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Malaysia embarked on the path of industrial development almost as soon as the country gained

political independence in 1957. The early economic development plans testify to the aspirations

to uplift economic well-being through industrialization, although the specific strategies changed

significantly over time with the needs and with different stages of the New Economic Policy.

The role planned for small and medium scale industries (SMIs) had likewise been important

despite its evolution under different plan periods. However, entrepreneurs and entrepreneurship

development have started to receive attention relatively recently. Up until a few years ago, they

have often been closely linked together with small businesses. The last recession which was deep

enough to cause a contraction of the economy, to some extent forced a relook at both small scale

enterprises which is the entrepreneurs and entrepreneurship.

The small and medium scale industries (SMIs)

There are many criteria that have been used to define the SMIs. They include the paid up

capital, shareholders’ funds, turnover, number of employees or a combination of all. The term

small scale industries refers to the group of manufacturing establishments which employ

between 5 to 50 full time employees and with the paid up capital of RM500,000. The small scale

industries are engaged in a wide variety of economic activities such as production of foodstuff,

furniture, handicraft, fabricated metal products, wood based products, textiles and clothing. The

medium scale industries tend to concentrate more on processing of products like beverage and

tobacco, electrical and electronic products, chemical products, non-metallic products and

automotive parts and components.

Medium scale industries are those employing between 51 to 75 full time employees and

with a paid up capital of between RM500, 000 to RM2.5 million. This scale industry tend to
concentrate more on processing of products like beverage and tobacco, electrical and electronic

products, chemical products, non-metallic mineral products and automotive parts and

components. This definition covers the manufacturing, commercial and service sectors. It may be

interest to note that before that, various definitions were used under the Industrial Coordination

Act 1975, the 1982 World Bank Report on small enterprises, the 1986 and 1987 Budgets of

Ministers of Finance, the income tax law and the Special Loan Scheme under the Credit

Guarantee Corporation Malaysia (LING). There were also nearly as many classifications of

enterprises by size as the number of researchers who examined small business in Malaysia over

the past two decades.

Based on the 1992 Annual Survey of Manufacturing Industries, SMI accounted for about

84 per cent of the total manufacturing establishments. However, their contribution to the total

value-added was only 28 per cent and to employment, 33 per cent. Their relatively smaller

contribution compared with large industries was due to the smallness in their size, which limited

their ability to adopt advanced technology, employ more skilled personnel, increase production

capacity, expand their market, as well to enjoy economies of scale.

On the contrary, entrepreneurship and entrepreneurs in Malaysia have not been

researched into as closely, hence the absence of attempts to define the concepts in a manner that

is relevant for the Malaysian environment. Conceptually, entrepreneurial functions and activities

may be performed by individuals or by corporations. They may get involve relatively small

amount of resources as in the case of a one man tiny scale enterprise or they may be large scale

venture capital operations. Entrepreneurship and entrepreneurs are usually associated with the

initiation of business ventures that promise to be profitable, the responsibility of making basic

business policy decisions that determine the course of the enterprises and the innovations
concerning new products or new production methods of forms of business operations. An

entrepreneur is invariably the one who commits the capital and bear the risk.

Importance of Small Medium Scale Industries (SMI)

The SMI were established for several reasons other than increasing and assisting to put

more effort to increase the economy level. The contribution of the SMIs to the economy is

relatively substantial. We manage to come out with several of SMIs to be discussed.

The first importance is that the SMIs’ role is important in the continuing process of

industrial expansions in the country through a more balanced distribution of industrial activities.

The SMIs were inclusive of three major aspects which are the small industries, medium

industries and followed by the heavy industries. With the distribution of each and every portion

of the sectors, it helps the equal development and does not focus to only one scope of industry

only. This can be seen whereby, either the income or the standard of living of a person high or

low, they can contribute to join in the SMI because they are divided into these three major

prospect of industry sector. The small industry can be in terms of fishery, while the medium

industry may refer to the industry of batik textiles and heavy industry may refer to the tobacco.

When all the industries are occupied by their skilled workers they intend to produce good quality

productivity and help to increase the economy stability of Malaysia. This will balanced off the

industrial activities whereby all industry were occupied by every stages of people in Malaysia.

Due to this matter too, the job opportunities are widely open for the job seekers as they have lots

of alternatives to choose from either from the small, medium and heavy industries.

The SMIs can also act as the catalyst for the growth of the national economy in addition

to that of heavy industries. The economic recession of the 80’s, for an example, had severely
affected the economy of the country, particularly the heavy industries. The government later

emphasized on the importance of the SMIs. This had contributed significantly to the recovery of

the economy. As we can see the tobacco for instance, is the heavy industry and it is obvious that

70 per cent of the economy in Malaysia is contributed by the tobacco itself. This shows that the

tobacco industry helps the economic growth from inflation.

Next is the promotion of SMIs is an important strategy to achieving the objectives of the

NEP in increasing the Bumiputra participation in the secondary sectors. The SMIs can provide a

seedbed for entrepreneurial talent among Bumiputera who lag behind other races in this field. It

is obvious that Malay or the Bumiputera is the small community in serving the economy growth

in Malaysia. Due to the existence of SMIs, they will be assisted by the government to get

involved in any industry under the SMI. When the people develop under the SMI then they will

participate in the economy in the country and reduce the unemployment rate. This will also teach

the Bumiputera to become more independent and work harder for their own achievements and


Other than that, the SMIs balanced out the sectoral and regional development. This can

be achieved through the SMIs as more areas particularly in the less developed states are being

allocated and developed for the purpose of SMIs. Let’s take the example in the state of Malacca

itself, the SMIs here can be seen in terms of souvenirs and the traditional food like ‘cencaluk’

and ‘dodol’. On the south side of peninsular, for instance Kelantan and Terengganu, focuses on

the batik textile and ‘keropok lekor industry. It was defined too by the government that every

state will focus on certain industry so that every sector were touched and develop respectively.

By this method, every state and sector were given the authority to develop their own specialty
and this shows there are no bias. Apart from that, the development of SMIs to these states

created employment opportunities as most SMIs used labour intensive production techniques.

With the development of SMIs, it can increase the value added of local commodities and

resources thereby increasing diversification of economic activities. The government encourages

the production of food with high value added, for example, canned food and juices from local

fruits. Examples are Brahim’s or MILO. MILO is one of the chocolate drinks that were packed

and sold under the beverage category SMIs. Nowadays, MILO added value in their ingredients

and they come out with varieties of flavor like the Mocha, Milo with Cereals and Milo Ice Cool.

These added values MILO were sold instantly and did get support from the people which mean

that people are interested in the value added to the packed food. This will not only increase the

income of those involved in the SMIs.

Problem faced by the SMIs

It can’t be denied that SMIs does contribute to the national economy but if were to

compare with the large industries’ contribution, it still can be considered as a small portion.

SMIs faced several obstacles that slow down their success in achieving wider profit.

We are able to identify that the SMIs had faced with the problem of shortage of skilled

personnel. The lacked of qualified manpower couple with limited R&D have led to the low level

of innovation within SMIs. The SMIs are unable to upgrade existing products or diversify into

new products. Without the compatible and total amount of skilled employees the SMIs could not

produced a high quality product to be served to the customers. Due to that, they are unable to

upgrade existing products or diversify into new products. We can take example of the handicraft

that the SMI are selling in Malacca. In order to develop or create the handicraft, the skilled
workers are basic needs to produce a finish product. Handicrafts are supposed to be finished with

fine craved and shape and these need to be done by those who are skilled enough. Customers

always wanted new things where they get attracted and they easily bored if there are no

enhancements or newer products. Thus, the R&D shall play their part by doing research and

come out with solutions that identify what are the things that will attract the customers. It is a

fact that needs and wants of the people are unlimited and so the sellers were the one to fulfill

their interest. The environment for industrial R&D activities enhancement still not well

developed and this shows the failure of the SMIs to be more success.

Next problem will be the low productivity and motivation among the workers of SMIs.

Most SMIs are dependent upon either family members or part time workers. When the

employees are working under their family business, they tend to not committed in doing their

business whereby they know they will not to be charge onto anything if they come up late or

didn’t finish their works on time. On the other hand part time workers are not firm and they

usually work to assist their income and not because committed or interest in completing the job

in SMIs. The businesses of Keropok Lekor for instance are usually developed by generation in a

family. They usually inherit their business to their next generation which is their own family too.

When working with own family, the workers tend to take for granted in either to commit with

their job or not. They become demotivate as they are working in the same environment with the

same people doing the same thing over and over again for years. This will lead to low

motivation and also low productivity. Since they are unable to pay technically well trained

workers, low salaried and unskilled workers are being employed. As were mentioned in the

needs of hierarchy by Maslow, there are five stages that need people tend to demand. The first

will be the needs of necessities like food, air and shelter. Followed by safety, need for a secure
and stable environment and the absence of pain, threat and illness. The third stage will be the

love, affection and interaction with others whereby they need to interact with other social co

workers and lastly is through personal achievement as well as social esteem through recognition

and respect from people. If all these needs were fulfilled then the employees will retained in their


The third problem that was to face by the SMIs will be the poor linkage development

with other sectors. Generally, the SMIs in Malaysia produce relatively little intermediate

products for larger industries. This is due to the low level of technology development among the

SMIs. Without the technology we are unable to develop something new and are unable to create

new networking and cooperation with other sectors. If we are using the technology and we

possessed skilled enough workers we might able to combined or link up the industry of textile

and leather for instance and develop into something new. Although such linkages have increased

in the past two decades, we are still far behind if were to compare with the SMIs in Japan, Korea

and Taiwan.

Other than that the SMIs in Malaysia are lacked of market access. The market access here

is usually depending on the local market. Their inability to penetrate export markets is caused by

the lack of funds and the inability to initiate the R&D activities, which results in unattractive

packaging and labeling, insufficient and inefficient promotion and poor product quality. Once the

product export to other country we tend to gained lots of demand and we are able to develop our

products by hiring well trained workers and fresh workers that are possessing with lots of fresh

new ideas. These new ideas are stepping stone for the betterment of the products. With wide

market access we are able to develop new contacts and networking other than new cooperation

with other countries. For an example if ‘dodol’ industry were to export to oversee, we can notice
what other customers wants and also we can introduce and let the world know our traditional

food. By advertising our local food to others, we will attract customers and visitors to our

country and this will lead to higher income in the economy.

The fifth problem of SMIs is the inadequate finance. Money is not everything but money

is needed for everyday life. Without finance assistance, we are unable to hire consultant or give

better payment for our employees. Without finance we are unable to hire the R&D to develop

new creation based by our product and so the product becomes unattractive as there is no

advancement of the product. Capital requirements are financed by owners’ own savings, ability

to expand train their employees, compete as well as to use modern and up to date techniques. If

the product remains as it seem without any modernization, the product will lost its ability to be

sold to the public. In this era that changes rapidly, the needs of modernization is needed because

technology is vital nowadays and every product needs technology. If the finance is inadequate it

is hard for the product to develop into a new one.


The first solution is the need of integration of SMIs with the large industries. The

development strategies for SMIs emphasizes on the linkages between SMIs and the larger

industries and facilitating SMIs to penetrate export markets. The vendor development

programmes, which started in 1988 with the implementation of Proton Component Scheme was

extended to other industrial subsectors such as electrical and electronics, wood based and

engineering industries. With the integration of two or more industry, a new product can be

created and will attract the consumers. For example, tripartite arrangements which involved the

Ministry of International Trade and Industry (MITI), anchor companies and financial instituitions
were introduced to accelerate the implementation of the vendor programme. MITI coordinated

with the programmed while the anchor company guaranteed the market to the vendor, and the

financial instituitions provided loans to the company. Many Bumiputera entrepreneurs benefited

under the joint programme, Petronas, Telekom Malaysia Berhad,(TM) and Tenaga Malaysia

Berhad (TNB) were involve in the development of vendors through a similar programme

managed by the Ministry of Finance.

Next solution is by enhancing the skilled manpower. In order to enhance the manpower

skills, the government and the private sector should have well coordinated programmes and

training facilities. Investment toward training is very much needed although it might be costly.

Once the employees know how to do their job, they are able to come out with fresh ideas and

able to complete their job in the mean time. They will understand what are they suppose to

achieve and also they are motivate in doing their job because there know what and how they are

suppose to do. As an addition, in the training itself, they will motivate the self esteem of the

employees so that the workers know they are the asset and value to the company.

The third solution is increasing the financial assistance. The credit guarantee corporation

(CGC) was introduced in 1975 to encourage commercial banks to provide more loans to the

SMIs. In 1981, with the implementation of the special loan scheme, loans up to RM50, 000 could

be provided to SIMs without any collateral provided the project was viable. In 1980, the World

Bank granted a loan of US$100 million to the Malaysian government. The loan meant for

financing the SMIs and was managed by the Development Bank of Malaysia. In 1990, the setting

up of the Industrial Technical Assistance helped financed the SMIs projects.

The last solution is by increasing the participation of the Bumiputra. Various agencies are

need to increase these population to join the SMIs. Agencies like MARA for an example, was

established mainly to help the Bumiputra. It was develop to increase and assist the Bumiputra

participations in SMIs. MARA provide financial assistance and also training for those who has

interest in doing business. For an example, those who want to be tailor are to be send for training

for 3months. During the 3 months ahead, the participants were bear by MARA in terms of shelter

foods and facilities. Advisory and consultancy services were also provided for those

entrepreneurs under MARA.