This trend is particularly pronounced in the APEC economies in which the economic activities are now more diversified – with the growing importance of the services sector, with the agricultural sector becoming more advanced and the industrial sector being supported by a supply chain of small and medium scale businesses. In the APEC region, SMEs account for 90% of the total business establishments and 60% of total employment. In Malaysia, SMEs constitute 99% of all businesses and 57% of total employment. In terms of output, the SME sector in Malaysia accounts for 35% of gross domestic product and 20% of total exports. The SMEs have the advantage of having greater flexibility and the ability to adjust more quickly to changes in the market. The SMEs also have the potential to meet the new challenges to raise productivity and performance. There is therefore enormous potential for SMEs to create significant positive value for the economy, and thus contribute towards sustainable and balanced economic growth, employment and social stability. This morning allow me to take this opportunity to share with you some reflections on SMEs in the more globalised economy, and the role of financial institutions and Governments in supporting the SME sector in the future environment. Prospects for SMEs in a more globalised economy Globalisation has been described as one of the defining changes of the 21st century. More importantly perhaps, is the dramatic change in the nature of the globalization process.
The initial wave of globalization was in the form of trade, and this was followed by the globalization of corporations. More recently the globalization of financial flows and in the flow of talent that follow increase in capital and labour mobility across borders. Indeed there has been a shift from the domestic sphere to a greater global orientation. This is evident in the stronger trends in international trade, foreign direct investment, international capital flows, and movement in labour across borders. Greater connectivity enabled by technological advancements have also significantly increased the pace of globalisation to an extent that was previously not possible. BIS Review 98/2010  1  For SMEs, gaining access to the expanding global market is a strategic step forward that would bring tremendous business opportunities. It would enhance the possibilities to exploit economies of scale and scope of the business, and the potential for enhanced technological capabilities and greater risk diversification. The globalised economy will, however, challenge existing comparative advantages and thus drive the search for new business models to sustain competitiveness. The SMEs in this new environment need to evaluate new markets, move to higher value-added products and services, and develop new synergies by forging new business alliances, acquisitions or partnerships. Given the important socio-economic contribution of SMEs to national economies, promoting an increased participation of SMEs in both domestic economy and international markets has become an important agenda in most emerging economies as part of the efforts to enhance the overall economic growth potential.