The Entrepreneurial Of Malaysian Small And Medium Enterprises (Smes) In Logistic: Practice, Challenge, Performance And Innovation

Osman bin Jusoh Business Adminstration Department Faculty of Business and Economic University Pendidikan Sultan Idris 35900 Tanjong Malim Perak MALAYSIA osman@fpe.upsi.edu.my Hariri bin Kamis Business Adminstration Department Faculty of Business and Economic University Pendidikan Sultan Idris 35900 Tanjong Malim Perak MALAYSIA hariri@fpe.upsi.edu.my ABSTRACT Small and Medium Enterprises (SMEs) in Malaysia are becoming rapid growing force, specially the purpose of this study will help SMEs within the companies operating to determine the level of their logistics practice, challenges and performance. This research attempt to examine the general characteristics of generic capabilities of SMEs and challenges faced by Malaysian SMEs which engage in logistics industry. This research also endeavors to investigate if there exist a relationship between general characteristics of generic capabilities, management practices, challenges and business performance. This research employed survey research design and was cross-sectional in nature. A total of 349 respondents from SMEs logistic Company participated in this research. The result of the descriptive analyses show that respondent rank entrepreneurial trait has a higher characteristic of capability in SMEs owner manager in operating their company. The second and third were management capability and marketing capability respectively. There were followed by quality system capability, financial capability, technical capability, and innovation capability. The result of the descriptive analyses also show respondent rank Customer Relation Practices as a highest management practice applied in Logistics SMEs and rank. Information sharing as second highest management practices applied in Logistics SMEs. The results of the analyses revealed that two out of three independent variables are positively associated with business performance significantly. These results imply that the higher level of independent variables (characteristics of capability and management practices) the better business performance would be. In this analysis, characteristics of capability seemed to have to strongest association with the r value of 0.524 followed by management practice ( r = 0.368). However, for challenges in Logistics SME variables with the r = 0.036, indicated that this variables almost has correlation with business performance. In addition, the multiple regression analyses also found all variables

have positive relationship with business performance. However, only characteristics of capability has a strong significant relationship with business performance. According the R2 value, combination of these three variables can only predict 27.6% toward business performance. While 72.4% can be predicting by other variables that need to be identified in future. Based on F statistic (43.488) at p value 0.01, we can conclude that the model that has been form is appropriate. This research findings have contributed to the body of knowledge and provided further understanding of characteristic of generic capabilities, management practices, challenges and it relationship to business performance in the Malaysia logistic SMEs. Keywords: Logistics, Practices, Challenges, Business Performance, SMEs INTRODUCTION In a matter of a few decades, Malaysia has transformed its economy from one based on agriculture to one driven by trade. Central to powering the growth of this economic transformation is its trading with other nations. International trade has become a critical component of Malaysias economic engine. Given the importance of international trade to Malaysia, much of which is seaborne, freight logistics has assumed a very prominent role in providing the backbone to facilitate it. Freight logistics is one of the key elements in the production process. The management of the freight logistics chain involves the integration of various service providers to provide a total supply chain solution. The governments commitment and concern for the development of SMEs was made evident from the early 1970s with the introduction of the New Economy Policy in 1971, which aimed to improve peoples welfare, and restructure ethnic economic imbalances. Furthermore, the governments commitment to the development of SMEs can also be seen in the second Industrial Master Plan (IMP2), which ended in 2005, followed by the Third Industrial Master Plan (IMP3), from 2006-2020, coinciding with the countrys vision for 2020 (MITI, 2005). Malaysia is a fairly mature market, but surprisingly, only a fraction of the more than half a million SME establishment ship their products internationally. They have not taken full advantage of the support and solutions provided by local ports (Westport Malaysia News, 2006). A reduction in trade barriers and the emergence of advanced technologies have led to a great interest in logistics in recent years (Gunasekaran and Ngai, 2003). Unlike large firms, most SMEs may not compete directly against large enterprises because of their limited resources (Cooper et al., 1986). Moreover, according to Kotelnikov (2007), SMEs are the drivers of economic growth and innovation. The total number of SMEs in the economy depends on the rate of SME creation and rate of SME destruction. However, the contribution of SMEs to the economy is still relatively small. In recognition of this, the government has made the development of SMEs a high priority area. This is reflected in the national development agendas, namely the Ninth Malaysia Plan (9MP) and the Third Industrial Master Plan (IMP3), in which the key strategy for the development of SMEs is outlined for the periods 2006-2010 and 20062015. Small and Medium Enterprises (SMEs) in Malaysia are a rapidly growing force. Recognizing the growing impact of SMEs on Malaysias aspirations to become a developed nation by 2020, the government set up the Small and Medium Industries Development Corporation (SMIDEC) in

1996 to oversee their business needs. The focus of SMEs is on building their unique competencies and striving for effective customer and supplier management (Lee et al., 1999). SMEs that are logistically competitive need to exhibit high levels of achievement in these five capabilities, as they aim to become crucial and integral members of the global supply chain (Council of Logistics Management, 1995). BACKGROUND SMEs in many countries face severe and numerous challenges. At the theoretical level previous studies have identified some of the barriers facing SMEs (for example Wan, 2003; Stuti, 2005; Moha, 1999; Hall, 2002; and SMIDEC, 2002). Wan (2003) highlighted the many challenges facing SMEs in a globalized environment, including a lack of financing, low productivity, a lack of managerial capabilities, access to management and technology, and a heavy regulatory burden. In the Malaysian context, SMEs face many similar challenges, which have been highlighted by the APEC survey (1994), the SMI development Plan, 2001-2005 (SMIDEC, 2002), Ting (2004), the UPS survey (2005) and others. For example, the major challenges include lack of access to loans, limited adoption of technology, lack of human resources and competition from MNCs and globalization. It is important to know the practices and performance of SMEs engaging in logistics in Malaysia. Several external factors continue to encourage the organization to adopt the new way of conducting business, including increasing globalization, decreasing barriers to international trade (i.e AFTA), improvement in information availability through information technology and increasing customer demand (Sahay & Mohan 2003; Gunasekaran et al, 2003). In order to survive, the SMEs must be able to reduce costs, improve quality and provide a rapid response to the customers needs. One of the ways of achieving that competitive edge is through the implementations of the best logistic practices. The main issues facing industry involve a lack of information about industrial players. There is no firm record of the number of players in the freight logistics industry, and other critical details about them concerning their size, range of service, or status of operation whether it is local or foreign. Many of them are not registered with any association. In addition, a lack of information about players in the industry have made it difficult for the relevant authorities to assess the state of the industry to devise polices to promote and develop it. THE PURPOSE OF THIS STUDY Specifically the purpose of this study will help the SMEs within which the companies operating to determine the level of their logistics practices, challenges and performance and relate it to the benefit to the Malaysian SMEs. This research has concluded that effective implementation of logistics practice will give the competitive advantage to the organization. This study will determine this in the context of Malaysian SMEs The specific objectives of this study are: 1. To examine the general characteristics of the generic capabilities of SME owners and managers. 2. To examine the management practices adopted by Malaysian SMEs engaging in the logistics industry. 3. To examine the challenges faced by Malaysian SMEs engaging in the logistics industry.

4. To examine the relationship of the general characteristics of generic capabilities, management practices, challenges and business performance. 5. To examine the predictive power of general characteristics of generic capabilities, management practices, and challenges toward business performance. Research Questions 1. What are general characteristics of generic capabilities of SME owners and managers? 2. What management practices are adopted by Malaysian SMEs engaging in the logistics industry? 3. What challenges are faced by Malaysian SMEs engaging in the logistics industry? 4. What is relationship between characteristics and management practices toward SMEs business performance? 5. How to predict power of general characteristics of generic capabilities, management practices, and challenges toward business performance? Logistics in SMEs This chapter gives an outline description of SMEs in Malaysia and examines the literature relating to previous research concerning the logistics SMEs, general characteristics of capability, management practices, challenges, and business performance. The logistics operations include purchasing, distribution, the managing of inventories, packaging, manufacturing and even customer services (Bowersox and Closs, 1996) Logistics defined as the technology for controlling physical flows and information flows (Colin and Fabbe, 1993) is a major contributor to performance development in large corporations, and in this context it is more commonly known as logistics efficiency (Chow et al., 1994). The firm becomes efficient with its partners and customers by reducing the cost of logistics activities: suppliers, warehousing, production, transportation, and delivery. Sink et al., (1996) identify the function and activities of logistics service providers. The details are presented in Table 10.1 Table 10.1: Activities of logistics service providers Function Transportation Activities Shipping, forwarding, (de)consolidation, contract delivery, freight bill payment/audit, household good, relocation, load tendering, brokering Warehousing Storing, receiving, assembling, returning goods, marking/labelling, knitting Inventory Forecasting, location analysis, network consulting, slotting/layout management design Order processing Order entry fulfilment Information system EDI, e-commerce, Internet, WWW, routing/scheduling, AI, and expert systems Packaging Designing, recycling Source: Adapted from Sink et al., (1996)

Sohail and Sohail (2003) predicted that Malaysian companies will moderately increase their commitment in the logistics services in the near future through the implementation of activities such as warehouse management, inventory replenishment and order fulfilment. SMEs require quick and cost-effective solutions to expand beyond the borders of Malaysia. SMEs will be accorded fast and reliable transport and logistics services to get their goods across the globe, since they can find instant access to more than 300 ports around the world, all at competitive tariff rates (Westport Malaysia News, 2006). Furthermore, SMEs looking for warehouse and cold-storage facilities can use the Westports facility, which has total logistics solutions at very low cost. Some SMEs wanting to expand beyond our borders intend to set up joint ventures in the production and distribution of halal products for the international market. Logistics encompasses all of the information and material flow throughout an organization. It includes everything from the movement of a product or a service that needs to rendered, through the management of incoming raw materials, production, and the storing of finished goods, to delivery to the customer and after sales service (Pollitt, 1998) In todays highly competitive environment, many companies are aiming to gain a share of the global market and to take advantage of higher production and sourcing efficiency. A key determinant of business performance nowadays is the role of the logistics function in ensuring the smooth flow of materials, products and information throughout a companys supply chains (Sum et al., 2001). The general problems that arise in corporate logistics include delayed and inaccurate information, incomplete services, slow and inefficient operations and high product damage rate. The possible consequences include an inability to provide inter-linked services, high operating costs, a high rate of inaccuracy, and a lack of flexibility in responding to changing demand requirements. Furthermore, SMEs face barriers of a number of different kinds, including the lack of information, limited financial and technical resources, and lack of a well-trained work force (APEC SMEs, 2003). According to Yong, O. K. (2006) the challenges include a speedy time to market, just-in-time delivery, lean inventories, short turn-around in transit, and low-cost clearance at borders. Meanwhile, there must be greater focus on core competencies, ensuring greater supply-side efficiency among the networked and allied partners. Chiu (1995) identified the Critical Success Factors (CSFs) in effective logistics management. These include good planning of the logistics system, a well-designed distribution organization, the prudent selection of allied companies, a close relationship with trading partners, good logistics investment analysis, the elimination of barriers to logistics management, the commitment of top management, and continuous improvement in logistics. GENERAL CHARACTERISTICS OF LOGISTICS SMES Entrepreneurial Traits Studies have acknowledged different factors that are attributable to the success of an entrepreneur especially to SMEs of logistic factors. However, given the limited time and resources available for this research, only four personality traits are included for this study. There are the need for achievement, locul control, innovations and creativity and propensity of risk

taking. Small and medium sized enterprises are created by entrepreneurs. These entrepreneurs are also responsible for making decisions and solving problems in their organizations. Moreover, these entrepreneurs tend to exhibit certain characteristics. According to Fafuente and Salas (1989), the entrepreneurial characteristics can influence the type of firm to be created as well as the manner in which it is managed. For this reason, it is important to understand the entrepreneurial characteristics of SMEs. The table 10.2 below displays the three groups of entrepreneurial characteristics that can influence the success of an SME.

Table 10.2: Entrepreneurial Characteristics Personality Characteristics Sociological Factors Demographic factors Need for achievement Perception of desirability Age Locus of control Perception of feasibility Gender Innovation Capability Role model and mentors Education Propensity of taking risk Entrepreneurial parents Marital Status Desire for responsibility High level of energy Future orientation Commitment to work Flexibility Tolerance for ambiguity Tenacity Knowledge Experience Skill at organizing Reputation Sources: Dollinger (1999) and Zimmerer and Scarborough (2008) Management Capability Some authors attempted to identify the logistics capabilities a firm may possess and their relationship to other variables. Lynch et al., (2000) studied the effects of logistics capabilities and corporate strategy on company performance. They examined process capabilities, valueadded service capabilities, cost leadership strategy, and differentiation strategy. Their result indicated that process capabilities were positively linked to a cost leadership strategy while value-added service capabilities were positively linked to a differentiation strategy. Morash et al., (1996) examined the relationship between logistics capabilities and performance. The capabilities were grouped into two areas, demand oriented and supply-oriented capabilities. Demand-oriented capabilities included pre-sale and post-sale customer service, delivery speed, delivery reliability and responsiveness to target markets. Supply-oriented capabilities included widespread and selective distribution coverage, and low total cost distribution.

Lack of managerial and Technical expertise In many studies conducted on the common problems of small enterprises, the lack of managerial and technical expertise is the most reported. According to Chee (1986), this problem results from entrepreneurs having relatively low level of formal education and limited training in new management principles and practices. According to Pickle and Abrahamson (1990) inadequate management can lead a small business to fail to identify and respond to changing social, economic and environmental conditions, which can result in serious problems and even the eventual failure of the firm. Furthermore, these authors indicate that SME owners encountered problems such as lack of experience in product or service lines, lack of management experience, over-concentration on experience and incompetence of management. Technical Capability According to Chee (1986) small business are seriously affected by the shortage of skilled labour. Chee discovered that SMEs have to compete with large companies for skilled workers. However, with regard to this problem, SMEs blamed the large companies for taking away their skilled workers by offering them better wages and working conditions. Baumack (1998) noted that in a tight labour market the competition between small and large business for competent employees is intensified, particularly for college graduates and certain types of skilled worker. In another study, Mohd Jan et al., (1990) reported that as labour intensive enterprises, small businesses are unable to attract and then retain skilled workers, and that one out of four small businesses have problems in attracting the right kind of worker. Innovation Capability According to Martins and Terbalance (2003), Mavondo and Farrell (2003), Robbins and Coulter (1999), Ozsomer et al., (1997), Kao (1996), Robert and Weiss (1998), Drucker (1985), and Kanter (1983), an innovative organization is characterised by its ability to channel creativity into useful outcomes. These authors agree that innovative organizations have the ability to take creative ideas and turn them into useful products, services or work methods. In other words, the relative strengths of innovative organizations lie in their entrepreneurial ability to change, experiment, transform and revolutionize. According to Megginson, et al., (1991), besides being sources of new ideas, materials, processes, and services, small businesses tend in general to be more flexible in their operations. Small businesses have the tendency to be able to switch their production readily in the face of changing demands within their field and capacity. Marketing Capability Mohd Jan et al., (1990) found that SMEs perceived their inability to generate sufficient sales and low profit margins as their common marketing problems. According to the authors, the marketing problems resulted from their inability to access channels of distribution and market information.

Shahadan et al., (1988) also reported that SMEs have marketing problems. The authors indicated pricing, late payment from customers, inability to provide quality products and lack of promotional strategies as the marketing constrains of SMEs. The study indicated that only 40 percent of SMEs advertise their products, using mainly signboards and yellow pages. Quality System Capability In order to make SMEs competitive, numerous quality models or approaches have been proposed (Husband, 1997). The issue of whether quality methods can be effectively utilised by SMEs remains uncertain (Husband, 1997). Common quality models, such as quality systems and certification, have been adopted by some SMEs, and yet the rate of implementation is low in comparison to larger organisations (Brown and van der Weile, 1995; Terziovski et al., 1997; and Ramsey, 1998). More holistic quality models, such as total quality management (TQM), also appear to exhibit low implementation rates (Ghobadian and Gallear, 1996; van der Weile and Brown, 1998). Therefore, the issue of whether quality methods can be applied to SMEs needs to be explored more thoroughly. Issues related to identifying quality methods that are useful to SMEs and at what stage should they be introduced need to be examined. Financial Capability Business, particularly SMEs, need better financing capabilities in order to improve their success rates (Van Auken and Carter, 1989). In another study, Diah (1985), in Mohd Jan et al., (1990) identified the inability to raise capital and limited access to institutional credit as two major problems typically affecting SMEs. Similarly, the study conducted by Shahadan et al., (1990), also found that majority of the SMEs experience shortage of capital or difficulty in obtaining loans. Management Practices in Logistics SMEs Information Sharing Following their extensive review of the existing literature on SCM, Li et al., (2002a) proposed several variables relating to information sharing between players in the supply chain. The following are factors related to Supply Chain Management (SCM) information sharing practices: sharing of valuable (business proprietary) information among parties, informing of changes, sharing of core business knowledge and business plans. Information sharing describes the extent to which one party in the chain communicates critical and proprietary information to another party in the chain (Monezka, 1998). Through information sharing practices, the supply chain players (trading partners) can coordinate their activities and help to avoid uncertainties (Ulusoy, 2003). Both suppliers and buyers can share the information relating to demand forecast, production plans or schedules and inventory data. Customer Relation Practices Li et al., (2002) summarized customer relationship dimensions that included the frequent evaluation of customer complaints through formal or informal procedures, frequent interaction with customers, follow up and giving service, measuring and evaluating customer satisfaction,

expectations of customers, facilitating and helping customers, a sense of fair play and evaluating the importance of relationships. Customer responsiveness through enhancing the customers ability to seek assistance has a great impact on overall company performance (Tan et al., 1999). Furthermore, an effort to improve customer satisfaction and practicing customer needs analysis will improve productivity and sales growth, and increase the companys earnings (Kuei et al., 2001). Challenges for Logistics SMEs Despite their important contribution to exports, employment and economic growth, there is wide recognition in the literature of the challenges and barriers facing SMEs in Malaysia, preventing them from growing further and putting them in a critical position to face the new challenges arising from globalization, liberalization and extensive organizational, institutional and technological change. It has been documented that the barriers facing SMEs in Malaysia undermine their performance. Some of the literature, including Wan (2003); Stuti (2005); Moha (1999); and SMIDEC (2002), highlight many challenges facing SMEs in a globalized environment, for example from a lack of financing, low productivity, lack of managerial capabilities, access to management and technology, heavy regulatory burden among many others. In the previous study, Malaysia SMEs face many challenges, which have been highlighted by the APEC survey (1994); the SMI development Plan 2001-2005 (SMIDEC 2002); and also Ting (2004), and UPS (2005). Overall Business Performance Nash (1993) claimed that profitability is the best indicator of whether an organization is doing things right, and so profitability can be used as the primary measure of organizational success. Furthermore, Doyle (1994) pointed to profitability as the most common measure of performance in western companies. Profit margin, return on assets, return on equity, return on sales are considered to be the common measures of financial profitability (Robinson, 1982; Galbraith & Schendel, 1983). Abu Kassim et al., (1989) found sales, sales growth, net profit and gross profit among the financial measures preferred by Malaysian manufacturing firms. Stank et al. (2003) conducted a survey to address a logistics service providers performance and how it related to the market, customer satisfaction and loyalty. The model distinguishes between three different kinds of performance: relational performance, operational performance and cost performance. METHODOLOGY Introduction This chapter discusses the methodology used in this research. It is divided into subtopics, which are, research framework, data collection method, subject of study, instrument used, research procedure, and data analysis. Research Framework The dependent variable in this study is business performance, measured by the increase in sales, overall profits, market scope (internal and domestic market), awards and achievements, market

share, the rate of employee turnover, the number of skilled employees, and market acceptance of the company image. The independent variable in this study involves management practices that measure or determine what practices are implemented by the SMEs. The dimensions include information sharing and customer relations practices. General characteristics of capabilities are also identified as an independent variable. The dimensions include entrepreneurial traits, management capability, technical capability, innovation capability, marketing capability, quality system capability, and financial capability. Another variable for this project involves challenges in Malaysian Logistics SMEs. Sampling For the purpose of collecting the data for this research, the Directory of Malaysian Logistics 2006/2007 was used. However, the list of business names and addresses was compared with the SME info website. The Directory consists of an extensive list of the business names and addresses of logistics firms associated with the Federation of Malaysian Freight Forwarders (FMFF). The reason for using this Logistics directory is that FMFF is among the most established associations of logistics firms. It consists of the firms in large industries, and in small and medium industries, but in this project we concentrate on small and medium industries. To determine the sample size for the research project, Roscoes (1975) rule of thumb was used. A sample size of more than 30 but not less than 500 was appropriate for most research. Based on the above discussion, the sample size of the study was 349 and this considered to be appropriate and justified as suggested by Krieje and Morgan Table of Determining Sample Size (Sekaran, 2007). However, to ensure sufficient participation and a high response rate, and to cater for the missing non-responses, a sample of 500 set of questionnaires were distributed to all respondent. However, from 500 set administered only 351 were return and analyze (69.8%) rate of return

Figure 10.1: Theoretical Framework

Evolution of the environment Owner-managers perception of evolution Creation of technoorganizational form Distinctive competencies (R&D, training, learning) Entrepreneurial competencies (training, advice)

SME

Controllability

Characteristic Practices Challenges

-Activity system: market, product, process -Cooperation systems: shock adaptation mechanism

Business Performance

Sources: Logistics efficiency within the small enterprise framework Adopted: (Guilhon and Guilhon, Peguin, 1993)

Data Collection Method: The main research instrument used to collect data in this study is the questionnaire. This instrument is partly adopted from previous research projects, and partly developed through the detailed review of the literature. The Pilot Study Prior to their adoption for the actual study, the questionnaires were tested on 30 Logistics SMEs in the Perak area. Perak was chosen on the basis of convenience, cost saving, and time constraints. The objective of the pilot study was to test the reliability and validity of the questionnaire. Another objective was to determine whether or not all the items in the test were well understood by the respondents. Apart from that, another objective of the pilot study was to get the suggestions, opinions, and constructive comments from the respondents. The feedback from respondents, in terms of language clarity and comprehensiveness were gathered and taken into consideration. Ambiguous questions were amended and technical jargon or clichs were avoided. The number of items was reduced so that the time taken to complete the questionnaire became shorter. Consequently, the reliability was also improved after several items were dropped and several statements reworded. In addition, the objective of conducting a pilot study is to test the reliability and validity of the questionnaire or instrument used. The test of reliability is very important as it determines the stability and consistency of the measurement in order to avoid bias (Sekaran, 2007, Malhotra et al, 1999). The Reliability Test The data collected from the questionnaire were analyzed using SPSS version 16.0. A reliability analysis was carried out and various section were found to be reliable and valid according to

Cronbachs Alpha, the overall reliability coefficient scores obtained for the questionnaire being 0.7856. Generally, the reliability coefficient indicates that there was a high level of consistency in the responses given by the respondents (Cronbach, 1990). The internal consistency was used to determine the reliability level. According to Nunnally and Bernstein (1994) a reliability coefficient of 0.70 and above is considered more than acceptable for most behavioural science applications. This reliability test is important because it is related to the validity concept, which is to prove that the instrument used is consistent, stable, and predictable and will yield correct results without room for doubt (Hair, et al., 1998). DATA ANALYSIS PROCEDURES: Descriptive Statistics The data collected from respondents were analyzed for frequency and central tendency. The data used for the descriptive statistics to determine the level of inclination or adaptation of general characteristics capabilities of SMEs, management practices, and challenges. Correlations In order to determine the relationship of all variable the tool to be used is correlation. Using this tool an analysis of relationship could be made for management practices with business performance, general characteristics of capability with business performance, and challenges with business performance. Regression After completing the correlation analysis, the study will be continued with more detail analysis using regression method. In the regression method, more than a single variable could be used to predict another variable. It will be used to determine which general characteristics capabilities of SMEs, management practices, and challenges that most causing business performance variable to either increase or decrease. DATA ANALYSIS AND FINDINGS Introduction The aim of this study is to investigate the characteristics of capabilities, management practices, and challenges in logistics SMEs in Malaysia. The analysis is explained in the following section: the result of descriptive statistics, demographic variable, and descriptive analysis of variable understudy (characteristics of capabilities, management practices, and challenges) in Logistics SMEs in Malaysia. Next Section discussed the correlation analysis of component variable with follow by linear regression analysis. Data Collected The data for this project was collected from 349 SME logistics managers to represent Logistics SME owners in Malaysia. The response rate was 69.8%. The population and sample for the study was discussed at length in chapter four. The following subsection presents a descriptive summary of the profile of the respondents. Descriptive Summary of the respondents The demographic data describes the overall picture and characteristics of the respondents taking

part in this study. Table 4.1 below shows the demographic factors relating to the respondents. Descriptive Analysis This is in line with the first objective of this research, which is to examine the general characteristics and generic capabilities of SME owners and managers. The descriptive analysis is presented in Table 10.3 below. This analysis supports the second objective of this project, which is to examine the management practices adopted by Malaysian SMEs in the logistics industry. The descriptive analysis is shown in Table 10.3 below. Table: 10.3 Respondent Demographic Factors (n=349) Characteristics Gender Male Female Level of Education Primary Secondary College/University Type of Company Sole Proprietor Sendirian Berhad Partnership Major Shareholder/Partner Bumiputera Non-Bumiputera Other Number of Employees Less than 5 Between 5 and 50 Between 51 and 150 State of Origin Johor Kedah Kelantan Kuala Lumpur Melaka Negeri Sembilan Pulau Pinang Perak Frequency 250 99 Percent (%) 71.7 28.3

11 122 216

3.2 35 61.8

56 260 24

16 74.5 9.5

186 145 18

53.3 41.5 5.2

81 210 58

23.2 60.1 16.7

13 12 23 32 38 2 13 86

3.7 3.4 6.6 9.2 10.9 0.6 3.7 24.6

Sabah Sarawak Selangor Terengganu Pahang

10 8 75 20 17

2.9 2.3 21.5 5.7 4.9

Table 10.4: general characteristic generic capabilities of SMEs Characteristics of Mean Capabilities Entrepreneurial Trait 4.35 Management Capability 4.13 Marketing Capability 3.95 Quality System Capability 3.78 Financial Capability 3.78 Technical Capability 3.67 Innovation Capability 3.35 Ranking 1 2 3 4 4 6 7

Table 10.5: Management practices in Logistics SMEs Management Practices Customer Relation Practices Information Sharing Mean 4.08 3.83 Ranking 1 2

The Third analysis was carried out to challenges in Logistics SMEs. This analysis parallels with the third objective of this research which the descriptive analysis is shown in Table 10.6 below. Table 10.6: Challenges in Logistics SMEs Management Practices Problems with changing government policies and regulations Problem with coordination across various government agencies Problems with operating transport costs Problems with infrastructure integration in the logistics network Problems in getting better training from government and regulatory authorities to promote logistics Problems in distribution with regional imbalance Problems with poor warehousing and storage facilities Problems with unreliable IT infrastructure (e.g. internet, phone line, broadband) Problems in meeting the growing supply chain demand due to undeveloped domestic industry Problems with a high level of cronyism Mean 3.29 3.29 3.21 3.20 3.02 2.96 2.94 2.93 2.93 2.82 Ranking 1 1 3 4 5 6 7 8 8 10

Correlation The result of the analysis in this section has fulfilled and answered the fourth objective of the study, namely to determine the relationship between independent variables. Those independent variables are characteristics of capability, management practices and challenges in logistics SMEs in Malaysia. The Pearson product moment linear was used to test the develop objective. The result of the test indicated that two out of three independent are associated positively with business performance. It seems to conclusively prove that higher level of the characteristics of capability and management practices and will ensure better business performance. Table below summarize the test result. Table 10.7: Summary of the Test Result: Correlation between (characteristics of capabilities, management practices & challenge) and business performance Independent Variables Characteristics of Capabilities Business Pearson 0.524** Performance Significant 0.000 ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.10 level (2-tailed). Management Practices 0.368** 0.000 Challenges 0.036* 0.505

Table 10.7 shows that the Pearson product moment coefficient correlation result revealed that two out of the three independent variables are significantly and positively associated with business performance. These results imply that the higher the level of independent variables (characteristics of capability and management practices) the better business performance is likely to be. In this analysis, characteristics of capability seemed to have the strongest association with the r value of 0.524, followed by management practices (r = 0.368). However, for challenges in Logistics SME variable with the r = 0.036 indicated that this variable almost has correlation with business performance. Regression The fifth objective of this research is to examine the predictive power of general characteristics, including generic capabilities, management practices, and challenges toward business performance. Multiple regressions can be conducted by three different methods (Hair et al., 1998). Firstly, in the standard regression procedure, all independent variables are assumed to be of equal importance and are entered into the regression equation. Secondly, in the multiple regression procedures, independent variables are added to the regression equation in an order pre-determined by the researcher. The choice of regression procedures depends on the objective of the analysis. In the present study, the researcher used multiple regressions to check the significance of the relationship between independent variables and business performance. Multiple regression analysis is carried out in order to answer research questions posed in an earlier section. One of the objectives is to find out how much the predictor variables (characteristics of capabilities, management practices, and challenges) influence the rate of business performance in logistics SMEs.

Based on this method, a regression model was developed to determine the relationship among the variables under study. The model linear equation is as follows: OBP = + 1GC + 2MP + 3CH + e Where OBP GC MP CH e = Overall Business Performance = Constant = Coefficient = General Capabilities of Generic Capabilities = Management Practices = Challenges = Standard Error

The results of multiple regression analysis indicate that the multiple regression coefficient R=0.525 with R2=0.276 signifies that 27.6% of the variation in the business performance was statistically explained or accounted for by the three variables regression equation. Multiple regression analysis results are shown in Table 4.9. Table 10.8: Model Summary of Multiple Regression Analysis R 0.525 R2 0.276 Adj R2 0.270 Std. Error of F the estimate 0.53937 43.488 Sig F .000

a. Predictors: (Constant), GC, MP, CH. b. Dependent Variables: Business Performance Table 10.9: Multiple Regression Result for Independent and Dependent Variables Variables Unstandardised coefficients B Std Error 0.530 0.299 0.693 0.084 0.73 0.034 Std Coefficient Beta () 0.468 0.088 0.016 1.772 8.249 1.550 0.347 0.77 0.000 0.122 0.729 t Significant

Constant Characteristics Of Capabilities Management 0.114 Practices Challenges 0.012 Level of significance at p<0.01

Table 10.9 shows the result of the analyses shows that R2 is statistically significant, with F=43.488 at p < 0.01. Thus the general expression in the form of the regression equation can be stated as follows:

BUSINESS PERFORMANCE = (0.530) + 0.693 (Characteristics) + 0.693 (Management Practices) + 0.012 (Challenges) + 0.299 The result of the multiple regression analysis indicated that all variables have positive relationship with business performance. However, characteristics of capability only have a strong significant relationship with business performance. According the R 2 value, the combination of these three variables (characteristics of capability, management practices, and challenges) can only predict 27.6% of business performance. While 72.4% can be predicted by other variables that still need to be identified. Based on F statistics (43.488) at p value 0.00, we can conclude that the model that has been used is appropriate. CONCLUSION AND RECOMMENDATIONS The aim of this study is to investigate characteristics relating to generic capability, management practices, challenges and business performance in logistics SMEs. Following the literature review, the researcher found that there were gaps in our knowledge and theory regarding characteristics relating to of generic capability, management practices, and challenges in logistics SMEs. It was hoped that this study would investigate the theoretical linkages between characteristics relating to generic capability, management practices, challenges and business performance by answering the research questions. Recommendations for future research This research project has identified entrepreneur traits as higher characteristics of capability in SME owners and managers in operating their company. The dimension that has been identified including goal driven, need for achievement, locus control, propensity for taking risk, and future orientation. It is recommended that further analysis need to be conducted to indentify other dimensions that fall under entrepreneur trait such desire for responsibility, high level of energy, commitment to work, flexibility and tolerance for ambiguity. In addition, tenacity, organizing skill and reputation can be tested in future. Logistics represents a regrouping of the movement and storage related activities into an integrated whole, either by formal organization structures or conceptually in the minds of management that historically may have been partly under production and partly under marketing. This historical linkage prompted managerial personnel in other countries to identify different logistics activities with either marketing or production management. The conceptualization of logistics by Malaysian SME logisticians and how they matched various logistics activities with other functional areas of management are seldom investigated. The outcome of future research on this might shed some light on the problem, and might lead to more interesting findings. Logistics is marketing oriented and, as part of the companys marketing efforts, it plays a key role in satisfying the firms customers and achieving a profit for the company. It is the business and the industry sectors that tend to gain most from an efficient national logistics system. Hence, in a resource-scarce nation such as Malaysia, business and industrial organizations must play an active role in improving the logistics system capabilities by associating themselves with the

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