Small and medium enterprises (SMEs) in play a vital role in the Malaysian
economy and are considered to be the backbone of industrial development
in the country. However, few studies examined their development,
challenges and future prospects. Therefore, the aim of this paper is to
examine and analyse the role of SMEs in different sectors as well as their
major contribution to the economy. The paper goes further to review the
existing literature as well as the empirical studies in order to identify the
major challenges (domestically and globally) that face this sector. The key
messages from the studies examined in this paper are that Malaysian SMEs
still face many domestic and global challenges in achieving economies of
scale and competing internationally. Among the challenges are the low
level of technological capabilities and limited skilled human capital
resources, a low level of technology and ICT penetration, low levels of
research and development (R&D), a substantial orientation towards
domestic markets, a high level of international competition (for example,
from China and India), a high level of bureaucracy in government
agencies, and internal sourcing of funds. These characteristics suggest that
government programs and incentives are either insufficient or not
delivered effectively enough to overcome these problems. This paper
attempts to identify the challenges as a positive first step towards
formulating a workable framework for the SMEs to overcome them.