It is acknowledged that a strong, dynamic and efficient SME sector plays a key role "in creating
international competitive advantage" (Hall, 2002), and ensures sustainable economic development
(APBSD, 2004). However, SMEs in developing economies face various issues and constraints that
threaten their sustainability.
A key challenge for most SMEs is being able to engage in innovative
activities and to upgrade their technological capabilities in order to meet more demanding market
requirements for better quality and lower prices, to adapt to changes in consumer profiles and preferences,
and to keep up with increasingly stiff competition. To succeed in this endeavour, they must overcome
several obstacles, including high innovation costs, low customer interest in product innovation, high risks
related to innovation activities, absence of financial resources, absence of skilled workers, regulations and
technical standards, organizational constraints, absence of information on technology, and absence of
market information (Caputo, Cucchiella, Fratocchi, Pelagagge, and Scacchia, 2002).
There is, therefore, a need to create a business environment that will encourage SMEs to not only improve
their organizational capabilities to innovate and upgrade, but also to leverage on the resources of other
organizations such as government agencies, universities, financial institutions, and other private firms.
Not surprisingly, governments have given increased attention and resources to SME development for a
variety of reasons. Poverty alleviation and employment generation have typically been cited as goals in
supporting SMEs especially during Asian Financial crisis of the late 1990s which exposed SMEs is very
vulnerable to the dramatic economic changes.
This paper looks into the challenges faced by SMEs in Malaysia during financial crisis and what are key
programs and activities which the Malaysian government could undertake to overcome these challenges
in promoting sustainability in SMEs.
This paper begins with a brief review of some company profiles under SME’s concepts in Malaysia. It
proceeds to discuss the vital constraints which may hamper business success of SMEs in Malaysia,
followed by a description of specific programs and activities that are suggested to be undertaken to
address the constraints faced by Malaysian SMEs.
Malaysian SMEs are at the heart of economic activity and vital component of the country’s development.
According to SMIDEC (2009), SMEs accounted for 99.2 percent to businesses in Malaysia and contribute
to 32 percent of the country’s gross domestic product, 36 percent to employment and 19 percent to total
exports. The majority of SMEs are in the manufacturing sector. The market concentration of
manufacturing sector is basically focused in the textile and apparel, food and beverages, metal and metal
products and wood and wood products sectors. Most of manufacturing companies are located in the