THE BACKGROUND AND CHALLENGES FACED BY THE SMALL MEDIUM ENTERPRISES : A HUMAN RESOURCE DEVELOPMENT PERSPECTIVE

In the recent years, a number of emerging issues are posing serious challenges to the small and medium sized enterprises (SME’s) in Malaysia. Hence, these enterprises enter the new era, dramatic challenges begun such as establishing new enterprises, globalization, financial constraints, high turnover, low motivation among employees, lack of human capital building, and many more challenges. Thus understanding the problems and challenges are a fundamental solution to expand and strategies SME’s to future progress and grows. Therefore this article examines the background and challenges faces by SME’s which is play a vital role in the nation growth. The uniqueness of this paper focuses on the human resource development perspective which is important for SME’s to progress and competitive. Finally, this article maps out how future research can be more sensitive to how SME’s actually do develop their own human resource development for future development.


Introduction
The increasing demand of the SMEs is the recognized feature of most nations.In Malaysia, this norm is no exception.In order for vision 2020 to be fully developed and become an industrialized nation by the year 2020, the future progress seems to depend greatly upon development of SMEs.In the year 2020, the country will develop to become an industrialize nation by capitalizing on the country's strengths and able to overcome weaknesses.
In response to the drastic changes, SMEs play an important role in developing country to a higher level.According to Schlogl (2004), he stated that small and medium-sized firms dominate our economies in terms of employment and number of companies, yet their full potential remains remarkably untapped.Although there is a broad assumption stating that SMEs generally has positive effects on country economic growth, the notion of economic imperatives for SMEs remains largely untested.Hence, this paper attempts to look into the background challenges faced by the SMEs.This paper begins by defining the Small and Medium Enterprises (SMEs) and the background of SMEs in Malaysia.It then explores the roles of the SMEs in the economic development and challenges faced.The discussion leads to consideration on the importance of Human Resource Development (HRD) taking into account the SMEs.The final section concludes the importance of SMEs in economic development.

Research Objective and Significance of the Study
The objective of the study was to show that there are important for the SMEs to implement the HRD.This HRD is main tool to develop the SMEs in Malaysia.The significance of the study is to add value to the body of knowledge on human resource development and practice.Specifically for practice, the findings of this study would enlighten the significance HRD in the SMEs in Malaysia since the country's tremendous progress in economy has made it highly dependent on the manufacturing industry.
From the theoretical this study aims to extend existing knowledge of the HRD with specific reference to the newly expanded component in the manufacturing which is SMEs.Most of the HRD studies were involving universities, multinational companies, private firms, government agencies and larger businesses.Therefore, the present study addressed the above argument in an effort to increase our understanding of HRD in SMEs in Malaysia.

Definition of Small and Medium Sized Enterprises (SMEs)
There is no accepted worldwide definition of SMEs (Hooi, 2006).In Malaysia, the definitions are solely based on a fixed quantitative measure; for instance the total number of workers, the total number of capital, total assets and lately by determining sales turnover (Hashim and Abdullah, 2000).According to the Third Industrial Master Plan (2006), SMEs in the manufacturing sector are defined as 'enterprises with full time employees not exceeding 150 or annual sales turnover not exceeding RM25 million whereas SMEs in the services and primary agriculture sectors and ICT are enterprises with full time employees not exceeding 50 or annual sales turnover not exceeding RM5 million'.These SMEs are further categorized into medium-sized companies, small enterprises and micro-enterprises, as indicated in Table 1(see appendix).

Background of SMEs in Malaysia
It is reported by the Malaysian Department of Statistics as in 2003, there were 523,132 total establishments in Malaysia which SMEs accounted the most for the total of 99.2% (518,996).While only 0.8 percent remaining were occupied by large companies.SMEs comprise of three key economic sectors namely manufacturing, services and agriculture.Micro establishments constitute the largest number with more than three quarters out of the total SMEs formations.They are primarily represented in the services and agriculture sectors with the proportions for 80.4 and 93.3 percent respectively.Small companies make up to 18.4 percent and medium companies 2.2 per cent.The manufacturing sector also displayed the same pattern nevertheless the percentage of micro firms was lower (55.3 percent), while small firms accounted to 39.5 percent (Normah, 2007).
According to Khairuddin (2000), SMEs in Malaysia may be categorized into three components; (1) general business, (2) manufacturing and (3) agricultures.The general business sector includes construction, wholesaling and retailing, transport and storage, business services and activities, and providing services such as hotel and restaurant.The main activities in the manufacturing sector consist of processing and production of raw materials.Meanwhile the agriculture sector includes rubber, oil palm, paddy, coconuts, fruits, and vegetables.From the three components; the manufacturing sector emerged as the most important component for SMEs in Malaysia.Below are descriptions of the three components in detail.

(i) Manufacturing Sector
In the manufacturing sector, the largest number consists of micro-enterprises (53.4 per cent) followed by small sized category (38.1 per cent) and lastly medium sized category (5 per cent).In terms of distribution by industry, SMEs were mainly in the textiles and apparel and resource based industries.The detailed of manufacturing sub sector and number of establishments is indicated in Table 2.
In regards to geographical location, Saleh and Ndubisi (2006) found that a vast number of manufacturing companies in Malaysia was located in the West Coast of Malaysia which is the industrialized location which is equipped with ports services.They found that Johor has the largest concentration of manufacturing companies such as textiles and apparel and wood based industries with 17.5 percent, followed by Selangor (16.7 percent), Perak (9.4 percent) and Pulau Pinang (8.7 percent).Johor led of the country due to the accessibility of cheap labour and logging activities there.

(ii) General business
In the general business or service sector, about 449,004 out of total establishments were SMEs which constituted to 99.4 percent.In the sector, 69.3 percent of SMEs were in the distributive trade (wholesale, retail and restaurants), followed by transportation and communication (6.2 percent), financial intermediaries (4.3 percent) and professional services (2.5 percent).Table 3 shows the detail of establishments by this sub-sector.Saleh and Ndubisi (2006) mentioned the list of activities for the transportation and communication sub-sector services were logistics and freight forwarding services, storage and warehousing, road haulage, sea and inland transport, highway operations, courier services, public bus transport, car parking services.
Meanwhile, the professional sub-sector service is defined under the Malaysian Standard Industrial Classification as (1) Non-technical related: legal, accounting, business and management consultancy, advertising and (2) Technical related: architectural, engineering, surveying and other technical activities.

(iii) Agriculture Sector
In the agriculture sector, out of 32,397 active companies, 99.2 percent were SMEs.Based on the SMEs total establishments, 65.8 percent were in the planting, market plantation and horticulture, followed by fisheries (20.9 percent), poultry farming (6.9 percent) and agricultural and animal husbandry services (4.8 percent).Table 4 indicates the detailed number of firms and proportions.Normah (2007) mentioned the concentration of SMEs in the states has a close relationship with the dominant economic activities.In Kedah where agriculture is the main stay of the economy, the number of SMEs were the largest with the total of 8,803 (27.4 percent) followed by the east coast states with 26.6 percent.

Impact of SMEs on Malaysian Economy
SMEs play a vital role in the development of Malaysian economy.Their contributions resulted big impacts to the economy as a whole.SMEs are also important traders and service providers to primary industries.Furthermore, a large number of SMEs are also producers of finished goods and services.Collectively, these SMEs contributed to the growth of manufacturing, services and agriculture sectors, as well as ICT services, in terms of output, value-added, employment and exports (Industrial Malaysia Plan, 2006).Additionally, Hashim and Wafa (2002) also mentioned that SMEs offer employment opportunities, initiate improvement, accelerate competition and support big companies.
Recent evidence shows that SMEs contribute to 32 percent to gross domestic product, 56.4 percent to employment opportunities and 19 percent to export (SMIDEC, 2008).Specifically, Table 5 below indicates the total output and value added by sector namely manufacturing, services and agriculture.
According to the table above, in terms of share contribution SMEs accounted to 43.5 percent of total output and 47.3 percent of value added.It is noted that SMEs in services sector contributed the largest share, 56.7 percent and 54.7 percent respectively.SMEs in the manufacturing sector saw a 34.9 percent contribution in output and 37.1 percent in value added.
While Table 6 indicates the contributions of SMEs in terms of total manufacturing output, manufacturing value-added and employment in manufacturing from 2002 to 2003.The output of SMEs have grown by 9.7 percent during 2003, value added production increased by 11.8 percent and employment by 3.7 percent.

Challenges
The Small and Medium Enterprises has special features as to compare with the larger organizations.SMEs must consider the motivations, constraints and uncertainties facing smaller firms and recognize that these factors differ from those facing larger firms.According to Westhead and Storey (1996) noted the characteristics which distinguishes small organizations form larger ones other than size itself is that of uncertainty.For the small organization external uncertainty has affected the most such as lack of power and influence in a market place, larger customer and vulnerability.Therefore, the SMEs seem unpredictable and ruthless market.Therefore, uncertainties have become a major problem in the small organizations.
In the current development, changes in the environment such as globalization, political, social, economic and technological occurred surrounding the organizations.The changes in environment pose a challenge to the SMEs, which limits their abilities to maintain their position against larger organizations.According Snell and Lau (1994) found that more management competencies are required for growth in small organization compared to larger organizations.In this situation, small organization failed to develop skills, knowledge and competencies among workers in the small organization.This is mainly because of financial constraints and insufficient training.According to Gupta and Cawthon (1996) argued that small organization especially managers required the most training.Therefore, training is an essential tool for developing employees and the organizations.
The small organization receives major challenges form larger firms, whose command of resources and global reach can be significant.Some great innovations have come from SMEs, particularly in technological fields, but these often owe much to larger firms.These features are becoming a trend for many entrepreneurs is seizing their opportunities.Small firms receive more information such as global market accessible, tax, regulatory frameworks, trade rules, and other legal and advisory services.Helping them to gain access to finance is also important.By receiving all information, small firms prefers to join with larger organizations.Financing is frequently becoming a major hurdle to overcome the way to setting up and staying in business, with access to risk capital.
According to Hill and Stewart (2000), on a case study research into human resource development within three SMEs firms, investigated employers attitudes towards learning, examined the link between career structures and training in organizations of all sizes.Evidence from this study found that small organization lacked of career structure which did not guarantee promotion and training.Therefore, small firms have difficulties to progress and compete with larger firms whereby the employees have low motivation to perform.This is a major hurdle that small firms faced especially in the developing countries.
In today's firms are very much exposed to market pressure, SMEs are frequently at a disadvantage relative to their larger counterparts regarding their abilities to attract, retain, and motivate the best human resources (Beaver and Hutchings, 2005).Consequences of this practice, the SMEs are unable to attract and retain highly qualified staff in the firms.These have led for poor performance and eventually the small sized firms were unable to be competitive in the market.
According to Schlogl (2004) small sized firms failed to improve the basic infrastructure like expanding broadband and secure servers.These factors have impacts on the small sized firms to turn to e-business approach.One of the main reasons is cost.In addition, the SMEs frequently cannot afford or find qualified e-business staff to operate the business.These major impediments for smaller firms simply lengthen the usual problems relating to trust, traction security and, crucially concerns about violations of intellectual property rights.Therefore, HRD is the solutions for training the staff to be more equipped with knowledge and skills on handling e-business.

The Human Resource Development (HRD) perspective
Recent studies of SMEs have witnessed a major contribution to the developing economics.From the HRD point of view, SMEs need to improve in order to be competitive in the market and to continue their survival.According to Harrison (1997) argued that HRD literature is now strategically focused and well integrated with fields of human resource management, business strategy and organizational learning.A number of dimensions of HRD initiations are investment in human resource capabilities, change in both organizational and individual concern on enhancing the core competencies, organizational and individual learning, and enhancement of human resource competencies.
According to Harrison (1997), HRD is essential for organizational strategy, external labour market strategies, changes in internal labour market needs and the value system within an organization.Much of the literature appears to be positing that investment in employees will enhance learning and performance.However, the small firms facing difficulties cater appropriate system in the organization due to financial constraint.If the SMEs can overcome this hurdles therefore small firm also can be outperform.HRD is generally preoccupied with activity and it is proven that there is a causal link between human resource development investment and organizational and business performance.
From the HRD perspective, it encompasses activities that improve the performance of individuals and the organizations.The central notion is that HRD may include training and development, organizational development and career development.Training involves the fostering of learning and education activities designed to improve the overall competence of an employee.Therefore at its most basic, HRD increases workforce competence, skills development and quality, motivation, commitment and development of the organization.According McLagan, (1989) argued that HRD strategic has linked training and development to organizational objectives and able to respond to the changes in the environment and technology.Therefore, HRD strategic is a tool for developing the firms and long term survival.However, the only consent that the SMEs worried are the costs, poor strategic planning and lack of managerial support.
According to Rigg and Trehan (2002) argued that HRD in small organizations took a discourse perspective on organizational, learning and development.A qualitative approach is used to identify the three elements.The finding showed that HRD practices were misconstrued in SMEs.In today's organization learning and development go well beyond the individual who attended the course and formal HRD investment is undermined by organization processes that prevented learning.Therefore, formal HRD activity alone can give a highly distorted perspective.Moreover, the HRD within SMEs indicates a need for research that enables the HRD in action for small firm development.
HRD is equally central for both small and large companies.However, HRD in small organization failed to realize the importance for organizational learning.According to Essi Saru (2007) argued HRD and organizational learning issues form the perspective of small firms.In this study, it argued that learning is about developing the organization or its individual, and therefore it is closely connected to the HRD processes.As understood form this description, HRD issues are very important for the sake of the survival of the small firms.Competencies and learning in organizations are ways to overcome some of the problems and HRD are the solutions provider for the firms.

Conclusion
This article has set a context and rationale for research into human resource development within SMEs.Our discussion focused on the background and challenges of SMEs and the importance of human resource development.Based on the study, we have described human resource development is fundamental for small sized firms to develop.
In conclusion, the HRD activities are essential for SMEs for long term survival.HRD activities such as training and development, career planning, self-directed learning, employee motivation have led towards a better performance, higher creativity and innovation, retaining, staff, better service, equality and enrich human capital.It is believed that small firms should put in place, strategies to enhance knowledge, skills, and expertise.In terms of HRD, these have led to better performance and encouraged individual for higher commitment to the organizational performance.In today's HRD, it is important for all sized organization and with no exceptional for small firms as well.(Hill and Stewart, 2000).
This study provides insights into definition, background and roles of SMEs, challenges faced by the SMEs and the view form the HRD perspective.In today's society, organizations have begun to consider HRD as a component towards their survival.It is not because of legal requirement but also for the reason of preparing the organizations in the long run domestically and internationally.HRD will allow small firms to gain a competitive advantage and this will lead to better performance.

Table 1 .
Definitions of SMEs

Table 2 .
Distribution of Small and Medium Enterprises in manufacturing by Sub-Sector

Table 3 .
Distribution of Small and Medium Enterprises in services by Sub-Sector

Table 4 .
Distribution of Small and Medium Enterprises in agriculture by Sub-Sector

Table 5 .
Output and value added by Sector, 2003

Table 6 .
Contribution of SMEs in the Manufacturing Sector Saleh and Ndubisi, 2006)i, 2006)