The 1997 East Asian Financial Crisis had caused a major set back for the Malaysian economy. Almost every sector of the economy was affected. It is in this contact that this article discusses the ‘third shift’ of the economy in Penang, particularly by focusing on the SMEs on three aspects. First, the major factors affecting the business performance of the SMEs. Second, how the SMEs have accommodated to the prolonged regional economic crisis from 1997-2000. Third, the challenges now faced by Penang SMEs in the context of the liberalization of Asean Free Trade Area (AFTA) and the influx of low price products into the local market as part of the globalisation process. Publication: 4th International Malaysian Studies Conference; 3-5 August 2004, Universiti Kebangsaan Malaysia, Bangi. Author: Chin, Yee Whah.