Small and Medium Enterprises (SMEs) play crucial role in Malaysia which contribute to the income of the country. All SME entities must be registered by Companies Commission of Malaysia (SSM). In 2005, the National Development Council (NSDC) indicate that company complies with the standard of annual revenue turnover and number of employees to be categorized as microenterprise, small or medium sized enterprises. Ministries of International Trade and Industry (MITI) is the biggest supporter of SMEs mainly to help and protect the interest of Malaysian in international trade arena and encouraging industrial activities (Baharun, 2013). The current economic growth trend and rapid development industry has made Malaysia one of the most open global economy. The government is devoting it efforts to the Ninth Malaysia Plan (2006-2010) and the creation of SME growth strategy aimed to support SMEs face the emerging market challenges in a dynamic global environmental sector (Mohd Zulkifli Muhammad, 2010). SMEs are seen as key driver of economic growth in many developing countries which comprise more than 90 percent of all companies worldwide. In 2018, the Department of Statistics Malaysia mentioned Malaysia’s small and medium enterprises (SME) contributed to gross domestic product (GDP) at 38.3% (RM521.7 billion) and total exports at 17.3% (RM171.9 billion) (Baharun, 2013).
SMEs are divided into two sectors which are manufacturing sector and services and other sectors. In term of the manufacturing sector, SMEs are considered as firms with sales turnover not exceeding RM50 million or number of full-time employees not exceeding 200. On the other hand, in term of services and other sectors, SMEs are defined as firms with sales turnover not exceeding RM20 million or number of full-time employees not exceeding 75. The services sector includes the distributive business sub-sector (wholesale & retail services), including motor vehicle and motorcycle repair, health and beverage facilities, transportation & packing, private companies such as beauty and spa, hospitality, health and education. Moreover, the construction and mining and quarrying sectors were included in 2011. Thus, this sector contributed the highest annual income associated with stone quarrying business. Malaysian Department of Statistics stated that the highest distribution is from service which is 87.9 percent, followed by agriculture which is 7.1 percent and manufacturing which is 5 percent.
Moreover, small and medium enterprises (SME) also facing challenges in the global business environment. this can be supported by several of the existing literature review which mentioned that SMEs faced various challenges in globalized environment (Saleh, 2006). For example, recession, lack of financing, difficulty in accessing management and technology and others. The barriers to entrepreneurship, namely lack of access to credit and lack of access to formal social networks and businesses. SMEs also face with intensified global challenges, new emerging ICT technologies and production processes, as well as increasing factor costs affecting exports (Teoh, 2008). As for recession, it has been constant challenges for the SMEs which lead to the economic downturn. The world economy has experienced several unfavourable events since the year 2007 such as the boiling of oil prices, followed by a subprime credit crunch in the United States, resulting in a financial distress to the financial market. Thus, the common consequences of a recession are lower consumer spending, lower product and service demand, lower production and job cuts. Besides that, SMEs, small in nature, are also affected to a greater extent, especially those involved in the trade and supply of goods or services to other businesses (Mohd Zulkifli Muhammad, 2010). However, the small and medium-sized enterprises sector has a crucial role to play in the region’s sustained recovery from the business opportunities created by restructuring the process itself, movement towards closer regional economic integration and advances in ICT (Harvie, 2004).
2.0 ISSUES OF PANDEMIC TOWARDS SME IN MALAYSIA
Coronavirus (COVID-19) outbreak has imposed significant burden on economic activity worldwide. It caused the sudden and simultaneous economic disruption across the country. Due to its rapid transmission of the virus in a highly globalized world, people all over the world have at the same time isolated themselves in strict public health order which is known as lock down. In this case, social distancing is an essential step that are taken by many countries affected by this virus. However, it has resulted in a synchronized collapse of economic activity worldwide. Major stock market indexes have collapsed, dismissing nearly one-third of their value in just a few weeks, with some industries hitting harder than others especially small and medium enterprise businesses (Didier, T., Huneeus, F., Larrain, M. & Schmukler, S.L., 2020). While other nations implemented the lock down order as a measure to control the spread of COVID-19, Malaysia has also adopted the same. Both of public and private sector are badly hit by this pandemic outbreak. It has reduced off the business supply chain. Manufacturing and producers are predicted to be affected more as their input are dependent on the global supplier such as China. China is the central production hub for many businesses worldwide (Hasanat, M. W., Hoque, A.,Shikha, F. A., Mashrekha, A., Bakar, A. & Tat, H.H., 2020).
Small medium enterprise (SME) becomes a big concern by the government during the COVID-19 pandemic outbreak as they are linked to the economic role and act as backbone of Malaysia real economy. Malaysian economy comprises of almost 99 percent of SMEs where they contribute 38.3 percent of the country’s GDP, 66 percent of the country’s employment, and around 17.3 percent of Malaysia’s exports (CompareHero.my, 2019). This situation is different from the previous global crisis as the small business enterprise experienced a mixture of supply shock and demand shock at once. For example, SME are more labor-intensive than other business so, they are greatly exposed to disruption due to the quarantine of workforce by the government. Not only that, household also unable to buy certain goods and services directly from the small and medium enterprise. Additionally, SME have limited financial alternatives and rely mostly on local bank support. In most cases they lack assets which can be disposed of or which can be used as financing for new lines of credit (Tankler, A., 2020). Due to COVID-19 pandemic outbreak, business cash flows drop at an unprecedented scale. SMEs, such as in developed countries Malaysia has minimal capital and financial resources to operate its company and any unforeseen events may contribute great financial implication for them. During this time, the SME need to struggle as their working capital shrinks. Thus, the capability of the business to handle situation after a pandemic shock depends on how it can collect extra funds and, on the willingness, to change expenses such as salaries, manufacturer fees, certain operating costs and taxes. If businesses that behaved well before the crisis do not survive the cash crunch while the outbreak continues, the shock could have delayed for a long time and cumulate consequences (Didier, T., Huneeus, F., Larrain, M. & Schmukler, S.L., 2020).
The resilience of the SME depends on the duration of the pandemic outbreak. This is because the causes of the pandemic linked to the health crisis so that it only disappears once the vaccine or proper treatment for the virus is found. It is quite hard to control the spread of this virus due to transitory in nature. However, there is high degree of uncertainty over its severity and the overall economic implications. The longer the elevated levels of uncertainty and paralysis last, the harder it will be for SMEs to resist and survive the shock. Thus, it would be necessary to recover the damages suffered during the pandemic. Moreover, the pandemic shock has contributed to a significant and widespread rise in market risk, because not all businesses may withstand a long-lasting lockout, and those that thrive that sacrifice business lines or customers (Didier, T., Huneeus, F., Larrain, M. & Schmukler, S.L., 2020). Professor Dr Yeah Kim Leng, Sunway University Business School economics mentioned that Malaysia’s GDP growth will be decreased significantly while the unemployment rate will rise above the level of 4 percent if the SMEs unable to recover its performance after the MCO. For the length of the MCO, the economic costs to SMEs will increase sharply. He estimates that the gross output or total revenue losses range from RM75 billion to RM150 billion over a single month period (Gomes, V., 2020).
China is an importance to the global trade, so, when China is impacted due to this outbreak this will directly impact the global supply chains. Thus, many manufacturing companies in Malaysia that rely on China output has caused them to keeping their cost down and lean production schedule because many factories have been temporarily closed in China (Teng, 2020). The outbreak of Covid-19 has caused the disruptions in the supply chain, particularly in the sourcing, assembly, testing and shipping of raw materials. This disruption is expected to affect two main sectors in Malaysia which are the manufacturing of technology and electronics (EMS) services (Teng, 2020). In can be concluded that the outbreak in Hubei province, Wuhan, China affecting both suppliers and logistics due to the continuous lockdown in the area.
In the scope of tourism, it also shows declination in number of tourists especially from overseas and it led to 30 percent drop of hotel business. According to Dr Yeah Kim Leng of Sunway University Business School, most of businesses in the restaurant and food sectors, retail sectors and tourism-related player are small medium enterprises (SMEs). The outbreak has caused the small medium enterprises (SMEs) retailers in a tough situation where they have to make decision either to shut the shops for good or laid off their workers due to a tight cash flow. The president of the Malaysian Retail Chain Association, Datuk Gary Chua mentioned that most of the retailers already cut cost 80 percent and the workers will be laid off around 30 percent in the next six months (Zahid, 2020). In fact, the retailers already laid out plans in the midst of trimming losses. According to MRA president, the cost-cutting measures had been implemented since last year.