It is crucial for SMEs and MSMEs to seize this opportunity and embrace automation and digitalisation to remain relevant.
THE small and medium enterprise (SME) as well as the micro, small, and medium enterprise (MSME) sectors, which are the backbone of Malaysia’s economy, have contributed significantly to the gross domestic product (GDP), employment and exports of Malaysa over the past year.
Despite experiencing a growth of 5% in 2023 (contributing RM613.1bil to GDP) compared to the previous year, the sectors’ future outlook is highly dependent on various factors, including policy decisions, geopolitical events, technological advancements, financial assistance and foreign direct investments (FDI).
Globally, 2024’s economic conditions have been unique, due to factors such as the ongoing trade wars. With the upcoming US presidential election, there is potential for new alliances to be formed or for further frictions to arise, which could reshape the global economic landscape.
This could impact Malaysia, which has been benefiting from geo-economic fragmentation and shifts in supply chains, as evidenced by the inflow of FDIs of US$3.1bil in the first half of 2024, a 17.9% increase from the US$2.6bil recorded a year ago.
> Digitalisation and upskilling talent
Due to significant spillover effects from increased FDIs, businesses in Malaysia should capitalise on this opportunity to become reliable local partners to foreign investors.
This is particularly relevant for SMEs and MSMEs, which have the advantage of lower costs compared to larger entities such as government-linked companies, multinational corporations and private limited companies.
Adopting a more digitalised business model, which includes the use of the Internet of Things, smartphones, big data and analytics and artificial intelligence, could enable SMEs and MSMEs to achieve greater economies of scale in the future, particularly as they move away from operations that rely heavily on manual labour.
This movement aligns with the 12th Malaysia Plan 2021-2025 with the government aiming to accelerate the digital economy, focusing on strengthening the digital infrastructure and digitalising the tax administration, amongst other initiatives.
Hence, SMEs and MSMEs need to reevaluate recruitment standards, to prioritise information technology (IT) competencies to ensure that the workforce is equipped to meet evolving technological demands.
This aligns talent acquisition with strategic goals in technology and digital transformation.
The existing workforce should also receive ample upskilling and further professional development opportunities to maintain competitiveness in the everchanging digital marketplace.
In Malaysia, the presence of more than 1,000 institutions providing technical and vocational education and training plays a crucial role in fostering industrial growth and the expansion of services.
This focus on practical skills ensures the country’s workforce remains robust and sustainable for the future.
> Financial assistance, incentives and grants
Transitioning to the digital era will require time and financing for investments in human capital and IT infrastructure.
With various initiatives being gradually implemented to enhance the SME financing ecosystem in Malaysia, SMEs and MSMEs can leverage financing from banks and financial institutions, venture capital firms focused on early- and growth-stage financing, equity crowdfunding and peer-to-peer financing platforms.
Certain development financial institutions offer specialised financing solutions for SMEs and MSMEs, providing loans with more favourable terms than those of commercial banks.
Additionally, the Malaysian government provides various incentives for businesses in specific sectors as well as grants for technology adoption, innovation, market expansion and training.
Technology-focused grants include the Malaysia Digital Catalyst Grant, the Malaysia Digital Acceleration Grant and the Industry4WRD Intervention Fund. Incentives include pioneer status and investment tax allowance of 60% or 100% of qualifying capital expenditure to be utilised against up to 100% statutory income, subject to certain conditions. Considering the above, we welcome the government’s introduction of additional tax measures to ease business’ financial burdens during the digital transition.
These measures could include double deductions for training costs and special deductions for course fees related to upskilling employees.
The time is now
In summary, SMEs and MSMEs have access to a variety of funding initiatives, benefit from external geopolitical tensions that favour Malaysia and face market forces that compel business evolution, along with consumers’ increasingly high expectations and a growing demand for exports.
It is crucial for SMEs and MSMEs to seize this opportunity and embrace automation and digitalisation to remain relevant.
Those that hesitate may miss out on the benefits of business partnerships that are increasingly driven by technological integration, innovation and preference for technologically adept companies.
Given that most SMEs and MSMEs have already adopted digitalisation to some extent, such as conducting online businesses, adopting e-wallet platforms and other cashless payment methods and implementing e-invoicing, businesses should capitalise on this momentum to advance to the next level of digitalisation and automate business processes.
As technology offers transformative potential for growth and sustainability, this strategic move will significantly aid talent upskilling, change management, business development and overall operational efficiency in the rapidly evolving business landscape.
As a result, SMEs and MSMEs will emerge as reliable and valuable business partners, allowing them to capitalise on the FDI inflows and attract more FDIs to Malaysia.
Bernard Yap is Malaysia Private Tax Leader at Ernst & Young Tax Consultants Sdn Bhd. The views expressed here are the writer’s own.
