entrepreneurship programmes –
Programmes, including advisory and outreach
services, will be expanded to equip SMEs with
new improved management and business
practices, methods in production, quality
improvement, marketing and distribution
 Knowledge skills – Further development of
technical skills amongst SMEs, especially in
generating innovations and creating economic
value from knowledge application

SME Growth Under
the Ninth Malaysia
Plan
• Summary of findings of the first quarter
2011 survey on SMEs
 A survey was conducted in June/July 2011 with
total respondents of 2,582 SMEs covering all subsectors and regions
 About two-third of the respondents were from the
service sector (including construction), 33% from the
manufacturing sector and 2% from agriculture sector

 The key findings of the survey were
 Three most important issues faced by the respondents
were rising cost of raw materials and overhead
cost as well as cash flow problems (similar to earlier
survey)

Human Capital
Development
• Only 8.9% of the total respondents
contributed to the Human Resource
Development Fund (HRDF) with majority of
those who contributed (58%) utilized only
up to 20% of their total contribution in
2010
• On phasing out foreign workers, the top
three suggestions included incentives for
employing local workers (61%), incentives
for training local workers (60%), imposing
heavy penalty for employing illegal workers

Investment Issue
• About 44% of the total respondents do not
face any problems in investing, while
another 35% claimed that they were facing
difficulties and 21% did not intend to
expand and invest in Malaysia
 The key impediments to investment were high
cost of raw materials, high initial cost of
investment and low rate of returns on
investment compared with other countries

Financing and
Other Assistance
• About half of the respondents have
outstanding financing facilities with
financial institutions
• Most of the respondents (60%) perceived
that the average interest rate or profit rate
(Islamic banking) charged by financial
institutions were on par with market rates,
with the mean rate of 6.8% per annum and
median of 7% per annum
• On average, respondents took up to six
weeks (42 days) for financial institutions to

Exports of Products
and Services
• Most of the respondents were domesticallyoriented with only 13% involved in
exporting their products/ services (previous
survey: 15%)
• One-third of the respondents indicated
interest to export their products/services,
mostly to ASEAN region, Middle East, China
and other Asian countries
• Common issues faced by the respondents
in going abroad to export their
products/services were expectations of

Thank You