Growing army of strong SMEs

THERE'S a global warfare in business and trade. To win it, we must constantly reinvent ways, innovate and devise strategies in order to grow an army of strong-willed and high-potential SMEs in the country.

Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/afsah/Article/
Published: July 29, 2013

I associate developing a pool of resilient and competitive SMEs like taking charge of an army battalion, just like my brother-in-law Brigadier General Damien commands a brigade of several battalions of combat troops.

Malaysia's SMEs are the "Army of Honour" similar to that of Napo-leon's, who are in many ways capable of revolutionising the country into a powerful empire of growth and prosperity.

In believing so, I find myself unequivocally in support of the G20 leaders for their strong stance and conviction in the potential of SMEs in providing the endogenous growth of the economy and shaping new growth strategies for both developed and developing nations.

Despite the many economic, social and political challenges in achieving greater harmonisation of the SME definition across regions, the G20 nations see merit in helping SMEs secure the credit they need through unified segmentation of this critical mass.

Many theorists, economists and development experts may agree with me that a harmonious definition of SMEs globally is more than a daunting task.

Despite this fact, the National SME Development Council (NSDC) had achieved another great milestone in its 14th meeting held recently in Putrajaya.

The council chaired by Prime Minister Datuk Seri Najib Razak with members from 15 key ministries and agencies, including Sabah and Sarawak, had endorsed the propo-sal for a revision of the defini-tion of SMEs in Malaysia, which automatically aligns it internationally with many countries of the world.

The new definition will take effect on January 1 next year, raising the qualifying threshold for sales turnover and employment of SMEs across all economic sectors.

For the manufacturing sector, SMEs are defined as firms with sales turnover not exceeding RM50 million (currently: less than RM25 million) or employment not exceeding 200 workers (currently: less than 150 workers).

For the services and other sectors, the threshold is also raised - SMEs are defined as firms with sales turnover not exceeding RM20 million (currently: less than RM5 million) or employment not exceeding 75 workers (currently: less than 50 workers).

For Micro Enterprises, which make up almost 80 per cent of the total SMEs, the definition has also been standardised across all sectors. Micro Enterprises are defined as firms with sales turnover of less than RM300,000, or less than five workers.

Even though the redefinition of SMEs may seem like a trivial exercise, it is undeniably a path-breaking development on a national scale, as it reflects our economic realities, development blueprints, national aspirations and growth objectives of the SME community.

It also takes into account the potential for future innovation, job creation, sectors driving growth, price inflation, structural shifts in the economy and changing business trends, among others.

The new definition is an outcome of a comprehensive review, taking both top-down and bottom-up approaches that included technical ana-lysis, global benchmarking and stakeholder engagement.

In order to have better clarity in the new definition, a series of focus group discussions were held with close to 59 stakeholders, including industry associations from all sectors, ministries and agencies, and regulators and financial institutions.

The guiding principles in the review process ensure that the SME re-definition is wide-ranging, clear and simple, and that it includes all sectors of the economy, including agriculture, construction and mining.

The classification is further simplified into only two simple categories - manufacturing, and services and other sectors.

A quick win that will result from this new definition is the fact that more firms, particularly those from the oil and gas category, as well as other types of services sectors, will now be classified as SMEs.

With this, more than 8,000 establishments will now be classified as SMEs, increasing the share of SMEs to total establishments from 97.3 per cent currently to 98.5 per cent.

This will undoubtedly facilitate the country's transformation into a high-income nation envisioned by the SME Masterplan, resulting in higher contribution to GDP, employment and exports.

I, for one, remain steadfast in my belief that the new definition and classification criterion of Malaysian SMEs though may seem to be a small initiative, but it certainly will lead to powerful changes in future policy recommendations on SME development.

To quote the great warrior and strategist, Napoleon Bonaparte:

"To extraordinary circumstances we must apply extraordinary remedies".

Under the stewardship of Najib, l am confident that NSDC will continue to deliberate on maximising the growth potential of SMEs and strategise extraordinary solutions in the interest of both the SME community and the nation!

Datuk Hafsah Hashim is the chief executive officer of Small and Medium Enterprises Corporation Malaysia (SME Corp Malaysia)