COMMENT In an effort to rationalise subsidies, the government has announced various price hikes that may be able to benefit the country in the long run - but these can also cripple businesses and lead to loss of jobs and higher food prices.

Small and medium enterprises (SMEs) are facing lower growth prospects and are considering, if not already, hiking up prices to cover the increase in operation expenditure.

The spike in operation cost is also due to the implementation of a minimum wage, starting on Jan 1, 2014. This may be lauded by workers previously earning below RM900 in peninsular Malaysia and RM800 in Sabah and Sarawak, but for small business owners struggling to make a profit, the mandated minimum wage will amplify their present problems.

Due to the timing of the increase in electricity tariff, hike in petrol and diesel prices and the implementation of minimum wages, SMEs will have little choice but to pass the burden to consumers by increasing the prices of their products and services.

"Given the rising costs and a sluggish economic environment, the picture doesn't look good for local business," Kuala Lumpur and Selangor Indian Chamber of Commerce and Industry president Madhu Sudan Nair told Asean Trading Link Blogspot.

'SMEs fighting to survive'

"Malaysian SMEs are already fighting to survive in a very competitive environment... with all the price increases happening at the same time, it is going to make it even harder for businesses," Madhu Sudan said.

SME owners and a few political leaders opined that the different price increases are coming at the worst possible time, clashing with the implementation of minimum wage.

This can have dire results as the rising cost of operations will eventually cause employers to raise the quality bar for employees, therefore shutting out least-skilled workers, the very ones the minimum wage regulation was designed to help.

This year will indeed be a bleak year for SMEs as most are not prepared for the sudden increments in prices.

"The bottom line of employers whose financial year is from April this year to March 2014 will also be negatively impacted because they did not budget for the extra electricity costs from January to March next year.

"The 2013 financial year profit and loss will be affected as the employer is not able to pass on the increase in electricity costs to consumers with prices of products already agreed on," Malaysian Employers Federation executive director Shamsuddin Bardan told The Star , adding that electricity accounts for six to 15 percent of the business costs of the small and medium enterprises.

As a result, consumers can expect higher prices for goods and services and higher temperatures in shopping malls and office buildings.

In a recent report published by The Star , the Malaysian Association for Shopping and Highrise Complex Management is advising its 400-odd members nationwide to set their air-conditioning at 23 degrees Celsius or 24 degrees Celsius.

Air-conditioning, according to the association, takes up the largest share of the energy cost - about 65 percent - in commercial buildings.

Smaller businesses, such as sundry shops, coffee shops and barbers, may find it tough to stay afloat and remain competitive in this trying time.

SMEs are advised to take up measures to reduce their operation costs in the areas of electricity consumption and smart cost-cutting. Although this is a good thing, will the efforts be rewarded with profit? Will these efforts be enough to combat the massive rise in operation costs this year?

Whatever the answers are for these questions, one thing is clear: SMEs are determined to leverage on the positive economy outlook this year, as shown in the results of the United Overseas Bank (M) Bhd’s SME Survey, which found 56 percent of the SMEs bullish about their business outlook for the next three years.

IRIS LEE is from iMoney.my , Malaysia's leading financial comparison website. To compare and apply for the best financial products, such as home loans, car insurance, personal loans and credit cards, visit www.iMoney.my