Challenge of Globalization for SME

Challenge of Globalization for SME

The world’s business and trade landscape continue to evolve rapidly with increasing
globalization, with implications for Malaysia’s SMEs. Among them is the growing
competition in the domestic and international markets. Whilst in the past,
Malaysia’s SMEs were to some extent “protected” through tariff and non-tariff measures
that enabled them to garner significant market share in the country, this is no longer the
case. Malaysia’s SMEs can no longer orientate their business merely towards the
domestic domain, but must seek opportunities in the global marketplace.
The proliferation of free trade agreements bilaterally, regionally and multilaterally has
brought about trade rules that are complex and difficult for SMEs to follow. The lack of
understanding often creates a feeling of being marginalized by such arrangements, rather
than being elated at the opportunities that are created by them. Increasingly, tariffs are
being reduced and trading procedures altered, causing concern to domestic players.
Meanwhile, trade impediments in the form of trade conditionality and other non-tariff
measures, such as labor, social, security and environmental issues continue to complicate
market access for exporters worldwide.
In Malaysia, Small and Medium Industries Development Corporation (SMIDEC)
identified some of the challenges facing SMEs, in the light of the changing global market
(SMIDEC, 2002). These include the ability to compete globally, move up the value chain
and embrace ICT and e-commerce. These challenges are closely interlinked. In order to
compete on the basis of quality, cost, reliability and speedy delivery in the global market,
SMEs must reap economies of scale. This, in turn, calls for a shift in focus from the
domestic market, towards a niche in the global supply chain.


Lack of Awareness of Benefits

Malaysia’s SMEs have also been slow to capitalise on initiatives and training programmes.
For example, in 1997, seven skills development centres were set up and RM2.9 million
in grants was channeled into a sponsorship scheme for the use of SMEs. But up to
August 31, 2001, only 39.2 per cent of these grants was used for industrial automation,

Computer Aided Design, (CAD) Computer Numerically Controlled (CNC) and industrial
engineering (Moreira, nd). Of the 5,600 SMEs registered with the Human Resource
Development Fund (HRDF), 66 per cent were utilizing less than half of their levy, reflecting an underdeveloped culture among them (Fong, 2000).
Among current SME owners, is a group that began in industry as apprentices,
lacking much formal education. According to the SMI Association, more than 60 per cent
of the SMEs owners and executives do not understand English language. Hence, they do
not attend technology conferences, seminars or exhibitions organized by big vendors—
either because they assume these are targeted at large scale enterprises or because they
are conducted in English (Moreira, nd2). There is thus an information gap about how
heavy investments in ICT can transform their operations or increase productivity. Many
firmly believe they can survive by just strengthening their links in the domestic market,
without the need for ICT. The bewildering range of choices available and the very little help being offered in choosing the technology best suited to a particular enterprise further
hampers adoption. The longer they wait the steeper the learning curve they will face with
IT and e-commerce (cited in Microsoft, 2002)

SME Policy and Institutional Framework

Malaysia has given priority to SMEs and has put in place a policy and institutional
framework that addresses their developmental needs. Strategies during the
Eighth Malaysia Plan (8MP) (2001–2005) emphasized the development of SMEs
in the manufacturing sector, and in particular the development of a competitive Bumiputra

Commercial and Industrial Community (BCIC).

Funding to address critical issues in promoting and developing SMEs was made
available through agencies like Malaysia External Trade Development Corporation
(MATRADE), Malaysia Technology Development Corporation (MTDC), Small and Medium
Industries Development Corporation (SMIDEC) and Standards and Industrial Research
Institute of Malaysia (SIRIM) Berhad. SMEs were encouraged to invest in R&D, upgrade
their technology and improve their marketing and distribution channels.
A study conducted in 2001 by the Central Bank of Malaysia showed: (i) the low
contribution of SMEs to GDP; (ii) their domestic-market orientation; (iii) the constraints they face in terms of capacity, level of technology, access to markets and resources to upgrade
skills and production process; and (iv) limited access to finance. To address these
challenges, measures are underway aimed at:

 strengthening the enabling infrastructure;
 building capacity of SMEs;
 enhancing access to financing;
 increasing market access; and
 enhancing growth and competitiveness

The enabling environment for SME development in Malaysia is shown in Figure 3.1.
To ensure that SME development plans are focused, in 2004 the Malaysian government
set up a National SME Development Council, chaired by the Prime Minister. Regular
meetings are held with agencies, ministries, banks and financial institutions that provide

support for SMEs, and a reporting mechanism for monitoring outcomes of activities and
providing feedback have been established. This is among the measures taken to enhance
Transparency and accountability amongst policy implementers.