SMEs: Building Blocks for Economic Growth

National Statistics Conference Department of Statistics, Malaysia 4-5 September 2006

SMEs: BUILDING BLOCKS FOR ECONOMIC GROWTH by: Normah Mohd. Aris Chief Statistician Department of Statistics, Malaysia 1.

Introduction 1.1 SMEs have been the backbone of economic growth of an economy in driving industrial development. Due to their sheer numbers, size and nature of operations, this segment of the economy in promoting endogenous sources of growth and strengthening the infrastructure for accelerated economic expansion and development in Malaysia has been recognised. The potential of SMEs to promote domestic-led growth in new and existing industries and to strengthen the resilience of the economy in a competitive and challenging environment are inarguable. Economic growth in developed countries such as Japan, Korea, Taiwan and many others, were significantly generated by SME activities. The percentage contribution of SMEs to GDP/total value added range from 50% in Korea, 55.3% in Japan, 57.0% in Germany, 60% in China compared to 47.3% attained by Malaysia. In order to determine the role of SMEs in the economic growth of Malaysia, it will be meaningful to assess their contribution in the three (3) main sectors of the economy, manufacturing, services and agriculture. Data for this analysis is obtained through a baseline Census conducted by the Department of Statistics in 2005.

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The Need to Develop SMEs 2.1 Primary industries were the leading sector of the Malaysian economy for a long time before 1990 as agriculture; mining and quarrying represented 36.9% of GDP. However, Malaysia has been successful in transforming the commoditybased economy to an industrialized economy, with
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Department of Statistics, Malaysia

chaired by the Prime Minister of Malaysia. especially those that offer cheaper labour costs.6% in 2005. constrained by the lack of a centralised and comprehensive national database for the development of SMEs. While Malaysia has been able to attract FDI. Malaysia (DOS) as the largest depository of data for the government. Realising the role of SMEs. the government’s commitment and concern for the development of SMEs was reinforced when the National SME Development Council. The establishment of a comprehensive. Many foreign investors withdrew their investments and relocate to new destinations which are more profitable. Malaysia (2) . This Council represents the highest-level policymaking body to chart the direction and strategies for the development of SMEs. The action plan outlined includes: i. a nation-wide Census of Establishments and Enterprises (reference year 2003) covering the main economic sectors of manufacturing. services and agriculture conducted in 2005. the adoption of specific and standard definition for SMEs according to economic activity.2 The economic crisis of 1997-1998 has taught us that the country cannot be overly dependent on foreign direct investment to stimulate economic development.3 3. has been entrusted with the responsibility of creating a comprehensive national SME database. the expansion of development support programmes and facilities to enhance access to financing. SMEs have been targeted as the mechanism in generating domestic-led investment and stimulate economic expansion.8% in 1978 to 31. Among the initiatives announced include the formulation of broad policies and targeted strategies for the development of SMEs across all sectors. the Department of Statistics. the establishment and maintenance of a comprehensive National SMEs database. however. coordinated and relevant SME statistics is crucial to facilitate informed decision-making. was set up in August 2004. 2. evaluate and monitor contribution to the economy and performance of SMEs. formulate development policies. boost domestic production and exports and create employment opportunities. Census of Establishments and Enterprises 2005 3. 2. its efforts to strengthen the industrial linkages and enhance the institutional framework have been in part.1 In line with the aspirations of the Council. Department of Statistics. current.SMEs: Building Blocks for Economic Growth manufacturing activities gradually becoming the leading growth sector such that the proportion of manufacturing sector to GDP rose from 19.

Credit Guarantee Corporation.6 million. Ministry of Entrepreneur and Co-operative Development. ii. data cleansing and screening.6 million.4 4. screened. Malaysia (3) . The list of establishments and the agencies mentioned above to derive the Census frame. the Census frame finally comprised a total of 1.3 4. Frame 4. 4.2 The construction of the Census frame was in essence the Central Registry System (CRS) of companies and businesses maintained and coordinated by DOS. 4. Bank Negara Malaysia. The additional sources for the frame was all establishments and entrepreneurs registered with the Ministries and related agencies such as Ministry of Agriculture and Agro-based Industry. In order the various lists had to be and updated to eliminate 4. verified duplication. 3. Multimedia Development Corporation. matched. Local Authorities.733. This registry contains only information with respect to manufacturing. establishments / enterprises not registered will be sourced from relevant Ministries and agencies involved in SME development. establishment of a frame/database which includes data harmonisation and integration between the various providers of SME information. entrepreneurs obtained from totalled 4. Small and Medium Industries Development Corporation. Ministry of Human Resources. services and agriculture sectors: Department of Statistics. etc. services including distributive trade sectors. obtaining a list of all companies and businesses registered with Companies Commission of Malaysia (CCM) in the selected sectors. Inland Revenue Board.1 The tasks undertaken in preparing the Census frame include: i.550 establishments/ entrepreneurs in the manufacturing.5 From a total of 4.2 This paper will present the findings from the baseline Census 2005 undertaken by DOS and the simultaneous efforts undertaken by DOS in the creation of the database. Its main source has been the companies and businesses registered with the Companies Commission of Malaysia (CCM). iii. Employees Provident Fund.SMEs: Building Blocks for Economic Growth ii. Ministry of Plantation Industries and Commodities.

often manual matching had to be done. names.523. iv.1 100. however these were not available or incomplete. The gigantic task of frame creation initially outlined for nine (9) months. This too will be extended to the construction and mining and quarrying sectors after the completion of the Economic Census 2006. Operating status of the establishments (reference year 2003) were not easily determined from the lists provided. Here posting of current information from the Census as well as the availability of the establishment frame for the agriculture sector augurs well for sampling purposes. Frames of agencies were stored in different formats with different identifiers of establishments. 2004 to mid March 2005. is the updating of the Central Registry System of DOS.0 4. names are repeated according to type of loan.762 1.842 123. v. from September 2004 to June 2005. Department of Statistics.946 1. overlapping of names of establishments / entrepreneurs. Ideally. mid Nov.733. had to be completed in three (3) months.7 The benefits however.9 7. of establishments 85. In the case of entrepreneurs (borrowers from the bank). 4.550 % Manufacturing Services Agriculture Total 5. derived from this massive exercise.0 87.SMEs: Building Blocks for Economic Growth Table 1: Distribution of establishments by sector Sector No. Malaysia (4) . post codes and description of activity (industry) codes were not available. addresses incomplete.6 Issues and Challenges: i. thus making the job of matching extremely difficult and cumbersome. iii. ii. registration numbers of establishments should facilitate the process of checking and matching.

1 SMEs in Malaysia account for 99.1 Highlights 5.2% or 518.SMEs: Building Blocks for Economic Growth 5.1.996 of of . Profile of SMEs 5.

5 billion 4. its contribution in terms of output was only 2.2.4%. mediumsized establishments (5.1% RM9.4 billion 44. Johor is next with 10.2. Malaysia (6) .3% of total SMEs. 5.3% to output and 1. metal and non-metallic mineral products (16.2 34.1 SMEs in the manufacturing sector accounted for 96.6% to value added.8 billion 9.6% (37. The rest of the states accounted for less than 10%. 2003 RM52.3 billion 8.3% RM16.1% RM84. Kuala Lumpur and Selangor).9% Food products & beverages Metal & non-metallic mineral products Rubber & plastics products Chemical products Petroleum products Other sub-sectors Department of Statistics. 35. On the other hand.3 The largest number of SMEs is found in the traditional sectors of textiles and apparels (23.2%).7 billion 6. The contribution by medium establishments is 62. 5.1% of output and 51.1% RM17.6%. Micro establishments are 55. Micro establishments accounted 55.1%.5 SMEs are mainly concentrated in the Central Region (W.866) of total establishments.2%) accounted for 62.SMEs: Building Blocks for Economic Growth 5.3%. 5.2.3% with a contribution of 2.1%.0%) whereby collectively they generate more than half of the total value added of the sector. with Perlis registering only 1.P.2 SMEs in Manufacturing 5. Chart 1: Output of SMEs in manufacturing sub-sectors.7%) and food and beverages (15.5% RM11.1.1% and small establishments.9% of the output of this sector is contributed by SMEs.0% of value added.0 billion 27. accounting for 37.

5.2% of the 32. therein lies the concentration of SMEs.4. wood products and furniture.2% in transport and communications.7% of total output (RM361. 93.2%) and professionals (71. 5.130 or 57.3 Workers employed by SMEs number 131.4 SMEs in Agriculture 5.0% (449.7%).3.7 billion) in the services sector. 97. horticulture and livestock farming (72.397 establishments covered.5%.4. hawkers and stalls) accounted for 85.SMEs: Building Blocks for Economic Growth 5. Department of Statistics.1 SMEs in the agriculture sector account for 99.5% of total workers in the agriculture sector.4 In states where agriculture predominate as the main economic activity.3%) are concentrated in the wholesale and retail sector.2 More than half of SMEs (55. market gardening. showing the dominance of large establishments. 5. 5. 5.3 SMEs in Services 5. metal and non-metallic mineral products. 5.3.5% in restaurants and hotels and 6.1%). 17.2 SMEs contribute 42.1% of output of the restaurant services.4% establishments in the services indicates that 80.4% of SMEs micro. 14. Kedah has the highest number. 8.4 In terms of employment generation. SMEs in restaurants (including cafes. and rubber and plastic products contributed more than half of the employment of SMEs. retail (79.3%). The largest share of output is contributed by the growing of crops.2. The profile are characterized as as medium.3 Output generated by SMEs is 56.1% (RM8.6%. Malaysia (7) .1 SMEs account for 99. 5. coffee shops. business / management consultancy (74.6% as small and 2.803 (27.4% (29.4. the four subsectors of food and beverages. Micro establishments are characterized by a high percentage of working proprietors and active business partners.9%. followed by real estate activities (79.3.7 billion) to total output.4.004) of total sector.4%) followed by the east coast states with 26. In contrast. SMEs in telecommunications contributed 1.2%).985) of SMEs are concentrated in the micro category.

3%. women workers employed in the managerial and professional category is 26.0% in 2000 to 27.9 7. working proprietors and active business partners. 40.2 11.0 100.687 or 36.3 In the manufacturing sector in 2003.SMEs: Building Blocks for Economic Growth 5. Department of Statistics.5%.0 100.6.6 85. Malaysia (8) .0 100. managerial and professional. compared to 14.1 The percentage of persons engaged by qualification in SMEs is not significantly different from that of large establishments. Does this indicate that technology adoption by SMEs in both these sectors in Malaysia is still low? Table 3: Persons Engaged by Qualification .121. A proxy for women entrepreneurs obtained from the Census results i. The services sector employ degree and diploma / STPM holders.8% compared to 21.1 100.3% and 5.2% in Census 2000.9%.5 20. The corresponding numbers in the technical and supervisory category are 17.0 100.5 Employment by Qualification 5.2% for manufacturing and agriculture respectively.1%. 5.7 96.2 The percentage of female employees in the category.8% in 2003.7 82.7 94.8% of total employment.5.0 100.3 19.8 1. indicate 30. Women entrepreneur participation in SMEs has increased from 18.0% and 15.5 4. 27. is 48.1 67. clerical.6 12. production and operative workers category.6 72.3%.1 2.SMEs 2003 Diploma/ STPM SPM and below Degree Total Manufacturing Services SMEs Large SMEs Large SMEs Large 4.1 1.1 The participation of women in small and medium enterprises in 2003 is 1.e.6.8% and technical and supervisory 21. 5.3 10.0 Agriculture 5.6 Women in SMEs 5.1 5.6.

1 With strong support from the government to boost economic growth .7 Sources of Financing 5.7.SMEs: Building Blocks for Economic Growth 5.

5%.6 Agriculture % 0. Table 5: Marketing and Promotion Activities .1 Basing on the responses in the Census.2 0.8 Marketing and Promotion Activities 5.1 0.8% and 2. In 2003.4% of value-added and engaging 2.SMEs.9 2. only 12.7 2.5 2.4% while generating an output of 8.0 12.SMEs: Building Blocks for Economic Growth 5. 2. SMEs that qualify as an export-oriented industry constitute only 0.1 The action plan promulgated for SMEs is to look towards non-traditional markets for export opportunities. Malaysia .5%. 1 The establishment is assumed as an export-oriented industry if it’s export-product of 50% and more.8 Services % 4.4 0. 2003 Marketing activities Media promotion Local trade expo Overseas trade expo Linkages with companies Brand name Others* Total foreign Total % 4.1 11. 5. The medium commonly use is media promotion followed by local trade expo and brand names.1 2.9 Export-oriented Enterprises1 5. 21.9%.0 0.0 1.0 9.9 2.9 Manufacturing % 10. each respectively accounting for 4. (10) Department of Statistics.7 1.8 0.5% of output.9 7.6 Note: * including Franchise operations and Owned or managed by franchisor.0%. 6.2 The potential for agriculture and services sectors to be an export-oriented industry is 0.5% value-added and generates 11.1% employment although the number of SMEs involved is only 3.5 0.9% of SMEs promote their products.7% of employment.8 3.1 0.5 1. 5.2% of total SMEs.9.9.8.9 1. The manufacturing sector contributes 18.1 4.1 36.6 1.

including common classifications.1 National SME Database Besides the undertaking and completion of the Census.5 0. The Future 6. iv. iii. 2003 Sector Type of Establishment Export oriented Export oriented Export oriented Export oriented No. harmonising of information across identified sources and providers of SME information. Malaysia .7 2.2 0.3 1. Overview/Status of SME development Contribution to the economy Financial management Access to financing Production and operational management Access to technology and technological advancement Human resource (11) Department of Statistics.3 6. ii.4 Output % 18. This development of the system is planned from mid 2006 and is targeted to be operational by 2007. of establishments % Manufacturing Services Agriculture Total 3. ii. system of integrating data in various agencies. Items of information in the database should conform to key areas such as: i.5 0.5 Value Added % 21.4 Employment % 11.2 0.7 1.SMEs: Building Blocks for Economic Growth Table 6: Contribution by Export Oriented SMEs. iii. among others. vii. v.0 0. focus on: i. vi.2 8.7 6. and maintenance and updating of data on a regular basis. the ensuing task of DOS is the establishment and maintenance of the National SME database.7 0.1 0. Data from the Census will serve as baseline information for the database which will.

their numbers (half a million) and substantially employment generation (labour-intensive). Department of Statistics. dialysis centres. Through this census. Our large SMEs base is capable of providing immense opportunities for SMEs to become catalyst in the economy.2 Economic Census. With the adoption by the Government of a more comprehensive approach towards SME development such as increasing their access to financing. dietetics and nutrition services. SMEs must be strengthened to be the next engine of growth. the Ninth Malaysia Plan envisage “to develop competitive and resilient SMEs that are equipped with strong technical and innovation capacity as well as managerial and business skills” to innovate the country to higher economic growth. enabling the business infrastructure. chalets. Marketing and promotion Access to government assisted programmes Ministries and agencies must be committed and provide full cooperation in the implementation and success of the database. providing greater access to business facilities locally and abroad. can also be obtainable. ix. provides continuing work on updating of SME indicators in monitoring economic growth.SMEs: Building Blocks for Economic Growth viii. home stay. In addition. be adaptive in the use of information technology and improve their operations and productive capabilities to move up the value chain in order to remain competitive. 6. 7. To summarize. the standardization of information and the production of regular reports are issues that are currently addressed. the frequency of updating. the way forward for SMEs then is for themselves to enhance human capital development. The regularity of data needed. Conclusion The potential of Malaysia SMEs to contribute significantly to economic growth are demonstrated by their contribution to output. Malaysia (12) . data on content writing. 2006 The Economic Census (reference year 2005) which is being conducted by DOS. data on the construction and mining / stone quarrying sectors in respect of SMEs will be collected.

“Census of Manufacturing 3. “Census of Establishments and Enterprises 2005. Kuala Lumpur. Malaysia (13) .SMEs: Building Blocks for Economic Growth Bibliography 1. reports of various meetings. 2. Department of Statistics. Department of Statistics (2006). Ninth Malaysia Plan. 4. 2006-2010. “A Comprehensive Framework for the Development of Small and Medium Enterprises in Malaysia”. Bank Negara Malaysia. “National SME Development Council”. Bank Negara Malaysia (2003). of Statistics (2001). Government of Malaysia (2006). 5. Preliminary Report – Profile of Small and Medium Enterprises”. Department Industries”.

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