Challenges for the Internationalization of SMEs and the Role of Government: The Case of Malaysia

Abstract

SMEs presence is significant nowadays to most economies, particularly those from emerging countries. The internationalization of these firms is no longer an option; it is indeed necessary for them to follow the wave of globalization. Despite of their constraints, Malaysian SMEs are struggling to expand into the international market and compete internationally to sustain their foothold in the country. Various factors have forced SMEs in Malaysia to engage internationally, however the ventures are arduous to be accomplished independently. As a result, the Malaysian government has initiated various efforts in supporting them to stand in the international arena. Many agencies have been established and numerous programs have been developed to encourage SMEs internationalization. This study aims to unfold the challenges faced by SMEs from emerging countries in expanding internationally by examining the business environment in the country. The study finds that, despite various supports offered by the government, Malaysian SMEs continue to struggle in the global market due various factors including market knowledge, technological and skills capabilities, and products quality.

Policy Options to Remove Export Barriers Encountered by Indonesian SMEs

“…On the internal side, inadequate global market knowledge and information may be the first issue for SMEs in attempting to initiate export. SMEs are often reluctant to start exporting due to the lack of reliable market location and analysis information, international market data, business opportunities and customer contact (EFIC, 2010;Hashim, 2012;Leonidou, 2004;OECD, 2009). Another internal barrier may arise in the form of functional barriers, including issues linked to the constraints that SMEs face in their funding, department of human resources, and manufacturing capacities.…”

“…Another internal barrier may arise in the form of functional barriers, including issues linked to the constraints that SMEs face in their funding, department of human resources, and manufacturing capacities. Human resource barriers include organizational and time inadequacies, restricted export staff, and little innovation (Freeman et al, 2006;Hashim, 2012;Köcker & Buhl, 2007;Leonidou, 2004;OECD, 2008). Barriers to production include limited ability, unreliable input, and failure to develop fresh products (OECD, 2008;Tambunan, 2009a).…”

“…Barriers to production include limited ability, unreliable input, and failure to develop fresh products (OECD, 2008;Tambunan, 2009a). Lack of working capital and limited access to finance for export activities are the financial barriers (EFIC, 2010;Freeman et al, 2006;Hashim, 2012;Köcker & Buhl, 2007;Leonidou, 2004;OECD, 2008;Tambunan, 2009aTambunan, , 2009b). In addition, marketing functions of SMEs may also remain weak in terms of appropriate product arrangements, pricing, logistics, distribution and promotion (Leonidou, 2004;OECD, 2008;Tambunan, 2009a).…”

“…The close and intensive facilitation by the home government may assist indigenous exporters, but such assistance is limited. Similarly, regulatory frameworks are often considered too sophisticated (Hashim, 2012;Leonidou, 2004;OECD, 2008;Wengel & Rodriguez, 2006). In addition, SMEs are entrusted with coping with task barriers as distinct areas may consist of distinct customer and competition behaviors and/or attitudes (Hashim, 2012;Köcker & Buhl, 2007;Leonidou, 2004;OECD, 2008).…”

“…Similarly, regulatory frameworks are often considered too sophisticated (Hashim, 2012;Leonidou, 2004;OECD, 2008;Wengel & Rodriguez, 2006). In addition, SMEs are entrusted with coping with task barriers as distinct areas may consist of distinct customer and competition behaviors and/or attitudes (Hashim, 2012;Köcker & Buhl, 2007;Leonidou, 2004;OECD, 2008). Foreign market environments may also interfere with trade activities in the form of decreasing country economic conditions, fluctuating exchange rates, political instability, rigid regulations and (non) tariff barriers (EFIC, 2010;Hashim, 2012;Leonidou, 2004;OECD, 2008;Rahardhan et al, 2008).…”