2026 will be the year of the great SME pivot

The world is looking to Malaysia as a hub for supply-chain diversification.

From William Ng

As we cross the threshold into 2026, Malaysia’s 1.2 million SMEs find themselves at a crossroads.

The “survival mode” of the post-pandemic years has finally come to a close, replaced by a more stable economic outlook and a clearer fiscal trajectory.

However, the dawn of 2026 brings with it a realisation that “business as usual” is no longer a viable strategy for survival, let alone growth.

If 2025 was the year of “Fixing the Foundations”, as I have argued previously regarding our low-wage ecosystem, then 2026 must be the year of the Great SME Pivot.

The challenges: a triple threat

The obstacles SMEs will face in 2026 have evolved into a complex “triple threat” of structural demands:

1. First, the compliance ceiling is lowering. With the full implementation of e-invoicing for many and the increasing pressure for ESG reporting, the cost of doing business is no longer just about wages and rent; it is about the “regulatory tax” of data and transparency.

While Samenta has welcomed the increase in the threshold to RM1 million for e-invoicing as a compassionate “breathing space”, we must be honest: that space is a waiting room, not a permanent sanctuary.

SMEs that fail to digitise their accounting and governance in 2026 will find themselves locked out of the global supply chains.

I would even go so far as to proclaim that we are entering a “compliance economy”, one where compliance becomes the currency for trade, growth and survival.

For example, Jan 1, 2026 marks the start of the “Green Wall” era: the definitive phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) and the “trial” rollout of our own National Carbon Tax.

SMEs in the supply chain must realise that a high carbon footprint is now a financial liability.

2. Second, the liquidity squeeze and execution deficit continue to be SMEs’ silent killer.

Despite a record RM50 billion allocation for business financing in Budget 2026 (and equally supportive numbers in previous years), 70% of firms still operate with less than six months of cash reserves.

We don’t need more billions in “allocated” funds if the “accessible” funds are still guarded by 19th-century collateral requirements.

Furthermore, SMEs continue to find themselves in a maze of overlapping agencies. Currently, SME development programmes are fragmented across 14 ministries and over 60 agencies and state bodies.

This institutional “bloat” often results in contradictory directives and a “silo” mentality that leaves the average business owner exhausted by red tape before they even receive a single sen of support.

This has to be the year when we finally rationalise this ecosystem; we need a “single window” for SME development that prioritises the user experience of the entrepreneur over the administrative convenience of the bureaucrat.

3. Third, perhaps the most daunting challenge is our stagnant productivity growth. For too long, our SMEs have relied on a “low-cost, high-volume” model fuelled by manual labour.

This model is long broken. Our labour costs are rising (and rightfully so), but our output per worker has not kept pace.

While our labour productivity per hour has grown to approximately RM45.10, it lags far behind regional competitors like Singapore by nearly 4 to 1 in value-added per worker.

Without a significant leap in productivity through automation and better management practices, SMEs will find themselves crushed between a rising floor of wages and a stagnant ceiling of efficiency.

Samenta has pushed back against aggressive labour market reforms. But we can only push back for so long, as wages and labour conditions cannot stagnate forever. Our productivity must outpace wage growth.

The opportunities: a regional springboard

Despite these headwinds, 2026 offers a unique alignment of stars.

The most significant opportunity lies in our Asean integration. Following Malaysia’s chairmanship and the launch of the Asean SME Caucus championed by Samenta, the regional market of 680 million people is a natural first step for our SMEs to grow beyond Malaysia.

The conclusion of the Digital Economy Framework Agreement and the upgraded Asean Trade in Goods Agreement are “passports” for “Made by Malaysia” brands to compete in Jakarta, Ho Chi Minh City, and Bangkok.

Furthermore, the incentives for AI and cybersecurity training that Samenta has fought for, while not as extensive as we would like, is a strong signal that we must use technology as enablers to lift our productivity.

The 2026 resolution: from middlemen to value creators

I previously defended SMEs against the charge that we are “addicted to low wages”. Low wages are a symptom of a low-productivity system. But in 2026, the responsibility to break that cycle is a shared one.

SMEs must proactively pivot from being mere middlemen, traders and OEM manufacturers to becoming brand owners and IP holders.

We must stop competing on price. That’s a race to the bottom where someone else will always be cheaper. We must start competing on value, innovation, and trust.

A call to action

To the government: give us an enabling ecosystem that goes beyond grants. Chief of this would be to ensure that costs of doing business remain stable, while cutting down on barriers to doing business.

Recent work that Samenta has been part of, in driving business efficiency and scaling back bureaucracy are indications of the government’s will to disrupt the bureaucratic tendencies of the past.

Rest assured that the business community is supportive of even more drastic actions against red tape, and we will have your back on this.

To my fellow SME owners: 2026 is not a year to be defensive. It is a year to go on the offensive.

The world is looking to Malaysia as a hub for supply-chain diversification. Let us not just be part of the economy in 2026; let us be the ones driving it. - FMT

William Ng is the national president of the Small and Medium Enterprises Association of Malaysia (Samenta).

The views expressed are those of the writer and do not necessarily reflect those of MMKtT