Most bumiputera firms stuck at micro scale despite decades of aid, report finds

 

Despite decades of government assistance aimed at strengthening their role in the economy, many bumiputera-owned businesses remain stuck in the micro-enterprise category, a new report said.

The findings were detailed in one of two reports launched by the Institute for Democracy and Economic Affairs (Ideas) yesterday, which examined the effectiveness of bumiputera vendor development policies.

According to the think tank, despite accounting for almost 30 percent of SMEs in Malaysia, 88 percent of bumiputera-owned firms have yet to grow beyond the smallest business tier.

This development, Ideas said, highlights persistent structural challenges despite longstanding state-backed development programmes.

“These shortcomings not only prevent impartial assessment of programme performance but suggest those running the programme are operating under unclear and misaligned objectives, have inadequate monitoring processes, and are overseeing suboptimal outcomes for a programme of this maturity and magnitude,” it stated in the report.

The report said one key factor is the continued dependence of many bumiputera vendors on contracts from GLCs through initiatives such as the Vendor Development Programme (VDP), instead of expanding into the broader private sector.

Research cited in the report showed that 53 percent of vendors linked to national carmaker Proton Holdings Berhad in the programme rely almost entirely on the company for revenue, with vendors tied to conglomerate Boustead Holdings Berhad showing similar patterns.

‘Data gap’

Ideas also highlighted what it described as a major “data gap” in the government’s oversight of the programme.

According to the group, more than 40,000 companies have participated in the VDP since the 1980s, yet no centralised repository was established to track how these firms perform over time.

This has made it difficult to determine whether the programme had achieved its intended goals, Ideas said.

The lack of long-term monitoring has also obscured the programme’s graduation outcomes. In one example cited by the report, only 88 out of 1,307 vendors graduated over 10 years.

Ideas described that vendors remain tied to their anchor companies rather than evolving into independent firms capable of competing in the market, even after “graduating” from the programme.

“The graduation stage (of VDP) is fraught with unclear benchmarks and reporting, hindering efforts to determine whether ‘graduation’ signals vendor exit from VDP support or continued anchor firm dependency by another name,” it added.

Problematic indicators

Indicators measuring success were also problematic, as current reporting often focuses on participation levels and the amount of funding disbursed rather than enterprise outcomes.

“Its competitiveness objectives, however, including cost efficiencies, firm growth, client diversification, internationalisation, and the cessation of VDP support, do not appear to have been systematically operationalised.

“It is estimated that tens of thousands of vendors have participated in the programme since its inception, yet publicly available information on vendor progression, attrition, and post-graduation outcomes remains limited,” it said.

Without better tracking of firms from the moment they receive assistance to their eventual performance in the market, policymakers remain unable to fully assess whether the programme is producing competitive businesses.

To address the issue, Ideas recommended creating a centralised system that tracks the lifecycle of participating firms, from their initial selection to their growth and eventual graduation from government support.

It also suggested that development programmes introduce time-bound transition phases to reduce dependency, establish clear graduation benchmarks, and harmonise governance across ministries to smooth operation.

Such reforms, it said, would help ensure that assistance programmes focus on producing businesses capable of surviving and competing independently, rather than remaining reliant on continuous government aid. - Mkini