Thursday, 13 October 2016

SME evolution vital for automotive industry growth


Since the National Automotive Policy 2014 (NAP 2014) was announced, the local automotive scene has been abuzz with recent developments, from increasingly competitive pricing to enhanced value from players.
Last year, a record total industry volume of 666,674 units was achieved by the original equipment manufacturers (OEMs), supported by the 700-strong vendors, dealers and distribution in the country.
While business performance at the top of the value chain is important, there is also an important demographic that must be addressed to make the automotive industry inclusive to all levels of business - the Small and Medium Enterprises (SMEs) of Malaysia.
According to the Economic Census 2011, SMEs account for 97.3% (645,136) of total business establishments in 2010. Only 6% of total SMEs (37,861) are in the manufacturing sector.
SMEs constitute micro-enterprises - with five or fewer employees and a turnover less than RM300,000, small enterprises - with fewer than 75 employees with a turnover less than 15 million, and medium enterprises - having fewer than 200 employees and a turnover less than 50 million.
Interestingly, most SMEs were micro-enterprises, forming 77 per cent of total SMEs in Malaysia in 2010. Small SMEs accounted for 20 per cent, while medium SMEs made up the balance 3 per cent.
The current figures above demonstrate a significant participation of Malaysians in automotive ventures, but these businesses remain small within the rungs of small revenues and profits.
At the same time, more effort are needed to increase the inclusion of SMEs in car or parts manufacturing.
While we have made significant progress in discussing the high value potential that can be garnered through ventures in the automotive industry, it is also important to dispel the myth that the automotive sector is a "big boys' club", i.e. only large corporations with large investment capital are able to participate in the industry.
It is true that in any sector, larger entities (such as OEMs and major component vendors) have the financial advantage to dominate the top of the value chain.
However, they still depend on a large supply base to ensure the sustainability of their operations. There is no single entity in the world that has the capability to produce every single component in a car, let alone the vast efforts and capital needed to run its sales and after-sales services.
It is within these pockets and gaps in which SMEs can penetrate the automotive sector, in hopes that these ventures grow and gradually join the ranks of larger companies within the value chain.
Business operations such as small component assembly, contract manufacturing, vehicle repair services, body & interior repairs and refurbishing, freelance vehicle sales and automotive recycling are just a few examples of business uptakes for those with smaller working capital.
Nevertheless, the most important aspect when venturing into the industry is a passionate understanding of the required technology, knowledge and skills to produce highly competitive products and services.
There is no amount of capital or equipment that can replace the human capabilities of those working in the company, despite its size.
In enhancing the domestic automotive industry, it is hoped that government expenditure and financial assistance for SMEs to be continued and further expanded in 2017 to accelerate development and growth of SMEs within the automotive sector.
This in turn will contribute to the competitiveness of all businesses in the industry, including the OEMs and Tier-1 vendors.
I also urge all stakeholders to develop those at the lower tiers in ensuring that Malaysia's automotive sector emerges not just a high value sector, but an inclusive one as well.
"Whenever you see a successful business, at some point in the past someone made a courageous decision".
The writer is the chief executive officer of Malaysia Automotive Institute.

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