The Scenario and The Current Situation of Rural SMEs.

(i) The Importance of Rural SMEs to Economic Development of Local Community, State and Nation:

 The government aim is to make the industry more productive, efficient, and safe. Small and Medium-sized Enterprises (SMEs) are the core of the Malaysia construction industry and account for about 90 per cent of companies undertaking construction work. Small and medium industry development (SMEs) is a very important for rural SMEs to economic development of local community, state and nation. 

Firstly, the importance of rural SMEs to economic development of local community, state and nation is caters to the need of people in the country. The manufacturing sector SMEs has helped people from depending on external goods. Diversity in SMEs have successfully caters to the needs of the people. Indirectly, the country has managed to avoid the dependence on imports. For example, SMEs sector for agriculture based food such as paddy, fruits, cocoa and oil palm is able to provide a source of food supply.

Secondly, complementary industry. There are products for SMEs which is semi finished goods and intermediate goods which serves to supply components and semi finished goods required by the larger industry e.g manufacturing industries. As enlightened, SMEs focusing on production of component products for the manufacturing industry, vehicle electronic components to produce computer, handicraft enterprises such as batik and pottery which helps tourism and much more.

Thirdly, create traditional expertise. Local SMEs in the modern era and globalization has challenged local people’s skills and knowledge. This is because they have to compete in producing products for SMEs to raise the name of Malaysia at the international level. Therefore, it is not denied that local products is indeed a reflection of the work culture and skills of local specialties as well as highlighting local culture itself. Traditional specialties such as making batik initiated from process of tighten, drawing, design, paint, turn off color and finally dry in the sun can be used as a source of lucrative quests. In addition, the manufacturing of batik nowadays certainly much needed in Malaysia because of high demand, particularly in tourism sector.

With their small and medium industries in the rural areas, it can create employment opportunities. SMEs through this as well, at 44.2 percent of total employment of the total labor force in the manufacturing sector are provided. In fact, a better distribution of income can be realized compared with the structure of income and wages in large firms and other international companies. As a result, poverty can be eradicated with the birth of job opportunities are numerous. For example, a factory making chips require employees to provide material, cooking, packaging and marketing their products.

Next, the existence of SMEs in rural areas will also improve the state of agriculture and fisheries sector. SMEs need raw materials in large quantities for the production process of factory fishing or forestry. For example, entrepreneur of banana chips require agricultural products such as bananas adequate and fish crackers employers require fishery products such as fish. Indirectly, it can also increase the activity of agriculture and fisheries in the country. According to the laws of economics, when the rate of supply and demand affect the price of goods, the prices of agricultural products will increase and indirectly, the agricultural sector will increase. In the same time, a number of efforts undertaken by the government agricultural agencies like FAMA, MARDI, FARMERS and others providing expertise and financial support to farmers and fishermen.

                In addition, the importance of SMEs is to improve the country's economic development by creating, developing and strengthening the basic structure of the national industry development. In fact, SMEs will also improve the local economy, especially the rural population. Nowadays many industries established in rural areas in line with the concept of 'One Village One Product'. For example, a factory making chips, ketchup factory, handicraft factory and many others. Plant operators can sell their products to local residents and other visitors. Then, the country's income distribution is more fair because SMES offering higher wages to employees less skilled.

The existence of SMES can reduce the gap of income of the population. SME provides an opportunity to employees less skilled and semi-skilled salary equivalent to skilled workers and professionals. For the majority of workers who are less skilled and educated, it is difficult for them to find employment. The existence of SMES will provide job opportunities to this group and help reduce the imbalance in the distribution of income. Other than that, SMes is important to maximize the use of local raw materials for example SMES industry-based furniture simply using bamboo as raw materials. Increase in SMES in the production of goods of the country then it is able to reduce reliance on import goods at once an outflow of national currency will be reduced.

            Reduce imports of consumers goods is also another importance of rural SMEs. Small and medium enterprise (SMEs) of rural area produce many types of consumer goods. These earning will causes the customer or society will not depend on the imported product from abroad. It can preventing our community from too depending on imported product. When too depending on imported product the importing country will sabotage or increase the tax that we must pay to get the product from them. Because of that producing own product is more safe then importing product from other country. It is because when the local entrepreneur will know needs and desire in this country. Beside the product get halal certificate from our JAKIM. So its safe to muslim and non muslim to use it. Furthermore, it also can decreasing the flow of money overseas. Besides it also will decrease the dumping stock of the imported product that will effect to the economy of Malaysia and also decreasingly deficit of Malaysia.

SMEs in rural area improve the tourist sector. Malaysia has much culture from the community that can used to become asset to country. For example, handcraft from the community that have quality can be emblem to culture because each handcraft produce unique item that can get good profit. Other than that, handcraft also is symbolizing identity to our culture. Tourism and entrepreneurial activities also are complementing each other’s, as the development of tourism depends on the SMEs while in the same way SMEs activities also require the help of tourism in way to grow and survive.

Tourism sector help to generate opportunities for the local community to start a business activity, while tourism sector depends on the SMEs activities to provide the tourist's needs and wants. Tourism is conservatively a small and medium- sized enterprises industry as in the point that majority of the tourist amenities are provided by the small and medium-sized businesses. Nowadays, many program are introduce to increase total of tourism such as in Hulu Perak district local plan in 2002-2015 had come out with effort to develop a concept of ‘one product one village’. Other than that, the local community produces agro product such as “serunding”, “dodol”, preserved fishes, black paper spices, and run activities of farming cattle and goats in small scale. This program is supported by the local government.

            Next, the important of rural SMEs is improving technology in the country. With the SMEs facilities for processing is becoming easier because of the creation of machines that is able to reduce people ‘s energy consumption and take a short time to create goods or services. For example in technology sciences nowadays, make earning food and make it long lasting with a material that can be use for food to make sure it is safe to eat is no longer impossible. Activity of rural SMEs can also encouragement export and marketing based on technology information and communication for purpose to promote product of SMEs in global. Malaysia already takes initiative for hold conversion MSEs  ASEAN +3. This conversion provides platform for member state of ASEAN to exchanges ideas and opinion to another country such as Japan, Korea, and China. Example of international exhibitions which was hold for advance export sector MSEs is halal exhibition Malaysia, agriculture horticulture and agro tourism exhibition, construction exhibition and entrepreneur.

            Last but not least, Malaysian women entrepreneurs are increasingly recognised to play an important role to the unprecedented rate of growth of the Small and Medium Enterprise (SMEs) and indirectly to Malaysian economy. The number of woman in percent Malaysia SMEs in 2003 was 1,122,000 or 36.8 percent of the total employment in SMEs. A proxy for women entrepreneurs obtained from population Census in 2000 indicates that 30.0 percent of them are working proprietors and active business partner. Forty-four percent of Malaysian women surveyed professed desire for self-employment and is likely to grow overtime. It is no surprising that the number of women entrepreneurs in Malaysia has increased in the past three decades due to the emphasis on industrialisation, self-employment and business oriented employment. All these have been facilitated by the growth in various sector such as food manufacturing, agricultural and service sector such as tailor. The Malaysian has come to realise that fostering the development of entrepreneurship in the country is crucial for the achievement of Malaysia’s broader development objectivities, including economic development growth.

(ii) Barriers / Challenges of Rural SMEs :

Nowadays, there is a lot of challenges that occur to small and medium industry development in rural SMEs to growing rapidly. One of the challenge that they need to face it is the lack of technology. People who live in rural areas less exposed to modern and sophisticated technology as well as lack of knowledge about the technology. In addition, the yield and quality of production is low and cannot meet the requirements and needs of the market. This is because the technology used is inefficient and outdated categorized and maintenance are not perfect. Thus, their chances to develop their SME product sales at the international level is very limited.

Another challenge of rural SMEs is the challenge of marketing. Products of cottage industry cope with market competition. This is so because SMEs face challenges in marketing knowledge such as marketing strategies, the use of e-commerce and online business which is extremely shallow. In addition, SMEs also had to compete with each other to dominate the limited local market share where SMEs face competition from large enterprises. For example, the food and beverage industry is dominated by giants company like F&N, Yeoh Hiap Seng, and Nestle, which has been long operating in the country. The consent of Malaysia to participate in the open market through AFTA also make SMEs suffer from market great products competition.

This market is competition in terms of quality and price of local products with competitive foreign products, may affect the demand for Malaysian goods oversees. The statement is capable of threatening the new industry based on new or involved in SMEs. Problem-chain inefficient marketing channels also stunt the development of SMEs. As a result, many SMEs have to operate their own product marketing. Because SMEs are not able to enjoy economies of scales (production cost saving effects of large-scale withdrawal) effect of relatively small quantities of its product, the prices for their products placed less competitive. This is coupled with limited promotional activities is one of the causes for SMEs products less well received among consumers.

The next challenge of rural SMEs is raw materials. Sometimes a problem in terms of getting raw materials at certain seasons restrict the industry. The problem of price fluctuations in raw material also affects the cost of production and is seen as a barrier to the development of the industry. In addition, raw materials cannot be saved because it could suffer damage or no facilities store is also a problem. Suppliers who sold the raw supply also imposes a variety of credit in conditions to be complied with by the operators of SMES. Entrepreneurs are hard to get quality raw materials at low prices. Raw material prices unstable imports also present a problem to the operators of rural SMES. Sometimes the SMES in rural area had to pay the price of raw materials higher than large industry.

Then, less capital and facing financial problem is also another challenge of rural SMEs. For example, less property for made security can make it difficult for local SMEs entrepreneur to convinces the loaner to get facility loan from financial institution. Financial institution also not interested to give loan because they’re avoiding less interest rates and to increased their administrative cost to manage small loan. Commercial banks have to review capacity and ability of entrepreneur for doing their business and payback loan before get approval of loan application.

(iii) Steps to Encourage and Develop the Rural SMEs:

Marketing development programme. This method can be implemented through entourage as well as intensify international exhibitions in introducing Malaysian goods in the eyes of the world and indirectly to attract foreign investors to invest in Malaysia. For example, through the Malaysia External Trade Development Corporation (MATRADE) which has an important role in the implementation of various strategies such as export promotion, exhibition, Expo business trip as well as the publication of magazines and brochures to help introduce and expand the market for SMEs products.

The government also played a role in the development of marketing SMEs where the government through the Small Industries Development Corporation (SMIDEC) and medium enterprises need to ensure closer industrial linkages between SMEs with large companies or multinational companies and other global buyers through the Global Chains and Global Supplier Chain.

The next step is to provide a sufficient labor force. Most people in rural areas are those that are less prominent in terms of academics. However, if given the chance to shine in the practical field, they certainly can. That being the case, the parties involved should provide a variety of specialized training for them. For example, the government may establish vocational schools and can help produce more skilled workers to meet the needs of skilled manpower in the field of SMEs. In fact, an adequate skilled workforce can improve the quality and productivity of SMEs. In addition, they can generate and create new items. SMEs should also be given more opportunities to participate in technical training and consultancy services and advice as a way to help SMEs improve the quality, delivery and design of their products, while at the same time reducing production costs.

Undoubtedly, increase the level of technology is one of the most important step to develop SMEs, especially in the rural areas. For SMEs to compete in the wider market, rural entrepreneurs in particular need to be technopreneurs who need to make sure their products produced are based on technology and at the same time have a market demand. Although the field of technology is relatively new in Malaysia, it is not a deterrant to entrepreneurs of SMEs in Malaysia to venture into this field. The Government of Malaysia with the help of the Ministry of Science,  Technology and Innovation (MOSTI) has provide many opportunities to entrepreneurs in rural SMEs and give them encouragement to venture into the field of science and technology to be applied in the business.

To develop rural SMEs, the role of the government is indispensable. One of the prime step taken by the government is to supply funding, grants, loans and incentives to the operators of SMEs. This can help to motivate farmers who operate business based on agriculture, fisheries, farming, food processing, etc. Among the grants and incentives available to SMEs include financial schemes, research and development grant scheme, and so on. The loan facility is available at a lower price through government financial institutions, such as the Bank of Agriculture and National Savings Bank, commercial banks such as Bank Rakyat and CIMB Bank, as well as finance companies. Through special schemes of Bank Negara, the central bank has established a special unit for SMEs which aims to assist SMEs to obtain financing. With the availability of help and government support, SMEs would be able to thrive.