SME and Human Capital
From the progress of the nation and the aspiration of the Government, especially in the 9th Malaysia Plan for the small and medium enterprises (SMEs), it can be said that the importance of SMEs is mounting. As the majority of the SMEs are owned by locals, this business sector has become critical to the economy, especially in diversifying Malaysia’s economic base and helping to increase the strength of Malaysia’s economy in the face of growing external challenges.

While more needs to be achieved, Malaysia’s SME has done relatively well in the face of less than favorable economic climate in the past years and have gained some measures of competitiveness. To continue to stay competitive and become global players, the SMEs have to become more productivity focused, technologically capable and globally competitive. As such, there is an increasing need for SMEs to expand and become knowledge-based.

One critical success factor for this to happen would be the development of human capital. The Government has always kept education and human resource development in their agenda every year. We have seen increasingly large investment in this sector for education, training and skill development in the private sector in order to boost competitiveness.

According to a report by SMIDEC, SME’s in developed countries, constitute higher percentages in terms of numbers of companies and value-added compared to Malaysia.

Employment by SME in Malaysia for example is 33% compared to 69% in countries like Japan and Germany. This is significant considering SMEs in Malaysia comprise 90% of the total manufacturing establishments (source: First National Seminar in Electronic Commerce. (SMIDEC Oct 2003 )

Human capital development in the Manufacturing and Services Industry: The key SME growth engines
Total employment in Malaysia is projected to register an annual average growth of 1.9 per cent during the period 2006 – 2010, from 11.5 million in 2006 to 12.0 million workers in 2010. (source: 9MP)

Sectors which are expected to absorb substantial shares of the employment by 2010 are the services sector and the manufacturing sector.

The manufacturing sector will continue to remain a vital engine of growth for the Malaysian economy and the SMEs are major contributors here. To succeed, they probably need to move up the value chain, by producing technology-intensive goods, engaging in R&D activities, and improving productivity.

Challenge in developing human capital

The challenge in developing human capital however, is still a critical one. Some of the issues that are still big on the agenda are: Talent attraction; Retaining key talent; Improving staff productivity and the effectiveness of their workforce Training and development Matching education and training providers with industry requirements Overcoming the mismatch in the supply of and demand of human resources Enhancing the competence and innovativeness of the workforce in order to compete in an increasing global market place

Meanwhile, the services sector which is also heavily represented by the SMEs are becoming an increasingly important sector in the Malaysian economy with growing demand for tourism activities especially with VMY 2007, manufacturing-related services, education, financial services and ICT.

Human capital development is both vital and a challenge in all of these development, as SME continue its effort to gain the competitive advantage by becoming more knowledge-based driven.

The challenge for SMEs in these sectors would be to try and develop knowledgeable workers who are competitive, dynamic and performance-oriented with relevant expertise and skills.

To augment the need for such workers, companies have also been relying on foreigners. As at start of 2006, there were 35,000 expatriates employed in Malaysia, with 52% in the services sector and 40% per cent in the manufacturing sector. In total at that period, there were 1.6 million foreign workers in the country and approximately 30% in the manufacturing sector. Of that total, a large number of foreign workers are employed in tasks which required lower skill.

From JobStreet statistics, more than 85% of companies posting jobs with JobStreet.com are the SMEs, making up around 65% of the total jobs posted. The demands to fill positions saw jobs in manufacturing jumping 36% in 2006 from the previous year while Sales, trading service and retail saw a 43% increase and IT jobs (software and hardware combined) recorded 54%.

These figures are expected to grow even further with the Malaysian economy continuing to post healthy growth. Last year, the National SME Development Council planed to have a total of 246 programmes involving financial commitments of more than RM3.6 billion that has been identified for implementation to accelerate the development of SMEs and hence create more jobs.

Companies are still Looking.
Employment conditions are expected to remain favourable as companies indicate that they are still in recruitment mode. Communication and language skills still plague many of jobseekers including those with higher education and degrees. Many employers complain of text book level proficiency of many IT graduates while what is required is more application proficiencies. So, while the job opportunities remain good, companies continue to have difficulties in hiring good skilled and competent staff.

The supply of highly trained, skilled and competent labour will always be a priced commodity and not always easily available. SMEs should make a conscious effort to strengthen their internal resources while focusing on attracting and retaining talent as well as improving competencies and productivity.