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

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

3. 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

4. National SME Development Council, high level body to chart SME policy direction Chaired by Prime Minister, with 15 Ministers and 3 key agencies Secretariat: SME Corp. Malaysia the central agency for coordination, policy, advisory and business development Council established in 2004 Formulates broad policies and provides direction for comprehensive development of SMEs across all sectors Oversees coordination and ensures effectiveness in policy implementation Role & Responsibilities 4

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

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

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 annual change (2000 price) Year e- estimate 7 GDP & SME GrowthSME GDP in Selected Countries 31% of GDP

8. Access to market Innovation and technology Human capital management Access to financing SMEs face numerous challenges from changing business environment, includ. liberalisation pressures Long-term challenges from globalisation & liberalisation Short-term challenges from difficult external environment Inherent & structural issues 8

9. …it also opens new opportunities for SMEs 9 First Mover Advantage - access new markets More competitive with global acceptance Become part of global network Attract FDIs Ability to ride out business cycles cushioned by demand in other regions

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 STATUSREGIONALBILATERAL Concluded 60% of Malaysia’s global trade under preferential trade ASEAN Free Trade Area (AFTA) ASEAN-China ASEAN-ROK ASEAN-Japan Comprehensive Economic Partnership (AJCEP) ASEAN-India (Goods) ASEAN-Australia-New Zealand Malaysia-Japan Economic Partnership Agreement (MJEPA) Malaysia-Pakistan Comprehensive 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 trade under preferential trade ASEAN-Japan (Investment and Services) ASEAN-India (Investment and Services) Trans-Pacific Partnership (TPP) Agreement Malaysia-Australia Malaysia-Turkey Malaysia-EU Gulf Cooperation Council (Framework Agreement) For ConsiderationASEAN+3 (Japan, China and Korea) ASEAN+6 (Japan, China, Korea, Australia, New Zealand and India) Malaysia-Bangladesh 10 2

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

12. ServicesAFAS Timeline (equity) SME share, % No.SubsectorsYear 2010Year 2015 1. Distributive Trade51%70%99.6 2. Business Services51%70%99.3 3. Healthcare70% 99.0 4. Communications70% 98.7 5. Logistics51%70%98.7 6. Education51%70%98.4 7. ICT100% 92.3 8. Tourism70% 91.3 9. Construction51%70%n.a. 10. R&D49%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…

13. 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 Bedrock of high income economy Key driver of domestic growth Employment providers / talent source Strong linkages support for large firms Promote innovation, creativity & growth Inclusive (bottom 40%) & sustainable growth SMEs in NEM & RMK10 High Income Economy Increasing microenterprises’ contribution to the economy 13 3

14. 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. 15 SCORE (SME Competitive Rating for Enhancement)1-InnoCERTThe National Mark of Malaysian Brand Key mechanism to upgrade SMEs to the next level

16. 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 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

17. SMEsSMEs Business Performance 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

18. Starting Point National Innovation Action Plan – Strategic Thrust 4 Adaption of Korean Innobiz Innovation Evaluation System ObjectiveFoster 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. CostStandard 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

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

20. Objectives Increase awareness & importance of branding Create & build a strong brand presence towards customer recognition Increase global & regional market penetration Benefits Priority lane for MATRADE’s Brand Promotion Grant Access to MATRADE’s local & international trade promotion and A&P activities Special access to MICCI-SME Corp. mentoring programmes Invitation to specific training by SME Corp. & its partners Branding Malaysia through the National Mark 20

21. 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:

22. 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