Small and medium-sized enterprises (SMEs) are the backbone of the Malaysian Economy. According to the Malaysia Department of Statistics, small businesses make up 98.5% of all businesses in the country and employ nearly 70% of the workforce. In 2021, 1,226,494 small businesses contributed RM 500 billion—or around 38%—to Malaysia’s GDP.
Despite being the backbone of the nation’s economy, SMEs face many storms. There are challenges for small businesses in the coming year that business owners must know. This article will explore some key challenges that small businesses will likely face in 2023.
Economic Uncertainty: Inflation, Supply Chain Disruptions, and Labor Shortages
The Malaysian economy has faced many challenges in recent years. These challenges include inflation, supply chain disruptions, and labour shortages. These issues will likely persist in 2023, making it difficult for small businesses to plan for the future.
SMEs will need to adapt to these challenges for small businesses, such as diversifying their supply chains and offering competitive salaries and benefits to attract talented workers. Even if 59% of Malaysian workers are satisfied with their job, SMEs can constantly improve things for their staff to retain them.
Digital Transformation: Keeping Up with Technology
Technology has evolved rapidly in recent years. With the push from the pandemic, everyone needs to keep up with the ever-changing tech landscape. Small businesses that rely only on their brick-and-mortar shops must find a way to shift the business online.
Some SMEs are hesitant to adopt digitalisation. They regard it as unnecessary. Yet, almost half of Malaysians (47.7%) made an online purchase in 2022. This implies that consumers are actively looking for digital sales channels. But digitalisation is not limited to such distribution channels. Cloud computing and enterprise resource planning (ERP) solutions can impact business continuity and efficiency. New infrastructures (smart warehousing for example) are being developed to enable just-in-time inventory management to minimise an SME’s cash being tied to idle inventory.
Seek out free training and mentorship programmes to help SMEs build digital skills and develop a strategy for digital transformation.
Talent Acquisition and Retention: Finding and Keeping Skilled Employees
Employee turnaround is an expensive affair for SMEs. Often the costs are not quantified as business owners need to ensure operational continuity. But hiring and training in itself incur costs. Competitive salaries and benefits contribute towards worker retention. Larger companies often offer better pay and benefits, making it difficult for small businesses to compete. As employees look for better opportunities, this would make employee retention among an SME’s biggest challenges for small businesses.
To overcome this challenge, small businesses may need to offer creative perks and incentives. Such solutions can include flexible work arrangements, training and development opportunities by utilising the Human Resource Development Fund (HRDF) contributions, and fostering a positive workplace culture. After all, 66% of workers focus on job fulfilment, including 63% of Malaysian workers who prefer a hybrid workstyle.
Access to Capital: Financing and Cash Flow Management
Access to capital is a significant challenge for small businesses in Malaysia. Many small business owners struggle to secure financing to support their operations or growth. Businesses with uneven revenue streams may find managing cash flow difficult. This affects over 32.8% of small business owners.
To address these capital challenges for small businesses, owners should consider working with a financial advisor or seeking government-backed financing programs. They may explore non-traditional financing options such as Funding Societies, Malaysia’s largest SME digital financing platform. Funding Societies offers eligible SMEs short-term working capital and rotating capital financing solutions.
Regulatory Compliance: Navigating a Complex Legal Landscape
Navigating the complex legal landscape in Malaysia can also be one of the biggest challenges for small businesses. Policymakers and lawmakers will issue new laws, regulations, and guidelines from time to time that impact a business’s operations: licensing, tax filings, permits, and labour law. Small business owners need access to more resources and know-how. Non-compliance can be disruptive or lead to fines and other legal consequences.
Turning to legal or accounting professionals to receive the necessary support is a good idea. Owners might also hire a specific employee to handle compliance.
Business owners can address the challenges above by seeking resources and support from government programs, industry associations, and other organisations. When the pandemic hit and SMEs struggled, SME Corp. Malaysia provided grants totalling RM150 million for 100,000 to help them approach digitalisation.
In 2023, small businesses will need to be agile and adaptable to navigate complex and uncertain challenges for small businesses. Additionally, investing in technology, talent development, and efficient cash flow management can help small businesses thrive in a challenging business environment.