SME Development in Supporting Trade Liberalisation: The Malaysian Case

SME Development in Supporting Trade Liberalisation: The Malaysian Case

K. KarunajothiSME Corporation Malaysia

17 August 2011

Presentation covers

Trade liberalisation measures

1

2

Policies Going Forward3

SME Development in Malaysia

Conclusion4

2

• 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%)

SMEs are the backbone of the economy

1

3

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

4

Developing progressive and resilient Bumiputera SMEs and entrepreneurs

-

III.Enhancing access

to financing

I.Strengthening enabling

infrastructure

II.Building capacity and

capability

Stra

tegi

c Th

rust

sO

bjec

tives

Promote development of competitive and resilient SMEs in all sectors towards increasing SME contribution to the economy

Economic Socio Economic

Promoting development of SMEs in knowledge-based

industries

Enhancing viability of SMEs across all sectors

A structured approach in SME Development since 2004

5

Policy formulationand

Research

“One-Referral” Information and Advisory

SME CORP. MALAYSIA

Secretariat to NSDC

MINISTRIES AND

AGENCIES

SMEs

PRIVATE SECTOR

NSDC

CoordinatePolicies

6

… and a dedicated Agency for SME development

10%(8 ~8.5%)e

-4%-2%0%2%4%6%8%

10%12%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

GDP Growth SME Growth

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 annual change (2000 price)

Year

e- estimate

7

GDP & SME Growth

16%

39%

51%

31%

0%

10%

20%

30%

40%

50%

60%

Low income

countries

Middle income

countries

High income

countries

Malaysia

SME GDP in Selected Countries

31% of GDP

• Access to market• Innovation and technology• Human capital management• Access to financing

SMEs face numerous challenges from changing business environment, includ. liberalisation pressures

8

…it also opens new opportunities for SMEs

9

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

STATUS REGIONAL BILATERAL

Concluded60% of Malaysia’s

global tradeunder preferential trade

ASEAN Free Trade Area (AFTA)ASEAN-China ASEAN-ROKASEAN-Japan Comprehensive Economic Partnership (AJCEP)ASEAN-India (Goods)ASEAN-Australia-New Zealand

Malaysia-Japan Economic Partnership Agreement (MJEPA)Malaysia-PakistanComprehensive Economic Partnership Agreement (MPCEPA) Malaysia-New Zealand Free Trade Agreement (MNZFTA)Malaysia-Chile Free Trade Agreement (MCFTA)Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA)

Under Negotiations> 80% of Malaysia’s

global tradeunder preferential trade

ASEAN-Japan (Investment and Services)ASEAN-India (Investment and Services)Trans-Pacific Partnership (TPP) Agreement

Malaysia-Australia Malaysia-TurkeyMalaysia-EUGulf Cooperation Council (Framework Agreement)

For Consideration ASEAN+3 (Japan, China and Korea)ASEAN+6 (Japan, China, Korea, Australia, New Zealand and India)

Malaysia-Bangladesh

10

2

11

The trade agreements covers a broad scope

Lower Import tariffs

Equity liberalisation

Services AFAS Timeline (equity)SME

share, %No.Subsectors Year 2010 Year 2015

1. Distributive Trade 51% 70% 99.6

2. Business Services 51% 70% 99.3

3. Healthcare 70% 70% 99.0

4. Communications 70% 70% 98.7

5. Logistics 51% 70% 98.7

6. Education 51% 70% 98.4

7. ICT 100% 100% 92.3

8. Tourism 70% 70% 91.3

9. Construction 51% 70% n.a.

10. R&D 49% 70% n.a

Services sector liberalisation is ongoing which affects particularly SMEs

12

April 2009: 27 specific services sub-sectors fully liberalised and more to go…

April 2009: 27 specific services sub-sectors fully liberalised and more to go…

Quantum leap in GDP via innovation &

productivity-led growth

Reduction in income

disparity through

support for

microenterprise

Creating national/ regional/ international

champions

Going forward, SMEs important to achieve growth targets to become a developed nation by 2020

SMEs in NEM & RMK10

High Income Economy

Increasing microenterprises’ contribution to the

economy

13

3

•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

•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

Strengthening Enabling Infrastructure

19 programmmes

• 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

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

Enhancing Access to Financing

50 programmmes

In 2011, 219 SME Development programmes worth RM5.9 bil are being implemented

14

15

Key mechanism to upgrade SMEs to the next level

• Diagnostic tool to rate and enhance competitiveness of SMEs based on their performance and capabilities.

• Developed in-house in Aug 2007

What is SCORE?

• Identify strengths and weaknesses for improvements; and

• Facilitate linkages.Function

• Business Performance• Financial Capability• Management Capability• Production Capability

Parameter

Characteristics

• Work with partner agencies on the various SCORE models

Implementation Channel

Implementation Channel

Example of Radar Diagram for 3-Star company

Analysis: Weak in financial capability

Assistance: Require financial management training

• Technical Capability• Quality System• Innovation

• 0 – 2 Stars : Very basic business operation

• 3 – 5 Stars : Some degree of sophistication and can be groomed for export

SCORE a tool to rate capability of SMEs

16

SMEsSMEs

BusinessPerformance

Financial Capability

Technical Capability

Management Capability

Quality System

Innovation

Production

Capacity

• Corporate Planning• Technology & Innovation Management• Human Capital Development • IT Adoption

• Sales • Average Growth• Export• Marketing • Customer Satisfaction

• Current Assets• Current Liabilities • Gearing Ratio• Profit

• Capital Investment per Employee (CIPE)• Factory Automation Level• Machine Utilisation

• Intellectual Property Rights• Product & Process

Improvement • Capability of Products & Process Improvement

Activities

• Practice of Continuous Improvement• Certification• Awards

The assessment is comprehensive covering various parameters

17

• No. of Trained Personnel• MTS Ratio• Types of Technology Utilised

Starting Point

• National Innovation Action Plan – Strategic Thrust 4

• Adaption of Korean Innobiz Innovation Evaluation System

Objective Foster innovative companies to become profitable global ‘blue-chip’ companies

Current Available Sectors

Maf & Non-Maf, Biotech, Expert Industrial Design, Software/ ICT, Agriculture, Environment and Construction.

Cost • Standard on-site audit fee −SMEs: RM5,000 −Non-SMEs: RM10,000 • Additional logistics charges for

companies outside Klang Valley

18

Assessment Process

1-InnoCERT programme to rate innovative companies

IITechnology Technology innovationinnovation

abilityability

IIIITechnologyTechnology

commercializationcommercialization abilityability

IIIIIITechnology Technology innovationinnovation

management management abilityability

IVIVTechnology Technology innovation innovation

resultresult

R&D activity indexTechnology Innovation SystemTechnology Innovation AdministrationTechnology Accumulation SystemTechnology Analysis Ability

Technology manufacturing abilityAbility to develop products using TechnologyMarketing ability

Management’s innovation abilityAbility to respond to changesManager’s sense of values

Outcome of TechnologyCompetitiveness ProgressTechnology management resultTechnological Achievements (forecasting)

SMEs will be assessed using 4 Main Criteria:

19

1-InnoCERT assessment criteria

Branding Malaysia through the National Mark

20

21

Assessment of the National Mark

Top management’s guidance & direction towards brand

success

Allocation of company resources to maintain brand &

business sustainability

Systematic management of customer to ensure constant

delivery of brand promise

Ensuring processes to deliver brand promise established, implemented

& maintained

Plan action to consistently meet/exceed standards or

brand promise

Maintain, control & improve processes towards improving

brand equity

Contribution to stakeholders, society & environment in

brand excellence

Mgt. Commitment & Capability

Financial Capability

Brand Management & Marketing

Operation Management

Quality & Standard

Social Responsibility

Management Best Practices

CRITERIA

ASSESSMENT BASED ON:

Conclusion

Vision

SME growth consistently outperformed overall

economy in last 7 years

SME development to change to higher gear to

accelerate SME growth amidst challenging environ.

Comprehensive SME Masterplan outlining bold

measures for quantum leap in GDP and to reach

developed nation by 2020

Focus on building capacity and enhancing

competitiveness of SMEs

Creating national, regional and global

champions

22

Targeted approach and shift towards outcome-

based approach in monitoring programmes

4