World Economy

Malaysia Encourages SMEs

Malaysia Encourages SMEsMalaysia Encourages SMEs

Entrepreneurship has taken on great global significance for governments looking to boost growth and employment since the global financial crisis. It is also seen as a remedy for socio-economic challenges.

It leaves no question as to why the local government has placed so much emphasis on the small and medium enterprise front here, as well as entrepreneurs to start formulating their companies—especially now, Malaysia’s official website Borneo reported.

According to a Standard Chartered report titled ‘Entrepreneurship–A Growth Tonic’, it is increasingly accepted that only opportunity entrepreneurs–those who start businesses to exploit an opportunity or fill important gaps in the market–are relevant for growth.

These opportunity entrepreneurs tend to usher in productivity improvements and innovative products or processes that support high growth, making operations more sustainable and allowing for easier transition to larger firms.

A common assumption is that opportunity entrepreneurs will largely be relatively new firms that are primarily related to the information technology sector. As a result there has been a focus on supporting start-ups and encouraging industrial clusters, as well as other entrepreneurial ventures in the high-tech sectors.

It is also assumed that venture capitalists or ‘angel’ investors rather than more traditional sources of finance usually support these firms.

Data on the characteristics of opportunity entrepreneurs and the constraints and challenges they face is very limited.

  Government Action Crucial

It is commonly believed that opportunity firms or high-growth enterprises are usually funded by venture capital but is shown to be relatively unimportant as a source of finance for opportunity entrepreneurs in markets according to the survey.

 “Only around 2% of respondents in our survey benefited from such sources of finance. Bank finance is a significant source of capital for opportunity entrepreneurs but a large majority rely on their own or family funds to start up and maintain businesses,” said Standard Chartered.

This is also reflected in the way in which profits from the enterprise are distributed among competing claims.

According to the survey, over 70% of all profits are reinvested into the business, with the remaining pot largely being divided between paying down existing debt and remunerating employees in the form of bonuses.

Opportunity entrepreneurs’ commitment to growing their business is evident from the low levels of withdrawals as dividends.

The report highlighted that when asked, respondents noted that the top three constraints to business expansion were government regulations, access to finance and the lack of a skilled workforce.

Governments such as Malaysia’s, which is looking at entrepreneurship to boost economic growth, need to focus on promoting opportunity entrepreneurship in particular, even though these entrepreneurs might form only a very small part of the total entrepreneurship pool.

The global financial crisis has seen the world become more dependent upon emerging markets to drive global growth.