Internationalise your company

Internationalise your company

• 1.
            INB780 – International Business Internationalize your organisation “SMECorp Malaysia : Public Republic of China Office” For PM Dr. Hjh. Noryati Ahmad University of Technology MARA (UiTM), Shah Alam By Mohd Farid Awang (2010932779)
• 2.
    2   1.0Introduction As manager in the Business Development Division of SMECorp Malaysia, I believe SMECorp should internationalize their services in order to effectively assist and act as a catalyst to the internationalization of local SMEs. SMECorp as Central Coordination Agency for SMEs in Malaysia could leverage on their resources in terms of financial, international accessibility and experienced human resources in handling SME issues. This paper attempts to answer the questions of 'Why SMECorp should be internationalized?', 'Where to open the International office?', 'Who will be there?', and 'How to make the internalization a success?'. The establishment of SMECorp began on 2nd May 1996, when a specialized agency was established to spur the development of small and medium enterprises (SMEs) by providing infrastructure facilities, financial assistance, advisory services, market access and other support programmes. Known as the Small and Medium Industries Development Corporation (SMIDEC), its aim was to develop capable and resilient Malaysian SMEs to be competitive in the global market. The establishment of the National SME Development Council (NSDC) in 2004 presented yet another chapter in SME development in Malaysia. As the highest policy-making body, its role was to formulate strategies for SME development across all economic sectors, coordinate the tasks of related Ministries and Agencies, encourage partnership with the private sector, as well as ensure effective implementation of the overall SME development programmes in this country. Initiatives under NSDC included enhanced access to financing, financial restructuring and advisory services, information, training and marketing coordination, and a comprehensive SME database to monitor the progress of SMEs across all economic sectors.
• 3.
    3   In2007, the NSDC decided to appoint a single dedicated agency to formulate overall policies and strategies for SMEs and to coordinate programmes across all related Ministries and Agencies. SMIDEC was tasked to assume the role and the official transformation into Small and Medium Enterprise Corporation Malaysia (SME Corp. Malaysia) commenced on 2 October 2009. SME Corp. Malaysia is now the central point of reference for information and advisory services for all SMEs in Malaysia. Source : http://www.smecorp.gov.my/v4/node/12 SME Definition In Malaysia, the most widely adopted definition is the one defined by Small and Medium Development Corporation Malaysia (SME Corp. formerly known as SMIDEC) and Bank Negara Malaysia (BNM) whereby SMEs can be grouped into three categories: Micro, Small and Medium. Table 1 : Characteristics of Small and Medium Enterprises Sector Category Definition Sales Turnover (RM) Number of employees Manufacturing Micro Small Medium Less than 250,000 250,000 – less than 10 million 10,000,000 – 25 million <5 5 – 50 51 – 150 Services Micro Small Medium Less than 200,000 200,000 – less than 1 million 1 million – 5 million <5 5 – 19 20 – 50 Sources: SME Corp. Malaysia (2012) 2.0 Why SMECorp should go international? 1st reason : The SMEs factor The main reason would be to help internationalizing local SMEs. SME firms in Malaysia are struggling with various challenges in their process of internationalization, and these impede them from achieving economies of scale and competing in the international market (Saleh and Ndubisi, 2006). Based on
• 4.
    4   assortedprevious findings, a study by Fariza Hashim published in Journal of International Business and Economy (2012) summarizes the internationalization challenges faced by Malaysian SMEs. The SMEs were grouped into seven groups which include: lack of market knowledge, limited access to financial support, lack of infrastructure, technology and human capital, business competition and government policies. The similar findings were also highlighted in SME Masterplan 2012-2020 by NSDC. SMEs limited knowledge on international legal environment, as well as the rules and regulations also contributed to the inability to go international. Lastly, SMEs do not have enough source of information to understand or to gather exact facts and figures about their target market. All these reasons crafted SMEs to be a risk averse and distance themselves from exporting their products overseas. Currently, for export purposes, MATRADE is the sole agency under MITI responsible to assist SMEs or Large Companies (LCs) in identifying potential market overseas. However, MATRADE does not have direct connection with SMEs in Malaysia, which create a missing link or miscommunication between buyer requirements and SMEs capabilities. That is why MATRADE’s clients are mostly LCs, because LCs have a capability to comply with most of the standards set by international buyers. Some of the reasons are LCs owner who have better educational background and strong financial resources. Therefore, SMEs in Malaysia need a representative overseas who understand them better and able to help them market their products internationally. The approaches, mechanisms, standards and requirements will be different and matched with SMEs capabilities. SMECorp will be an effective helping hand and friendly mediator to SMEs to match them with oversea buyers. By stationing itself in a particular country, SMECorp will be able to gain better, precise, on the ground, timely and specific information to loosen the barriers and open a trade door for Malaysian SME products to enter other country.
• 5.
    5   2nd reason: Malaysia Government SME Policy Factor On 12th July 2012, Prime Minister Datuk Seri Najib Razak launched the Small Medium Enterprises Master Plan 2012-2020. The masterplan involves the implementation of 32 initiatives, including six high-impact projects, and serve as a "game changer" for the sector. Prime Minister said the eight-year plan would push the SMEs to greater heights through greater productivity, innovation and growth. "The plan is a start to spur SMEs to a new level. The journey begins with its implementation and ends when the objectives are met," he said at the launch of the plan after chairing the 13th National SME Development Council meeting. Source: http://www.nst.com.my/nation/general/najib-launches-master-plan-to- boost-sme-sector-1.106766#ixzz2HjIspUcl The most related to SMEs internationalization can be referred to HIP4 from 6 High Impact Programmes (HIPs). These HIPs are the drivers of change that would make the difference and to take SMEs to the next level of development. Hence, it is important to ensure that all the six HIPs are successfully implemented to see the full impact. • HIP 1 : Integration of business registration & licensing to enhance ease of doing business • HIP 2 : Technology Commercialisation Platform (TCP) to encourage innovation • HIP 3 : SME Investment Programme (SIP) to provide early stage financing • HIP 4 : Going Export (GoEx) Programme to expedite internationalisation of SMEs • HIP 5 : Catalyst Programme to promote more homegrown champions • HIP 6 : Inclusive Innovation to empower the bottom 40%
• 6.
    6   HIP4 : Going Export Programme to expedite internationalisation of SMEs. It is aimed at addressing challenges faced by SMEs on new market entry overseas due to the high upfront costs and lack of detailed knowledge about the new markets and competitors. The programme is targeted at first time exporters or existing exporters venturing into new products or new markets. The programme is to provide customised and comprehensive assistance on steps to export. These include linkage to expertise, buyers and trade financing. The programme will facilitate SMEs to access detailed information on the targeted markets, including information on the buyers; competitors; pricing; logistics; supply chain; consumer preference, regulations, legislation etc. Lack of such information has been a key barrier due to the uncertainty on the potential export markets. Source : SME Masterplan 2012-2020. Conclusion for WHY question As a conclusion, local SMEs and government is pushing SMECorp to nurture and assist the internationalization of local SMEs. SMECorp will compliment MATRADE and I believe that more effort taken by government agencies will create better results and promote better internationalization of local SMEs. Therefore, SMECorp should take up the challenge and start to do a comprehensive groundwork to decide the best internationalization strategy. 3.0 Where SMECorp should go international? Q1 : Which country? SMECorp can decide either to start with regional or international level. For regional level, SMECorp may setup a branch in neighboring countries such as
• 7.
    7   Indonesiaor Thailand, which has some similarities in culture, social and environment. Set up an international office in neighboring countries could help SMECorp minimize the setup cost and speed up the learning curve. However it offers too many similarities in terms of products range, taste and price sensitiveness. In the end of the day, there is not much that SMECorp could do in creating opportunities and attracting potential buyers to import Malaysian SME products. The decision must be made based on trading capabilities and history. The chosen country should have a business track record with Malaysia. Therefore, the best approach to decide the best country to open an International office is by referring to the list of major importer countries from Malaysia. According to MATRADE Annual report 2010, the largest export destination was the Public Republic of China (PRC) with exports worth RM147.03 billion, accounting for 12.6 per cent of Malaysia’s total trade in 2010. Malaysia’s main exports to PRC in 2010 were E&E products, palm oil, chemicals and chemical products, rubber products and crude rubber. Imports from the PRC increased by 8.5 per cent in 2010 compared with 2009, amounting to RM66.43 billion. Imports of manufactured goods accounted for 93.8 per cent of total imports from the PRC. In addition to above data, PRC also is the highest importer for Halal products from Malaysia. From Figure 2, PRC imported RM1.376 billion from Malaysia in 2011. Figure 1 : MATRADE Annual Report 2010 (latest report)  
• 8.
    8   Source:http://www.mida.gov.my/env3/uploads/events/IDBG09052012 Based on the data from Matrade and MIDA, SMECorp should open a pioneer international office in PRC. Traders in PRC seem receptive to Malaysian products and the Halal sector is the major contributor to the strong import activities from Malaysia. According to Halal Development Corporation (HDC) in 2011, PRC have 4 million Muslim populations and growing. Furthermore, when SMEs are able to enter PRC, they will have an opportunity to expand their market access to other Muslims country such as Middle Eastern countries and African countries. As summary, by having an international office in PRC and focusing on Halal market, SMECorp could promote Malaysian SMEs Halal Products to PRC effectively. From this initial approach, slowly SMECorp will adapt and learn from PRC trading opportunities and tricks. Figure 2 : Export value for Halal Products 2011
• 9.
    9   Theother reason for selecting PRC as the first SMECorp International office is as follows : I. 3rd largest economy in the world (Nominal GDP of USD7.3 trillion in Yr. 2011); II. Fastest growing economy with GDP growth rate of above 9.2% per annum; III. Largest trading nation in the world; and IV. Largest population in the world. Q2 : Where is the best location? Location selection is based and reflected to the main reason why SMECorp should go to PRC, which is to leverage on Halal market in China. The location will be in Urumqi, the capital of Xinjiang, western region of PRC. Xinjiang is a large, sparsely populated area, spanning over 1.6 million km2 (comparable in size to Iran), which takes up about one sixth of the country's territory. Xinjiang borders the Tibet Autonomous Region and India's Leh District to the south and Qinghai and Gansu provinces to the southeast, Mongolia to the east, Russia to the north, and Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, and India to the west. ( Source : Wikipedia). Xinjiang have a population of 21 million and a home to several distinct ethnic groups of various religious traditions. A majority of the region's native population adher to Sunni Islam of the Hanafi rites. The similarity with Malaysian Muslim as Sunni Islam is one of a major factor of selecting Urumuqi, the capital of Xinjiang as location to open a newly international office for SMECorp Malaysia. XINJIANG  
• 10.
    10   4.0Who will be a SMECorp representative in international office? In deciding to select and appoint a representative from SMECorp to be posted in newly PRC office, geocentric approach will be applied. A geocentric staffing policy is one in which the best people are sought for key jobs throughout the organization, regardless of their nationality. This approach is consistent with building a strong unifying culture and informal management network. The proposed geocentric selection and criterion of officers in PRC office will be : a. Head of the office ; - Muslims Malaysian Chinese; - Some working experience in PRC or with PRC traders; and - Vast experience in management and required a minimum supervision. b. Office staffs : - Mix of local people and Malaysian; - Able to speak mandarin; and - Training in local culture. 5.0 How to make internationalize a success? Entering Public Republic of China will expose SMECorp to several challenges as follows : I. PRC government’s policy; II. Cultural differences; and III. Broad and secrecy of China trades supply and value chain. Therefore, in order to face and tackle the above challenges, SMECorp should adopt the Transnational Strategy, which will assist SMECorp to achieve global efficiency and local responsiveness. The strategy shared vision under a
• 11.
    11   corporateumbrella, but alters operations for local demands. The SMECorp newly established international office should be highly decentralization in order to adapt local conditions and culture as well as shared the same vision and mission with SMECorp Malaysia. Even SMECorp is a government agency; they need to find a good partner in PRC to gain better understanding, co-operation and assistance. The partner must be from public and private sector. The close and good relationship with government will be able to reduce the political barriers and legal issues. The smart partnership with PRC chamber of commerce or trade union may reduce the industry barriers, contacts, supplies and smooth distributions or logistics. The move will be a door opener to SMECorp to blend in and understand batter the way of doing business in PRC. 6.0 Conclusion Based on the above argument and data, SMECorp would effectively assist Malaysian SMEs in exploring PRC potential market via correct strategy and focusing on specific target area. Lasltly, in order for SMECorp to be successful in internalization their services in China, they need to remember and adhere to the followings formula : 1. You need to be in China to think like a Chinese to do business in China!; 2. Retaining value of the relationship (Guan Xi) will ensure lasting cooperation; as opposed to the Western culture whom focuses on transaction relationship; 3. One must develop trust, integrity, tolerance & patience when dealing with Chinese companies at an early stage; and 4. Clarifying ones quality expectations which is different from both countries is crucial for the end client. Source: http://www.mpc.gov.my/mpc/images/file/Publication%20&%20Case%20Study/ 202.pdf