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Insight - Ride the RCEP train or be left behind, SMEs told

SMALL and medium enterprises (SMEs) need to proactively find out how they can benefit from the Regional Comprehensive Economic Partnership (RCEP).

Under the RCEP, which is the world’s largest free trade agreement, SMEs can enjoy, among other things, lower tariffs and market access as well as standardisation of rules.

To enjoy the preferential tariffs, SMEs must meet the regional value content threshold – regional content of the raw materials or intermediate inputs of participating RCEP countries.

There is a lack of awareness among SMEs on how they can get these benefits as not much publicity has been given thus far.

Competition is going to be stiffer with the opening of markets, and SMEs need to pull up their socks fast.

“In the international or export arena, competitive advantage is crucial; SMEs cannot afford to lose any slight edge to our competitors in the other Asean countries,’’ said Small and Medium Enterprises Association (Samenta) honorary national secretary Yeoh Seng Hooi.

Malaysia will become the 12th member state of RCEP on March 18, 2022, as part of a regional economic integration covering 15 countries with 2.2 billion people, representing US$25.8 trillion (RM108.22 trillion) or 29.4% of the world’s gross domestic product, according to data in 2019 from the World Bank.

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“With the opening of the markets, SMEs need to strategise to form an industrial cluster, rather than going in alone, to improve their competitive advantage,’’ said Samenta southern chairman Dr Louis Ooi.

Samenta has signed an MoU with UOB Bank to support the development of its supply chain programme, where it will identify an anchor and develop potential members under the programme to support that anchor.

Tariff liberalisation and better market access means that SMEs can source competitively priced inputs from RCEP members.

But they also face the onslaught of more cost and price-competitive goods and services from these trading partners.

“While RCEP offers eCommerce and digital platforms for SMEs to have wider market reach, SME themselves need to focus on maintaining product quality, standards and branding development to stay competitive in local and international markets,’’ said Socio Economic Research Centre executive director Lee Heng Guie.

SMEs also need to understand trade rules and regulations of RCEP countries, and should seek the help of Matrade to enhance their market intelligence.

With the opening of economies under RCEP, SMEs must rise to the occasion by ensuring best-in-class products and services to remain competitive.

“This is an opportunity not to be missed; the scope for improvement would include critical areas such as quality, costs, efficiency and service quality,’’ said OCBC Bank (M) Bhd head of emerging business Wong Chee Seng.

SMEs should invest prudently in productivity improvement processes and automation.

For example, they may now need to digitise as well as start using artificial intelligence and machine learning to get ahead of the curve.

SMEs will have to regularly perform internal assessment of market positioning such as in product differentiation and relative cost leadership, said Fortress Capital Asset Management Sdn Bhd CEO Thomas Yong.

Trade liberalisation also means that SMEs will have to compete against multinational corporations as well as their peers in lower cost countries.

“From a technological point of view, in the electronics and electrical (E&E) sector, can we compete against South Korea, Japan and China?

“Is our cost structure better than that of E&E producers in Vietnam, Thailand and the Philippines?” asked SME Association of Malaysia vice-president C.S. Chin.

SMEs will face stiff competition from countries like Vietnam and China where the cost structure is much lower than that of Malaysia due to cheaper labour, lower utilities charges and rentals.

The government can help SMEs achieve cutting-edge competitiveness by providing support in terms of training, grants and investment tax allowances.

To further assist SMEs, the SME Association of Malaysia proposed that the government looks into:

  • Quick action to remove and minimise non-tariff barriers to ease trade, especially via cross border eCommerce platforms.
  • Constant engagement with RCEP members as there is no assurance on non-tariff barriers and market access.
  • Simplifying rules of origin.
  • Enhancing transparency in labelling, testing as well as licensing and registration requirements.

Challenges faced by SMEs include protectionism by certain RCEP member countries and the need for more assistance, especially in terms of market access and digital transformation, from government agencies such as Matrade, Malaysia Digital Economy Corp and SME Corp Malaysia.

A cost-benefit analysis on the advantages of RCEP to the Malaysian economy should be conducted by the International Trade and Industry Ministry (Miti).

“A national interest study on industries in Malaysia that are able to compete, and those which require to be protected, should be carried out,’’ said Chin.

It is important that SMEs know their position in the supply chain.

More roadshows and engagement can be conducted by Miti and trade associations like Samenta, which is organising an SME CEO Forum on March 18 with a panel discussion on RCEP.

“We are already seeing more interest from developed counties like Japan, South Korea and China to set up joint ventures with SMEs in Malaysia,’’ said Yeoh.

Malaysian SMEs should strategise to build capacity and plug into the supply chains of developed countries within RCEP.

They should also position themselves as a strategic Asean hub for manufacturing especially to support the E&E cluster in machinery, intermediate inputs and manufacturing services.

Malaysia stands to benefit substantially from the market opening and tariff reductions within RCEP.

It is important especially for SMEs in the import and export-related businesses to become conversant with the workings and opportunities that lie ahead.

They should also be aware of the pitfalls and shortcomings that need to be rectified.

Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.



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