SME Development in Supporting Trade Liberalisation : The Malaysian Case

1. SME Development in Supporting Trade Liberalisation: The Malaysian Case K. Karunajothi SME Corporation Malaysia 17 August 2011

2. Presentation covers 1 SME Development in Malaysia Trade liberalisation measures 2 Policies Going Forward 3 4 Conclusion

3. SMEs are the backbone of the economy • SMEs constitute bulk of businesses in Malaysia: • 99.2% of establishments (2003: 548,267) • Bulk (80%) micro enterprises, with less than 5 workers • Mainly concentrated in services sector (87%) 1 3

4. National SME Development Council, high level body to chart SME policy direction

5. A structured approach in SME Development since 2004 Promote development of competitive and resilient SMEs in all sectors towards increasing SME contribution to the economy Economic Socio Economic Developing progressive and resilient Bumiputera SMEs and entrepreneurs Promoting development of SMEs in knowledge-based industries Enhancing viability of SMEs across all sectors Objectives - II. Building capacity and capability I. Strengthening enabling infrastructure III. Enhancing access to financing Strategic Thrusts

6. … and a dedicated Agency for SME development MINISTRIES AND AGENCIES SME CORP. MALAYSIA NSDC Coordinate Policies SMEs Policy formulation and Research “One-Referral” Information and Advisory PRIVATE SECTOR Secretariat to NSDC

7. Efforts have shown positive results….however contribution to GDP remains low • SME growth outperformed overall GDP growth during 2004 – 10: • NSDC was set up and SME development accorded national agenda • Other supportive policies GDP & SME Growth SME GDP in Selected Countries GDP annual change (2000 price) Year 31% of GDP e- estimate 7

8. SMEs face numerous challenges from changing business environment, includ. liberalisation pressures • Access to market • Innovation and technology • Human capital management • Access to financing 8

9. …it also opens new opportunities for SMEs

10. Malaysia’s trade policy promotes & supports creation of a liberal & fair global trading environment Malaysia’s trade liberalisation is anchored on rule-based multilateral trading system – WTO and complemented by regional and bilateral FTAs 2 10

11. The trade agreements covers a broad scope Lower Import tariffs Equity liberalisation 11

12. Services sector liberalisation is ongoing which affects particularly SMEs April 2009: 27 specific services sub-sectors fully liberalised and more to go…

13. Going forward, SMEs important to achieve growth targets to become a developed nation by 2020 SMEs in NEM & RMK10 Quantum leap in GDP via innovation & productivity-led growth Creating national/ regional/ international champions End-game High Income Economy 3 Increasing microenterprises’ contribution to the economy Reduction in income disparity through support for microenterprise 13

14. In 2011, 219 SME Development programmes worth RM5.9 bil are being implemented • Automotive Centre Development Project • Cottage Retail Shop • Permanent Food Production Park • Products Collection and Marketing Centre • Incubation & Technopreneur Development • Integrated Aquaculture Zone Strengthening Enabling Infrastructure 19 programmmes • Entrepreneur Development • Retraining and Skills Upgrading • National Dual Training System • Content Industry Development • Franchise Development • Taste of Malaysia • Training for Furniture Design & Making • Craft Entrepreneur Development • Business Quality & Enhancement • SME-Brand Development • SME-University Internship • Market Development Grant • Exporters Training • SME Expert Advisory Panel • Biopreneur Clinic Building Capacity and Capability 150 programmmes • Franchise Financing Scheme • Micro Enterprise Fund • Soft Loan Scheme for • Service Sector • Soft Loan Scheme for Automation • and Modernisation • Soft Loan for SMEs • Business Accelerator Programme • Tourism Infrastructure Fund • Maritime Fund • ICT, Biotechnology and Technology • Development Project Financing • Green Technology Financing • Scheme Enhancing Access to Financing 50 programmmes 14

15. Key mechanism to upgrade SMEs to the next level

16. SCORE a tool to rate capability of SMEs What is SCORE? • Diagnostic tool to rate and enhance competitiveness of SMEs based on their performance and capabilities. • Developed in-house in Aug 2007 Example of Radar Diagram for 3-Star company Function • Identify strengths and weaknesses for improvements; and • Facilitate linkages. Parameter • Technical Capability • Quality System • Innovation • Business Performance • Financial Capability • Management Capability • Production Capability • 0 – 2 Stars : Very basic business operation • 3 – 5 Stars : Some degree of sophistication and can be groomed for export Characteristics Analysis: Weak in financial capability Assistance: Require financial management training Implementation Channel • Work with partner agencies on the various SCORE models 16

17. The assessment is comprehensive covering various parameters • Sales • Average Growth • Export • Marketing • Customer Satisfaction • Corporate Planning • Technology & Innovation • Management • Human Capital Development • IT Adoption Management Capability Business Performance • Practice of Continuous • Improvement • Certification • Awards SMEs Financial Capability Quality System • Current Assets • Current Liabilities • Gearing Ratio • Profit Technical Capability • Intellectual Property Rights • Product & Process Improvement • Capability of Products & • Process Improvement Activities Innovation Production Capacity • Capital Investment • per Employee (CIPE) • Factory Automation Level • Machine Utilisation • No. of Trained Personnel • MTS Ratio • Types of Technology Utilised 17

18. 1-InnoCERT programme to rate innovative companies Assessment Process 18

19. 1-InnoCERT assessment criteria SMEs will be assessed using 4 Main Criteria: I Technology innovation ability Technology manufacturing ability Ability to develop products using Technology Marketing ability II Technology commercialization ability R&D activity index Technology Innovation System Technology Innovation Administration Technology Accumulation System Technology Analysis Ability Outcome of Technology Competitiveness Progress Technology management result Technological Achievements (forecasting) III Technology innovation management ability IV Technology innovation result Management’s innovation ability Ability to respond to changes Manager’s sense of values 19

20. Branding Malaysia through the National Mark Quality, Excellence and Distinction 20

21. Assessment of the National Mark Top management’s guidance & direction towards brand success Mgt. Commitment & Capability ASSESSMENT BASED ON: Allocation of company resources to maintain brand & business sustainability Financial Capability Systematic management of customer to ensure constant delivery of brand promise Brand Management & Marketing Ensuring processes to deliver brand promise established, implemented & maintained Operation Management Plan action to consistently meet/exceed standards or brand promise Quality & Standard Maintain, control & improve processes towards improving brand equity Management Best Practices CRITERIA Contribution to stakeholders, society & environment in brand excellence Social Responsibility

22. Conclusion Focus on building capacity and enhancing competitiveness of SMEs Comprehensive SME Masterplan outlining bold measures for quantum leap in GDP and to reach developed nation by 2020 SME development to change to higher gear to accelerate SME growth amidst challenging environ. SME growth consistently outperformed overall economy in last 7 years Creating national, regional and global champions 4 Targeted approach and shift towards outcome-based approach in monitoring programmes Vision