OPPORTUNITIES AND CHALLENGES AS AN ENTREPRENEUR/SMEs IN MALAYSIA Smallbuss lecture2 (opps n challenges as entrepreneur)

OPPORTUNITIES AND CHALLENGES
AS AN ENTREPRENEUR/SMEs IN
MALAYSIA

EREE2102 Lecturer M.Ridzwan FEA, UM, KL

1

SESSION OBJECTIVES

At the end of the session, students should be able to:
 Understand basic opportunities available for SMEs in Malaysia
 Understand the various challenges faced by SMEs in Malaysia
 The importance and challenges of women entrepreneurs in
Malaysia


2

BASIC OPPORTUNITIES
 It is known that nurturing entrepreneurship is crucial in economic
growth. Employment creations, increase in standard of living, increase in
GDP and others. The nest or the measure of this success is the growth of

SMEs

 Nearly 56% of total employment comes from SMEs
 Nearly 99% of total business establishment
 Malaysia’s GDP at 31%

 Despite Malaysia’s moderate economic growth, the SMEs is expected to
have a steady and higher growth
 For year 2011, growth is expected at 8.5% against 6% of GDP, which is

consistently 2% higher than national GDP since 2004
 Contribution of SMEs to GDP increased by 2.2% from 29% in 2005 to 31.2% in
2009

 Sectors that are expected to grow for SMEs in the near future will be
infrastructure, education, healthcare, oil and gas, and plantation. This is
due to huge government and private sector investments in these areas of
the economy


3

BASIC OPPORTUNITIES
Government’s efforts to promote entrepreneurship and SMEs……
Privatisation Policies
 In early 80s, government made an effort to create entrepreneurs that will
become the role model for future entrepreneurs
 The privatisation exercise undertaken by government in various sectors
namely in infrastructure and services is the answer to fast track
entrepreneur development
 The construction sector has seen massive privatisation exercise
undertaken by the government where schools, government buildings,
hospitals, road and highways, and others were given out to companies
which were previously constructed by the Ministry of Infrastructure
(Kementerian Kerja Raya)


4

BASIC OPPORTUNITIES
 Later, the privatisation has been extended to selling government owned
companies to entrepreneurs such as telecommunication and post services,
airlines, plantations and others
 In its effort to create entrepreneurs, government has also privatised non
essential services such as cleaning, security, back office processing and
others
 Some of its privatisation policies has created successful entrepreneurs
while others are total failure especially on the policy of selling government
owned companies to the entrepreneurs
 Criticism has been on nepotism, unequal of wealth distribution, unfair
distribution of contracts and others


5

BASIC OPPORTUNITIES
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Entrepreneur Development Program
Government has formed PNS to encourage entrepreneurship in retail
business especially among graduates and professionals
Graduates were asked to undergo psychological test to determine the
entrepreneur’s characteristics
PNS provided training and seed money to start the business.
Entrepreneurs will operate their business whilst monitoring and control of
cash flows and strategic decisions were made by PNS
Government has created MARA to inculcate entrepreneurships among
bumiputra entrepreneurs
Providing assistance for start up, funding, training and place to do
business
MARDI and SIRIM through their research findings will identify the
suitable entrepreneurs to commercialize their products. These agencies
will provide training to entrepreneurs and help entrepreneurs to market
their research findings


6

BASIC OPPORTUNITIES
 At school level, entrepreneurships is part of co-curriculum and students’
activities
 Subjects such as economics, accounting and others are the introductory to
the basic entrepreneurships
 At university level, it is the policy of Ministry of Higher Education to have

a subject on entrepreneurships at all the public universities

Financial Assistance
 The formation of SME Bank and Bank Pembangunan Berhad are
specifically to assist entrepreneurs in acquiring either start up money,
additional capital or purchase of equipment
 SME Bank has its own incubator program for entrepreneurs providing
loans, place of business, advisory and export facilities
 Agro Bank provides loans and advisory for agropreneurs. It regularly
conduct training for entrepreneurs in agricultural sector


7

BASIC OPPORTUNITIES
 Majority of government funds and other financial subsidies for SMEs were
channel through BSN and Bank Rakyat

Research and Development
 SIRIM is responsible in assisting SMEs to develop industrial products
namely new products development, packaging, standards, modernisation
of production processes and, mechanisation and automation
 MARDI is involve in agricultural technology and food production.
Development of new agricultural base products, mechanisation of
agricultural sector and developing food production processes
 Both agencies are also responsible to help SMEs in turning the production
processes into more efficient and modern manufacturing activities


8

BASIC OPPORTUNITIES

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Trade and Business Promotion
Ministry of International Trade and Industry (MITI) is responsible to
promote and assist SMEs in their efforts to export their products and
services overseas. Various trade missions and exhibitions were organised
by MITI at potential export markets especially in USA, Europe and Asia
Export funds, schemes, export guarantees and other forms of financial
assistance were provided by MITI to assist SMEs in participating the trade
missions and to export their products
Regular workshops and seminars relating to SMEs’ export opportunities
were conducted by MITI for entrepreneurs
MITI is also responsible to provide market intelligent on specific market to
SMEs especially on the overseas’ changing market trend, market’s needs
and product’s requirements


9

BASIC OPPORTUNITIES
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Economic Development and Policies
Development of Multimedia Super Corridor and Cyberjaya is an effort by
the government to produce technopreneurs
MSC is a place for technopreneurs to do business with all the necessary
facilities available to produce and to market their products
Cyberjaya is a place for technopreneurs incubation process. Future
technopreneurs are trained and develop at Cyberjaya where they are free to
develop any technologically base ideas and products
In recognition of biotechnolgy as a potential growth sector, government
has develop a bio nexus valley
Entrepreneurs were provided with special funding for research and
development in bio technology, seed money, infrastructure and facilities
to start their business
Business advisory, promotion and additional capital were also provided by
the government


10

BASIC OPPORTUNITIES
Private sector’s role in promoting entrepreneurship and SMEs…

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Vendor Development Program
In-house or outside vendors
In-house vendor program is to encourage and inculcate entrepreneurships
among employees
It is also a way to reduce manpower
Companies just concentrate on their core activities whereas supporting
activities were privatise to vendors
Mentor Mantee Program
Big corporation will act as mentor to SMEs
Provide advisory, marketing expertise, operational experience and other
aspects of operating the business
Provide networking and benchmarking for SMEs
Upon graduation on mentor-mantee program, some of these SMEs will
become suppliers to these big corporation

11

BASIC OPPORTUNITIES
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Purchasing Policy
The policy is to encourage SMEs to supply their products to big
corporation
An example of this policy is the practice adopted by the hypermarkets
Hypermarkets will sign a contract manufacturing or commitment to
purchase SMEs products
These products were placed at similar shelf as other branded products
Another method practiced by the hypermarket, is where the SMEs were
provided with specific area to sell their products
Some form of subsidies were provided to reduce the cost of doing business
with the hypermarkets
Promotional and marketing activities were also jointly organise by the
hypermarkets together with the SMEs


12

BASIC OPPORTUNITIES
 Two major contribution that will help SMEs in their growth are the
government’s ETP and its policies on moving from low-value
manufacturing and plantation base to higher-value electrical and
electronic, health, tourism and education sectors
 In the 10th Malaysia Plan, ETP is a joint effort from the government and
private sector initiatives to develop Northern, Southern and East Coast

areas into high impact economic growth concentrating on service sector,
industrial sector, agricultural sector. The investment will be from the
private sector either foreign or local investors whilst government will
invest in infrastructure, land and ease of doing business
 In return, the SMEs will benefit from outsourcing business activities or act
as the satellite for bigger companies in carrying out various projects
 The formation and agreement of free trade areas between Malaysia and
China, India, Korea and Japan is expected to help SMEs to grow further in
the export activities


13

SMEs BY SECTOR

87%
Agriculture
Manufacturing
Services
7%

6%

Agriculture includes Plantation & Horticulture, Fishery, Poultry
Manufacturing includes Textiles and Apparels, Metal and Non-Metallic Products,
Food and Beverages
Services includes Wholesale and Retail, Restaurant and Hotel, Professionals and
Other Businesses, Transport and Communication

14

CHALLENGES
Problems facing the SMEs that need immediate attention:
 Access to funding – banks are selective due to lack of track record and

poor cash flow management
 Issues relating to research and development – SMEs does not allocate
sufficient funds for R&D
 Under utilization of
information and communication
technology – no allocation or minimum allocation of fund for ICT, for
some, the owner are not interested or lack of ICT knowledge
 Labour shortage – local labour shortage especially skills and nonskills manpower and difficulty of acquiring foreign labour as
replacement


15

CHALLENGES
 Lack of branding awareness – many SMEs still consider brand is not

important and lack of interest on the need to develop, pattern and
promote their brand
 Lack of access to domestic and international markets – lack of
resources to promote products in overseas’ market (money, manpower
and knowhow), difficulty to have their products on the display shelf
especially in the hypermarkets and supermarkets, and limited
distribution capabilities


16

CHALLENGES
Tackling the problems:
 Access to funding
 Shifting the mindset into establishing or building a credit track record
with any established agency or institutions
 Proper financial track records
 Prudent cash management
 Register with CGC for credit rating for future and on going loans
applications
 The needs to provide soft loans with low interest rate, thus
entrepreneurs will work harder to repay the loans
 Good credit cultures among business sector especially rating on the
payment risk. It is the evaluation of each companies on the ability to
pay their credits (CITOS for business)


17

CHALLENGES
 Other innovative financing such as venture capital, mezzanine financing,

private equity financing, barter exchange system and forming cooperatives or
consortiums
 Increase in credit guarantee scheme. Government has topped up the funding
of this scheme through CGC by another RM3 billion to a total of RM10billion
in 2011
 Additional funds for SMEs to consider includes Industry Restructuring
Financing Guarantee Scheme for retooling activity to value add the products
and to encourage the usage of green technology
 Research and Development
 There is a need to encourage the SMEs to innovate new products and further

develop their existing products. Entrepreneurs should change their attitudes
and mindset towards R&D
 Government through various agencies has provided many funds for this
purpose
 Agencies such as MARDI, SIRIM and others has been providing a lot of
assistance to willing entrepreneurs in developing their products

18

CHALLENGES
 ICT
 Entrepreneurs should accept that ICT is a tool to enhance their business.
It helps to streamline the business processes, increase customer base,
customer loyalty, better communication, ease in monitoring and control
 ICT should be an investment not one of the cost in doing business
 SMEs should include expenditure on ICT in their annual budget
 Government has introduce a scheme for SMEs to enhance their ICT

capability but the take up percentage is very minimal against the number
of SMEs in Malaysia
 Tax reduction on ICT products by the government in recent budget
should be a spur or incentive for SMEs to invest in ICT
 Internet connectivity among SMEs are high with the introduction of
wireless and fibre optic connections but more effort should be made by
SMEs to make use of the internet to introduce and market their products
 Internet should be consider as another marketing tools in the
promotional and advertising activities of SMEs


19

CHALLENGES
 Labour shortage
 Educational system for secondary, vocational and after schools

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program should be revamp to match between the skills required for
the SMEs and the job seekers
The educational foundations acquired during schooling will prepare
the job seekers for training during employment
Government should relook at the minimum wage policies with the
exception on SMEs
Liberalisation on of the foreign labour policy by allowing SMEs to hire
right people with the right skills
SMEs should make full use of the training programs and special
scheme provided by the Ministry of Human Resources for its
employees to enhance their skills and knowledge


20

CHALLENGES
● Brand awareness
 Brand awareness is still low among SMEs and unwilling to invest in
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branding
The SMEs has to change this mindset on branding and ways of doing
business
SMEs need to look at branding as an asset and need to nurture this asset for
future business success
Brand as an intangible asset has its value and sometime, its intrinsic value is
far more valuable than the business itself. This concept need to be educate
to all entrepreneurs and business owners
Government through various agencies especially MITI has been actively
encouraging the SMEs to invest in branding so as the export potential can
be achieved
Education and seminars on branding needed to be further enhance among
SMEs as the number of participants is less encouraging
Trade associations, entrepreneurs associations and other such groups
should increase their program on branding so that entrepreneurs are well
aware on the importance of branding


21

CHALLENGES
● Access to domestic and international market
 There is a need for SMEs to enhance their product packaging either in
design, material use and ease of use in order to attract the domestic
market
 Government through SIRIM, MARDI and universities has design
facilities to help SMEs in this area
 The mindset of the population need to change upon assuming local
products are less superior than imported ones. Campaign and TV
advertisements are not enough to ensure the success but a good start
 Business associations, trade associations should work together with
the government in promoting local products to local market
 SMEs should find innovative way to distribute their products either
through speciality stores or through efficient and effective deliveries
 Big businesses should allow more local products into their operations
and by having a local first policies


22

CHALLENGES
● As for export market, efforts by government to organise trade mission and

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trade exhibitions bears some success for SMEs although the number of
SMEs participating are still marginal as compare to the total number of
SMEs in Malaysia
Many SMEs are unable to fulfill export orders due to their small production
capacity but still interested to participate in the trade missions and export
their products. Thus, capacity measuring should be put forward before
participating in any trade missions
Many SMEs lack financial resources to participate in trade mission
although their products are export potential. Thus, special fund should be
set up to help SMEs for this purpose
Trade associations and business associations should establish consortiums
or cooperatives to help their members reaching the overseas market
Regular and schedule seminars or workshops organise by associations for
members on export processes, the pitfall and the others


23

WOMEN ENTREPRENEURS IN MALAYSIA
Women entrepreneurs are becoming increasingly recognised as one of the
important roles towards developing Malaysia’s economy. In year 2000,
Population Survey indicated that 30% of total women employment in
SMEs are working proprietors (part-timer) and active business partners. In
2003, 36.8% (1,122,000) of them are active business partners, indicating an
ever increasing involvement of women in SMEs. In another report, a
survey conducted found that 44% of Malaysian women expressed desire
for self-employment either becoming part-time entrepreneur or active
business person. This trend is expected to continue in the near future due
to internal and external factors. Women have been involved in various
business sectors even in areas where formerly being dominated by male
entrepreneurs.


24

The external factors that create the interest in entrepreneurship among
women in Malaysia:
 Government policies – Support for women business association, favorable
policies on entrepreneurship and others
 Education – School, universities, government organise program

 Role Model – Successful women local and overseas
 Life Style and Perceptions – Life style of successful business women and
the changing perception of community towards women entrepreneurs
 Financial Facilities – Private and Public
 Economic Opportunities – Economic growth in the country, region and

the world


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The internal factors are mostly concern on the push factors of the
entrepreneurs namely:
 Family Support and Encouragement - Parents, husband and friends
 Psychological Factors - The Needs for Achievements and Recognitions
 Ever Willing to Take Risk – The experience in risk taking during
employment make women more brave to take risk in becoming an
entrepreneur
 Work Experience – Establish networks of suppliers, contractors, customers
and even ideas during working


26

Women approach their entrepreneurship process differently from men due to
their socialisation experience. This socialisation through professional
experience or social network affiliation shape their strategic choices
during implementation stage of entrepreneurship process
The choice of business creations and growth expectations are differ from men
but their tendency to fail is no more than men-owned business.
Women entrepreneurs are more likely to enter business due to intrinsic goals
such as independence, flexibility in running the business and domestic
lives. Whereas men, pursue business for financial gains. Therefore, women
perform less well on quantitative measures such as profitability, job
creation and turnover
Women assess success through their achievement in self-fulfillment, goals
attainment and satisfaction of being dual role activities


27


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Women’s emphasis in achieving intrinsic goals and lower start up capital
explain why women-owned businesses are poorer in performance and
growth. Apart from that, barriers of entry for women entrepreneurs are
higher than men, and raising the difficulty for women to establish and
grow their business. Among the barriers for women entrepreneurs are:
Credit facilities and availability
Formal social and business networks
Education and experience
Dual role activity of being an entrepreneur and family care responsibilities


28

Credit facilities and availability
 Difficulties in obtaining credit and capital assistance
 Including start up funds, marketing and promotional funds even additional
capital for expansion
 The difficulties are due to women being stereotyping as less successful in
developing their business, limited financial success and lack on motivation
to grow their business
 Reluctant by financial institutions to provide capital and the tendency for
women to start their business with smaller capital as compare to men,
resulted in women seek their financial requirements from internal sources
namely family, husband, their own savings or friends
 However, there is a growing trend among women entrepreneurs seeking
assistance for their start up capital, additional capital and financial
assistance from government agencies


29


 But it is found that those women entrepreneurs who used bank loans as a
primary source of start up and additional capital perform better than
those who borrowed from other sources
 Although it is important to establish and maintain a relationship with the
banking institutions, majority of women entrepreneur still faced with
discrimination and obstacles

 It is important for government agencies to provide financial assistance to
potential entrepreneurs and existing entrepreneurs such as through SME
Bank, MECD, Ministry of Agriculture, MITI, Ministry of Women, Family
and Community Development and others
 Government should have firm policies for banking institutions on

providing financial facilities to women entrepreneurs


30

Networking
 Networking is critical element for women entrepreneurs because:
 The survival of their business
 Gaining access to capital and loans
 Advice and information on their business
 Access to suppliers and customers
 Women entrepreneurs make use of family connections to provide them with:
 Moral support
 Source of cheap labour
 Capital and loans
 Access to social and business networking
 However, women and men have different objectives in establishing networks.
Men look at it as an instrument for personal and business gains. Women
consider networking for socialising and relationships

31

● Women entrepreneurs often being excluded from the male dominated
networks due to:
 Perceptions that women entrepreneurs are inferior in doing business
 Their management style is less sophisticated and irrelevant
 Perceptions that the type of business created by women entrepreneurs are

insignificant and very simplistic
 When women entrepreneurs are confronted with business difficulties or
problems, they seek assistant from:
 Family
 Close friends
 Knowledgeable business sources (as last source to seek assistance), the order
for men entrepreneurs are normally the opposite
 Although the characteristics of women entrepreneurs are as such, this is
compounded with the shortage of peer support networks, development
program and others

32

 Even though various industry associations and women entrepreneurs
associations has been formed, the issue in networking remains prevalent
especially for women entrepreneurs located outside major cities and rural areas.
 Current activities of these associations includes:
 Platform to establish networking, and exchange of information and

experience
 Training program
 Seminars and workshops
 Motivational program, leadership and self development and others
 However, majority of women entrepreneurs were unable to join such
associations or to participate in its activities due to geographical distance or the
dual role of women entrepreneurs.


33


 Those who stayed outside major cities or rural areas depends on the
entrepreneurial activities and program organise by the government
agencies

 Inability to join or participate in these association limits their ability to
seek formal/informal advices, and the survival and growth of their venture


34

Education and Experience
 Comparatively, women entrepreneurs lack the requisite level of education,
training, business skills and entrepreneur training as compared to men
entrepreneurs
 Women are often in the disadvantage when training are concern due to:
 Lack of awareness
 Unable to afford the training cost (offered by private sector)
 Geographical distance (located far from the central training locations)
 Unwilling to depart from daily chores of running the business and being the
housewife
 Some are even not allowed by their husband to attend the training program
when there are also men around


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 Women entrepreneurs are also slow in taking up the training program
supported and organised by government agencies
 Majority of training program provided by private or public sector are too
general and not specifically tailored to the need of women entrepreneurs.
It only emphasis on:
 Start up processes less follow up training
 Less strategic oriented training such as growth, expansion, export

processes and others
Thus…
 Women entrepreneurs are most likely to seek and acquire their skills and
experience from family members, close friends and working experience


36

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Dual Role of Women Entrepreneurs
Almost always women entrepreneurs play a dual role activities in their
lives, being an entrepreneur and at the same time being a housewife and
mother to their children
Studies has shown that due to this dual role activities, majority of women
entrepreneurs created their business based on the capability of juggling
both roles concurrently
In order to enhance the ability to manage their business and their
household chores, the use of ICT is seen as the solution and practical
component
The use of ICT is crucial and unique in allowing women entrepreneurs to:
 Sharpen their strategies in order to achieve success and growth
 Provides greater access to the market, networking opportunities, and
promotional activities
 Enhance competitive advantage
 Ease of managing their business via remote monitoring (work from
home)


37

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However..
Many SMEs in Malaysia lack internal internet infrastructure that will allow
entrepreneurs to manage and monitor remotely
Not more than 20% of SMEs have access to internet
The digital gap between urban and rural not only widen the competitive
advantage among entrepreneurs between these two areas but rural women
entrepreneurs tends to be less efficient and organise than their
counterparts in urban areas. Rural women entrepreneurs spent more time
tending their family matters than managing their businesses
Although efforts has been made by government agencies to bridge the
digital gap and training programs on ICT for women entrepreneurs, only
few have benefitted from such activities as compared to the total number
of women entrepreneurs
Government should emphasis more on training rural women
entrepreneurs in ICT as their traditional cultures dictate them to consider
family first before their business


38

THANK YOU


39

Tutorial Questions:
Discuss the role of the trade and business associations in helping their
members
Has government successfully develop the entrepreneurship spirit
Women entrepreneurs and their role in the economic development


40

OPPORTUNITIES AND CHALLENGES AS AN ENTREPRENEUR/SMEs IN MALAYSIA Smallbuss lecture2 (opps n challenges as entrepreneur)

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