SMEs Link Record Number Of Retrenchments To Weak Demand, Rising Costs And Foreign Competition

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The 38,953 workers who lost their jobs in the first five months of this year may be the clearest sign yet of the pressure building across Malaysia's business landscape

While the government has attributed the retrenchments largely to organisational restructuring and operational adjustments, small and medium enterprises (SMEs) say those decisions are increasingly being driven by a tougher reality: weak consumer demand, rising costs, and growing competition are making it harder for businesses to stay profitable.

According to the SME Association of Malaysia, many companies are seeing sales slow while expenses continue to climb, leaving little room to absorb further shocks.

"Companies do not reduce manpower when business is good," its president Dr Chin Chee Seong was quoted as saying by the New Straits Times.

"They do so when margins are squeezed, and future orders are uncertain."

The retrenchments have affected workers across several major sectors

According to Human Resources Minister Datuk Seri R Ramanan, the affected sectors include manufacturing, wholesale and retail trade, motor vehicle repair, and administrative and support services.

Workers aged between 25 and 39 accounted for the largest share of those who lost their jobs.

Chin said many SMEs are being hit simultaneously by weaker domestic spending, higher day-to-day operating costs, supply chain disruptions, rising financing expenses, and increasing competition.

"Many SMEs are struggling to compete on price, especially against cheaper imported goods and foreign platforms. At the same time, they face higher wages, rent, utilities, logistics costs, compliance requirements, and slower customer payments," he said.

The result, he added, is that businesses are increasingly being forced into defensive measures. Some have frozen hiring, while others have reduced overtime, reorganised departments, or cut jobs altogether to preserve cash flow.

One of the biggest concerns for SMEs, according to Chin, is the growing challenge of competing against lower-priced imported goods and foreign online sellers

He argued that many local businesses are facing a cost structure that is steadily rising while consumers remain cautious with spending, creating a squeeze on both revenue and profit margins.

For that reason, he said retrenchments should not be viewed solely as a labour market issue.

Instead, they are becoming a reflection of broader pressures on business sustainability.

"If SMEs are not supported to remain competitive, job losses will continue," he said.

Chin called on the government to consider temporary measures aimed at helping businesses retain workers, including wage support, targeted payroll incentives, low-interest working capital financing, and relief for rental and utility costs.

He also called for stronger enforcement against unfair trade practices, including under-declared imports and non-compliant foreign sellers, arguing that many local businesses are competing on an uneven playing field.

Chin further cautioned against additional tax increases or further increases to labour costs that could place more pressure on struggling businesses.

Training alone will not solve immediate cash flow problems

Although supportive of reskilling and upskilling programmes, Chin said such initiatives are not enough to address the immediate financial pressures many SMEs face.

"These initiatives are important for long-term competitiveness, but many SMEs are facing urgent cash flow problems," he said.

He suggested linking training programmes with wage subsidies, automation incentives and productivity improvements so businesses can retain workers while upgrading their operations.

Chin also urged policymakers to focus on helping smaller businesses scale up, saying stronger local SMEs are critical to protecting jobs and strengthening the economy.

"Efforts must ensure micro SMEs can grow into small enterprises, small firms scale into medium-sized companies, and medium-sized firms expand into exporters. This progression is key to safeguarding jobs and strengthening the economy," he said.