SMEs must focus on human capital development

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Small and medium enterprises (SMEs) need to build human capital and embrace technologies and innovation to create value for their stake-holders, says Ronald Benjamin.

A trade fair for SMEs - Photo credit: wn.com

The article that SMEs must innovate to be global in the Star Bizweek on 9 April seems to focus more on their ability to compete globally through exhibitions of their products which is hampered by the limited number of subsidised booths available to them in the Malaysia External Trade Development Corp’s (Matrade’s) overseas exhibitions.

The other issues of concern are competition from low cost countries like China that offer export rebate incentives and the lack of interest among Malaysian SMEs in developing brands. The core issue here for SMEs seems to be how to keep costs low – which is a short term perspective – instead of plans to bring down costs in the the long term by adding value through human capital development.

The main concern of SMEs in Malaysia should not be centred merely on lowering costs, which has short term benefits, or participating in trade fairs through exhibitions and developing brands. Rather, SMEs should focus on human capital development. SMEs need to train their workforce in high tech equipment and a finely crafted broader strategy of value creation that focuses on employees’ welfare, shareholders’ interest,customer satisfaction, public interest and environmental concerns. These would help to create wealth in the long term through intangibles such as confidence and loyalty among stakeholders.

The emphasis and focus on the broader aspects of value creation would pave the way for these companies to compete globally by creating innovative products. Such products would meet the real needs of stakeholders better than goods produced manually using cheap labour that merely maximises profits for shareholders at the expense of the unskilled workforce.

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This is the real dilemma facing small- and medium-size industries in Malaysia because there is a tendency to impose a win-lose situation: reaping maximum profits while keeping wages miserably low. This is evident in the employment of millions of unskilled foreign workers to keep wages low, with little interest in training locals in high value-work culture and technical operations. This contention is supported by the fact than 75 per cent of Malaysian workers are unskilled.

Some of these SMEs have hightech machinery that produces a high volume of products to reap economies of scale; yet they pay low wages that deter Malaysians from taking up jobs in these industries. The human resources department merely plays an administrative role while the top management is more concerned about the bottom line and the technical aspect of operations than human development. Malaysia needs a competitive workforce rooted in a right attitude towards work and a passion for knowledge and innovation – which is currently lacking due to a flawed education system and a self-seeking corporate culture.

It is puzzling that the business report did not address the real issue that has contributed to Malaysia lacking competitiveness: the SMEs’ reluctance to or piecemeal attempts at training their workforce towards value creation..With the current high commodity prices, SMEs badly need value-added technologies that can be used by a skilled workforce to increase output and bring down costs. The myopic view of short-term results has impeded progress in value creation through human capital development – despite the government having provided incentives to the SMEs to train workers and move up the value chain.

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Therefore before embarking on feel good things like branding, it is vital for SME owners to move from a short term profit orientation to long term planning. They need to build human capital and embrace technologies and innovation in their current business and manufacturing processes to create value for their stake-holders.. This would increase the income of Malaysian workers in the long run, which would in turn attract human talents into business. This is a far more competitive strategy than relying on cheap labour and subsidised booths at trade fairs.

Ronald Benjamin is an Aliran member based in Ipoh.

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