Small and medium-sized enterprises are characterised by low levels of technological capabilities, arising from inadequate capital investment.
As a consequence, there is an inability to ensure product quality and hence meet market requirements. Typically, SMEs hardly invest in research and development and are oriented towards the domestic market."
This description of SMEs, lifted from the 2003 SME Performance Report (prepared by the Small and Medium Industries Development Corporation, or Smidec) is somewhat depressing, given that the next generation of towering Malaysian companies are supposed to come from the current crop of SMEs.
As of 2003, the report reveals, only 10% used enterprise resource planning (ERP) software and just 10.1% used customer relationship software. The numbers are a bit better for manufacturing software though - 13% use computer-aided manufacturing and 24.8% use computer-aided design.
Nevertheless, such figures are far from ideal, especially since the companies covered by Smidec for the survey were involved primarily in manufacturing. (Since last year, however, Smidec has expanded its scope to include services.) The reluctance of most SMEs in manufacturing to use ICT more aggressively has long mystified government development bodies and ICT vendors alike. The many campaigns conducted in the past to boost ICT capabilities in SMEs have yielded insipid results at best, as shown by the report.
However, no targets have been set for the adoption of ICT by SMEs. As Smidec's CEO Hafsah Hashim says, "We cannot control SMEs. We can only offer assistance in the form of incentive programmes but the rest is up to them." As the saying goes, you can lead a horse to water but you cannot make it drink.
Smidec has tried - it approved ICT grants of up to RM14.3 million in 2003. But because of the need to "revolve" funds to benefit future generations of SMEs, the grant scheme was converted into a soft loan.
This saw approvals drop from 182 in 2003 to 17 as of this April.
To be fair, not all SMEs can be tarred with the same brush. There are a few which have adopted ICT in varying degrees.
They don't say SMEs are, in the words of the Malaysian Chinese Association (MCA)'s new IT resource centre CEO Andrew Wong, "a tough nut to crack" for nothing. Said one IBM executive recently, "SME bosses always complain about the high cost of software, but then they go out and buy a new Mercedes S-Class."
Is this because SMEs simply cannot see the value in ICT? Do they consider a luxury car more valuable than software? Why is it that some SME horses drink from the ICT trough but most don't. One explanation could be that it is not easy to define software's return on investment. Clearly, this aspect requires more effort - helping SMEs calculate the quantitative as well as qualitative benefits of software to clear up the myth that software is only for large companies.
Khoo Wai Sing, managing director of logistics company CMR Global, says: "My impression of ERP and other software packages is that they are only for large companies and are too expensive." He concedes, however, that he would consider software if it could be shown to be relevant to companies the size of his own, and was made more affordable.
Given these changing times, SMEs cannot afford not adopt ICT, say IT industry experts. Being a technological laggard today will have adverse consequences and should not even be an option, they add. When multinational corporations, with all the resources at their disposal, face enormous competitive pressure and are constantly trying to find new ways to use ICT as a strategic weapon, SMEs have to double their efforts in this respect.
A marketing director at a global IT solutions provider says an MNC he is talking to in Penang is under tremendous pressure from competitors inChina. Its response has been to try and reinvent its entire IT infrastructure to one that will give it a sustainable advantage.
SMEs are fortunate in this sense because they do not have to deal with multiple legacy systems that need to be tied together or migrated to a new system. They are largely starting fresh or have little vested interest in old systems, which means they can move fast. Says the marketing director: "I have been in the IT business for 10 years. I've seen companies that are content to remain where they are and avoid harnessing the advantages offered by IT. They have remained the same size. Meanwhile, those with the vision to use IT effectively have grown stronger."
Perhaps John L Mason, founder of Insight International and Insight publishing group, was right when he said the enemy is called average in his similarly titled book.
Vendor role
On the part of the vendors, they have to realise that SMEs have minuscule IT budgets compared with large corporations and adjust accordingly. As the Smidec report shows, technological capability has been tied to capital investment for far too long. Says Linus Lai, director of research and marketing at market research firm IDC, "Capital outlays are tough on a small budget that is typical of an SME's". But there is an encouraging trend where "more vendors are adopting a pay-as-you-go model, an utility-based computing model that provides greater flexibility", he adds.
Nitin Acharekar, director of enterprise and services research at Frost & Sullivan, concurs. He says his surveys show that there is an ongoing shift in IT spending from capital expenditure to operational expenditure. While a company can usually expect some form of return from software, it has to commensurate with its expected level of investment. Only then will ROI become more evident (see sidebar entitled "Cost less of an issue today" on Page 4). Established software vendors have long salivated over the prospect of gaining thousands of new customers from the SME space. Realising this dream, however, has proved more difficult than they thought because they have not understood the unique requirements of SMEs.
SAP, for one, tried to retrofit its enterprise package for mid-sized companies in the late-1990s, when the pool of large enterprises that didn't have ERP began to shrink. That version was met with largely unenthusiastic response due to the unwieldy complexity of the product and relatively high cost. But SAP persevered and earned a rave review from a customer who implemented its latest offering - SAP Business One - in February. The customer cited ease of use, ease of implementation, and low cost - three top priorities for SMEs - as the software's attributes.
An external factor that SMEs have to watch out for is the global phenomenon of e-procurement as more companies seek to procure online to wring greater savings and efficiencies from their procurement process. One such initiative is RosettaNet, a common-message standard for global supply chain management. Companies that are not using RosettaNet might not be able to sell to companies that have adopted it, such as Intel.
Intel's vice-president and chief information officer Stacy J Smith, who was in Kuala Lumpur last month, revealed that currently, 60% of material orders are done electronically and he hopes to increase this. Other companies may use e-procurement software such as Ariba and will require their suppliers to connect to the system. While only the leading-edge companies may be doing online procurement now, SMEs have to ensure they are not locked out of customer contracts when more companies take Intel's lead.
Datuk Wong Siew Hai, director of RosettaNet Malaysia, an organisation set up to push the adoption of the standard in Malaysia, is optimistic many local companies will adopt RosettaNet. Why? Its cost has come down by 50%, standards have been ironed out and awareness of its importance is increasing. To further push the initiative, RosettaNet Malaysia organised an informative conference last week that was well received.
Getting cheated
A lesser-known issue that some SMEs face with regard to ICT adoption is the fear of getting cheated and not having an avenue for redress. This is critical because SMEs do not enjoy the advantage of having a large IT department or may not have sufficient experience to manage IT projects.
This is where the MCA's IT resource centre (MIRC) comes in useful. While the centre cannot help claim damages, it can provide useful counselling on how to execute a successful project and the common pitfalls to avoid. Prevention is, after all, better than cure. "Come and see me," invites MIRC's CEO Wong. He manages his own business of manufacturing laptops in India remotely via instant messaging chat and is passionate about ICT adoption among SMEs. Wong hopes that any and every company that needs advice on how to proceed down the ICT path will consider using the MIRC. It is a community service provided by the MCA and is open to the public and not only MCA members.
On its part, Smidec is offering up to 75% financing at 3% interest over five years for SMEs to buy ICT applications. The minimum loan amount is RM20,000 and the maximum RM250,000. Also up for grabs is a matching grant scheme of 50% the cost of project financing, up to a maximum of RM100,000, to companies in the electrical and electronics sector to implement RosettaNet.
Connectivity
The enabler for SMEs to take advantage of hosted software services and e-supply chains is, of course, Internet connectivity, or broadband, to be more specific. TM Net and the Small and Medium Industry Association of Malaysia (SMIAM) in March signed a memorandum of understanding to boost broadband usage and broadband applications among SMIAM members.
Dr Looi Teong Chye, president of SMIAM, says his express wish is that "SMEs realise that with broadband they can turn their computer into a research facility. They can go online and conduct all kinds of research as well as conduct business online".
Intel's Smith recalls the time he was strolling through a bazaar while on vacation in Turkey, and saw a man selling local produce at a stall. What caught his attention was that the man was using a laptop. Intrigued, Smith struck up a conversation with the stall owner and found out that he was operating a global business from that humble location. He took orders online from his loyal customers from abroad and shipped products to them. This had helped him increase his business volume by 20%.
The conclusion: If a man in a market stall could make such effective use of ICT, surely our SMEs can do better?
Group to support small businesses in search for right solutions
By RUPINDER SINGH
Small- and medium-sized businesses (SMBs) realise the importance of information and communications technology (ICT), but are clueless where to source for the right solutions.
According to the SMI Association of Malaysia (SMIAM), ICT adoption is still low in Malaysia although SMBs are willing to pay a high cost for solutions.
“Cost is not a factor with SMBs. However, one issue that is regularly raised is the lack of after-sales support from vendors,” SMIAM co-chairman and technical director Lee Hwee Hsiung told Business Times.
Lee said that only 30 per cent of SMBs in Malaysia have a Web presence and use information technology (IT) extensively in their daily operations.
“This reflects a poor rate of IT adoption among the estimated 100,000 local SMBs. There is an urgent need for SMBs to leverage on technology to increase their competitiveness and response to changes in the environment,” he said.
In response to this, the SMIAM will set up a call centre next month to support SMBs in their search for the right solutions.
“We urgently need all solutions providers and ICT companies to register with us so that our call centre can divert the SMBs to the right solutions,” said Lee, adding that the SMIAM will kick off a nationwide roadshow in June in conjunction with the launch of the call centre.
He said the SMIAM was in the fourth stage of its 4As programme — awareness, appreciation, adoption and adaptation — targeted at small- and medium-sized industries.
To ensure sustained growth and profit, local SMBs must use ICT to cut cost, increase effectiveness and efficiency, and achieve economies of scale, said Lee.
IBM Malaysia’s general manager for global SMB, Chiam Yat Seng, said IBM is stepping up its efforts in enabling local SMBs to be more focused, responsive and resilient.
Chiam said IBM’s “On Demand Express Solutions” is specifically priced and designed to meet the needs of SMBs.
IBM will jointly stage the Business Solutions Symposium 2005, themed “On Demand: Big Ideas for Mid-Sized Businesses”, today at the Sunway Convention Centre.
More than 20 of IBM’s business partners will be at the symposium to showcase their solutions for SMBs and to share their insights on how businesses can leverage on technology to transform and innovate to better compete in a globalised economy.
Among IBM’s 300 business partners are key industry players like SAP, Pannasoft, NexusEdge Technologies, iPower, iTera, VADS, American Power Conversion, Penril Datability, Intentia and CBS Technology, which will be present at the symposium.
Group to support small businesses in search for right solutions
Opening and Welcoming Speech by Dr. Ooi Chee Hock at the "New Issues Facing the SMEs" Seminar and roadshow held at the Equitorial Hotel, Penang on 17th March 2006
Yang Berhormat Lau Cheik Tuan, Penang State Executive Councillor, and Patron of SMI Association of Penang
Mr Chua Tiam Wee, National President of SMI Association of Malaysia.
Dr Looi Teong Chye, National Advisor of SMI Association of Malaysia
Mr Huang Soon Fook, Organising Chairman of the Roadshow 2006
Local Organising Committee Members of SMI Association of Penang and Penang MCA SMEs Bureau,
Distinguished Speakers,
Advertisers and Networking Partners
Distiniguished Guests and Participants,
Members of the Mass Media
Good Morning, Ladies and Gentlemen,
First, on behalf of the SMI Association of Penang and the Penang MCA SMEs Bureau, I wish to extend our sincere appreciation to YB Lau Cheik Tuan, for taking time off his busy schedule this morning to officiate today’s Seminar on the New Issues Facing the Small & Medium Enterprises.
This Roadshow which started on the 24 February 2006 in Kuala Lumpur, before moving on to Johor and Subang Jaya, is now making its final stop in Penang, which is jointly organised by the SMI Association of Malaysia and co-organised by the SMI Association of Penang and the Penang MCA SMEs Bureau, and supported by TENSEA Sdn Bhd.
Ladies and Gentlemen:
Many discussions are held, on how SMEs could best contribute to the economic growth in the country, and how best the SMEs can effectively respond to the challenges, emerging in the new century, in order to reach the free and open trade, and investment goals set for developing economies, like Malaysia in 2020.
The SMEs, as we understand, are key elements of success that shape the economic growth in the country. The capability of SMEs to benefit from the new economy, relies on innovation, since innovation is both the source of competitiveness, and the key to survival in the new economy. The SMEs contribute to economic development, by triggering competition through innovation, thus resulting in positive economic growth, technological upgrading, job creation, and overall improvement in social well being.
In discussing the current situation, with regard to challenges in promoting the economic development of the small and medium enterprises in the country, the problems faced are often the same.
The common issues, challenges and problems faced by the SMEs are:-
· Lack of credit/finance/capital
· Access to technology
· Training/human resource development - this covers both on-the-job training and the broader education system. There is a strong need to improve skill bases in a range of areas.
· Funding for research and development - SMEs lack assistance, both for developing new ideas and turning these ideas into commercial products.
· Extent of government regulation/compliance costs - this can range from taxation and reporting requirements to laws.
· AFTA & WTO commitments - SMEs compliance with government commitments in the AFTA & WTO (such as allowing more direct competitions in the country and etc) can be difficult for SMEs.
· Limited information on possible markets and clients - many SME owners/operators have little experience in exporting into foreign markets.
· Broader economic situation - SMEs are often badly affected in times of economic recession. Lack of insurance and subsequent business failures can often make the economic situation worse.
Ladies and Gentlemen:
Since the SMI Associtions were established in 1995, we have organised many related activities, seminars, trainnings and participated in dialogues with the government, with the objective of promoting the interest of the small & medium scale industries and enterprises in the country. All the activities that the SMI Associations organised are directed to enhance SMEs competitive position in the market-place. Some of the most important events include br]
· SMI Export Conference
· SMI Human Resource Development Towards K-Economy
· SMI One-Stop Solution Exhibition
· The National Industrial Conference
· Roadshow ’98 on RM1.5 Billion Financing Fund
· Seminar on Alternative Financing & Govt Grants for SMIs
· The National Internet Literacy Campaign
Ladies and Gentlemen:
Though numerous efforts being carried out, whether by the government or our Associations or other Trade Associations, to prepare and assist deserving SMEs, there are still some critical issues which need to be improved further by all concerned parties .
· SMEs need to first to gain easier access to financing, in their home market with the means of helping SMEs to grow domestically through the creation of guarantee funds or the participation of non-banking intermediaries;
· The need for SMEs to speed-up the implementation of training and certification programs including management training, administrative and entrepreneurial skills, quality manufacturing process, enterprise and product competitiveness, technological innovation, technical assistance, and competitive start-up enterprises.
· Difficulties faced by SMEs in accessing relevant information, that provide valuable inputs on enterprises' economic data; business procedures; productivity changes; legal frameworks; and available financial, training, technological and business opportunities for the SMEs for both domestics & international market.
· Bridging between SMEs through mechanisms that foster appropriate technology sharing, and offering support to SMEs in specific sectors in order to optimize their processes and increase their competitiveness. This may include industrial outsourcing practices and enterprise association schemes.
· Access to markets through the promotion and development of productivity chains in strategic industry sectors and implement vendor programs in which both big enterprises and SMEs benefit from a permanent commercial relationship in regional and international markets.
· The high cost burden imposed on SMEs in meeting the standards and conformance requirements in order to gain access to the overseas market.
Ladies & gentlemen
The SMI Association of Malaysia, SMI Association of Penang & Penang MCA SMEs Bureau, through its regular program in recognizing the difficulties faced by SMEs, brought to you this morning the services of 4 distinguished speakers to share their views on some of the current key issues faced by the SMEs.
May I have present to you Ladies & Gentlemen:-
1. Mr. Mike Vaughan, Director of Deloitte & Touche from Singapore, who will speak on the “Implication and Impact of the Goods and Services Tax”
2. Mr Kelvin Chin, Director of Compass Consulting Group of Hong Kong, on ‘Intellectual Property Rights Valuations’
3. Mr Edwin Wong, CEO of PanGlobal Insurance Berhad, on ‘Branding Advantage’
Last but not the least;
4. Mr Khir Badrul, Head, Marketing & Product Development, who will present to you ‘New Trade Financing Packages (non-Collateral)
With that I hope all of you will have a very productive day.
