This section defines the term small and medium-scale enterprise (SME) and discusses the significance of these firms in environmental degradation. The term ‘Small and Medium-Scale Enterprise’ or SME in short is broadly used to include any enterprise that involves relatively few individuals or employees engaged in activities that create waste byproducts. Any references in this Section and the followings to small firms or small enterprises refer to SME as defined here. SMEs in newly industrialized countries are characterized by simple, labor-intensive manufacturing methods. Equipments are often secondhand, and the manufacturing process is commonly generalized as inefficient in comparison to larger industries (Benavides, 1992).

In Malaysia, SME is defined as a company with annual sales turnover of not exceeding RM 25 million and full-time employees of not more than 150 workers. The clear differentiation between small and medium in administrative aspect is:

Small Company: a company with full-time employees of not more than 50 and with an annual sales turnover of not more than RM 10 million; and

Medium Company: a company with full-time employees of 51 to 150 and with an annual sales turnover of more than RM 10 million to RM 25 million.

Certainly it is understood that SMEs are benchmarked against annual sales turnover, and number of employees. Most SMEs are classified under the manufacturing sector though in Malaysia. The establishment of standard definitions for SMEs will facilitate better identification of SMEs across sectors, thus enabling more effective formulation of SME policies and implementation of SME development programs, and provision of technical and financial assistance. It will also allow better monitoring of SME performance and its contribution to the economy.

In 2005, the National SME Development Council (NSDC) approved the use of common definitions for SMEs in the manufacturing, manufacturing-related services, primary agriculture and services sectors. These definitions are applied by all Government Ministries and Agencies involved in SME development, as well as by the financial institutions. The use of common definitions for SMEs will strengthen government efforts to create effective policies and support programmes for specific target and make it easier to provide technical and financial assistance to SMEs; and allow for the identification of SMEs in the various categories and levels.

Based on previous research, The total numbers of SMEs in Malaysia counts 111,855 in year 1999, and 88 percent are small companies while the remaining 12 percent qualify as medium companies. Based on current analysis with reference to SMECorp Malaysia, it is observed that there is a huge growth in the SME sector which can be observed through the profiles of SME development in Malaysia.

In Malaysia, SMEs are mostly concentrated in food and beverages, fabricated metal products, machinery and equipment, wood and wood products, textile, apparel, and leather sectors. Although SMIs embodied the majority of manufacturing establishments in Malaysia, its contribution to total value-added and employment was about 28 percent and 33 percent. On a per company basis, they contribute less to total value-added and employment than larger companies. This is due primarily to their size, which limits their ability to adopt advanced technologies, employ more skilled workers, increase their production capacity, expand their market, or enjoy economies of scale. SMEs primarily manufacture finished products for the larger companies rather than intermediate products, reflecting the lack of strong industrial linkages within the manufacturing sector.

Functions of SMI in Malaysia

The major role of SMI in Malaysia is to boost up the nation’s economy growth thus creating distinctive opportunities to young entrepreneur to succeed in business. This statement in deliberately supported by the Prime Minister Datuk Najib Tun Razak who stated that the move by SMECorp which would be responsible in putting forward ideas and views to improve these programs, was in line with the aim to boost the contributions of SMI to the country’s economical growth. Besides that, SME can reduce the number of poverty and poor people in Malaysia and also throughout the world as it promotes economic growth. Based on research, it is found that SMEs are the major source of income and serves as a breeding ground for entrepreneurs and a provided of employment (UNIDO, WSIS Report, February 2003).