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© 2017 by MillionaireAsia Singapore

SMES DRIVE TRANSFORMATION

December 31, 2018

In a rapidly evolving business landscape, SMEs can either transform or become irrelevant,
warns former Malaysian Trade Minister, Tan Sri Rafidah Aziz.

 

We live in a time when self-driving cars and trucks are fast becoming a reality, and robotic
policemen are set to patrol the streets of Dubai. It is the age of disruption, a time when in the
blink of an eye, what once seemed a distant future is now a present reality.


The business landscape is no different, with enterprises of all sizes striving for innovation and
strategy to keep ahead of the game. But small and medium enterprises (SME) in particular are
increasingly being recognized as conduits for leading transformation in the marketplace.


Addressing both the potential and pitfalls of SMEs in the race for disruption, Tan Sri Rafidah
Aziz recently delivered a keynote speech at the Association of Chartered Certified Accountants
(ACCA) SME Workminar 2018. Previously the Malaysian Minister of International Trade and
Industry, she now operates as the Non-Executive Independent Chairman and Director of
AirAsiaX. Frequently dubbed as Malaysia’s ‘Iron Lady’, she presented her SME audience with
astute advice on not just surviving, but thriving in the business future to come.

 

Knowing The SME


While there are a number of definitions for SMEs today, Tan Sri Rafidah felt it necessary to
distinguish that when speaking about ‘transformation and disruption’, she is addressing SMEs
with US$50 million turnover or more. However these can be of many types, as she notes, “In
Malaysia, we know that many SMEs are stand-alone enterprises that go into production of
services and sell directly, either physically in the marketplace or online. But increasingly, many
SMEs are now, for example, in the manufacturing sector, and constitute integral and key parts
of the production value chain in any sector and sub-sector.”


This was precisely the outcome the Malaysian government was looking at when they launched
the first Industrial Master Plan in 1995 to integrate such enterprises into the production value
chain of bigger companies. “So you become vendors, ancillaries, suppliers – you become
supplementary parts of the value chain. Many are now providing specialized services as well as
critical parts and components. This is worth mentioning because we are talking about real,
necessary services and suppliers,” she observes.

 

Technological Threats


With the right environment and strategies, SMEs themselves hold the potential to evolve into
larger businesses. “When I was a minister, we always spoke about helping SMEs graduate to
big enterprises. And we are seeing this already, as they enter services and sectors like
manufacturing that were previously the domain of big companies. That is something we should
be proud of,” Tan Sri Rafidah asserts.


However, as SMEs increase the scope of their operations, supplying services and products to
both regional and global markets, it is becoming increasingly important for them to stay on par
with sophisticated and cutting-edge digital modes and platforms. “Sometimes, when you are
able to supply principals, you as the supplier, as the ancillary, as the vendor, and do not keep
pace with technological developments of your principals. Then you become irrelevant,” she
warns.


In order to expand their operations, it is important for SMEs to anticipate the needs of their
principals and equip themselves with the technological upgrades needed. This holds particularly
true in a time where robotics and artificial intelligence (AI) can be considered as viable
alternatives to ancillaries and vendors. “Robotics can take the place of SME suppliers. Watch
out for this. The moment a principal manufacturer understands they can cost-efficiently build in-
house, why would they need you to supply the components and parts? I know, because I see
this happening.”


This is the stark future SMEs are moving into, according to Tan Sri Rafidah; and the only way to
stay relevant, is to transform.

 

Pervasive Transformation

 

While it is common to use words such as transformation, disruption and innovation colloquially,
Tan Sri Rafidah urges SMEs to probe deeper into the precise meanings and implications of
these practices. She opines, “Business transformation is the process of profound and radical
change. We are not talking about rebranding, new promotional strategies, repackaging, or
turnaround. Transformation is not a business makeover. It is a total restructuring of your
business.”


Furthering this notion, she presents two different approaches: the first is the inevitable IT
overhaul necessary for a company to keep in line with the needs of the marketplace. “This
means major changes to your network infrastructure, hardware, software, and how your data is
stored and accessed. It could even require a total replacement of older systems. We are doing
this at AirAsiaX; we are going digital,” she shares. However, she also notes that with more
accessibility comes the danger of vulnerable data and cyber-attacks. Preparing for threats by

implementing cyber security goes hand in hand with upgrading technological capabilities, she
advises.


The second is the transformation of the actual business, which requires human resources,
business processes and technology to be closely aligned with the new direction of the company.
“You may have the latest IT processes and technology but the mentality needed for employees
to implement these novel practices may be missing. One must ensure that the transformation
mindset is pervasive throughout the enterprise. You do not want to have key people on the
ground level not understanding what you want to do.”


In this respect, SMEs may have the advantage owing to their relatively smaller staff numbers
and size. But Tan Sri Rafidah warns against being complacent or apathetic. “Make sure that you
are just not chairmen. You might make the best decisions at the top but people at lower levels
may not implement properly because they do not feel involved in the company or feel
underpaid. Encouraging positive mindsets will trigger transformation.”


Defining Innovation


Innovation is a key driver for transformation in all areas, notes Tan Sri Rafidah, be it in industrial
business, technology, processes, business transactions or financial transactions. Taking the
emergence of fintech as an example, she comments, “SMEs must understand that such
innovations may not affect you in terms of operations, but they will affect you in terms of how
you deal with customers, bankers, or the way you deal with transactions that are financial. It is
important to remember that technology is changing the business to business connectivity as
well as business to customer.”


Whether it is a process, technology, or business model, innovation comes into the market to
serve a new product or service that existing players could not deliver, she explains. “Like Air
Asia – decades ago, who would have known that tens of millions of people could fly? Now they
are flying. These new business models can make other, older players completely irrelevant
because they are more cost-efficient, and can adapt to new market demands. That is
innovation.”


An exciting innovation avenue for SMEs to examine is the Internet of Things (IoT), says Tan Sri
Rafidah, which includes smart devices and appliances. Vendor SMEs can use the IoT network
to champion disruption and operationalize not only new business models, but also the way
things are being done. “Young people today cannot be bothered to find out what button is for
what function. They prefer to work from one station – press one button, the lights are on; press
another button, the air conditioner is on. SMEs must think like that, otherwise they will lose out.”

 

MEs have been at the core of Malaysia’s transformation since the 1990s, and will remain a central focus in driving a strong economy as we enter Industry 4.0.


Entering Industry 4.0


“This is the fourth phase of industry revolution,” she declares. After mechanization, mass-
production, and automation as antecedents, Industry 4.0 requires enterprises to incorporate AI,

end-to-end digital supply chains, and the requisite digital infrastructure into their operations. But
this infrastructure can only be implemented if employees are empowered with the skills
necessary to facilitate digitalization, she asserts once again, calling for skills training to be
prioritized and imparted at both schools and companies.


She also advises SME leaders to hire the right people to operationalize the transformation
process, and maintain an environment of motivation to keep them challenged. “It is the
entrepreneur that has to trigger this innovative mindset. Provide an enabling environment where
they can learn new information to help you to transform.”


With this advice, she concludes, “We hope that with the continued support of the stakeholders in
the country, SMEs can transform to new levels of efficiency and performance that is befitting of
the regional and global marketplace.”

 

 

This article was first printed in MillionaireAsia Issue 50 - Dec 2018

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