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Top1. Background
In recent years, Small and Medium Enterprises (SMEs) in Malaysia have been hit by a series of crises, which have significantly impacted their operations and survival. The country has faced a tumultuous political landscape, with changes in government and policy instability (Aidoo et al., 2021). This political uncertainty has created an unpredictable business environment, making it challenging for SMEs to plan and invest for the long-term.
In addition to the political crisis, Malaysia has also grappled with an economic downturn, characterized by fluctuating exchange rates, rising inflation, and limited access to financing (Akpan et al., 2020a). These economic challenges have put significant strain on SMEs, many of which operate on tight profit margins and have limited financial reserves to weather such storms.
Furthermore, Malaysia has been severely impacted by the global climate crisis, with extreme weather events, such as floods and droughts, disrupting supply chains and damaging business infrastructure (Ting et al., 2020). These climate-related crises have added to the woes of SMEs, forcing them to invest in mitigation and adaptation strategies to ensure the continuity of their operations.
However, the most recent and devastating crisis faced by Malaysian SMEs is the COVID-19 pandemic. As of February 2022, the World Health Organization reported nearly 40 million infections and at least 5 million deaths worldwide (WHO, 2021). In response, the Malaysian government implemented various health measures, including border closures and movement restrictions, to limit the spread of the virus. These measures led to an economic crisis, severely affecting the country's SMEs (Reeves et al., 2020).
Given the weaker financial and administrative capabilities of SMEs, as well as the nature of their activities, they are often the most vulnerable to such crises (Cao & Leung, 2020; Kumar & Francisco, 2005). This has forced many Malaysian SMEs to find alternative solutions to help them survive in the market, as they are considered important drivers of economic growth (Henrekson & Johansson, 2010; OECD, 2009). With SMEs representing over 98 percent of all companies in Malaysia (Humphries et al., 2020), their collapse could lead to a major economic crisis for the entire country (Figure 1 depicts SMEs' contributions to GDP before and after the pandemic).
Figure 1. The contribution of SMEs to GDP
According to data from the Department of Statistics, Malaysia (DOSM) in 2021, Small and Medium Enterprises (SMEs) in Malaysia had been contributing increasingly to the country's GDP from 2015 to 2019, with a record high of 38.9 percent in 2019 (Figure 1). However, in the second quarter of 2020, the GDP contracted by 7.1 percent due to the impact of the COVID-19 pandemic, causing many SMEs to collapse. While the government has provided stimulus packages to revive and sustain firms, many others still face financial challenges (Embargo, 2021). Nevertheless, the government's measures to reduce the repercussions of COVID-19 have had some positive effects, with the GDP index in Malaysia recording an increase of 3.1 percent in 2021, and the industrial sector has the largest contribution, with its percentage increasing to 13 percent (DOSM, 2021). This shift in the industrial sector has piqued interest in studying the manufacturing sector's response to the pandemic.