The online space is an excellent area for SMEs to bypass fiscal constraints including funding, overhead costs and HR needs
By MARK RAO / Pic By MUHD AMIN NAHARUL
The failure by the small and medium enterprises (SMEs) to expand their market abroad is one of the reasons that these entrepreneurs are struggling compared to the larger counterparts.
RAM Holdings Bhd in its quarterly business confidence survey showed an estimated 28% of local SMEs are operating in the red, compared to 13% for corporates.
RAM Holdings group CEO and ED Datuk Seri Dr K Govindan said big companies have the ability to capitalise on the export market, but SMEs struggle to gain a foothold abroad due to financial limitations.
He said SMEs face an uphill battle to enter the international market due to the various tariffs, rules and regulations.
However, he said the e-commerce space and online retail is an “excellent area” for SMEs to rise in the value chain, bypassing fiscal constraints including funding, overhead expenses and human resource (HR) needs.
“Many countries including Malaysia are already moving in that direction, to push SMEs into e-commerce so that these players can make the jump across the fence (into a broader market base),” he said at a media briefing in Kuala Lumpur yesterday.
“We need to look at initiatives that are not only localised, but spread across the country, where we bring SMEs into certain training areas and expose them to international trade, while helping them to understand regulations and develop a market context abroad.”
He said local SMEs account for 97% of businesses and 65% of employment in the country.
RAM’s study based on feed- back from 974 corporates and 2,500 SMEs showed both segments of the business sections are positive on their business outlooks for the first half of this year (1H18).
Research economist for RAM Rating Services Bhd Kristina Fong said corporates are more bullish on their business prospects, with an index of 55.6 compared to SMEs at 52.4, with the former indicating more stable expectations for turnover and profitability.
“SMEs tend to have more varying expectations about future profitability and turnover, as they are less flexible in adjusting their operations to deal with higher costs of doing business,” Fong said.
“SMEs also have less visibility in relation to payment schedules and future contract awards.”
However, she said SMEs and big corporations are positive on capital investments for 1H18 as expansion has been identified as an important avenue for growth.
“Based on the findings, SMEs demonstrated a survivalist nature as they were on the lookout for other avenues of growth, new opportunities, business diversification and new locations.”
She said this is driving private investment among local businesses.
“Last year, we saw a big rebound in capacity building activities among Malaysian firms, as they bought machinery and equipment,” she said.
Fong said this capacity building is expected to continue this year as private investment is projected to grow 8%.
This is lower than the ratings agency’s 8.8% growth forecast for 2017, but is in line with the anticipated moderation in gross domestic product, from 5.8% last year to 5.2% this year.
RAM Credit Information Sdn Bhd CEO Dawn Lai said the business confidence survey showed that profitability among SMEs tend to drop after 10 years of operation.
“Consequently, it is important for SMEs to innovate and grow into a larger business entity,” Lai said.
“As a larger firm, a company can take advantage of the economies of scale, gain bargaining power and establish contracting networks,” she said.