A critical analysis of policy initiatives involving small and medium enterprises in Malaysia

Abstract

This thesis is a study of Malaysian government policy for stimulating the role of small and medium enterprises (SMEs) in economic and industrialization growth. It was envisaged that SMEs would be one of the primary foundations for the country's future industrial growth. Besides being playing a major role in generating employment, SMEs were to be critical in strengthening industrial linkages, penetrating the markets and generating export earnings. It had been emphasised that there is a need to set programmes into the industrial process which enhance industrial linkages between SMEs as suppliers of parts and components and large enterprises. However, as reported by UNIDO (1995) the implementation of such programmes have not always been successful in developing countries due to lack of communications between agencies, lack of private sector investment, inconsistency in implementation and unfair regulatory burdens placed on SMEs. Furthermore, the government of Malaysia (1995) commented that common features of SMEs are poor quality, delays in delivering their services, absence of technological innovation and a of lack managerial capabilities. For the empirical study, a survey and an in-depth case study were conducted to determine the government policies for encouraging linkages between large firms and the SMEs, specifically the vendor development programme (VDP) and the local content requirement programme (LCR). The study uses the rich data of interviews and observation to evaluate critically the positive and negative lessons from the two initiatives. The results from the study show that SMEs and anchor companies welcomed government policy to stimulate SMEs. However, several failures of the VDP were recorded at the implementation stage. In contrast the LCR had few critical problems and benefited SMEs and anchor companies. Numerous incentives are available in the promotion of SMEs have not fully benefited SMEs overall due to implementation obstacles and the managers' preference to concentrate on the daily operation of their SME. The concept of close relationships between an anchor company and supplying SMEs is still relatively new and there was evidence in the failure of SMEs and anchor company to communicate openly. Nonetheless, within the study the performance of SMEs in fulfilling the operating requirements was encouraging as evidenced by the absence of negative comments from the anchor companies regarding on the delivery, quality and cost of the SMEs. The study recommends that there should be a continuous communication and commitment between anchor company and the SMEs with periodic visits and monitoring by the appointed government agency. In addition lessons should be learnt from the operating of the VDP concept by Proton and Japanese firms. Finally, anchor company should have a high level of market access either to domestic and overseas markets.