How SMEs can cope with rising costs

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Experts sharing their views - From left to right are SMI Association deputy president Micheal Kang, SME Corp senior director of the economics and policy planning division Karunajothi Kandasamy, Ceriatone Amplification Sdn Bhd managing director Nik Shazwan Nik Azam and BFM’s Umapagan Ampikaipakan who had moderated the session.

Experts sharing their views – From left to right are SMI Association deputy president Micheal Kang, SME Corp senior director of the economics and policy planning division Karunajothi Kandasamy, Ceriatone Amplification Sdn Bhd managing director Nik Shazwan Nik Azam and BFM’s Umapagan Ampikaipakan who had moderated the session.

By Kamil Ridzuan

For the past two years, Malaysia’s 650,000 small and medium scale enterprises (SMEs) have had to grapple with a slew of rising costs. These include hikes in electricity, sugar, fuel, natural gas, freight, labour costs arising from implementation of Minimum Wages, insurance premiums, medical costs and, coming soon, the Goods and Services Tax in April 2015. With all these rising costs, just how can businesses cope?

Business Circle was recently present at the ETP Industry Speaks event, Rising Costs – How can businesses cope?”, to hear what thought leaders had to say about the current situation.

The scenario

Against a backdrop of an uncertain global economy, Malaysia’s 650,000 SMEs which represent some 98% of businesses in the country, have been facing a challenging period for some years now. SME Corp senior director of the economics and policy planning division Karunajothi Kandasamy (pic) said that, whether we like it or not, trade liberalisation has brought competition closer to home where local SMEs must adapt to challenges and leverage on opportunities that lie ahead.

“Rising costs is not something new. Malaysia’s SMEs have been facing higher costs since 2009, and this stems mainly from rising costs of raw materials and higher overheads,” she shared.

Meanwhile, SMI Association deputy president Micheal Kang said that SMEs have been able to “ride” through the situation although he also agreed that the environment had become more challenging since 2009.

“Those exporting will suffer more as local manufacturers can just pass on cost increases to consumers,” Kang (pic) said.

Exporter and entrepreneur Ceriatone Amplification Sdn Bhd managing director Nik Shazwan Nik Azam is also affected by rising costs. Having begun his trade 10 years ago, the rising price of copper wire used in guitar amplifiers have progressively eaten into his margins.

Ceriatone custom makes handwired tube guitar amplifiers which is exported to 70 countries. The company currently has about 6,000 loyal customers throughout the world.

What can be done to cope with rising costs?

For Nik Shazwan, there is no other way but to be “lean and mean” and be “agile” in their endeavours. This means becoming more operationally efficient and bringing processes in-house to realise cost savings.

“Our emphasis is always on quality,” said Nik (pic). “By streamlining our operations, we have become more efficient. For example, what used to take us four days for production now only takes one day,” he shared.

Karunajothi said that SMEs need to change their mindset and know how to “up their game” and this can only be done through augmenting productivity – being more efficient in their business operations,, undertake cost cutting measures, reduce wastage, invest in energy saving equipment and embrace innovation. Productivity of SMEs in Malaysia is relatively low, only one-third that of large local firms and about 3 to 7 times lower than SMEs in advanced economies.

“SMEs must not only think of the present but also anticipate and prepare for the next few years. They must realise that the name of the game is changing amidst liberalisation and other reforms that are taking place in the economy.

“One area that Malaysian SMEs can take advantage of is ICT, especially adopting ICT related business solutions to accentuate productivity and operational efficiencies,” she said. SME Corp Malaysia surveys and Economic Census data seem to indicate that while 75 percent of the SMEs own computers, only 55 percent use the Internet, and a very low percentage of 27% of SMEs deploy ICT in day-to-day business operations. This leaves a lot of room for SMEs to computerize their operations.

Kang suggested for the government to continue formulating policies for the SME community.

“Quite a few SMEs I have spoken to simply do not understand what the government is doing. They think the ETP is only for the ‘big boys’ and have not attempted to understand it better.”

Kang said quite a few SMEs are also at fault because they are so engrossed in making money that there is little emphasis on human resources development.

SME Masterplan and Malaysian SMEs to carve niche for themselves

Karunajothi said the Government through SME Corp Malaysia and other relevant ministries and agencies are working hard to ensure the success of Malaysian SMEs.

“We have a comprehensive SME Masterplan that addresses the needs of SMEs and SME Corp is currently collaborating with these ministries and agencies to provide end-to-end facilitation to SMEs through the six High Impact programmes towards creating an enabling ecosystem for SMEs to thrive,” said Karunajothi.

Meanwhile, Nik shared that the Malaysian market can be considered “small” to China’s two billion people and Indonesia’s 220 million people.

“So, my suggestion is for Malaysia to carve a niche for ourselves,” he said. “It is about producing quality products with lower costs.

“Bear in mind, too, that customers are more discerning these days,” he said, relating his personal experience of how he went looking for Aviator Ray Ban sunglasses. He found one for RM800 at a local retail outlet and another one for RM300 on eBay.

“So businesses have to be reasonable, too in order to survive,” concluded Nik.

 

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