State of SMEs in Singapore and Malaysia

Feb 17, 2025 by Akshat Arya | Mission Kay Capital’s Industry Specialist

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The team at Mission Kay Capital has been actively engaging with SME owners across Singapore and Malaysia, giving us a unique on-the-ground perspective of the evolving SME landscape. Through these discussions, we have gained valuable insights into the challenges they face and the opportunities that lie ahead. Below is an overview of the key trends shaping SMEs in these markets.

The Role of SMEs in Singapore and Malaysia’s Economies

SMEs are the backbone of both Singapore’s and Malaysia’s economies. In Singapore, SMEs account for 99% of all businesses, contribute 48% to GDP, and employ 65% of the workforce. In Malaysia, SMEs make up 97.4% of all businesses, provide 48% of employment, and contribute 38% to GDP.

The role of SMEs in driving economic growth, innovation, and employment cannot be overstated, making it crucial to understand the challenges and opportunities they face.

Challenges Facing SMEs in Recent Years

Over the past few years, SMEs in Singapore and Malaysia have grappled with slower growth and tighter margins, primarily due to:

  1. Inflationary pressures and rising costs: Higher input costs, rent, and wages have compressed profit margins.
  2. Labour shortages: Both countries have faced challenges in hiring and retaining skilled talent, especially in sectors requiring specialized expertise.
  3. Supply chain disruptions: Global trade volatility and logistical constraints have affected SMEs, particularly those in export-dependent sectors.
  4. Limited access to financing: While government support exists, many SMEs still struggle to secure affordable credit to fund growth and operations.

Despite these hurdles, SMEs that have embraced digital transformation, automation, and operational efficiency have remained resilient.

In Singapore, SME growth in 2023 was 2.5% year-on-year, supported by government driven initiatives like SME Go Digital program and increased adoption of technology. However, rising operational costs and labour shortages capped higher growth potential.

In Malaysia, SMEs saw a 5.2% growth in 2023, driven by post-pandemic recovery efforts, but inflation and financing constraints remained significant challenges.

Based on our observations, some industries that have struggled in recent years include:

  1. Consumables and food manufacturing
  2. Low-tech or low-skilled consumer product manufacturing
  3. Non-essential services

Meanwhile, some industries that have thrived include:

  1. High-tech and niche manufacturing
  2. Specialized engineering services (e.g., supporting data centers, automation, and industrial services)
  3. Essential commercial services
  4. Businesses servicing the semiconductor industry

What’s Next for SMEs in Singapore and Malaysia?

Looking ahead to 2025 and beyond, several positive tailwinds are expected to support SME growth:

  1. Easing inflation and interest rate cuts: Global rate reductions and government stimulus measures could boost economic activity and consumer demand.
  2. Expansion of the tech sector: The rise of AI, digitalization, and advanced manufacturing is set to benefit SMEs adopting innovative solutions.
  3. Electronics upcycle: The recovery of the semiconductor and electronics industries is expected to drive supply chain activity in both countries.
  4. China+1 strategy: As global businesses diversify supply chains beyond China, Malaysia’s cost-competitive manufacturing base and Singapore’s world-class infrastructure position them as key investment hubs.

While these trends present significant opportunities, geopolitical tensions, global trade uncertainties, and financial market volatility remain key risks that SMEs must navigate.

For SMEs that embrace technology, strategic growth planning, and operational efficiency, the future looks bright. As investors and operators, Mission Kay Capital is committed to supporting SMEs through this evolving landscape and exploring opportunities for long-term value creation.

Connect with us if you know SME owners considering succession.

Source: Department of Statistics Singapore, Enterprise Singapore, Source: SME Corporation Malaysia, Department of Statistics Malaysia.

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