Time to up the game
WHILE last year’s economy was a downer for most small and medium enterprises (SMES), 2019 has shaped up to be a slightly better year, with the resilient sector bouncing back somewhat.
“SMES have really looked into how to innovate their businesses according to market trends and how to move forward to meet market needs,” said SME Association of Malaysia president Datuk Michael Kang.
That said, he also pointed out that businesses that refuse to change the way they do business when the external environment is tough are the ones that will lose out in the end.
He said, “When their profit drops, it’s those that don’t innovate that continue to see their sales going down. It’s the entrepreneurial spirit needed in running a business to make sure it’s sustainable.”
Things are also looking up in terms of governmental support, especially with the National Entrepreneurship Policy 2030 aiming for SMES to contribute 50% to GDP, 30% to exports and 80% to jobs generated.
Kang said that Budget 2020 was a roadmap that provides clarity of direction for SMES, as it addresses a number of concerns previously raised by businesses, including issues relating to foreign labour and automation.
Of note is the government’s proposal to encourage employers to employ locally by making it more attractive for them, as it both reduces dependence on foreign labour and creates more local job opportunities - especially since Malaysia’s SMES have been highly reliant on low-skilled labour and foreign workers.
The government’s response to this is the Malaysians@work initiative, aimed at boosting employment for youths and women. Locals@work, a hiring cost equalisation programme, is one such example under this initiative.
Malaysians hired to replace foreign workers through the programme will obtain a wage incentive of either RM350 or RM500 a month - dependent on the sector for a period of two years. At the same time, employers will also receive a hiring incentive of up to RM250 for the same period.
Kang believes that this programme complements the government’s other initiatives, such as the digitisation drive.
“This is geared towards getting younger labour in and getting companies to look at automation. And the government has provided sufficient grants, matching grants and so on (for this). Not only is this helpful to digitise SMES, it will also help SMES by giving them a direction to head towards,” he added.
At the same time, encouraging technical and vocational education and training in terms of helping the new generation of talents gain industry experience is critical.
Incentivising digitisation
Several grants have also been announced in order to help SMES to adopt new technologies, in a bid to ramp up digitisation in the sector.
The government will be providing a 50% matching grant of up to RM5,000 per company for the subscription of electronic point-of-sale systems, enterprise resource planning and electronic payroll systems.
The Rm500mil matching grant, to be disbursed over five years, is limited to the first 100,000 SMES that apply.
Apart from that, the government is allocating Rm550mil for Smart Automation matching grants of up
to Rm2mil per company, to 1,000 manufacturing and 1,000 services companies to automate their business processes.
The Accelerated Capital Allowance and automation equipment capital allowance have also been extended for these two sectors.
Pushing for technology adoption
Moreover, the Rm70mil allocation to the Malaysia Digital Economy Corporation (MDEC) to set up 14 one-stop Digital Enhancement Centres to assist SMES in their digital transformation has been received positively by the business community. This effort is an extension of the ‘100 Go Digital’ programme.
MDEC will also be given an additional Rm10mil to train micro-digital entrepreneurs and technologists to leverage on e-marketplaces and social media platforms to sell their products.
This is on top of plans to upgrade and deploy digital and logistics infrastructure in high impact areas alongside road maintenance to
increase efficiency and reduce turnaround time for companies.
Kang also added that the tax incentives to promote high value-added activities in the electrical and electronics (E&E) industry to transition into the 5G digital economy and Industry 4.0 would be beneficial.
The incentives include income tax exemption of up to 10 years for E&E companies investing in select knowledge-based services and special Investment Tax Allowances for those that have exhausted the Reinvestment Allowance
When it comes to the adoption of digital technologies, it must make business sense for SMES to invest in IR4.0, instead of pressing for huge upfront investment that would result in excess capacity that is wasted instead.
Opening up new doors
This means that to encourage SMES to invest in automation, the government or other SME ecosystem enablers must help SMES find the market, to encourage the buyin from smaller companies, Kang noted.
The Market Development Grant, which helps SMES with export, has also made a comeback with next year’s Budget. Its new iteration will see each company receive RM300,000, up from the previous RM200,000 a year.
In addition, the ceiling for participating in each export fair will also be revised upwards to RM25,000 from RM15,000. This means that companies can participate in 12 exhibitions a year, which could open up new markets and sales channels. Moreover, there is also an Rm50mil allocation to encourage SMES to be more involved in export promotion.
Rm1.1bil has also been allocated to support for corridor development activities, which will help develop rural SMES.
Better yet, the government has also proposed the preferential corporate income tax rate of 17% be extended to chargeable income of up to RM600,000 from the current RM500,000. Only companies that have a paid-up capital not exceeding Rm2.5mil and annual sales not exceeding Rm50mil.
Moreover, there are now investors who are looking to invest in
contract-based business, where they fork out the money for the machinery, but purchase the output as a result.
This new method could prove valuable for SMES, as the investors would also be able to transfer best practices and know-how as well.
When all is said and done, however, Kang stressed that SMES must also be sustainable on their own, which they can do through being innovative.
He said, “The incentives set out by the government can provide some push to help SMES move forward. SMES need to spend time to upskill themselves and open their eyes by seeing how their peers compete overseas. They need to be really proactive about it.”
Playing a key role
As such, he will be focusing his efforts on ensuring that SME Association of Malaysia helps build the capacity and capability of its members and other businesses next year to combat increasing competition and highlight the need for innovation.
“SMES must be aggressive towards learning and there must be a continuous focus on lifelong learning,” he opined.
However, he also noted that SMES have been travelling to China of late to learn about new ways of doing business, such as new retail to provide a holistic experience for customers.
This is a good start as it can be an eye-opening experience for SMES to learn, come back and implement those changes. Activities or events such as exhibitions and trade missions, working with government entities, can be very helpful in penetrating new markets.
As a start, Kang is eyeing to bring at least 500 SMES to participate in exhibitions or trade missions next year, which he hopes to achieve through working with both public and private partners.
He added, “We want to combine resources with others and leverage our respective strengths to create bigger impact.”
That does not mean that Kang believes local events have nothing to offer SMES. On the contrary, he believes that Malaysian events should bring in international speakers, or at least those with global exposure to help the businesses here gain access to information that they can leverage for growth, in turn.
“It’s time for SMES to change their mindsets. Their biggest hurdle they need to overcome is themselves. That holds them back,” he said.