SMEs & NEW VENTURES AS A KEY DRIVER OF INNOVATION What policies and policy instruments are required to nurture

innovative SMEs and promote new venture creation ?

GROUP 4 Barjoyai Bardai, UNIRAZAK Mr. Hazizi Omar, Nuclear Malaysia Mdm. Razita Abd Razak, MRM Ms. Amelia Lee Sze Chui, MOHE Mdm. Norhayati Husin, EPU

Formal definition
The term innovation was derived from the Latin word innovatus, from the the noun innovare which mean "to renew or change," stemming from in"into" +novus"new". The term is broadly used to generally refers to the creation of better or more effective products, processes, technologies, orideas that are accepted by markets, governments, and society . ( Wikepedia ) Innovation, at the level of an individual firm, might be defined as the application of ideas that are new to the firm, whether the new ideas are embodied in products, processes, services or in work organisation, management or marketing systems (DIST, 1996, p.2, and credited to Gibbons et al. 1994) In businesee, innovation is something that is new or significantly improved, done by an enterprise to create added value either directly for the enterprise or indirectly for it customers ( Business Council of Australia, 1993, p3).

Definition of INNOVATION
Initiating and implementing changes at all spectrum of life with the view of improving the quality of life. Innovation is about culture and attitude of human capital and not only about strategies, initiatives and system. Hence innovation must start with the human being as the most important agent and catalyst of change.

Scanning the current situation/ performances of SMEs in Malaysia

THE ROLE OF SMES IN MALAYSIA

Defining Small and Medium Enterprise

Small
Micro Medium

SME
Source : SMECorp

Numbers of SMEs in Malaysia

Sector
Micro Small Medium Total SMEs % Large firms Total

Manufacturing 21,516 15,796 2,061 39,373 7.2 1,420 40,793 Services 381,585 83,037 10,084 474,706 86.6 2,819 477,525 Agriculture 31,838 1,775 575 34,188 6.2 343 34,531
Total SMEs 434,939 100,608 12,720 548,267 100.0 4,582 552,849

Comparative achievement of the Malaysian SMEs

Small businesses Employment per business 5.8 workers Total value added per business RM 297,956 Total output per business RM 783,585 Total export RM 375,000 Big businesses 450 workers RM17,158,140 RM68,062,500 RM45,600,000

Source : SMIDEC, 2005.

Performances of Malaysian SMEs

Employment : Over 3 million workers (51.5 percent of the total employment), Value Added : RM154 billion (47.3 percent) of the total value added, Total output : RM405 billion (32 percent) of the countrys total outputs Export : 19 percent outputs for export Source : SMIDEC, 2005.

Performances of SMEs Value added contribution

YEAR Growth R ate (%) Agriculture Mining & Quarrying Construction Manufacturing Services Total Value Added 2001 2002 2003 2004 2005 2006 2007 2008 2009

3.8
-0.3 4.6 -6.4 2.2

2.1
4.1 5.9 3.1 5.1

3.4
1.1 5.2 9.9 2.9

8.5

3.6

7.4
0.9 3.2 8.3 7.8

-1.4
9.5 13.2 6.3 12.8

7.3

2.0

-3.6 -1.1 1.0 4.7 10.3 5.7 6.8 8.0

1.4 6.1 3.7 4.3 -0.6 -8.6 8.6 2.2

-0.4

4.6

5.2

8.3

6.9

7.4

10.0

6.0 -0.4

Performances of SMEs % of share to GDP

YEAR 2000 2001 2002 2003 2004 2005 2006 2007 Agriculture 2.4 2.5 2.4 2.4 2.4 2.4 2.4 2.2 Mining & Quarrying 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 Construction 0.8 0.9 0.9 0.8 0.8 0.8 0.8 0.8 Manufacturing 9.2 8.5 8.3 8.7 9.0 9.0 9.2 9.2 Services 17.1 17.4 17.3 16.9 16.9 17.3 17.6 18.7 Less: Undistributed FISIM 0.9 0.9 0.8 0.8 0.8 0.7 0.8 0.7 Plus: Import duties 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 Total Value Added 28.8 28.5 28.3 28.2 28.6 29.0 29.4 30.4 Source: Department of Statistics, Malaysia 2008 2009 2.3 2.4

0.04 0.04 0.8 0.9 8.7 8.1 19.4 20.1

0.7 0.3 0.6 0.3

30.8 31.2

List of SME Development Programmes in 2010

1. Ministry of Agriculture and Agro-Based Industry (MOA)

2. Ministry of Plantation Industries and Commodities (MPIC) 3. Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) 4. Ministry of Energy, Green Technology and Water (MEGTW) 5. Ministry of Finance (MOF) 6. Ministry of Higher Education (MOHE) 7. Ministry of Human Resources (MOHR) 8. Ministry of Housing and Local Government (MHLG) 9. Ministry of Tourism (MOTOUR) 10. Ministry of Science, Technology and Innovation (MOSTI) 11. Ministry of Rural and Regional Development (MRRD) 12. Ministry of International Trade and Industry (MITI) 13. Ministry of Women, Family and Community Development (MWFCD) 14. Ministry of Industrial Development Sabah (MID Sabah) 15. Ministry of Industrial Development Sarawak (MID Sarawak) 16. Prime Ministers Department (JPM) 17. Bank Negara Malaysia (BNM) 18. Perbadanan Usahawan Nasional Berhad (PUNB) TOTAL PROGRAMS

27 programs 20 programs 6 programs 3 programs 13 programs 1 program 10 programs 4 programs 2 programs 8 programs 26 programs 47 programs 7 programs 13 programs 18 programs 4 programs 6 programs 2 programs 217 PROGRAMS

Programs for SMEs

Access for Infrastructure Access for Financing Access for Advisory Services & Information
Halal parks, incubator, technology parks, list of business properties, licencing for premises and kiosks
Source of financing, findings, financial tools, financial fairs Business plan, marketing plan, one referral center, micro enterprises, woman entrepreneurs Marketing plan, branding & packaging, halal, networking, export promotion, investment promotion, showcase, marketing & promotion activities
Innovation and creativity, green technology, bio technology, agro technology, certification, IPR

Access for Market

Access for Technology

Access for Human Capital Skill upgrading, occupational safety and health, international linkages and entrepreneurship
Source : SMECorp

Funding for the Malaysian SMEs

Loans provided to the SMEs and the micro businesses in Malaysia Year Loan Amount RM' billion 2000 2005 2006 2007 70.5 35.8 39.6 107.3 Loan Outstanding RM' billion 33.1 96.0 104.6 Number of Small businesses Percentage of Tot. Buss. Loan

85,018 84,000

42.6 44.5 44.9

The micro finance market in Malaysia is in the region of Ringgit Malaysia RM 1.7 billion as at 2008. Annual growth rates of the market were stated to be about 35% between 2000 and 2008.

Source: SMIDEC 2006

Groupings are decided based on either :

I. Number of Employees Types
Micro Small Medium

Primary Agriculture
Less than 5 employees 5 19 employees 20 50 employees

Manufacturing (incl. Agro) and MRS

Less than 5 employees 5 50 employees 51 150 employees

Service Sector (incl. ICT)

Less than 5 employees 5 19 employees 20 50 employees

II. Annual Sales Turnover Types Micro Small Medium Primary Agriculture Less than RM200,000 RM200,000 and less than RM1 million RM1 million - RM5 million Manufacturing (incl. agro) and MRS Less than RM250,000 RM250,000 and less than RM1 million RM10 million RM25 million Service Sector (incl. ICT) Less than RM200,000 RM200,000 and less than RM1 million RM1 million - RM5 million Source : SMECorp

Are Malaysian SMEs innovative?

Records of achievement ? Latest successful innovation ? Current program in Malaysian to promote innovation ? Malaysian Innovation model :
What is the program about ? How successful ? What can be done to improve ?

Benchmarking the Innovative performances

The percentage contribution of SMEs to GDP/total value added : - 50% in Korea, - 55.3% in Japan, - 57.0% in Germany, - 60% in China compared to - 47.3% attained by Malaysia.
Gap analysis Malaysia vs the rest of the world ?

Visionary and Projection

What should we pitch as the vision of Malaysian SMEs at 2020 ? Numbers 2011 2020
Large firms Medium firms Micro businesses 5,000 120,000 440,000 100,000 500,000 2,000,000

Size :
Employment 3.5 millions (51.5%)
RM405 billions (32 %) RM154 billion (47.3%) 19 % outputs

15,000,000 ( 70%)
RM1,800 b ( 65%) RM1,500 b ( 70%) 70%

Performances
Total output

Value added
Value Added Export

The new policies and initiatives

NEW PARADIGM IN PROMOTING INNOVATION

What new policies to initiate ?

To build a strong foundation for innovation on the nationwide basis. To focus on the soft approach the human capital development To look at innovation as a cultural , behavioural and attitudinal development. To expose all potential human capital with the culture of innovation. To build and harness innovation culture as a way of life at all level of the population To create the support institutions and mechanism to promote innovation effort among the new and existing entrepreneurs.

What policies to initiate ?

The need for solid foundation program

Policy 1 :
Appreciation and Inculcation of Innovative culture
Objective : To harness the innovative culture and develop creative and innovative attitude at all strata level of human capital in the society. Target group : -primary, secondary, upper secondary, colleges and higher institutions. - workers at all level - potential and existing micro businesses and SMEs operators - Families parents and children in the rural and urban areas

Harnessing Innovative culture

The actors : Mobilise volunteers among graduates that have been exposed to Creativity and Innovation skills to start the Training for trainers program for volunteers to create a large pool of Catalyst that will promote the innovative culture among all level of the society. The program :
Short exposure program physical and through various form of media including the internet such as Facebook. Initiating Innovative Clubs at schools and education institutions and at communities centre Promote innovative activities including competition and rewards program in terms of recognition etc. Create workshops that allow everyone to experiment with their ideas in the process of idea generation and innovation.

Harnessing Innovative Culture

Creating open environment for innovation :
Media support for exposure of innovative activities and achievements Small funding arrangement for innovative activities. Creating a community of Angels that will promote the development and commercialisation of innovative ideas and proposals.

Expected outcome :
Within 24 months everyone in the society will get exposed to innovation and innovative culture. Within 5 years everyone in the society will begin to adopt innovative culture and attitude in their life activities. Within 10 years - innovative culture and attitude will get translated into productive activities in the economy

Policies to nurture innovation among SMEs

Policy 2 : Creating multiple of User friendly incubator centers on nationwide basis as the centre for innovation programs To convert and modify community centers as user friendly incubators to allow new and potential entrepreneurs to experiment on their ideas and new design to come up with solid prototypes. Incubators centers will have basic laboratories and workshops that offer services to these young and new entrepreneurs. Friendly Angels will be based at the incubators to select and funds innovation projects from scratch as seeds funders. Institutions like SIRIM, NPC, MARDI, CIAST and academic institutions to station their technical staff to council and assist the young entrepreneneurs in realising their dream invention.

Policies to nurture innovation among SMEs

Policy 3 : Create a more tolerable and forgiving environment, market, consumers and societies.
To create retail outlets and market arena for imperfect goods and services similar like the Reject Shops in the established shopping complexes. - SMEs shops - SMEs streets similar to Petaling street and Junkers street. - SMEs carnival - Car boot sales style continuous expos - 1 Malaysia shops with extensive SMEs section - SMEs expo centers like the one in Shin Zhen ( China ) and The markets in Seoul. - Web pages and e-commerce centers similar to Lelong.com and Ali Baba.com To have quality improvement institutions like SIRIM and NPC to continuously council and assist SMEs in their products and services improvement

Policies to nurture innovation among SMEs

Policy 4 : To create and promote the market and outlets for Intellectual properties trade To nurture a new habit and tradition of trading in intellectual properties in the form of : - Brand names and trade marks - Project proposal and business plan - Angels financing market This intellectual properties market will be created in physical form an investment banks like institution and in virtual form through an official web page of the SMEs Ministry.

OTHER PROGRAMS TO SUPPORT THE INNOVATIVE ENVIRONMENT

OTHER POSSIBLE PROGRAMS

Centre for Reverse Engineering

The strategy is to continuously source as many of new invention in the market products, services and process. The invention will be dismantled to examine each components and parts with the view to improve them. Rather than trying to re-invent the wheel by starting from scratch, we just proceed with the improvement strategy.. and create better products, services and process to improve the quality of life. The centre will support entrepreneurs effort to learn about new technologies to be improved as new business opportunities.

Reverse Expo
GLCs and MNCs should be encouraged to participate in the national and regional expo to expose all their supplies and services requirement to operate in Malaysia. The idea is to create as many business opportunities for SMEs and Micro businesses to create products and services that fit into the GLCs and MNCs requirement to explore the possibility of becoming their vendors teams.

Barter Trade Expo

National and regional expos organise to expose all product and services offered by large corporation, SMEs and micro businesses The objectives is to expose all new and existing entrepreneurs on all product and services available to allow them to benefit from them in their process of continuous innovation. To create networks and business link among all businesses to build association with the view to avoid duplicating effort and work on the vendors suppliers relationship.

Creating a Community of Angels

Creating a legal and infrastructural base to create an active and effective angels communities. To have mechanism for Micro/SMEs businesses to approach and source funding from the angels. To use angels as a way to promote innovative initiatives among the SMEs and Micro businesses. To promote seeds funding for projects initiated by micro / SMEs businesses.

SOHO Businesses Development

To promote SOHO businesses to be developed by each household on nationwide basis. Create an assisted services in developing web pages and hence making each of the business as a global business almost instantly. Create small business funding program for SOHOs businesses. Consulting and counseling program for families who have difficulties in starting SOHOs businesses.

Nurturing New Venture Creation

How to promote new venture ?

New Venture Creation

Venture creation does not happen by accident. It requires directed effort exerted over time. In other words, direction, effort, and persistence over time are the three pillars of motivation' (Spector, 1996). New venture creation is a complex and multidimensional phenomenon. Motivation theory argues that individuals are either pulled or pushed toward a career choice, such as becoming an entrepreneur, and that satisfaction is a central factor in motivating behavior (Gartner, Bird, & Starr, 1992; Katzell & Thompson, 1990; Landy & Becker, 1987; Perry, 1993; Vroom, 1964; Wanous, Keon, & Latack, 1983).

Policy to Promote New Venture Creation

Support Programs Contents

Districts for promoting venture enterprise development

Location Support Deregulate restrictions on location

Designate areas for promoting venture enterprise development as industrial parks Tax exemptions after building park
Give exceptions on state and public land Expand construction area and exempt from getting permission for use diversion Acquisition and registration tax exemption Deregulate restrictions on large companies investing on venture firms Build techno-park Deregulation on par with districts for promoting new venture creation

Reduce expenses on location

Build technology R&D park

Policy to Promote New Venture Creation

Support Programs Contents

Diversify funding source

Financial Support

Allow pension funds to invest on venture firms Liberalize foreign companies to invest on new venture creations Ease the restriction on large companies to invest funds on new venture creations
Tax exemption Vitalize angel capital Found venture capitals specializing on specific industries

Vitalize venture capital Found specialized venture capital

Policy to Promote New Venture Creation

Support Programs Contents

Introduce support systems by ministries

Allow pension funds to invest on venture firms Liberalize foreign companies to invest on new venture creations Ease the restriction on large companies to invest funds on new venture creations
Allow researchers and professors to take temporary leave to support nurture new venture creations Operate technology transfer agency Construct database of venture related technologies and businesses Use of technology as security for loans or grants Credit guarantee programmes

Technology Increase the manpower and Manpower working in new venture Support firms Build connection between technology suppliers and demanders Funding for technology development

Introduce Incubator Providing:

1. Space for working and growing it should be affordable, flexible and modular, 2. Shared facilities such as office equipment, receptionist, conference rooms, 3. Services for improving counselling on marketing/finance, information, promotion, (4) Skills development for tenants in 4. Skills development for tenants in business planning and management development, 5. Support for accessing university faculty, facilities and students, professional networking, 6. Synergy to do cooperation-competition through tenant interactions, clusters, and spin-offs, and 7. Seed capital such as in-house revolving fund, access to credit, royalty, and risk capital.

Thank you
Wallahu Alam