Introduction

The importance of small and medium-sized enterprises (SMEs) in economic development is now widely acknowledged (Acs and Audretsch 1988). However, despite the significant role they play, SMEs have historically been vulnerable to competition owing to their size disadvantage, especially in industries characterized by economies of scale. Although the evolution of science parks and university-industry research linkages have enabled SMEs to participate in intensive research and development activities, minimum scale efficiencies are still important in scale-based industries, such as automobile assembly, wafer fabrication, and integrated circuits and printed circuit board assemblies (Rasiah 2003). SMEs are also prone to market failures because of information asymmetries, especially when faced with weak institutions. There are also other impediments, such as limited access to finance, legal constraints, lack of skills and technological capabilities that limit the capacity of SMEs to compete with large firms. Despite these shortcomings, governments continue to promote SME development as they are not only competitive in scope-oriented activities, but also act as a conduit to stimulate entrepreneurship. The focus on SMEs has taken on a new dimension in Malaysia following the streamlining of trade and investment policies in the ASEAN Economic Community (AEC) that came into effect in 2015.

Hence, this chapter seeks to examine government policies to promote SMEs in Malaysia in general, and the influence of regional trading agreements (RTAs) on the export performance of national electronic components firms in particular. The in-depth analysis is confined to the electronics industry to obtain an informed industryspecific assessment of SMEs. National firms were preferred for this exercise because their participation in export markets is far less than foreign multinational companies (MNCs) that primarily engaged in export-oriented assemblies. Also, there is already considerable work on foreign electronics firms in Malaysia (Rasiah 1988, 1994, 1995, 1998, 2010; Narayanan and Lai 2000). Therefore, this chapter focuses for the first time on a large set of data on national firms. The rest of the chapter is organized as follows. Section 2 discusses the significance of SMEs in Malaysia's economy. Section 3 discusses government policies targeted at promoting SME development. Section 4 presents the methodology and data used in the chapter. Section 5 analyses the results. Section 6 finishes with the conclusions.