Contribution of SMEs to the Malaysian economy

Today, economic development is fast becoming the focus of many governments. In this, businesses are springing up and forth from different dimension. One of these businesses prominently known in Malaysia is the SME which stands for small and medium enterprises. The growth and roles of SMEs has risen to become one vital and crucial in the Malaysia economy.

At the turn of the 21st century, Malaysia is fast pursuing its goals to becoming a vision 2020 nations and thus with SME being a visible player in the economy, this review will critically analyze the concept of SME, the contribution as well as the existing problems facing it. It is however worthy to note that SME is very vital to the Malaysia economy as will be discussed in this review.

Definition of Malaysia SMEs

In Malaysia, the true meaning of small and medium enterprises (SMEs) cannot be conceptualized in detail is because there are several definitions ofsmall and medium enterprises (Jafari et al, 2007; Fathian et al, 2008). While according to (Thassanabanjong et al, 2009; Mirbargkar, 2009; Ghabatabadai, 2005) definition of small and medium enterprises vary by country.

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According to Hor (September 2001), The Small and Medium Sized Industries Development Corporation (SMIDES) also defined small and medium enterprises in industries with the number of workers who work full-time employees not exceeding 150 people, while total sales revenue is RM25 million. For the total annual sales of the company is the factory must have an annual value not exceeding RM25 million and the number of permanent workers is less than 150 people (Malaysia, 2002). (Fong, 1987) is an organization of small companies that have a fixed asset less than RM250, 000.

According to (Moha ,1997) small and medium enterprises (SMEs) can be divided into three (3) parts, depending on the operation, the small industries and companies carrying out business operations with a number of permanent workers is less than 50 0rang, medium-sized industries The operating businesses and companies that have a fixed number of 50 employees to 199 people and industries that have a large number of permanent workers for more than 200 people. In summary, defining SME in Malaysia is confined to two major requirements: “number of workers and annual turnover”.

Operating environment of Malaysia SME

Today small and medium enterprises (SMEs) is a syringe to the economic development in the country, with the small and medium enterprises, the prospect of realizing the dream of the achieving and sustaining the vision 2020 target.

Small and medium enterprises (SMEs) are companies that process and provide the raw material that is derived not from toxic materials which include electronic equipment, jewelry, stationeries and so on.

According to (Entrepreneur Success, 2002) medium companies are more oriented towards the production of fast food, fruit canning, production of furniture and so forth. According to Ozcan (1995) smaller companies include three (3) primes focus in the business, employees who work full time and number of employees a little bit and have a personal management structure.

Small and medium enterprises are an important asset to the country as it contributes to economic development in the country and the APEC and OECD member countries.

I personally believe that the operating environment of Malaysia SMEs is favourable on the overall. According to the work of Hosmel, et al,(1993), they argued for the fact the role of SMEs in Malaysia is helping in the production and distribution of goods and services.

Contribution of small and medium enterprises to the economy

SMEs are a major contributor to economic growth of Malaysia. With advances in small and medium enterprises (SMEs) are expected to realizing a dream for Malaysia to become a developed nation in the field of industrial policy in 2020 through the vision 2020.

The development of small and medium enterprises (SMEs) can indirectly provide the changes in technology and the growth rate is closely related to the Development of technology in this century (Storey, 1996). In addition to changes in technology (Hosmel et al, 1993) describes (SMEs) also opened up employment opportunities with the most productive working environment is informal. In addition to providing employment opportunities (SMEs) also increases the amount of national savings and could reduce the rate of foreign exchange to foreign countries, as well as an impetus to economic growth in the country (Okpara, 2009).

Small and medium enterprises (SMEs) also play a role as a bastion of economic growth in the long term (Thasasanabanjong et al, 2009).

Having analyzed all these review, I partly agree these researchers but the need to understand that SME provides and stimulates entrepreneurship spirit should be considered. SMEs furthermore, create relationship between customers, entrepreneurs and government. In supporting this claim, Gadenne and Sharma (2009) have suggested that the entrepreneurship spirit is a contribution of SME. Likewise, Hodgetts & Kurato (1998) took a proactive view in understanding how Malaysia SMEs has created needs for us.

Problems and existing barriers

Although SMEs have been growing rapidly but there are still some issues that are faced by SMEs in production, according to (Utusan Malaysia 20 April 2009), entrepreneurs should be more creative in new product development, and levels of achievement are still low despite the high quality products and are able to be marketed in the global market (The Star July 27, 2009). As reported by (The Star March 3, 2009) most people in this country still look down on the level of design and quality of the product produced by SMEs.

In sequel to this, capital as the most important assets in the fund includes a variety of business operations in an effort to grow the business, buying raw materials, as well as increasing the supply of raw materials (Sazmy Ahmad Abd Aziz 2007). However, there are constraints faced by SMEs to this financial assistance. Entrepreneur requires some collateral and they are difficult for small entrepreneurs to gain (Hisrich and Brush 1987). As a businessman, the alternative step is take simple steps to depend on trade credit, savings on their own or using a credit card (Ang 1992, Ang et al., 1995; Bink and Ennew 1996), with a complex capital in starting a small business (Ang 1991, Ang 1992) with insufficient capital has been difficult for small businesses to buy and support facilities as well as marketing (Megginson et al, 2000).

Another problem faced by entrepreneurs is their poor exposure in the public equity markets and lending (Coleman and Cohn 2000).

Further to this, technological problem has been associated with SMEs as one of the barriers. Reviews done by Wafa et al (2005), Ali & Nelson (2006), Decker et al (2006) all points toward the non utilization of information technology as a huge problem facing Malaysia economy.

Reacting to this view, I personally believe that all these existing problems can further decrease SMEs contribution to the economy if they are not checkmate at the initial stage. The work of Khan et al (2007) comes into place because it portrays how SMEs will keep failing if they fail to imbibe a strong entrepreneurship spirit towards their business. 

Support and aid from the government

In reducing the problems faced by the SMEs, the government is now overhauling the financial infrastructure with better and it was able to meet their needs and be competitive and to continue increasing SMEs (Bank Negara Malaysia, 2005) because the government has approved a provision to SMEs by RM 3.7 billion in 2007, provided for the purpose of this fund is to build capacity and capability of SMEs, particularly in the areas of human capital development, marketing and promotion is aimed at strengthening the capabilities of SMEs (Utusan Malaysia, January 20, 2007).

For realizing the dream of developing SMEs in 2009, Small and Medium Industries Corporation of Malaysia (SMIDEC) has been rebranded and is now better known as SME Corporation Malaysia (SME Corp, Malaysia) (Utusan Malaysia 10 July 2009) with re-branding (SMIDEC) is expected able to develop the SMEs and are able to survive the economic crisis.

In addition the government is also providing some assistance to the SMEs which include financial assistance, technical assistance and advisory services, marketing research and marketing assistance and infrastructure support (Malaysia 2006). All these facilities and support provided by the government and employers have recognized. This has greatly impact the existence of SMEs (Moha 1997.1999; Mohd 1999).

With all the help and facilities provided by the government to SMEs has shown that SMEs provide a considerable impact on the economy, this can be proved by the increasing number of entrepreneurs of SMEs in 2007, a total of 567.480 which was keen to be involved in the company small and medium enterprises in the country (Utusan Malaysia 10 July 2009).

Gap

In the overall reviews, SMEs impact to Malaysia seems to have been critically reviewed by so many authors and researchers, however there is a strong desire and need to assert the impact of government support to SMEs to see if these enterprises can function effectively without the government support as well to assert the competitiveness level of SMEs in Malaysia

Conclusion

In summary, SMEs in Malaysia contribute on the average despite the mitigating factors that would have seen further contribution. It is however worthy to note that the impact of Malaysia SMEs can’t be reduced to nothing; they must still step up in level of output so as to be more productive and effective. With the current government support, SMEs can still improve to the economy in all ramifications.