Nature Of Malaysian Economic System Essay

6025 words - 25 pages

International Review of Business Research Papers
Vol.2. No.1 August 2006 pp.1-14

An Evaluation of SME Development in Malaysia
Ali Salman Saleh∗ and Nelson Oly Ndubisi∗∗
Small and medium enterprises (SMEs) in play a vital role in the Malaysian
economy and are considered to be the backbone of industrial development
in the country. However, few studies examined their development,
challenges and future prospects. Therefore, the aim of this paper is to
examine and analyse the role of SMEs in different sectors as well as their
major contribution to the economy. The paper goes further to review the
existing literature as well as the empirical studies in order to identify the
major ...view middle of the document...

They contribute
27.3 per cent of total manufacturing output, 25.8 per cent to value-added production, own
27.6 per cent of fixed assets, and employ 38.9 per cent of the country’s workforce. In addition, valueadded products from SMEs are expected to be worth RM 120 billion — or 50 per cent of total
production — in the manufacturing sector by 2020.Despite these statistics, Malaysian SMEs’ share of
total exports is approximately 20 per cent lower than many other countries’, such as the Philippines,
Hong Kong, Taiwan and even the US (SMIDEC, 2002). SMEs in Malaysia are concentrated in the
textile and apparel, food and beverages, metals and metals products and wood and wood products
sectors. The majority of manufacturing companies are located in the central parts of Malaysia and around
the country’s major industrial regions.

Dr Ali Salman Saleh, is presently a Lecturer of Economics at the School of Economics and Information System,
University of Wollongong:
Dr. Nelson Oly Ndubisi, is presently Associate Professor of management at the School of Business, Monash
University Malaysia:

Saleh & Ndubisi
The Malaysian Government’s commitment to, and concern for, the development of SMEs has been
clearly evident since the early 1970s. The ‘New Economic Policy’ was introduced in 1971, which aimed
to improve people’s welfare and restructure ethnic economic imbalances. The government’s commitment
to the development of SMEs can also be seen in the second Industrial Master Plan (IMP2), which ended
in 2005, which is followed by the Third Industrial Mater Plan (IMP3) 2006–2020, to coincide with
the country’s vision for 2020 (MITI, 2005). The Malaysian Government has implemented various
policies and strategies under these plans. The IMPs were formulated to enhance the growth of the
manufacturing sector across the entire value chain and cluster-based industrial developments. Hence, this
plan provides an integrated approach to the development of industrial areas and opportunities for growth
of SMEs (MITI, 2005). Figure 1, below, shows the phases of development of enterprises in Malaysia
Figure 1: Phases of Enterprise Development (four stages)

Source: SMIDEC, 2002
Small and medium enterprises in many countries face myriad challenges. At the theoretical level, studies
have identified some of the barriers to SMEs’ growth, for example, Wan, 2003; Stuti, 2005; Moha,
1999; Hall, 2002; and SMIDEC, 2002. Wan (2003) in particular highlighted many challenges facing
SMEs in a globalised environment, for example, lack of financing, low productivity, lack of managerial


Saleh & Ndubisi
capabilities, poor access to management and technology, and heavy regulatory burdens, among others. In
the Malaysian context, SMEs have particular challenges, and these have been highlighted by the APEC
survey (1994), the SMI Development Plan 2001–2005 (SMIDEC, 2002), Ting (2004), the UPS

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