SMECorp should open an international office in China to help Malaysian SMEs expand abroad. China is Malaysia's largest trading partner and importer of Halal products. The office should be located in Urumqi, capital of Xinjiang province, which has a large Muslim population and cultural similarities to Malaysia. A geocentric staffing approach will be used, hiring local Chinese employees alongside Malaysian staff with China experience. To succeed, SMECorp must build partnerships, understand Chinese business culture, and clarify expectations to navigate differences between the two countries. The office will help SMEs access the large Chinese market as they internationalize.

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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)

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1.0 Introduction
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.

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In 2007, 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

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assorted previous 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.

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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%

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HIP 4 :
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

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Indonesia or 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)

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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

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The other 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

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4.0 Who 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

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corporate umbrella, 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