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Small Medium Enterpises In The Malaysian Economy


Small medium enterprise is not a new word in the business circle. SME has been there for ages and today it is serving as the source of revenue to government and emerging economies. In Malaysia, the impact and relevance of SME is no longer new just as it is well known fact that SME is the vital economic key in Malaysia economy. Many famous groups were developed from Small medium enterprise. This literature reviews examine as many reviews to analyze and see how SME in Malaysia context is playing a well defined role. This review will critically analyze various reviews and provide argument as well.


Definition of SME in Malaysia

Many organizations, countries have defined SME based on their characteristics and features. The concept SME which stands for small and medium enterprise is not a relatively new one. It will be said to mean a system of business in which only small and medium sized companies are allowed to operate without any form intimidation or bias. However for the purpose of this work, I shall be defining SME based on the Malaysia context so as to give a clearer picture of what this research will be focusing on.

According to SMIDEC, the official body for SME in Malaysia defined SME as based on turnover and number of employees as well. While specific definitions were assigned to the various segment of SME such as (manufacturing, service and agriculture), there was no a single and universal definition adopted. Hence, SME can be summarized to mean any source of business which has between one to 150 employees and its annual turnover is from anything less than less than RM5million and not more than RM25 million. This is to say that SME annual revenue must be less than RM5 million and cannot exist RM25 million.

Significant of SME to Malaysia

SME are found in all part of the economy and as such, they are very vital. Mirbatrgkar (2009) and Singh et al (2010) highlights that SME is the major source employment and responsible for income generation as well. In Malaysia, it has been found that SME has greatly contributed to the large working force with more than 53.3% despite a 99.2% establishment proportion to large firms. According to the 2009/10 SME annual report, SME has been largely influential in all ramifications.

In term of job employment, SME has made it easy for many people to be in job and thus they do not have to depend on the government for too long. The rate of unemployment in Malaysia is gradually reducing year in and year out. As Opara observed (2009), SMEs aids the economic by reducing the rate of employment to suite the economy forward. Another area in which SMEs in gradually changing the face of Malaysia is in the area of industrial expansion and growth, Akhavan and Jafari (2008) finds that SME are not only vital but also important for countries that are coming up and thus Malaysia being a developing country is also expanding its industrial base due to the emergence of SMEs. Further to this, the SME annual report (2009/10) finds that SME has helped to increase the gross domestic product of Malaysia. Malaysia GDP is fast increasing daily. More so, with existence of SME continues to be visible due to the fact that the government and economy planner of Malaysia are constantly reviewing their plan to ensure that achieve the vision 2020.

Having considered all these available review, I have come to agree with the various researchers that SME plays a very vital role in the existence of the Malaysia economy. Further to this, SMEs is also one of the major driving forces behind the Malaysia Economy due to its contribution and value added. This claim can be backed by six other leading researches: Moha (1999) SMIDEC (2002), Hall (2002), Ting (2004), Wan (2003) and Stuti (2005). SME in Malaysia will still be a force to reckon with in all ramifications due to its size and contribution as well.

Technological Problem of Malaysia SME

SME in Malaysia is not only important but relevant. The global village is so intensified that the need to adjust to changing trend is important. According to Schneider (1987), Roach (1991), Siegel and Griliches [1992], Berman, Bound and Griliches [1994] and Berndt and Morrison (1995), the relevance of information technology can not be wisely ignored. However Malaysia SME is faced with technological problem of not being able to compete even globally against the big firms. SME makes up more than 99% of establishment in Malaysia but is still faced with the problem of technologies. These set of technologies has restricted the chances of SME advancing into the next level.

Personally, I am of the view that technology is affecting the further chance of improving the Malaysia’s SMEs. Supporting my claim is the work of (Jain, 2007) and (Garengo et al., 2005). Jain’s research finds that most organization that fails to innovate with available technologies can only contribute less to the economy or organization. Garengo et al finds that most SME are still under-developing sue to their failure to adopt computer and other aided technologies. Works done by Harris & Katz (1991) Parsons et al. (1990) Diewert & Smith (1994), Brynjolfsson & Hitt (1995) and Lichtenberg (1995) reveals again that mitigating problem for small organization also goes beyond the normal day to day activities but the absence of technologies or computer are going to pose a problem especially for firms just starting up.

Other Problem Facing Malaysia SME

McAdam and Kelly (2002), Khan et al (2007), Grando and Belvedere (2006) and Fawcett et al., (2009) provided reviews that talk about the barriers facing SME in Malaysia. A closer look at McAdam and Kelly and Fawcett et al works show that the absence of market intelligence, resource, supports and planning are the barriers. Fawcett further added that poor strategic planning are all part of the process that affects SME in Malaysia.

I personally agree to the claim of these authors following their findings. I further agree to the fact that SME in Malaysia is also faced by competition for the large firms and all these are making them to be restricted. A closer look will show that poor business skills and failure to adopt technologies as mentioned in earlier variables are all problems mitigating the growth of Malaysia’s SMEs.

Ali and Nelson (2006) highlights some other problems faced by Malaysia economy which are summarized as follows: lack of comprehensive policy that would govern SME, agencies definition of SME making it difficult for proper assessment, usage of sites that are not suited for business, lack of skilled and talented workers doing the job, accessing loans is very difficult for more of these entrepreneurships and underutilization of technical known how skills. These problems are mitigating some further contribution that SME would have added to the Malaysia economy.

SME Development

With existing problems facing Malaysia SME, there has been urgent need and attention for the government to address all these problems so as to put SME ahead in the economy. With SME contributing a little above 50% of GDP and employment despite a 99.2% establishment rate, their impact is still only felt minimally.

In terms of infrastructure, the government “provides more business premises, factories, business stalls and incubation centres” (Mohd et al 2010). This is one major area in which the government is making effort to ensure that SME receives these infrastructures and be able to do business more friendly. In the last few year, the government realizing that SME is ever viable and visible in the economy took a step further to ensure that they are granted loans and bank facilities regardless of the nature of the business.

In my view, having gone across the SME annual report of 2009/2010, SME will continue to play a large factor in the economy and thus with government intervention in the body, SME will grow to achieve some more advantage for Malaysia. The finding of Samad (2007) is challenged because for SME to increase their competiveness, they require the government and not zeal from themselves (entrepreneurs) as revealed by Samad. I feel personally that the government support is required as seen in Foon (2006) works. Innovativeness is very vital for economic advantage as seen in Drucker (1985) and Covin & Miles (2003) works.


First and foremost, the need to focus on technologies impact on SME is very essential and important. The continuous failure to address this problem will keep amounting to more misleading findings. The role of IT to SME is important to analyze so as to see where exactly SME can further improve on their services.

In the aspect of development, there are growing need to take a more proactive view by analyzing the impact of government effort to SME. Analysis and blueprint should be diagnosed on how improvement can be reached at.


In summary, this work looks at the relevant of SME to the Malaysia economy and how the government is supporting them. I have also analyzed many authors work and try to see beyond the current contribution of SME to Malaysia as a whole. Likewise, to see how SME can further adds value to the Malaysia economy. This review was very critical because there were just fee available reviews that focus on SME in the Malaysia economy.

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