INB780 – International BusinessInternationalize your organisation“SMECorp Malaysia : Public Republic of China Office”ForPM Dr. Hjh. Noryati AhmadUniversity of Technology MARA (UiTM), Shah AlamByMohd Farid Awang (2010932779)
2 1.0 IntroductionAs manager in the Business Development Division of SMECorp Malaysia, Ibelieve SMECorp should internationalize their services in order to effectivelyassist and act as a catalyst to the internationalization of local SMEs. SMECorp asCentral Coordination Agency for SMEs in Malaysia could leverage on theirresources in terms of financial, international accessibility and experienced humanresources in handling SME issues. This paper attempts to answer the questionsof Why SMECorp should be internationalized?, Where to open the Internationaloffice?, Who will be there?, and How to make the internalization a success?.The establishment of SMECorp began on 2nd May 1996, when a specializedagency was established to spur the development of small and mediumenterprises (SMEs) by providing infrastructure facilities, financial assistance,advisory services, market access and other support programmes. Known as theSmall and Medium Industries Development Corporation (SMIDEC), its aim wasto develop capable and resilient Malaysian SMEs to be competitive in the globalmarket.The establishment of the National SME Development Council (NSDC) in 2004presented yet another chapter in SME development in Malaysia. As the highestpolicy-making body, its role was to formulate strategies for SME developmentacross all economic sectors, coordinate the tasks of related Ministries andAgencies, encourage partnership with the private sector, as well as ensureeffective implementation of the overall SME development programmes in thiscountry. Initiatives under NSDC included enhanced access to financing, financialrestructuring and advisory services, information, training and marketingcoordination, and a comprehensive SME database to monitor the progress ofSMEs across all economic sectors.
3 In 2007, the NSDC decided to appoint a single dedicated agency to formulateoverall policies and strategies for SMEs and to coordinate programmes across allrelated Ministries and Agencies. SMIDEC was tasked to assume the role and theofficial transformation into Small and Medium Enterprise Corporation Malaysia(SME Corp. Malaysia) commenced on 2 October 2009. SME Corp. Malaysia isnow the central point of reference for information and advisory services for allSMEs in Malaysia. Source : http://www.smecorp.gov.my/v4/node/12SME DefinitionIn Malaysia, the most widely adopted definition is the one defined by Small andMedium Development Corporation Malaysia (SME Corp. formerly known asSMIDEC) and Bank Negara Malaysia (BNM) whereby SMEs can be grouped intothree categories: Micro, Small and Medium.Table 1 : Characteristics of Small and Medium EnterprisesSector CategoryDefinitionSales Turnover (RM) Number of employeesManufacturingMicroSmallMediumLess than 250,000250,000 – less than 10 million10,000,000 – 25 million<55 – 5051 – 150ServicesMicroSmallMediumLess than 200,000200,000 – less than 1 million1 million – 5 million<55 – 1920 – 50Sources: SME Corp. Malaysia (2012)2.0 Why SMECorp should go international?1streason : The SMEs factorThe main reason would be to help internationalizing local SMEs. SME firms inMalaysia are struggling with various challenges in their process ofinternationalization, and these impede them from achieving economies of scaleand competing in the international market (Saleh and Ndubisi, 2006). Based on
4 assorted previous findings, a study by Fariza Hashim published in Journal ofInternational Business and Economy (2012) summarizes the internationalizationchallenges faced by Malaysian SMEs. The SMEs were grouped into sevengroups which include: lack of market knowledge, limited access to financialsupport, lack of infrastructure, technology and human capital, businesscompetition and government policies. The similar findings were also highlightedin SME Masterplan 2012-2020 by NSDC. SMEs limited knowledge oninternational legal environment, as well as the rules and regulations alsocontributed to the inability to go international. Lastly, SMEs do not have enoughsource of information to understand or to gather exact facts and figures abouttheir target market. All these reasons crafted SMEs to be a risk averse anddistance themselves from exporting their products overseas.Currently, for export purposes, MATRADE is the sole agency under MITIresponsible to assist SMEs or Large Companies (LCs) in identifying potentialmarket overseas. However, MATRADE does not have direct connection withSMEs in Malaysia, which create a missing link or miscommunication betweenbuyer requirements and SMEs capabilities. That is why MATRADE’s clients aremostly LCs, because LCs have a capability to comply with most of the standardsset by international buyers. Some of the reasons are LCs owner who have bettereducational background and strong financial resources.Therefore, SMEs in Malaysia need a representative overseas who understandthem better and able to help them market their products internationally. Theapproaches, mechanisms, standards and requirements will be different andmatched with SMEs capabilities. SMECorp will be an effective helping hand andfriendly mediator to SMEs to match them with oversea buyers. By stationing itselfin a particular country, SMECorp will be able to gain better, precise, on theground, timely and specific information to loosen the barriers and open a tradedoor for Malaysian SME products to enter other country.
5 2ndreason : Malaysia Government SME Policy FactorOn 12thJuly 2012, Prime Minister Datuk Seri Najib Razak launched the SmallMedium Enterprises Master Plan 2012-2020. The masterplan involves theimplementation of 32 initiatives, including six high-impact projects, and serve asa "game changer" for the sector. Prime Minister said the eight-year plan wouldpush the SMEs to greater heights through greater productivity, innovation andgrowth. "The plan is a start to spur SMEs to a new level. The journey begins withits implementation and ends when the objectives are met," he said at the launchof the plan after chairing the 13th National SME Development Council meeting.Source: http://www.nst.com.my/nation/general/najib-launches-master-plan-to-boost-sme-sector-1.106766#ixzz2HjIspUclThe most related to SMEs internationalization can be referred to HIP4 from 6High Impact Programmes (HIPs). These HIPs are the drivers of change thatwould make the difference and to take SMEs to the next level of development.Hence, it is important to ensure that all the six HIPs are successfullyimplemented to see the full impact.• HIP 1 : Integration of business registration & licensing to enhance easeof doing business• HIP 2 : Technology Commercialisation Platform (TCP) to encourageinnovation• HIP 3 : SME Investment Programme (SIP) to provide early stagefinancing• HIP 4 : Going Export (GoEx) Programme to expediteinternationalisation of SMEs• HIP 5 : Catalyst Programme to promote more homegrown champions• HIP 6 : Inclusive Innovation to empower the bottom 40%
6 HIP 4 :Going Export Programme to expedite internationalisation of SMEs. It is aimed ataddressing challenges faced by SMEs on new market entry overseas due to thehigh upfront costs and lack of detailed knowledge about the new markets andcompetitors. The programme is targeted at first time exporters or existingexporters venturing into new products or new markets. The programme is toprovide customised and comprehensive assistance on steps to export. Theseinclude linkage to expertise, buyers and trade financing. The programme willfacilitate SMEs to access detailed information on the targeted markets, includinginformation on the buyers; competitors; pricing; logistics; supply chain; consumerpreference, regulations, legislation etc. Lack of such information has been a keybarrier due to the uncertainty on the potential export markets.Source : SME Masterplan 2012-2020.Conclusion for WHY questionAs a conclusion, local SMEs and government is pushing SMECorp to nurture andassist the internationalization of local SMEs. SMECorp will complimentMATRADE and I believe that more effort taken by government agencies willcreate better results and promote better internationalization of local SMEs.Therefore, SMECorp should take up the challenge and start to do acomprehensive groundwork to decide the best internationalization strategy.3.0 Where SMECorp should go international?Q1 : Which country?SMECorp can decide either to start with regional or international level. Forregional level, SMECorp may setup a branch in neighboring countries such as
7 Indonesia or Thailand, which has some similarities in culture, social andenvironment. Set up an international office in neighboring countries could helpSMECorp minimize the setup cost and speed up the learning curve. However itoffers too many similarities in terms of products range, taste and pricesensitiveness. In the end of the day, there is not much that SMECorp could do increating opportunities and attracting potential buyers to import Malaysian SMEproducts. The decision must be made based on trading capabilities and history.The chosen country should have a business track record with Malaysia.Therefore, the best approach to decide the best country to open an Internationaloffice is by referring to the list of major importer countries from Malaysia.According to MATRADE Annual report 2010, the largest export destination wasthe Public Republic of China (PRC) with exports worth RM147.03 billion,accounting for 12.6 per cent of Malaysia’s total trade in 2010. Malaysia’s mainexports to PRC in 2010 were E&Eproducts, palm oil, chemicals andchemical products, rubber productsand crude rubber. Imports from thePRC increased by 8.5 per cent in2010 compared with 2009,amounting to RM66.43 billion.Imports of manufactured goodsaccounted for 93.8 per cent of totalimports from the PRC.In addition to above data, PRC also is the highest importer for Halal productsfrom Malaysia. From Figure 2, PRC imported RM1.376 billion from Malaysia in2011.Figure 1 : MATRADE Annual Report 2010(latest report)
8 Source: http://www.mida.gov.my/env3/uploads/events/IDBG09052012Based on the data from Matrade and MIDA, SMECorp should open a pioneerinternational office in PRC. Traders in PRC seem receptive to Malaysianproducts and the Halal sector is the major contributor to the strong importactivities from Malaysia. According to Halal Development Corporation (HDC) in2011, PRC have 4 million Muslim populations and growing. Furthermore, whenSMEs are able to enter PRC, they will have an opportunity to expand theirmarket access to other Muslims country such as Middle Eastern countries andAfrican countries. As summary, by having an international office in PRC andfocusing on Halal market, SMECorp could promote Malaysian SMEs HalalProducts to PRC effectively. From this initial approach, slowly SMECorp willadapt and learn from PRC trading opportunities and tricks.Figure 2 : Export value for Halal Products 2011
9 The other reason for selecting PRC as the first SMECorp International office is asfollows :I. 3rd largest economy in the world (Nominal GDP of USD7.3 trillion in Yr.2011);II. Fastest growing economy with GDP growth rate of above 9.2% per annum;III. Largest trading nation in the world; andIV. Largest population in the world.Q2 : Where is the best location?Location selection is based and reflected to the main reason why SMECorpshould go to PRC, which is to leverage on Halal market in China. The locationwill be in Urumqi, the capital of Xinjiang, western region of PRC.Xinjiang is a large, sparsely populated area, spanning over 1.6 million km2(comparable in size to Iran), which takes up about one sixth of the countrysterritory. Xinjiang borders the Tibet Autonomous Region and Indias Leh Districtto the south and Qinghai and Gansu provinces to the southeast, Mongolia to theeast, Russia to the north, andKazakhstan, Kyrgyzstan,Tajikistan, Afghanistan, Pakistan,and India to the west. ( Source :Wikipedia). Xinjiang have apopulation of 21 million and ahome to several distinct ethnicgroups of various religioustraditions. A majority of theregions native population adherto Sunni Islam of the Hanafi rites. The similarity with Malaysian Muslim as SunniIslam is one of a major factor of selecting Urumuqi, the capital of Xinjiang aslocation to open a newly international office for SMECorp Malaysia.XINJIANG
10 4.0 Who will be a SMECorp representative in international office?In deciding to select and appoint a representative from SMECorp to be posted innewly PRC office, geocentric approach will be applied. A geocentric staffingpolicy is one in which the best people are sought for key jobs throughout theorganization, regardless of their nationality. This approach is consistent withbuilding a strong unifying culture and informal management network. Theproposed geocentric selection and criterion of officers in PRC office will be :a. Head of the office ;- Muslims Malaysian Chinese;- Some working experience in PRC or with PRC traders; and- Vast experience in management and required a minimum supervision.b. Office staffs :- Mix of local people and Malaysian;- Able to speak mandarin; and- Training in local culture.5.0 How to make internationalize a success?Entering Public Republic of China will expose SMECorp to several challenges asfollows :I. PRC government’s policy;II. Cultural differences; andIII. Broad and secrecy of China trades supply and value chain.Therefore, in order to face and tackle the above challenges, SMECorp shouldadopt the Transnational Strategy, which will assist SMECorp to achieve globalefficiency and local responsiveness. The strategy shared vision under a
11 corporate umbrella, but alters operations for local demands. The SMECorp newlyestablished international office should be highly decentralization in order to adaptlocal conditions and culture as well as shared the same vision and mission withSMECorp Malaysia.Even SMECorp is a government agency; they need to find a good partner in PRCto gain better understanding, co-operation and assistance. The partner must befrom public and private sector. The close and good relationship with governmentwill be able to reduce the political barriers and legal issues. The smartpartnership with PRC chamber of commerce or trade union may reduce theindustry barriers, contacts, supplies and smooth distributions or logistics. Themove will be a door opener to SMECorp to blend in and understand batter theway of doing business in PRC.6.0 ConclusionBased on the above argument and data, SMECorp would effectively assistMalaysian SMEs in exploring PRC potential market via correct strategy andfocusing on specific target area. Lasltly, in order for SMECorp to be successful ininternalization their services in China, they need to remember and adhere to thefollowings formula :1. You need to be in China to think like a Chinese to do business in China!;2. Retaining value of the relationship (Guan Xi) will ensure lasting cooperation;as opposed to the Western culture whom focuses on transaction relationship;3. One must develop trust, integrity, tolerance & patience when dealing withChinese companies at an early stage; and4. Clarifying ones quality expectations which is different from both countries iscrucial for the end client.Source: http://www.mpc.gov.my/mpc/images/file/Publication%20&%20Case%20Study/202.pdf