Business

Saturday November 7, 2009

SMEs urged to expand into non-traditional markets

By LEE KIAN SEONG


SMALL and medium enterprises (SMEs), which make up 99.2% of the businesses in Malaysia, are urged to increase their penetration into the non-traditional markets such as Brazil, Russia, the Middle East, China and India to improve their performance.

“The current major export markets are the US, Europe and Japan, which have been badly affected by the global financial crisis. This has impacted the export activities of local SMEs,” says SMI Association of Malaysia president Chua Tiam Wee in an interview with StarBizWeek.

He says the non-traditional markets provide vast opportunities and can help reduce the dependency on the traditional export markets, adding that local demand has also dropped, as consumers are cautious in their spending.

In exports, local SMEs are strong in sectors such as electrical and electronics, garment and textile, food, furniture, plastics and metal products. In addition, SMEs are aggressive in the local services sectors like retail, tourism and logistics.

“More than 80% of the SMEs are affected by the crisis since September last year, and the first quarter was the worst in terms of orders. In the export market, the manufacturing industry is badly affected,” he says.

The overseas orders started to pick up last May, but there is still the worry that this may not be sustainable as the market is still full of uncertainties.

Chua Tiam Wee ...‘More than 80% of the SMEs are affected by the crisis since September last year.’

Some of the foreign customers are merely replenishing their stocks and the US market continues to be weak.

However, Chua says the market is expected to recover in the second quarter next year, driven by an improved business environment, the expected recovery in the US, Europe and Japan, and the continuous buying activities in China.

Besides the shrinking orders, the SMEs also face the challenge of the rising cost of raw material due to higher oil, commodities and electricity prices.

The association is hoping the Government will continue to find ways to reduce these costs and make the country more competitive.

The industry is also under pressure because of the lower costs of production in China and Vietnam.

Chua, who has just been re-elected as the association’s national president for the next three years, says SMEs are expected to contribute about RM100bil or 19% of the country’s total exports this year.

The SMEs employ about 5.6 million people and account for about RM130bil or 32% of the country’s gross domestic product (GDP), which is RM400bil last year.

He says SMEs contribute between 50% and 60% of GDP of developed countries like Australia, Japan and Germany. Based on this, the local SMEs still have a lot of room for growth.

The SMI Association of Malaysia was established in 1995 with the objectives of promoting, providing support, services and solutions towards the best interest of small and medium industries, enterprises and businesses in Malaysia.

Since its inception, the association has been organising numerous conferences, seminars, awards, exhibition and localised projects to educate, elevate and expose its members as well as other SME players.

It also actively engages in dialogues with the various ministries to provide feedback on what is needed for a stronger and more professional SME sector.

On the key problems of the local SMEs, Chua says these include securing financing facilities, market access, the adoption of information communications technology (ICT), competitiveness and human resources.

“Although the Government provides funding to SMEs, the industry is still facing difficulties in securing financing,” he adds.

He points out that while companies with good track records have easy access to credit facilities, those with borderline track records often face problems such as rejection of their loan applications because they do not fulfil certain documentary requirements.

“Banks should rethink their application process, and really understand the nature of the businesses before making any decision,” he says, adding that industries that the banks perceive as risky includes those in recycling, commodities, plastics, construction and automotive.

He urges the Government to replenish the current funds for SMEs as the crisis has not ended and the demand for capital exceeds the supply.

It was reported on Thursday that the Government had allocated RM3.04bil this year to enhance the capabilities of SMEs.

A total of 174 programmes, including 17 new ones, will be implemented to help the SMEs. The focus of these SMEs development programmes will be on building capacity and helping them overcome key challenges.

SME Corp would introduce a new impact analysis framework to closely track the running of the programmes. A total of 202 programmes costing RM3bil were carried out last year and they benefited 598,000 SMEs.

The programmes aim at preparing the local SMEs for a bigger role in the transformation of Malaysia into a high-income economy. More effort will be made to encourage innovation, boost productivity and creativity, and produce a knowledgeable workforce.

On ICT adoption, Chua says SMEs realise that this is important in growing the business, but they face constraints in embracing technology due to the investments and time required.

“The licensing fees for the technology and software are costly. The investment is not small. They also need the right expertise in getting advanced technologies,” he explains.

He urges the Government to come up with soft loans and grants with easier terms to help SMEs purchase total ICT solutions.

“More software being developed locally will also reduce the cost of acquiring new technology,” he says, adding that more efficient technologies such as broadband Internet services will also help in pushing e-commerce activities and reduce operational costs.

Chua points out that human resources is another problem that the industry is grappling with. Unlike multinational companies, the SMEs do not have the capacity to bear large payrolls. Furthermore, many SMEs are traditionally run by families.

“They can’t get the labour even if there is an increase in orders as many foreign workers have gone back to their countries and did not get the approval for new working permits,” he says.

He says the problems deepen when local workers shy away from working at certain SMEs because their industries are perceived as dirty and dangerous.

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