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MEGATREND 5 BLURRING BOUNDARIES
Blurring boundaries can be defined as the emergence of business ecosystems across traditional
silos. Moreover, it is the transformation towards the vague and indistinct perception of previously
clear and identifiable borders. Ultimately, the most apparent observation has been an upsurge of a
global workforce no longer restricted by the requirement of physical proximity. Moreover, the evolution
of modern business ecosystems has provoked more collaboration, co-creation and innovation that
capitalise on both internal and external knowledge for competitive advantage. In addition, the rise of
global markets has drastically increased competition, especially for MSMEs, due to the challenges in
competing at the international level.
MEGATREND 6 DISPLACEMENT
Displacement is defined as the movement of people, ideas, and challenges across the globe. This
megatrend encompasses the mobility, flexibility and agility of how business is conducted globally.
Urbanisation has caused the displacement of many socioeconomically disadvantaged groups, while
gentrification has pushed out previously settled groups to other low-cost areas.
The issue of mass migration has led to the movement of labour, which also contributes to the nation’s
brain drain, the emigration of skilled workers for better opportunities in developed countries.
As mobility has been largely favourable due to constant connectivity, this has led to investments
focusing their sights on digital infrastructure. Furthermore, the relaxing of trade barriers and the
free movement of labour and capital across traditional boundaries have resulted in the integration of
global supply chains that affects different stages in the production of goods.
CONSUMER TRENDS
Digitalisation Increased Accessibility to Global Connectivity and Investment
The rise of the digital economy has had cascading effects on the impact of digital services. These
impacts are far from unnoticed as global investments have been gaining substantial traction in research
and development on the construction and maintenance of infrastructure supporting a cohesive digital
ecosystem. The increasing trend in investments comprised of communication service providers, digital
services and content providers and software and hardware manufacturers, make the digital economy
possible. Furthermore, global investments have shifted emphasis from assembly and manufacturing
towards innovation, logistics, marketing, branding and design, as digital connectivity champions
intangible assets that have become even more important throughout the global value chains (GVCs)5.
Zooming into the local landscape, the COVID-19 pandemic has affected the growth of the digital
economy tremendously, as it opens avenues to numerous new digital infrastructure investments in
Malaysia. In 2020, investments worth RM3.9 billion were approved for a total of 45 MSC status projects.
Out of the RM3.9 billion, 66.2% came from domestic investments, while the remaining 33.8% came
from foreign investments.
Increasing Foreign Media Influence
Infrastructure and technological advancements have made the displacement of goods and services
easy. Mobility is now no longer an issue and foreign products can now be conveniently purchased at
the comfort of one’s home. This has altered consumer preference, leaning towards buying cheaper
imported goods over local goods, influenced by the prevalence of international media.
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With rising consumption of international media contents such as Netflix, Spotify and YouTube, local
viewers tend to follow global trends. The influence of local entertainment channels weakens as people
are inclined towards international media subscription.
Hence, the online visibility of local businesses is hindered by limited audience that is less interested
in local content. This has led to the local phenomena of businesses needing to compete with global
players to win a limited share of local consumer purchases.
An example of how foreign media has influenced customer 13%
purchasing behaviour can be seen through the impact of Netflix’s
most watched show called 'Bridgerton' on retail purchasing by Empire Line Dress
shoppers inspired to recreate Regency London.
SPS Commerce, a US-based public corporation that provides 27%
digital tools and services internationally, reported a rapid increase
in sales growth of retail products since Bridgerton’s release. Puff Sleeve Dress
This highlights the power that media content has on consumer 26%
behaviour, which is something that businesses need to capitalise
on. Better visibility in local media will be insufficient to catch Corsets
the larger market. Therefore, it is important for businesses to
understand their product offerings and innovate their customer 18%
strategy to penetrate the global market.
Antique Jewelry
Source: SPS Commerce, The Power of
Netflix on Consumer Behavior2021
MARKET TRENDS Chart 2.10: Benefits of a Mobile Workforce
A Shifts towards Collaborative
Economy and Mobile Workforce
The market has transitioned towards a
cross-collaborative style of international
effort as blurred global boundaries has led
to the enhancement of business ecosystems
unconstrained by the need for physical presence.
The extent to which globalisation has cleared the
path for a collaborative economy is primarily due
to the technology that enables a mobile workforce
(refer to Chart 2.10).
Source: IBM Report on Mobile Workforce
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Brain Drain Phenomenon
This phenomenon encompasses the emigration of highly skilled and highly qualified individuals, often
due to the lack of attractive opportunities locally. Certain initiatives that could provide solutions towards
this phenomenon are investments in horizontal policy measures, specifically within infrastructure,
education and technology transfers6. These measures have potential in enhancing access to global
value chains and accruing long-term benefits.
Diving deeper into Malaysia’s brain drain phenomenon, Talent Corporation Malaysia Berhad has
estimated that up to 2 million Malaysians, primarily non-Bumiputera, have chosen to live and work
abroad since 1970 due to the vastly better opportunities overseas to improve their standards of living,
compared to Malaysia. The brain drain phenomenon has grown at an average rate of 6.0% per annum
and has not been compensated with a similar inflow.
Reverse Brain Drain (RBD) Initiatives
Malaysia has undertaken proactive steps in tackling the brain
drain issue. Beginning from the execution of the Rancangan
Malaysia Kesepuluh (RMKe-10), Talent Corporation Malaysia
Berhad (TalentCorp) had been established to drive Malaysia’s
talent strategy towards becoming a dynamic talent hub;
attracting, nurturing and retaining the right expertise needed
to meet the talent demands of today and the future.
In addition, one of RBD initiatives under TalentCorp named the
'Malaysia Returning Expert Programme (REP)' had successfully
brought back 5,774 Malaysian professionals from abroad as of
December 2020, bringing home their valuable experiences,
skill sets and knowledge to contribute to Malaysia’s nation
building and developing a world-class talent pool.
TECHNOLOGY TRENDS
Impact of AI on Consumers
In line with technology and connectivity fostering transparency, mobile applications are providing
insights to consumers through data comparison. These machine learning algorithms can assess and
compare different metrics aligned with consumer purchasing criteria to suggest alternatives on a global
scale. Through such feature, competing products can be compared instantaneously regardless of their
locations and proximity from each other. It is more important now for firms to address their product
offerings across the board, as competing information on purchasing criteria are at the consumer’s
discretion.
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Mobile Applications Boosting Consumer Empowerment
GoodGuide, a startup founded in 2007, that provides online applications that
empower consumers to shop according to their values through scanning the barcode
of products and relaying its health, environmental and social impacts. If a product
has a low rating for the values and impacts of your choosing, GoodGuide proposes a
more environmental-friendly brand with a higher rating as an alternative.
This success of this startup was exemplified during its acquisition by the business
division of Underwriters Laboratories (UL) in 2012, one of the oldest and most active
product safety certification firms.
Global Supply Chain (GVC) Integration
Technological advancements in distribution and logistics services have become enablers for increased
supply chain efficiency, which enables increased participation in GVCs and global trade. The prominence
of cross-border shipping due to the rapid growth in trade of manufactured goods, together with the
global liberalisation of trade policies, allow firms to allocate different stages of production processes
in different countries7.
Presence of Digital Footprints
Digital technology has become increasingly pervasive through the convergence of mobile communication,
product tracking and authentication, which allows for information to be traced in the form of digital
footprints.
This is an empowering phenomenon where stakeholders subject to continuous improvement and
accountability may objectify performance metrics that can be viewed through every stage of the value
chain. This scenario is particularly beneficial in obtaining data on procured items, and ultimately in
tackling supply chain disruptions and illicit trade.
POTENTIAL CONSIDERATIONS FOR MSMEs
¢ MSMEs need to increase their digitalisation efforts as every business has increasing opportunities on a
global scale.
¢ MSMEs should improve efforts in co-creation and cross-border collaboration to leverage on varying
capabilities of the global and mobile workforce for collective success.
¢ As consumers have increasing access to information, MSMEs need to act responsibly throughout their
value chains.
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POLARISATION AND AGING
A rapidly aging population paired with an increasingly polarised society may bring about adverse
consequences if not given adequate attention. These generational changes in values and priorities
take effect in all avenues of life, including the workplace, in which rising division into two sharply
contrasting groups, beliefs or opinions, occurs in tandem.
MEGATREND 7 POLARISATION
Polarisation is defined as the merger of the twin phenomenon of divisiveness and divergence. It is
the act of dividing something, most commonly referring to people or opinions, into two completely
opposing groups. The wide array of access to information and communication technologies (ICT) and
increased individual empowerment have accelerated this phenomenon even further. This has resulted
in societies, which have increased visibility and outreach with regards to their ideas and vision along
with the power to leverage global connectivity, to break from traditional status quo.
MEGATREND 8 AGING
Aging, with respect to the population, is defined as the change in values, cultures and priorities across
generations. These changes represent the accumulation of prior changes over time and comprises
psychological, behavioural and social aspects. As advancements in medical technology and healthcare
services improve, the possibility of having an aging population also follows suit. Moreover, the aging
population is accompanied by changes in diet and an overall lower fertility rate, resulting in the current
population aging at a much faster rate compared to previous generations. This phenomenon is also
exacerbated by the fact that there is a digital rift between young and old, as digital adoption lags among
senior workers, precipitating a labour market division between young and old.
CONSUMER TRENDS
Products Geared towards the Aging
Population
Population size is intrinsically tied to market
demand as it impacts the demand and supply of
goods and services, in addition to their associated
pricing. Current market demand is more reflective
of past demand and supply measures, whereas
the consideration of the current population size
sheds light on the future market demand of such
goods and services. As the aging megatrend
continues to affect consumer demographics,
firms need to increasingly innovate and enhance
their product offerings to cater towards the
growth of the elderly to avoid forgoing potential
future market share (refer to Chart 2.11).
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Chart 2.11: Percentage Share of the Population Aged 65 Years or Over
6% 9% 16%
1990 2019 2050
Source: World Bank, World Population Ageing Report 2019
Digital Media Polarising Mindsets
With e-commerce on the rise in an increasingly polarised society, it is more important now to have
an accurate and effective online presence. The strong associative nature between online content and
purchasing behaviour has resulted in an emphasis towards careful target market selection, as there is
an increased opportunity cost if marketing channels cater the wrong target audience.
The current rate of society’s online presence and near-constant connectivity has led to social
media’s immense influence in shaping consumer mindsets, along with the ability to polarise certain
demographics through tailored information and content.
Digital Marketing through Curated Content
As social media continues to diffuse across multiple aspects of society, it is important for businesses
to adapt their marketing strategies to fit the current trends that persist. The shift towards customer-
centric philosophies and focus on customer experience is more important today, as polarised audiences
for marketing campaigns require personalisation through touchpoints that are individual-specific,
resonating with their associated ideologies.
Moreover, social media marketing, especially for MSMEs, is less of an option and more of a requirement
due to online followings potentially being a source of repeat customers. This needs to be carefully
assessed as the marketing channel of choice should reflect the preferred social media platform of
its target audience. Within this avenue, consumers are being increasingly exposed to curated content
aligned to the respective individuals' interests alongside potential interests that have been carefully
selected based on estimated consumer behaviour profiling.
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MARKET TRENDS
Economic Shift towards Winner-Takes-All Market
Digitalisation and globalisation have radically shifted markets through scale and network effects8. This
has precipitated the shift from a Traditional Economy comprising fair competition with diverse market
shares to a technology-driven winner-takes-all Digital Economy.
The Digital Economy is estimated to make up 20.0% of Malaysia’s economy in 2020, and while current
MSME digitalisation rates are below par, it is still an important metric to gauge with an eye to the
future9. The most concerning aspect of this economic shift is that such large platforms have the
capacity to monopolise the market and dismantle any form of competition, in addition to diversification
opportunities in new sectors through ventures and acquisitions, thus denying potential new entrants10.
This case is exemplified through Grab’s dominant market position in Southeast Asia after the acquisition
of Uber.
Addressing Skill Set Disparity among Aging Working Population
As the population continues to age in tandem with the rise of the Digital Economy, a digital disparity
between the skill sets possessed and skill sets required by the current workforce grows further apart11.
The polarisation present, due to the demand for highly educated workers paired with lagging microchip
supplies, results in various cascading effects largely contributed by technological advancement12.
As more of the working population comprises senior individuals who may lack digital skills, there is
an increasing need to replace this talent mismatch, as the feasibility of upscaling the current aging
working population is unclear. Businesses, specifically MSMEs, require a highly educated workforce to
embrace and traverse the Digital Economy. Investments need to be made at the grassroot level within
skills and education, particularly Science, Technology, Engineering and Math (STEM) fields and Coding,
to address the requirements for the next generation workforce13.
Chart 2.12: Ratio of Older Dependents to Working-Age Population, 2010 to 2020
% 10.356%
10.5
9.623%
10.0
8.980%
9.5
8.373%
9.0
7.812%
8.5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
8.0 7.359%
7.5
7.0
2010
Source: World Bank staff estimates based on age distributions of United Nations Population Division’s World Population Prospects: 2019 Revision
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Dependency Ratio
Chart 2.12 shows Malaysia’s dependency ratio that depicts the continued increase on the ratio of older
dependents from 2010 to 2020, suggesting that the older population becomes increasingly dependent
on the working population as time passes. This phenomenon, coupled with an increase in retirement,
has caused a severe strain on social services that must cope with the rising costs of pensions, social
security and healthcare. This causes insurmountable pressure on the younger generation who must
consider the overall compensation package when surveying for job opportunities, as salaries need to
be complimented with medical insurance coverage to offset the growing price inflation in healthcare.
TECHNOLOGY TRENDS
AI Effect on the Digital Divide
AI technology is unfortunately a double-edged sword; while it is a key component in aggregate
economic growth through productivity improvements, there is contrasting variation with respect to the
contribution to economic growth.
The caveat present here is that within the digital rift, older adults lack technological skills due to
several factors ranging from physical incapability, scepticism and learning difficulties14. However, the
interesting fact is that once they have been introduced, digital technology often is integrated throughout
their daily routine which brings about the necessity for easily navigable and understood technology
interfaces (refer to Chart 2.13).
Chart 2.13: Digital Technology Potentially Generating Both Benefits and Risks
Inclusion Benefits Innovation
Efficiency
Digital Technology
Concentration Risks Control
Inequality
Source: World Bank, World Development Report - Digital Dividends, 2016
Data-Driven Marketing
Technological polarisation also occurs due to the availability of data-driven marketing as algorithms
designed to analyse and target content towards specific individuals. This phenomenon is further
exacerbated as individuals increase their affinity towards favourable trends, enabling the feasibility for
businesses to leverage different social media channels for advertisements catered towards different
target audiences.
These machine learning algorithms have also created linkages with consumer interests through
social profiling and related products, which will be marketed in tandem through targeted advertising
(refer to Chart 2.14).
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Chart 2.14: Data-Driven Marketing
Online User Visit Website Leave Website Advertisement
Visitors Return to Website
POTENTIAL CONSIDERATIONS FOR MSMEs
¢ Adapt product and marketing strategies to cater towards an increasingly aging population, leveraging
technological capabilities such as digital media
¢ Attract and retain digital native millennials through inclusive remuneration packages to address the
concerns of skill set disparity among an aging workforce
¢ Embrace digitalisation opportunities and leverage technology as a competitive advantage to not further
succumb to the digital divide
SCARCITY AND DEMATERIALISATION
By 2050, the global population is expected to rise to an estimated 9.8 billion people, with the highest
increment from Asia and Africa, which may lead to scarcity of resources. However, dematerialisation
has driven the industry to opt for alternative and sustainable options as the market demonstrates a
strong demand for such changes.
MEGATREND 9 SCARCITY
Scarcity is an economic problem in relation to the unsustainable consumption of earth’s natural
resources. Finding the equilibrium between the supply and demand of goods and services is becoming
more complex, as pricing is no longer the main variable driving the market, but also puts more weight
on environmental spillovers, as well as business ethics.
The rapidly expanding population and the rising demand for food, energy and materials continue to
strain the finite resources of the planet. Based on the National Intelligence Council Global Trends 2030,
as the global population reaches 8.3 billion people by 2030, the demand for energy, water and food is
forecast to increase by as much as 50.0%, 40.0% and 35.0% respectively. However, the supply chain
will face issues of insufficiency. Moreover, climate change, as well as arable land and water security,
are foreseen to become major global issues. Its severity will be intensified if businesses neglect to
emphasise on the importance of sustainability.
Therefore, there is an urgent need for more innovative solutions that can efficiently improve energy
efficiency, lower food waste and provide alternatives to scarce resources, which may ultimately lead to
reliable and sustainable solutions.
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MEGATREND 10 DEMATERIALISATION
Dematerialisation is defined as repositioning of value structures from physical to an intellectual base.
In the economic context, dematerialisation can be viewed as the reduction in the quantity of materials
required to serve various economic functions efficiently. In short, producing more with less resources.
Technological advancement, increasing connectivity through digital technologies, as well as the
emergence of a knowledge-based society, are the key factors that will transform the way we create
and provide value to an item. In essence, the value of an object is no longer determined solely based on
material judgement, but broadly covers immaterial possessions to trends towards new domains of life,
such as intellectual property, life quality, time, space and balance.
Furthermore, due to the shift in dematerialisation, physical commodities have been recently challenged
by consumer reception towards virtual commodities, such as cryptocurrency, where trading and even
facilitating transactions online are becoming more accepted by society.
CONSUMER TRENDS
Cryptocurrency and Emergence of Non-Fungible Tokens (NFTs)
The shift in how people value goods, from material to immaterial, has also shaped society’s perception
towards the change in currency usage, from physical to virtual. This has precipitated the emergence of
and strong participation in cryptocurrencies and non-fungible tokens (NFTs).
According to the Global NFT Adoption Report, Malaysians are highly receptive to NFTs compared to
the 20 countries surveyed. Malaysia is ranked as one of the highest usage countries showing 23.9% of
Malaysian internet users currently own NFTs.
Moreover, in line with this move, the number of Malaysians continuing to buy NFTs is predicted to grow
rapidly with another 10.5% indicating future plans to buy. Thus, the report concludes an estimation of
34.4% NFTs adoption by the end of 202115 (refer to Chart 2.15).
Chart 2.15: NFTs Adoption by Countries
32%
27% 24% 23%
17%
Philippines Thailand Malaysia UAE Vietnam
23.9% 10.5% 34.4%
Have NFTs Forecast
Planning to Adoption
Buy NFTs
Source: Finder’s NFT Adoption Report, 2021
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Conscious Consumerism Demanding Supply Chain Transparency
As information is easily accessible at the fingertips of consumers, firms are more vulnerable to
reputational risks and are subject to transparency demands by consumers regarding their supply
chain. Every component of society ranging from shareholders, consumers and governments have
increasing expectations for firms to acknowledge and be accountable for each stage of their extended
supply chain.
Therefore, firm-level supply chain integrity commands more forethought in corporate strategy, as the
current legal, social and business environment demands visibility on their practices.
Starbucks as an Example
Starbucks has an active approach in responding to this trend, which includes
investments in green retail, supply sustainability, as well as community engagement.
As of today, it is recorded that Starbucks is 1 percent away towards their goal of 100
percent ethically sourced coffee, reported by the Coffee and Farmer Equity (C.A.F.E)
Program. Furthermore, they currently run initiatives, such as the Caring Unites
Partners (CUP) Fund and the Feeding America fund that aim to provide 50 million
meal donations and divert 60 million pounds of food waste from landfills annually.
Raise in Customer Demand towards Green Products
As society continues its awareness on the importance of purchasing sustainably, it is worth
acknowledging that customers are more inclined to choose green products when choosing essential
goods over luxuries. A study on consumer behaviour suggests that consumers are increasingly
embracing sustainability and are willing to pay more for green products that adopt three (3) sustainable
brand practices as shown in Chart 2.16.
Chart 2.16: Blackrock Study on Consumer Behaviour
68% 69% 48%
Waste Reduction Producing Sustainable Reducing Carbon
Packaging & Adopting Footprint
Circular Practices Source: Blackrock, 2021
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MARKET TRENDS
Sustainable Production through Circular Economy
Businesses are increasingly adopting the model of a circular economy (redesigning products and
processes in such a way that goods can be used longer, repurposed or recycled to reduce costs and
wastage) which will be one of the biggest future market trends that could last for decades.
In recent years, among the 9.0% of market players that have implemented a sustainable business
model, it also includes significant involvement from the world’s most prominent industry players, as
well as Government agencies (refer to Chart 2.17). This suggests a growing level of traction and that
the global industry is actively moving towards realising the circular economy.
Chart 2.17: Market Players Implemented Sustainable Business Models
Plans to use 100.0% recycled From 2018 - 2020, Schneider Electric has
plastic bottles by 2025 saved 100,000 metric tons of primary
resources through the usage of recycled
Source: Climate Action, 2018 materials and introduced a circular
production process into its supply chain
Repurposing old garments into
building insulation, cushion Source: World Economic Forum, 2019
material, new clothing
Source: Levi Strauss, 2019
The Service Economy Chart 2.18: Progression of Economic
Value Model
Following the advent of the Industrial Revolution
which emphasises on a manufacturing-based Differentiated Stage
economy, the world of today is primarily Competitive Experience
characterised by the dominance of an overarching Position
service economy. The production of goods has Deliver
given way to the production of services, with Services
knowledge becoming a form of capital, and
information and ideas becoming commodified. Make
Goods
Developing nations are continually moving
towards their dominance in the service economy, Undifferentiated Extract
aided by the exponential growth and development Commodities
of the service sector. This movement towards Pricing Premium
services is evident through firms like Uber and Market
AirBnB, service-based businesses with extremely
low capital intensity compared to traditional Source: Harvard Business Review, Welcome to the
competitors. As the industry rapidly changes, Experience Economy, 1998
it is important to acknowledge that experiences
have emerged as the next stage of evolutionary
progression of economic value as explained in
Chart 2.18.
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TECHNOLOGY TRENDS
Adoption of Industrial Revolution 4.0 (IR4.0) and ICT tools
In order to improve competitiveness and productivity, businesses are encouraged to fully utilise modern
technologies in their operations. In this context, the adoption of Industrial Revolution 4.0 (IR4.0) and
ICT tools could offer many additional benefits, especially in minimising production costs and improving
the quality of products.
According to a Huawei study on the adoption of ICT tools among MSMEs, as MSMEs invest more in ICT
adoption, the tendency to yield higher productivity outcomes is high. Nearly all MSMEs (90.0%) have
achieved simple basic computing capabilities and internet connectivity using smartphones, laptops
and desktop computers. However, it is also important to consider the ICT adoption gap among MSMEs,
where far fewer MSMEs adopt more advanced digitalisation tools beyond simple computerisation
(refer to Chart 2.19).
Chart 2.19: Malaysia’s MSME Usage of ICT Tools, Services or Systems
Productivity
High Usage
Limited Usage
Mid / Low Usage
Smartphone 91.4% 70.5% Finance & Accounting 50.2%
Internet Connection 90.1% Social Media 43.8% HR 28.8%
Desktop / Laptop 86.5% E-Commerce POS 18.8%
Inventory 14.5%
CRM 12.5%
Supply Chain 12.3%
Order Fulfilment 11.5%
ERP 10.5%
Computing Devices & Front-end Business Back-end Business
Connectivity Process Process
Source: Malaysia Digital SME Study 2018, SME Corp. Malaysia & Huawei
Moving Away from Physical Asset / Presence
Currently, many consumers prefer to make online purchases via e-commerce platforms. This is
welcoming for businesses as e-commerce adoption removes the need for physical stores, reducing
overhead costs. Statistical analysis from the University Consortium of Malaysia shows that MSMEs that
utilise e-commerce selling platforms see 27.0% higher productivity. Besides this, MSMEs using data
management solutions report a 60.0% beneficial impact in overall productivity (refer to Chart 2.20).
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Chart 2.20: Productivity Improvement among MSMEs Following Utilisation of Digital Tools
+27% +26% +60%
E-Commerce Social Media Data Management
Source: Malaysia Digital SME Study 2018, SME Corp. Malaysia & Huawei
POTENTIAL CONSIDERATIONS FOR MSMEs
¢ Businesses should invest in sustainable business models as Green Products and Supply Chain
Transparency become key consumer considerations when deciding their essential good purchases.
¢ 34.4% of Malaysia’s internet users are forecasted to participate in the trading of digital currencies by
2021. Businesses should seize this opportunity by offering business solutions in line with the increased
level of participation.
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STRATEGIC FORESIGHT MODEL
The strategic foresight model provides a structured tool to assist businesses in meeting future trends
and needs. It is a structured tool in assisting business owners evaluate their current business position
and ability to navigate through future changes and challenges. The assessments are based on five
(5) key components that are closely related to businesses that will be assessed through the lenses
of five (5) megatrends which have been identified. In general, the exercise aims to guide MSMEs in
anticipating the disruptions caused by megatrends in the next 10 years, while preparing businesses
to take necessary steps to address their future business needs and sustainability (refer to Chart 2.21).
Chart 2.21: Strategic Foresight Model
Understanding Your Getting your Cash Flow Reorganising Your
Customers’ Needs in Order Supply Chain
How have expectations Understanding the How to evaluate your
changed and how do current health of your supply landscape,
you communicate business, to prepare for understanding how it has
the ‘new normal’ changed and forecast
your future needs
Global Megatrends & the Development of MSMEs
Empowerment & Erosion of Hyperconnectivity & Blurring Boundaries &
Governance Disengagement Displacement
Individual empowerment and Staying connected while People, ideas and challenges
erosion of governance essentially physically apart has been made are diffusing swiftly on a global
precipitates the global decline possible by many factors, such scale and business ecosystem,
of traditional order. This owes as the significant advancement are beginning to take on many
itself primarily to the eradication of internet connectivity and different forms. It is imperative
of poverty and the increasing communication technology, as to view and assess these two
middle-class, particularly within well as the decreasing need megatrends along with their
Asia as it emerges as a global for in-person engagement. associated impact, as the
production hub, attributed to the Hyperconnectivity and highly interconnected state of
region’s significant advancement disengagement refer to two current society will only enforce
in education, technology and polar-ends of connection but, their relevance further in the
healthcare. remain well-integrated together. impending future.
Rethinking Your Workforce Digital Enabling Your
How do affect from the Business
crisis impact in the capacity,
capability and affordability How business can make use
of your workforce of digital tools and assets to
increase its growth
Global Megatrends & the Development of MSMEs
Polarisation & Aging Scarcity & Dematerialisation
A rapidly aging population paired with By 2050, the global population is
an increasingly polarised society may expected to rise to an estimated
bring about adverse consequences if 9.8 billion people, with the highest
not given adequate attention. These increment from Asia and Africa, which
generational changes in values and may lead to scarcity of resources.
priorities take effect in all avenues However, dematerialization has
of life, including the workplace, in driven the industry to opt for
which rising division into two sharply alternative and sustainable options
contrasting groups, beliefs or opinion, as the market demonstrates a strong
occurs in tandem. demand for such changes.
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FOCUS AREAS AND KEY SUCCESS FACTORS
SME Corp. Malaysia will focus on five (5) focus areas and five (5) key success factors for the next nine
(9) years (refer to Chart 2.22) when developing the strategies and initiatives for the Business Strategic
Plan (BSP). The definitions of the focus areas and key success factors are as follows:
¢ Focus Areas are key elements within the industry that must be emphasised for the future of
MSME development, taking into account areas that SME Corp. Malaysia has an active and direct
role in.
¢ K ey Success Factors (KSFs) are aspects that should be considered to support the focus areas.
They also include initiatives that are identified as important, but not necessarily to be led by SME
Corp. Malaysia.
Chart 2.22: Focus Areas and Key Success Factors
5 FOCUS AREAS
Value Chains in High Internationalisation of Microenterprises & Digitalisation & Recalibrating the Central
Automation of Coordinating Agency (CCA)
Impact Industries SMEs Inclusive Groups Role of SME Corp. Malaysia
MSMEs
5 KEY SUCCESS FACTORS
Technological Adoption & MSME Access to Financing ESG Compliance
Modernisation
Triple Helix Collaboration Government Service Delivery
¢ Focus Area 1: Value Chains in High Impact Industries looks into identifying and developing value
chain in key high impact sectors of interest for MSME development
¢ F ocus Area 2: Internationalisation of SMEs identifies the need for SMEs to become more
involved in regional trade and business cooperation, aiming to enable more SMEs to gradually
shift from domestic to global focus
¢ Focus Area 3: Microenterprises and Inclusive Groups identifies the need for business inclusivity
and how microenterprise development can be made more impactful for the inclusive groups in
Malaysia
¢ F ocus Area 4: Digitalisation and Automation of MSMEs looks into accelerating the uptake of
digital technologies and automation among MSMEs to improve productivity and efficiency
¢ Focus Area 5: Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
focuses on realigning the objectives of SME Corp. Malaysia with various Ministries and agencies
on the development of MSMEs in Malaysia
¢ The five (5) KSFs lend support to the overall strategies that cut across the Focus Areas. The
strategies developed within the purview of the focus areas consider each of the five (5) KSFs,
depending on their relevance
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FOCUS AREA 1 VALUE CHAINS IN HIGH IMPACT INDUSTRIES
This focus area primarily looks into promoting MSME involvement within high Impact industries by
addressing the challenges faced in terms of:
¢ Business linkages with larger firms through value chain integration and promotion
¢ Capability and capacity development through training and certification
¢ Requirements / compliance for market access through technological and process compliance
advisory
The global shift of value from the physical and material towards innovation and technological
advancements is prevalent. Among the key factors that accelerate this movement include the
emergence of a knowledge and tech-based society (refer to Chart 2.23).
Chart 2.23: Emergence of Knowledge and Tech-Based Society
INCREASING SUSTAINABLE SUPPLY CHAIN GREATER ADOPTION OF AUTOMATION & IR4.0
INTEGRATION TECHNOLOGIES
The importance of ESG compliance among both domestic IR4.0 has placed emphasis on innovation manufacturing
and international supply chains increasingly shift the focus and an overarching service economy. Furthermore, the
from traditional profit maximisation to circular supply chain growth and monetisation of data and consumer habits
management, redesigning processes that reduces waste allow producers to predict and anticipate high growth
sectors of the future. Oxford Economics expects that the
9% of global companies and governments have
adopted ESG and are redesigning for the circular market size of digitalisation will surpass 24.3%
economy of global GDP by 2025
Challenges in Developing Value Chains in High Impact Industries
There are a myriad of challenges facing high impact value chain integration that limit the potential of
MSMEs to be involved in high impact sectors. Principally, the weakness between MNCs / large firms
and SME supply chain linkages is a persistent issue, with several Input-Output (IO) research papers
noting that larger firms tend to source their inputs overwhelmingly through imports and from other
large domestic firms rather than local SMEs.
Malaysian SMEs suffer from productivity challenges through the lack of appropriately skilled talent in
the labour pool, while lacking effective employee training programmes to upskill their existing labour
pool. Additionally, the technological gap between SMEs and large firms presents immense challenges
in closing the productivity gap between the two groups. Further, the availability of cheap foreign labour
discourages SMEs from making the necessary investments into technology and automation to increase
productivity.
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Chart 2.24: SME Large Firms Input Purchase
WEAK SME SUPPLY CHAIN LINKAGES LOW PRODUCTIVITY AMONG MSMEs
Weak input procurement linkages from SMEs by MNCs SMEs suffer from An HRDF Study found that:
limits the growth of smaller companies as market demands weak productivity
a shift towards high-innovation goods. levels due to the 65%
lack of production
Large firms source their inputs from: automation and of SMEs reported needing better IT
poor human capital skills training
0.9% 25.4% SME development
among its 40%
Microenterprises Imports Buy Buy workforce.
14.5% 10.2% of SMEs provided training to
9.3% 23.8% from its employees, with only 11.7%
from of training towards quality and
Small & medium- productivity
sized firms MNCs / Large LARGE FIRMS
Firms
Source: SME Input-Output Table: Analysis and Impact, SME Corp. Malaysia
In identifying high impact industries, the following indicators and measurement were used (refer
to Chart 2.25):
Chart 2.25: Indicators to Measure High Impact Industries
Growth Potential Employment Contribution: Industries that offer
resilient, high value employment growth improve
Gross Domestic Product (GDP): Industries with economic livelihoods
high GDP contribution improves the economic Gross Operating Surplus (GOS): Industries that
resilience of their MSMEs can maintain strong margins allows for profitable
Exports Contribution: SMEs in industries with competitive from MSMEs
strong exports tend to be insulated from domestic Presence of MSMEs: Industries that produce a
economic shocks range of MSME diversification are beneficial for
Productivity Growth: Industries that demonstrate overall MSME development
high productivity growth is crucial in enhancing
MSME capacity Industry Maturity: Sunset industries have lower
levels of success and opportunities for MSMEs to
Industry Readiness establish themselves
National Policy / Direction: Sectors should be in
line with national development priorities in order to
be well supported
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As part of this identification process, the industries identified under RMKe-12, Tindakan Pembangunan
Bumiputera 2030 (TPB 2030) and Shared Prosperity Vision 2030 (SPV 2030) were mapped against SME
Corp. Malaysia’s existing focus industries. It can be observed that five (5) industries from the existing
focus overlap with the national policies. Other industries could be considered as part of the high impact
industries subject to meeting the necessary indicators as mentioned in Chart 2.25.
Chart 2.26: Venn Diagram of Three (3) National Policies
RMKe-12 TPB2030
Global Smart Tourism Creative Halal Digital IR4.0 Islamic New Sectors Identified
Services Farming Arts Industry Economy Financing under TPB:
Aerospace E&E Biomass / Renewable Energy Centers of Green Maritime Modern
Construction
Medical Oil & Excellence Economy Economy
Devices Gas Safety &
Transport & Agarwood / Service ASEAN Defense
Logistics Commodities 2.0 Modernisation Hub
SME Corp. Malaysia’s Existing High Impact Industry Focus (including PRESTIGE) SPV 2030
Based on the high impact definition and the mapping of industries from other national policies from
chart 2.26, eight (8) potential high impact industries have been identified to be considered by SME
Corp. Malaysia. These industries were selected based on their growth potential and the policy direction
provided by the Government through the national policies. The selected industries will be the focus of
SME Corp. Malaysia moving forward within Focus Area 1 (refer to Chart 2.27).
Chart 2.27: High Impact Industries
Smart Agriculture16 Aerospace17 Electrical & Medical Devices19
Electronics18
RM60,300 RM55.2 billion RM15.4 billion
RM120 billion
Labour Productivity in 2025 Industry Revenue by 2030 Annual Exports Value in 2021
GDP Contribution by 2025
RM25.06 billion 32,000 RM10.4 billion
RM495 billion
GOS Contribution by 2030 High-Paying Jobs Created GDP Contribution Value
Exports Value by 2025 by 2025
11,156 jobs
Employment Creation
Halal Industry16, 20 Tourism16 Oil & Gas21 Biomass / Biotech16
RM475.4 billion RM36.45 billion RM40 billion RM377 mil
GDP Projected in 2030 GOS Contribution by 2030 GDP Contribution by 2025 GOS Contribution by 2030
RM11.75 billion 8,367 jobs 60,000 1,631 jobs
GOS Contribution by 2030 Employment Creation Skilled & Semi-Skilled Jobs Employment Creation
10,924 jobs
Employment Creation
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FOCUS AREA 2 INTERNATIONALISATION OF SMEs
This focus area prioritises the need to upscale the productive capabilities of SMEs, while encouraging
international commercial cooperation with international partners through:
¢ Business linkages with foreign firms can be fostered through closer trade facilitation
¢ G2G initiatives on international trade with strong collaboration with business associations
¢ SME training in international certification and standards for exports
The global trend towards the liberalisation of trade and GVC linkages presents both challenges and
opportunities for Malaysian SMEs. Current trends indicate a significant shift in modern business
ecosystems that foster more collaboration, co-creation and innovation, which capitalises on both
internal (technology & productivity) and external (market analysis) knowledge for competitive
advantage.
Challenges in Internationalising SMEs
There are several prevalent issues in boosting the exports of SMEs. Statistical evidence derived from
the ASEAN SME Policy Index Report 2018 indicates that only a minority of Malaysian SMEs are involved
in direct exports, with 4.3% of small firms and 19.2% of medium firms being involved, compared to
nearly 70.0% for large firms22. Firm level analysis also suggests that SMEs are highly underrepresented
in exports with their involvement more focused at the lower end of the GVC and have limited access
to market information and data technologies. Notably, in Malaysia, 72.0% of large firms have met
international-exports quality standards, however only 8.5% of small firms and 15.6% of medium sized
firms meet similar criteria. As such, intervention is required to help narrow the gap and facilitate
international trade.
Chart 2.28: High Financial Barriers to Adoption of Digital Technology &
Lack of Non-Tourism SME Exposure to Exports Markets
HIGH FINANCIAL BARRIERS TO PROCESS LACK OF NON-TOURISM SME EXPOSURE TO
MODERNISATION AND AUTOMATION EXPORTS MARKETS
Concerning when 50.0% of Malaysian SMEs cite According to SME Corp. Malaysia’s IO analysis, MSMEs in
high financial requirement as a barrier towards total exported 26.4% of their total output while large firms
exported 42.6%.
adopting digital technologies and automation processes
which includes the costs associated with internet >33.0% 55.6%
connectivity, digital hardware, software subscription and
worker upskilling. This barrier acts as a major hinderance Nevertheless, over 33.0% of Over 55.0% of the total
to develop the capabilities necessary for international GVC SME exports were generated SME population was
collaboration. by tourism prior to the involved in the tourism
pandemic, notably in the sector.
travel services sub-sector.
Source: KRI Research Source: SME Corp. Malaysia, DOSM
Globalisation opens new opportunities for SME internationalisation, providing SMEs with higher quality
factors of production and knowledge transfers, as well as new markets to penetrate. However, SMEs
face risk in trade competition as foreign goods and services enter the domestic market.
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As indicated, Malaysia has a high level of trade openness with its international peers. Below table lists
down Malaysia’s Top five (5) exports partners globally (refer to Table 2.2).
Malaysia’s total trade (total exports and imports) as a percentage of GDP hovered at over 116.0%23 in
2020, suggesting a high level of trade intensity. Therefore, as more trade agreements come into force
especially RCEP, SMEs must be empowered to take advantage of new trade opportunities.
Table 2.2: Malaysia’s Top Five (5) Exports Partners, 2020
Country Exports Value (RM bil) Share of Exports (%)
China 159.2 16.2
Singapore 142.2 14.4
United States 109.1 11.1
Hong Kong 68.2 6.9
Japan 62.6 6.4
Source: MATRADE, Deloitte Analysis
Current Trade Agreements – ASEAN Free Trade Agreement (ASEAN FTA)
Among the trade agreements currently in-force, the ASEAN FTA remains as Malaysia’s most useful and
consequential agreement in its history, with intra-ASEAN trade taking up the lion’s share of Malaysia’s
total trade, accounting for over 25.0% in 2020.
Deepening trade linkages with Malaysia’s ASEAN trade partners helps to build stability in long-term
regional supply chains, while opening avenues towards greater GVC opportunities.
Likewise, there are avenues for deeper MSME cooperation and linkages, especially through the ASEAN
Coordinating Committee on MSMEs (ACCMSME), of which Minister of Entrepreneur Cooperatives
and Development (MECD) currently sits as the Secretary General. Currently, cooperation principally
takes the form of knowledge-sharing. However, more could be done in considering other areas for
cooperation which may be more valuable, such as joint developmental projects among ASEAN SMEs.
Current Trade Agreements – Regional Comprehensive Economic Partnership (RCEP)
RCEP is a recently ratified trade agreement linking together ASEAN, Northeast Asia and Australasia
in a regional trade partnership. Coming into effect in early January 2022, the agreement opens vast
opportunities for market linkages with high-innovation firms in developed economies, such as Japan
and South Korea. It should be noted here that unlike other trade agreements, the provisions within
RCEP are fairly loose by comparison, with multiple areas for negotiation, given the vastly different
economic complexities throughout its signatory members.
Importantly, Chapter 14 of the RCEP agreement contains provisions on SME development and allows
avenues of negotiation for Governments to promote and enhance SME linkages throughout the RCEP
region. Such SME provisions should be discussed among signatories to promote the best outcomes for
SMEs in accessing major markets in the region.
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Potential Framework of Cooperation for SMEs
The possible frameworks on collaboration with SMEs include various models of exports promotion,
such as exports consortia, strategic alliances and SME / MNC joint ventures, which may involve trade
anchor companies in technologically developed markets such as Japan, Korea and China.
Furthermore, Chapter 12 of RCEP on e-commerce features initiatives that encourage SMEs to
participate in the growing digital economy and leverage online opportunities in cross-border selling.
Meanwhile, the deal makes way for a uniform paperless system facilitating trade and digital solutions,
such as digital authentication, creating a seamless experience for both RCEP SMEs and customers.
Moreover, an agreed 92.0% reduction in tariffs within RCEP helps SMEs source for cheaper and more
sophisticated products to help them graduate towards a higher level of value chain development.
FOCUS AREA 3 MICROENTERPRISES AND INCLUSIVE GROUPS
The development of vulnerable groups in Malaysia is an important national goal pursued by the
Government. Hence, a structured intervention and ecosystem should be developed to scale up both
inclusive groups and microenterprises through:
¢ Implementing structured programmes with graduation period and clear targets
¢ Developing their digital capabilities through a digitalisation compass and toolkit
¢ Collaboration with HEIs to provide more effective skills training and capability development
There has been a strong shift from normal employment towards entrepreneurship, especially through
platforms that allow workers to work independently for other individuals or businesses, i.e. gig workers.
The increasing number of gig workers has brought about the rise in microenterprises globally, and a
stronger need to formalise businesses.
Challenges in Developing Microenterprises and Inclusive Groups
Aside from that, the severity of the pandemic and various MCOs on the fortunes of Malaysian
microenterprises could not be overstated. Evidence suggests that microenterprises are heavily reliant
on the domestic consumption market than on exports, making the impact from domestic shocks much
more damaging compared to large firms and MNCs. As consumer spending became heavily curtailed,
MSMEs bore the brunt of this disruption, resulting in over 31,000 business closures during the year
2020.
Moreover, oil prices had been climbing steadily upward since the commodity crash in March 2020,
sustained by greater demand in China and large stimulus packages the world over, while OPEC+ had
been slow to increase production, causing oil prices to rise, and thus the cost of production to skyrocket.
Meanwhile, constant testing and sanitation have placed added overhead costs to overall operations.
Target Groups within Microenterprises
Due to the vast number of microenterprises in Malaysia, it is unlikely for SME Corp. Malaysia to have
the capacity to take care of the needs of all microenterprises. Therefore, the organisation should
tailor its focus towards specific sectors to transform microenterprises into small size firms through
scaling-up and sustainability.
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Certain criteria and standards will be set to effectively filter out microenterprises that have the best
possibility for success, while intensifying its effort on small and medium enterprises to help achieve
macroeconomic targets instead of casting a wide net to all MSMEs, many of whom would already have
been targeted by other Government agencies. Some of the criteria include:
¢ Alignment to high impact industries
¢ Demonstrated willingness to grow
¢ End goal is not limited to survival
¢ Demonstrated sufficient business acumen / right entrepreneurial profile
Target Groups for Inclusivity
Statistics estimate that the number and categories of vulnerable groups are too wide for SME Corp.
Malaysia to take absolute care of. As such, SME Corp. Malaysia will focus on inclusive development of
several target groups, namely low income families, disadvantaged women, disabled persons, youths
and Bumiputera (refer to Chart 2.29).
Chart 2.29: Inclusive Groups
Low Income Group Bumiputera
B40 Income Group: > 3 mil households Bumiputera Population: ~20.6 mil
Persons with Disabilities Women Entrepreneurs
Disabled Persons: 453,000 persons Women-owned Enterprises: 186,000 companies
Youths
Youth Population (15-24 years): ~5.5 mil
Source: DOSM, 2021
Nevertheless, due to the scale and scope of such groups in Malaysia, there is a need to further refine
the focus by identifying the target groups with growth potentials. The approach of assisting these
inclusive groups is no longer about volume, but rather about quality.
FOCUS AREA 4 DIGITALISATION AND AUTOMATION OF MSMEs
Digitalisation of MSMEs is an important area of focus for the Government’s overall strategic focus on
the development of MSMEs. The pandemic has highlighted the requirement for shifting businesses
from manual procedures to the digital sphere. However, the term digitalisation is too broad, especially
for MSMEs and needs to be a targeted in a more concise way for a wider societal impact.
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Therefore, a structured and more defined approach in Government intervention should be implemented
to meet the digital needs of all MSMEs through:
¢ Incorporating more precise definitions for MSME digitalisation by sector and size
¢ Developing an MSME-specific digitalisation compass and diagnostic toolkit
¢ Collaboration with Higher Education Institutions (HEIs) to provide digital skills training and
development
There is a strong shift from brick-and-mortar operations towards digitalising the operations of MSMEs
brought upon by the pandemic. The global megatrends of hyperconnectivity and empowerment have
caused the use of e-commerce and digital communications to surge reaching over 20.0% of national
GDP in 2020.
Chart 2.30: Shift from Physical Shopping to E-Commerce and
Demand for 24/7 Services by Consumers
SHIFTING FROM PHYSICAL SHOPPING TO DEMAND FOR 24/7 SERVICES
E-COMMERCE
New technologies have allowed consumers to shift from Consumers are demanding real-time customer service and
physical shopping towards e-commerce solutions. support. This is due to a shortening of the average attention
span due to quicker access to information.
The digital economy is estimated to contribute up to
8sec A Microsoft study has shown that the average
25.5% to GDP by 2025 (RMKe-12). Meanwhile, the human attention span has reduced by nearly
value of e-commerce reached RM163.3 bil in 2020. 25.0% from 12 seconds in year 2000 to
8 seconds.
Challenges in Digitalising and Automating
MSMEs
There are severe challenges that exist in the effort to
digitalise and automate MSMEs. Notably, several studies
have consistently found that a lack of financing had polled
highest among MSME survey respondents, especially
when considering the costs associated with internet
connectivity, digital hardware, software subscription and
digital training. While many digitalisation grants exist for
MSMEs, the utilisation rate is still too low.
MSMEs also lack an appropriate and clear direction
in their digitalisation strategy, while displaying a high
degree of heterogeneity in their specific digital needs
across multiple industries. This is especially apparent
as a World Bank Survey in February 2021 revealed that
56.0% of MSMEs were reported to be either unaware of
the benefits of digitalisation or lacked a clear strategy
on how to implement digital solutions. Additionally, the
survey revealed that MSMEs lacked a proper channel on
where to find the necessary information on digitalisation
and where to find trusted digital service providers (refer
to Chart 2.31).
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Chart 2.31: MSMEs Reluctant to Invest in Automation and Challenges in Adopting Digitalisation
SMEs ARE RELUCTANT TO INVEST IN CHALLENGES IN ADOPTING DIGITALISATION
AUTOMATION
Though businesses acknowledge the Though businesses acknowledge the importance of digitalisation and
importance of digitalisation and automation, digital tools overall, several key factors have stood out that hinder
many SME are reluctant due to high initial adoption among SMEs. A survey on digital challenges among SMEs
investment costs involved in IR4.0. found:
96% of Malaysian manufacturers 49% 48% 48% 46%
were cautious of the high initial
investment for automation. Lack of Lack of Digital Technologies Lack of Digital
Financing Talent Unawareness Direction
Source: NCSU, 2019 Source: Malaysia Digital SME Study 2018, SME Corp. Malaysia & Huawei
Defining MSME Digitalisation
The word 'Digitalisation' is a broad term to describe the holistic process of transformation from
manual to digital processes. Malaysia Digital Economy Corporation (MDEC) describes the term as
'the use of digital technologies to change a business model and provide new revenue and value-
producing opportunities'. On the ground, the understanding of digitalisation still revolves around basic
digitisation, such as setting up a website and the use of social media as a marketing channel. While
it is acknowledged that such initiatives could be the starting point of a larger digitalisation journey,
it is not clear whether MSMEs would have the breath of knowledge and experience to chart out their
digitalisation blueprint / planning. This transformation process would differ from one firm to another,
especially when comparing firms of different sizes.
Digitalisation needs to be further refined based on firm size to adequately specify standard digitalisation
level that a firm of its size needs to adopt. Aside from that, digitalisation should be seen as an
intervention to overcome specific challenges that a business is facing. The following are examples of
typical challenges that could be resolved through digitalisation:
¢ Inefficiencies in production line / high cost of operations
¢ Lack of visibility in terms of customer satisfaction
¢ Low volume of quality marketing leads for sales conversion
MSMEs need to be guided to chart a general digital transformation blueprint based on the typical
challenges above. This would close the information and knowledge gap among the MSMEs with regards
to digitalisation.
Types of Digital Automation Tools that MSMEs Need to Adopt
MSMEs are largely unaware of the types of technologies needed to upgrade their productivity. While
most MSMEs are nominally computerised, i.e. laptops and smartphones, these are not enough as they
are usually worked on in silo as segregated units and not connected by digital tools. Furthermore,
there is still a significant number of manual processes among MSMEs.
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Moreover, MSMEs that have invested in front-end digital tools, such as e-commerce, and have already
increased their sales, may not be willing to nor be aware on how to invest further in digital tools. The
usage of advanced digitalisation enablers, such as cloud computing, IoT and data analytics, is still rare
among Malaysian MSMEs, while those that do, rely on the most basic functions.
To close this gap, an MSME-focused digital compass with self-diagnostic tools could be considered that
provides ready access to smaller firms to build awareness on where they sit, while giving e-business
advisory and strategic direction on what to implement to move up the digital productivity chain.
Relevant Technologies for MSME Adoption to Drive Productivity
It is undeniable that technology and digital tools play a vital role in boosting the productive potential
of MSMEs. While there is a broad range of technologies that MSMEs can implement to automate their
processes and increase their efficiencies, it is often difficult for an individual firm to decide on what
technologies to acquire and which automation tools to adopt.
It is evident that there is no one-size-fits-all approach when it comes to choosing the right technology.
However, this section aims to highlight key considerations and examples of technologies that MSMEs
should focus on when it comes to productivity enhancement.
What MSMEs Need to Consider?
Implementing technologies must always start with a clear and evidence-based problem statement. It
is insufficient to say that the firm needs to adopt digital marketing because of lagging sales; however it
is important to know the number of leads obtained, what the sales conversion rate is, and what is the
repeat sales rate. These metrics are some examples of how a problem statement should be identified
before deciding on what areas to improve on / what is the problem statement that the intended
technology is supposed to solve. An example of this is depicted in the following Table 2.3:
Table 2.3: Problem Statements and Potential Root Causes / Solutions
in Implementing Technologies
PROBLEM STATEMENT POTENTIAL ROOT CAUSE / SOLUTION
Low Number of Leads
¢ Insufficient marketing, in need of better outreach and advertisement
Low Sales Conversion ¢ Could use digital platforms for such marketing
Low Repeat Sales Rate ¢ Weak product unique selling proposition (USP), require better image
Issues with Inventory / branding
Management
¢ Weak sales agent / require upskilling of staff
¢ Weak product quality, require better R&D
¢ Lack of customer feedback / market studies
¢ Lack visibility on production planning & procurement management,
could use an integrated enterprise resource planning (ERP) for
better planning
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Example of Technologies
Upon understanding the main problem that a business faces, a specific technology and improvement
area could be isolated and identified. Establishment of a digital compass / health-check platform
could guide MSMEs in deciding which areas to improve and technologies to consider. This is evidently
one of the most important aspects when deciding relevant technologies to drive productivity growth
among MSMEs. Three (3) main technological areas that MSMEs could consider adopting for enhancing
productivity include:
i. E-Commerce
E-commerce comprises the electronic buying and selling of products on online platforms. The
advantage of e-commerce is the potential of business owners to focus on the production side, while
allowing marketing and logistics to operate autonomously. Various e-commerce platforms, such as
Lazada, Shopee and Yezza now offer integrated services to business owners, which include payment
channels, inventory management services, marketing / advertisement, and shipping and logistics
services. Onboarding into e-commerce could potentially allow business owners to dedicate more
resources on product innovation and economies of scale. This in turn will enhance the productivity
of firms, as resources are specialised towards specific tasks. The adoption of e-commerce also
enables business owners to reach customers that otherwise may not be geographically accessible
which includes international / exports markets. Through the provision of integrated services, all
shipping fees and processes will be handled by the platform owner and borne by customers directly.
In various ways, the adoption of e-commerce, regardless of industry and firm size, could significantly
enhance the productivity of the individual firms.
ii. Cloud Computing
Another potential quick wins for MSMEs to adopt, in boosting their productivity, is the use of cloud
computing. Cloud computing involves the usage of a network of remote servers hosted on the
internet to store, manage, and process data, rather than a localised server of a personal computer.
Cloud computing is a crucial aspect for businesses when collaborating between team members.
Rather than physical face-to-face interaction, cloud computing enables remote working and access
to information / database from anywhere and anytime. The advent of file sharing applications, such
as Google Drive and Microsoft OneDrive, enables real-time collaboration and information sharing
to be done in a seamless manner at an affordable price.
Cloud computing is one of the first steps required for MSMEs to start digitising their businesses.
Sales and inventory records should gradually move towards a digital format; employee and
supplier information should be uploaded into cloud storage; and customer information should also
transition from physical filing to digital documentation. This is the first step prior to any automation
and / digitalisation (i.e. use of digital information for analysis, reporting, dashboard, etc.). Once the
digitisation process has taken place, various other services could be subscribed on a monthly basis
to further improve the productivity of firms, such as Customer Relationship Management (CRM),
that enables better targeting and marketing for both repeat and new sales.
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iii. Enterprise Resource Planning (ERP)
ERP is a broad term that encapsules various systems that a firm could adopt to better manage and
plan their day-to-day operations. Typical modules within ERP include Financial Management, Asset
and Inventory Management, Human Capital Management and Vendor / Procurement Management.
There are various tiers of ERP offerings from open-source brands such as Odoo, ERPNext, SAP and
ORACLE. ERP systems enable an enterprise to better plan their strategies with forecast sales data
and integrated reporting modules cutting across finance, inventory, procurement and human capital
management. It is important that MSMEs gain sufficient consultation prior to the implementation
of ERP, as they may incur substantial costs. ERP will enable business owners to have access to a
complete snapshot of the firms’ financial potential well ahead of time amid economic shocks. This
would allow owners to contemplate different strategies to currently address future situations and
prepare mitigation strategies to sustain their margins. At the same time, forecasting and simulation
capabilities of ERP also enable enterprises to leverage on various time-sensitive transactions to
identify better procurement offers and market price of its products, due to better visibility provided
by ERP.
FOCUS AREA 5 RECALIBRATING THE CENTRAL COORDINATING AGENCY (CCA)
ROLE OF SME CORP. MALAYSIA
SME Corp. Malaysia needs to recalibrate its Central Coordinating Agency (CCA) role and policy tools,
such as SME Integrated Plan of Action (SMEIPA), to reflect the changes in the National Entrepreneur
and SME Development Council (NESDC) in developing MSMEs. However, due to various implementation
issues surrounding SMEIPA, it makes coordinating MSME initiatives among Ministries and agencies
difficult. Therefore, consideration is needed surrounding SMEIPA’s approach to provide a more holistic
solution to MSME development through:
¢ Realigning the roles and functions of SMEIPA
¢ Enhancing the key features of SMEIPA
¢ Enhancing data centralisation and registration processes
In line with the global shift from manual to digital processing, the role of CCA will become more efficient
and automated in keeping up with the needs of MSMEs amid a more connected business environment.
The global megatrends of erosion of governance and hyperconnectivity serve as the backdrop of
adopting a more digitalised and streamlined approach.
Chart 2.32: Erosion of Institutional Governance and More Hyperconnectivity23
SHADOW MARKETS RISE AS GOVERNMENT DEMAND FOR REAL-TIME SERVICES
EFFICIENCY DECLINES
Eroding institutional governance has the potential to A more hyperconnected society has led recipients of
ferment shadow markets and informal businesses if left services to demand quicker and streamlined responses.
unaddressed.
Moreover, a high internet penetration rate
The informal economy of Malaysia is estimated at 7.8% (84.0%) means that government services must be
of GDP or RM117.8bil in 2019, with 1.26 million
people. aligned to efficient networking infrastructure to meet
ever-changing needs.
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Challenges Faced in Realigning the Role of CCA and SMEIPA
SMEIPA, an important policy tool used by the CCA to coordinate and direct all Malaysian MSME
programmes, has not fully served its purpose due to passivity and lack of effective enforcement.
Hence, SMEIPA may not fully capture the right context of MSME development, as many programmes
go unreported due to the voluntary nature of the policy tool, rather than as a mandatory reporting
requirement. This has led to insufficient insights and analyses / inputs that can be gathered from
Ministries and agencies during annual budgetary plannings.
Moreover, this highlights the challenges faced by SMEIPA, due to its passivity in being a voluntary
repository of information, rather than an active policy tool to direct and coordinate MSME programmes
across various Ministries and agencies.
Chart 2.33: Businesses Face Numerous Procedures to Register and Ineffectiveness of Government
BUSINESSES FACE NUMEROUS PROCEDURES FOR INSUFFICIENT EFFECTIVENESS IN GOVERNMENT
REGISTRATION
According to the World Bank’s Ease of Doing Business Index Malaysian public services experience shortage of
(EDBI), Malaysian businesses face numerous procedures in adequate network infrastructure and bureaucratic
business registration, in which many rural businesses rely redundancies.
on manual submission.
In 2020, the World Bank had given Malaysia a score of
The EDBI ranks Malaysia 126th in the world
1.04 (score from -2.5 [weak] to 2.5 [strong]) on its annual
126th in starting a business, suggesting necessary
continued improvements. Governance Effectiveness Index, indicating that there is a
need for improvement in government services.
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Clarifying the Role of SMEIPA
Principally, due to the various challenges faced in enhancing the effectiveness of the policy tool,
clarification on the scope and extent of SMEIPA is altogether necessary. This clarification must be made
in consultation with MECD and aligned to SME Corp. Malaysia’s role as the CCA of MSME initiatives for
national development.
The considerations for SMEIPA consist of the following:
01 THE INTENTION OF SMEIPA AS A PASSIVE OR
ACTIVE POLICY TOOL
A key decision must ultimately be made on whether SMEIPA should remain as a repository and
database of MSME programmes or an active policy document in line with its original intention
02 WHETHER SMEIPA SHOULD BE MANDATORY
DURING BUDGETARY PLANNING
The potential of making regular reporting as a mandatory process within the Government’s
budgetary planning process, using collated data to provide meaningful analysis for Government
budgeting
03 WHETHER SMEIPA SHOULD BE MADE A PUBLIC DOCUMENT
Currently, SMEIPA is used mostly as an internal Government document. However, turning SMEIPA
into a public document would foster greater transparency and awareness of MSME initiatives
beyond Government agencies
04 POTENTIAL TO SHARE FINDINGS FROM SMEIPA WITH
THE PRIVATE SECTOR
SME Corp. Malaysia should consider whether the internal findings of SMEIPA be shared under a
platform of private sector / industry agents, to gather additional inputs, in order to provide more
meaningful insights and greater public-private consultations on potential ways forward
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Synchronisation of the CCA Role to Align with the NESDC
In line with MSME initiative coordination, consideration should be made on aligning the important role
of the CCA with the objectives set forth by the NESDC.
The key measures by the NESDC to boost MSME growth consist of the following:
01 Intensifying Digitalisation of MSMEs 05 Facilitate Alternative Financing for MSMEs
02 Enhance MSME Integration into the 06 Recoup External MSME Value Chains into
Supply Chain the Country
03 Increase Support to More High Growth 07 Enhance MSME Participation in the
MSMEs through Incentives Tourism Industry
Increase MSME Readiness and Driving Growth and Strengthen Uptake to
04 Competitiveness by Adopting Disruptive 08 Promote Exports of Homegrown Payment
Technologies & Business Models Gateways & Fintech by SMEs
For this, SME Corp. Malaysia should consider fostering deeper partnerships and links with other
Government agencies, such as MDEC and Malaysia Productivity Corporation (MPC) among others, as
well as Ministries within the NESDC to better integrate shared aims and objectives towards a targeted
approach in the development of MSMEs.
Additionally, SME Corp. Malaysia should consider placing itself as the preferred point of reference
and middle person between MSMEs in the country and Government agencies, providing much needed
information and coordination, and serving as a repository of informative guidelines on business
registrations and grants. To this effort, the NESDC could also include industry players and associations
an observers and to offer an avenue for providing industry inputs on MSME programmes.
KEY SUCCESS FACTOR 1 TECHNOLOGICAL ADOPTION AND MODERNISATION
This Key Success Factor (KSF) looks into shifting MSMEs away from manual processing to overcome
issues related to inefficiencies and low productivity. In the digital era, MSMEs operating in a traditional
manner (e.g. bookkeeping, cash payment and traditional inventory management) will lose their
competitive advantage as productivity declines.
Technological adoption and modernisation aid MSMEs to improve their productivity and become more
competitive in the market. This KSF is essential as digital tools and technological adoption become
more ubiquitous and crucial components for business.
A global survey indicated that the adoption of IR4.0 technology could boost a spectrum of indicators,
including productivity, profitability, quality and customer satisfaction. In order to support the focus
areas, this KSF is emphasised across all of the identified strategies.
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Chart 2.34: Adoption of Technology and Machinery
88% Increase in 74% Increase in 48% Improve on
Productivity Profitability Product Quality
Increase in 42% Improve Machine 41% Increase in
Reliability Worker Safety
43% Customer
Satisfaction
CURRENT CONTEXT
Currently, the usage of technology is on a growth trajectory in a landscape where more than half of
MSMEs do not adopt advanced ICT tools, such as cloud computing, IoT and Data Analytics.
Moreover, according to the SME Corp. Malaysia-Huawei Technologies whitepaper, most MSMEs (67.0%)
that had positively indicated to using Data Analytics have only adopted basic applications, such as excel
spreadsheets, for record-keeping.
This KSF largely considers and addresses significant issues in MSME development on awareness,
narrowing the knowledge and skills gap.
Chart 2.35: Technological Assistance Required by MSMEs
Cloud IoT Data Analytics
56% Not Using 65% Not Using 46% Not Using
44% Using 35% Using 56% Using
Usage of ICT Tools, Services or Systems by MSMEs (%)
Computer 87
Smartphone / Tablet 88
88
Internet Service
Financial Account 58
HR Management 40
Point of Sale 16
Inventory Management 20
CRM 13
Supply Chain Management 13
11
Order Fulfilment 13
Enterprise Resource Planning
Source: Malaysia Digital SME Study 2018, SME Corp. Malaysia & Huawei
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TECHNOLOGICAL ADOPTION AND MODERNISATION IN 5 FOCUS AREAS
FOCUS Value Chains in High Impact Industries
AREA ¢ Technological roadmap advisory based on the requirements of high impact industries and
1 sectors
¢ Adoption of technologies that improve capacity and quality of production to meet value chain
FOCUS
AREA demands
¢ Marketing platforms to connect different MSMEs throughout the value chain
2
Internationalisation of SMEs
FOCUS ¢ Leveraging on digital technology to enhance information sharing, e-commerce infrastructure
AREA
and marketing capabilities to facilitate trade
3 ¢ Digitalisation Compass: Inventory and ERP system that enables cross-border integration for
digital procurement
¢ Detailed digital profile of credible SMEs that could supply global MNCs and ease the processes
of trade anchors to promote and link SMEs
Microenterprises and Inclusive Groups
¢ Digital Compass for Micro: Basic digitalisation guide based on microenterprise needs
¢ Digital marketing enablement programme to enhance market outreach for microenterprises
FOCUS Digitalisation and Automation of MSMEs
¢ Technological adoption and modernisation unleash the productivity of MSMEs by unlocking
AREA
digital avenues and automated processes, reducing manpower and time
4
FOCUS Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
¢ Developing a user-friendly platform that can be easily adopted by various agencies
AREA ¢ Enabling better monitoring while synthesising insights for effective policy direction
5
KEY SUCCESS FACTOR 2 MSME ACCESS TO FINANCING
The accessibility and availability of financial resources are paramount to the development of MSMEs.
However, MSMEs tend to have limited financing avenues due to a higher risk profile. Despite this,
there is a growing shift towards alternative financing globally. The global fintech industry is projected
to experience double-digit growth from 2020 to 2024. Access to alternative financing methods could be
enhanced to enable strategies identified within the three (3) focus areas.
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Chart 2.36: Global Fintech Revenue24
Strong Growth of Fintech Industry Globally
Globally, there is a strong shift towards alternative financing & fintech due to flexibility, ease of processing
and customer-oriented features
CAGR:
200 11.7%
100 54 64 74 85 96
23 25 26 28 29
49 55 58 61 63
0 2021 2022 2023 2024
2020 Americas *EMEA
*APAC
* EMEA (Europe, Middle East, Africa)
* APAC (Asia-Pacific Region)
Chart 2.37: Financing Raised on CURRENT CONTEXT
Alternative Financing Platforms (RM)
Echoing this global trend, alternative financing
Increasing Demand for Alternative Financing in the forms of Peer-to-Peer (P2P) and Equity
Increasing technological advancements in fintech Crowdfunding (ECF), has seen a tremendous
has precipitated the growth in local demand for increase from 2019 to 2020 (refer to Chart 2.37).
alternative financing, such as equity crowfunding The growth in this sector can help alleviate
the financing deficit experienced by a reported
(ECF) and P2P lending one in four MSMEs whose loan applications
were rejected by banks from insufficient
503.3 documentation. Alternative financing platforms
P2P are unrestricted from traditional requirements
and are more flexible in assessing risks. The
418.6 strategies identified within the focus areas
should be supported by the relevant strategies
127.7 after considering the above factors.
ECF
22.92
2020 2019
Source: Securities Commission Malaysia, 2021
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MSME ACCESS TO FINANCING IN 5 FOCUS AREAS
FOCUS Value Chains in High Impact Industries
AREA ¢ Provision of soft loans to MSMEs within High Impact Industries to adopt technology required for
1 value chain linkages
¢ Loan disbursements could be expedited by leveraging on alternative financing platforms
FOCUS
AREA through the provision of subsidised interest rates
2 Internationalisation of SMEs
¢ The expansion of supply chain financing to all SMEs is important for the continued
FOCUS
AREA internationalisation of Malaysian businesses, especially SME exporters
¢ A supply chain financing guarantee scheme that assists exporters will help free up cash flow
3
and reduce cross-border risks
FOCUS
AREA Microenterprises and Inclusive Groups
¢ A financing platform that prioritises the needs of microenterprises while introducing a
4
results-oriented graduation programme centred around financing can help in scaling up the
FOCUS microenterprises
AREA ¢ Special financing programmes could be introduced to encourage the development of inclusive
groups
5
Digitalisation and Automation of MSMEs
¢ Access to financing is the single largest hurdle MSMEs face in adopting digitalisation and
automating their processes
¢ Alternative financing options and increasing credit linkages will help MSMEs adopt digital
solutions
Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
¢ There are no specific initiatives identified for this focus area
KEY SUCCESS FACTOR 3 ENVIRONMENTAL, SOCIAL AND GOVERNANCE
(ESG) COMPLIANCE
The increasing adoption of circular economy principles and ESG compliance among MNCs are being
globally observed. This shift is aligned to the UN Global Compact agenda that gathers the commitment
of CEOs to implement universal sustainability principles to support UN goals. This also echoes the
Paris Agreement on climate change. As a result, large MNCs also impose similar requirements to their
vendors, where their input suppliers must also be ESG-compliant. Indirectly, ESG compliance has thus
become a non-trade barrier to market access and needs to be addressed across the focus areas.
Aside from that, Malaysian enterprises, on the other hand, demonstrate lack of readiness to implement
ESG in their processes. Only 20.0% of surveyed firms had included ESG considerations in their business
strategy25. Aside from that, another study revealed that 79.0% of surveyed MSMEs only implemented
ESG-related measures due to pressure from government legislation26.
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Chart 2.38: ESG Compliance in MNCs and Malaysian Firms Adoption of ESG26
ESG COMPLIANCE SHADOWS MNC TRADE MALAYSIAN ENTERPRISES HAVE YET TO
IMPLEMENT ESG IN THEIR PROCESS
Global Players Shift Towards ESG Compliance Practices: A survey among Malaysian firms noted that ESG has yet to
become a central focus. The biggest driving factor for ESG
Integrated circular and ESG was due to legislation rather than for profit, highlighting
compliance practices in its business the lack of business understanding on the opportunities
production model. that ESG presents.
Sourcing only from sustainable
partners. 20% 20.0% of Malaysian firms reported that they
Saved 100,000 tonnes of primary had developed strategies to include ESG in
resources through the usage of their processes.
circular international supply chains
and recycled materials. 79% 79.0% of Malaysian firms reported that ESG
measures were only implemented due to
pressure from government legislation.
Source: World Economic Forum, 2019 Source: IIUM, 2019
CURRENT CONTEXT
ESG and the circular economy are generally not common practices in Malaysia. While ESG is becoming
an important requirement for business transactions globally, it is only a legislative concern among
Malaysian SMEs. Awareness and knowledge remain the key challenges, and the development of
strategies across the focus areas should address this gap. While MSMEs looking for MNC linkages
would require some form of ESG compliance implementation, microenterprises require more exposure
and awareness. Nevertheless, having an ESG strategy warrants looking into integrating such factors
within a national implementation and roll-out plan.
ESG COMPLIANCE IN 5 FOCUS AREAS
FOCUS Value Chains in High Impact Industries
AREA ¢ Developing ESG compliance toolkit / guidelines for MSMEs to assist them to be more competitive
1 and to meet ESG requirements of MNCs
¢ Implementing capability development programmes to equip SMEs with the knowledge and
FOCUS
AREA understanding on ESG and circular economy opportunities
2 Internationalisation of SMEs
¢ Developing a communication strategy and information tools to reach out to SMEs and help
them understand why ESG is necessary in developing GVC linkages
¢ Develop a defined framework for ESG standards for SMEs that is globally accepted /
acknowledged to increase the value proposition of local SMEs for the global market
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FOCUS Microenterprises and Inclusive Groups
AREA ¢ A financing platform that prioritises the needs of microenterprises while introducing a
3 results-oriented graduation programme centred around financing can help in scaling up the
microenterprises
FOCUS ¢ Special financing programmes could be introduced to encourage the development of inclusive
AREA groups
4 Digitalisation and Automation of MSMEs
¢ The promotion of ESG compliance will incentivise MSMEs to want to reduce paper-based
processes to shift towards digitalisation and automate their processes
FOCUS Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
¢ Provision of funds and policy direction from the Government to promote the digitalisation of
AREA
application processes in line with reducing the carbon footprint of MSMEs
5
KEY SUCCESS FACTOR 4 TRIPLE HELIX COLLABORATION
Triple Helix Collaboration focuses on the joint-effort between the Government, private sector and
higher education institutions (HEIs). This KSF is an important element to the success of strategy
implementation across the four (4) focus areas.
In our highly connected world, there are many disruptions happening globally that are impacting
MSMEs. Governments alone are unable to anticipate all potential impacts and consequences of the
impacts on MSMEs. There is a need to empower business associations and HEIs to support government
efforts and enhance the MSME ecosystem (refer to Chart 2.39).
Chart 2.39: Triple Helix Collaboration
GLOBAL SUCCESS STORIES OF TRIPLE HELIX MICROENTERPRISES NEED EFFECTIVE
MARKET INSIGHTS
Triple Helix Collaboration has yielded various success stories due The top 3 challenges in microenterprises product
to the cost-effective approach to R&D and innovation. It provides an marketing:
avenue for industry players to provide clear problem statements for ¢ Lack of strategic planning & business plan
researchers to solve and commercialise. ¢ Ineffective channel to collect customer
Government University ¢ R&D & Innovation feedback
¢ Strategic Direction ¢ Lack of information on competitors & product
Triple Helix ¢ Capability Development
Collaboration strengths
A key reason is the limited financial capacity to
Industry Player ¢ Knowledge Entrepreneurs obtain external advisory
Successful Triple Helix Successful Triple Helix
in Silicon Valley in Defense Industry
(IT Industry) (Saab AB)
Source: MARA Research, 2018
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CURRENT CONTEXT
Within the Malaysian MSME landscape, it was observed that a large proportion of MSMEs experience
a severe talent gap. In SME Corp. Malaysia-Huawei Survey on Digitalisation, only 4.8% of MSMEs were
satisfied with the digital skills of their employees.
Various studies also indicate that there are gaps in strategic planning and business management
among microenterprises. As such, the knowledge and skills gap related to the three (3) focus areas
could be addressed through innovative collaboration involving different parties (Government, private
sector and HEIs).
TRIPLE HELIX COLLABORATION IN 5 FOCUS AREAS
FOCUS Value Chains in High Impact Industries
AREA ¢ Identify dedicated HEIs for each high impact industry and establish HEIs as industry centres of
1 excellence
¢ Promote collaboration between MSMEs and HEIs for R&D and innovation by providing linkages
FOCUS
AREA between the two
¢ Address talent gap by empowering HEIs in providing capacity / capability development and
2
certification
Internationalisation of SMEs
¢ Collaboration with HEIs to conduct R&D and research by key exporting sectors on the
accreditation / quality gaps faced by SMEs in exporting goods and services
FOCUS Microenterprises and Inclusive Groups
¢ Triple Helix Collaboration to enhance skills and capability training for microenterprises
AREA ¢ Empower / Appoint HEIs to be part of the business coaching and mentoring of microenterprises
¢ Incubation Programme to graduate high potential entrepreneurs through structured growth
3
and linkage programmes
FOCUS Digitalisation and Automation of MSMEs
¢ Collaboration with HEIs to provide digital talent skills and training opportunities in technology
AREA ¢ Connecting MSMEs with knowledge networks in R&D
4
FOCUS Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
¢ There are no specific initiatives identified for this focus area
AREA
5
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KEY SUCCESS FACTOR 5 GOVERNMENT SERVICE DELIVERY
This KSF looks into the streamlining and digitalising of Government services to provide real-time services
and support. Globally, there is a shift towards e-government with a centralised 'one-stop-centre';
this is becoming evident with more countries providing e-government services.
The EU, for example, has been adopting eGovernment since 2009 where various services are now
centralised and digitalised with minimum in-person requirements for various public service
transactions. The same level of adoption should be envisioned for Malaysian SMEs across the three (3)
focus areas.
Chart 2.40: Awareness of Government Financing Schemes
SHIFT TOWARDS EGOVERNMENT TO PROVIDE SMEs ARE UNAWARE OF USEFUL GOVERNMENT
REAL-TIME SERVICES AND SUPPORT FINANCING INITIATIVES CATERED FOR THEM
A hyperconnected society has led recipients of government Despite many years of Government initiatives for
services to demand real-time support, expecting fast and SMEs, most business owners are unaware of available
responsive action. Government financing schemes:
Across the globe, eGovernment services are no longer a Awareness of Government Financing Schemes
stranger to the public. A study of over 7,800 government
websites in the EU found that eGovernment provided the Youth Business 30.1% 69.9%
following benefits: Scheme 29.5% 70.5%
32.4% 67.6%
61% 61.0% of Government online forms in EU are Rural Economy 28.9% 71.1%
prepopulated with centralised information Financing Not Aware
that saves users’ time in filling up forms. Aware
SME Soft Loan
62% 62.0% of Government services that require Special Assistance
authentic documentation accept online
uploads of documents, saving costs. for Female
Entrepreneurs
Source: EU eGovernment Benchmark, 2021 Source: IJAAS, 2017
CURRENT CONTEXT
Currently, there are several challenges relating to the low awareness of MSMEs on Government
programmes (refer to Chart 2.40). There is a need to improve the visibility of such programmes through
the centralisation of information dissemination. Furthermore, there is a need to relook the functions of
SMEIPA. Currently, SMEIPA is being used to track MSME programmes across Ministries and agencies.
However, various views were shared on the ineffectiveness of the policy tool, indicating that there is
a need to enhance SMEIPA with more analysis and direction. Additionally, it was also suggested that
SMEIPA may need to shift towards being a public document to be more effective.
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GOVERNMENT SERVICE DELIVERY IN 5 FOCUS AREAS
FOCUS Value Chains in High Impact Industries
AREA ¢ Inter-agency collaboration in identifying potential anchor companies and the promotion of
1 suitable MSMEs
¢ Empowerment of SMEIPA to coordinate developmental programmes across different agencies
FOCUS
AREA on high impact industries
2 Internationalisation of SMEs
¢ Effective monitoring of SME cross-border trade and regular publication of SME exports
FOCUS
AREA statistics (SME Corp. Malaysia and MATRADE) to track exports effectiveness and weaknesses
in a timely fashion
3 ¢ Empowerment of SMEIPA to coordinate developmental programmes (accreditation /
certification) to enable seamless exports among SMEs
Microenterprises and Inclusive Groups
¢ Empowering Government agencies to develop and implement initiatives for microenterprises
FOCUS Digitalisation and Automation of MSMEs
AREA ¢ Promoting e-government services for MSMEs through a one-stop shop platform and digital
4 public services
¢ Reinforce efforts to harmonise laws on MSME data protection and regulations of digital
FOCUS
AREA standards
5 Recalibrating the Central Coordinating Agency (CCA) Role of SME Corp. Malaysia
¢ Enhancing collaboration with other Ministries as the CCA, to provide adequate advisory on
MSME enhancement initiatives
¢ Inter-agency collaboration in identifying MSME requirements for growth and design actionable
holistic strategies in plugging the gaps in MSME development
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PART II
ORGANISATIONAL
REVIEW
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03
SME CORPORATION MALAYSIA
(SME CORP. MALAYSIA)
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BACKGROUND
The Small and Medium Industries Development
Corporation (SMIDEC) was established on 2 May 1996, as
a specialised agency under the Ministry of International
Trade and Industry (MITI), to spur the development of
small and medium industries (SMIs). SMIDEC was tasked
to provide infrastructure support, financial assistance,
advisory services, market access and various other support
programmes for SMIs. The SMI Development Plan (SMIDP) 2001 - 2005 was introduced as the first
dedicated policy document to facilitate the transformation of SMIs from labour-intensive to knowledge-
based businesses.
At the 7th National SME Development Council (NSDC) Meeting on 13 September 2007, SMIDEC was
appointed as a single dedicated Central Coordinating Agency (CCA) to spearhead the development of
micro, small and medium enterprises (MSMEs) in Malaysia, principally to formulate the overall policies
and strategies for MSMEs and to coordinate programmes across all related Ministries and agencies.
Upon the passing of the amendment to the Small and Medium Industries Development Corporation
Act 1995 (Act 539) in July 2009, SMIDEC was officially rebranded on 2 October 2009 as the Small and
Medium Enterprises Corporation Malaysia (SME Corporation Malaysia, SME Corp. Malaysia). Since
then, SME Corp. Malaysia has been acting as the central point of reference for research and data
dissemination on MSMEs and entrepreneurs, as well as providing business advisory services for
MSMEs and entrepreneurs throughout the country, and also assumed the role of the Secretariat to the
NSDC (renamed as the National Entrepreneur and SME Development Council, NESDC on 8 April 2019).
In November 2018, SME Corp. Malaysia was gazetted as an agency under the Ministry of Entrepreneur
Development (MED). The Ministry was later rebranded as the Ministry of Entrepreneur Development
and Cooperatives (MEDAC) on 22 January 2020. The acronym MEDAC was changed to KUSKOP on
14 March 2022. Currently, its acronym in English is MECD.
With more than 25 years' experience in promoting MSME development, SME Corp. Malaysia today
is poised to realise its vision of being the nation’s premier organisation for the development of
progressive MSMEs to enhance wealth creation and social well-being of the nation. In fulfilling its
mission of promoting the development of innovative, resilient and globally competitive MSMEs through
effective coordination and provision of business support, SME Corp. Malaysia endeavours to empower
the critical mass of MSMEs with efficient processes, robust and relevant business models, access to
financial resources, smart partnerships, market-entry strategies and sustainable growth solutions,
through various platforms and programmes for MSME and entrepreneur development.
With the National Entrepreneurship Policy 2030 (DKN 2030) as the guiding
policy in developing a conducive, competitive, innovative and inclusive
entrepreneurship ecosystem, SME Corp. Malaysia relentlessly strives
alongside various stakeholders towards ensuring the transformation of
Malaysia into an outstanding entrepreneurial nation by the year 2030.
Dasar Keusahawanan Nasional
Malaysia Negara Keusahawanan Unggul 2030
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FUNCTIONAL OVERVIEW
The roles and functions of SME Corp. Malaysia have evolved beyond those previously assumed by
SMIDEC. As a CCA, SME Corp. Malaysia had initially undertaken the leading role in policy, strategy
and programme coordination, as well as economic research and policy formulation. Its functions
encompassed the provision of advisory services, financial assistance and technical expertise;
assistance in enhancing infrastructural facilities; promotion of market access; and creation of other
support programmes.
SME Corp. Malaysia’s augmented role saw greater emphasis on integrating MSMEs into the
ever-growing manufacturing, construction and services sectors which currently make about 97.4%
of the overall business establishments in Malaysia. It also played a pivotal role in providing crucial
insights into 'real world' scenarios happening on the ground to the Government through its role as
the Secretariat to the NESDC which is chaired by the Prime Minister, as well as in ensuring better
coordination, implementation and monitoring of policies, strategies and programmes to benefit MSMEs
across all economic sectors.
Under MECD, SME Corp. Malaysia’s roles and functions have been realigned to meet the growing
needs and requirements of MSMEs due to the rapid and profound changes in the local, regional and
global economic landscapes.
SME Corp. Malaysia’s CCA Role in MSME Development Now Comprises of Six (6) Functions
1One-Stop Collection Central point of reference for information and business advisory services
and Reference for MSMEs and entrepreneurs through physical SME Hub and online
Centre for MSME portals namely SMEinfo, MyAssist MSME and MalaysiaBiz
Information and
Advisory Services
2 Coordination of Coordinate, streamline, monitor and evaluate the progress and
MSME Development effectiveness of MSME development programmes implemented by
Programmes 17 Ministries and more than 60 agencies. Publishes the SME Integrated
Plan of Action (SMEIPA) annual report for the NESDC
3 MSME Economic Collect, analyse and monitor economic data to further enhance the
Assessment understanding of the effects of national and global economic trends
on MSMEs in Malaysia. Insights into economic trends help to better
enhance the capability of the Government to make informed policy and
implementation decisions. In addition, it provides foresight on future
trends, as to better anticipate future economic trends and mitigate their
adverse effects on MSMEs. Publishes the MSME Insights report
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4 MSME SME Rating and Accreditation Programme is specifically crafted to provide
Accreditation SME Status accreditation. Meanwhile, diagnostic tools such as the SME
Competitiveness Rating for Enhancement (SCORE), are used to evaluate
the performance of MSMEs and track their progress
5 Business Provide and implement MSME programmes specifically targeted to
Development enhance the capacity and capability of MSMEs throughout all stages of
and Support MSME lifecycle
Programmes
6Access to Domestic Provide market access programmes, as well as a platform to facilitate
and International networking and market opportunities for MSMEs through business
Markets linkage sessions
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PROPOSED REVIEW OF ACT 539
MECD is currently spearheading the initiative to review Act 539 with the aim of enhancing the
functions of SME Corp. Malaysia, as well as realigning them with the functions of MECD and its
agencies. The functions of SME Corp. Malaysia as proposed in the review of Act 539 are shown in
Chart 3.1.
Chart 3.1: Functions of SME Corp. Malaysia
The Corporation shall have Coordinate, monitor
these functions for micro, and assess the
small and medium enterprises
across all economic sectors: 1implementation of
Conduct economic strategies, programmes
assessments including and initiatives for micro,
small and medium
2surveys related to the enterprises across all
economic sectors
development of micro, Cooperate with Become the centre for
small and medium Ministries and collection, reference
enterprises across all
economic sectors 3Government agencies 4and dissemination of
in the implementation information related to
of programmes and micro, small and medium
initiatives for micro, enterprises across all
small and medium economic sectors
enterprises across all
economic sectors
5Provide annual reports 6Implement status 7Implement business
on micro, small and confirmation of micro, development
medium enterprises small and medium programmes and support
across all economic enterprises and other activities
sectors related ratings 10Promote cooperation
8Promote and implement 9Conduct promotional
among micro, small and
programmes facilitating and outreach activities medium enterprises
access to domestic to promote the growth within the country and
and overseas markets of micro, small and abroad
including integration in medium enterprises
global value chains
The review of Act 539 is expected to be concluded in 2023, as it will require preliminary engagements
with various stakeholders, and ultimately the related Bill will be tabled in Parliament for approval.
243
BAB 3:
PERBADANAN PERUSAHAAN KECIL DAN SEDERHANA MALAYSIA (SME CORP. MALAYSIA)
CURRENT ORGANISATIONAL STRUCTURE
SME Corp. Malaysia’s current organisational structure has been in effect since 1 October 2016.
It consists of four (4) core functions namely the Chief Executive Officer’s Office, Policy and Coordination,
Implementation and Development, and Operations. There are 12 key divisions, three (3) support units
and 11 state offices to support and reinforce all of the functions.
SME Corp. Malaysia’s Top Management is comprised of:
¢ Chief Executive Officer
¢ Deputy Chief Executive Officer - Policy and Coordination
¢ Deputy Chief Executive Officer - Implementation and Development
¢ Chief Operating Officer - Operations
Core Functions and Key Areas of Responsibilities
Chief Executive ¢ Strategic Communications Division
Officer’s Office ¢ Legal and Corporation Unit
¢ Integrity Unit
¢ Internal Audit Unit
Policy and Coordination ¢ Programme Coordination Division
¢ Economics and Policy Division
¢ Policy Monitoring and Inclusive Development Division
¢ International Cooperation Division
Implementation and ¢ Business Advisory and Support Division
Development ¢ Business Development and Entrepreneurship Division
¢ Bumiputera Business Development Division
Operations ¢ Information Technology Division
¢ Human Capital Development Division
¢ Finance and Accounts Division
¢ Corporate Management Division
¢ State Offices
The existing organisational structure is shown in Chart 3.2.
244
PELAN STRATEGIK PERNIAGAAN 2022 - 2030
SME CORP. MALAYSIA
Chart 3.2: SME Corp. Malaysia’s Current Organisational Structure
(Effective since 1 October 2016)
DEPUTY CEO CHIEF EXECUTIVE OFFICER STRATEGIC COMMUNICATIONS
(POLICY & COORDINATION) (CEO) DIVISION
PROGRAMME COORDINATION CEO’S Office INTERNAL AUDIT UNIT
DIVISION • Integrity Unit
• Legal & Corporation Unit CHIEF OPERATING OFFICER /
ECONOMICS & POLICY DIVISION CHIEF INFORMATION OFFICER
DEPUTY CEO
POLICY MONITORING & (IMPLEMENTATION & DEVELOPMENT) INFORMATION TECHNOLOGY
INCLUSIVE DEVELOPMENT DIVISION
BUSINESS ADVISORY
DIVISION & SUPPORT DIVISION HUMAN CAPITAL DEVELOPMENT
DIVISION
INTERNATIONAL COOPERATION BUSINESS DEVELOPMENT &
DIVISION ENTREPRENEURSHIP DIVISION FINANCE & ACCOUNTS DIVISION
BUMIPUTERA BUSINESS CORPORATE MANAGEMENT
DEVELOPMENT DIVISION DIVISION
STATE OFFICES
To support the delivery of the agency’s services nationwide, the distribution of the state offices is shown
in Chart 3.3.
Chart 3.3: SME Corp. Malaysia’s State Offices
KEDAH & PERLIS SME CORP. MALAYSIA's
STATE OFFICES
PULAU PINANG KELANTAN SABAH
TERENGGANU
PERAK
PAHANG SARAWAK
NEGERI SEMBILAN
MELAKA
JOHOR
245
BAB 3:
PERBADANAN PERUSAHAAN KECIL DAN SEDERHANA MALAYSIA (SME CORP. MALAYSIA)
PROPOSED NEW ORGANISATIONAL STRUCTURE
In 2021, SME Corp. Malaysia had initiated an organisational restructuring proposal. The proposed new
organisational structure is formed to take into account SME Corp. Malaysia’s increasing role, functions
and responsibilities in supporting the existing and new mandates given by the Government more
effectively and efficiently, as well as to enhance the management, administration and operations of the
agency. This functional organisational structure will facilitate specialisation, enabling employees to
focus on their respective areas of specialties and expertise which can boost the efficiency, effectiveness
and quality of work, services and deliverables.
The new structure aims to encourage teamwork with all divisions / units working together and
complementing each other to achieve SME Corp. Malaysia’s overall goals. With a clear line of authority
and direction, task allocation, coordination and supervision are clearly defined and directed towards
the achievement of specific organisational goals, objectives and targets. In moving forward with the
new structure, SME Corp. Malaysia is set to become a leading and enabling agency, a breed apart with
its dedication and enthusiasm, in providing comprehensive and integrated assistance and support to
MSMEs, especially in this challenging economic landscape arising from the COVID-19 global pandemic.
The new structure will warrant the establishment of the following four (4) new entities:
01 ORGANISATIONAL PLANNING DIVISION
The setting up of this division is in tandem with the agency’s direction towards generating income;
developing short-term strategic planning; and monitoring of key performance indicators (KPIs).
02 INTEGRITY UNIT
The formation of this unit is based on the Prime Minister’s Directive Series 1 No. 1 of 2018 on the
Enhancement of Governance, Integrity and Anti-Corruption in the Administration Management
of Malaysia through the Establishment of Integrity and Governance Unit in Government-linked
Companies (GLCs), Companies Owned by the Ministry and Government Agencies including the
State Government.
03 PERLIS STATE OFFICE
The setting up of this state office was requested by HRH Crown Prince of Perlis based on the
specific needs and attention required for entrepreneur development in Perlis, as the Kedah State
Office has limited resources to dually manage both states of Kedah and Perlis. The Perlis State
Government has extended its goodwill towards the establishment of the state office by providing
an office space, including utilities on a complimentary basis. As an agency spearheading MSME
development, SME Corp. Malaysia feels that the formation of this state office is a pragmatic move.
04 BUSINESS REGISTRATION AND LICENSING INTEGRATION DIVISION
The formation of this division is based on the Secretary General of MECD’s decision on
14 April 2021 to assign the High Impact Programme 1 (HIP 1) to SME Corp. Malaysia. The creation
of new posts is crucial in ensuring that this programme can be implemented smoothly.
246
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SMECorp Malaysia Business Strategic Plan 2022-2030
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