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ANALYSIS OF MOTIVATIONAL FACTORS OF MSMEs ENTREPRENEURS TO

BE HALALPRENEURS

Mumtaz Anwari, Sri Rahayu Hijrah Hati

Islamic Business, Faculty of Economics and Business, Universitas Indonesia , Jl. Prof. Dr. Sumitro
Djojohadikusumo, Kukusan, Beji, Depok, Jawa Barat, 16424

mumtazanw@gmail.com

Abstract

Analysis on motivational factors of SMEs Entrepreneurs to become Halalpreneurs

This study aims to know the motivational factors of SMEs entrepreneurs to become
Halalpreneurs based on their attitude such as awareness of halal entrepreneurship, intrinsic motivation,
effort to seek out opportunity, creativity and motivation, honesty and integrity, risk-taking attitude,
relative advantage and perceived desirability, Subjective norm such as family support and peer
influence, and Perceived behavioral control such as perceived feasibility and goverment support and
religiosity. Data were collected from questionnaire that gathered 239 muslim respondents that have their
own business. Data were then analyzed using descriptive analysis and partial least square in SmartPLS
3.0. From the result, intrinsic motivation, effort to seek out opportunity, relative advantage, perceived
desirability, family support, and perceived feasibility positively influenced halalpreneurial propensity.
Meanwhile awareness of halalpreneurship, creativity and innovation, honesty and integrity, perceived
governmental support, peers influence, risk taking attitude, and religiousity did not positively influence
halalpreneurial propensity.

Key words: SMEs, Halal, Halalpreneurship

Introduction

MSMEs play an important role for Indonesia's Gross Domestic Product (GDP), recorded in
2015 MSMEs contributed 59.08% or Rp4,869.57 trillion contribution to GDP with a growth rate of
6.4% per year based on data obtained from Profile Business of MSMEs by LPPI and Bank Indonesia
(2015). The total contribution given by MSMEs to GDP is accumulated from various sectors of MSMES
(Trade, processing, agriculture, plantation, livestock, fishery, Service sector). In addition, MSMES
contributed export volume up to 14.06% or equivalent to Rp166.63 trillion of total national exports.

The global halal market potential in 2022 is $ 1.930 trillion for food, $ 373 trillion for fashion,
$ 283 trillion for tourism, $ 82 trillion for cosmetics, $ 132 trillion for drugs, $ 281 trillion for media
and recreation, $ 3782 trillion for financial markets and $ 2439 trillion for the banking industry
according to the State of The Global Islamic Economy 2017/18 Report by Thompson & Reuters. The
next twenty years of the world's Muslim population will be expected to double than the non-Muslim
population, with Muslims expected to account for 30% of the world's total population (HDC 2010 in
Soltanian et al., 2016). In Indonesia itself, LPPOM MUI (Indonesian Institute for Food and Drug
Administration) is the only institution authorized to issue halal certification in Indonesia. The Agency
for Drug and Food Control (BPOM) notes only 59% of the pharmaceutical industry, food industry, and
cosmetic industries that have halal certification. Though Indonesia itself 87% of the Muslim community

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of a total of 240 million people. This becomes a problem and an opportunity for halal industry in
Indonesia.

Literature Review
1. Entrepreneurship Definition

Entrepreneurship is a process of creating new things by considering the risks and benefits
(Hisrich & Peters, 2002). Meanwhile, according to Sahlman & Stevenson (1991) in Edoho (2016), an
entrepreneur is someone who specializes in taking responsibility and making decisions that can affect
the shape and place where a good can be useful. Entrepreneurship itself can be classified in its purpose
based on needs and opportunities. An entrepreneur who is motivated by reason of necessity can be
defined as someone who enters the business sector because of the drive to survive, while the
entrepreneur is moved because the opportunity can be defined as someone who chooses to profit from
a given opportunity (Acs, Desai, & Hessels, 2008). One can be pushed into entrepreneurship because of
the lack of choice to survive, or to be drawn out into entrepreneurship to pursue a business opportunity
(Edoho, 2016).

2. Micro, Small and Medium Enterprises

According to the law regulating MSMES in Indonesia, Law 20/2008 states: "A company
classified as MSME is a small company owned and managed by a person or owned by a small group of
people with a certain amount of wealth and income". The number of micro, small and medium
enterprises in Indonesia in 2013 reached 57,900,787 units with details; Micro-enterprises as many as
57,189,393 units, small businesses as much as 654,222 units, and medium enterprises as much as 52,106
units. This number represents a significant increase of 2.41% compared to the year 2012, quoted from
the data gathered from Ministry of Cooperatives and Small and Medium Enterprises of the Republic of
Indonesia.
3. Halal Industry

Ab Talib et al. (2016) explains that the potential of the halal industry is very big to see its
development at this time. According to Thomson Reuters's State of the Global Islamic Economy Report
in 2014, the halal food market is one of the world's largest consumer markets. The Muslim community
accounts for 16.6 percent of total global food expenditure, indicating that the halal market has a huge
portion of the global food market. The development of halal terms in the global food market is also
influenced by the growth of Muslim populations in all parts of the world (Regenstein et al., 2003 in Ab
Talib et al., 2016) .The halal food market will continue its trend in dominating the global market because
the Muslim community is obliged to consume food halal, whether they are in minority or Muslim
majority (Razzaque & Chaudhry, 2013).

4. Halalpreneurship

Individuals who are interested in innovating and utilizing all opportunities that can be optimized
on the development of halal business, also known as halalpreneurs or kosher entrepreneurs (Soltanian,
Zailani, Iranmanesh, & Aziz, 2016). Halal entrepreneurship or halal entrepreneurship is a new concept
that links halal development to executed business activities as halalpreneurial. The development of halal
entrepreneurship has changed in how society sees business activity and its impact on consumer demand
for halal products. For example, a business is required to have a balance between profit-seeking activities
and the fulfillment of halal requirements through halal operations (Vargas-Hernandez et al., 2010 in
Soltanian et al., 2016).

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5. Attitude

Attitude is the extent to which a person has an assessment that is favorable or not to a behavior
(Ajzen, 1991). A person can be said to have a positive or negative attitude towards a thing that affects
the intention of the individual. Attitude is a factor that influences behavioral intention in TRA (Theory
of reasoned action) and TBA (Theory of Behavior). Many studies confirm that attitude has a significant
impact on entrepreneurial intention (Rahman & Mohamed, 2011). In addition to predicting
entrepreneurial intention, the construction of attitude can include halal awareness (Baharuddin et al.,
2015 in Soltanian et al., 2016), motivations on halal business (Ab Talib et al., 2015 in Soltanian et al.,
2016), effort to seek out opportunity (Rahman & Mohamed, 2011 in Soltanian et al., 2016), creativity
and innovation (Zampetakis & Moustakis, 2006 in Soltanian et al., 2016), honesty and integrity (Othman
et al., 2009 in Soltanian et al., 2016), risk taking (Bustamam, 2012 in Soltanian et al., 2016), relative
advantage (Teo & Pok, 2003 in Soltanian et al., 2016) and perceived desirability (Guerrero et al., 2008
in Soltanian et al., 2016).
6. Subjective Norm

Ajzen, (1991) explains that subjective norms are "social pressure to do or not to do a behavior".
Subjective Norm is the opinion, views, and influence of the immediate environment (family, friends,
and relatives) can affect the intention of a person. Subjective Norm in Malaysia plays an important role
for family members and relatives to be able to enter into halal business. Nanda & Sorensen (2010) in
Soltanian et al. (2016) found that employees who were supposed to be entrepreneurs when compared to
their co-workers had self-employment experience. This suggests that the experience of family or
relatives in halal business can positively affect the entrepreneurial intentions. In addition to family roles,
the role of colleagues and relatives is also important for young people because it can stimulate the
development of entrepreneurial identity by giving influence in the form of self-recognition to the
surrounding environment (Falck et al., 2012 in Bellò, Mattana, & Loi, 2018).
7. Perceived Behavioral Control

According to Fielden et al. (2003) in Kirkwood (2009), one's self-esteem for entrepreneurial
ability is a major contributor to a tendency to engage in entrepreneurial self-efficacy. While confidence
has gained considerable focus in various studies, Fielden et al. (2003) conclude that lack of confidence
is the greatest obstacle for aspiring entrepreneurs, especially women, to enter into the ownership of
micro, small and medium enterprises. There is also some evidence that entrepreneurship is a special case
because it tends to have a high degree of confidence compared to society in general (Kirkwood, 2009).

8. Religiosity

Corsini (2002) in Sukesti & Budiman (2014) said that religiosity is the terminology for
individuals who pay more attention to their religion. Religiosity encompasses a wide range of
dimensions such as banning and the rules that followers must follow. Islam as the largest religion in
Indonesia with the majority of people embracing it. Islamic values are reflected in the lifestyles of its
people related to the economy, especially in consuming a food, drink, medicine, and cosmetics. Islam
strictly forbids its followers to consume pork and alcoholic beverages. It has been clearly mentioned in
Al-Qur'an verse 3 and An-Nahl verse 114. Considering this, the majority of the Muslim population as
the greatest consumer should be protected from various foods, beverages, medicines, or cosmetics which
may contain ingredients - materials that are prohibited by providing halal certification (Sukesti &
Budiman, 2014).
According to Abou-Youssef et al. (2014), because religiosity has a major influence on consumer
behavior, it is important to have a scale that measures religious behavior in Islam. This scale can be used
by researchers to determine the degree of consumer behavior. This scale will be applied to the

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perpetrator UMKM who are Muslims to know the relationship of religiosity to the tendency to become
halalpreneur.

Methods

1. Research Model

In this study, the authors replicate the research that has been done by Soltanian, Zailani,
Iranmanesh, and Aziz in 2016 entitled "Motivations of SME entrepreneurs to become halalpreneurs" in
Malaysia, Here are the research models:

Figure 2 Hypothesis Model


Source: The author, modified from Soltanian et al. (2016)

2. Hypothesis

Based on the research model in Figure 2 then the following is the research hypothesis to be
tested that is made based on the objectives and research model:
H1. Awareness of Halal Entrepreneurship positively affects Halalpreneurial Propensity.
H2. Intrinsic motivation positively influences the tendency of Halalpreneurial Propensity.
H3. Effort to seek out Opportunity positively affects Halalpreneurial Propensity.
H4. Creativity and Innovation positively affects Halalpreneurial Propensity.
H5. Honesty and Integrity positively influence Halalpreneurial Propensity.
H6. Risk Taking Attitude positively affects Halalpreneurial Propensity.
H7. Relative Advantage positively affects Halalpreneurial Propensity.
H8. Perceived Desirability positively affects Halalpreneurial Propensity.
H9. Family Support positively affects Halalpreneurial Propensity.
H10. Peer Influence positively affects Halalpreneurial Propensity.
H13. Religiosity positively affects Halalpreneurial Propensity.

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3. Analysis and Statistics Model
Partial Least Square (PLS)
Partial Least Square analysis itself is a multivariate statistical technique that compares multiple
dependent variables with multiple independent variables, can be used on non-distributed data, relatively
small sample sizes, and model measurements with formative structures (Hair et al., 2014).

Results
Out of 239 respondents, most of them are female (58.2%), 21-30 years old (44.8%), highschool
graduates educational background (60.7%), haven’t been married (72%), students (56.9%), living in
Jakarta (31%), having business in food and beverage sector (40.2%), classified their business in micro
category having revenue less than Rp 25 Million per month (84.9%).
Table 2 : Results of Validity & Reliability Main test
Average Variance Composite
Variabel Conclusion Cronbach's Alpha Conclusion
Extracted (AVE) Reliability (CR)
Awareness Towards Halal
0.625465505 Valid 0.84454363 0.891061264 Reliable
Entrepreneurship
Creativity and Innovation 0.710236368 Valid 0.7974283 0.880277732 Reliable
Effort to Seek Out
0.692968014 Valid 0.85081531 0.899922032 Reliable
Opportunity
Family Support 0.852811963 Valid 0.91370671 0.945590098 Reliable
Honesty and Integrity 0.578639035 Valid 0.6366632 0.804515921 Reliable
Halalpreneurial Propensity 0.687846488 Valid 0.84783868 0.897665718 Reliable
Intrinsic Motivation 0.523803663 Valid 0.81833785 0.868096119 Reliable
Perceived Desireability 0.708056372 Valid 0.79397357 0.878938516 Reliable
Perceived Feasibility 0.765558606 Valid 0.70297188 0.866867729 Reliable
Perceived Governmental
0.685667841 Valid 0.77559 0.867304364 Reliable
Support
Peers Influence 0.589817243 Valid 0.53884844 0.750806662 Reliable
Religiosity 0.504648666 Valid 0.74126334 0.826921053 Reliable
Relative Advantage 0.653630057 Valid 0.74261748 0.849049358 Reliable
Risk Taking Attitude 0.758886555 Valid 0.68465619 0.862818504 Reliable

Source: The results of the data processed by authors using SmartPLS 3.0.
Then in the end, have been done testing to determine whether the research hypothesis accepted
or not. The author boots up with 500 subsampels as recommended by Hair et al. (2014) to obtain optimal
results and use a 5% confidence level and one-tailed. The result is of 13 hypotheses, 6 of which are
acceptable and significant (meet the minimum requirement of t-value 1.64) and positively influence,
while 1 variable is negatively affect, and the remaining 6 are insignificant.
Table 3: Hypothesis Testing Analysis

Variable Original Sample F-Square T-Statistics Conclusion

AHE → HP -0.099 0.018 1.928 Hypothesis rejected


CI → HP -0.005 0.000 0.092 Hypothesis rejected
ESO → HP 0.206 0.042 2.714 Hypothesis accepted
RA → HP 0.11 0.021 1.951 Hypothesis accepted
HI → HP 0.007 0.000 0.118 Hypothesis rejected
IM → HP 0.184 0.038 2.546 Hypothesis accepted
PD → HP 0.138 0.019 1.680 Hypothesis accepted
RTA → HP 0.087 0.012 1.382 Hypothesis rejected
PF → HP 0.227 0.081 3.565 Hypothesis accepted
PGS → HP 0.067 0.000 1.411 Hypothesis rejected

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PI → HP 0.008 0.000 0.128 Hypothesis rejected
FS → HP 0.146 0.034 1.983 Hypothesis accepted
R → HP -0.051 0.005 1.141 Hypothesis rejected

Source: The results of the data processed by authors using SmartPLS 3.0.
The awareness of halal entrepreneurship, creativity and innovation, honesty and integrity, and
risk-taking attitude contradict the research conducted by Baharuddin et al. (2015), Zampetakis &
Moustakis (2006), Othman et al. (2009), as well as Bustamam (2012) & Teo and Pok (2003) in Soltanian
et al. (2016).
The reason of the insignificant influence of the above variables to halal entrepreneurship is its
new halalpreneurship in terms of its development and application in economic activity, and some of the
respondents are still unfamiliar with halal business terms and risks and opportunities. Therefore, the
government should focus on factors that have not been touched in this early stage (Soltanian et al., 2016).
While on Schachter et al. (2015), creativity & innovations are still a superficial aspect of some of the
definitions and taxonomies of entrepreneurial competence so the relationship is not significant. Other
studies have suggested that creativity & innovations can generally be regarded as naïve concepts when
associated with the concept of entrepreneurship (Bjørner et al., 2012 in Schachter et al. (2015) .Holesty
& integrity have no significant role in business decisions because of top pressure profit and economic
factors are considered more influential on the outcome of the business itself (Bucar, Glas, & Hisrich,
2003) .It can justify the insignificance of honesty & integrity variables on halalpreneurial propensity
because the concept of halal entrepreneurship is still not popular in the ears of society, Carland et al.
(1995), Entrepreneurs driven by large profit and growth goals show a greater risk-taking tendency than
managers in general, whereas owners of MSMEs who are driven to meet the needs of their lives and
families alone do not exhibit a large risk-taking tendency.
While there are also differences in the results of this study with previous research in which peers
influence does not significantly influence and family support significantly influence the halalpreneurial
propensity. Research on the influence of family and relatives on the intentions of entrepreneurship has
a very diverse outcome, indicating that each invention can be related to different entrepreneurial stages
(Greve and Salaff, 2003 in Bellò, Mattana, & Loi, 2018). Some studies have found that the information
and values gained from family relationships when compared to the amount of time and effort sacrificed
in the business, results in a not-so-profitable return for those wishing to start their own business (Renzulli
et al., 2000 in Bellò, Mattana, & Loi, 2018). Turker & Selcuk (2009) explains that the intentions of
entrepreneurship are not related to the support of family and relatives. However, Pruett et al. (2009)
argued that the presence of families with entrepreneurial experience can increase one's entrepreneurial
ambitions. Altinay et al. (2012) found a positive and significant relationship between family support and
entrepreneurship intentions. As some respondents are not familiar and understand the term
halalpreneurship comprehensively, it is not surprising that peers influence has no significant effect on
halalpreneurial propensity as this case is similar to that of Soltanian et al. (2016).
There is also a difference in the results of this study with previous studies in which perceived
feasibility has a significant effect while perceived governmental support has no significant effect on
halalpreneurial propensity. According to Bustamam (2012) in Soltanian et al. (2016), perceived
feasibility in a halal business will always be relevant because the entrepreneur will be easily affected if
a business has a promising prospect. However, the results of perceived governmental studies differ from
previous studies by Moriano et al. (2012) and Kautonen et al. (2011) which states that perceived
governmental support has an important influence in one's intention to entrepreneurship behavior.
Government support is not significantly influential to halalpreneurship propensity becomes a point that
must be considered by the government to always improve service and its focus to halal business in
Indonesia.

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As for religiosity alone, there was no significant effect on halalpreneurial propensity. This is in
accordance with research conducted by Baranik, Gorman, & Wales (2018) explains that no significant
relationship between religiosity and entrepreneurship is found. This can happen because the Muslim
entrepreneur personally determines himself how to apply his beliefs in the aspects of life. Some
sociologists explain that a religious person adapts the interpretation of religious traditions and
commands by themselves in social life (Bender & Cadge, 2006 in Baranik, Gorman, & Wales, 2018).
Halal industry itself is seen as a promising opportunity in terms of market share that can be achieved by
halal business. Therefore it is not confusing if religiosity is not a factor that is taken into account to be
a motivation in entrepreneurship.

Conclusion

Figure 3 Analysis Results Model


Source: The results of the data processed by authors
With previous research conducted by Moloud Soltanian et al. received 6 accepted hypotheses
and 6 other hypotheses rejected, the present study yielded results quite similar to the 6 accepted
hypotheses, and 7 other hypotheses were rejected. 6 hypotheses accepted in the study of Moloud
Soltanian et al. in 2016 is the awareness of halal entrepreneurship, intrinsic motivation, effort to seek
out opportunity, perceived desirability, perceived feasibility, and perceived governmental support has a
significant positive effect on halalpreneurial propensity. While in this study, the hypothesis received is
that intrinsic motivation, effort to seek out opportunity, relative advantage, perceived desirability, family
support, and perceived feasibility have a significant influence on halalpreneurial propensity.
Differences in results from these two studies can be attributed to differences in economic and
cultural backgrounds, research objects and methods, and participating respondents. As according to F-
Square value, the strongly influencing variable sequence is Perceived Feasibility with value 0.081, Effort
to Seek Opportunity with value 0.042, Intrinsic Motivation with value 0.038, Family Support with value
0.034, Relative Advantage with value 0.021, Perceived Desirability with value 0.019 This indicates that
the Halalpreneurial Propensity variable in this study is strongly influenced by internal factors such as

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Perceived Feasibility, Intrinsic Motivation, Relative Advantage, and Perceived Desirability and external
factors such as Effort to Seek Opportunity and Family Support. The absence of Religiosity as a variable
affecting Halalpreneurship Propensity explains that MSMES actors are more interested to plunge into
halal industry because the market opportunities materially than the factor of religiosity.

Implications.
This study aims to determine the motivational factors of SMEs to become halalpreneurs or
knowledge-oriented entrepreneurs around the halal industry. With the results of the study, it is known
that most of the research respondents who mean MSMEs in Indonesia do not have adequate knowledge
about halal entrepreneurship as reflected in the non-positive and significant Awareness to Halal
Entrepreneurship variable on Halalpreneurial Propensity, therefore the Ministry of Cooperatives and
SMEs as a regulator, it is necessary to increase the range and coverage of halal industry socialization
programs. In addition, the thing that also concerns the researchers is the insignificant influence of the
Perceived Governmental Support on Halalpreneurial Propensity, which means the Ministry of
Cooperatives and MSMEs need to evaluate the effectiveness and role of the institution against
Halalpreneurial Propensity for MSME players. The MSMEs also looked very enthusiastic about the
opportunities for halal entrepreneurship as reflected by the high value of F-Square and the significance
of the Effort to Seek Out Opportunity variable on Halalpreneurial Propensity, as well as the high F-
Square value as well as the positive and significant variable of Intrinsic Motivation on Halalpreneurial
Propensity. . Therefore, the researcher advises regulators, especially the Ministry of Cooperatives and
MSMEs to multiply and improve the quality of programs that are oriented to develop the atmosphere
and facilitate MSMEs who want to explore halal industry opportunities, due to the high motivation and
interest of SMEs to explore halal industry opportunities.

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