TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT IN MALAYSIA: A CASE STUDY OF THE NATIONAL AUTOMOTIVE INDUSTRY
SYAHIDA ABDULLAH
FACULTY OF SCIENCE UNIVERSITY OF MALAYA KUALA LUMPUR
2008
TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT IN MALAYSIA: A CASE STUDY OF THE NATIONAL AUTOMOTIVE INDUSTRY
SYAHIDA ABDULLAH
THESIS SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
FACULTY OF SCIENCE UNIVERSITY OF MALAYA KUALA LUMPUR
2008
ABSTRACT This study focuses on firm-level technology entrepreneurship capability. Technology entrepreneurship is the merging of technology knowledge and ability with entrepreneurship skill and competency. It includes four interrelated and complementary factors: context, firm, technology, and entrepreneur; the merging of these factors is essential to create competitive advantage. To assess firms’ technology entrepreneurship capability level, an improvised innovation capability audit tool as introduced by Bessant et al. (2000) and promoted by the World Bank was used. This tool was modified following technology entrepreneurship definition. The improvised tool enables the firms to be analyzed according to eight key dimensions of technology entrepreneurship identified from the four technology entrepreneurship factors: awareness and search from the context factor; strategy and core competency from the firm factor; technology paradigm and linkages from the technology factor; and learning and leadership from the entrepreneur factor. A summation score obtained from all the dimensions is then used to determine the technology entrepreneurship capability level of the firms and simultaneously categorize the firms as ‘Passive’, ‘Reactive’, ‘Proactive’, or ‘Innovative’. The findings suggest that the majority of the national automotive vendor firms recorded high awareness of environmental changes, and poor ability in developing strategies. Other apparent weaknesses are the key dimensions of firm and technology. The results from the eight key dimensions reveal that the national automotive parts and components industry is in the ‘Proactive’ category, which reflects that the majority of firms have an adequate knowledge-base, good leadership quality, and the capability to search for opportunities and identify threats; however they lack the capability to apply the knowledge to create competitive advantage and sustain competitiveness. Thus, an interesting pattern emerged from the results obtained: vendor firms showcased a higher level of technology awareness compared to the level of technology preparedness. The
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firms recognized environmental changes, and are able to search for opportunities and identify threats; however, they do not have the capability to complement their strength with implementation, which is essential to achieving competitive advantage.
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ACKNOWLEDGEMENTS I wish to acknowledge the many people who provided me kind assistance to carry out this study. First and foremost, I wish to acknowledge the excellent guidance, advice, motivational support and encouragement from my supervisors, notably Dr. Amran Muhammad who was my first supervisor from the Department of Science and Technology Studies, University of Malaya, and my second supervisor, Dr. Wan Sabri Wan Hussin from the School of Business, University of Malaya. The study was undertaken with financial support from Majlis Amanah Rakyat (MARA), or the Council of Trust for the Indigenous People. I am also indebted to my employer, University of Kuala Lumpur (UniKL) for providing me the opportunity to pursue my doctorate studies on fulltime study leave. In the course of this study, I received support from many individuals to whom I am indebted: Mr. Zakwan Zabidi from MIGHT, Mr. Khairon Nizam Hamdzan from Proton Vendor Management Section, Dr. Lucy Lu from the Newcastle University Business School, Mr. Ramon Padilla, Researcher from UNIDO, Professor Mammo Muchie from Denmark, and Dr. Pun-arj Chairatana from Thailand. I am also grateful to Professor Kong Rae-Lee, the Chief Editor of AJTI; Professor Keun Lee from Seoul National University Korea; Professor Rishikesha T.K. from IIM Bangalore, India; Professor Rajah Rasiah from the School of Economics, University of Malaya; Zeeda Fatimah Mohamad from Faculty of Science, University of Malaya; Mr. Asmadi Md. Said, the Vice President of MIGHT, Mr. Jamil Halim, the General Manager of MIGHTMeteor Advanced Manufacturing Institute (AMI), and Mr. Ahmad Azrai from MITI. I also received invaluable assistance from the staff of the Faculty of Science, University Malaya. In particular, I would like to thank Associate Professor Dr. Siti Nurani Muhamed Nor, Professor Dr. Mohd. Hazim Shah Abdul Murad, Associate
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Professor Dr. K. Thiruchelvam, Pn. Rosnah Sadri, Pn. Che Wan Jasimah Wan Mohamed Radzi, and the support staff. My appreciation also goes to a number of organizations that have contributed to my study. I would like to particularly thank AMI for providing the facilities and assistance during my fieldwork and completion of my studies. I also wish to acknowledge the assistance provided by MITI, MIDA, MIGHT, MECD, MAA, Proton Vendor Department, and Proton Vendors Association. I am also much indebted to the cooperation received from the vendors or entrepreneurs, engineers, managers, and other officials who participated in the survey that I conducted. Last but not least, my sincere appreciation and heartfelt gratitude goes to my dear husband, Safari Shahrudin and my children, Syaza Nazura and Syakirah Isyraq for their endurance and patience throughout the course of my work. I am also grateful to my beloved family members, especially my dear parents, Abdullah Abdul Rahman and Jameela Syed Ghafur.
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TABLE OF CONTENTS Page Abstract
ii
Acknowledgement
iv
Table of Contents
vi
List of Figures
ix
List of Tables
x
List of Acronyms Chapter 1 1.1 1.2 1.3 1.4 1.5 Chapter 2
2.1 2.2 2.3
2.4
2.5
Chapter 3
3.1 3.2 3.3
3.4
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INTRODUCTION
1
Overview Research Problems Research Objectives Significance of the Study Organisation of Thesis
1 3 5 6 7
THE CURRENT STATE OF UNDERSTANDING OF TECHNOLOGY ENTREPRENEURSHIP
10
Introduction Entrepreneurship Innovation 2.3.1 Technology 2.3.2 Technology Capability Technology Entrepreneurship 2.4.1 Technology Entrepreneur 2.4.2 Technology Entrepreneurship 2.4.3 Technology Entrepreneurship Capability Summary
10 10 12 15 17 26 27 29 39 41
ANALYSIS OF TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT IN MALAYSIA
43
Introduction Malaysia’s Economic Development Entrepreneurship Development in Malaysia 3.3.1 Phase I (1957 – 1970): Pre-NEP Era 3.3.2 Phase II (1971 – 1980): Pre- Mahathir Era 3.3.3 Phase III (1981 – 1990): Mahathir Era 3.3.4 Phase IV (1991 – 2005): Post-NEP Era Technology Entrepreneurship Programmes 3.4.1 Cradle Investment Programme 3.4.2 Technopreneur Development Flagship 3.4.3 PHASER Programme 3.4.4 Start Your Own Business 3.4.5 Technology Entrepreneurship Academic Programmes 3.4.6 Technology Entrepreneurship Programmes by Institutions
43 43 45 46 50 55 60 67 67 68 69 69 70 70 vi
3.5 3.6 Chapter 4
4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Chapter 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8
5.9 5.10 Chapter 6 6.1 6.2
6.3
3.4.6.1 MAVCAP 3.4.6.2 MTDC 3.4.6.3 MIGHT The Root of Technology Entrepreneurship Practice Summary
73 74 74 75 80
ANALYSIS OF TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT IN THE NATIONAL AUTOMOTIVE INDUSTRY Introduction Evolution of the World Automotive Industry Development of Automotive Industry in Malaysia The National Automotive Industry Basic Characteristics of Proton Vendor Firms Proton Vendor Development Programme Proton Bumiputera Vendor Scheme Present State of the National Automotive Industry Summary
83 83 84 86 91 95 96 103 105 110
METHODOLOGY
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Introduction Research Framework 5.2.1 Research Schedule Research Strategy Questionnaire and Analysis Design Data Collection 5.5.1 The Database Interview Data Processing Conceptual Framework 5.8.1 Technology Entrepreneurship Capability Dimensions 5.8.2 Graphical Representation of Findings 5.8.3 Analysis of Findings Research Limitations Summary
112 112 115 115 116 120 120 121 123 124 125 127 127 131 132
ANALYSIS AND PRESENTATION OF THE STUDY Introduction Basic Characteristic of Proton Vendor Firms 6.2.1 Year of Establishment and Ownership Structure 6.2.2 Size of Firms 6.2.3 Business Nature 6.2.4 Year of Business Initiation with Proton 6.2.5 Types of Business Organization Analysis of Proton Vendor Firms 6.3.1 Industrial Environment Context 6.3.1.1 AFTA 6.3.1.2 NAP 6.3.2 Firm 6.3.3 Technology 6.3.4 Entrepreneur
134 134 135 135 141 145 149 150 152 152 153 157 161 164 170 vii
6.4
6.5
6.6 6.7 Chapter 7 7.1 7.2 7.3 7.4
7.5
7.6 7.7
Technology Entrepreneurship Capability 6.4.1 Awareness 6.4.2 Search 6.4.3 Strategy 6.4.4 Core Competency 6.4.5 Technology Paradigm 6.4.6 Linkages 6.4.7 Learning 6.4.8 Leadership Technology Entrepreneurship Capability Analysis 6.5.1 Graphical Representation of Findings 6.5.2 Analysis of Awareness 6.5.3 Analysis of Search 6.5.4 Analysis of Strategy 6.5.5 Analysis of Core Competency 6.5.6 Analysis of Technology Paradigm 6.5.7 Analysis of Linkages 6.5.8 Analysis of Learning 6.5.9 Analysis of Leadership The Overall Technology Entrepreneurship Capability Level of the National Automotive Industry Summary
172 173 173 174 174 175 175 175 176 177 179 180 180 181 182 183 184 186 187
CONCLUSION AND POLICY IMPLICATION Introduction Summary of Thesis Summary of Key Findings Factors that Hinder Building of Technology Entrepreneurship Capability 7.4.1 Industrial Environment Context 7.4.2 Firm 7.4.3 Technology 7.4.4 Entrepreneur Recommendations 7.5.1 Industrial Environment Context – Awareness and Search 7.5.2 Firm – Strategy and Core Competency 7.5.3 Technology – Technology Paradigm and Linkages 7.5.4 Entrepreneur – Learning and Leadership Future Studies Conclusion
196 196 196 199
189 193
201 201 202 202 203 203 204 205 206 207 208 209
REFERENCES
211
APPENDICES Appendix A Summary of Characteristics of Proton Vendor Firms Appendix B Responses of Personal Communication Appendix C Technology Entrepreneurship Capability Assessment Score Appendix D The National Automotive Vendor Firms TADS Appendix E Malaysia Technology Entrepreneurship Survey Appendix F Definition of SME
225 225 233 235 239 240 255
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List of Figures
Page Figure 2.1
Technological Entrepreneurship
33
Figure 5.1
Technology Entrepreneurship Framework
124
Figure 6.1
Proton Vendor Firms’- Year of Establishment & Phases
139
Figure 6.2
Industrial Activity and Ownership Structure of Proton Vendor Firms
147
Figure 6.3
Types of Business Organizations and Ownership Structure
151
Figure 6.4
Malaysia Vehicle Sales Performance
154
Figure 6.5
Proton Sales Performance
155
Figure 6.6
Technology Entrepreneurship Capability of Proton Vendor Firms 179
Figure 6.7
Scatter Plot of the National Automotive Industry’s Technology Entrepreneurship Capability
191
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List of Tables Page Table 2.1
Elements of Production and Investment Capability
19
Table 2.2
Six Elements of Technological Capability
21
Table 3.1
Ownership and Participation in Industrial & Commercial Sectors 1970, 1975
51
Malaysian Ownership and Control of the Corporate Sector 1970-80
52
Table 3.3
Key Industrial Clusters and Subgroups
59
Table 3.4
High-tech Industries and Sub-sectors
64
Table 3.5
Support Programmes for Entrepreneurship Development in Malaysia
71
Table 3.6
Technology Entrepreneurship Practice
79
Table 3.7
Summary of Four Phases of Malaysia’s Entrepreneurship Development
80
Table 4.1
The Evolution of the World Automotive Industry
84
Table 4.2
Bloomfield’s Stages of Automotive Industry Development
85
Table 4.3
Comparative Stages of Development in the Automotive Industry
87
Table 4.4
Local Content Programme
89
Table 4.5
Financial Performance of PROTON, 1989-1993
93
Table 4.6
Anchor Companies, Types of Industries and Number of Vendors
99
Table 4.7
Vendor Development Programme – Anchor Companies by Year (1988 – 1995)
99
Vendor Development Programme-vendors by activity (1995 & 2006)
100
Exports and Investment Targets for the 12 Targeted Manufacturing Industries
108
Table 5.1
Study Framework
113
Table 5.2
Comparison of Innovation Survey Questionnaires
118
Table 3.2
Table 4.8
Table 4.9
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Table 6.1
Proton Vendor Firms Establishment According to Four Phases
136
Table 6.2
Proton Vendor Firms’ Year of Establishment
138
Table 6.3
Number and Percentage of Proton Vendor Firms Based on SME Status
141
Table 6.4
Firm Size and Ownership Structure
142
Table 6.5
Automotive Vendor Firms’ Size and Firms’ Performance
142
Table 6.6
The Industrial Activity of Proton Vendor Firms
146
Table 6.7
Products Produced by Different Industries
146
Table 6.8
Malaysia Vehicle Sales Performance: 2001-2006 (H1)
156
Table 6.9
Automotive Vendor Firms’ Size and R&D Activity
166
Table 6.10
Technology Entrepreneurship Factors and Dimensions
173
Table 6.11
Average Score of Technology Entrepreneurship Capability Dimensions
178
Overall Technology Entrepreneurship Capability Level
190
Table 6.12
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List of Acronyms ADS
Average Dimension Score
AFTA
Asia Free Trade Agreement
AMI
MIGHT METEOR Advanced Manufacturing Institute
AP
Approved Permit
ASEAN
Association of Southeast Asian Nations
BBMB
Bank Bumiputra Malaysia Berhad
BCIC
Bumiputra Commercial and Industrial Community
BI
Business Incubation
BMI
Business Monitor International
BPMB
Bank Pembangunan Malaysia Berhad
CAD
Computer Aided Design
CBU
Completely Built Units
CCM
Companies Commission of Malaysia
CEO
Chief Executive Officer
CIP
Cradle Investment Programme
CIS
Community Innovation Surveys
CKD
Completely Knocked Down
CNC
Computer Numerical Control
CWG-AI
Cluster Working Group – Automotive Industry
E-Commerce
Electronic Commerce
EON
Edaran Otomobil Nasional
EPU
Economic Planning Unit
FDI
Foreign Direct Investment
FEER
Far Eastern Economic Review
FELDA
Federal Land Development Authority
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FIDA
Federal Industrial Development Authority
FIMA
Food Industries of Malaysia
FRIM
Forest and Research Institute of Malaysia
FTA
Free Trade Agreement
FTZ
Free Trade Zone
GDP
Gross Domestic Product
GM
General Motors
GNP
Gross National Product
GSP
Global Supplier Programme
H1
First half of a year
HICOM
Heavy Industries Corporation of Malaysia
IAF
Industrial Adjustment Fund
ICT
Information, Communication, and Technology
IDE
Institute of Developing Economies The International Journal of Technological, Innovation,
IJTIETM Entrepreneurship and Technology Management. ILO
International Labour Organization
ILP
Industrial Linkage Programme
IMP
Industrial Master Plan
IT
Information Technology
ITAF
Industrial Technical Assistance Fund
JACTIM
Japanese Chamber of Trade and Industry in Malaysia
KHTP
Kulim Hi-Tech Park
KLSE
Kuala Lumpur Stock Exchange or Mesdaq
LC
Local Content
LMW
Licensed Manufacturing Warehouses
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LNG
Liquified Natural Gas
MAA
Malaysia Automotive Association
MARA
Majlis Amanah Rakyat
MARDI
Malaysia Agricultural Research and Development Institute
MASTIC
Malaysian Science and Technology information Centre
MATRADE
Malaysia External Trade Development Corporation
MAVCAP
Malaysian Venture Capital
MC
Mitsubishi Corporation
MDC
Multimedia Development Corporation
MECD
Ministry of Entrepreneur and Cooperative Development
MEDEC
Malaysia Entrepreneurship Development Centre
MIDA
Malaysian Industrial Development Authority
MIDF
Malaysian Industrial Development Finance Berhad
MIEL
Malaysia Industrial Estate Land
MIGHT
Malaysia Industry Group for High Technology
MIM
Malaysia Institute of Management
MITI
Ministry of International Trade and Industry
MMC
Mitsubishi Motors Corporation
MMU
Multimedia University
MNC
Multinational Companies
MOSTI
Ministry of Science, Technology and Innovation
MP
Malaysia Plan
MPC
Malaysia Productivity Corporation
MPV
Multi Purpose Vehicle
MSC
Multimedia Super Corridor
MSC-TDF
Multimedia Super Corridor – Technopreneur Development Flagship
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MTDC
Malaysia Technology Development Corporation
MUV
Multi Unit Vehicle
NAP
National Automotive Policy
NDP
National Development Policy
NDP
New Development Policy
NEP
New Economic Policy
NEPAD
New Partnership for Africa’s Development
NIC
Newly Industrialized Country
NIE
Newly Industrialized Economies
NITF
National Implementation Task Force
NPC
National Productivity Center
NSC
Nippon Steel Corporation
NSDC
National SME Development Council
OECD
Organization of Economic Co-operation and Development
OEM
Original Equipment Market
OPP
Outline Perspective Plan
OPP1
Outline Perspective Plan I
OPP2
Outline Perspective Plan II
PERNAS
Perbadanan Nasional Berhad
PERODUA
Perusahaan Otomobil Kedua Berhad
PETRONAS
Petroliam Nasional Berhad
PIO
Pioneer Industries Ordinance
PNB
Perbadanan Nasional Berhad
PRECISE
Proton website
PROTON
Perusahaan Otomobil Nasional Berhad
PTS
Partnership
xv
PUL
Public Limited
PVL
Private Limited
QCD
Quality, Control and Design
QIP
Quality Improvement Programme
R&D
Research and Development
REM
Replacement Equipment Market
RIDA
Rural Industrial Development Authority
S&T
Science and Technology
SBDC
Small Business Development Centre
SEAP
SME Expert Advisory Panel
SEDC
States Economic Development Corporation
SIRIM
Standard and Industrial Research Institute of Malaysia
SmarT
Strategic MARA-MIGHT Technopreneurship Program
SME
Small and Medium Enterprises
SMI
Small and Medium Industries
SMIDEC
Small and Medium Industries Development Corporation
SPR
Sole Proprietorship
SPSS
Standard Package for Social Sciences
SYOB
Start Your Own Business
TA
Technical Assistance
TADS
Total Average Dimension Score
TDC
Tourist Development Corporation
TDF
Technology Development Flagship
TDID
Technopreneurship Development and Innovation Department
TDM
Tool, Die and Mould
TeAM
Technopreneurs Association of Malaysia
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TLO
Technology Licensing Office
TM
Telekom Malaysia
TNB
Tenaga Nasional Berhad
TPM
Technology Park Malaysia
TPS
Total Possible Score
UDA
Urban Development Authority
UDC
United Development Corporation
UK
United Kingdom
UNCTAD
United Nations Commission on Trade and Development
UNESCAP
United Nations Economic and Social Commission for Asia Pacific
UNIDO
United Nations Industrial Development Organisation
UNIDO
United Nations Industrial Development Organization
UniKL
University of Kuala Lumpur
UniKL-BMI
UniKL-British Malaysia Institute
UniKL-MFI
UniKL-Malaysia France Institute
UniKL-MSI
UniKL-Malaysia Spanish Institute
UNU-INTECH
United Nations University Institute for New Technologies
UPM
Universiti Putra Malaysia
USA
United States of America
UTM
Universiti Teknologi Malaysia
UUM
Universiti Utara Malaysia
VDP
Vendor Development Programme
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CHAPTER 1 INTRODUCTION 1.1
Overview
Entrepreneurship is a significant source of income to most nations. It provides job opportunities, wealth and societal well-being to the nations. It is entrepreneurial endeavor that is responsible for creating job opportunities for people. Entrepreneurs are therefore regarded as the drivers of economy in most nations. Say (1803) defined an entrepreneur as one who ‘shifts economic resources out of an area of lower and into an area of higher productivity and greater yield’. They determine the economic growth of nations. Concomitant with entrepreneurship is the globalization and liberalization phenomena that are driving the world’s economy towards increasing competitiveness. The sustenance of competitiveness thus becomes a major concern in the challenging and competitive global environment. Greater emphasis is being placed on technology based industries such as information technology, biotechnology, automotive, and the electrical and electronics industries. The global trend is thus narrowing towards entrepreneurial activities that are technology-oriented, also termed as ‘technology entrepreneurship’. Technology entrepreneurship is an emerging field that combines technology and entrepreneurship disciplines. It merges technological knowledge and ability with entrepreneurial skill and competency. As such, technology entrepreneurship includes technology, entrepreneur, firm, and context; these factors are integrated and complement each other. Technology entrepreneurship is thus regarded as the catalyst for creating competitive advantage in the rapidly changing global environment. Indeed, given the increasing degree of competitiveness, technology entrepreneurship is recognized as a distinct type of business venture.
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Of equal importance in the increasing global competitiveness is the fostering of regionalization and free trade economic activities for global market access and larger economies-of-scale. The transformation of the world’s economy towards free trading within regions has emerged as the global business trend in the current era of intense competition. For the member countries of the Association of South East Asian Nations (ASEAN), the implementation of the Asian Free Trade Area (AFTA) was to promote greater industrial integration and regional collaboration. The ultimate objective of AFTA is to increase ASEAN’s competitive edge in terms of production in the world market through the elimination of protective barriers to various industrial sectors, including electrical and electronics, chemicals, plastic, machinery, rubber, metal and transport. In Malaysia, the implementation impact of AFTA is obvious particularly on the automotive industry, for it faces greater challenges compared to other industrial sectors. This is partly due to the fact that the local automotive industry is a state-sponsored industry which has received government protection in terms of dominant market share in the competitive market environment. Government protection has enabled the national automotive industry to dominate the local market with its sales record relatively outperforming other car makers. However, the implementation of AFTA has also reduced the impact of government on the local automotive industry. The local automotive industry is confronted with intense competition from other car makers as there is increasing foreign make vehicles in the local market. The increasing number of foreign car makes in the market has led to competitive pricing, which ultimately has led to cost reduction within the industry. There is increased usage of automotive parts and components from China and India to reduce the cost of production of a national automobile. This phenomenon has particularly affected the national automotive parts and components industry; the
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parts and components suppliers face difficulty in reducing costs as they are unable to enjoy economies-of-scale. Most of the local vendors are competing among themselves for a share of the small domestic market. They lack technical know-how on product design and production techniques which concomitantly limits their capability to commercialize their products in the global market. Thus, deficiencies in entrepreneurship skill and technological ability are two major obstacles to overcome. As such, this study is undertaken to analyze capabilities in terms of technology and entrepreneurship of the local automotive parts and components vendor firms.
1.2
Research Problems
Malaysia has chartered a relatively impressive economic growth in the years following independence. The growth is guided by government policies that were aimed at two important goals: poverty eradication for effective economic growth; and society restructuring through income and wealth redistribution. These policies have led to the creation of many enterprises; the government’s focus on firm creation is to foster entrepreneurship development. This has led to an increasing number of entrepreneurs and firms established in the years following independence. Most of the firms established were in the manufacturing sector as it is this sector that has taken the lead in driving the economic growth of the nation in the past decades, and continues to be the major contributor to the nation’s economy. In the manufacturing sector, the electrical and electronics industry is the largest contributor to the economy while the automotive industry is the most significant contributor to Malaysia’s industrial development in terms of number of firms created.
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The initiation of the national automotive industry in 1983, and the shift from assembly activity to manufacture of vehicles and automotive parts in 1985 have led to an increased number of firms involved in this industry. Furthermore, as a complete car consists of thousands of parts and components, there is a requirement for a large number of firms to serve as suppliers of various automotive parts and components to the national automotive manufacturer. Consequently, a large number of supplier firms have been created for the automotive industry. The increase in the number of firms established has simultaneously fostered entrepreneurship development in the automotive industry. Most of these supplier firms were established under the Proton Vendor Development Programme (VDP); this is a government initiative to create entrepreneurs who have an interest in the automotive industry and who are technology oriented. In its move towards industrialization, Malaysia has gradually shifted its focus to technology-based entrepreneurial activities and technology intensive products. The industrial sectors are encouraged to manufacture products that are technology intensive. With that, the development of technology and entrepreneurship knowledge, and the enhancement of technological capability and entrepreneurial skills are seen as among the success factors for industrialization. In addition, globalization and liberalization have intensified the rate of competitiveness and technological advancement in the marketplace. Hence, the national automotive industry is confronted with immense challenges with increasing competition posing a serious threat to its survival. Most of the national automotive vendor firms have relatively poor capability to stay competitive and sustain their performance in terms of sales and profit subsequent to the reduction in government protection to the national automotive industry on implementation of AFTA. In this circumstance, this study regards it essential to raise the following questions: (1) What is the trend of entrepreneurship development in Malaysia?
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(2) What is the root of technology entrepreneurship practice in Malaysia? (3) What is the effect of AFTA on the national automotive industry? (4) What are the strengths and weaknesses of the national automotive parts and components industry in terms of technology entrepreneurship capability?
1.3
Research Objectives
The earlier discussion has addressed the significance of the manufacturing sector to the economic growth of the nation with emphasis on the challenges faced by the national automotive industry. Changes in the industrial environment, in particular the implementation of AFTA have had a great impact on the performance of the industry, raising the issue of capability as the main theme of discussion in this study. Thus, this study aims to achieve these objectives: 1. to trace and understand the trend of entrepreneurship development in Malaysia, and identify the root of technology entrepreneurship practice; 2. to discover and examine the impact of industrial environment change on the automotive industry in terms of technology entrepreneurship; 3. to determine level of the technology entrepreneurship capability of the national automotive parts and components industry; and 4. to develop a theoretical framework of technology entrepreneurship which identifies the strengths and weakness of the national automotive parts and components industry. Based on the study objectives, the technology entrepreneurship capability of the national automotive vendor firms was determined to understand the vendor firms’ profile of capabilities and ultimately the strengths and weaknesses in the key areas of technology entrepreneurship. Generally, the analysis aimed to identify the category of firm according to the four main categories of vendor firms: passive, active, proactive
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and innovative. Consequently, suggestions are offered to overcome the weaknesses in the identified key areas, and simultaneously some recommendations are proposed to improve and upgrade the performance of the vendor firms. The findings from the analysis should contribute towards policy measures on technology entrepreneurship capability of the national automotive industry.
1.4
Significance of the Study
There has been enormous work conducted in the area of entrepreneurship, and most of these studies relate to the entrepreneur in terms of characteristics, behavior, personality or other personal attributes as suggested in the conventional entrepreneurship literature. However, Schumpeter (1928) has been credited with new insights to the field of entrepreneurship, namely innovation. Schumpeter’s earlier thought on economic action is termed Schumpeter Mark I, in which he introduced the term “creative destruction”. He associated creative destruction with “new combinations”, and regarded the entrepreneur as the prime innovator, and technology leader in terms of market exploitation and producing followers in the market (Schumpeter, 1912). In Schumpeter’s later works, he focused on large firms’ ability to carry out innovation and related activities; the large sized firms are those with better ability to perform innovation activities, which he termed as “creative accumulation” (Schumpeter, 1942). This study thus extends the ideas contributed by Schumpeter (1912) and (1942) in terms of a combination of both his Mark I and Mark II ideas. It combines technology capability and entrepreneurship skills to create competitive advantage for firms. As such, this study does not address just the entrepreneur factor it also considers other factors as noted in Schumpeter’s Mark II (1942) explanation. Therefore, the scope of this research covers the individual who owns the business; the firm, in which he
6
operates; the technology, which he uses to apply his knowledge; and the context, in which the firm is located. These factors generate a better understanding of the theme discussed in this study, which is technology entrepreneurship capability. In this regard, an entrepreneur in this study refers to an individual who undertakes the multi tasks of an inventor, innovator and entrepreneur; and integrates his technological knowledge with entrepreneurial activities. Meanwhile, Schumpeter’s entrepreneur is defined as one who is always prepared to accept risk and displays an abiding courage to innovate (Schumpeter, 1912). In addition, existing literature on technology entrepreneurship in Malaysia is found to focus on information technology and related fields; this study, however, discusses the issue of technology entrepreneurship in the manufacturing sector. As such, it is believed that this new area of analysis would add to existing literature in the technology entrepreneurship field. This study is of particular significance for it provides insights to the entrepreneurs of the automotive industry to improve their technology entrepreneurship capabilities, and in general, to the policy makers to understand the capability level of the sector prior to drafting relevant government policies.
1.5
Organisation of Thesis
This thesis consists of seven chapters. Chapter 2 reviews literature relevant to this study; Chapter 3 presents industrial development in Malaysia with emphasis on entrepreneurial activities; Chapter 4 illustrates the development of entrepreneurship and technology entrepreneurship in the context of the national automotive industry; Chapter 5 discusses the methodology employed to study the technology entrepreneurship capability of the national automotive parts and components industry; Chapter 6 discusses the analysis of the research and its findings; and finally, Chapter 7 concludes the thesis with a summary
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of the main findings and offers some recommendations. These chapters are briefly reviewed as follows: Chapter 1 generally introduces the thesis with an outline of its main objectives; it also provides the rationale of this study. Chapter 2 reviews existing literature that is relevant to the theme discussed; it provides an overview on the terms and definitions used, and relevant studies conducted by other scholars. The chapter starts with a discussion on entrepreneurship followed by innovation and then focuses on technology, capability and technology capability issues. The next part of the chapter looks into emerging concerns, which are technology entrepreneurship and the main theme of this study, ‘technology entrepreneurship capability’. Chapter 3 discusses the development of entrepreneurship in Malaysia, and traces technology-based entrepreneurial endeavor in the industrial activities to determine the root of technology entrepreneurship practice in Malaysia. This chapter provides the rationale for the emergence of the technology entrepreneurship activities in the context of Malaysia’s industrial development. Chapter 4 discusses entrepreneurial development in the context of the national automotive industry over the decades following independence. This chapter deals with the initiation of the national automotive industry under the government’s heavy industrialization efforts. It also looks into government “promotional measures’ as a support to the development of the national automotive industry and analyzes the impact of government protection on the national automotive parts and components industry. Consequently, Chapter 5 presents the methodology employed to collect data on the basic characteristics and technology entrepreneurship characteristics of the vendor firms. The chapter also discusses the conceptual framework adapted to study technology entrepreneurship, and the methods applied to assess the technology entrepreneurship
8
capability of the parts and components vendor firms. Finally, the chapter elaborates the limitation encountered in this study. Chapter 6 discusses the analysis carried out on the national automotive parts and components vendor firms. The analysis was conducted to examine the basic characteristics of the national automotive vendor firms, and to determine their technology entrepreneurship capability level. The analysis is also useful in providing the strengths and weakness of the firms assessed, and enables the generation of a profile of technology entrepreneurship capabilities for the national automotive industry. Finally, Chapter 7 concludes the discussion by summarizing the main findings of the study. It then offers some recommendations to overcome the major weaknesses and to build on the key areas of strengths as the study aims at building the technology entrepreneurship capability of the national automotive parts and components industry. The recommendation also includes significant inputs for generating firm-level information needed for policy-making. Some suggestions are then presented for consideration of future research.
9
CHAPTER 2 THE CURRENT STATE OF UNDERSTANDING OF TECHNOLOGY ENTREPRENEURSHIP 2.1
Introduction
This chapter provides a review of relevant literature on the main theme of this study, technology entrepreneurship capability. This chapter is organized into five major parts starting with a brief introduction; the second part discusses the entrepreneurship discipline while the third part presents a review of the innovation discipline with pertinent literature on the two major issues emanating from the innovation discussion, notably technology and technology capabilities. The fourth part discusses the emerging field of technology entrepreneurship, followed by an explanation of the term, ‘technology entrepreneurship capability’. A brief summary is presented in the final part of the chapter.
2.2
Entrepreneurship
An enormous collection of literature exists in the field of entrepreneurship; it has been dealt with extensively by numerous scholars from various disciplines such as sociology, psychology, and economics. On the relation to personality traits, behavior, social and environmental influences, Weber (1930) is among the early authors who have discussed entrepreneurship in terms of behavior where a value system is regarded as essential to an entrepreneur’s behavior. McClelland (1961; 1971) defined an entrepreneur as one who exercises control over production, which is not merely for his personal consumption; he explored psychology to explain an individual’s need for achievement as the motivational factor that led entrepreneurs to perform better. Generally, he has developed psychological theories including personal traits, motivational factors and incentives, and discovered
10
the 'need for achievement' for entrepreneurs to be successful (McClelland and Winter, 1971). Chandler and Redlick (1961) recognized skills and motivation as factors towards achieving entrepreneurial success. According to Johnson (2001) entrepreneurial behavior also refers to openness to new information and people, motivation, and making independent and self-directed decisions. Meanwhile, Shapiro (1983) defined entrepreneurial activity as one which aims to change the system, by increasing the productivity of the system, decreasing the cost of part of the system, producing accrual of personal wealth and, or producing an increase in social values; he included the magnitude of the attempted change, the success of the attempt, the cost of the attempt, and the risk of the attempt as the assessment measures. A study by Filion (1997) associated entrepreneurs with environment; for instance, entrepreneurs are regarded as a reflection of the characteristics of a period and place that they are accommodated (McGuire, 1964, 1976; Toulouse, 1979; Newman, 1981; Gibb and Ritchie, 1981; Ellis, 1983; Filion, 1991; Julien and Marchesnay, 1996). From the standpoint of economics, there are a number of authors who associate entrepreneurship with innovation. The pioneers in this field such as Cantillon (1755) and Say (1803) viewed entrepreneurship as a risk-taking activity. According to Jennings (1994), Cantillon specifically viewed entrepreneurs as people who seize opportunities to earn profit with assumed inherent risk and were directly involved in the equilibrium of supply and demand. Say (1803; 1815; 1816) regarded economic development as a result of venture creation, and entrepreneurs as change agents; he recognized the entrepreneur as leader and manager who plays a vital role in business activity. Subsequently, Schumpeter (1928) introduced a new notion to the field of entrepreneurship, namely “innovation”. He noted that “the essence of entrepreneurship lies in the perception and exploitation of new opportunities in the realm of business… it
11
always has to do with bringing about a different use of national resources in that they are withdrawn from their traditional employ and subjected to new combinations”. He viewed entrepreneurship as a dynamic process of creative destruction, in which he put forward the idea of innovation that changes the basic technological and demand parameters of the economy (Schumpeter, 1943). Schumpeter’s (1928) view of an entrepreneur differs from the classical definition of an entrepreneur. In his early theory, also known as Mark I, Schumpeter argued that entrepreneurs are not mere traders; they are those who create innovation and technological change in a nation. Schumpeter regarded entrepreneurs as those who have the ability to commercialize a particular product or process. In his second theory, Mark II, Schumpeter emphasized that innovation and technological change activities are generated by big-sized firms that have adequate resources and capital to invest in research and development type of activities. Both Schumpeter’s Mark I and Mark II theories are applicable to today’s definition of entrepreneurship, for they complement each other.
2.3
Innovation
Innovation is defined by Schumpeter (1950) as the creation, development and introduction of new products, processes, systems and organizational forms. Schumpeter (1939) treats innovation activity as an internal factor in economic change, and the individuals who bring about innovations as the “entrepreneurs who are stimulated by the possibility of reaping a temporary surplus profit from being ‘a first mover’ – a profit that … will vanish in the subsequent process of competition and adaption”. His theory of economic change on the role of innovation and the entrepreneur was outlined in the ‘Theory of Economic Development (Schumpeter, 1934)’.
12
In this book, Schumpeter (1934) identified five ways of revolutionizing the pattern of production, that is, the introduction of a new product to the consumers, the introduction of a new production method, the exploitation of a new market, the utilization of a new source of supply of raw materials or partly manufactured goods, and the implementation of a new way of organization. Thus, according to Grupp (1998) Schumpeter’s Mark I regards technical knowledge as an external factor in economic development, and the entrepreneur is held responsible for applying technical knowledge appropriately for his business success. In Schumpeter’s later work, Mark II, the technical knowledge factor was included as part of economic development and discussed in his theory of ‘Business Cycles’ (Schumpeter, 1934; 1939). Schumpeter defined “the changes in the economic process brought about by innovation together with all their effects, and the response to them by the economic system…”; he assumed that all innovations are “embodied in New Firms founded for the purpose” (Schumpeter, 1939). In Mark II, Schumpeter (1942) reinterpreted technical changes as “the subject of systematic action designed to achieve competitive advantages in the capitalist competitive arena through the opening up of new markets”. Schumpeter’s notion of ‘Business Cycles’ has been restated as follows: the idea of ‘technological revolutions’ as the driving force of the Kondratiev cycles, and pointed in particular to the role of steam power in the first Kondratiev (1818-42), railroads in the second (1843-97) and of electric power and the automobile in the third (1898 to about 1949); these changes were related primarily to bursts of innovative activity and entrepreneurship by Schumpeter (Rothwell and Zegveld, 1982). In a later work, Schumpeter (1942) emphasized the large corporation’s leading role which he perceived as the process of creative accumulation. He was referring to a mode
13
of economic organization in which the main actor of innovation was the individual entrepreneur. Following Schumpeter, Lazonick (1991) defined innovation as a new combination of existing resources that results in products that are more desirable (higher quality) and, or more affordable (lower cost) than those products that had previously been available. It is regarded as a social process that requires the conscious involvement, or the planned coordination of many people with a variety of specialized skills and functions; it is also regarded as a complex, cumulative, and continuous process. Innovation has also been viewed as the process by which an invention or idea is translated into the economy; and an invention is the conceiving of a new idea (Twiss, 1974). Porter (1990) regarded innovation as a specific tool used by entrepreneurs to exploit change to capture opportunity for business purpose; innovation is capable of being presented as a discipline, capable of being learned, and capable of being practiced. Thus, in undertaking an innovative endeavor, a great deal of information is needed on a variety of subjects such as the market situation, new technological developments, sources of technical assistance, government promotional measures, etc. (Rothwell and Zegveld, 1982). Among these various subjects, technology is regarded as one of the crucial components in an innovation activity; technology has often been perceived as a function of innovation in creating new things and in matching it with market needs. Indeed, the focus on technology as a significant factor in Schumpeter’s notion of innovation is also emphasized by other scholars (Freeman, 1998). Freeman recognized that innovation is developed from technology and an outcome of new scientific results.
14
2.3.1 Technology Technology is defined as the ability to carry out productive transformation, and includes the ability to act, and a competence to perform; technology transforms materials, energy and information from one state to another value-added state (Metcalfe, 1995). Twiss and Goodridge (1989) viewed technology as a powerful resource in gaining competitive advantage; technology learning and experimentation are encouraged and management’s vision of the firm embraces a view of the future place of technology in the firm and how this is to be achieved. Schumpeter’s theory of economic development indicated that there is a direct link between the entrepreneur and the generation of technology as quoted below: … inventions, to the extent they are of practical relevance for the economy, do not give rise to economic development, but are rather their result. Inventions occur if the entrepreneur requires them, and if the personality of an entrepreneur who is capable of making use of new inventions is lacking, they will never be of any practical relevance…. It is not inventions which have made capitalism but capitalism which has brought forth its necessary inventions. (Schumpeter, 1912) Schumpeter’s notion above reflects that technology is driven by entrepreneurs, and it is the entrepreneur who plays a major role in creating inventions through the appropriate implementation of technology. In addition, Dopfer (1992) defined technology as an engine of growth, and its application is seen in the branch of Neo-Schumpeterian research like Technological Paradigm (Dosi, 1988), “techno-economic paradigm” (Freeman and Perez, 1986), “focusing devices” (Rosenberg, 1976), “general natural trajectories” (Nelson and Winter, 1982), “Technological Trajectory” (Nelson and Winter, 1977), “general purpose technology” (Bresnahan and Trajtenberg, 1992), and “technological system” (Carlsson,
15
1992). The Neo-Schumpeterian approach recognized that technology constitutes technological application of different conceptual notions as suggested by various researchers in the field (Magnusson, 1993). Simultaneously, in a firm context where new and improved artifacts are produced through various product development processes, knowledge, skills and techniques are essentially required. As such, technology has been considered as knowledge, as skills and as artifacts by Layton (1974). In this respect, technology is deemed to have its own specific framework of concepts, ideas and relationships within which it develops over time, and that this framework is reflected in a division of innovative expertise between the various institutions which support that technology (Constant, 1980; Laudan, 1984; Vincenti, 1990). These studies clearly show that technology carries a comprehensive definition which is understood as ‘a body of knowledge, tool and techniques, derived from both science and practical experience that is used in the development, design, production and application of products, processes, systems, and services’ (Abetti, 1989). In relevance, some key concepts of technology and its role in competition are provided: technology is embodied into products and also into processes or methods used to generate new products or services; technology is knowing how to apply scientific and engineering knowledge to achieve practical results; technology has to do with science and practical experience (technique); technology involves process which starts from scientific knowledge to application, and which starts with the accumulation of empirical knowledge to technology through its generalization; technology is not good per se from a business perspective but when intrinsically related to innovative objectives; and technology, science and technique are all related to forms of explicit knowledge (Chiesa, 2001).
16
These characteristics of technology reflect the capabilities that are needed for firms to acquire and build upon. For the purpose of this study, technology is essentially viewed as the tool that enable the entrepreneurial activities to be carried out effectively; it helps to define a firm’s capability in achieving competitive advantage.
2.3.2
Technology Capability
Prior to addressing the term technology capability, it is useful to understand the two key words: technology and capability. As the word ‘technology’ has been discussed above, the following section will discuss the word ‘capability’ and the term ‘technology capability’. OECD uses “capabilities” to refer to both physical and human capital: physical capital is often referred to as investment, and it determines the rate of growth over time; while human capital includes skills created by experience and firm-level training as well as formal education (OECD, 1987). As technology has become increasingly important in this era of globalization, the concern then is on acquiring technological capability to achieve competitiveness. UNIDO (1986) looked at technological capability as the ability to train manpower, ability to carry out basic research, ability for testing basic facilities, ability to acquire and adapt technologies, and ability to provide information support and networking. The World Bank (1985) has categorized technological capability into three independent capabilities: production capability which consists of production management, production engineering, maintenance of capital equipment, and marketing of produced output; investment capability which consists of project management, project engineering, procurement capabilities, and manpower training; and innovation capability which creates and carries new technical possibilities for profit-making purpose.
17
Production capability refers to operating productive facilities; investment capability is, for expanding, capacity and establishing new productive facilities; and finally innovation capability is for developing technologies (Westphal et al., 1999). These scholars listed the elements of production and investment capability as found in Table 2.1.
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Table 2.1 Elements of Production and Investment Capability Production Capability Production management Production engineering
Repair and maintenance physical capital Marketing
of
To oversee the operation of established facilities To provide the information required to optimize the operation of established facilities, including: raw material control – to sort and grade inputs, seek improved inputs; production scheduling – to coordinate production processes across products and facilities; quality control – to monitor conformance with product standards and to upgrade them; trouble-shooting – to overcome problems encountered in the course of operation; adaptation of processes and products – to respond to changing circumstances and to increase productivity. According to regular schedule or when needed. To find and develop uses for possible outputs and to channel outputs to markets.
Investment Capability Manpower training Pre-investment feasibility studies Project execution
To impart skills and abilities of all kinds. To identify possible projects and to ascertain prospects for viability under alternative design concepts. To establish or expand facilities, including: project management – to organize and oversee the activities involved in project execution; project engineering – to provide the information needed to make technology operational in a particular setting, including: detailed studies – to make tentative choices among design alternatives; basic engineering – to supply the core technology in terms of process flows, material and energy balances, specifications of principal equipment, plant layout; detailed engineering – to supply the peripheral technology in terms of complete specifications for all physical capital, architectural and engineering plans, construction and equipment installation specifications; procurement – to choose, coordinate, and supervise hardware suppliers and construction contractors; embodiment in physical capital – to accomplish site preparation, construction, plant erection, manufacture of machinery and equipment; and start-up of operations – to attain predetermined norms.
Source: Westphal et al.(1999)
19
Table 2.1 presents the major activities for both production capability and investment capability. Innovation capability is referred to as the activities of conceiving and implementing changes in relation to product characteristics and physical processes, and social arrangements that include various segments. According to Lawson and Samson (2001), innovation capability is defined as “the ability to continuously transform knowledge and ideas into new products, processes and systems for the benefit of the firm and its stakeholders”, and it includes several dimensions: vision and strategy; harnessing the competence base; leveraging information and organizational intelligence; possessing a market and customer orientation; creativity and idea management; organizational structures and systems; culture and climate, and management of technology. Terziovski (2003) viewed innovation capability as the provider of potential for effective innovation as it involves many aspects of management, leadership, technical aspects, strategic resource allocation, market knowledge, organizational incentives, and others. Porter and Stern (1999) thus identified three domains as the enablers of innovation capability: sustainable development; electronic commerce (e-commerce); and new product development. These domains are regarded as the critical fields of interest to many government organizations and business entities to face present and future challenges and opportunities (Terziovski, 2003). Besides the definitions above, there is another study that categorized technological capability into six major areas: production capability, investment capability, minor change capability, marketing capability, linkage capability and major change capability (Ernst et al., 1998). These six categories are presented in Table 2.2.
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Table 2.2 Six Elements of Technological Capability Production Capability: Production management Production engineering Repair and maintenance of physical capital
to oversee operation of established facilities. to provide information required to optimize operation of established facilities, including the following: raw material control, production scheduling, quality control, trouble-shooting and adaptations of the process and products. regularly and when needed.
Investment Capability: Manpower training Pre-investment feasibility studies Project execution
to impart skills and abilities of all kinds. to identify possible projects and ascertain prospects for variability under an alternative design concept. to establish or expand facilities, including the following: project management, project engineering, procurement, embodiment in physical capital and start-up of operations.
Minor Change Capability: (Engineering) (Organisation)
to improve and adapt its products continuously. to improve and adapt its processes continuously.
Marketing Capability: Domestic market Export
Replacement Equipment Market (REM) or Original Equipment Market (OEM)
Linkage Capability: Within a firm Intra-firm linkages Inter-firm linkages
} to provide opportunity for learning and to finance innovation to reduce related cost
Major Change Capability: Research and Development (R&D) Radical product modification Major changes New invention
represents the capability and capacity support available to carry out R&D activities. represents the extent and the capability to modify or design new products in a radical way. means the capability to change a product line or introduce a new process. represents the extent to which completely new products or processes have been invented and introduced.
Source: Ernst et al. (1998) and Abdulsomad (2003).
21
Ernst et al. (1998) have grouped the activities of minor change capability, marketing capability, linkage capability, and major change capability as innovation capability, and have therefore included all the activities spanning from minor improvement activities to major changes as the activities of innovation capability. Ernst et al. (1998) have also differentiated the type of technological capability concentration between early stage developing countries and the industrially developed countries; they noted that the early stage developing countries like Thailand and Indonesia tend to focus on production, investment and minor change capabilities while, the industrially developed and successful countries like South Korea, Taiwan and Singapore focus more on the development of marketing, linkages and major change capabilities. Despite their different developmental stages, all countries included in their study were found to be investing in knowledge acquisition and upgrading of their technological capabilities. Lall (1990) defined technological capability as the required human skills such as entrepreneurial, managerial and technical to set up and operate industries efficiently; there are two levels of technological capabilities identified: firm and national. At firm level, Lall (1990) noted the requirement for three types of capabilities; namely entrepreneurial, managerial and technological capabilities. In terms of technological capabilities, he identified three elements: investment, production and linkages. Investment capabilities involve the skills required to utilize the invested resources effectively; production capabilities include all the necessary skills required to carry out the product, process and industrial engineering activities; and linkages capabilities is the skills necessary for transferring knowledge and technology infrastructure. Meanwhile, at national level, Lall (1990) referred to the incentives provided, supply of skills, and efforts to master, adapt and improve technologies, and institutions to support market functions.
22
Consequently, this study looked into the literature that discusses technological capabilities in a context to provide valuable insights as to how capabilities are analyzed in a particular sector. A few studies were found to be of relevance to the study of technological capabilities in the industrial sectors. Among them were the studies by Abdulsomad (2003) on technological capability building of local auto parts firms in Malaysia and Thailand; Leutert and Sudholf (1999) on technology capacity building of the Malaysia automotive firms; Wong (1999) on technological capability development of firms in the Newly Industrialized Economies (NIEs) of East Asia; Vongpanitlerd (1992) on the development of technological capability in Thailand’s industry; and Westphal et al. (1999) on the acquisition of technological capability in The Republic of Korea. Abdulsomad (2003) conducted a comparative study on local automotive firms’ characteristics of Malaysia and Thailand, and identified the similarities and differences of the firms under different political regimes and industrial policies. He discovered that the automotive industry development in both countries followed similar pattern until the establishment of Malaysia’s national automotive industry project in the mid-1980s. In contrast to Malaysia, Thailand maintained its liberal economic policy and depended on foreign investment of the multinational automotive firms. The different industrial policies have caused the auto parts firms in Malaysia and Thailand to have different characteristics in terms of firm establishment, ownership structure, technology transfer, and establishment motives of new firms. His findings thus indicate that the large sized auto parts firms achieved high technology capability building in Malaysia and Thailand. However, the large sized auto parts firms in Malaysia have been dependent on the OEM production system, while those in Thailand have built strong minor change capabilities. Leutert and Sudholf (1999) studied the technology capacity building of automotive firms in Malaysia. They discovered that the automotive industry in Malaysia
23
has been progressing slowly due to the national manufacturer’s poor technological development, particularly in terms of technological adaptation and technological absorption. They cited some government measures and regulatory interventions as the distortion factors that have led to poor performance of the national automotive car maker, Proton. Thus, they suggested strong interaction of the institutions and actors involved, and building of clusters to overcome the weak performance of Proton. In short, the authors realized that the poor technological capacity of the automotive industry is rooted to the ‘not so helpful’ government policies in building successful industrial clusters. Thus, their study raised the need for effective linkages within actors in a given industry, and between the state and market forces. Contrary to the notion put forward by Leutert and Sudholf (1999), Wong (1999) presented the possible lessons for Malaysia with reference to the technological capability development by firms from NIEs of East Asia. These countries include Korea, Taiwan and Singapore that have achieved vital high-tech industrial growth at a more rapid pace than other developing countries over the last four decades. In his study, Wong suggested that firms use the mix of mechanisms on a regular change basis to progress technologically. From the analysis, he noted that state intervention has been very significant in facilitating the growth of indigenous high-tech firms, and with reference to the experiences encountered by these firms, Wong identified five generic routes to develop technological capabilities. In consequence, he suggested possible options for Malaysia to consider upon entering a new phase of industrialization: an analysis on the specific strategic routes of firms to advance their technological capabilities, and government policies to be based on the desired strategic routes; and pro-active state interventions to facilitate the development of indigenous technological capabilities. However, Wong’s suggestion of
24
strong state interventions contradicts with the idea of Leutert and Sudhoff (1999) who noted that there is a need for government support but only at a minimum level. Thailand’s experience put forward by Vongpanitlerd (1992) in a six-volume report on “The Development of Thailand’s Technological Capability in Industry” in 1992 has provided important insights into Thailand’s industrial sectors in terms of technological capabilities. Vongpanitlerd’s study on 119 firms across the electronics sector, materials sector and biotechnology sector revealed that these sectors have many infrastructural deficiencies, and other industry weaknesses. Therefore, the findings from the study indicated that there is an immediate need for corrective measures to be mapped out, implemented and closely monitored. Vongpanitlerd (1992) suggested that the technological capabilities of the industrial sectors be raised by means of enhancing technological efforts to acquire and improve technology; strengthening technological infrastructure and support; developing science and technology human capital; and other specific measures for the three industrial sectors. The author identified that the key to sustain competitiveness and economic growth of any nation is through technological capability which is embodied in the human resource stock, and the supportive infrastructure for technological changes and market demand. Technological capability is regarded as crucially significant in the study, particularly to meet new market demands and to pave the way for achieving international competitiveness. In a study on South Korean experience, Kim (1999) noted that the firms achieved maturity stage in terms of technology in the 1960s and 1970s through in-house R&D activities and capabilities. The South Korean firms started by imitating foreign technology in the 1960s and 1970s. Subsequently, in the 1980s these firms initiated the effort to acquire and assimilate intermediate technologies. It was during this period that
25
the firms build up their labor capability and developed their technologies. Indeed, some of these firms were noted in the study of being able to sustain their competitiveness. Kim (1999) therefore provided suggestions to change public policies and private strategies on a continuous basis with the development of market and environmental changes; to effectively carry out technological learning through the acquisition of an adequate knowledge base which is believed to enhance domestic technological capabilities of the local firms; to increase R&D investment for successful technology transfer; and to intensify technological capability building by setting ambitious goals through the use of crisis construction. Thus, his study shows precisely that the process of building technological capabilities for industrialization in South Korea had very much depended on the process of technological learning at the firm level. In short, the implications of the South Korean experience are seen in terms of public policy, learning, R&D, and technological capability. Thus, it is hoped that the elucidation of various definitions and different classifications of technological capabilities as presented above provide valuable insights into the major theme of this study, and simultaneously pave the way for a better understanding of the significant terms applied in this study, namely technology entrepreneurship and technology entrepreneurship capability. These terms are discussed in the next section of this chapter.
2.4
Technology Entrepreneurship
Having discussed the two relevant fields of study, entrepreneurship and innovation, this section presents the emerging terms, ‘technology entrepreneur’ and ‘technology entrepreneurship’. These terms are increasingly significant in today’s globalized era where technological innovation is given high priority. The increasing degree of
26
competitiveness, particularly in technology intensive industries, requires the recognition of a distinct type of entrepreneur, namely the ‘technology entrepreneur’.
2.4.1
Technology Entrepreneur
Prior to defining the term ‘technology entrepreneur’, this study presents similar terms such as ‘technical entrepreneur’, ‘technological entrepreneur’ and ‘technopreneur’ that have been applied in different studies. The term ‘technical entrepreneur’ was used in the comprehensive study of ten major innovations conducted by Globe et al. (1973). They identified twenty-one major factors as significant contributors that played major roles in the complex series of activities that resulted in the innovations’ outstanding success. In their analysis of the frequency of occurrence of the various decisive events during the innovative sequence, the technical entrepreneur was ranked the sixth factor. Thus, Globe et al. (1973) defined ‘technical entrepreneur’ as ‘an individual within the performing organization who champions a scientific or technical activity; he is sometimes also called a “product champion”.’(Rothwell and Zegveld, 1982). Hence: …the Technical Entrepreneur, whose importance was highlighted in the study of the ‘factors’, is also a ‘characteristic’ important in nine of the ten innovations. This is the strongest conclusion that emerges from the study. In fact, in three innovations, the technical entrepreneur persisted in the face of the inhibiting effect of an unfavorable market analysis. If any suggestion were to be made as to what should be done to promote innovation, it would be to find – if one can – technical entrepreneurs (Globe et al.,1973). Another similar term used was ‘technological entrepreneurs’ by Rothwell and Zegveld (1982) to refer to those interested in new, and often long term, techno-commercial potentialities. Indeed, the term ‘technological entrepreneur’ was used by Shimshoni
27
(1966) to suggest that large public laboratories and large firms acted as 'incubators', spinning off numbers of technological entrepreneurs, to which the laboratories acted as a first market. Burnett (2000) used the term “technopreneur” to refer to one who is willing to embrace risk and take the entrepreneurial plunge into industries ranging from information technology (IT) to biotechnology; he noted that appropriate infrastructure and resources are necessary for ‘technopreneurs’ to grow. Given these definitions, this study defines a technology entrepreneur as one who has the mixed capability of an inventor, an innovator, and an entrepreneur. This is following the definition of several researchers: Nelson and Winter (1982) and Winter (1984) who suggested that an inventor has to draw on the set of information inputs, knowledge and capabilities in looking for innovative solutions; Dosi (1988) who suggested that an innovator refers to information drawn from previous experience and formal knowledge (e.g., from the natural sciences) as well as specific and uncodified capabilities in providing “solution” to technological problems; and Schumpeter’s notion of entrepreneurship and innovation that defined an entrepreneur as one who has technical knowledge and is held responsible for the application of this knowledge to create competitive advantage for his firm’s success (Schumpeter, 1912). Thus, a technology entrepreneur is defined in this study as one who has a knowledge-base in the fields of innovation and entrepreneurship, and is able to exploit them for his business astuteness on a continuous basis in order to sustain the firm’s performance and competitive advantage motivation. He recognizes environmental changes and market trend; continuously searches for opportunities; effectively structures strategies; develops core competencies; establishes strategic linkages; understands the technology paradigm of the industry; possesses codified and tacit knowledge of particular technologies; and practices leadership quality to affect
28
favorably and effectively the operation and management functions of a firm for sustainable performance motivation.
2.4.2
Technology Entrepreneurship
The term ‘technology entrepreneurship’ is receiving increasing recognition from scholars, notably from the school of information technology, management, economics, and science and technology, and from industry players as well. In this study, the term technology entrepreneurship is defined from various perspectives; it merges technology ability and knowledge with entrepreneurial skills and competency. Technology entrepreneurship therefore includes factors of technology, entrepreneur, firm and context, and all these factors are merged to create competitive advantage. The four factors are of concern for they reflect the different fields of study from which the term has emerged, and the context, within which the study is conducted. For instance, the entrepreneurship discipline looks into the firm, entrepreneur and context factors while the innovation discipline looks into the entrepreneur and technology factors. These factors are interrelated and complement each other as will be discussed in detail in the analysis chapter. Furthermore, this notion is in line with Schumpeter’s theory of innovation, in which an entrepreneur is defined not in isolation but in an integrated form; innovation is argued by Schumpeter (1912) as the result of entrepreneurs as noted in Schumpeter Mark I and the outcome of big companies as noted in Schumpeter Mark II. Schumpeter (1942) believes big companies are capable of having the necessary resources and capital to invest in research and development, which in consequence can move the innovation and economy of the nation. This study also looked into the technology entrepreneurship issue
following
Schumpeter’s
concept
of
‘completeness’
where
technology
29
entrepreneurship is discussed based on four factors that constitute different fields of study. In the search for literature on technology entrepreneurship, few articles of relevance are found in Malaysia. Among them was the article on 'Technopreneurship as the New Paradigm for E-Business' by Abu Bakar (2006). The research on the significance of ‘technopreneurship’ in achieving high-tech venture success was carried out at Universiti Teknologi Malaysia. He attributed the failure of many ‘dot com’ firms to the lack of ‘technopreneurship’ skills in its implementers, and thus signified the difference between an entrepreneur and a technopreneur. Abu Bakar (2006) defined a ‘technopreneur’ as one who has mastered certain technology, and possesses other skills as well such as intellectual, emotional and spiritual intelligence. Abdul Rahman and Monroe (2006) investigated a benchmarking study of entrepreneurship, or ‘technopreneurship’ training programs and incubator projects within Malaysia. They believed that the result of benchmarking studies will be helpful to the related ministry, namely Ministry of Entrepreneurship and Cooperative Development (MECD) to develop its future plans. Their results identified a tremendous need and desire for high quality entrepreneurship, or ‘technopreneurship’ training programs to be implemented across Malaysian government agencies. For this purpose, the authors estimated the need for more than 100 trainers on a full-time basis to deliver the training programs throughout a year period. An article entitled, “National Venture Competition and Technopreneurship Development in Malaysia” was jointly written by three individuals from three different locations, Tan from Singapore, Egge from the United States of America (USA), and Mohamed from Malaysia (Tan, Egge, Mohamed, 2003a). These authors outlined a new strategy
towards
encouraging
technology-based
entrepreneurship,
also
called
‘technopreneurship’. This new strategy was basically in the form of business plan
30
competitions, and such competitions were regarded by the authors as a way to generate and exploit interest in entrepreneurship. The business plan competition was a national effort and supported by the government and other public and private sectors. The competition was organized by a consulting firm, McKinsey; a stock exchange firm, namely Mesdaq or Kuala Lumpur Stock Exchange (KLSE); and a nonprofit business organization, namely the Malaysian Institute of Management (MIM) to show-case technology-oriented startups to suppliers of capital and to suppliers of know-how and know-who. There is another similar article by the same three authors on the issue, entitled “Boosting Technopreneurship Through Business Plan Contests: Malaysia's Venture 2001 & 2002 Competitions” (Tan, Egge, Mohamed, 2003b). This paper is similar in its objective to their earlier paper, which was to foster entrepreneurship as well as to obtain more participation from the nation; however, there is an additional aspect in this paper; notably to lower the cost of resistance to technology adoption, the authors suggest the marrying of the pursuit and need for technology with all elements of entrepreneurship. This in turn has led to the development of the term “technopreneurship” in Singapore, and now in Malaysia, namely the Multimedia Super Corridor (MSC) Technopreneur 2002 program with reference to new or high growth potential enterprises based on technology. Jusoh (2006) analysed the incubator centers as the main support system for the creation of homegrown technologies and entrepreneurship. Accordingly, relevant infrastructure for incubators such as technology parks and appropriate venture capital funds and various grant schemes have been created by the government of Malaysia to provide technology entrepreneurs with access to capital. Jusoh (2006) noted that incubators are used to nurture new technology entrepreneurs as part of efforts to transform the Malaysian economy into a knowledge-
31
based economy. He identified key characteristics of incubators which includes a managed work space providing shared facilities, advisory, training and financial services, a nurturing environment for tenant companies, and a small management team with core competencies to carefully select start-up companies entering the incubator. In short, Jusoh explored the programs being implemented in Malaysia, the obstacles faced in implementing the programs, and consequently identified the weaknesses, and provided recommendation for reform. He concluded that Malaysia’s effort to create technopreneurs is hampered by bureaucracy, implementation hurdles, and misuse of funds. Therefore, he suggested that the government provide technopreneurs easier access to grants and funding; to coach the universities to become entrepreneurship centers; and to reduce red tape in Malaysia (Jusoh, 2006). A similar article on incubation was put up by the Multimedia Development Corporation (MDC) in the internet entitled “Business Incubation (BI) in Malaysia” (http:www.aabi.info/directory/pdf/Malaysia.pdf) (Malaysia: MDC, 2006). One of the purposes of this article was to help improve continuously the state of incubation such that incubators can really add value to technology entrepreneurs, investors and other stakeholders. Its main goal of support for BI was to facilitate the growth of technology entrepreneurship, in particular technology entrepreneurs and world class companies in Malaysia. The source for BI support comes from an extension of MDC, which is called Multimedia Super Corridor – Technopreneur Development Flagship (MSC-TDF). This MSC-TDF was operated by Malaysia’s lead agencies; the Ministry of Energy, Communications and Multimedia. Considerable literature is also found elsewhere on the term, ‘technology entrepreneurship’. Burgelman et al. (1996) viewed technological entrepreneurship as a combination of technical and commercial worlds, and is regarded as the foundation for the technological innovation process. A comparison was made between the traditional
32
entrepreneur and technological entrepreneur. The traditional entrepreneur is defined as one who has the ability to recognize and exploit the commercial use of a product, service, or delivery method while, the technological entrepreneur is defined as one who has the ability to recognize a market for applied technology, which then leads to technological innovation and new product development.
Technological Entrepreneurship Technological Innovations
Inventions/Discoveries New Technologies
Research
Administrative Capabilities
Development
Market Development
Product/Process Development
Tinkering
Commercial
Technical Figure 2.1
Technological Entrepreneurship Source: Burgelman et al. (1996).
Figure 2.1 illustrates the relationship between the technical world and the commercial world with technological entrepreneurship being at the interface of these two worlds. Inventions and discoveries were regarded by Burgelman et al. (1996) as without commercial value, and the combination of both in practical usage is believed to yield technology. Technology is regarded as having no commercial value until its merge with
33
other technologies, which is believed to generate the foundation for product and process development; subsequently the combination of technology and commercial is believed to enable the creation of new products that can be exploited for profit, termed as technological innovation. Further evidence on the application of the term technology entrepreneurship was found in a special issue of the “Research Policy” Journal, Volume 32, Issue 2, 2003 provided important insights into the major issues of technology entrepreneurship with a collection of papers on different themes (Shane and Venkataraman, 2003). The articles in this volume encompassed three broad themes: the effect of environmental conditions on technology entrepreneurship; the processes by which entrepreneurs assemble organizational resources and technical systems; and the strategies used by entrepreneurial firms to pursue opportunities. The environmental theme looked into the importance of environmental factors in the creation of new firms. The relationship between institutional change and opportunities for entrepreneurship, explored as institutional change, is regarded significant in generating entrepreneurial opportunities. Environmental jolt, defined by Meyer (1982) as “transient perturbations whose occurrences are difficult to foresee and whose impact on organizations are disruptive and often inimical”, is argued by Sine and David (2003) to prompt search processes resulting in the reevaluation of existing institutional structures and the generation of new entrepreneurial opportunities. In the second theme, Garud and Karnoe (2003) suggested that technology entrepreneurship involves agency on the part of many actors besides entrepreneurs themselves, and this agency is embedded in the nature of the technological system that has developed. Therefore, it can be summarized from this article that technology entrepreneurship has several interrelated facets: first, it is not just about discovery or speculation, but involves creation as well; second, these actors are embedded in the very
34
inputs that have been generated through their involvement with a technological path; third, the specific embedding processes may vary for different technological paths, each prescribing a particular developmental logic depending upon starting assumptions and subsequent learning processes that unfold, and thus, agency associated with technological entrepreneurship is distributed, embedded and can vary by paths. Lastly, in the third theme, Gans and Stern (2003) focused on industry differences in how technology start-ups compete, and suggested four different types of start-up strategy environments: the attacker’s advantage, ideas factories, reputation-based ideas trading and architectural competition. Shane and Venkataraman (2003) identified three key differences in the articles presented in this journal, which is between traditional entrepreneurship and technology entrepreneurship. First, traditional literature on entrepreneurship has depended heavily on the role of the entrepreneur in the founding processes of firms. Whereas in technology entrepreneurship, they noted that the emphasis was not on the sole ability of the entrepreneur but on various other factors such as the role of technology, technical systems, and institutions. Next, the focus of traditional literature on entrepreneurship is on the atomistic character of an entrepreneur with the entrepreneur defined as one who acts on foresight, and the development processes are regarded in an organized manner; meanwhile, the literature on technology entrepreneurship characterizes the entrepreneurs as those who do not merely focus on foresight activity. Technology entrepreneurship type of entrepreneurs are held responsible of a variety of other activities such as identifying technological opportunities, assembling resources, and moving forward to achieve their performance goals in a logical and linear pattern. These development processes are regarded by Shane and Venkataraman (2003) as enacted, incremental and improvised.
35
The third key difference demonstrated in this paper is that the traditional literature in entrepreneurship is rather limited in its links to other fields of study; whereas, technology entrepreneurship encompasses a broader spectrum by having strong links to technology management, which is believed to be helpful in reducing uncertainty, managing knowledge flows, and developing technological system (Shane and Venkataraman, 2003). Shane and Venkataraman (2003) offered recommendations based on their findings. They suggested that future researchers should examine the context in which the entrepreneurs operate, inclusive of various factors, instead of concentrating merely on the entrepreneurs in the founding processes of firms. Next, the researches suggested examining carefully the founding processes, so that the simple, linear steps of logical foresight is replaced with the development processes that are enacted, incremental and path dependence. The final recommendation is that instead of looking at only one or a limited discipline as in the traditional entrepreneurial activity, future researchers need to look into technology strategy and management, and the economics and sociology of technology in explaining technology entrepreneurship. In another pertinent journal, The International Journal of Technological Innovation, Entrepreneurship and Technology Management (IJTIETM), the discussion encompassed
different
fields
of
study
such
as
technological
innovation,
entrepreneurship and technology management, and among the most recent is the integration of these three fields of study known as technology entrepreneurship. Among the articles published in this journal were those of Foo and Foo (2000) and Foo et al., (2005), both from Nanyang Technological University. Foo and Foo (2000) discussed an emerging social movement of innovation through cultivating ‘technopreneurs’ in Singapore. The government’s serious involvement in fostering technical entrepreneurs is due to several factors: to attract
36
foreign direct investments; to replenish the declining population with immigration of foreign talent; to become a knowledge-based economy; to stimulate indigenous economic growth through local technopreneurs so as to complement foreign direct investment; and to turn to innovation so as to improve economically. The authors argue that large, public listed corporations integrate the socialization of technopreneurism as part of corporate innovation and technology strategy. Foo et al. (2005) investigated the inner processes of the psychological adaptation and changes necessary for a female to become a successful entrepreneur; in other words, for a technopreneurial matriarch to emerge in Singapore’s society. The authors structured their empirical investigations to focus on personal traits, interpersonal and leadership styles that differentiate women as self-leading 'technopreneuress' from the managerial women. In addition to the journals that embrace the technology entrepreneurship theme, there are also particular websites created for discussion on the technology entrepreneurship issue particularly its development in the Asian region. The ‘technopreneurial’ website provides information on relevant articles, historical information on entrepreneurship theory, policy recommendations and archives; it was created by Burnett (2000), who has used the ‘technopreneurial’ website to publish his first comprehensive research project on technology entrepreneurship in Asia. In his research, Burnett (2000) looked into the existing role of technology entrepreneurship and the future economic growth perspective in Asia. His research provided impetus for the future technology entrepreneurs to grasp a better understanding of the subject matter as well as utilize available opportunities. He analyzed the experience acquired by technology entrepreneurs and identified the obstacles they faced, local new firms and venture capitalists, and discovered the strategies for success.
As for recommendations, he highlighted strategies for
37
government agencies to encourage entrepreneurship. For example, to encourage ‘technopreneurship’ in Singapore, the government created a favorable environment and directly nurtured ‘technopreneurship’ with assistance schemes and seed financing for startups, which does not merely includes tax incentives but also actual capital (Burnett, 2001). With the initiation of Burnett’s technology entrepreneurship website, innumerable authors have started to publish their articles on this site. The number of articles published on this site has increased and they provide many new insights and resources on the issue. Hence, Burnett aims to uncover the wisdom of Asia’s brightest technology entrepreneurs, and to provide comprehensive information on the technology entrepreneurship theme. Further in the “eDiscussionAgenda: ‘Youth Social Technopreneurship’ Conference”, which was held on October 27, 2005 as part of the ‘United Nations Week 2005’, Burnett (2005) used the word “social technopreneur” to refer to an entrepreneur who has the motivational spirit and creativity to explore and exploit new technological opportunities in order to promote development, and to improve the environment gradually. This conference also discussed that as Information and Communication Technologies (ICT) become increasingly integrated into traditional development efforts, young social ‘technopreneurs’ will find innovative ways to contribute, which includes educating their communities on the uses of the Internet and to creating technological platforms linking local artisans with global consumers. As this discussion is aimed at drawing the attention of the youth in addressing development issues through modern ICT, the moderators of the discussion consisted of young people, equipped with a set of concrete outcomes and recommendations. Thus, such activity encourages participation
38
from the young generation, and therefore, should be continued for healthy growth of all nations. In addition to individual efforts, the government of Malaysia is seen to have embarked on efforts to foster technology entrepreneurship development in the country; these include the establishment of Malaysian Venture Capital (MAVCAP), Malaysia Technology Development Corporation (MTDC) and Malaysia Industry Group for High Technology (MIGHT). Detail of these programs and the relevant organizations are discussed in Chapter 3. Besides government agencies, the higher learning institutions have also been very encouraging in offering relevant courses and programs on the emerging technology entrepreneurship discipline; indeed, some of these institutions have specific departments or schools that run pertinent programs both at undergraduate and post-graduate levels. These programs are further elaborated in Chapter 3.
2.4.3
Technology Entrepreneurship Capability
Literature on technology entrepreneurship capability is scarce. This study is among the few studies to discuss the emerging discipline, notably the issue of technology entrepreneurship capability. Technology entrepreneurship capability is simply understood as the capabilities of the four factors: entrepreneur, firm, technology and context. As in conventional entrepreneurship literature, the entrepreneur is of concern in this study as the person who navigates the direction of the firm. He should be equipped with adequate knowledge and apply it in his entrepreneurial endeavor. The entrepreneur should also have the capability to implement the knowledge possessed appropriately, for instance, in problem-solving activity. The entrepreneur has to be agile which means that he should act quickly and smartly.
39
The generic term ‘firm’ is used in this research as applied in the Oslo Manual guidelines. Accordingly, “a firm can make many types of changes in its methods of work, its use of factors of production and its types of output which improve its productivity and, or commercial performance”(OECD, 2005). Taking into account these considerations, it was regarded suitable to use the term ‘firm’ instead of enterprise in this discussion. In this study, the firms referred to are the automotive vendor firms that provide parts and components to the national car make manufacturer, Proton. The characteristics of these firms are discussed in Chapter 4. The firm factor includes all the firm’s functions such as management, finance, and human resource. These functions need to be managed effectively for the success of the firm. As such, the entrepreneur should have the capability to develop strategies that can bind the firm’s functions effectively so as to sustain high growth performance. Technology is part of environment as suggested by Porter (1990) but in this study technology is regarded as an independent factor due to its significance in the technology entrepreneurship term. Furthermore, in the discussion on technology entrepreneurship termed by Shane and Venkataraman (2003), the technology element has been discussed extensively and not inclusively in the environment factor. This is basically due to its significance in innovation and related activities, which constitutes the driving force towards achieving sustainable competitive advantage. Therefore, it is essential for the entrepreneur to have the capability of applying the technology to exploit opportunities effectively in his industrial environment. The context factor is of concern in order to know the industrial environment in which the entrepreneurial activity is carried out. Usually, environment that is conducive leads to the success of the firm; so, it is essential for the entrepreneur to have the ability to understand the industrial environment, and the changes that are taking place in order to take actions deemed appropriate.
40
Hence, the merging of these capabilities is termed as ‘technology entrepreneurship capability’. This study will use all the four capabilities reviewed in this section to analyze the technology entrepreneurship capability of the local automotive vendor firms in Malaysia. It is the interplay of all these factor capabilities in a particular industry and country setting that determines the technology entrepreneurship capability level of the firms assessed, which will be elaborated in detail in the analysis chapter.
2.5
Summary
Technology entrepreneurship is a relatively new field of study; as such, there is relatively limited literature in this discipline, notably in Malaysia. Therefore, this study has made an attempt to explore this emerging topic to add to the limited literature in this relatively unexplored field of study. To facilitate a better understanding of this new discipline, relevant terms such as entrepreneurship, innovation, technology, capability, and technology capability have been defined prior to explaining the main terms in this study, technology entrepreneurship and technology entrepreneurship capability. In traditional literature on entrepreneurship, the emphasis is on the entrepreneur, including his personality traits, behavior, and social and environmental influences, or rather the concentration of entrepreneurship literature then was ‘person-centric’. It was Schumpeter (1928), who introduced a new idea in the entrepreneurship discipline, which is innovation. He added a new attribute to the term ‘entrepreneur’, and was able to change the basic parameters of entrepreneurship. Schumpeter’s entrepreneur is one who has technical knowledge and is held responsible for applying it; the entrepreneur is not merely an inventor but one who is responsible for bringing the innovation to the market to achieve competitive advantage. Following his notion, this study defines technology entrepreneur as one who has the capability to acquire knowledge and entrepreneurial skill and apply them for a firm’s sustainable performance.
41
With that, the term ‘technology entrepreneurship’ is placed at the interface of four different factors that include the entrepreneur, firm, technology, and context. These four factors are inter-related and complement each other; taken together, these factors are believed to provide significant insights into the globalization and liberalization issues facing the entrepreneurs today. Technology entrepreneurship is thus drawn from the merging of studies on entrepreneurship, innovation, and science and technology; the technology entrepreneurship factors: entrepreneur, firm, technology and context reflect the various fields of study. Technology entrepreneurship capability is then referred to the variety of capabilities that firms need to create competitive advantage, and to sustain firm performance. This rather broad definition includes the capability to recognize changes in the environment; the capability to apply the technology acquired; the capability to run the firm’s functions effectively; and the capability to lead the firm towards success and sustainability. By integrating these capabilities, this study is able to use the technology entrepreneurship factors to analyze the technology entrepreneurship capability of the subject under study, which is the local automotive parts and components industry at the firm level.
42
CHAPTER 3 ANALYSIS OF TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT
IN
MALAYSIA 3.1
Introduction
This chapter starts with a brief outline of the economic development in Malaysia. It then explores the field of entrepreneurship and analyzes the development trends in entrepreneurship. The economic and industrial activities from Independence up to 2005 are categorized into four phases with reference to the ‘New Economic Policy’ (NEP) and the political leader and Prime Minister, Dr Mahathir Mohamed as the timeline. Concomitantly, the support extended by various agencies in support of the development of entrepreneurship and technology entrepreneurship is discussed. Prior to summarizing the chapter, a brief analysis at the macro level is provided to identify the root of technology entrepreneurship practice in Malaysia, using a simple improvised technology entrepreneurship capability framework as discussed in Chapter 5 of this study.
3.2
Malaysia’s Economic Development
Since achieving Independence in 1957, the nation’s economic development has been impressive. Malaysia ranked 13th of 128 countries in terms of per capita Gross National Product (GNP) growth in 1982 having
made impressive advances towards
industrialization during the 1960s and 1970s (World Bank, 1985; Morrison, 1985). Immediately after Independence in 1957, the economy was dependent on the primary sector with agriculture and mining being major contributors to Gross Domestic Product (GDP) as well as employment, generating 45.7% and 61.3 % of GDP and total employment respectively; meanwhile the secondary sector including some light manufacturing, building and construction contributed 11.1 % and 9.6 % to GDP and
43
employment respectively; the tertiary sector contributed a significant 43.2 % to GDP in 1957 (Okposin et al., 1999). In the 1960s, the economic trend shifted from the primary sector to industrialization as an import-substitution strategy was adopted to reduce dependency on the primary sector and simultaneously diversify the economy so as to create more employment opportunities for the increasing population. Nevertheless, the small domestic market limited the economies-of-scale, which in turn exposed the need for a change in the economic trend; the attention was then diverted to an export-oriented strategy in the 1970s. An export-oriented strategy was among the many efforts introduced during the implementation of the NEP period, which covered the period of 20 years from 1971 to 1990. The two major NEP objectives were the eradication of poverty and restructuring of society, aimed at providing indigenous people (Bumiputeras) an average 30 % equity participation in the industrial sector by 1990; it was indeed the turning point for Bumiputera involvement in the economic activities of the nation. It was also the period that witnessed the growth of the manufacturing sector. The manufacturing sector became the fastest growing sector with a growth rate of 10.4 % per annum and surpassed the agricultural sector, achieving 22.6 % of GDP in 1987 (EPU, 2004). Consequently, in the 1980s, government emphasis was again on the importoriented strategy, known as the ‘second round of import-substitution strategy’; it was based on the economic and technological development aspirations of Japan and Korea. The Prime Minister then, Dr Mahathir Mohamad, began to focus on heavy industries such as iron, steel, cement and cars to produce intermediate goods, consumer durables, and to generate linkages with the domestic economy through the establishment of Heavy Industries Corporation of Malaysia (HICOM) (Drabble, 2000).
44
Besides the move towards industrialization, other major shifts in government policies, namely privatization and Malaysia Incorporated, fostered the development of entrepreneurship in Malaysia, particularly among the Bumiputeras. By 1990, the equity ratios had changed from 4 % in 1971 to 18 % in the hands of Bumiputeras; from 34 % in 1971 to 55 % in the hands of non-Bumiputeras; and a reduction from 62 % to 27 % in the hands of the foreigners (Howell, and Palmer, 1995). The early 1990s were years of rapid economic growth in which the GDP grew at 8.5 % between 1991 and 1997 with per capita income increasing twofold, and the incidence of poverty falling from 16.5 to 6.1 % (EPU, 2004). The 1990s marked Malaysia’s transition to high-technology, knowledge-economy and high value added activities with the NEP being replaced by the New Development Policy (NDP) which aimed to achieve a fully developed economic status by 2020.
3.3
Entrepreneurship Development in Malaysia
Entrepreneurship development in Malaysia is rooted in the basic trading activities in practice prior to Independence in 1957. In 1931, Emerson (1966) noted that there were 475 Malays, 16, 894 Chinese, 4,428 Indians and 246 Europeans involved in businesses of the then Federated Malay States of Perak, Pahang, Negeri Sembilan and Selangor. In 1954, there were 79,673 business units registered in the then Federation of Malaya (Hai, 1962). Upon achieving Independence in 1957, the number of business activities gradually increased. To understand the development of entrepreneurship in Malaysia, this study has categorized Malaysia’s economic activities into four phases based on timeline of the major government policy, the NEP and the political leader, Dr Mahathir Mohamed. The NEP was the first government policy that spanned over a 20-year period from 1971 to 1990, and had a great effect on the nation in terms of eradication of poverty, and
45
restructuring of society. Mahathir, as the fourth prime minister, had a great influence on Malaysia’s industrialization. He initiated the effort towards heavy industries that ultimately resulted in the establishment of many firms, and fostered the development of technology-based entrepreneurship in Malaysia. Therefore, this study has used the NEP and the political leader, namely Mahathir, as the timeline in categorizing the phases of entrepreneurship development in Malaysia. The first phase is the period from independence up to the introduction of the NEP, namely the ‘Pre-NEP Era’ encompassing the years from 1957 to 1970; it is also the period, which includes two political leaders: Abdul Rahman and Abdul Razak. The second and third phases are during the NEP implementation period, in which the second phase covers the first 10 years of the implementation period of the NEP; it is also the period encompassing the rule of two political leaders: Abdul Razak and Hussein Onn. The third phase covers the last 10 years of the NEP implementation period, and the beginning of Mahathir’s administration. As such, the second phase, which spans from 1971 to 1980 is termed as the ‘Pre-Mahathir Era, and the third phase, which covers the years from 1981 to 1990 is known as the ‘Mahathir Era’. Finally, the fourth phase is the period after the implementation of NEP, also known as the ‘Post-NEP Era’; it includes the years from 1991 to 2005.
3.3.1
Phase 1 (1957-1970): Pre-NEP Era
The newly-independent government of Malaysia initiated an economic policy, which simply sought to: “… create a favourable investment climate and leave the projects to be undertaken entirely by private enterprises” (Khir, 1962). This policy encouraged more people to be involved in entrepreneurial activities so as to create private enterprises that would ultimately undertake significant industrial projects. In the mean time, Malaysia received steadily improved returns for her two main exports, rubber and
46
tin, and was not therefore subject to the same pressures to industrialize as were other Southeast Asian countries at the time (Milne and Mauzy, 1980). In view of the rapid industrial development, it was essential for the government to have an active industrial policy. The government enacted economic measures, and incorporated them into the ‘Report of the Industrial Development Working Party 1957. The Working Party, which was appointed in 1956, was given the task of aiding the government in formulating an industrial development policy; the proposal was from the 1955 World Bank Mission (Spinanger, 1986). This industrial development policy actually denotes the beginning of the government’s emphasis on technological development in Malaysia. The first major industrialization measure enacted by the first Prime Minister, Tunku Abdul Rahman on 31 July 1958 was aimed at promoting and accelerating the overall industrialization process; that is, to encourage the establishment and development in the Federation of industrial and commercial enterprises by way of income tax relief (Malaysia: Government Gazette, 1958). This measure, which is known as the Pioneer Industries (Relief from Income Tax) Ordinance, 1958 (hereafter referred to as PIO) marked the beginning of a conscious effort by the government to promote industrial development in Malaysia (Sulong, 1997). The PIO was welcomed warmly by the manufacturers, and evidently the number of pioneer certificates issued increased rapidly in the years following 1958 (Spinanger, 1986). Simultaneously, the urban areas in Selangor such as the Klang Valley were developed, and complemented with infrastructure (railways, power supplies and telephones) and medical services; all of which led to more entrepreneurial opportunities for the nation with emphasis on technological development such as electrical, electronics and mechanical. Government encouragement for entrepreneurial activities is reflected in the number of enterprises created; for example, there were 84,930
47
businesses registered in 1961 as sole-proprietorship in the then Federation of Malaya (Ungku Aziz, 1962). To further encourage the participation of the Bumiputeras in entrepreneurial activities, the government established the Rural Industrial Development Authority (RIDA) in the late 1950s to basically stimulate development in the rural areas, and to change the structure of the rural economy through provision of rural credit, marketing and technical assistance; specifically, RIDA aimed to foster the development of the Malay business class (Ness, 1967). However, RIDA was replaced by the Council of Trust for the Indigenous People or ‘Majlis Amanah Rakyat’ (MARA) in 1965. MARA was set up to foster the development of the Bumiputeras in commercial and industrial activities through financial and other assistance, and opportunities provided by the government. Another agency established was the Federal Land Development Authority (FELDA) specifically to provide land to the interested Bumiputera to initiate cultivation activities. A sew years later, the government established the Perbadanan Nasional Berhad (PERNAS) in 1969 to particularly advance the economic status of the Bumiputeras. Apart from the rapid urbanization activities, technology transfer activities also took place particularly in innovations that were imported like tin dredges, and those innovations developed locally such as new techniques of rubber production (Drabble, 2000). The different measures taken by the government were basically intended to encourage infrastructure investment and provision of a conducive economic environment suitable for entrepreneurship development (Spinanger, 1986). Thus, the technological-oriented economic activities, and the encouragement and assistance from the government towards entrepreneurial activities paved the way for a new dimension in the entrepreneurship field in Malaysia, namely technology-based entrepreneurship.
48
In addition, rapid establishment of industrial estates in Malaysia created more entrepreneurial opportunities that were technology based as the nature of these estates were technology based. The industrial estates gave rise to many new industries in Malaysia, and increased the nation’s involvement in various entrepreneurial activities. To encourage greater participation of entrepreneurs in the development of industrial estates, the government established the Malaysian Industrial Development Finance Limited (MIDF) in March 1960 specifically to assist private enterprises in terms of medium to long-term loans; equity purchasing; and other services. Indeed, the development of industrial estates led to the successful establishment of Petaling Jaya in 1952, which then led to additional industrial estates such as Mak Mandin in Penang, Tasek in Perak, Larkin and Tampoi in Johor, Shah Alam in Selangor, and Senawang in Negeri Sembilan. The subsequent years of the 1960s marked the beginning of import-substitution economic activities; industries to substitute imports such as food, beverages and tobacco, printing and publishing, building materials, chemicals and plastics grew rapidly (Sulong, 1997). The government pursued a policy of diversification in its economic structure, which included not only primary commodities but also manufactured products. The various industrialization policies were coordinated by the Federal Industrial Development Authority (FIDA) established in 1965, and renamed Malaysian Industrial Development Authority (MIDA) in 1978. MIDA is the government agency under the MITI responsible for promotion and coordination activities in terms of industrial development in Malaysia; it particularly assists companies that intend to invest in the manufacturing sector and related services sectors; facilitates the implementation and operation of firms’ projects; undertakes planning and industrial feasibility studies; evaluates applications for manufacturing licenses, manufacturing activities and exemption of duties; facilitates an exchange of
49
information
and
coordination
of
industrial
development
activities;
provides
recommendation on policies and strategies on industrial promotion to the MITI. Meanwhile, official policy towards industrialization began to change after 1965 in response to a decline in industrial growth and the separation of Singapore from Malaysia (Singapore joined the Federation two years earlier) (Bowie, 1988). The second decade after Independence saw a focus on intensifying and regionalizing industrialization policies. In line with the changes and government concentration, the number of enterprises established increased gradually, and the type of entrepreneurial activities ventured into also took a different route rather than the basic retail type of activity; entrepreneurs started participating in transport trade and contracting businesses.
3.3.2
Phase II (1971-1980): Pre-Mahathir Era
The second phase is categorized by developments in the NEP implementation period. The NEP is a 20-year development programme spanning over four Malaysia Five Years Plans; however, this second phase looks specifically into the industrial activities during the Second Malaysian Plan (1971-1975), where the focus was on the manufacturing sector and during the Third Malaysian Plan (1976-1980), which focused on new strategies to spur the economic growth of the Bumiputera community. The Third Malaysian Plan includes the establishment of new growth centers such as the development of industrial estates and ready-built factories in efforts to encourage investment in the less developed states (Malaysia: Third Malaysian Plan, 1976). The incident of racial-riots in 1969 led to the restructuring of equity ownership. The NEP was formulated to distribute the economic equity ratio to 30% for the Bumiputeras; 40 % for the non-Bumiputeras; and 30 % for foreigners by 1990 (Howell and Palmer, 1995). It aimed to provide opportunities for greater Bumiputera participation in the manufacturing sector in terms of equity, employment, marketing and
50
professional services. (Okposin et al., 1999). It is similar to the target set in the Second Malaysian Plan, which aimed at enabling the Bumiputeras to acquire at least 30 % ownership of the economic activities within two decades of Independence.
Table 3.1 Ownership and Participation in Industrial & Commercial Sectors 1970, 1975 1970
1975
Industry
Mining Manufacturing Construction
0.8% 0.9% 3.8%
2.1% 3.6% 4.5%
Trade
Wholesaling Retailing
0.7% 3.0%
1.7% 4.2%
Transport
Taxi Bus Haulage
47.7% 18.0% 14.5%
65.5% 18.6% 39.0%
Source: Malaysia: Fourth Malaysian Plan (1981).
Table 3.1 shows the participation of Bumiputeras in various sectors that included industry, trade and transport. The NEP had thus accelerated the participation of the Bumiputeras in major economic activities, and through the Second Malaysia Plan, indigenous involvement in entrepreneurial activities continued to be encouraged. Though emphasis was given to the indigenous group, the participation of locals, including the Bumiputeras and the non-Bumiputeras increased gradually in the corporate sector from period of the implementation of the NEP. Table 3.2 shows ownership and control of the Bumiputeras, non-Bumiputeras and Foreigners in the corporate sector for the years 1970, 1975 and 1980.
51
Table 3.2 Malaysian Ownership and Control of the Corporate Sector 1970-80 (RM Mil) 1970
%
1975
%
1980
%
Annual Growth Rate 1972-80 %
Bumiputera Individuals1
84.4
1.6
549.8
3.6
1880.0
5.3
23.5
Bumiputera Trust Agencies2
41.2
0.8
844.2
5.6
2170.4
6.7
39.0
Other Malaysians3
1826.5 34.3
5653.2
37.5
14442.9
44.6
18.8
Foreigners
3377.1
63.3
8037.2
53.3
13927.0
42.9
13.3
Total
6541.1
100.0
15084.4
100.0
26323.0
100.0
16.7
Source: Adapted by Yaacob (1987) from Malaysia: Third Malaysia Plan(1981) and Malaysia: Fourth Malaysia Plan(1985) and Malaysia: Mid-term Review of Fourth Malaysia Plan (1984). Notes: 1. Includes institutions channeling funds to indigenous people (Bumiputeras) such as Lembaga Urusan dan Tabung Haji, Amanah Saham Mara, and cooperatives. 2. Shares held through institutions classified as Bumiputera trust agencies such as PERNAS, MARA, UDA, SEDCs, Bank Bumiputera, BPMB, FIMA, and PNB. Previously this item was classified as Bumiputera interests. 3. Includes shares held by nominees and other companies.
The NEP successfully increased local participation, including the Bumiputeras and the non-Bumiputeras in the major economic activities on one hand, and relatively decreased the involvement of Foreigners on the other hand. It has gradually diminished the identification of race with economic activities, widely prevalent during the British colonial period and early years after achieving independence. Besides increasing the participation of the locals in the commercial and industrial activities, specific projects to reduce poverty were carried out to increase the participation of the Malays and other indigenous people in the modern sectors of the economy in the 1970s (Malaysia: Third Malaysia Plan, 1976). For this purpose, the
52
government embarked on new domestic industrial interventions by launching a number of public firms, which aimed to increase employment opportunities for the locals, especially for the Bumiputeras; these state-owned firms were classified as statutory bodies and government-owned private or public limited companies (Gomez and Jomo, 1995). The Ministry of International Trade and Industry was established as the government body to formulate policies on industrial development. It had already been in existence since achieving Independence in 1957 but was known as the Ministry of Commerce and Industry, and in 1972 it was renamed Ministry of Trade and Industry; in 1990, it saw another name change to Ministry of International Trade and Industry. Initially, MITI consisted of Ministry of Domestic Trade and Industry, Ministry of Entrepreneurship and Cooperative Development, and Ministry of Tourism Industry; all these ministries branched out into separate ministries soon after. At present, there are five agencies under MITI, namely MIDA in charge of the implementation of industrial policies; MIDF responsible for promoting the development of industrial sectors through the provision of financial assistance; Malaysia External Trade Development Corporation (MATRADE) to provide linkages for international collaboration, and develop export markets for local goods; Malaysia Productivity Corporation (MPC) to promote productivity and quality to enhance the nation’s competitiveness; and Small and Medium Industries Development Corporation (SMIDEC) to foster the development of small and medium sized enterprises through various types of assistance. MITI’s industrial policies have existed in various government policies, including the Malaysia Plans (MP), Industrial Master Plan (IMP), Vision 2020 and others. These policies and strategies encompass various industrial sectors, including resource-based, non-resource based, and services industrial sectors. Specific policies for industrial
53
development were formulated in the industrial master plan; prior to the introduction of the IMP, industrial policies were discussed generally in Malaysia’s five-year plans and other policies such as the ‘Look East Policy’ and heavy industries policy. Besides these moves, government intervention was also obvious in the establishment of public firms to provide public services such as water supply, telecommunications and civil aviation; statutory bodies established by law at federal and state levels such as the Urban Development Authority (UDA), Tourist Development Corporation (TDC), Petroliam Nasional Berhad (PETRONAS), and States Economic Development Corporations (SEDC). The government-owned private or public limited companies were also established under the Companies Act 1965, whose equity holdings were either fully or partially held by the government such as HICOM, property developer PEREMBA Berhad, and Food Industries of Malaysia (FIMA) (Abdul Samad, 2002). Further, the government initiated programmes to establish export-oriented industries in Malaysia such as the Pioneer Industry status, Export Processing Zones and numerous other incentives (Tan, 1983; Ariffin, 1983). It was during this period of the 1970s that labor intensive and export oriented industries were actively promoted; Foreign Direct Investment (FDI) attracted by the liberal government policies on equity, tax incentives and the provision of extensive infrastructure including Free Trade Zones (FTZ) and Licensed Manufacturing Warehouses (LMW) flowed into the country, and simultaneously laid the foundation for the nation’s transition to high-technology industries (Sulong, 1997). Such government intervention in establishing public firms and drawing up programmes encouraged entrepreneurs to venture into different economic activities that were more challenging and earned higher profits. Some entrepreneurs ventured into the contracting businesses by becoming sub-contractors to public firms; of these sub-
54
contractors, there were those who had other suppliers supplying to them. With this development, the number of entrepreneurs created increased, and to further accelerate the number of entrepreneurs with technology capability, the government began to take other measures to increase their participation in major economic activities as elaborated in Phase III.
3.3.3
Phase III (1981-1990): Mahathir Era
The third phase encompassed the period of the Fourth Malaysian Plan, which is from 1981 to 1985, and the Fifth Malaysian Plan from 1986 to 1990. The Fourth and Fifth Malaysian Plans emphasized export earnings of the cash crops sector, and the development of the manufacturing sector. To foster the development of the manufacturing sector, various industrial policies and strategies were implemented; among them being the ‘Malaysia Incorporated’ policy, privatization policy and the Look East policy. The third phase constitutes the beginning of a new political leadership under Mahathir Mohamad. He became the Prime Minister in mid-1981, and initiated a number of efforts towards industrialization, notably of heavy industries. The establishment of HICOM, a government agency in 1981 by Mahathir signified the beginning of technology intensive industries in Malaysia. HICOM also fostered technological development through the initiation of various technology intensive industries such as petrochemicals and automotive sectors. Thus, the government initiated HICOM in a deliberate move to promote heavy industries such as steel, automotive, cement, petrochemicals and shipbuilding but its major operations were in four industries: motor vehicle industry, engineering industry, building materials, and realty industry (Abdul Rahman, 1994). HICOM was set up as neither a government organization nor a statutory body but a 100-percent government-owned holding company established as a private firm 55
under the Companies Act of 1965 (Machado, 1989). The aim of HICOM was to transform the Malaysian economy from a relatively small-scaled and labor intensive to a sophisticated and capital-intensive heavy industry-based economy; to create a number of “nucleus” industries such as steel, cement, sponge iron and heavy engineering; and for other industries to evolve from it such as pulp and paper, small engines and auto manufacturing (Bowie, 1988). The different industries categorized under HICOM thus were intended to diversify the Malaysian economy to various industrial sectors, and state intervention was regarded as essential to encourage private sector investment (Rasiah, 1995). The government provided subsidies and financial assistances to manufacturers as well as to the parts and components suppliers in efforts to foster the development of heavy industries as well as to encourage entrepreneurial activities in the manufacturing sector. The state-led industries were also given protection by the government to further accelerate the development of heavy industry sectors. In 1995 HICOM Holdings became one of Malaysia’s biggest listed conglomerates; the listed companies in the HICOM included the Perusahaan Otomobil Nasional (Proton), whose main product is the Proton automobile, and the Edaran Otomobil Nasional (EON), which is responsible for distribution for Proton (Giroud, 2003). Other heavy industry projects developed outside the auspices of HICOM were the ASEAN/Malaysia Urea fertilizer project, Liquified Natural Gas (LNG) exporting facilities, PETRONAS oil and gas refineries, and several petrochemicals plants (Dhanji et al., 1983). Having followed the development and success of the Newly Industrialized Countries (NICs) like South Korea and Taiwan, the Prime Minister Mahathir was inspired to launch another significant industrial measure, the Look East policy in 1982. Through this policy, he intended to transform the nation to be disciplined like the Japanese in terms of work practices and ethics, morale, discipline, productivity and
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quality. In consequence, Mahathir initiated programmes such as technical and academic studies and intensive training for executives and entrepreneurs; implemented a new work environment such as the use of punch cards, nametags, manual on work procedures and others; and new mind sets through the implementation of concepts such as clean, efficient, and trustworthy, and leadership through example. Besides the initiative to drive the nation towards Japanese work style and ethics, the Malaysian government also initiated effort to establish linkages with multinational companies (MNCs) of the NICs in a number of industrial sectors such as petrochemicals, iron and steel, cement, paper and pulp, and motor vehicles. For example, a joint venture was initiated between HICOM, Mitsubishi Motors Corporation (MMC) and Mitsubishi Corporation (MC) for the national automotive project; another example is the joint venture between Perwaja, a Terengganu firm and a consortium of eight Japanese firms led by Nippon Steel Corporation (NSC) for the steel project. Thus, the establishment of joint venture agreements with the NIC partners led to the deepening of Malaysia’s industrial structure. Nevertheless in 1982, the government had to go on an austerity drive due to the deepening recession; with that, public spending in most areas was reduced except for HICOM’s sponge iron, cement, small engine and auto projects (Bowie, 1988). Of these few exempted areas, the automotive is the best known project carried out under HICOM (Searle, 1999). The high recognition given to the automotive project is because it is a state-led project appreciated greatly in terms of the number of firms established as suppliers of parts and components, and the number of employment opportunities created. Besides, it has also fostered technological development in Malaysia. As such, this study will look into this particular state-led project, which has had great socioeconomic impact on the nation despite being highly protected by the government. The
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detail of this state-sponsored project, namely the national automotive industry (Proton), is discussed in the next chapter. Besides the austerity measures, the government introduced the IMP, which covered the period from 1986 to 1995 with the aim of diversifying the industrial sectors and promoting new sectors of growth. In the planning of strategy for Malaysia’s industrial development, the IMP adopted the Japanese and South Korean model of successful economic reconstruction after the Second World War and Korean War (www.unescap.org). Hence, the IMP was formulated to guide the development of the manufacturing sector; it conveyed the government’s intention to the private investors in terms of industrial plans and strategies for industrial development in Malaysia. Several key industrial clusters were identified in the IMP that required critical efforts in deepening the industrial structure as a whole; they were the electrical and electronics products, transportation equipment, chemicals, textile & apparel, materials, food processing and machinery & equipment (Sulong, 1997). These key industrial clusters together with their subgroups are listed in Table 3.3.
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Table 3.3 Key Industrial Clusters and Subgroups Key Industrial Cluster Electrical products
and
Subgroups
electronics (a) Consumer electronics (b) Semiconductors and electronics components (c) Computers, peripherals and telecommunications equipment (d) Electrical appliances and electronic apparatus
Transportation equipment
(a) Automotive and motorcycles (b) Aerospace (c)Shipbuilding and repairing (marine transportation)
Chemicals
(a) Pharmaceuticals (b) Petrochemicals (c) Palm oil products
Textiles and apparel Materials
(a) Wood-based products and furniture (b) Rubber-based products (c) Advanced materials
Food processing
(a) Meat and seafood products (b) Cocoa and confectionery (c) Fruit and vegetable products
Machinery and equipment Source: Sulong (1997) These clusters and the specific sub-sectors were identified for development under the IMP’s long-term indicative plan. As such, various measures were taken to foster the development of these sectors including inducing reinvestments, linkages, exports and training, conducive environment for investment, and attractive policies and simplified procedures to minimize administrative bottlenecks (Okposin et al., 1999). Obviously, the selected industrial sectors and sub-sectors are heavily dependent on technology; indeed, the various industries included in the clusters are technology intensive. As such, entrepreneurial development during the phase III period is attributed to government efforts towards creating industrial sectors that are technology intensive. In line with this endeavor, most of the firms created were also technology based. Phase
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III thus marked the beginning of technology based entrepreneurial activities in Malaysia.
3.3.4
Phase IV (1991- 2005): Post-NEP Era
The period of 1991-2005 witnessed a great increase in government investment in heavy industries of high technologies as asserted in the Sixth Malaysia Plan (1991-1995), Seventh Malaysia Plan (1996-2000) and Eighth Malaysia Plan (2001-2005). The emphasis is on the quality of small and medium scale enterprises rather than on increasing the number of entrepreneurs, and on finding new ways to achieve a more equitable share of equity ownership among the various ethnic groups (Abdul Samad, 2002). In particular, the Sixth and Seventh Malaysian Plans were concerned with the development of the manufacturing sector, and on the promotion of the efficient use of natural resources. The Seventh Malaysian Plan emphasized the significance of the small and medium sized industries (SMIs) in supporting national industrialization efforts through forging linkages across the manufacturing sector (Malaysia Eighth Malaysia Plan, 2001). In consequence, a government agency, namely SMIDEC was established in 1996 to provide guidance on the planning and coordination issues of the SMIs in the manufacturing sector. Several programmes were introduced by SMIDEC in efforts to nurture the development of the SMEs, and particularly to enhance the capacity and capabilities of the SMEs at the global level; among the programmes introduced are the Industrial Linkage Programme (ILP) aimed at developing domestic SMEs into competitive manufacturers and suppliers of parts and components and related services to MNCs and large companies, Global Supplier Programme (GSP) involves training in critical skills and also linkages to MNCs and large companies, SME Expert Advisory Panel (SEAP)
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is a programme implemented to strengthen technical advisory services to SMEs; Skills Upgrading Programme is aimed at enhancing the skills and capabilities of SME employees in the technical and managerial levels; and ‘Enterprise 50’ is an annual award programme to recognize the achievements of the enterprises in terms of financial and management performance (MITI, 2005). These programmes have enabled the creation of many SME-sized enterprises in the manufacturing sector. These enterprises are mostly technology based; their involvement in the manufacturing sector has boosted the significance of technology in entrepreneurial activities. The focus of the Eighth Malaysian Plan was on sustaining economic growth and competitiveness to overcome the challenges of the globalization phenomenon. As such, it included efforts to accelerate technological development; R&D and educational activities; and aimed to emphasize human resource enhancement and R&D facilities development (Malaysia: Eighth Malaysia Plan, 2001). As such, the NDP, the successor to NEP, focused on the human resource factor and the involvement of private sector as noted in the policy ‘rely more on private sector involvement in the restructuring process’; therefore the emphasis was on human resource development including moral and ethical values in order to achieve the objectives of growth and redistribution’ (Malaysia: NEP, 1971). The NDP, which spanned from 1991 to 2000, focused on transforming the nation from an agricultural to an industrialized nation by the year 2020. As noted by Mahathir, “the inefficient smallholder operation in the agriculture sector would be transformed to production by commercial estates” (Howell and Palmer, 1995). The NDP as contained in the Second Outline Perspective Plan (OPP2), voiced the Prime Minister, Mahathir's new vision, ‘Vision 2020’, which aimed to eliminate hard-core poverty and reduce relative poverty.
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Vision 2020 covers a long period; it is a 30-year plan, spanning the period between 1991 and 2020. Vision 2020 plans to transform Malaysia into a fully developed and industrialized nation by the year 2020 through the development of targeted industries such as aerospace, advanced materials, microelectronics, automated manufacturing technology, biotechnology and information technology. It focuses on improvement of human skills in three particular fields: science, technology and IT. Simultaneously, it also emphasizes the rapid development of the Bumiputeras by encouraging them to participate in commercial and industrial activities to create an active “Bumiputera Commercial and Industrial Community” (BCIC). The government undertook various measures to encourage the indigenous people to participate in major economic activities such as the manufacturing and services sectors so as to ensure a more balanced distribution of wealth among the different ethnic groups and to attain the targeted 30 % Bumiputera equity ownership as outlined in the NEP, NDP and other government policies. The identified manufacturing sub-sectors include the electrical and electronics, pharmaceuticals, chemicals, petrochemicals, bio-technology, composite and advanced materials, transport equipment, and food industries. To facilitate the participation of the Bumiputeras in commercial and industrial activities, the government provided assistance in the form of incentives and finance to help them acquire relevant technology and management expertise. In addition, agencies such as MIDA and SMIDEC were established to assist the Bumiputera firms in tracing technology and market trends, searching and identifying opportunities and threats both in the domestic and global market. In addition, the economic development in the first half of the 1990s placed the nation at a transition stage to capital-intensive, high-tech and high value-added industries (Sulong, 1997). This is as announced in the second Industrial Master Plan (IMP II) which was launched in 1995covering the period 1996 to 2005. The IMP II
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adopted a cluster-based approach in order to focus on the development of specific industry clusters; the clusters at various levels of evolution included naturally evolving clusters, referred to as resource-based industries such as wood-based, rubber-based, palm-based, petroleum-based or chemical products; policy-driven clusters that are the automotive, aerospace, machinery and equipment industries; and clusters with international linkages such as the electrical and electronics appliances and textiles industries (Malaysia: IMP II, 1996). Specifically, the government identified 10 industrial sectors, sub-sectors and activities in the areas of new and emerging technologies to promote high-tech products and activities. These industrial sectors and sub-sectors are listed in Table 3.4.
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Table 3.4 High-tech Industries and Sub-sectors High-Tech Industries
Sub-sectors
Advanced electronics
1. Design, development and manufacture of: (a)computer or peripherals (b)microprocessor application 2. Development and production of communication equipment 3. Design and production of integrated circuits (IC)
Equipment/Instrumentation
1. Design, development and manufacture of: (a)medical equipment (b)medical implant or devices (c)scientific equipment 2. Development and production of high pressure water cutting equipment
Biotechnology
1. Development, testing and production of: (a)pharmaceuticals (b)fine chemicals (c)food or feed supplements (d)bio-diagnostics 2. Development and production of: (a)cell cultures (b)biopolymers 3. Development and production of biotechnology processes for waste treatment
Automation and flexible manufacturing systems
1. Development and production of: (a)computer process (b)process instrumentation (c)robotic equipment (d)computer numerical control (CNC) machine tools 64
Table 3.4, continued High-Tech Industries
Sub-sectors
Electro-optics and non-linear optics 1. Development and production of: (a)optical lenses (b)laser application equipment (c)fiber-optic communications equipment Software engineering
1. Development and production of: (a)neural networks (b)pattern recognition systems (c)machine vision (d)fuzzy logic systems
Alternative energy resources
1. Development and production of: (a)fuel cells (b)polymer batteries (c)solar cells (d)renewable energy
Aerospace
1.Manufacture and assembly of aircraft 2.Manufacture of aircraft equipment, components, accessories or parts thereof 3. Modification and conversion of aircraft 4.Refurbishment or re-manufacture of aircraft equipment, components, accessories or parts thereof
Source: Sulong (1997)
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These industrial sectors were identified for they were regarded as having a competitive edge in global markets; the increasing competition and globalization urged the government to undertake efforts to encourage the development of more capital intensive technology and skill intensive industries (Giroud, 2003). To promote these high-tech industries, the government provided incentives, developed suitable infrastructure, and introduced relevant training programmes to develop appropriate local skills. In the shift towards high-tech industrial sectors, the government actively encouraged R&D activities; indeed, the involvement of private companies in R&D activities is recognized by the government as crucial to drive the nation towards industrialization (MITI, 1995/1996). The government also improved infrastructure facilities by introducing science parks. A number of science parks have been initiated in efforts to promote high-tech industries; among them are the Kulim Hi-Tech Park (KHTP) established in 1995, Perak Science Park, Johor Technology Park, and the Multimedia Super Corridor (MSC). These science parks have productivity centers, a local commercial sector, R&D centers, a resource centre, and a sports and recreation center (Giroud, 2003). Further, efforts to develop local skills in high-tech were also undertaken through training. The government encouraged R&D type of activities to train skilled workers in high-tech skills. As a result of such training, Malaysia became the world’s third largest producer of semiconductors; skilled workers were provided training by US electronics firm on cutting-edge technologies (FEER, 1995). Such training provided for the acquisition of technology by the skilled workers particularly, and resulted in the development of technology in the manufacturing sector. To further encourage such training activities, the government introduced 100 per cent investment tax allowance for companies that established technical or vocational
66
training institutions. Thus, the government seemed to have taken different measures to foster the development of the recently introduced high-tech industrial sectors. This shows that the high-tech industrial sectors are rather ‘young’ in their development; as such, most of these high-tech industrial sectors are still at the experimentation stage.
3.4
Technology Entrepreneurship Programmes
In relation to the drive towards high-tech industrial sectors, the fourth phase also witnessed pertinent entrepreneurship programmes and technology-based projects. The technology based entrepreneurship programmes and activities are being carried out by different ministries, and interested private organizations and agencies, and among the programmes offered are the Cradle Investment Programme (CIP) by MAVCAP, Technopreneur Development Flagship (TDF) by MSC, Start Your Own Business (SYOB) by the Multimedia Development Corporation (MDC), and PHASER programme by MECD. These programmes are briefly presented below:
3.4.1
Cradle Investment Programme (CIP)
The Cradle Investment Programme (CIP) was launched in May 2003 by The Ministry of Finance, and is managed by MAVCAP with the aim of stimulating the growth of technopreneurs and generation of ideas for an innovative and knowledge society. MAVCAP appointed Technopreneurs Association of Malaysia (TeAM) as its official Community Partner for CIP to spearhead seed investment, nurture entrepreneurship development, create a pool of technology oriented ideas, and generate new opportunities on Information and Communication Technology (ICT). Specifically, the CIP programme provides pre-seed funding and entrepreneurial support to generate new ideas and innovations from individuals, research and higher learning institutions; creates employment through venture development; and commercializes products. MAVCAP
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also acts as a catalyst to new areas of economic growth; addresses the capital gap and industry expectations between pre-seed and seed funding; creates a critical mass of entrepreneurs and technopreneurs; and builds a foundation for entrepreneurs and technopreneurs to spin-off a global company. The focus of CIP’s technology investment is in the areas of ICT and high growth that includes software and information services; internet: e-services, e-commerce and econtent; communication and networking-mobile data; high technology consumer and business products; electronic and semi-conductors; medical devices and advanced materials; and biotechnology and life sciences. MAVCAP provides assistance to the CIP technopreneurs to develop, refine and commercialize their technology ideas that are built and supported on the Microsoft platform based on the partnership collaboration between CIP and Microsoft. Monthly workshops are organized by CIP and held in Kuala Lumpur, while road shows are held in other states of Malaysia to facilitate the application process. Besides, the workshops and road shows are also intended to provide some guidelines and tips to the interested candidates. With the aid of CIP, ideas are transformed into innovative products or services. Indeed, the CIP provides the essential platform for the conversion of raw ideas, for example from pre-seed into viable and commercial ventures.
3.4.2
Technopreneur Development Flagship (TDF)
Technology Development Flagship functions as a division of Multimedia Super Corridor (MSC). MSC has set up the TDF division with the intention of conducting essential technopreneurship development programmes or projects. Among these are the business plan competition and advisory service to the technopreneurs in need.
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3.4.3 PHASER Programme PHASER is a programme organized by the Ministry of Entrepreneur and Cooperative Development. The PHASER programme is intended to develop a pool of Bumiputera entrepreneurs who are resilient and competitive both in the local as well as in the international market. The method used is entrepreneur centered, in which an experienced entrepreneur will guide the new entrepreneur candidate. The emphasis is on entrepreneur to entrepreneur experiential learning. In this programme, technopreneurs are regarded as individuals who develop new products, and/or services and/or processes to fulfill present market needs and then enhance it through the use of technology.
3.4.4 Start Your Own Business (SYOB) The Start Your Own Business is a five-day programme organized by the Multimedia Development Corporation to help graduates from the disciplines of ICT to become technopreneurs. The programme is carried out in the form of a workshop consisting of six modules. The modules are a balance of both technological and business knowledge. Upon completion of the workshop, the qualified participants attend other relevant significant programmes that could better prepare them for the business start-up. Among them are a three-month industrial attachment with the MSC-TDF, business plan preparation and advisory, and other necessary technopreneurship skills development. Hence, having acquired both technological and business knowledge, the programme believes that the participants will be able to set up their own ICT-based businesses. Indirectly, the SYOB programme has enabled the participants to create their own employment opportunities. Indeed, the SYOB programme is in line with the nation’s drive towards vision 2020, that is, the setting up of a vibrant ICT industry in Malaysia.
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3.4.5
Technology Entrepreneurship Academic Programmes
There are number of public and private higher learning institutions in Malaysia that have initiated entrepreneurship programmes and courses that are technology based. For example, MARA is collaborating with two public universities, namely the University Utara Malaysia (UUM), and the University of Technology Malaysia (UTM) to offer technology based entrepreneurship programmes at post-graduate level, ‘Master of Science in Technopreneurship’. The University of Kuala Lumpur (UniKL) also conducts relevant technology based entrepreneurship courses but at diploma and degree levels at its various branch campuses to develop a ‘technopreneurial’ mentality and attitude among the youth. A different type of technology entrepreneurship programme was carried out by the Multimedia University (MMU), namely the business plan competition on a yearly basis to encourage student and public participation in technology entrepreneurial activities.
3.4.6
Technology Entrepreneurship Programmes by Institutions
In addition to the programmes presented above, there are other relevant programmes offered by many other government and non-government institutions to promote technology entrepreneurship development in Malaysia. Essentially, all these technology-based entrepreneurship programmes are derived from the entrepreneurial activities that were introduced by the government in efforts to develop SMEs. Table 3.5 presents the type of assistance provided by the respective institutions to foster the development of entrepreneurship in Malaysia in the decades following independence.
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Table 3.5 Support Programmes for Entrepreneurship Development in Malaysia Type of Assistance
Assistances provided to entrepreneurs to foster entrepreneurship development
Agencies involved
Ministry/ Institution
Year est. (Agency)
Purpose
National Productivity Corporation (NPC)
Ministry of International Trade & Industry (MITI)
1962
To provide short courses on entrepreneurial development and management. To contribute towards productivity and quality enhancement of the nation for economic growth.
Malaysian Entrepreneurial Development Centre (MEDEC)
MARA Institute of Technology (UiTM)
1975
To provide management courses to potential, new and young entrepreneurs to run their business operation on SMEs. Entrepreneurial training programmemes are meant for both public and its students.
The Council for Indigenous People (MARA)
Ministry of Entrepreneurship and Cooperative Development (MECD)
1966
To motivate, guide, train and assist Bumiputeras, specifically from rural areas in order to enable their active involvement in industrial and commercial activities in the country.
Small Business Development Centre (SBDC), Universiti Putra Malaysia (UPM)
Universiti Putra Malaysia (UPM)
1981
To provide training and extension services to small business and potential entrepreneurs. Simultaneously, emphasis is also on applied research on small and medium enterprises business.
Food Technology Industrial Division
Malaysian Agricultural Reseacrh and Development Institute (MARDI)
1982
To encourage potential entrepreneurs in SMEs to participate in manufacturing of food products in the country. To expose entrepreneurs with new technology in food processing and quality control.
SMIDEC
MITI
1996
To create resilient and efficient SMEs in the country who are able to compete in a more liberalized future market in the global world.
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Table 3.5, continued Type of Assistance
Technical Assistance & Programmes for enterprises and technological development
Assistance to enterprises in terms of location and infrastructure facilities
Agencies involved
Ministry/ Institution
Year est. (Agency)
Purpose
FRIM
Ministry Resources
1929
To assist entrepreneurs of SMEs to solve problems related to material selection, processing, preservation, utilization, machines, operation, etc.
SMIDEC
MITI
1996
To provide technical assistance for SMEs
SIRIM
MOSTI
1975
To assist enterprises solve technical problems through the use of technology and to help their businesses grow.
MTDC
Joint-venture between government and 17 major local corporations
1992
To commercialize local research results To introduce strategic technologies to the country To manufacture products widely used as industrial inputs.
MASTIC
MOSTI
1992
To play an important role in technological development through a number of mechanisms.
MATRADE
MITI
1980
To provide Malaysian exporters comprehensive marketing information, advisory services on exporting, and assistance with business appointments and participation in trade fairs and trade missions.
MIEL
MITI
1964
To assist the development of factory buildings in prime industrial estates to cater for manufacturing activities of small and medium enterprises (SMEs)
UDA
MECD
1971
To assist Bumiputera enterprises gain access to good quality, well located business premises in urban areas at affordable prices or rents.
TPM
MOSTI
1987
To promote, stimulate, support and commercialize innovative concepts drawn from R&D activities in order to enable Malaysia industries to compete effectively in the international market.
of
Natural
Source: Abdullah (1999) 72
These programmes served as a predecessor to technology-based entrepreneurial activities in Malaysia, and accordingly the government established a number of institutions to carry out entrepreneurial activities that are technology oriented in selected high-tech areas, notably in the IT and ICT sectors. The institutions that were set up to foster the development of technology and entrepreneurship are: MAVCAP, MTDC and MIGHT; these institutions are described in the followings:
3.4.6.1 Malaysia Venture Capital (MAVCAP) MAVCAP was incorporated on 19 April 2001 by the government of Malaysia, and was established as a venture capital firm to invest in technology-based companies and as an engine to spur the growth of the venture capital industry in Malaysia. MAVCAP is committed purely to the technological sectors and invests in a mix of local and overseas businesses to bring together a successful blend of technologies and entrepreneurial skills. The assistance provided comes in various forms: entrepreneurial partnership, seed provider and early stage venture capital and innovative financing for ICT companies. In September 2001, MAVCAP disbursed RM100 million in funds to selected local investee companies involved in high tech sectors. The fund was invested mainly in companies involved in ICT and related businesses, including electronics, computer hardware and software, applications, information services, and other sectors such as internet related e-services, e-commerce and e-content, bio-technology and life-services, and industrial and advanced materials. MAVCAP has also invested another RM100 million in the Cradle Investment Programme in May 2003. The allocation is used for developing creative and innovative ideas of the successful applicants, who are given a grant of up to RM50, 000 each. Thus, as a venture capital firm, MAVCAP is dedicated to empowering the innovative entrepreneurs to create new wealth and generate returns to their stakeholders.
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3.4.6.2 Malaysia Technology Development Corporation (MTDC) MTDC was established in 1992 by the government to spearhead the development of technology businesses in Malaysia. MTDC provides a range of services in the form of venture capital and investment, government grants, technology incubation center programmes and value added services. The priority is to promote and commercialize local research, and invest in new ventures that allow the transfer of new technologies from abroad. The investment in such activities has made it possible for MTDC to become the leading venture capitalist in the country. As such, MTDC is among the few companies, which has achieved the status of an integrated venture capital solutions provider. MTDC has become the financing source provider for high technology-based projects from the initiation of an idea to the completion of a product or process, and its commercialization. For instance, MTDC has provided grants totaling RM44.83 million to 121 deserving local companies under the 8th Malaysia Plan budget. Indeed, MTDC has invested RM150 million in more than 50 companies both locally and internationally, including the United States of America and developed countries in Europe and in the region for the acquisition of high technology.
3.4.6.3 Malaysian Industry Group for High Technology (MIGHT) MIGHT was established as an independent non-profit company by the fourth Prime Minister of Malaysia, Dr Mahathir Mohamad in 1993. MIGHT was initially set up under the Prime Minister’s Department, then placed under the Ministry of Science, Technology and Innovation (MOSTI) in March 2004 to effectively carry out science and technology- based activities. MIGHT was initiated based on a ‘Smart Partnership’ effort between the government body and the private sector to identify business and investment opportunities for the industrial sector, and provide inputs for policy-making. MIGHT also addresses issues concerning high technology industry development such as
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research priorities, human capital and funding through various programmes and activities. The different types of activities carried out by MIGHT include research, industry deepening, triple helix, technology partnership network programme, prospecting and consulting. These programmes and events are carried out in strategic technology areas like aerospace, green management, constructing and housing, telecommunications, pharmaceutical, automotive, advanced material, road haulage, herbal, general aviation, photonics, information and communication technology and maritime.
3.5
The Root of Technology Entrepreneurship Practice
In tracing the root of technology entrepreneurship practice in Malaysia, this study has applied the improvised technology entrepreneurship capability framework as introduced and discussed in the methodology chapter. The technology entrepreneurship capability framework consists of eight key dimensions, and they are used as key indicators to analyze the trend of entrepreneurship development in Malaysia from Phase I to Phase IV of Malaysia’s industrial development, which is from 1957 to 2005. The eight key dimensions include awareness, search, strategy, core competency, technology paradigm, linkages, learning, and leadership. These eight key dimensions are analyzed at the macro level to understand the rationale for the transformation of economic activities from entrepreneurship to technology entrepreneurship in terms of policy implementation and government initiatives. As such, the awareness dimension is looked from the government’s ability to recognize environmental changes. Malaysia seems to have been able to recognize global economic changes since Phase I, and realize the significance of technology and its impact on the nation. For example, the “early commodity crisis” that occurred between
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1957 and 1972; the economic crisis that occurred in the mid-1980s and the currency crisis in 1997 were identified as the cause for adverse effects on the nation’s economy. Being aware of the forthcoming crisis has enabled the government to take immediate measures deemed necessary. For instance, in the early years of Malaysia’s economic development, the emphasis was on the primary sector; however as the government recognized the economic changes in the other parts of the world, it immediately switched its focus to diversifying economic activities through the development of the manufacturing sector. With regard to ‘search’ ability, the government was able to scan and monitor the technology trends effectively since the third phase due to the establishment of particular agencies, namely MIDA in 1968 and SMIDEC in 1996. Though MIDA was established in Phase I, its effectiveness in closely monitoring and scanning technology trends on the global scale, as well as in identifying opportunities and threats is evident in Phase III. MIDA conducted a feasibility study on the automotive project in 1981 and the findings were reported to the then Minister of International Trade and Industry. In addition, the formulation of the Industrial Master Plan (IMP I) in 1986 encouraged the undertaking of industrial feasibility studies for any entrepreneurial endeavor. In developing strategies, Malaysia has established concrete strategies through its various government plans, including short-term plans like the Five-year Malaysia Plans, and long-term plans like NEP, NDP and Vision 2020. All these plans are the government’s plan of action to achieve vision and mission for the economic growth and productivity of the nation. These plans have been in action accordingly since Phase I. The principal strategies and incentives outlined in the years between 1981 and 1990 were intended to develop the manufacturing sector; as such, Phase III recorded an increase in the growth of the manufacturing sector from 4.6 %in 1981 to 11.6 % in 1984.
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As the focus of the Phase III period was on development of the manufacturing sector, the government initiated heavy industries, of which the national automotive industry was established in 1985. The manufacturing sector experienced a rapid growth rate of 10.4 % per annum, and in 1987, it performed better than the agricultural sector for the first time in Malaysia’s history with record 22.6 % contribution to GDP (Malaysia: Mid-term Review of Fifth Malaysia Plan, 1988). The emphasis on the manufacturing sector indeed increased employment opportunities rapidly by 8.6 % annually in the period between 1981 and 1990. This indicates that the strategy formulated has favored the nation’s well-being besides boosting its economic growth. The building of core competencies is obvious since Phase III due to government efforts of initiating the national automotive industry. The government established the national automotive industry to enable the nation to develop its capabilities in the particular industry, and ultimately to help create competitive advantage. Assistance in several forms has been provided by the government, particularly financial to assist the locals to build core competencies in their respective key strength areas. In terms of technology paradigm, Malaysia has referred to the automotive industry as it is the pioneer national industry. Thus, Malaysia acquired technological knowledge on the automotive industry, and efforts were geared towards the development of technological capabilities of the industry. In other words, the initiation of the national automotive industry has led to the acquisition of technological knowledge of that particular industry. There was no particular focus to master technology of any industry in the previous phases as there was no specific technology to be referred to. In forging linkages with other countries, Malaysia seems to have established collaborative efforts with different countries effectively from the Phase II in order to support the nature of the industries then, which was export-oriented, through various
77
programmes such as FDI, FTZ and LMWs. Thus, many forms of linkages have been established by Malaysia with partner countries since the Phase II. In particular, Mahathir’s notion of ‘Malaysia Incorporated’ called for collaborative relationship between the public and private sectors in efforts to achieve long term strategic goals (Abbott, 2003). In Phase III also, Malaysia established a partnership with the Japanese car maker, ‘Mitsubishi’ to initiate the national automotive industry, Proton. In terms of learning, the government has strongly encouraged the ‘learning’ activity effective from the Phase II. This is attributed to the government’s efforts to achieve industrialized nation status as achieved by the other NICs like Japan, Korea and Taiwan. For this purpose, the government increased the fund for learning and education activities in its various government policies. In addition, the initiation of the national automotive industry has reiterated the need to acquire relevant engineering and handson knowledge. With regard to leadership, this dimension looks into the interest and focus of the political leaders at different phases. The study is cognizant of the fact that it was during Phase III that efforts towards technology based industrialization took effect. The government leader then, Dr Mahathir Mohamad took effective measures to promote technology-based entrepreneurial activities as part of the industrialization effort through the establishment of HICOM generally and the national automotive industry particularly. Hence, the analysis of the eight key dimensions of technology entrepreneurship at the macro level reflects that technology entrepreneurship practice was apparent in Phase III; however, it is admitted that technology entrepreneurship practice has appeared in the earlier phases of Malaysia’s industrial development rather minimally. The result of this brief analysis is presented in Table 3.6.
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Table 3.6 Technology Entrepreneurship Practice No.
Technology Entrepreneurship Activities
Phase I
Phase II
Phase III
Phase IV
1
Awareness
*/
/
/
/
2
Search
**-
-
/
/
3
Strategy
/
/
/
/
4
Core Competency
-
-
/
/
5
Technology Paradigm
-
-
/
/
6
Linkages
-
/
/
/
7
Learning
-
-
/
/
8
Leadership
-
-
/
/
Note: */ indicates presence of technology entrepreneurship activity **- reflects absence of technology entrepreneurship activity
Table 3.6 clearly reflects that the practice of technology entrepreneurship has been present since Phase I and Phase II, becoming obvious in Phase III and Phase IV. Thus, Phase III marked the beginning of a new trend in Malaysia’s entrepreneurship development,
namely
technology
entrepreneurship.
The
transformation
from
entrepreneurship to technology entrepreneurship in Phase III is basically due to the government’s effort of establishing the national automotive industry. The national automotive industry had essentially given a positive impact on society. It had created job opportunities; raised living standards, reduced poverty, created technology-oriented entrepreneurial opportunities, developed an industrial parts and components sector, provided a gateway for the acquisition of relevant technological knowledge and technical skills, and encouraged innovation, research and development activities.
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3.6
Summary
This part of the chapter provides a summary table which sums up all the four phases of entrepreneurship development in Malaysia.
Table 3.7 Summary of Four Phases of Malaysia’s Entrepreneurship Development. Phase I (1957-1970)
Phases
Phase II (1971-1980)
Phase III (1981-1990)
Political Leader (Prime Minister)
Tunku Abdul Rahman, Tun Abdul Razak
Tun Abdul Razak, Tun Hussein Onn
Tun Dr. Mahathir Mohammad
Policies
Pre-NEP (1MP)
NEP (2MP, 3MP)
NEP (4MP, 5MP & IMP)
Emphasis
Import Substitution Agriculture
Export Orientation – FDI, FTZ, LMW (Electronics Industry)
Achievement
National Amenities, Socioeconomic development
Phase IV (1991-2005) Tun Dr. Mahathir Mohammad, Dato Seri Abdullah Ahmad Badawi Post-NEP / NDP (6MP, 7MP, 8MP, IMPII)
Import Substitution (2nd Stage) – High Technology, K-economy, High Value Added Entrepreneurship Technology Technology – small medium entrepreneurship entrepreneurship industries – heavy – high-tech industries (HICOM) Import Substitution (2nd Stage) – Heavy Industries, Cluster-based Strategy
It is clear that technology entrepreneurship practice became apparent in Malaysia in Phase III but there was already minimum occurrence of technology entrepreneurship practices in the Phase I and Phase II periods. The entrepreneurial activities carried out in the 1950s and 1960s were merely in the form of trading. Consequently, when the NEP was introduced by the second political leader in 1971, the focus of the first half of the NEP period was mainly on eradicating poverty 80
and restructuring society. As such, efforts towards entrepreneurship development were seen in the creation of a number of enterprises. As the economic concentration gradually geared towards industrialization in the second-half of the NEP period, the emphasis was on the manufacturing sector. The government leader’s interest then narrowed towards the growth of new industrial sectors, particularly of heavy industries; HICOM was established to monitor the development of heavy industries. However, the economic recession that occurred in the 1980s stalled the development of heavy industries in Malaysia; only the national automotive industry survived. The automotive industry was given priority by the government due to its economic influence; it has the capacity to create a large pool of employment and entrepreneurial opportunities. The government initiated the national automotive industry as it was aware that it would help create a large number of entrepreneurs as vendors or suppliers to the national car manufacturer; moreover, the utilization of technological components throughout its value chain is believed to encourage the mastery of technological knowledge among the people of the nation. To further encourage the acquisition of technology, and to create public awareness on the significance of technology, a number of policies were implemented during the leadership of Mahathir to foster the development of technology in various entrepreneurial activities. In other words, the emphasis on technology-based entrepreneurial activities was carried out more forcefully from the time of his leadership. As such, the presence of technology entrepreneurship activity in Malaysia obviously had its roots in Phase III, particularly upon the initiation of the national automotive industry. In other words, the establishment of the state-led automotive industry led to emphasis on the significance of technology in the entrepreneurial
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activities carried out in Malaysia as accentuated in the implementation of the various government policies. Given this line of argument, it is regarded essential for this study to discuss technology entrepreneurship in the context of the national automotive industry solely in the next chapter as it is the impetus that has led to technology entrepreneurship development in Malaysia. The analysis of the automotive industry in terms of technology entrepreneurship capability is presented in Chapter 6.
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CHAPTER 4 ANALYSIS OF TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT IN THE NATIONAL AUTOMOTIVE INDUSTRY 4.1
Introduction
This chapter deals specifically with the context within which technology entrepreneurship is studied, namely the national automotive industry. It begins with an overview of the evolution of the world automotive industry. This is followed by the development of the automotive industry in Malaysia from as early as the beginning of 20th century. The discussion is then focused on the national car make, Proton that was established as part of government efforts towards technology entrepreneurship development in Malaysia; this involves tracing Proton’s development from its initiation in 1983 up to 2006, the year when government protection was eliminated. Consequently, the discussion veers to its vendors with emphasis on pertinent programs such as the Vendor Development Program and Bumiputera Vendor Scheme. The last section summarizes the chapter briefly. Essentially, the growth and success of the automotive industry has had a positive impact on society. It created job opportunities, raised living standards, reduced poverty, created entrepreneurial opportunities, developed the involved industrial sectors, enabled the acquisition of relevant technological knowledge and technical skills, and encouraged innovation, research and development activities. As noted by Drucker, “The automobile industry stands for modern industry all over the globe. It is to the twentieth century what the Lancashire cotton mills were to the early nineteenth century: the industry of industries” (Drucker, 1946).
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4.2
Evolution of the World Automotive Industry
The evolution of the world automotive industry is categorized by three stages of transformation based on product, production process, innovation and region (Gwynne, 1991). These stages of transformation are simplified in Table 4.1.
Table 4.1 Evolution of the World Automotive Industry Stage
Innovation Process
in
Product/and
Production Year (Duration)
1
Change from custom-built car standardized product manufacturing
2
Product differentiation and emphasis on 1945-1960s product technology
Western Europe
3
Change in labor and manufacturing process From 1980s organization
Japan
to 1902-1944
Region United States
Source: Gwynne (1991)
The first stage was marked by the introduction of the Ford ‘Model T’ from the 19021920s period and involved division of skills, which was later adopted and developed by General Motors and Chrysler. Stage two, however, was geared towards a more diversified range of products due to differences in travel patterns, road conditions and consumer tastes among the European producers, which generated four global corporations such as Volkswagen, Peugeot, Fiat and specialized vehicles like Rover, Jaguar, Mercedes Benz, BMW, Saab and Volvo. Stage three was marked by the introduction of quality circles by the Japanese in worker performance as well as in the products produced; the implementation of the ‘just-in-time’ system in the organization of the manufacturing process, which led to a decrease in inventories, and emergence of nine car corporations under the ‘keiretsu’ system such as Toyota, Nissan, Mitsubishi, Mazda, Honda, Isuzu, Suzuki, Daihatsu and Subaru (Gwynne, 1991). According to 84
Gwynne, production in the US and Western Europe between the 1960s and 1980s was in stagnation while, the Japanese producers were progressing by improving their manufacturing system so as to produce quality products.
Besides the three stages, Bloomfield (1978) identified four stages of development in a country’s automotive industry. The first stage recognized by Bloomfield is the import of completely built-up unit (CBU) vehicles by local retailers; however, this stage is limited in scale due to high transport cost and government trade restrictions. The second stage is an improvement of the first stage, notably savings in transport costs as well as the availability of opportunities to make minor modifications for the local market; it is the assembly of completely knocked-down (CKD) vehicles imported from the major auto manufacturers. The acquisition of knowledge from the first two stages encouraged local content in the assembly of CKD vehicles. As such, the third stage is marked by an increase in local content by the local components industry players. Finally, the forth stage is indicated by full-scale manufacture of motor vehicles. All these stages of automotive development are simplified in Table 4.2.
Table 4.2
Stage
Bloomfield’s Stages of Automotive Industry Development Development in the Automotive Industry
1
Import of CBU vehicles by local retailers
2
Assembly of CKD vehicles imported from major auto manufacturers
3
Assembly of CKD vehicles with increased local content
4
Full-scale manufacture of motor vehicles
Source: Bloomfield (1978)
Bloomfield’s suggestion of the four stages of development in the automotive industry is of relevance to the evolution of the automotive industry in Malaysia. Accordingly, 85
Malaysia’s automotive industry had gone through the first three stages of development, and is now at the forth stage of development. Malaysia’s automotive industry development is discussed in detail in the next subtopic.
4.3
Development of the Automotive Industry in Malaysia
The development of Malaysia’s automotive industry can be traced to as early as the 20th century when the Ford Motor Company of Malaya was incorporated in 1926 and began its operations in a rented shop-house in Singapore (Lee, 1976). The automotive industry then was 'trading' based. There was no assembly of motor vehicles during those years in Malaysia; the type of services offered by the automotive retailers then were basic tyre fixing and simple automobile touch-up such as ‘knocking’, painting and minor repairs. In 1930, Ford started CKD assembly operations with Canadian-sourced vehicles; Ford was the only automobile assembler in Malaysia and Singapore until 1965 (Lim and Onn, 1983). The local retailers involved in the motor vehicle businesses imported CBU vehicles through distributorship operations. These enterprises were set up under private initiative, and there was no major government intervention in terms of ownership as there was no government-owned automotive enterprise. There were a few workshops and agencies then that were owned by the Australians and the Westeners; meanwhile, the only local private owned was Cycle and Carriage, formerly known as the Chua Enterprise, founded by the Chua brothers in Kuala Lumpur in 1899 (Jennings, 1975). An indication of the significance of the automotive industry was seen as early as in the 1960s when a report from the 1963 Colombo Plan recommended that the automobile industry might be a worthwhile industry for Malaysia (Khan, 1962). As a result, in September 1963, the Federal Government announced its intention to encourage the establishment of automobile industry in Malaysia (Lim and Onn, 1983). 86
The announcement to encourage the development of motor vehicle industry in 1967 led to the assembly of CKD parts for motorcycles, passenger and commercial vehicles in the late 1960s, beginning with small-scale production of common replacement items such as the tire, battery and filters (Arshad, 1995). Accordingly, the local content (LC) programme was introduced for the first time in the 1967 report prepared by Little (1967). Several attempts were then made to increase the local content of the Malaysia motor vehicle assembly industry in the 1970s due to the low progress in assembly operations (Abbott, 2003). In 1979, LC averaged an awful 8 % mainly concentrated in low value-added inputs such as batteries, paints and filters (Jomo, 1994). With that development, Malaysia is regarded to have passed through the first and second stages of Bloomfield’s automotive development quite smoothly. However, it took a relatively long period before the nation progressed to the third stage, and even longer before moving to the fourth stage of full scale manufacturing (Table 4.3). Table 4.3 Comparative Stages of Development in the Automotive Industry Stage
Bloomfield (1978) : Development in the Malaysia : Period of Automotive Automotive Industry
Industry Evolution
1
Import of CBU vehicles by local retailers
Before 1967
2
Assembly of CKD vehicles imported from 1967 – 1980 major auto manufacturers
3
Assembly of CKD vehicles with increased 1981- to present local content
4
Full-scale manufacture of motor vehicles
1996 onwards
The first stage, according to Bloomfield’s automotive development, refers to the period before the government of Malaysia officially launched the automotive industry in 1967. 87
Prior to 1967, the type of activities carried out in Malaysia’s motor vehicle assembly industry was merely trading based with the enterprises importing vehicles in the form of CBU from abroad for sale to the customers in the local market. This type of trading activity has been going on since the 1920s. Subsequently, in the 1930s, the assembly of CKD kits and parts of the Ford model was initiated in Malaysia; however, the other car makers were still operating the CBU assembly. The assembly of CKD vehicles for all the other car makers besides Ford began after the official launch of the motor vehicle assembly industry in 1967. Upon the official launch of the Malaysia’s motor vehicle assembly industry in 1967, the government of Malaysia has taken measures to protect the automotive industry through the implementation of high tariffs, stringent import licensing and quantitative restrictions. The outcome of this move became obvious in 1969 when the import of CBU decreased, while the import of CKD increased; this period is thus categorized as the second period according to Bloomfield’s stages of automotive development. Subsequently, in 1981, a local content program was introduced after a thorough consideration of the reports of Little (1967) and Walker (1970). Little’s Report set three main criteria for local content, which were good quality, cost competitiveness with imports, and reliability of sources. Later in 1971, Walker recommended local content to 40 % by weight for 10 years, and penalties for non-compliance. Walker’s report aimed to reduce the variety of models and makes, and promote standardization of major components. The percentage of local content for the years between 1972 and 1982 is as illustrated in Table 4.4.
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Table 4.4 Local Content Program Year
Percentage of Local Content
1972
10.0
1973
12.5
1974
15.0
1975
17.5
1976
20.0
1977
22.5
1978
25.0
1979
27.5
1980
30.0
1981
32.5
1982
35.0
Source: Lim and Onn (1983) Table 4.4 clearly shows the high increase in the percentage of local content requirement in the assembly of automotive parts in Malaysia. This high local content requirement encouraged the development of local industrial sectors in Malaysia. Besides the LC Program, the government also introduced the Mandatory Deletion Program in order to enable penetration of the automotive components industry into the OEM. The Mandatory Deletion Program deletes a particular part or component from the CKD pack, which can be supplied by the local parts manufacturers; this gives the opportunity for the local parts manufacturers to supply the original equipment market requirements of the assembly plants. The Mandatory Deletion Program list produced in 1980 had only a few items deleted from the passenger and commercial vehicles which reflects that the local parts and components manufacturers had the capability to produce only a few parts of the original equipment market list. Though the local content program and the mandatory deletion programs are regarded as having inspired the production of parts and components according to the 89
OEM, and to have encouraged the development of local industrial sectors through the creation of enterprises to cater to the needs of the original equipment market, most of the automotive parts and components used in four wheelers are still foreign made as noted, “Although the localization programs have achieved part of the objectives, the assembly plants (especially the four wheelers) continued to rely substantially on imported parts while the component parts manufacturers were still very much domestic market based and unable to penetrate the international market in a significant scale” (Arshad, 1995). This stage denotes the high dependency of the local automotive industry on imported parts and components. Consequently, the government upgraded the local automotive industry to national status in 1983 to encourage the growth of the parts and components industry. For the first few years of production, the national car, ‘Proton’ went through a tough time mainly due to the mid-eighties recession. The total car sales for the year 1987 declined to about 50,000, and worse, only 60,000 units had been sold since the three years of production (Lim, 1988). In order to support the automotive industry, the government accorded heavy protection to the industry, namely in the form of tariffs and other non-tariff barriers. With the heavy protection and strong support from the government, the automotive parts and components industry witnessed an increase in local content in the assembly of CKD vehicles, and Proton particularly was able to dominate the local car market; this is categorized as the third stage in Bloomfield’s automotive industry development. The following five consecutive years were marked as the domination of the first national car, the ‘Proton SAGA’ in the domestic market. The first national car was also awarded the most popular car in its category in the United Kingdom (Abdul Rahman, 1994). The domination of the local market and the increasing recognition by other countries increased the demand for the national car. Thus, the development of the local
90
automotive industry in turn urged the need for full scale manufacturing, which is categorized as Bloomfield’s forth stage of automotive industry development. Full scale manufacturing took place 13 years after Proton’s initiation with the introduction of the ‘Waja’ in 1996, Proton’s own designed model. The detail of development of the national automotive industry ensues in the paragraphs that follow.
4.4
The National Automotive Industry
The idea for the national car project was proposed by Mahathir in efforts to encourage the development of heavy industries in Malaysia. Basically, HICOM was initiated in 1981 to spur the growth of heavy industries, including the motor vehicle industry, engineering industry, building materials, and realty industry (Abdul Rahman, 1994). Having embarked on the ‘Look East’ policy then, the government initiated linkages in the form of joint venture with the MMC of Japan for its national automotive project. The national automotive company, namely Proton was initiated by the government in 1983, specifically to create an industry of this sector in Malaysia, to provide employment opportunities in the manufacturing sector, and to foster technology development through the parts and components industry and entrepreneurship development through the creation of supplier firms. According to Zin (1995), the national car project was intended to improve the local automotive industry; spearhead the development of local components industry and enhance greater utilization of local components; encourage upgrading of technology emphasizing technical and engineering knowledge and skills of the country; and assist and develop Bumiputera participation in the automotive industry. The initiation of the national automotive industry was also to enable every family to afford an automobile, to raise the standard of living, and to improve the socio-economic well-being of the nation [pers.comm, Senior Manager 1 (requested anonymity), 29 November 2007, 4pm]. As such, the premier purpose of the
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national automotive industry was not to make profit as perceived by many [pers.comm, Senior Manager 2 (requested anonymity), 29 November 2007, 5.30pm]. Proton’s initial involvement was in the manufacturing, assembling and selling of motor vehicles and related products, including accessories, spare parts and other components (Abdul Rahman, 1994). The development of the national car was impeded by the recession that occurred in the mid-1980s; Proton recorded losses for the first few years, since coming into existence in 1985. Despite the slump in domestic demand, the first national car ‘Proton Saga’ was able to dominate the local market in the following years; it recorded a remarkable increase in sale with 200,000 units sold in Malaysia by 1990. The national car became the most popular car in the domestic market, and achieved 73 % of market share in 1994; indeed, through government protection, it became the best selling passenger car in the domestic market (Abdulsomad, 1999). In addition, the national car was exported to other parts of the world. Proton was first exported to Bangladesh in 1986 and by 1994, Proton was exported to both the developed and developing countries such as the United Kingdom, New Zealand, Bangladesh, Malta, Brunei, Singapore and Jamaica to increase sales volume and enjoy economies of-scale (Abdul Rahman, 1994). By 1990, Proton recorded sales of 16,000 units in the international market. As a result of the increased sales, the financial performance of Proton for the years between 1989 and 1993 also recorded an increase. For instance, in 1989 Proton made a pre-tax profit of RM 32 million, increasing greatly to an after-tax profit of RM 264 million by 1993 (Table 4.5) (New Straits Times, 21 January 1994).
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Table 4.5 Financial Performance of PROTON, 1989-1993 (RM MN) 1989
1990
1991
1992
1993
Turnover
820
1399
1786
2192
2287
Profit before tax
32
159
261
408
310
Profit after tax
32
157
187
259
264
Source: New Straits Times (21 January 1994)
The rather strong financial performance of the national car soon encouraged the introduction of new models in efforts to continuously capture the interest of the growing market both domestically and internationally. Among the additional models successfully launched by Proton were ‘Megavalve’ in 1990, ‘Iswara’ in 1992, ‘Wira’ in 1993, ‘Satria’ in 1994, ‘Perdana’ in 1995, ‘Putra’, ‘Tiara’ in 1996, ‘Juara’ (MUV) in 2000, ‘Waja’ in 2001, ‘Gen-2’ in 2004, ‘Savvy’ in 2005, and ‘Neo’ in 2006. Most of these cars were in the ‘hunchback’ and ‘sedan’ forms, and were available in both manual transmission and automatic transmission. As these models were directed at families, most of these cars had more than 1.3 engine capacity (cc) with four doors except for the ‘Satria’, ‘Putra’ and ‘Neo’ models which came with two doors. The rising demand for the national car led to the establishment of a new plant, namely ‘Proton City’ to increase the production capacity, and ultimately to achieve economies-of-scale. The plant, which is located in Tanjung Malim, is expected to enable the production of approximately 450,000 units annually; however, current production levels do not use up the capacity of the new plant [pers.comm, Manager 2 (requested anonymity), 30 October 2007, 3pm]. The Proton City is also equipped with a test drive circuit, an automotive technology centre, a housing estate, convention centre, hotel and recreational park.
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The rapid development of the national automotive industry was a result of strong government support in terms of protection and assistance. The national automotive industry was provided protection against competition from foreign car makers in the form of tariff and non-tariff barriers ranging from 140 to 300 % imposed on foreign car makes. The implementation of high import tariffs enabled the national automotive manufacturer, Proton, to earn higher profit margins; the high import tariffs also decreased foreign exchange outlays as the high price of imported vehicles reduced the demand for imported automobiles, and increased government revenue as the revenue from tariffs are collected by the government of the importing country (TED Case Studies, June 2001). In addition to the high tariff rates and reduction in excise taxes, the local automotive industry was also provided financial assistance by the respective ministries and government agencies. Low interest rates loans were given to the vendors who established enterprises to supply parts and components to the national manufacturer; an assistance provided by the government to deliberately encourage entrepreneurship development in the manufacturing sector. The government’s initiative consequently inspired the development of the local automobile parts and components industry. Indeed, the government introduced the VDP through the PROTON Component Scheme on 14 December 1988 to foster the development of the national automotive parts and components industry, and simultaneously increase the participation of locals in the major economic sectors through the creation of vendor firms that are technology oriented as the value chain of an automobile involves technology from raw material to its completion. In support of the development of the automotive industry, the IMP was formulated by the government immediately after the launch of the first national car in 1986. The IMP, which spanned from 1986 to 1995, laid the foundation for the
94
development of the manufacturing sector through a number of strategies to overcome the economic circumstances then. The strategies recommended included the continuation of the export-led industrialization, which emphasized the promotion of resource-based industries; further liberalization of trade and investment; and substantial incentives to encourage investment and exports. Clearly, the focus was on the significance of science and technology and human resource development to support the industrialization process (Kanapathy, 2000). All these government efforts resulted in remarkable success for Proton in the years following the recovery of the mid-1980s recession (Table 4.5). The successful growth of Proton nurtured the growth of more than 250 local parts and components suppliers [pers.comm, Manager 1 (requested anonymity), 7 August 2006, 2.30pm]. In fact, the government initiated a particular program to assist the parts and components vendors of the national automotive industry, namely the Proton VDP. In the paragraphs that follow, the basic characteristics of the national automotive industry vendor firms are explained.
4.5
Basic Characteristics of Proton Vendor Firms
Proton has taken different measures to foster the development of its vendor firms. From the beginning, Proton made attempts to procure parts and components from the locals so as to encourage the growth of the local industrial sector. This encouragement saw the number of Proton vendor firms increasing, for instance, from 79 in 1995 to 250 in 2006. These 250 vendor firms supply various parts and components to Proton that include metal, electrical and electronics, plastic, rubber and fabric based, and others. Besides differing in business nature, the Proton vendor firms also differ in terms of ownership, size, type of business, date of incorporation, year of business initiation with
95
Proton, turnover, and number of employees. All these features are the basic characteristic of Proton vendor firms, and they are discussed in detail in Chapter 6.
In terms of ownership, Proton vendor firms are owned by three different groups: Bumiputeras consists of mainly the ethnic Malays; non-Bumiputeras consisting of mainly the Chinese and Indian ethnic groups; and the Foreigners. The majority of the Proton vendor firms are owned by the Bumiputeras. As for vendor firms’ size, it is based on the MITI’s definition of SMEs. Proton vendor firms come in two sizes: small and medium and large size. Most of these vendors firms are privately owned, ‘private limited’, or ‘public listed’. There are also partnerships and sole-proprietorship types of businesses. The Proton vendor firms were established in different phases of Malaysia’s economic development. Some of the vendor firms existed prior to the initiation of the national automotive industry; these firms have been supplying parts and components to other OEMs, and subsequently became vendors to the national manufacturer when Proton began its operations in 1985, notably under the vendor development programme introduced by the government after the launch of the first national car in 1988.
4.6
Proton Vendor Development Program (VDP)
The VDP of Proton was launched in 1988, and it was among the government’s initiatives to facilitate the growth of the vendors to become successful entrepreneurs in their respective industrial fields. The rapid growth of the vendors began with the initiation of heavy industries in 1980s as the suppliers to the large or anchor firms. For instance, in the automotive industry, there were tremendous opportunities for the local SMEs considering that a car incorporates thousands of parts and components. In terms of vendor activities, Proton has classified them into four types: parts and components; tool, die and mould (TDM); engineering services; and distribution. 96
The distribution activity is carried out by Proton’s marketing and distribution arm, namely Proton Edar and EON. The parts and components vendor group have been categorized into different levels of vendors - the 1st-tier, 2nd-tier and other lower-tier vendors. These parts and components vendors supply various types of products that include metal, electrical and electronics, rubber, plastic, casting and other parts. They are supplied in two different forms: component, and modular system such as bumpers, door module and brake system. The acquisition of technology know-how and entrepreneurship know-what are regarded as significantly vital for the advancement of the parts and components industry. The TDM industry started in Malaysia in the early 1970s. It is of strategic importance to the country as it helps to reduce cost, requires high value-adding, high precision and skills. As the nature of the industry requires high skills and high investment, more than 90 % of the products are imported, and relatively dominated by the SME-sized firms. The majority of the players are the Bumiputeras as they are the largest group of the SME-sized firms; among the successful Bumiputera players in this industry are Miyazu (M) and PST Mould S/B. The engineering services focus on the manufacturing, testing, car design and R&D and general services activities; these activities require high technological input and adequate tacit and codified knowledge. Towards this end, the manpower has to be well trained in order to produce highly skilled and talented manpower. Proton has invested substantial amounts of money, particularly in efforts to produce improved versions of the existing models and new models as well. Though all these vendor activities are of significance, this study focuses on the development of the parts and components vendor activities as this group is the largest group compared to other vendor groups. Furthermore, the number of vendor firms in the parts and components industry is the most, more than 250 firms since the beginning of
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the vendor program in 1988. Under the VDP, the vendors supply components and spare parts to Proton for a number of years based on a mutual agreement. In 1985, only 515 parts and components had been produced by the 42 SME vendors, which was a meager 17 % of the total parts and component requirements (Abdul Rahman, 1994). Subsequently, as Proton launched the Proton Component Scheme in 1988, the local content of the parts and components supplied by the vendors increased as the scheme aimed to increase the production capacity from 120,000 units in 1993 to 150,000 units by end of 1994 (New Straits Times, 21 January 1994). This scheme has led to strong demand from the vendors to ensure the targeted production capacity is achieved. Consequently, the government introduced the ‘Tripartite Arrangement’ concept in 1993 to enhance the development of VDP; it was an effort between MITI, the anchor company, and the financial institution to overcome problems such as financial limitations, inadequate technological support and small market share. The financial institution provides assistances in the form of finance, management and consultation services; meanwhile, MITI merely acts as the coordinator of the program (Omar, 1992). The concept was helpful in providing aid to the vendor firms, in which MNCs and large local companies signed agreements with MITI and designated banks to provide supplier firms with procurement contracts, technical assistance and subsidized finance (Felker, 1999). The scheme was not limited to the automotive sector per se and was available to all other industrial sectors such as electrical and electronics, machine engineering, furniture and others. Besides being available to various other sectors, it was also made available to all ethnic groups, including the non-Bumiputeras. Table 4.6 presents the major anchor companies from different types of industrial sectors that have developed the vendor firms.
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Table 4.6 Anchor Companies, Types of Industries and Number of Vendors No
Anchor Companies
Type of Industry
No. of Vendors
1
Proton
Automotive
19
2
SONY Group
Electrical & electronics
12
3
General Lumber Furniture
Furniture
12
4
Telekom Malaysia
Telecommunication
11
5
Sapura Holdings
Telecommunication
9
6
Sharp Group
Electrical & electronics
9
7
JVC Group
Electrical & electronics
6
8
Matsushita Group
Electrical & electronics
4
9
Others
Various
12
Total
94
Source: MIDA (1997)
Table 4.6 indicates that Proton has the most number of vendors developed from the scheme introduced, and it is also obvious that the involvement of Japanese anchor companies in vendor development is highest. Accordingly, the study illustrates the number of anchor companies for the years 1988 to 1995, and their activities for the year 1995 in Table 4.7. Table 4.7 Vendor Development Programme -Anchor Companies by Year (1988-1995) Sector
1988-92
Electrical/electronics Wood-based Automotive Telecommunication Building materials Ship building and repair Film production Ceramics Engineering Trade and exports Total Source: MITI Annual Report (1995/96)
2 1 3
1993
1994
1995
6 1 7
29 2 1 1 33
2 1 2 2 1 1 1 1 11
Total (Dec.1995) 37 5 3 2 2 1 1 1 1 1 54
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Table 4.7 shows that by the end of 1995, there were 54 firms that had agreed to become anchor companies under the Vendor Development Programme. Subsequently, Table 4.8 presents the number of registered vendor firms under the VDP program, and the type of activities carried out by the vendor firms between 1995 and 2006. The vendor activities refer to Proton’s classification of suppliers’ business nature, and thus there are some differences in the types of activities carried out by the vendors in 1995 and in 2006. The total number of vendor firms in 1995 was 79 firms, and in 2006, it rose to 250 vendor firms, which is approximately a three-fold increase from 1995 to 2006. Table 4.8 Vendor Development Program-Vendors by Activity (1995 & 2006) VDP – Vendor Activities in 1995 No
Business Nature
1 2 3
Metal stamping and fabrication Plastic components Wood-based furniture components PCB assembly Automotive components Mould and dies Wire cords and wire harnesses Surface-mount technology operations Computer diskettes Rubber keypads Wooden cable drums Cables Die-attach wire bonds Transformer assembly Total
4 5 6 7 8 9 10 11 12 13 14
No. of Proton Suppliers
VDP – Vendor Activities in 2006 Business Nature No. of Proton Suppliers
18 18 13
Carpet Casting Electrical
5 12 37
8 6 5 3 2
Metal Label Plastic Paint Sealant
86 6 27 3 8
1 1 1 1 1 1 79
Rubber Others
19 47
Total
250
Source: MITI Annual Report 1995/96 and Proton Vendor Department (2006)
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Table 4.8 clearly shows that the number of Proton vendors increased quite rapidly from 1995 to 2006, and the concentration of vendor activities in 1995 and 2006 also differs. The highly concentrated type of business activities in 1995 were metal stamping and fabrication, and plastic components; while in 2006 the business nature focus was on metal and electrical. From the interview conducted on Proton vendor firms in 2006, the study found that 50 vendors that had been categorized as first-tier vendor firms from a total of 250 Proton vendors. The respective officers from the Proton Vendor Department noted that the selection criteria for the first-tier vendors are based on three factors: ‘classify’; ‘module or system supplier’; and ‘direct vendor or supplier’ [pers.comm, Senior Executive 1 (requested anonymity), 4 August 2006, 10am]. According to the ‘classify’ criterion, the automotive vendors practice the ‘umbrella’ concept, which means that there are layers of suppliers/vendors before the final part or component is supplied to the assembler. The highest rank of the vendors is known as the first-tier vendors, who are usually supported by the second-tier vendors and third-tier vendors. As such, the third-tier vendors supply parts and components to the second-tier vendors, who then supply to the first-tier vendors, who finally supply to the main assembler, Proton. The first-tier vendors are those who supply parts or components in the most complete form. For instance, the dashboard suppliers are categorized as the first-tier vendor, for they supply the dashboard part in the form that is ready to be fixed directly to the car. It does not require any other part or component that needs to be installed to the dashboard prior to fixing it to the automobile. The ‘direct vendor or supplier’ criterion refers to those vendors who supply the parts or components in a lose form such as paint, grease and oil. These parts can be directly fixed to an automobile; any additional part or component is not required for the assembly of these parts or
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components. As such, there is no involvement of other vendors such as the second-tier vendors or the third-tier vendors. In a way, the first-tier vendors can be considered as part of the direct vendors. However, these criteria are not stated in ‘black and white’ or documented but understood by involved individuals and respective staff [pers.comm, Executive 1 (requested anonymity), 7 August 2006, 9:30am]. The development of the VDP then was seen as a means of upgrading local engineering and technical skills and development capabilities to manufacture precision, sophisticated and quality products (Arshad, 1995). In other words, the vendors need to improve on their technological and entrepreneurial capability in order to acquire the competency required to produce competitive products and services. This is supported by looking at the results of the survey conducted by the Japanese Chamber of Trade and Industry in Malaysia (JACTIM) in 1995 on the local vendor firms that had businesses with the Japanese firms; the survey indicated that most of the local vendor firms were dependent on the anchor companies in terms of technological capability, and business opportunities to expand their market scope (Malaysia: JACTIM, 1995). In the survey carried out in 2006, the anchor companies noted that the local parts and components vendors’ technical capability was of ‘low’ level and thus, they recommended the need for immense improvements by the anchor firms [pers.comm, Manager 3 (requested anonymity), 15 August 2006, 3pm]. Despite the relatively negative comments of the anchor companies, the vendors hoped to acquire management know-how and advanced technologies from the anchor companies [pers.comm, Senior Executive 2 (requested anonymity), 16 August 2006, 5pm]. In short, the survey conducted on the anchor and vendor firms reflect two prominent weaknesses on the part of the Proton vendor firms, namely technological capability and entrepreneurial aspect.
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4.7
Proton Bumiputera Vendor Scheme
The Proton Bumiputera Vendor Scheme was an off-shoot of the Proton Vendor Development Program. This scheme specifically caters for the development of the Bumiputeras involved in Proton’s parts and components industry. The Bumiputeras are given additional assistance, notably in terms of financial assistance; among the most well-known is the Proton’s Technical Assistance (TA) arrangement. The TAs enabled the Bumiputera vendor firms to seek a matching grant for purchasing capital equipment, intermediate inputs and for acquiring technology transfer; the Bumiputera vendor firms that apply for TA are identified, assessed, and selected by Proton and subsequently approved by the Ministry of International Trade and Industry before approving a maximum grant allocation of RM1 million for each vendor (Abdul Rahman, 1994). The TA is thus regarded as a helpful tool for the Bumiputera vendor firms to improve in terms of technology as it provides linkages with foreign firms to provide technical assistance. This additional privilege is as envisaged in the government policies, which stress the significance of nurturing the Bumiputera vendors for the purpose of creating a BCIC. The opportunities available for the Bumiputeras are tremendous considering that the government has been giving priority for Bumiputera commercial and economic development since the implementation of the national policies and plans in the years following independence. Among others are the NEP and the OPP1 that spanned from 1971 to 1990. The NDP through the OPP2, which covered the period from 1990 to 2000 also emphasized the crucial need to increase Bumiputera participation in the commercial and industrial sectors so as to develop the BCIC. Additionally, in the Third Bumiputera Economic Congress which was held in 1992, the government made specific attempts to increase Bumiputera participation in major economic activities through the implementation of various programs such as 103
Proton Vendor Scheme, Franchise Development Program, Credible Bumiputera Contractors’ Program, Financial and Credit Assistance, Umbrella Concept Marketing Scheme, Manufacturing Assistance Scheme and Venture Capital Scheme. As a result of all these government programs and assistance, Bumiputeras involvement in the manufacturing sector increased rather rapidly, particularly in the national automotive industry. The high percentage of Bumiputeras involvement in the national automotive industry as presented in Table 4.6 reflects Proton’s success in encouraging the development of entrepreneurship among the Bumiputeras. As this sector involves the national automotive parts and components industry, the entrepreneurial activities carried out in this industry are technology oriented. This is because the value chain of an automobile involves the use of technology from the raw material up to its completion, and even up to the commercialization stage in some cases. Given this scenario, the Proton Vendor Scheme and the Proton Bumiputera Vendor Scheme are regarded as the major government tools that have led to the growth of the parts and components industry in Malaysia. Specifically, the schemes have encouraged the participation of the Bumiputeras in major economic activities. Proton’s assistance to the Bumiputera vendors has been further intensified through the introduction of other programs such as Quality Improvement Program (QIP) and Technical Cooperation Program. The QIP was organized by SIRIM to improve the quality of the products and services produced; the Bumiputera vendors were encouraged to apply for grants from the Industrial Technical Assistance Fund (ITAF) to enable them to conduct quality improvement activities. The Technical Cooperation Program was introduced in 1994 to train technical staff to become skilled workers as required by the automotive industry. Besides these programs, there were also other educational types of activities introduced by Proton to educate selected vocational school students to acquire knowledge on the
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technology paradigm used by Proton. To facilitate this educational type of activity, Proton and its marketing partner, EON have donated very old used cars, parts and components with the aim was of developing a pool of trained, skilled, and knowledgeable workers.
4.8
Present State of the National Automotive Industry
Having discussed the development of the national automotive industry, and the various protectionist measures enjoyed by the national automotive manufacturer and its vendor firms, it is interesting to note the present state of the national automotive industry development, which is very much affected by the implementation of the AFTA. The complete execution of AFTA in March 2006 has eliminated some of the protection measures accorded by the government to the local automotive players in order to meet the agreement set in the AFTA. The excise duty structure and the ASEAN CEPT import duty, reduced to 5 % for qualifying vehicles, was streamlined and subsequently resulted in an overall deduction in the effective tax rate in most motor vehicles. The tax differential between the different categories of motor vehicles (for example, cars, multi purpose vehicles (MPV), four wheel drives and between the different engine capacities) has also been reduced. Generally, the overall deduction in the motor vehicle prices fosters the buying capacity of the nation; however, the overall growth of the national automotive industry has declined, obviously in terms of sale. For the three months ending December 2006, Proton recorded a loss of RM 281.455milion (BMI, Q2 2008). Malaysia’s automotive sector saw a serious decline in its volume of sales, and in addition, it lost its dominancy in the local market for the first time in 2006. The poor sales record reflects that the national automotive industry is in decline. The strong state support became a drawback to the national automotive industry when AFTA was
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implemented totally in 2006. The national automotive manufacturer and its vendor firms are confronted with stiff competition, and competitiveness is the main disadvantage to them; prices are very competitive, and lowering the cost is significantly crucial for them to stay competitive [pers.comm, CEO 1 (requested anonymity), 15 August 2006, 6pm]. As such, the NAP is confronted with the challenge of staying competitive with other car makers. In order to stay competitive, Proton is making every effort to lower the prices of its automobiles, and simultaneously improve its quality. This means that the vendor firms that supply parts and components are also affected. The vendor firms are required to lower the prices of parts and components they produce so that the national car manufacturer can decrease its cost, and simultaneously stay competitive. Among the measures taken by the government to remedy the situation, includes the introduction of a new policy for the automotive industry, namely the National Automotive Policy (NAP) in 2006. The NAP was formulated to overcome the challenges facing the national automotive industry as a result of globalization and liberalization activities. The government introduced a new strategic direction and policy framework for the domestic automotive industry in the NAP to enable the local automotive players to sustain their competitiveness, and be viable in the long-term. The objectives of NAP are to promote a competitive and viable automotive sector, in particular the national automotive players; to become a regional hub for manufacturing, assembly, and distribution for automotive vehicles; to enhance value added and local capabilities in the automotive sector; to promote export-oriented Malaysian manufacturers as well as components and parts vendors; and finally to promote
competitive
and
broad-based
Bumiputera
participation
in
vehicle
manufacturing, distribution and importation as well as in components and parts manufacturing (JPM: NAP, 2005).
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In order to support the objectives set for the automotive sector, the government established the Industrial Adjustment Fund (IAF) to provide financial assistance to the national automotive players in terms of interest-free loans and matching grants for various development purposes such as upgrading of machinery, component development
costs,
and
technology
enhancement.
To
further
enhance
the
competitiveness of the national automotive players, the government planned to provide incentives for collaboration projects with bilateral free trade agreements (FTAs) partners, and customized incentives to meet the specific needs of investors; training grants to upgrade the skill and competency levels of the national automotive players’ employees; R&D grants to encourage research and development activities; market development grants for the development of export markets; extension of the ‘Technology Acquisition Fund’ (TAF) to enhance technological capabilities; introduce the Global Supply Program to encourage global export activities; create production centers to locate the automotive players in the designated areas so as to encourage the sharing of infrastructure development costs and other facilities, and to enable the practice of ‘just-in-time’ manufacturing; and finally move towards amending the ‘Approved Permit’ (AP) to overcome the recent AP conflict in the country. Besides the specific measures introduced in the NAP, the government also has taken other measures such as the encouragement of consolidation activities. The national automotive players are encouraged to consolidate and form clusters to achieve international competitiveness under global integration as noted in the IMP3. The IMP3 has identified 12 growth industries in the manufacturing sector, which includes the automotive industry for further development and promotion of the manufacturing sector towards global competitiveness. The export and investment targets for the 12 targeted manufacturing industries are presented in Table 4.9.
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Table 4.9 Exports and Investment Targets for the 12 Targeted Manufacturing Industries Sub-sector
Investment
Exports 2006-2020 (RMbn)
Average Annual Growth (%)
Total
2020
2006-2020
Share
(RMbn)
2020 Share (%)
(%)
11,403.2
7.1
100.0
362.5
100.0
Non Resource-Based
9,202.5
7.1
80.6
232.8
65.3
Electrical & electronics products
7,533.9
6.3
65.9
82.4
23.1
Metal products
514.6
7.6
4.5
44.2
13.6
Machinery & equipment
494.4
6.4
4.3
30.8
7.7
Textile & apparel
248.8
7.8
2.1
13.7
3.1
Transport equipment
232.5
6.3
2.0
42.3
11.6
Medical devices
178.3
7.6
1.6
19.4
6.2
Resource-based
2,200.7
7.1
19.4
129.7
34.7
Palm oil
781.7
7.6
7.0
26.1
7.6
Wood based products
545.2
6.4
4.7
25.4
6.2
Petrochemical products
377.4
6.3
3.3
34.0
9.4
Food processing
244.6
7.8
2.2
24.6
6.2
Rubber Products
239.0
7.6
2.1
12.9
3.0
Pharmaceuticals
12.8
6.3
0.1
6.7
2.3
(Automotive)
Source: Ministry of International Trade and Industry (2006)
The table 4.9 reflects that the export target for the automotive sector is to achieve an average annual growth of 6.3 % in the years from 2006 to 2020, and therefore, the government intends to invest RM129.7 billion to achieve the target set for the period. In view of this, the government introduced ‘Cluster Working Group – Automotive Industry’ (CWG-AI) in 2006 under the purview of the National Implementation Task Force (NITF) to review the automotive sector’s weaknesses and short-falls. The CWG is an initiative drawn from the concept of cluster-based industrial development’ introduced in the IMP 2 and continued in the IMP3 with an added
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emphasis on inter-cluster linkages. In particular, the IMP 2 that covered the period of ten years from 1996 to 2005 was meant to strengthen clusters across the board, and the IMP 3, which spans 15 years from 2006 to 2020, aims to achieve international competitiveness under global integration. Besides, the government also encourages merging activities in terms of partnership with other firms. The partnership cooperation initiated by Proton with foreign car manufacturers include Mitsubishi of Japan, Volkswagen of Germany, Lotus of U.K., Renault of France, Citroen of U.K., and Daihatsu of Japan; However, not all the partnership cooperation has succeeded; worse, none of those partners have really transferred their knowledge and technology effectively as required and aspired by the Malaysian government [pers.comm, Manager 4 (requested anonymity) 16 August 2006, 2:30pm]. The relatively poor transfer of knowledge and technology can be seen in the procurement process, in which, the foreign assembly firms procure most of their parts and components from their own subcontractors. “OEM car makers like Toyota, Honda, Perodua (Daihatsu) and Tan Chong have never in the past invited companies like ours to supply parts or components to them because they have their own suppliers, their products are regarded better in quality than ours” [pers.comm, CEO 2 (requested anonymity), 7 August 2006, 6pm]. The above notion reflects the need for the local firms to strengthen their capabilities in order to meet the quality standards of the foreign firms. The local firms need to find a strategic partner who can effectively transfer knowledge and technology according to international standards. This fact in turn has triggered the study to analyze the capabilities of the national automotive industry, particularly in terms of technology as well as entrepreneurship as these factors are regarded by this study as the major driving factors to achieve competitiveness in the global economy.
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4.9
Summary
This chapter provides a brief overview of the world automotive industry as a background to the discussion of the national automotive industry and the automotive vendor firms. The national automotive industry was initiated by the government with three justifications: to create our own local automotive industry and create employment opportunities for the locals; to encourage entrepreneurship development through the creation of supplier firms; and to foster technological development through the use of technology in the manufacturing activities.
The automotive industry created by Malaysia was solely a state-led initiative; thus, continuous protection from the government has been regarded as essential to the successful growth of the industry. The government introduced high tariff rates, decreased the excise taxes, and introduced other types of assistance to encourage the development of the national automotive industry. With the protection provided, the national manufacturer recorded high performance in the years following the mid-1980s recession. Consequently, the rapid development of Proton led to the growth of the parts and components industry. To support the development of the national parts and components industry, the government provided various assistance measures through programs such as the Vendor Development Program through its Proton Vendor Scheme. The Proton VDP was introduced in 1988 after the launch of the first national car particularly to increase the number of local firms in the automotive sector so as to cater to the needs of the national automotive manufacturer. Besides the VDP, the government also introduced other programs and activities to foster the growth of the national automotive industry. All 110
these government initiatives were meant to protect the national automotive industry from foreign competition. Unfortunately, the protection given to the national automotive players cannot be extended due to the implementation of AFTA. The complete execution of AFTA in 2006 led to a tremendous drop in Proton’s sales. The decreased sales volume has badly impacted the parts and components industry. Thus, the national automotive vendor firms are confronted with intense challenges to improve their productivity and performance, particularly in terms of price and quality. As a remedy to this set of circumstances, the government introduced new measures through its government policy, namely the NAP to continue supporting the development of the national automotive industry. The national automotive industry’s decreased performance is attributed to its competitiveness, which has resulted in poor sales volume. As competitiveness is reflected by capability to compete successfully, the national automotive industry is confronted with the challenge of improving technological capabilities so as to produce competitive products, and entrepreneurial capability to create competitive advantage. Hence, it is essential to analyze technology and entrepreneurship capability of the national automotive industry. This is discussed in the next chapter. Furthermore, the automotive industry is preferred as a case study to analyze technology entrepreneurship capability because it provides an example of new trends in international competitiveness, in which the developments of technological and entrepreneurial capabilities play a critical role (Leutert and Sudhoff, 1999). Against this scenario, the automotive industry is regarded as the relatively appropriate context in which to study technology entrepreneurship in Malaysia.
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CHAPTER 5 RESEARCH METHODOLOGY 5.1
Introduction
This chapter describes the method employed in collecting and analyzing data for the research. The research framework presents the stages involved in the research process, from the basic research plan to revising and formatting the thesis as well as the research schedule to carry out the research project effectively. Next, the approach selected to address the key research objectives is presented. This is followed by data collection and analysis. Finally, the research limitations are briefly discussed prior to the summary for the chapter.
5.2
Research Framework
The framework of this study is shown in Table 5.1. The study is divided into 4 phases: the first phase includes ‘Research Strategy’ activities; the second phase involves ‘Data Collection and Analysis’ activities; the third phase is the ‘Writing’ task; and finally, the forth phase covers ‘Revising, Formatting and Documentation’ activities. The respective deliverables for each phase are also included as reference.
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Table 5.1 Study Framework PHASE 1 Research Strategy
1. Research Plan 2. Find Sources 3. Thesis Outline
PHASE 2 Data Collection & Analysis 1. List all Industry Players 2.Identify Active Vendors 3. Survey Active Local Automotive Vendors – Questionnaire & *Personal Communication 4. Follow up 5.Data examination
PHASE 3 Writing the Thesis
1.Focusing& Organizing 2. Drafting 3.Recommendations 4. Conclusion
PHASE 4 Revising, Formatting, and Documentation 1. Revising 2. Format Paper 3. Cite Sources
*Note: To obtain salient information on actual firm performance and further insights into technology entrepreneurship, personal interviews were conducted with top level management of these firms. Due to assurance of confidentiality, names shall not be revealed.
Procedures and Processes Phase 1: Research Strategy The first step was to strategize the processes involved in developing the thesis. A plan was thought through and systematic procedures were established in order to systematically undertake the diverse activities of research writing. Next, a schedule was drawn up to allocate available time to carry out the necessary work. Then researchable topics were outlined and questions and research goals were constructed. Then, a secondary literature search was carried out, referring to both print and electronic resources. Having been equipped with adequate knowledge on the subject, primary research was conducted; the data obtained was then analyzed qualitatively to capture the salient points relevant to the aims of this study. 113
Phase 2: Data Collection and Analysis Local automotive vendors were identified from the database of Perusahaan Otomobil Nasional (Proton), Ministry of Entrepreneurs and Cooperative Development (MECD), and Malaysia Automotive Association (MAA). The active vendors were identified from the list of active vendors obtained from the Proton Vendor Department and MAA. The questionnaires were delivered to the persons in charge, and subsequently the interviews were carried out with respective individuals. Details of the survey carried out are elaborated in the next part of the chapter. The data was then analyzed using the technology innovation capability audit tool which had been improvised to suit the context of this study. The chapter on ‘Analysis and Presentation of the Study’ was a time consuming task which demanded thorough efforts for its completion; it is therefore discussed in great detail in Chapter 6.
Phase 3: Writing the Thesis This part of the thesis built on the information gathered from both primary and secondary research to develop the chapters. A major concern in writing the thesis was to focus on the main idea while providing the link between the chapters to ensure a continuous flow from one chapter to the other. In other words, forging relationships among ideas is significantly important in presenting the chapters. The thoughts that flow in the mind need to be conveyed clearly for readers to comprehend the subject matter. As the focus of this research is on technology entrepreneurship capability, it was traced from the literature search at the start of the thesis to the conclusion and recommendations
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Phase 4: Revising, Formatting and Documentation Revising, editing, and checking format and citations which constitute the final phase are important to minimize carelessness and a redundancy in ideas. The chapters were checked for grammar errors and flaws in sentence structure.
5.2.1
Research Schedule
The research schedule includes all pertinent and important activities that need to be carried out. In the course of the study, time allocated for each activity had to be altered as data collection and information gathering was dependent on external sources. The external sources referred are the Proton vendors who were the subjects in the case study conducted. Among the institutions and organizations referred are Proton Vendors Association, The MAA, Malaysia International Trade and Industry (MITI), and other related organizations for updates on the performance of the national car manufacturer and its vendors.
5.3
Research Strategy
The study adopted a qualitative approach in analyzing the responses to the research questions outlined in the first chapter of this study. This approach is believed to allow for a good appreciation of the salient points gathered as well as provides the necessary depth of understanding on the subject matter. The sample for this study was specific: the national automotive manufacturer’s vendor firms who supply various parts and components to Proton particularly and a few other OEMs generally. In all, 250 Proton vendor firms with different nature of businesses were selected to measure their technology entrepreneurship capability level.
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This study therefore designed the research questions to identify the sector’s competency level and its strengths and weaknesses from four angles: (a) context, (b) firm, (c) technology; and (d) entrepreneur. This study focused on the activities that lead to achieving competitive advantage, and therefore a set of assessment statements was used for assessing technology entrepreneurship capability of the vendor firms. The World Bank methodology was adopted and improvised to suit the local scenario to assess technology entrepreneurship capability of the automotive sector (Bessant et al., 2000).
5.4
Questionnaire and Analysis Design
Data for the study was collected by means of structured and open-ended questionnaires with reference to the Oslo Manual (OECD, 2005) and Technology Innovation Capability (Bessant et al., 2000) as guidelines. The design of the questionnaire was based on a number of studies such as Community Innovation Surveys (CIS) that had used the Oslo Manual as a guideline in collecting standardized information on innovation activities of firms assessed, and the Technology Innovation Capability audit tool as a framework to assess firm-level technology entrepreneurship capability. The Oslo Manual’s questionnaire has been the basis for CIS surveys, both in European and developing countries. However, as the situation in developing economies is different, an adapted version of the Oslo Manual questionnaire is used in these countries. The developing countries from the Southeast Asian region that have carried out innovation surveys are Taiwan, Singapore, Malaysia, Thailand and South Korea. Malaysia conducted its first national innovation survey in 1995, using a sample of 815 companies that were identified as possible innovators from the Malaysian Science and Technology information Centre (MASTIC) R&D survey, SIRIM (ISO 9000 recipients), MITI (R&D incentives recipients) and the tenants of Technology Park
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Malaysia (TPM) (MOSTE, 1996). Consequently, the second national innovation survey of registered firms was carried out for the period of 1997 -1999, and the third innovation survey for the period of 2000-2001, using the same stratified sampling approach used in the second survey (UNU-INTECH, 2004). The generic features of innovation surveys are based on three major typologies: general information; science, technology and R&D measures; and innovation questions. The general information questions encompass the firm profile, firm size in terms of number of employees and turnover, international linkages with foreign firms and the competitive environment. Questions on science and technology (S&T) and R&D measures focused on the expenditure of science and technology and R&D. Finally, the questions on innovation consisted of objectives of innovation, sources of information, collaboration in innovation, barriers to innovation, and financing of innovation. The Malaysia innovation surveys did not cover questions under the category of science and technology and R&D measures. Contrarily, questions under the category of innovation were mostly covered, except for the questions on impact of innovation; the questions on government assistance for innovation were dealt with quite extensively. The differences on the emphasis of questions asked between developed and developing countries are shown in Table 5.2.
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Table 5.2 Comparison of Innovation Survey Questionnaires No Innovation Survey Questions 1 General Information Questions 2 Science and Technology and R&D Measures
3
Innovation Questions
European CIS
Canada
Malaysia
Colombia
South Africa
x
x
x
x
x
No. of R&D personnel
Employee education & training
-
Except financing of innovation
Added Except financing Government assistance of for innovation innovation
Except cooperation and alliances in R&D, IP and technology transfer x
Employee education & training, no. of R&D personnel, and technology transfer Added innovation management tools
Source: UNU-INTECH(2004) Note:
x indicates that all questions under the category have been covered
This study has adopted questions from the innovation surveys with some modifications: it has questions which were lacking in Malaysia’s previous innovation surveys such as employee education level and employee training, and other questions such as the usage and optimization of internet service, R&D personnel, investment in R&D, sources of financing for R&D activities and other questions pertaining to R&D. In addition, questions pertaining to the entrepreneurship discipline were also included. This study has also referred to the innovation capability audit tool used by the World Bank to acquire data on technology innovation capabilities. The technology innovation capability audit tool designed by Bessant et al.(2000) categorizes a firm as ‘Passive’, ‘Reactive’, ‘Strategic’ or ‘Creative’. Firm assessment is based on nine key dimensions of technological activity: awareness, search, core competencies, strategy, 118
assessment/selection, acquisition, implementation, learning and linkages. The results obtained from these dimensions are referred to a simple model to differentiate between degree of awareness, which encompasses dimensions of awareness, search and strategy, and degree of preparedness, covering dimensions of core competency, assessment, acquisition, implement, learning and linkages. The innovation capability audit tool has been adopted and improvised to meet the main aim of this study, which is to determine technology entrepreneurship capability of the firms. As such, this study did not limit its scope of analysis to just the innovation field; instead, the scope has been broadened to include questions on the entrepreneurship discipline. The key activities are selected based on the four constituencies of technology entrepreneurship as highlighted by Shane and Venkataraman (2003) in their special issue on technology entrepreneurship, which includes industry, firm, technology and entrepreneur. However, the term ‘industry’ is replaced with ‘context’ as it is regarded more suitable in this study. There are eight key activities selected with each having two key dimensions. They are ‘awareness’ and ‘search’ for the context factor; ‘strategy’ and ‘core competency’ for the firm factor; ‘technology paradigm’ and ‘linkages’ for the technology factor, and ‘learning’ and ‘leadership’ for the entrepreneur factor. In addition, the categorization of dimensions for degree of awareness and degree of preparedness has also been somewhat modified. In analyzing the degree of awareness, this study has included the ‘awareness’ and ‘search’ dimensions only; while in analyzing the degree of preparedness, all other dimensions have been included.. It is hoped that the improvised capability tool is of relevance and more appropriate to analyze technology entrepreneurship capability of the firms.
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5.5
Data Collection
5.5.1
The Database
A database of vendor firms was established to enable the information gathered from the respective officers of the Proton Vendor Department to be sorted and used according to the research needs. For the purpose of this study, the vendor firms were clustered according to four major manufacturing and related activities: engineering design; tool, die and mould; parts and components; and distribution. This study, however, focused only on the parts and components activity as it is here that vendor’ involvement is highest in comparison to other vendor activities. Furthermore, an automobile is mainly made up of parts and components. As Chee and Fong (1977) succinctly state: “an automobile is a complex product and consists of about 3,000 different components many of which involve different production processes.” Therefore, this study regards parts and components as the most suitable activity to be explored and examined. The data was obtained from the questionnaires sent to the 250 vendors as well as from the interviews conducted during the fieldwork period from August 2003 to December 2006, and in 2007. Though 250 questionnaires were sent out, the sample for this study consists of 217 vendor firms that replied to the questionnaires, which gives a response rate of 87 %; of this number, 56 vendor firms or 22% were totally engaged in the study, from acceptance of the questionnaire to the interviews conducted. Some Proton vendor firms declined to reveal any data pertaining to firm’s performance as they feared competition from other vendors despite assuring confidentiality; the information requested was regarded as a trade secret by some vendors. In addition, there were also vendors who felt that the interviews were a waste of their time. However, having a sample of 56 vendor firms is sufficient as the emphasis
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of this study is on qualitative rather than the quantitative aspects. In addition, the sample size of 56 vendor firms is larger than the number of firms included in the innovation capability studies conducted at Korea and Thailand; Korea covered 25 firms and Thailand included 21 firms in their technology innovation capability studies.
5.6
Interview
The interviews were carried out in 2006 and in 2007 with the help of structured and open-ended questionnaires. The interview was the main source of reference in this study, for the analysis emphasized the salient points obtained from the discussion with the respondents and other resources. The information acquired was treated with confidentiality and analyzed critically to arrive at the desired outcome. To note, the interviewees were essentially top level management that included senior executives, managers, chief executive officers (CEO) and the entrepreneurs. All the respondents were informed and reminded prior to the actual day of interview, which was held on the ‘Proton Vendor Briefing Day’; a copy of the questionnaire was sent to them via e-mail and fax. Additionally, the Proton Vendor Management Section provided essential aid by uploading the questionnaire, including interview questions on their website known as ‘PRECISE’. PRECISE is a website used by Proton as a communication tool with all its vendors. Any information, updates or surveys are usually uploaded on this site for easy access by all its vendors. Similarly, this study’s questionnaire was uploaded on to ‘PRECISE’ to provide easy and quick access to all its vendors, and to ensure immediate response and full cooperation from them. The respondents were therefore better prepared, and indeed some of them came with supporting documents to provide additional information regarded as essential for the discussion.
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For a smooth interview, three undergraduates from public universities were employed as enumerators; they had been trained and given proper guidance and useful information to ensure that they understood the methodology and purposes of the survey. The researchers had to go through pre-tests of the questionnaire to acquire knowledge on the technical aspects of interviewing, including essential communication and presentation skills and important interviewing techniques. It was only after going through such training and skills enhancement were the research assistants able to gain the confidence to conduct the actual interview with the respective individuals from Proton vendor firms. Further, the Proton Vendor Department had also assigned three of its staff, an executive and two clerks, to assist in the survey. The executive informed the vendors about the survey being carried out and requested for full cooperation from all of them; meanwhile, the two female clerks helped the researchers to conduct the interview and collect data on the required information. As the Proton staff had been previously exposed to providing assistance to researchers to conduct interviews, no problems were encountered from Proton staff during the interview exercise. Meanwhile, to ensure confidentiality of the data provided by the respondents, effort was made to explain to them that the survey was solely for academic purpose, and that no private or government agency was involved or had an interest. Moreover, the respondents were promised that as the responses were considered confidential, any part of the data or their business identity will not be disclosed to any unauthorized person. A written assurance was provided on the cover page of the questionnaire that all information would be kept strictly confidential. Next, the interviews were followed up by phone calls to get details on the parts of the questionnaire that were not completed. In some instances, the respondents called the researchers to share their views on certain issues raised in the questionnaire and
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other pertinent issues. Some vendors felt that they ought to participate in the survey due to their involvement with Proton as the major supporter for the survey, the manufacturer that the vendors are dependent on for their business activities.
5.7
Data Processing
The data collected from the interviews were processed using simple Microsoft Excel, Microsoft Word and Standard Package for Social Sciences computer program (SPSS) mainly at MIGHT METEOR Advanced Manufacturing Institute (AMI), and the library of University of Malaya. AMI is a subsidiary of the government agency, MIGHT, which conducts technology-related training for all levels from fresh college to university graduates up to senior levels of management. AMI provided relevant assistance, particularly in terms of network establishment with the national automotive manufacturer, Proton and its vendor firms, printing of relevant documents, and of importance, was providing the space to carry out the task of writing the thesis in a rather comfortable environment. Prior to data entry, the questionnaires were first checked for consistency and completeness. Most of the answers were pre-categorized and pre-coded. The postsurvey coding involved only those questions that were qualitative in nature and openended. A systems analyst was employed to guide the use of the SPSS program. However, most of the quantitative analysis was carried out personally using the Microsoft Excel and Microsoft Word programs. As the main concern of this study was to conduct qualitative analysis, more effort was devoted to interpreting and examining the salient information obtained from the interviews and the focus group discussions. The analysis was carried out with reference to the technology innovation capability audit tool.
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5.8
Conceptual Framework
The study framework was adapted from the notion of Shane and Venkataraman (2003) who used a variety level of analysis to discuss the technology entrepreneurship theme. In their study on technology entrepreneurship, they included entrepreneur, firm, industry, and technology to examine the theme. In this study, the four elements have been adopted with a change in the term ‘industry’ to ‘context’. In this study, these four elements serve as the four constituencies of technology entrepreneurship, as presented in Figure 5.1.
Context
Entrepreneurial
Technology entrepreneurship
Firm
Technical
Technology
Entrepreneur
Figure 5.1 Technology Entrepreneurship Framework [adapted from the definition of technology entrepreneurship theme by Shane and Venkataraman (2003)]
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Figure 5.1 illustrates the four major factors of technology entrepreneurship that are inter-related to each other, which implies that the four factors complement and affect each other. For instance, the change in the context factor affects the performance of the firm, technological development and entrepreneur’s capability; this phenomenon is discussed in the context of the automotive industry in detail in the analysis chapter.
5.8.1
Technology Entrepreneurship Capability Dimensions
The term ‘technology entrepreneurship capability’ is used in a similar vein as the term “technology innovation capability” introduced by Bessant et al.(2000) to refer to those activities that enable firms to create competitive advantage. The ‘technology entrepreneurship capability dimensions’ are the key activities selected with reference to the four factors of technology entrepreneurship as noted earlier. Each technology entrepreneurship factor constitutes two key activities. The context factor includes the awareness of the changes and the requirement for improvement, and the search ability is related to the exploration of opportunities and threats; the firm factor concerns the building of technology strategy to run the business successfully, and the constructing of distinct core competencies; the technology factor encompasses the ability to master a particular technological paradigm, and the ability to form and develop linkages with affiliates; and the entrepreneur factor looks into the ability to acquire codified and tacit knowledge, and implement them appropriately, and the ability to lead the firm’s functions effectively and successfully. In short, there are 8 key activities selected from the four constituencies of technology entrepreneurship. In today’s context of globalization and increasing competition, it is essential for the entrepreneur and his staff, particularly the senior management to acquire the ability to recognize environmental changes and technological needs of the firm to be fairly competitive in the market. As such, the ability to scan the environment is significant in
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order to detect any threat or opportunity available. In most innovative type of firms, threats are converted to opportunities. At the firm level, formulating an appropriate technology strategy is essential to achieve the firm’s vision and mission; therefore, it should fit well into the firm’s business strategy. Strategies should be structured effectively for a firm to achieve competitiveness. Only then will a firm be able to develop its core competencies. Building distinctive core competencies is vital for creating competitive advantage for the firm. In terms of technological development in a firm, it is necessary for the entrepreneur and his staff to have knowledge of the technology being used, and the knowledge underlying the technology models, which frame what the industry is using, developing and improving; this is termed in this study as ‘technology paradigm’. Only then, will the firm be able to carry out improvement activities and remain competitive in the market. Also of importance is for the firm to establish linkages to sources of knowledge and market improvements. Linkages can take various forms such as collaboration, joint-venture, licensing and others. In addition, this study looked into the key activities of an entrepreneur such as learning and leadership capabilities. Learning is an important activity for competence building; therefore, this study has emphasized the learning capability that needs to be acquired by the entrepreneur particularly and generally by his employees. It is essential for an entrepreneur to have both codified and tacit knowledge to enable him to lead his firm successfully. Leadership is regarded an important quality in an entrepreneur as it determines the success of a firm. A good leader is able to organize, manage and operate his firm well; therefore, an entrepreneur should possess leadership quality. Having identified these dimensions, a series of questions to help assess the firm’s technology entrepreneurship capability level was developed. The responses were
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coded on a score of 1 to 4 to show the capability level of each activity; score 1 denotes ‘strongly disagree’, score 2 merely ‘disagree’, score 3 indicates merely ‘agree’, and score 4 represents ‘strongly agree’. The detailed questions that capture the data on each of these key activities of technology entrepreneurship, together with assessment statements, are attached in the appendix. From the scores obtained, the overall technology entrepreneurship capability level of a firm can be calculated, and simultaneously the strengths and weaknesses in terms of eight key activities and four major factors of technology entrepreneurship are identified.
5.8.2
Graphical Representation of Findings
Following the determining of scores from the 8 dimensions, they are presented in a graphical way using a Radar Diagram. The score obtained for each dimension is presented over the highest possible score, which is 4, and is termed as the ‘Best Practice Model’ with reference to the best practices in general. The radar diagram presents the capabilities of the eight technology entrepreneurship dimensions. With reference to the radar diagram, a profile of technology entrepreneurship capability is generated for the surveyed vendor firms. The radar diagram will demonstrate the strengths and weaknesses of firms. The average score of the capabilities achieved is then used to determine the type of firm assessed.
5.8.3
Analysis of Findings
Upon obtaining the average score of the technology entrepreneurship capability, the firms are categorized into four main categories on a scale of 1 to 4. This study uses the total average score derived from the 8 dimensions, namely the ‘Total Average Dimension Score’ (TADS) which is achieved by adding up the average scores from all
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the 8 dimensions as illustrated in Table 6.10 of Chapter 6. The scale of categorization is in ascending form, from the lowest to the highest capability level. Level 1 indicates ‘passive’ type of firm, level 2 denotes ‘reactive’ type of firm, level 3 represents ‘proactive’ type of firm, and finally level 4 represents ‘innovative’ type of firm. The characteristics of each type of firm are set in accordance to the key activities of technology entrepreneurship in achieving competitive advantage. Details on characteristics of the four types of firms are elaborated as follows:
Firm Type: Passive Passive firms refer to those firms that have poor technology entrepreneurship capability. They are not attentive to the development and changes that occur around them; for instance, they do not know of the latest policy changes or policy implementation, economic changes, social needs and trends, and technological development and advancement. They are lagging on the cutting edge issues. As such, they do not recognize the need for any change in their firm to respond to up-to-date requirements and changing needs. They do not have the knowledge of what to change or where to improve, nor the knowledge-base to identify the set of information inputs, knowledge and capabilities that they should draw on to address problems. This is partly a result of the poor leadership quality possessed by the entrepreneur. Thus, they are unable to formulate an appropriate technology strategy to meet their business goals. This type of firms is at very high risk when challenged by their competitors, particularly in today’s highly competitive world.
Type B Firms: Reactive Reactive firms refer to those firms that are of relatively average level of technology entrepreneurship capability, which means that they are aware of the latest changes and
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development that occur around them, and are comparatively average in their tacit knowledge to ‘tackle’ those problems. They only have rather average information, limited scope of experience and less appropriate skills for continuous improvement. Though they are able to respond to the development and changes that take place around them, they are ‘somehow’ moderate in exploiting the challenges to become opportunities for them, or in other words for the advantage of their firms. Their strategies are averagely defined; thus, they develop relatively moderate technology strategy. They have average knowledge on the particular technology being used. The entrepreneur has relatively average capability in leading the firm’s functions. In addition, the firm has a relatively average built network, which results in less effective technological collaboration. In all, these firms are relatively average in their overall technology entrepreneurship capability development.
Type C Firms: Pro-active These firms are always attentive and realize the changes that take place around them; they recognize the need for change and for continuous improvement and development. These firms are able to develop a good technology strategy, for they have clear vision and mission. They possess adequate codified knowledge, sufficient information inputs and good tacit knowledge. The entrepreneurs have fairly good capabilities to lead the firms towards innovation or improvement type of activities for new market segments and to achieve competitiveness; as a result, some of these firms are capable of inventing or creating new products or processes. However, they have relatively little creative skills. The entrepreneurs are fairly good in looking for innovative solutions, and to some significant degree may share their problems with their collaborators who share the same interest. They are fairly capable of exploiting the opportunities to the advantage of
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their firms. In general, these firms have the capability to react to the changes that occur around them but are ‘somehow’ limited, for they have moderate non codified knowledge and innovative skills.
Type D Firms: Innovative Innovative firms are those firms with the highest degree of informed knowledge of technology and innovation, and with the highest degree of entrepreneurship practice. These firms are well aware of the events or the changes that occur around them, and are always kept up-to-date with the latest technological developments. Therefore, they are always the pioneer when exploring opportunities. They are quick in taking action or making decisions, for they have an adequate knowledge base. They also know ‘how’ to react to any change and ‘what’ needs to be done in order to be prepared for the future. Indeed, having acquired both tacit and codified knowledge, they are able to exploit the threats faced to the advantage of their firms. Thus, these firms have the necessary skills and competency to compete with the other players. The entrepreneurs are capable of becoming the leaders of the selected industrial sectors, for they dare to take risks, or in other words, they are ‘risk takers’. They invest quite heavily in research and human development activities, and strongly encourage innovation and related activities. The entrepreneurs are able to lead most of the firm’s functions successfully. In fact, most of these firms reward those who participate in invention or innovation activities, which is essentially the effort taken by these firms to sustain their competitiveness, and simultaneously produce competitive products. In all, these firms have developed strong technology entrepreneurship capabilities. The categorization of firms into 4 types - ‘Passive’, ‘Reactive’, ‘Proactive’, and ‘Innovative’- is very significant in identifying the dimensions that can be improved, and the dimensions that need further improvement in order for the firm to move up along the
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ladder of technology entrepreneurship capability, and simultaneously to sustain its competitiveness. Consequently, the results of each firm are used to differentiate the firms in terms of ‘degree of awareness’ and ‘degree of preparedness’. ‘Degree of awareness’ refers to the degree to which the firms are aware of industrial environment issues and the ‘degree of preparedness’ refers to the degree to which the firms are prepared to improve practically. Bessant et al.(2000) covered the dimensions of ‘awareness’, ‘search’ and ‘technology strategy’ in the ‘degree of awareness’, and the dimensions of ‘core competency’, ‘assessment’, ‘acquire’, ‘implement’, ‘learn’ and ‘linkages’ in the ‘degree of preparedness’. However in this study, the ‘degree of awareness’ refers to the dimensions of ‘awareness’ and ‘search’, and the ‘degree of preparedness’ covers the other dimensions including strategy, core competency, technology paradigm, linkages, learning and leadership. The results obtained for each firm are presented graphically using a scatter plot diagram. The scatter plot diagram represents the different positions from the results of individual firm according to their technology entrepreneurship capability. The average score of degree of awareness against the degree of preparedness enables the firm to be categorized according to the four main categories of firm, that is, passive, reactive, proactive and innovative with their characteristics.
5.9
Research Limitations
The limitations faced in this study are basically in terms of the subjects of study and respondents. This study focused on the automotive sector for it is interrelated to other industrial sectors. The automotive sector is regarded as a complex sector, for a complete car consists of thousands of parts and components that are made by many different industrial sectors. Furthermore, the national automotive industry has gained much
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recognition from the Malaysian government, particularly in terms of the protection provided to the national manufacturer, Proton and its vendor firms. A second limitation noted was the scoring criteria used in determining technology entrepreneurship capability level. The criteria used in the scoring were subjective and therefore may not provide a clear demarcation of scoring procedures between the dimensions; its qualitative nature necessitated a subjective scoring for interpretation of the salient information provided. The third limitation of this study is the difficulties faced in identifying the key technology entrepreneurship activities, and using these to analyze technology entrepreneurship development at the macro level and to examine technology entrepreneurship capability of the firms at the micro level. Finally, the fourth limitation that was obvious was the dearth of literature in the newly emerging field of technology entrepreneurship. The limited literature is constrained to the IT and ICT research areas. Therefore, additional effort was made to review other pertinent fields of study to provide a broader view of technology entrepreneurship and to comprehend better the main theme of this study, which is technology entrepreneurship capability. Thus, it is hoped that the new dimension explored in this study would be an addition to the relatively limited technology entrepreneurship literature in Malaysia.
5.10
Summary
This chapter describes the methodology adopted in this study. It elaborates the approach selected, namely case study and the various processes involved in collecting and analyzing the data. A framework was conceptualized to guide analysis, complemented with a set of 8 dimensions that were identified as the key activities in achieving competitive advantage. The framework consists of 4 constituencies and 8 dimensions
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were used as a tool in assessing the technology entrepreneurship capability of the firms. The results of the analysis are elaborated, interpreted and discussed in Chapter 6 to achieve the main objectives of this study.
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CHAPTER 6: ANALYSIS AND PRESENTATION OF THE STUDY 6.1
Introduction
This chapter aims to analyze the technology entrepreneurship capability of the national automotive industry. The chapter begins with a brief introduction to the technology entrepreneurship framework, and continues with a discussion and analysis of the major characteristics of the national automotive vendor firms. The information obtained is then used to broaden the understanding of the study theme, which is technology entrepreneurship capability. Consequently, the study analyzes the overall technology entrepreneurship capability of the national automotive parts and components industry prior to summarizing the chapter. The technology entrepreneurship framework used in this study is as illustrated in Figure 5.1 of Chapter 5. The framework illustrates the dynamic interaction between information external to the firm within a particular context, the carrying out of activities in a firm, the appreciation of technology as the engine of growth of the firm, and the preparedness of the entrepreneur to drive entrepreneurial activities. As each of these factors is significant, the interaction between them is especially important. The context provides the outline to the framework by detailing the policy changes, acts and political issues; the firm develops the strategies to create competitive advantage and sustainability; the technology details the ways to optimize the benefits and manipulate them for more gain; and the entrepreneur builds on his knowledge-base in exploring and exploiting opportunities, and in developing innovative problem solutions. Against this explanation, this study analyzes the issue of technology entrepreneurship using four key factors that are not only integrated but also complement each other. For example, a change in the context has an influence on a firm’s performance; the appropriateness of technology used; and the preparedness of the entrepreneur in addressing the challenges emerging from the changes that occur.
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Hence, this study looks into all these four significant factors collectively in analyzing the technology entrepreneurship issue.
6.2
Basic Characteristics of Proton Vendor Firms
Prior to analyzing the technology entrepreneurship issue, it is essential to have a view of the industry under study, particularly the vendor firms’ characteristics. The national manufacturer’s vendor firms’ basic characteristics are briefly discussed. The automotive parts industry is divided into six main categories according to the nature of business of the industry; they are: 1. Casting, 2.Electrical and Electronics, 3. Metal, 4. Plastic, 5. Rubber and 6. Others. These automotive parts and components firms are mainly owned by the Malays, who are the majority owners of the Proton vendor firms; the non-Malays, namely the Chinese and the Indians; and the Foreigners. Some of the Proton vendor firms are large in size, while others fall into the small- and medium-sized category. These vendor firms could be a partnership, public listed, private limited or a sole proprietorship. As these firms were established in different years, this study has categorized the year of establishment of the Proton vendor firm according to the four phases of Malaysia’s entrepreneurship development as discussed in the previous chapter; Phase I refers to the years 1957 to 1970; Phase II refers to the period from 1971 to 1980; Phase III to the years from 1981 to 1990; and finally Phase IV refers to the years from 1991 to 2006.
6.2.1
Year of Establishment and Ownership Structure
The study data reveals that most of the Proton vendor firms were established during the fourth phase (48.85%), followed by the firms established during the third phase (37.33%); 12.44 % of the firms were established during the second phase, and only 1.38
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% of firms were established during the first phase. Firm establishment according to the four different phases as set by this study is presented in Table 6.1.
Table 6.1 Proton Vendor Firms Establishment According to Four Phases Phase 1 2 3 4
Year 1957-1970 1971-1980 1981-1990 1991-2005 Total
No. of Firms 3 27 81 106 217
Percentage of Firms (%) 1.38 12.44 37.33 48.86 100
In term of the age of the Proton vendor firms, the study found that the youngest vendor firms are 1 year old, and the oldest firm is 41 years old. The average or mean age of the firms in the sample is 16.24 years, while the median age is 16 years. The mode age of the vendor firms is 6 years, and there are 26 firms of this age; most of these firms are found to be involved in the ‘metal’ type of business. Meanwhile, the other vendor firms of different ages are involved in business of a different nature, including electrical and electronics, metal, casting and others. Thus, there is no particular pattern in relation to the age of the vendor firms and business nature, except for the 26 vendor firms who are all 6 years old. Besides, the vendor firms’ average age reflects the timing of Malaysia’s industrialization, and the vendor firms’ entry into the automotive industry business. The Proton vendor firms are on average young in comparison to other successful OEMs vendor firms’ age. As such, more effort is needed for the local vendor firms to strengthen their capability so as to create competitive advantage for their firms. Therefore, the local vendor firms believe that they need more time to be in pace with their competitors; this has been voiced in the interview conducted: “the automotive
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industry for example started as early as before World War II in Japan, and at least 40 years ago in Korea. Their industry has already come of age, whereas ours is still a fledgling at 20 years. We need more time to catch up” [pers.comm, CEO 3 (requested anonymity), 17 August 2006, 4pm]. Needless to say, the situation and circumstances then were different, and the fact that the local automotive vendors are in need of more time to be fairly competitive as in the case of the Korean and Japanese automotive vendors is rather untimely with the current globalization era that emphasizes speed in the marketplace. Therefore, the ‘time’ factor needs to be manipulated by the vendors themselves for their firms’ advantage; they should be able to convert the threat to an opportunity for themselves. Though they are less competitive, they can strengthen themselves with strategic efforts and appropriate capability. Generally, age denotes maturity; as such, most of the Proton vendor firms are regarded as ‘young’ compared to the other OEM vendor firms such as the Japanese and Korean vendor firms. For example, the metal type of business nature requires many years of experience for the vendors to accumulate and gain tacit knowledge in order to develop skills and competencies. It would appear then that the Proton vendor firms involved in the metal type of business would require more years of experience to develop their capabilities, particularly in terms of technology in order to be able to use relevant tools and machines, and to be able to read and understand the ‘blueprints’. In terms of Bumiputera achievement, the study discovered that most of the Bumiputera vendor firms (48.86%) came into existence during the fourth phase, which is from 1991 to 2006. About 44.32 % of the Bumiputera firms were established during the third phase, 5.68 % during the second phase, and only 1 vendor firm or 1.14 % was established during the first phase. The year of establishment of the Bumiputera firms in comparison to the other vendor firms’ year of establishment is presented in Table 6.2.
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Table 6.2 Proton Vendor Firms’ Year of Establishment
Phase
1 2 3 4
Year
19571970 19711980 19811990 19912005
Total
No. of Bumi Firms
% of Bumi Firms
No. of Foreign Firms
% of Foreign Firms
No. of Non Bumi Firms
% of Non Bumi Firms
Firm W/Out Ownership Info
% of Firms W/Out Ownership Info
No. of Vendor Firms
%of Vendor Firms
1
1.14
0
-
2
3.77
0
-
3
1.38
5
5.68
6
10.53
14
26.42
2
10.53
27
12.44
39
44.32
17
29.82
23
43.40
2
10.53
81
37.33
43
48.86
34
59.65
14
26.42
15
78.95
106
48.85
88
40.55%
57
26.27%
53
24.42%
19
8.76%
217
100.00%
Based on the analysis, the number of vendor firms established during the first phase, between 1957 and 1970 was very few, and accounted for 1.38 % out of the total number of firms assessed. The small number of vendor firms during this period is attributed to poor government attention to the manufacturing sector. The concentration of the economy during the first phase was on commodity-based agriculture. The first political leader or the first Prime Minister, Tunku Abdul Rahman was interested in raw materials production; as such, government effort then focused on cashcropping agriculture. Subsequently, the second Prime Minister, Tun Abdul Razak diverted his attention to poverty eradication and reducing the identification of economic function with race through the implementation of a new government policy, namely the NEP. The NEP encouraged the participation of the Malay ethnic group and other ethnic groups, collectively known as the Bumiputeras, to participate in the commercial and industrial sectors. The number of Bumiputera-owned firms started to increase steadily during this period, and this is evidenced by looking at the analysis shown in Table 6.2 which recorded a gradual increase from 1.14 % to 5.68 % during the second phase. Similarly, economic development under the leadership of the third Prime Minister, Tun Hussein Onn, was to improve the economic imbalances between the communities. 138
Nevertheless, the fourth Prime Minister Tun Dr. Mahathir made radical changes by diverting the focus from commodity-based agriculture to the manufacturing sector with particular emphasis on the electrical and electronic products, chemicals, processed foods, textiles, processed timber and rubber products, and steel and automobile industries. This resulted in an increase in the number of manufacturing firms; the number of Proton vendor firms for instance increased from 27 to 81 firms, which reflected an increase of 24.89 % from the previous phase (1971-1980) as shown in Table 6.2, and graphically in Figure 6.1
Proton Vendor Firms’ Establishment Number of Vendor Firms Established
50 40 30 20 10 0 1957-1970
1971-1980
1
1981-1990
2
1991-2005
3
4
Year of Establishment According to Phases Bumi Firms
Foreign Firms
NonBumi Firms
Firms W/Out Ownership Info
Figure 6.1: Proton Vendor Firms’- Year of Establishment & Phases
Political leader interests and differing government policies help to explain the economic development of the nation, notably the establishment of firms in the automotive industry. As most local vendors firms were established during the fourth phase, it indicates the relatively young age of most firms. The observation that non-Bumiputera vendor firms, however, were established mostly in the third phase indicates that the non-Bumiputera vendor firms are generally older than the Bumiputera firms. The older age of the non-Bumiputera firms shows that the non-Bumiputeras have shown interest 139
and participated in the manufacturing sector earlier than the Bumiputeras. The earlier involvement of the non-Bumiputeras in the manufacturing sector was partly the result of government’s encouragement to get more locals to participate in major economic activities. On the other hand, Bumiputeras involvement in the manufacturing sector was rather gradual. The number of Proton vendor firms established by the Bumiputeras has increased steadily from 5 firms in phase 2 to 39 firms in Phase III, and 43 firms in Phase IV. This fact was complemented by the introduction of government programmes and various types of assistance to realize the objective of restructuring the socio-economic imbalances as set in the NEP. Among the programmes introduced are: the BCIC programme, Proton Vendor Scheme, Franchise Development Programme, Credible Bumiputera Contractors Programme, and financial assistance such as Financial and Credit Assistance for easy availability of loans and finance, Umbrella Concept Marketing Scheme, Manufacturing Assistance Scheme and Venture Capital Scheme. In particular, the aftermath of NEP enabled the Bumiputeras to own and manage at least 30% of the commercial and industrial activities in all sectors of the economy. More Bumiputeras were seen to emerge as entrepreneurs in the commercial and industrial sectors, mainly with the assistance provided by the government that included financial aid, training, technical assistance, and guidance and consultation by the government agencies. Looking at the remarkable increase in the number of Bumiputera and nonBumiputera involvement in the industrial sector, the government of Malaysia continued with a similar policy as the successor of the NEP. The NEP was continued with the NDP spanning the period 1991 to 2000, with the focus on raising workforce quality and developing expertise in sophisticated industries.
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6.2.2
Size of Firms
The study found only small, medium and large-sized firms, and none of micro size (Table 6.3) by applying the definition of SME for small-and medium -sized firms as one which employs less than 150 workers, Table 6.3 shows that 58.1 % of the firms are small and medium sized. Based on a similar definition of SME, a large-sized firm is defined as one that has more than 150 workers; Table 6.3 shows that 29.5 % of the sampled firms are large sized.
Table 6.3 Number and Percentage of Proton Vendor Firms Based on SME Status SME Status Small and Medium Large Unknown Total
Number of Firms 126 64 27 217
Percentage 58.1% 29.5% 12.4% 100%
The analysis on Proton vendor firms identified the presence of 28 large-sized firms owned by the Bumiputeras, 16 large-sized firms owned by the Foreigners and 17 by the non-Bumiputeras. Likewise, for the sampled SME firms, 60 of the vendor firms are owned by the Bumiputeras, 35 by non-Bumiputeras, and 19 by the Foreigners. Besides the large, and small and medium-sized firms, there are 22 foreign-owned firms and 1 non-Bumiputera owned that could not be categorized as either large or small or medium sized firm due to lack of information.
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Table 6.4 Firm Size and Ownership Structure Ownership Bumiputera Non-Bumiputera Foreign Unknown Total
Large 28 17 16 3 64
Firm Size According to SME Status SME No Info 60 35 1 19 22 12 4 126 27
Total 88 53 57 19 217
At times, the size of firm reflects the firm’s performance drive; Table 6.5 presents vendor firm performance in relation to sales records.
Table 6.5 Automotive Vendor Firm Size and Firm Performance SME Status
No. of Firms
Below Average Sales Record
Above Average Sales Record
No Sales Record
Performing Firm (%)
Non Performing Firms (%)
Large Small & Medium Unknown Total
64 126
42 83
18 15
4 28
28 12
66 66
27 217
0 125
0 33
27 59
15
58
The average sales record of the firms is used as an indicator of performance of the vendor firms; there are two average sales records used: one for the large-sized firms and another for the small- and medium-sized firms. The firm that has higher sales records than the average sales is categorized as a performing firm; while a vendor firm with sales records below average is categorized as a non-performing firm. Of the total of 64 large-sized firms, 18 firms (28%) recorded above average sales. Meanwhile, for the small- and medium-sized firms, 15 out of 126 firms recorded above average sales performance. This analysis shows that the ‘large-sized’ Proton vendor firms recorded better sales performance compared to the small- and medium-sized vendor firms. Though the percentage of the sales performance of both large-, and small- and medium142
sized vendor firms differ, the non-performance rate is the same, which is 66% for both categories of firms. The similarity in the non-performance sales record of the large-, and small- and medium- sized firms is due to the lack of information on the sales record of few firms as shown in Table 6.5. It is a norm in most studies that the large-sized firms perform better than the small- and medium-sized firms. The better sales performance of most of the large-sized firms is basically due to better facilities, broad network, and stable financial status. In the case of Proton vendor firms, the large-sized vendor firms have better facilities that include infrastructure and resources. In terms of resources, the large-sized firms have sufficient stock available to develop parts and components as scheduled. They have sufficient money to purchase the raw materials in advance and make them available prior to the actual usage date. The time to wait for the raw material is omitted, which ultimately enables the large-sized vendor firms to meet the customer’s expected date of delivery as scheduled; such practice shortens the product cycle. In contrast, most of the small- and medium-sized vendor firms face difficulty in purchasing sufficient raw materials for the production of the next cycle due to financial limitations. They have to wait before starting each production process; at times, their production is disturbed as the required material does not arrive on time. The delay in the arrival of the material causes failure on the part of the small- and medium-sized vendor firms to meet the dateline, which then lengthens the product cycle. In terms of network, the large-sized vendor firms have a wider network of suppliers and customers. The size usually convinces the customers that the vendors are capable of meeting their expectations; thus, the large-sized firms are at an advantage compared to the small- and medium-sized vendor firms. As such, the large-sized firms are able to secure more business opportunities, which imply that the market scope is greater in comparison to the small- and medium-sized firms. This enables the large-
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sized vendor firms to perform better than the small- and medium-sized vendor firms; as such, 18 % of the large-sized vendor firms achieved above average sales records as presented in Table 6.5. Besides, the large-sized Proton vendor firms are financially more stable and are able to sustain their businesses at difficult moments, particularly when the industry was badly affected by policy changes such as the implementation of AFTA in 2006. This is as noted by some of the vendors: “we managed to sustain our businesses after the implementation of AFTA and NAP, and even when the product price kept decreasing and cost of the raw material rising” [pers.comm, CEO 5 (requested anonymity), 25 August 2006, 9am]. Often, the large-sized vendor firms are capable of overcoming the challenges by implementing immediate recovery plans through expert advice, collaborative effort and out-sourcing. Some of the large-sized firms immediately collaborated with other industrial players, or, and higher learning institutions, or, and research institutions to produce competitive products despite the high cost. Thus, the large-sized vendor firms could sustain their performance better than the small- and medium-sized firms during difficult times. Some of the small- and medium-sized Proton vendor firms are financially unstable and not able to overcome the challenges emanating from policy changes; as such, these firms are unable to sustain their businesses, and some of these vendors have even shut down their businesses operations. Constraints to improving their finance include the application process and the loan requirement as noted in the interview: “the financial assistance provided by the government is stringent in terms of the application process; high collateral and several guarantors are required before a loan is approved, and the amount is insufficient after the long wait” [pers.comm, Vendor 2 (requested anonymity), 23 August 2006, 2:30pm]. As such, most of the Proton vendors do not want
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to go through the hassle of the unfriendly application processes and the long waiting period of loan approval, which does not confirm the success of the loan application. Furthermore, financial institutions also faced difficulty in providing a large financial facility to the firms during the policy change period; as noted in the interview: “arising from the macro view of the automotive industry, many banks or financial institutions are reluctant to expand their credit facilities especially in financing tooling and moulds. As OEM customers expect vendors to pay for tooling and moulds upfront; and coupled with the reduced cash-in-flow due to dropping sales, financial constraints stand in the way of securing new business” [pers.comm, Vendor 3 (requested anonymity) 23 August 2006, 3:30pm]. Thus, most of the small- and medium-sized Proton vendor firms have difficulty obtaining bank loans, and therefore are unable to sustain their businesses as shown in Table 6.5. Only a few small- and medium-sized firms recorded ‘performing firm’ status when the study was conducted.
6.2.3
Business Nature
The types of entrepreneurial activities undertaken by Proton vendors can be categorized as the following: metal, electrical and electronics, plastics, rubber, casting, and others. There are 11 firms involved in casting, 35 firms are electrical and electronics based, 82 firms are metal based, 27 firms are in plastics, 19 firms are rubber based, and 38 firms are involved in label, paint, sealant, carpet, and glass as shown in Table 6.6.
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Table 6.6 Industrial Activities of Proton Vendor Firms No 1 2 3 4 5 6
Business Nature Casting Electrical & Electronics Metal Plastics Rubber Others No information Total
Number of Sampled Firms 11 35 82 27 19 38 5 217
Percentage (%) 5.1 16.1 37.8 12.4 8.8 17.5 2.3 100.0
The analysis revealed that most Proton vendors are concentrated in the field of metalbased activities (37.8 %); the next most popular field is the group of various types of activities, which is classified as ‘others’ (17.5 %). Finally, the third highly involved field by Proton vendors is electrical and electronics (16.1%). A smaller number of Proton vendors are involved in plastics (12.4%); rubber (8.8%) and casting (5.1%). Subsequently, this study presents the major products of the focus of Proton vendor firms, namely metal, ‘others’, and electrical and electronics industries as presented in Table 6.7. Table 6.7 Products Produced by Different Industries Products Produced by Industry Metal • • • • • •
Engine, transmission component Body assembly Struts absorber assembly Interior parts Plastic injection & moulding Springs, and others
“Others” • • • •
Label Carpet Paint Sealants, and others
Electrical &Electronics • • • • •
Alternator, starter motor Spark plugs Car accessories Alarm Air-conditioner, radiator, and others
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The other types of business activities carried out by Proton vendor firms include plastics, rubber and casting. The participation of the Proton vendor firms in these types of business activities is relatively low as shown in Table 6.6. Next, the relation between business nature and ownership of the vendor firms is presented in Figure 6.2.
No. of Firms
Business Nature and Ownership Structure 40 35 30 25 20 15 10 5 0
Bumiputera NonBumiputera Foreign Unknown Casting
Electrical and Electronics
Metal
Plastic
Rubber
Others
No Info
Business Nature
Figure 6.2 Industrial Activity and Ownership Structure of Proton Vendor Firms
Figure 6.2 illustrates comparative ownership structure of Proton vendor firms in different types of industrial activities. In terms of ownership, the analysis discovered that most Bumiputeras firms are involved in metal-based type of industrial activity with their representation being 41 % in comparison to their overall participation in Proton vendor activities. The non-Bumiputeras owned 18 %, and the Foreigners owned 29 % of the metal type of industrial activity. In comparison, a higher percentage of nonBumiputeras is seen in the rubber industry; while Foreigners enjoy a higher representation in the casting industry.
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This analysis is significant as it clearly reveals the participation of different groups of people, namely the Bumiputeras, non-Bumiputeras and the Foreigners in various vendor activities. Obviously, the metal-based business is the focus field for the Bumiputeras, which may be an indication of the assistance provided by the government to encourage more locals to participate in heavy industries, including the metal industry. The government of Malaysia wants to see reduced dependency on metal-based parts and products and therefore encourages the locals, especially the Bumiputeras to be involved in heavy industry. Meanwhile, the concentration of non-Bumiputeras’ in the rubber industry can be related to history, which saw the development of the nation’s economic activities along ethnic lines; as of the date of this study, the Chinese and the Indians are found to be the majority owners of the Proton vendor firms that are rubber based. Lastly, the Foreigners are found to monopolize the casting industry simply due to the accessibility provided by the government as well as the acquisition of knowledge on the particular technology; this is as noted by one of the vendor firms: “we have knowledge of the module to be able to co-design and we know our customers needs” [pers.comm, Manager 8 (requested anonymity) 22 August 2006, 9am]. The Foreigners seemed to have acquired a good knowledge-base in this particular casting technology, enabling them to monopolize the casting industry compared to the local vendors, who are still in the process of acquiring technological knowledge of the technology. Consequently, this study analyzed Bumiputera involvement in other industrial activities such as plastics, electrical and electronics, and ‘others’. In comparison to the non-Bumiputeras and the Foreigners, Bumiputera ownership in plastics was 59 %; the non-Bumiputeras owned 22 %; and the Foreigners owned 18 %. In the ‘others’ type of activity, which included label, carpet, paint, sealants and others, the Bumiputeras had a 42 % representation, the non-Bumiputeras, 26 % and the Foreigners, 21 %.
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The third focus area by the Bumiputeras is the productions of electrical and electronics based parts and components. In comparison to the other vendor firms in Proton, Bumiputera participation in the electrical and electronics industry constituted 37 %; non-Bumiputera involvement constituted 34 %; the Foreigners 26 %. The high representation of the Bumiputeras in Proton’s vendor activities is due to the allocation and schemes provided by the government, which allows for good opportunities for the Bumiputeras compared to the non-Bumiputeras, or Foreigners. The government sees it as a way to promote Bumiputera participation in major industrial activities, and in recent years government incentives have been directed at encouraging more Bumiputeras to become technology entrepreneurs.
6.2.4
Year of Business Initiation with Proton
The analysis on the year of business initiation with Proton indicates that most of the vendor firms were set up in 1985 (22 %). In terms of size, 58 % of these firms are of large size; while, 42 % are of small and medium size. The greater number of large-sized vendor firms compared to the small- and medium-sized vendor firms indicates that majority of the vendor firms were already well-established when they started their businesses with Proton in 1985. In term of ownership, most of these vendor firms were owned by nonBumiputeras (39%), followed by Bumiputeras (36%) and the Foreigners (18%). The higher percentage of non-Bumiputera ownership in 1985 was due to their long presence in the manufacturing industry. In contrast, most Bumiputeras began to be involved in the manufacturing sector, particularly in the automotive industry, after the initiation of the national automotive industry in 1983. The Bumiputeras have gradually increased their participation in various industrial activities as suppliers to the national automotive assembler and as manufacturers.
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Generally, the Bumiputeras were encouraged by government promotional programmes, incentives and schemes such as the BCIC programme and the Proton Vendor Scheme to increase the number of technology entrepreneurs in the manufacturing sector, notably in the automotive industry. These government activities have contributed to the emergence of more Bumiputeras as Proton vendors during the fourth phase of Malaysia’s entrepreneurship development, which is between 1991 and 2006.
6.2.5
Types of Business Organization
In this study, all the four common types of business organizations are found among the Proton vendor firms. The most common type of business organization is private limited (82.9%), followed by public listed (6.5%), partnerships (3.7%), and sole proprietorship (1.4%). Another 5.5 % of vendor firms declined to give relevant information on business organization. In term of ownership structure, Bumiputera-owned businesses were mainly structured as private limited (90%); partnership (4.5%); public listed (2.3%), and sole proprietorship (2.3%). In the case of non-Bumiputeras, private limited took the lead (88.7%), followed by public listed (5.7%) partnership (3.8%) and sole proprietorship (1.9%).
For the type of business organization owned by Foreigners, private limited
again took the lead (64.9%), followed by public listed (14%) and partnership (1.8%). Thus, for Bumiputeras, non-Bumiputeras and Foreigners, Proton vendor firms were mainly structured as private limited; this is illustrated in Figure 6.3.
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No. of Firms
90 80 70 60 50 40 30 20 10 0 Bumi
nonBumi
Foreigners
No Info
Ownership Structure PTS
PUL
PVL
SPR
No Info
PTS: partnership PUL: public limited PVL: private limited SPR: sole proprietorship
Figure 6.3 Types of Business Organization and Ownership Structure
Based on this analysis, together with information gleamed from the interview conducted with the Proton vendors, the higher percentage of the private limited type of business organization prevalent among Proton vendor firms is attributed to a number of factors: a number of the vendor firms were initially set up as private limited firms under the government initiatives to encourage more Bumiputera participation in commercial and industrial activities; those firms established during the first national car project were mostly structured as private limited; some of the large-sized business organizations expanded their business activities by venturing into a different sector, namely the automotive sector; or by venturing into a new segment within the same industry; all these firms were set up as private limited firms.
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6.3
Analysis of Proton Vendor Firms
The results obtained from the analyses on the basic characteristics of the Proton vendor firms, namely the year of establishment, ownership structure, firm age, size of firms, business nature, year of business initiation with Proton, and types of businesses were used to analyze the technology entrepreneurship capability of Proton vendor firms according to the four constituencies of technology entrepreneurship; the context conditions, which include environmental changes and policy implementation; the functioning of firms’ activities, essentially the operational and managerial; adequate acquisition and appropriate application of technology; and the opportunistic and innovative character of the entrepreneur. Industrial environment context, firm, technology and entrepreneur all interact to determine the technology entrepreneurship capability of the vendor firms.
6.3.1
Industrial Environment Context
The context factor constitutes the government, industrial, science and technology infrastructure, and various other issues that influence the performance of the firms in a particular industry. Realizing that context conditions are complex and changing, it is necessary for firms and entrepreneurs to grasp an understanding of the changes and be able to comprehend them, and produce innovative solutions so as to overcome the challenges. As such, this study focuses on the policy changes that occurred during the three years of the research period, and the impact it had on the national automotive vendor firms particularly. This study examined the effect of the policy changes, namely the AFTA and NAP on the national automotive manufacturer and its vendor firms between 2003 and 2006.
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6.3.1.1 AFTA Under the AFTA agreement, the ASEAN nations agreed to cut tariffs on most of their products in order to liberalize the economic sectors of the ASEAN member countries. The ASEAN countries initiated the efforts to deepen the region’s economic integration by reducing tariffs for a larger volume of trade among the member countries. In gearing up for automotive sector liberalization under the implementation of AFTA, Malaysia phased out several measures that served to protect the local automotive industry such as the Local Content Policy and Mandatory Deleted Items. Among the challenges faced by the automotive sector are increased competition; increased barriers such as higher tariffs for non-ASEAN imports; preference for established vendors, cheaper price products, and products manufactured in ASEAN; greater market access; more standardized trading regulations; less reliance on export markets as the concentration is on growth within ASEAN member countries; and decreased manufacturing costs due to lowered tariffs. The Proton vendors particularly faced stiff competition from other players, and their performance began to weaken due to a lower volume of sales as illustrated in Figure 6.4. Based on the analysis, the study found that the adverse effects faced by Proton vendor firms are mainly a result of the drop in the national car sales that consequently affected the sale of the parts and components produced, or, and supplied by Proton vendor firms. As the sales of the national car continued to drop, the requirement for parts and components also decreased. Lower car sales have a direct impact on car manufacturers, component manufacturers, and dealers. The whole value chain for the automotive sector, that is, car distributors, component manufacturers, dealers, logistics companies and financing firms, are facing a challenging time. Figure 6.4 shows the volume of sale for the vehicles sold in Malaysia from year 2001 to June 2006.
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552,316
600,000 550,000
487,605
500,000 450,0000 400,000
-6%
434,954
Passenger Vehicle Commercial Vehicle
405,745
396,381
350,000 300,000 250,000
248,407
200,000 150,000 100,000
2001
2002
2003
2004
2005
June 2006
Source:
Figure 6.4 Malaysia Vehicle Sales Performance Source: Malaysia Automotive Association (2006a)
Particularly obvious is the sales performance for the first six months of the year 2006. The Malaysian automotive industry faced a decrease in sales volume after eight consecutive years of growth. The forecasted sales for year 2006 dropped 6% in comparison to the previous year. The sales volume of 248,407 units for the first half of 2006 is 5% lower than that achieved in 2005. Worse, the local car make, Proton contributed only 24 % of the total vehicle sales volume for the first half of 2006, which is 60,291 units. A better view of Proton’s performance for six consecutive years is illustrated in Figure 6.5, though the study is only concerned with the three years between 2003 and 2006.
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220,000
209,514
214,985
200,000 180,000
157,313
160,000
168,616
166,812
140,000 120,000 100,000 80,000
60,291
60,000 40,000 20,000
2001
2002
2003
2004
2005
June 2006
Source:
Figure 6.5 Proton Sales Performance Source: Malaysia Automotive Association (2006b)
Figure 6.5 illustrates Proton’s sales performance for the years 2001 to June 2006. Proton car sales registered a lower volume, notably in the first half of year 2006. In comparison to sales volume of other car makes, Proton recorded 53 % of the total vehicle sales in 2001 with 209,514 units. In 2002, Proton’s sales volume increased to 214,985 units; however, the contribution to total vehicle sales dropped from 53 % to 49%. In 2003, Proton recorded a sales volume of 157,313 units, which was 39 % of total vehicle sales. Consequently in 2004, Proton registered a sales volume of only 35 % of the total vehicle sales; similarly, in 2005 Proton sales decreased to 30 % of the total vehicle sales. With reference to the vehicle sales in Malaysia, the automotive industry recorded a 9.8 % increase in sales from year 2001 to 2002. From the year 2002 to year 2003, the automotive industry sales volume decreased by 6.7 %; however, in 2004 the automotive industry registered a better sales volume with a 20.2 % increase. Similarly, vehicle sales 155
volume increased 13.3 % in year 2005; unfortunately, in the first half of 2006, vehicle sales volume dropped by 6 %, indicating a turning point for the automotive industry in Malaysia. Meanwhile, an analysis of the growth of the local car maker, Proton, reveals that for the years 2001 to 2002 there was an increase of 2.6% in sales volume. Unfortunately, years 2002 to 2003 recorded a marked decrease in sales volume, of about 26.8 %; overall vehicle sale in Malaysia also showed a similar trend as illustrated in Table 6.8. Consequently, the years 2003 to 2004 showed some improvement with an increase of 7.2 %. Alas, the sales volume of Proton for the year 2004 to 2005 dipped by 1.1%, while the trend differed for the overall vehicle sale in Malaysia. The poor performance of Proton became worse with the full implementation of AFTA in 2006 as shown in Table 6.8.
Table 6.8 Vehicle Sales Performance in Malaysia: 2001-2006 (H1) Car Make
\
2001
2002
2003
2004
2005
2006(H1)
Proton
209,514
214,985
157,313
168,616 166,812
60,291
Other Makes
396,381
434,954
405,745
487,608 552,316
248,407
Year
Source: Malaysia Automotive Association (2006c)
The study analysis revealed that on full implementation of AFTA, Proton vehicle sales performance dropped drastically. In addition, the Proton vendors viewed the AFTA as having an unfavorable impact in terms of competition; a spokesman for one of the Proton vendor firms noted:
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“We find the implementation of AFTA has created unfair competition for the automotive vendors, for our automotive industry is still a fledgling at 20 years of age; whereas the industry for example started as early as before World War II in Japan & at least 40 years ago in Korea, which indicates that their industry has already come of age. You don't see many foreign cars in Japan & Korea. We are letting too many cars in CBU & CKD (locally assembled) to compete head to head with national cars. Countries like Korea only allow 3% imported cars but we are importing 40% (CKD & CBU). Those people are loyal to local products. Japanese interest rates are very low. Thailand has 90% imported vendors whereas we have 90% local vendors. We need more time to catch up” [pers.comm, Vendor 4 (requested anonymity) 23 August 2006, 4:30pm]. As such, the majority of Proton vendors believe that they need more time to strengthen their capabilities and that policies implemented by the government implemented ought to favor the interests of local firms; hence, continuous protection from the government is believed necessary to enhance the development of the local automotive industry. Consequently, measures to overcome the effect of AFTA have been identified in the subsequent government policy, namely the NAP.
6.3.1.2 National Automotive Policy (NAP) As the automotive industry became highly competitive, and the performance of the local automotive manufacturers and vendors dropped drastically, the government took immediate action by introducing a new policy, known as the NAP to cater specifically to this sub-sector. The NAP was established with the aim: of promoting a competitive and viable domestic automotive sector, particularly to serve the national car manufacturers; to promote Malaysia as an automotive regional hub, focusing on niche areas; to promote a sustainable level of economic value-add and enhance domestic
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capabilities; to promote a higher level of exports of vehicles as well as components and parts that are competitive in the global markets; to promote competitive and broad based Bumiputera participation in the domestic automotive sector; and to safeguard the interests of consumers in terms of value for money, safety and quality of products and services (Malaysia: NAP, 2006). In order to meet the NAP objectives, strategic thrusts, strategies and policies have been set in the IMP3 to further develop the sub-sector; there are nine strategic thrusts that have been set in the IMP3, they are: (i) providing Government support based on sustainable economic contribution; (ii) increasing the scale of operations through rationalization to enhance the competitiveness of the sub-sector; (iii) promoting strategic linkages with international partners; (iv) developing Malaysia as a regional hub, focusing on niche areas and complementary activities; (v) promoting investments in the growth areas; (vi) intensifying skills upgrading; (vii) strengthening institutional support for the sub-sector; (viii) encouraging and promoting the participation of the subsector in regional and global supply chains; and (ix)enhancing the competitiveness of manufacturers of parts and components (Malaysia: IMP 3, 2006). In this research paper, these strategic thrusts can ultimately be grouped into four categories as suggested in the technology entrepreneurship framework: government support and policy changes refer to the context factor; technological capability strengthening refers to the technology factor; firms’ competitiveness refers to the firm factor; and training and skills upgrading refers to the entrepreneur factor. Accordingly, the first, fourth and seventh strategic thrusts focus on government support in the form of access to the IAF, R&D grants, incentives and strengthening existing institutions; the second, eighth and ninth strategic thrusts emphasize firms’ competitiveness through rationalization and participation in the regional and global supply chains; the third, fifth and ninth strategic thrusts centre on strengthening technological capability via strategic
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linkages, invention and innovation activities; and finally the sixth strategic thrust concentrates on training and skills upgrading through various training programmes and courses. The study noted that there is only one strategic thrust concerned with the issue of human capital development. In terms of quantity, there is an obvious imbalance of strategic thrusts; however this study is not concerned with the quantity aspect but quality. To an important extent, the NAP has included all the factors that are specific to the industry concerned. This policy should result in different measures for strengthening industrial development; these measures will not be just aimed at overcoming the problem per se, but on other aspects such as firm development, technology capabilities, entrepreneurial competency and the like. The introduction of NAP seems to have had a negative impact on a number of Proton vendor firms as noted earlier in page 163 in the interview conducted. The firms have to compete with local as well as foreign players as there are more products from abroad in the local market; there are many CBU and CKD cars that compete aggressively with other car makes. This statement is supported by data obtained from the Ministry of International Trade and Industry (MIDA, 2005), which confirms that Malaysia’s import of passenger vehicles in 2005 was 44.3 %, comprising 34.6 % CKDs, and 9.7 % CBUs. This indicates that the number of CKD and CBU in the local market is rather large compared to a country like Korea, and therefore local vendor firms are of the opinion that they are not being helped to improve their performance. The dissatisfaction of the national automotive vendor firms in terms of policy implementation is further noted: While foreign products are swarming into our market, our products have failed to penetrate their market, should our government be doing more in understanding the problem and helping us to resolve it? A lot of times, it is not
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our capabilities that limit our expansion; it is the policies, the connection and perception that need improvement. AFTA is meant for Asian countries but why do Proton and Perodua keep looking for markets away from Asian countries? NAP has not been a success for our country, the government failed to anticipate the effect of the NAP. Looking at it from both the consumer and also producer standpoints, it has caused more problems to the market rather than helping it [pers.comm, Vendor 1 (requested anonymity), 22 August 2006, 2pm]. The local vendor firms regard the government policy implemented as not being helpful and that it is contributing to worsening performance. While the vendors complain that their sales volume had dropped significantly, the national OEM manufacturers claim that they are witnessing a slow down in production due to unsold stock. They conclude that government policies are at fault and need significant modifications to result in better performance of the vendor firms. On the other hand, those vendors who depend only on Proton as their customer suffered poor sales when the sale of the local car make, Proton dropped quite badly as illustrated in Charts 6.5 and 6.6. Comparatively, the Foreign-owned vendor firms are at an advantage, for their sales volume is larger, covering both local and international markets. This is as recorded in the interview: “Our competitors are at an advantage due to their volume, which we do not have in Malaysia” [pers.comm, Manager 6 (requested anonymity), 18 August 2006, 3pm]. Thus, the policy changes that occurred have not only impacted the firms per se but the whole automotive value chain, notably the firms, technology and the entrepreneurs. This aspect will be discussed in the next subheadings of this chapter.
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6.3.2
Firm
The changing competitive context demands firms to be competitive to outperform their competitors. According to the Oslo Manual guidelines used by the OECD member countries, a firm’s capabilities include what it has to take advantage of market opportunities; it includes the knowledge accumulated by the firm, which is embedded in human resources, procedures, routines, and other characteristics of the firm (OECD, 2005). Forbes and Wield (2001) define capabilities as the skills and functional competencies that allow the firm to take advantage of opportunities. In this study, a firm’s competency is viewed as a reflection of its capability, and is mainly determined by the acquisition and exploitation of the knowledge-base embedded in the firm. Knowledge-base is simply understood as the knowledge acquired through formal learning, and the knowledge and skill accumulated through experience; in other words it includes both codified knowledge and tacit knowledge. Polanyi (1967) referred to tacitness as those elements of knowledge, insight, and so on that individuals have which are ill defined, uncodified, and unpublished, which they themselves cannot fully express and which differ from person to person. In the case of the Proton vendor firms, there is a shortage of skilled workers and qualified professionals; as quoted “there is a critical need of technical literate personnel for both shop floor and managerial level, especially to meet the demand of customers for product varieties.”, and “there is limited local vendor capability in developing high tech parts due to limited skilled and professional workers; actual volume of OEM is not meeting the sales forecast; and amortization of toolings is not fulfilled” [pers.comm, Senior Manager (requested anonymity), 4 August 2006, 2pm]. In the long term, this seems to reflect a disinvestment in terms of the supply of qualified professionals and skilled workers and the capabilities required for innovative type of activities that are essential for sustaining competitiveness.
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Therefore, the government has taken immediate measures by strongly encouraging learning and development programmes through its various agencies and ministries such as MECD, Perbadanan Nasional Berhad (PNB), MARA, Tenaga Nasional Berhad (TNB), Telekom Malaysia Berhad (TM), Petronas and others. In fact, the arts and soft sciences programmes currently offered at the higher learning institutions are mostly attached to technology courses such as ‘Technology for Education’, ‘Technology in Arts’, and ‘Science and Technology Studies’. At the same time, a number of vendor firms claim that the shortage of skilled workers and qualified professionals is also due to the capital constraints of the firms. Some of the vendor firms are not able to afford the high salaries demanded by professional and skilled workers as the rising demand for this group of workers has raised their salary level. In addition, some of the vendors complain that they face difficulty in finding the right candidates to match their firms’ vision and mission, and indeed it is the reason given for the large number of unemployed graduates. In general, the industrial sector has been complaining that the graduates produced in recent years by the higher learning institutions are deficient in both core and general skills such as language proficiency and public relations skill. The courses taken by the graduates appear to be less relevant to manufacturing activities, particularly to the automotive industry. Besides, the vendor firms are confronted with immense challenges in terms of financial constraints and a stringent market. This notion is supported by evidence from the survey, where financial constraints are stated to be the utmost problem for many vendors:
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Finance is the greatest problem - arising from the macro view of the automotive industry, many banks/financial institutions are reluctant to expand their credit facilities especially to finance tooling and moulds. In other instances, banks are not lending to the automotive industry. As OEM customers expect vendors to pay for tooling and moulds upfront and coupled with the reducing cash in-flow due to declining sales, finance is a constraint to securing new business [pers.comm, Vendor 7 (requested anonymity), 24 August 2006, 2pm]. The financial constraint is mainly due to the reluctance of the financial institutions, or banks in providing loans or other financial assistance to the automotive vendors. The financial institutions implemented strict regulations such as the requirement for good collaterals and several guarantors so as to discourage the automotive vendor firms from applying the loans on one hand, and on the other, for greater prudence in providing financial assistance to those who are convincingly capable of paying the loan amount. Such practices became obvious when AFTA was implemented in 2006; vendor firms have been unable to acquire loans and other forms of financial assistance to overcome the challenges imposed. In terms of market, the vendor firms noted, “there are many competitors competing for the same OEM market” [pers.comm, Manager 7 (requested anonymity), 18 August 2006, 7pm]. The competition between vendors is high and increasing, ultimately resulting in a reduced market share. AFTA has had the effect of decreasing the sales volume of Proton, which has ultimately reduced the demand for parts and components; as such, the vendor firms sales are also affected, especially those who are solely dependent on one car manufacturer (Proton) as their customer. In addition, the free trade system has encouraged more foreign car makes in the local market; this scenario has worsened the competition in the local market as noted by one of the vendor firms: “competition is getting tougher as the foreign manufacturers
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are penetrating our local market” [pers.comm, Senior Executive (requested anonymity), 18 August 2006, 5pm]. The local market condition is further worsened by the rising cost of raw materials, fuel, transport and labor, and as recorded: “The cost keeps on increasing but customers are demanding lower prices, and OEMs on the other hand do not increase their sales volume but yet aggressively push vendors to reduce prices; with no volume to reach economic of scale, we lack the capability to further reduce cost structure” [pers.comm, CEO 4 (requested anonymity), 24 August 2006, 5pm]. Hence, the local vendor firms have a very small and highly competitive market, which requires immediate improvement in terms of the quality of the products produced and price offered. While, the local firms have to rise to meet the high challenges, they have significantly improved in terms of competitiveness, and capabilities seem especially high among firms with a high share of the domestic market; the local vendor firms have higher export propensities than would be expected on the basis of their improved technological and entrepreneurial skills, and capabilities.
6.3.3
Technology
Technology in the automotive context is perceived to play a crucial role. The analysis ascertained that a large number of Proton vendor firms do carry out research and development activities but the focus and efforts differ. The research and development activities carry out at Proton include basic collecting of information for product planning, development and modification activities; full-scale model making; computeraided engineering design and manufacturing; and component and engine emissions testing (Nor, 2000). Meanwhile, the R&D activities carried out by the Proton vendor firms range from the basic product and process improvement activities to more valueadded activities such as design, prototype and testing [pers.comm, Manager 5 (requested
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anonymity), 17 August 2006, 2pm]. The majority of Proton vendor firms, including the large and the small- and medium- sized firms have invested moderately in R&D activities; a few vendor firms have heavily invested in R&D activities, especially the large-sized firms that have started venturing abroad. Those firms that have embarked on overseas project believe that “investment in R & D is not a choice but a ‘must’ for them to be able to compete in the global market” [pers.comm, Manager 10 (requested anonymity), 25 August 2006, 2pm]. On the other hand, there are a few Proton vendor firms that have invested very little in R&D activities. These firms face difficulties in terms of finance as R & D activities are costly and they are unable to continuously invest in an activity that does not bring immediate returns to investment; as recorded: “the R&D activities were too slow due to small budget allocation” [pers.comm, Manager 9 (requested anonymity), 25 August 2006, 9am]. The limited financial capability of some of the vendor firms discourages them from actively carry out research and development activities, and thus their focus is on basic improvement activities as noted by a few of the vendors: “we have not had an R&D facility as such; however, we have a production engineering group that undertakes studies for improvements on product and process” [pers.comm, Manager 15 (requested anonymity), 8 September 2006, 2pm]. On the other hand, there is another group of vendors who actively carry out R&D activities, and they are both from the large and small- and medium-sized firms. These vendor firms have R&D departments, and the extent of their participation is presented in Table 6.9.
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Table 6.9 Automotive Vendor Firms’ Size and R&D Activity SME
No. of
Perform
Has R&D
Percentage (%) of Firms
Status
Firms
R&D Activity
Department
with R&D Activity
Large
64
64
64
100
Small &
126
126
47
37
Unknown
27
0
0
0
Total
217
190
111
51
Medium
Fifty-one percent of the firms have particular R&D departments; they appear to have upstream and value-added activities on a continuous basis, and they believe that they have improved on the capabilities of designing parts, moulds, jigs and fixtures, and prototypes. Indeed, these firms have continued to emphasize R&D activities so as to bring their firms to the next level of progress. As noted by one of the vendors: “we were able to widen our product range and develop core competence in more value-added services for development in the supply chain” [pers.comm, Manager 12 (requested anonymity), 29 August 2006, 4pm]. Few of the Proton vendor firms have strong R&D teams, including definite personnel to carry out R&D activities, as well as specific equipment and facilities for use in the R&D activities. Though these firms have invested heavily in R&D, and initiated collaboration with various international suppliers for high end products as well improved methods, they tend to face problems of a market that is limited. In this instance, these vendor firms blame the lack of initiative on customers and the government. As one of the vendor firms noted:
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R&D is a trial and error activity. We need funding and a sense of exploration in the industry. There should be more initiatives from the government to promote the growth of R&D from the universities as academic institutions are regarded as the best source to test the industry’s new ideas and consequently to create a pool of capable human resources that meet industry needs [pers.comm, Vendor 6 (requested anonymity), 24 August 2006, 11am]. This statement, however, contradicts government efforts towards technological development, notably promoted through the implementation of policies, introduction of new programmes, and financial assistance. Among the policies emphasizing technological development are the Malaysia five year plans, NDP and IMP; the programmes introduced were BCIC, VDP; and finally, the financial assistance provided in the form of SME fund, TDF fund, MAVCAP and a few others. All the stated government policies, programmes and financial assistance are designed to encourage the involvement of locals in major economic activities as discussed in detail in Chapter 4. Indeed, the establishment of the SME Bank was meant specifically to assist the small- and medium-sized firms to attain financial assistance. Thus, it is obvious that the government’s policies, programmes and financial assistance are in place but to what extent they offer ‘help’ is a point to ponder. Another disappointment recorded during the interview was that local R&D effort was rather less appreciated: Our firm has invested in R&D facilities and test equipment in Malaysia with trained Malaysian engineers and draughtsman. Our R&D investment in Malaysia is very much more than in those Japanese joint venture vendors in Malaysia but even so, our R&D in Malaysia was never regarded as good as those Japanese joint venture vendors in Malaysia because their mother companies in Japan have bigger R&D facilities. Owing to the above reasons,
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our firm did not foresee any future to invest in R&D in Malaysia and we began to shift our R&D activities to external technical sourcing and collaboration [pers.comm, Vendor 5 (requested anonymity) 24 August 2006, 9am]. The dismay was basically due to the fact that there is less recognition accorded to locals on local R&D effort; the preference has always been for foreign products produced by joint venture vendors. This indicates that those vendors firms that have established joint ventures with Japanese firms are in a better position compared to those that do not have any collaboration programmes with foreign firms. This stereotype perception has partly hindered the development of R&D in Malaysia. Besides these hindering factors, the study noted that vendors paid less attention to R&D activities due to the fact that the present competition is not in terms of quality but in terms of price only. One of the vendors recorded: “our local market share has slowed down in terms of total industry volume; competition in the market is based on pricing, not quality and firm capability”, and “four competitors are competing in the OEM market and low cost is still the priority” [pers.comm, Manager 14 (requested anonymity) 6 September 2006, 5pm]. As suggested by Schumpeter (1942), the ultimate reason for firms to innovate is to improve performance, which is through increasing demand and reducing costs. Thus, the Schumpeterian perspective needs to be taken into serious consideration by the local vendor firms, which is to reduce their cost structure in order to reduce the price of their products, which ultimately will enable them to improve their performance and stay competitive. The competition became worse when Proton initiated shortening of the development cycle of a completed car; for instance, the current development cycle of 18-24 months is to be shortened to about 15-19 months. This saw the vendors struggling to shorten the development cycle of their parts’ and components’ in order to meet the manufacturer’s requirement and to reduce the cost of producing competitive products.
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The shortening of the product development cycle requires the vendor firms to acquire adequate technological knowledge and skills to find innovative solutions to meet market demand. The study analysis demonstrates that 95 firms out of the sampled 217 firms have technical collaboration with foreign firms; these technical partners are from the developed and developing countries that include Japan, Korea, Germany, United Kingdom, Taiwan, United States, Thailand, Denmark, Australia, Italy, India, South Africa, Holland, New Zealand, Belgium, France, Switzerland, Indonesia, Philippines and Sweden. Generally, the technical collaboration suggests that the Proton vendors have the opportunity to learn and acquire technological knowledge and skills from the experts for them to improve their codified and tacit knowledge, which ultimately will enable the Proton vendors to produce competitive products as well as to come up with innovative solutions when problems arise. However, some Proton vendor firms do not have, or have rather limited technological collaboration with foreign firms. The study regards this as a rather worrying factor especially in the era of globalization and liberalization that necessitates technical tie-ups with regional or international manufacturers in order to tap export markets. This view is recorded in the interview: “Collaboration with foreign partners in terms of capital and technology; to increase the number of products and services to customers so that we can move up in the supply chain; and to expand into foreign market via strategic linkages” [pers.comm, Manager 13 (requested anonymity), 6 September 2006, 10am]. In another vendor’s view: “technological collaboration is essential, for it fills up at the available capacity, helps us to get high volume projects for an export market, and to train staff on new methods for spring manufacturing and modules related to design technologies” [pers.comm, CEO 6 (requested anonymity), 28 August 2006, 2pm]. Hence, there is crucial need for Proton vendor firms to establish
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technological collaboration to gain technology and enjoy knowledge transfer; to improve performance in terms of sales volume; and to be technologically competitive.
6.3.4
Entrepreneur
With reference to the case study conducted on the local automotive vendor firms, most of the Proton vendor firms are owned by people with a technical background. Some of the vendors were previous employees of the national manufacturer, Proton and they quit when they realized there were great opportunities in the manufacturing industry; this is as recorded in the interview: “I worked with Proton for about 7 years before I decided to become a supplier of parts and components to Proton” [pers.comm, Manager 11 (requested anonymity), 29 August 2006, 11am]. In addition, the assistance provided by the government that includes incentives and protection has encouraged more local participation in the industrial sector. Such occurrences were obvious when the first local car project was initiated in 1985. Local-owned firms began to emerge during this period mostly as vendors supplying parts and components to the local car manufacturer. Some of these vendors are former employees from the technical line, who had previously worked as technicians and engineers, and thus they have had hands-on experience. These vendors have acquired relevant knowledge, and technical skills from the experience encountered during their paid employment; as noted in the interview: “I accumulated the necessary technical skills from the few years of my service with the OEM. The knowledge I have acquired during my diploma years and together with the experience I gained from my paid job have been very helpful in running my business” [pers.comm, Vendor 8 (requested anonymity), 12 September 2006, 10am]. In another scenario, there are also some Proton vendor firms that were established by individuals from the top management, who have adequate codified knowledge but comparatively poor experience on technical aspects. This type of vendors began their businesses as a
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partnership, teaming up with a partner who had the same interest but had better technical knowledge and experience. In terms of the characteristics of the entrepreneurs of the local automotive vendor firms’, they are generally committed to their business activities and appear to have the enthusiasm. The differences encountered were mainly in terms of authority, which is more apparent in large firms than in small- and medium-sized firms. Of relevance to this study is the project SAPPHO which studied the innovation process in the chemicals and scientific instruments industries (Freeman, 1973). The study compared the characteristics of the successful innovations with those of its less successful counterparts in both industries and came to the conclusion that authority and power are vital to drive entrepreneurial activities successfully. In terms of the characteristics of the entrepreneurs, the analysis carried out on the Proton vendors of both the large, and small- and medium-sized vendor firms indicated that the small- and medium-sized firms are often led by entrepreneurs who are quick in adapting to changes and in optimizing their strength to grasp available opportunities; while the entrepreneurs of large-sized vendor firms often take a longer time to adjust to any change as the managers will have to go through a few channels before a decision is made by the owner of the firm. It would therefore seem to be of crucial importance for entrepreneurs not to be disturbed by organizational routines and other impediments that limits their capabilities. Therefore, this study explicitly includes consideration of the technology entrepreneur as one who has knowledge, skill and experience of both technology and the entrepreneurship disciplines, and has venture credibility to exploit technologies for commercialization purpose; the entrepreneur has to integrate both the technical and commercial aspects in his entrepreneurial endeavor and concerns other elements such as the firm’s competitiveness, technological capability and the contextual changes.
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6.4
Technology Entrepreneurship Capability
This part of the chapter reviews a variety of information obtained from the interview and survey to assess the technology entrepreneurship capabilities of Proton vendor firms and to explain these with reference to contextual changes, firm’s competitive ability, entrepreneur’s depth of knowledge, and technological path. This assessment is the main purpose of the analysis to understand the technology entrepreneurship capability of the local automotive vendor firms. The variables selected for determining technology entrepreneurship capability level were based on the activities that enable a firm to create competitive advantage. Such activities includes: (i) the ability to recognize changes that are related to the automotive industry and the macroeconomic environment; (ii) the ability to search for opportunities; (iii) the ability to identify strengths and build core competencies of the firms; (iv) the ability to structure technological strategies tactically; (v) the ability to understand the theoretical framework in-use, concepts and practices on the technology that is commonly referred to by industry players; (vi) the ability to undertake cooperative effort to build linkages among the vendors and with the suppliers, manufacturers, research institutions, and higher learning institutions; (vii) the ability to have a depth of codified and tacit knowledge for the entrepreneur to understand, respond and act smartly and promptly; and (viii) the ability to lead the firm along paths dictated by commercial drive and venture credibility . These critical variables interrelate to show the significant influence of one variable on the others, and the sum of these activities lead to the achievement of competitive advantage for a firm. It is hoped that this study’s concentration on the interaction of these critical variables, namely the dimensions
would
provide
a
fairly
satisfactory
explanation
of
technology
entrepreneurship capability of Proton vendor firms. These eight variables are presented in Table 6.10 according to the four constituencies of technology entrepreneurship.
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Table 6.10 Technology Entrepreneurship Factors and Dimensions Technology Entrepreneurship Factor
Dimension
Environment
1. 2.
Awareness Search
Firm
3. 4.
Strategy Core Competency
Technology
5. Technology Paradigm 6. Linkages
Entrepreneur
7. Learning 8. Leadership
All these variables are also known as technology entrepreneurship dimensions; they are fairly important, and the sequence presented in Table 6.10 does not indicate the importance of one factor or dimension to the others.
6.4.1
Awareness
The awareness dimension allows us to know to what extent the firm and the entrepreneur are attentive to changes in the context; in other words, ‘how alert are they to the changes that are taking place in a particular environment, which includes government, socio-economics and science and technology changes’, and ultimately how are they taking advantage of such changes. In this study, the issue of government policy implementation that occurred during the period of this study was regarded as a change in the context, and was assessed in terms of awareness.
6.4.2
Search
The search activity is viewed by Tidd et al.(2005) as the scanning of the environment both internal and external, and processing relevant signals about threats and
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opportunities for change. This activity is rather similar to Schumpeter’s idea of ‘creative destruction’, where he insisted on constant search to create something new which simultaneously destroys the old rules and establishes new ones. Hence, the search activity is referred to in this study as the process of discovering and exploiting opportunities, and detecting any threat in the environment. As such, search activity has to be carried out on continuous basis in order to acquire cutting-edge information on market trends, environmental change, and more importantly to secure opportunities faster than the competitors.
6.4.3
Strategy
Strategy provides the key direction for a firm. It provides guidance on the effort required to acquire resources and to implement it together with the firm’s existing knowledge-base. Chiesa (2001) defines technology strategy as a ‘trajectory’ that links steps in a technology strategy with previous actions and programmes, and opens opportunities and creates options for future investments along the defined trajectory. Technology strategy is defined by this study as the plan of action on how to carry out the technical and commercial activities successfully to the firm’s advantage. Through a strategic policy, firms will be able to attend to the threats and opportunities effectively.
6.4.4
Core Competency
Core competency is viewed by Prahalad and Hamel (1990) as ‘the collective learning in the organization, especially on how to coordinate diverse production skills and integrate multiple streams of technologies’. Collis (1991) defines core competency as a set of irreversible assets along which the firm is uniquely advantaged. In this study, this dimension is referred to as the ability of a firm to identify its strengths from a set of activities in which it can be developed to gain competitive advantage.
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6.4.5
Technology Paradigm
Technology paradigm is defined by Dosi (1988) as the needs that are meant to be fulfilled, the scientific principles utilized for the task, and the material technology to be used; it involves a specific “technology of technical change.” For the purpose of this study, technology paradigm is viewed as the existing platform of technology that is referred to by everyone as a framework. It is also viewed as the solution ‘model’, or a pattern of solutions for technological problems, and encompasses the development and improvement of technological and related activities, and the future direction of a firm. A firm needs to have a good understanding of the technology that is being referred or used to enable the firm to come up with innovative solutions, and to be able to carry out improvement and innovation activities.
6.4.6
Linkages
Linkages are essential to share knowledge and to transfer technology from one firm to another, research institutions or higher learning institutions. Linkages can occur with customers, markets, suppliers, competitors and other external sources of knowledge. It can take various forms such as licensing agreements, alliances, and joint venture. In this study, linkages are referred to as the collaboration among the vendor firms, and between the vendor firms and suppliers and manufacturers. It provides opportunities for the vendor firms to learn from their partners, and simultaneously develop strong relationships with their affiliates.
6.4.7
Learning
Learning is defined by Tidd et al.(2005) as the ability to evaluate and reflect upon the innovation process and identify lessons for improvement in the management routines. Forbes and Wield (2001) viewed learning as the ability to adapt organizationally and
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culturally in order to accommodate technological changes. Therefore, learning requires the acquisition of both codified and tacit knowledge, which can be obtained through formal education, imitation and diffusion (Mill, 1848). Codified knowledge is accessible through literature that is permanent and is often used as the basis to capture tacit knowledge, which is not codified but translated to an individual who seeks to acquire it. It is through learning the entrepreneurial functions such as management, finance, and others that it can be acquired. The R&D functions as the learning unit, and plays the role to provide information particularly to the entrepreneur to benefit from the knowledge gained. This means that the entrepreneur should capture both codified and tacit knowledge in order to build up his capability and ultimately use it for the firm’s advantage.
6.4.8
Leadership
Leadership is the quality acquired by the entrepreneur to lead the firm effectively and successfully. Entrepreneurs are required the have leadership quality, especially in coercing for change to take place effectively in a firm. For example, the SAPPHO project underlined the crucial importance of authority and power characteristics in an entrepreneur in order to alter significantly the course of the project (Rothwell and Zegveld, 1982). Acquiring a leadership quality will enable the entrepreneur to have the ability to affect favorably his entrepreneurial endeavor in a win-win situation with his staff, and simultaneously foster an atmosphere conducive to encourage learning and knowledge sharing culture in the firm.
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6.5
Technology Entrepreneurship Capability Analysis
Having established the eight dimensions, a series of questions and assessment statements were designed to assess the automotive vendor firms’ technology entrepreneurship capability. A set of statements is used to provide an understanding on technology entrepreneurship capability, and is scored on a scale of 1 to 4 for each assessment statement. The score 1 indicates that the firm strongly disagrees with the notion of the statement; score 2 denotes that the firm disagrees with the statement; meanwhile, score 3 indicates that the firm agrees with the notion stated; and score 4 indicates that the firm strongly agrees with the suggested notion. For example, the firm, which rated 2 for a particular assessment statement suggests that the firm simply disagrees with the particular notion of the statement. If a firm is highly certain or highly positive of the statement suggested, then the firm rates a score of 4, which denotes that the firm strongly agrees with the statement suggested. The total average dimension score achievable from all the eight dimensions is 32. The score is then used to determine the firm’s overall technology entrepreneurship capability level. The assessment is also used to identify the detailed strengths and weaknesses according to the activities that are vital for the creation of competitive advantage position. The average scores obtained by the 56 firms for each dimension are shown in Table 6.11.
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Table 6.11 Average Score of Technology Entrepreneurship Capability Dimensions
No Dimension
No of Firms for Each Score 1 2 3 4
Average Dimension Score (ADS)
1
Awareness
0
1
49
6
3.1
2
Search
0
28
28
0
2.5
3
Strategy
2
46
8
0
2.1
4
Core Competency
0
35
21
0
2.4
5
Technology Paradigm
0
40
16
0
2.3
6
Linkages
10
31
15
0
2.3
7
Learning
3
23
30
0
2.5
8
Leadership
0
22
34
0
2.6
Total Average Dimension Score
19.8 / 8 = 2.48
The detailed score for each dimension is used to come up with a profile of technology entrepreneurship strengths and weaknesses. The assessments basically encompass 8 main activities of technology entrepreneurship capability as presented in Table 6.11 From Table 6.11, it can be seen that the average dimension score (ADS) of the 56 firms for the ‘awareness’ dimension is 3.1; the ADS for the ‘search’ dimension is 2.5; the ADS for the strategy dimension is 2.1; the ADS for the core competency dimension is 2.4; the ADS for the technology paradigm dimension is 2.3; the ADS for the linkages dimension is 2.3, the ADS for the learning dimension is 2.5, and finally the ADS for the leadership dimension is 2.6. The inference that can be made from the score obtained for each dimension of the firms assessed is discussed in the following paragraphs.
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6.5.1
Graphical Representation of Findings
The average dimension score obtained by the 56 firms for each of the eight dimensions is presented graphically through the Radar Diagram. Using the eight dimensions, an overall profile of technology entrepreneurship capabilities is generated for the 56 firms assessed. The Radar diagram as illustrated in Figure 6.6 reveals the strength in one key area (e.g. awareness) and weakness in another key area (e.g. strategy) of the assessed firms. The identification of strength refers to the dimension that achieved the highest average dimension score, while weakness is indicated by the dimension that has obtained the lowest average dimension score. With that, the strength is seen in the highest score achieved, which is 3.1 for the ‘awareness’ dimension, and the weakness is obvious in the lowest average score registered, which is 2.1 for the ‘strategy’ dimension.
Awareness 4
Leadership
3
Search
2
1
Learning
0
Linkages
Strategy
Core Competency
Technology Paradigm
Best practice model Proton vendor firms profile
Figure 6.6 Technology Entrepreneurship Capability of Proton Vendor Firms
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The rationale for the score obtained for each technology entrepreneurship key activity illustrated in Figure 6.6 is elaborated in the paragraphs that follow.
6.5.2
Analysis of ‘Awareness’
In term of awareness, most of the vendor firms registered a high score with only one firm scoring 2. On average, the parts and components vendor firms registered a score of 3.1 demonstrating that the local vendor firms are well aware of the environmental changes that occur around them. Most of the vendors were able to recognize the technological changes and the increasing competitiveness, resulting particularly from the policy implementation, notably AFTA in 2006. As such, the period under study, between 2003 and 2006 witnessed great challenges faced by the automotive industry in general, and Proton and its vendor firms in particular. During the 3-year period of study, the local automotive vendors were confronted with increasing competition that inhibited them from acquiring economies-of-scale, and creating competitive advantage for their firms. However, having a fairly good understanding of the contextual changes better prepared the Proton vendors to face the immediate challenges at the point of the study period. As such, one of the vendor firms noted, “…after the implementation of AFTA & NAP, we managed to sustain even when the product price kept on decreasing and the cost of raw materials increasing” [pers.comm, Manager 18 (requested anonymity), 15 September 2006, 9:30am].
6.5.3
Analysis of ‘Search’
With regard to searching, on average the companies have the capability to scan the environment and look for opportunities and threats. Some of the firms have separate departments like Business Intelligence Unit or at the least, a marketing department with a few personnel often headed by Chief Technical Officer to scan the technology
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landscape through network and other linkages. They monitor industry development both domestically and internationally, and are able to identify the market trends and the forthcoming opportunities and threats. As such, the firms that scored 3 in the search dimension are better prepared to overcome the challenges than their competitors. However, the group of firms that scored 2 does not have any particular personnel to carry out such scanning activities; it is often done by the senior management or the entrepreneur himself. These firms monitor technology development and environmental threats on an occasional basis, and there is no any specific procedure or an appropriate structure to monitor technology and product development.
6.5.4
Analysis of ‘Strategy’
In terms of strategy, the firms on average scored the lowest which is 2.1. Most of the vendor firms do not have an explicit technology strategy; however, they do have a strategy to develop components based on Proton’s specification. Strategy is viewed as the plan of action and selection of emphasis for the firm’s long term and short term activities. During the period of this study, most of the firms seemed to have diverted their strategy to structure cost-reducing methods in the production of their components as the competition is based more on price than quality. Thus, the strategies of these firms are rather short-term based, for their effort is often concentrated on resolving problems as they arise. On average, most of the vendor firms have adopted relatively inappropriate strategies. However, there are few vendor firms that have scored 3, and these firms have well-developed technology strategies and well-structured action plans. As such, they have better knowledge of technology options and the priorities to be given for the activities planned.
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Besides the vendor firms, the national automotive manufacturer too has drawn strategic action plans to enable the vendor firms to compete fairly in the domestic market. Among the actions taken by Proton were to reduce the product development cycle from 24 to 19 months; to reduce production and development costs; and to reduce the number of vendors from 250 to 100 or less. All of these initiatives are aimed at improving competitive pricing and better after sales service quality as well as enhancing the quality of production to globally acceptable standards.
6.5.5
Analysis of ‘Core Competency’
In building and strengthening core competency, on average the firms registered a relatively low score of 2.4. This is not surprising considering the low score obtained in the strategy dimension; the structuring of sound strategy somehow influences the building of appropriate core competency. Core competency is the business activity that can enable a maximum profit return. On average, the vendor firms have some form of structured process to identify and build their core competencies based on their inadequate intangible assets, which is represented by the skills and knowledge embedded in the firms; however, their ability to develop the core competencies is rather limited. They focus their activities on routine operations, maintaining, and maximizing returns but have relatively below average ability to develop their area of strengths, or core competencies. Contrarily, there are a few firms that recorded a score of 3 for this dimension; these firms began identifying and focusing on their core activities from the initial stage of their establishment, and they undertook value adding on a continuous basis in order to produce competitive products and processes. They do upstream and more valueadded activities such as design, prototype and testing, as recorded in the interview: “We have continued to emphasize R&D activities to bring the company to the next level of
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progress. Arising from these R&D activities, we were able to widen our products range and develop core competence in more value-added services for development in the supply chain” [pers.comm, Manager 19 (requested anonymity), 21 September 2006, 9am]. This implies that a small percentage of local vendor firms have embarked actively on R&D activities, while the majority have rather limited ability in building and strengthening their core competencies.
6.5.6
Analysis of ‘Technology Paradigm’
In the area of technology paradigm, the average score obtained by the vendor firms is 2.3. Such a score reflects the relatively fair dependency of the vendor firms on foreign technology. The dependency began when Malaysia launched its fist national car project in 1985. Proton became very dependent on Mitsubishi technology for an extensive period of about 15 years, and as a result made very little attempt to change the underlying technology models which is its reference point. Thus, the score was basically due to poor acquisition of technology, technical skills, and adequate knowledge to comprehend the technology transferred from Japan, and worse to exploit the technology adopted. In consequence, the national automotive vendor firms had relatively poor mastery of the particular technology platform that was referred to and used by the national automotive manufacturer. On average, the national automotive vendor firms were dependent on foreign technology, and therefore, made less effort to develop indigenous technology; this is as noted in the survey, “the dependency on Japanese technology is one of the factors that has somehow inhibited indigenous technological development of the industry” [pers.comm, Senior Manager 4 (requested anonymity), 5 September 2006, 10am].
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Only a few of the national automotive vendor firms are less dependent on foreign technology, and they revealed that they are able to improvise on the technology adopted and develop their own design. These firms basically scored 3 in this dimension, and they were able to conduct the upgrading of product or process on a continuous basis. Indeed, these firms seemed to have vigorously taken the effort to improve and enhance the research and development activities to develop indigenous technology capability, as recorded in the survey: We undertake consolidation of inter-department activities and carry out R&D activities that includes capabilities on designing parts, moulds, jigs & fixtures and prototypes, supported by our CAD software e.g. CATIA, Auto-CAD & Unigraphic. We have given full commitment to our development team in delivering our customer's request through the TS 400 & ISO 9000 system. We have expanded staff force especially engineers to support business growth; created a specialized styling & design team and set-up a design center to develop products in-house; we have adopted the ISO/TS 16949:2002 quality management system in addition to ISO 9001:2000 [pers.comm, CEO 7 (requested anonymity), 15 September 2006, 6pm]. Thus it can be seen that a few of the Proton vendor firms progressed in technological development with initiatives in terms of R&D and quality implementation. In other words, these few vendor firms have acquired adequate technological knowledge that enabled them to establish a good understanding of the technology being referred to; they know the technology paradigm of the industry they are involved in.
6.5.7
Analysis of ‘Linkages’
In terms of linkages, on average the vendor firms registered a score of 2.3 that gives an indication that most of the local vendor firms acknowledged the significance of having
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strategic collaborative efforts to acquire economies-of-scale, and ultimately to produce competitive products in terms of prices and quality but the local vendor firms are less preferred by the foreign firms due to having their own network of suppliers. For purposes of market penetration, a few of the local vendor firms have established linkages with Japanese OEMs in order to be able to supply parts to the Japanese OEMs car makers like Toyota, Honda, Perodua (Daihatsu) and Tan Chong. This has provided an opportunity for the local vendor firms to enlarge their market scope and increase the economies-of-scale. However, the survey shows that most of the Japanese OEMs do not prefer to buy automotive parts or components from the local vendor firms, for they have built their own supplier network, and also regard the quality of the local made parts and components as inferior to theirs. As such, most of the local vendor firms face difficulty in supplying parts and components to the Japanese OEMs as recorded in the survey: Our organization changes have been stagnant for the past 4 years and now we are deteriorating owing to the smaller demand from Proton. Being a 100% Malaysia-owned company, our products unfortunately are competing with several Japanese joint-venture or linked vendors in Malaysia. OEM car makers like Toyota, Honda, Perodua (Daihatsu) and Tan Chong have never in the past invited companies like ours to supply parts or components to them because they have their own suppliers, their products are regarded better in quality than ours, and because we are 100% Malaysian and we do not have Japanese partnership. Therefore, our company depends only on Proton to survive but unfortunately some Proton senior staffs prefer Japanese joint venture vendors as well instead of 100% Malaysian vendors who have been marginalized to a certain extent [pers.comm, Vendor 9 (requested anonymity), 21 September 2006, 5:30pm].
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Besides these constraints, the vendor firms are also confronted with price competition, which has led them to collaborate with car parts and components makers from China, in an attempt to lower their cost of production, and ultimately to lower their prices and stay competitive in the market, which is essentially determined by price, and less on quality or firm capability. Thus, to be competitive in the present explosive pace of technological development, the local vendor firms should make additional efforts to convince the foreign firms to establish strategic linkages with them, or other institutions.
6.5.8
Analysis of ‘Learning’
The next dimension presented in the Radar diagram is ‘learning’. On average, the vendor firms registered a level score of 2.5, which suggests that the entrepreneurs of the vendor firms acknowledged the importance of codified knowledge, skills and experience for the firms’ better performance. Some of the firms have well-structured policies to encourage continuous learning for their staff and knowledge sharing between the superiors and subordinates. Indeed, a few of these firms have their own training centers with in-house designed programmes and activities to improve staff skills and knowledge, as noted in the interview: We expanded staff force especially engineers to support business growth; created a specialized styling and design team and set-up a design center to develop products in-house. We also adopted ISO/TS 16949:2002 quality management system in addition to ISO 9001:2000. In addition, we have designed our own Kobetsu Kaizan activity to further enhance our company’s cost structure [pers.comm, CEO 8 (requested anonymity), 14 September 2006, 2:30pm]. In addition, the vendor firms that are collaborating with foreign partners conduct training at the universities that have established a partnership with the particular foreign
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firm, as recorded during the interview: “We emphasize QCD learning and a knowledge based environment. We have increased training hours per employee and our management training is held at our university abroad” [pers.comm, Manager 17 (requested anonymity), 13 September 2006, 10am]. In contrast, the vendor firms that scored 2 for this dimension appear to have less policies and mechanisms to improve staff skills and knowledge. They do not have formal procedures to capture knowledge from past projects and to use it for future projects. As the knowledge is not transmitted in written form, the knowledge is not secured, and the firm gets into a risky position if the particular employee leaves the firm. The knowledge is lost and consequently provides an opportunity for the firm to be threatened by its competitors. Also, these firms have difficulty in reading and understanding blueprints, which are essential for problem-solving, improvement and upgrading of the products produced. Worse, there are a small number of few firms that scored 1 in the learning dimension, which reflects that they are not concerned about staff learning. They do not encourage learning activity in the firm, and thus the learning mechanism in these firms is relatively unclear and questionable.
6.5.9
Analysis of ‘Leadership’
In terms of leadership, the vendor firms on average scored 2.6 for this dimension. Often, the entrepreneurs perform the leading function in bringing, inter alia, new industrial enterprises into existence; they function as powerful agents of change, not only economic change but also social change which inevitably accompanies it (Gerschenkron, 1966). In this study, most of the vendors are found to be dedicated to managing most of the operations of their firms and some of these vendors used workflow project management procedures to manage their firms effectively.
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In addition, some of these vendors coordinate the firms’ functions such as finance, administration, management and operations effectively resulting in good performance and sustainable competitiveness. Indeed, some of these firms have ventured into the international market as a result of efficient leadership and capability. Thus, in the increasingly competitive environment, the quest for entrepreneurs with inexhaustible inspiration and momentum for high achievement and high sustainability is crucially significant. The need for such leadership quality is as recorded in the following interview: During this period of globalization and high competition, the firm established partnership with another foreign firm, particularly to be led by the foreign firm’s entrepreneur or leader who has the appropriate capability to improve the performance of this firm. Indeed, this firm has gone through a transfer of management so that the firm is better managed by the new leader [pers.comm, Manager 16 (requested anonymity), 12 September 2006, 1pm]. On the other hand, there are some vendor firms that are not managed well due to poor leadership. Without appropriate leadership qualities, it is difficult for the entrepreneur to manage effectively and improve performance. In fact, a few of the vendor firms recorded financial loss due to poor management by the leader; while a few others invested inappropriately due to poor acquisition of knowledge on the matter. As such, this study regards it essential for entrepreneurs to equip themselves with adequate knowledge in order to lead their firms successfully and to sustain competitiveness. Thus, firm performance essentially depends on the capability and drive of the entrepreneur, which necessitates that he has or acquires leadership qualities.
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6.6
The Overall Technology Entrepreneurship Capability Level of the National Automotive Industry
The analysis of the average score obtained by the 56 firms for the eight dimensions enables the categorization of the firms into four main types in a scale of 1 to 4. Scale 1 is also referred as Level 1, and it denotes a ‘Passive’ type of firm, level 2 represents a ‘Reactive’ type of firm, level 3 is a ‘Proactive’ type of firm, and finally level 4 is the ‘Innovative’ type of firm. The categorization of firms according to these four different types is achieved by adding up the average scores from all the eight dimensions and dividing it by 8 as presented in Table 6.12. The number of firms in each category according to their technology entrepreneurship capability is presented in this table as well.
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Table 6.12 Overall Technology Entrepreneurship Capability Level Technology Entrepreneurship Capability Level
No. of Firms
1 (Passive: 0.1 to 1.0)
0
Poor codified knowledge, and low skills. Lack of leadership skills.
Lack of capability for development and improvement of basic artifacts, Very poor technological development No innovation activity. Unable to establish linkages.
2 (Reactive: 1.1 to 2.0)
5
Barely average codified knowledge, poor tacit skills. Poor leadership skills.
3 (Proactive: 2.1 to 3.0)
48
Good knowledge-base. Good leadership skills.
Limited capability for development and improvement of basic artifacts, and has below average set of heuristics Barely average technological development. No innovation, Limited external linkages Fairly good capability for development and improvement of basic artifacts, and has fairly good set of heuristics. Good technological development. Minimum innovation. Established various external linkages.
4 (Innovative: 3.1 to 4.0)
3
Excellent knowledgebase. Excellent leadership skill.
Entrepreneur
Technology
Excellent capability for development and improvement of artifacts, and has excellent set of heuristics. Excellent technological development. Innovative success. Well-formed linkages with various external sources.
Firm
Context
Short-term plans, does not have a framework for strategizing activities strategically. Incapable of understanding the market needs and trends. Unable to identify core competency and build distinctive core capabilities. Poorly structured technology strategy. Relatively average in understanding the market trend but a ‘slow’ follower. Able to identify core competency but limited capability to develop it.
Ignorant of the changes that occur around them. Does not search for opportunities and threats.
Well structured strategy. Capable of understanding the market, and follows the market trends. Has the ability to develop core competencies.
Recognizes the environmental changes, and has adequate capability to search for opportunities and threats.
Explicit technology strategy. Capability to understand and influence the market trends. Has robust capability to develop core competencies.
Highly recognizes the environmental changes, and has excellent capability to search for opportunities and threats.
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Recognizes the environmental changes but has limited capability to search for opportunities and threats.
The overall average dimension score achieved is 2.48, which categorizes the national automotive parts and components industry into level 3.
This is the ‘Proactive’
technology entrepreneurship capability level where the majority of vendor firms are as presented in Table 6.12. In terms of percentage, the third level accounts for 85.7 % of the vendor firms. Within the sector, another 8.9 % of the firms are in the ‘Reactive’ category; and another 5.4 % are categorized as the ‘Innovative’ type of firms. The results obtained for each firm is then presented in graphically, using a scatter plot diagram as shown in Figure 6.7.
Scatter Plot of Technology Entrepreneurship Capability
Degree of Preparedness
4.00 Innovative
3.00 Proactive
2.00
vendor firm Reactive
1.00 Passive
0.00 0.00
1.00
2.00
3.00
4.00
Degree of Awareness
Figure 6.7 Scatter Plot of the National Automotive Industry’s Technology Entrepreneurship Capability
The scatter plot diagram presents the results of an individual firm according to its technology entrepreneurship capability. Generally, the scatter plot enables the clustering of firms into four different types: passive, reactive, proactive and innovative with their characteristics presented in Table 6.12. The majority of the vendor firms are found to be spread in the range of ‘Proactive’ capability, and within this category, there are firms 191
that are ‘highly Proactive’, ‘Proactive’ or ‘barely Proactive’ in their approach. There are also a few firms that exhibit capability in the ‘Reactive’ range, and very few firms are found in the ‘Innovative’ category. There is no representation in the ‘Passive’ category. It is observed that most of the vendor firms are relatively above average in their technological and entrepreneurial capability but are relatively less capable of developing new products or processes, and thus they are relatively less competent when it comes to sustaining their businesses. This notion is as noted in the interesting pattern that emerged out of the vendor firms’ performance of technology entrepreneurship capability, in which the vendor firms appeared to have a higher level of technology awareness compared to the level of technology preparedness. This reflects that the automotive sector has strengths in the acquisition of knowledge on industrial environment and technological changes, which is known as ‘technology awareness’, and weaknesses in the implementation of technology, or ‘technology preparedness’. The relatively high score in technology awareness is generally reflected by the range of scores obtained for the first and second dimensions, namely awareness and search; while the low score in technology preparedness is a reflection of the wide range of scores obtained by the vendor firms for the dimensions 3 to 8. These are strategy, core competency, technology paradigm, linkages, learning and leadership. The analysis showed that regardless of a relatively high awareness of technology, many vendor firms have problems in structuring strategies strategically. On average, most firms do not have strategic road maps; therefore, almost all were followers rather than innovation leaders. As followers, many have relatively poor to average structured strategies; they cannot be fast followers in terms of quick reproduction and improvement of products and processes. This poorly scored strategy dimension affects the firms’ technology preparedness; for instance, most firms are found to have relatively average capability in identifying and developing core
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competencies to create competitive advantage for their firms. As such, most of these firms did not complement their strengths in awareness with strategic actions and other key activities. Since the firms assessed are of large and small and medium size, a comparison is made with regard to relative level of technology entrepreneurship capability. The small- and medium-sized firms generally lack the resources such as capital and staff to acquire and develop technology and new products; they also have difficulty in reducing cost structure. However, some of the small- and medium-sized firms are capable of undertaking product improvement activities. Less bureaucracy and less management structures enable the small- and medium-sized firms to be quick in decision making and in exploiting opportunities. The large size firms have an advantage in terms of acquiring and securing financial assistances and commercialization of products due to brand recognition, a result of their long years of establishment. The large-sized firms place emphasis on technology and product development through their active involvement in R&D activities. They have the capability to carry out innovation type of activities such as product development and process improvement.
6.7
Summary
This chapter contributes towards greater understanding of technology entrepreneurship capability and the key issues at the firm level in the automotive sector. The results of this analysis show that the national automotive vendor firms are relatively above average in terms of awareness, search, learning and leadership. These dimensions are the key activities of the context and entrepreneur constituencies of technology entrepreneurship. The results reflect that the vendor firms have relatively average capability in terms of their awareness of the environmental changes, and their search
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capability for opportunities and threats. The entrepreneurs are observed to possess relatively adequate codified and tacit knowledge for continuous improvement; in addition, most of the firms are owned by entrepreneurs with relatively average leadership qualities which enable them to coordinate and manage firms accordingly. However, in the domain of implementing entrepreneur’s knowledge and leadership skills together with a relatively good sense of awareness and search capability, the vendor firms registered a relatively lower scale of the average level with figures such as 2.1 for strategy, 2.3 for technology paradigm and linkages, and 2.4 for core competency. In terms of technology entrepreneurship, the weaknesses are in the key activities of the firm and technology constituencies; they are: strategy, core competency, technology paradigm, and linkages. In general, many firms have relatively poor to average developed strategies. Most of the firms do not have explicit technology strategy, which could provide them the strategic path to take in order to create competitive advantage. The analysis revealed that the vendor firms are at a crucial juncture in terms of sustaining their businesses, particularly price competition, as many of them had not developed strategies to reduce cost structure. The analysis showed that in general, weakness in developing strategy strategically has affected their performance in other key activities such as identification of core competencies, establishing linkages with external affiliates like technology suppliers, and mastering technology paradigm for improvement and development activities. As such, it is observed that most vendor firms fall under ‘barely Proactive’ and ‘Proactive’ in these dimensions. An interesting pattern emerged from the analysis of technology entrepreneurship capability of the vendor firms in the automotive sector. The analysis revealed that the vendor firms are relatively stronger in their degree of awareness, which is represented by the awareness and search dimensions in comparison to degree of preparedness. The
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lower scores reflect the range of low scores obtained by firms for dimensions 3 to 6. In other words, most vendor firms recognized technological changes and are aware of their need but their strength in these dimensions is not complemented with actions. Thus, most vendor firms need improvement in terms of two factors of technology entrepreneurship, namely firm capability, which includes developing strategies and identifying core competencies, and technology capability, which addresses mastering of technology paradigm and establishing linkages.
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CHAPTER 7: CONCLUSION AND POLICY IMPLICATION
7.1
Introduction
This final chapter provides an overall summary of the thesis followed by a summary of the key findings. It then looked into the impeding factors that affect the building of technology
entrepreneurship
capability.
Then,
recommendations
with
policy
implications are provided in terms of the four factors and eight key dimensions of technology entrepreneurship. Consequently, suggestions for future research in the field of technology entrepreneurship are offered. The chapter ends with concluding remarks.
7.2
Summary of Thesis
This study discusses technology entrepreneurship development in Malaysia, and analyzed technology entrepreneurship capability of the national automotive parts and components vendor firms utilizing an improvised technology entrepreneurship capability framework. Chapter 1 introduces the topic with a brief overview of the study. Chapter 2 reviews literature relevant to the theme of this study, which is technology entrepreneurship capability. Based on the review, it was realized that there is a dearth of literature in this emerging field, with existing literature being focused on IT, and IT-related fields. The study, therefore, decided to look at technology entrepreneurship in the automotive industry, which has not been previously explored. With that, it is hoped that this study will enlarge the relatively limited scope of the existing technology entrepreneurship literature. Chapter 3 subsequently looks into the various industrial policies, and their significance on the development of entrepreneurship and technology entrepreneurship in Malaysia. This study applied the improvised technology entrepreneurship framework to trace the trend of entrepreneurship development in Malaysia from the time of
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achieving independence (1957) up to 2005. The year 2005 marked the end of IMP 2 (1996-2005) and 8th Malaysia Plan (8MP) (2001 – 2005) periods. Both IMP2 and 8MP were introduced by Mahathir, the prime minister then, who had significant influence on the initiation of the drive towards technology based entrepreneurship in Malaysia. Thus, Chapter 3 presents the analysis of technology entrepreneurship from the macro perspective to trace the root of technology entrepreneurship practice in Malaysia. Accordingly in Chapter 4, the study narrows the discussion of entrepreneurship and technology entrepreneurship development in the context of the automotive industry as it is regarded as one of the most appropriate industries to analyze the main theme of this study, which is technology entrepreneurship capability. The selection of the automotive industry was based on its value chain, which involves use of technology in all its processes, from raw material acquisition to completion of an automobile. Moreover, as the automotive industry is a complex industry, which is made of thousands of parts and components, the number of firms involved as suppliers of these parts and components is also many; the participation of a huge number of supplier firms reflects obvious practice of entrepreneurship in the automotive industry. In addition, the nature of activities performed by these automotive supplier firms is technology oriented. As such, the widespread use of technology in the automobile value chain, the vast entrepreneurship opportunities in the automotive industry, and the increasing use of technology in the entrepreneurial activities carried out by the supplier firms reflect the convincing exercise of technology entrepreneurship in the automotive industry. Therefore, the study of technology entrepreneurship is regarded as most suitable in the context of the automotive industry. Having acquired relevant literature, and pertinent data on the main theme of this study, Chapter 5 discusses the methodology adopted, namely the Oslo Manual (OECD, 2005). The Oslo Manual was adapted to the field of technology entrepreneurship in
197
order to acquire pertinent technology entrepreneurship information on the national automotive parts and components vendor firms. The study then improvised on the World Bank methodology, introduced by Bessant et al.(2000) to analyze the findings from the survey with the aim of achieving the main objectives of this study. The improvised technology entrepreneurship framework consists of eight key dimensions derived from the four constituencies of technology entrepreneurship. These dimensions and constituencies are ‘awareness’ and ‘search’ from the context constituency; ‘strategy’ and ‘core competency’ from the firm constituency; ‘technology paradigm’ and ‘linkages’ from the technology constituency; and finally ‘learning’, and ‘leadership’ from the entrepreneur constituency. These technology entrepreneurship constituencies are inter-related and complement each other; the key dimensions referred to are the key activities of technology entrepreneurship that enable a firm to create competitive advantage. Having established the methodology, an analysis is carried out in Chapter 6 using the improvised framework to determine technology entrepreneurship capability level of the national automotive industry. Prior to the major analysis, the study discussed the basic characteristics of the parts and components vendor firms in terms of firm size, ownership structure, nature of business, and year of establishment. Basically, the vendor firms are of two sizes, SME and large; there are more SME-sized firms than the large-sized firms: there are 126 SME-sized vendor firms compared to 64 large-sized vendor firms. They are owned by three different groups of people, the Bumiputeras, the non-Bumiputeras, and the Foreigners. The Bumiputeras own 44 % of the large-sized vendor firms and 48 % of the SME-sized vendor firms. The study found that the vendor firms run different types of business activities which have been categorized for study purposes into metal, rubber, plastics, electrical and electronics, casting and others. The Bumiputera vendor firms are highly
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concentrated in the metal-based business making up 39 %; while the non-Bumiputeras, mainly the Indians, are involved in the rubber-based business, with a preponderance of Foreigners in the casting-based business. The segregation of business nature according to ethnic lines is slowly diminishing though marked during the colonial period. Most of the vendor firms (48.85%) were established during the fourth phase, which was between 1991 and 2005 due to strong government intervention. As such, the average age of most Proton vendor firms is 6 years; the relatively young age of the national automotive parts and components vendor firms is reflected in their competency level, which is relatively low in comparison to other Asian car-makers such as Hyundai of Korea, and Honda and Toyota of Japan. Other factors that have contributed to the low competency level of Proton vendor firms are government policy, technology capability, entrepreneurship skill, and knowledge-base.
7.3
Summary of Key Findings
This study focuses on firm-level technology entrepreneurship. It analyzes technology entrepreneurship capability and key issues at the firm level in the national automotive parts and components industry. Interesting results emerged from the case study analysis. The analysis revealed that the parts and components vendor firms are relatively strong in terms of awareness and rather weak in terms of strategy. The score of 3.1 in the scale range of 1 to 4 is a reflection of the firms’ understanding of the environmental changes; most vendor firms were able to recognize the technological changes and the increasing competition posed by AFTA implementation. The average dimension score of 2.5 for the ‘search’ dimension reflects that on average, the vendor firms were able to scan and trace the technology trends for identification of threats and opportunities available.
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In terms of strategy, on average the vendor firms have rather poorly structured strategy to create competitive advantage. The lowest score obtained, 2.1 for this dimension, has an influence on the building of core competency. As such, the vendor firms recorded a lower scale of a 2.4 average score for the core competency dimension. In the area of technology paradigm, the national automotive vendor firms were dependent on foreign technology, and therefore, scored 2.3 as they have relatively average mastery of technology used. Generally, the vendor firms have a poorly developed level of technology which would not enable them to sustain competitiveness. In term of linkages, on average, the vendor firms acknowledged the significance of having strategic collaborations; however, they are less preferred by foreign firms as they have their own established supplier network. Thus, the Proton vendor firms scored a lower average score of 2.3 for the linkages dimension. In the ‘learning’ dimension, the local vendor firms on average scored 2.5, for they acknowledged the importance of codified knowledge, skills and experience for the firms’ better performance. Some of these firms have started to encourage learning activity on a continuous basis; a few others have instituted appropriate learning mechanisms to foster a ‘learning’ culture in the firm. The learning activity is attributed to the focus and target of the firm’s leader. As such, in the ‘leadership’ dimension, the local parts and component vendors on average obtained a score of 2.6 as they were dedicated to managing their firms effectively. Some of these local parts and components firms have ventured into the international market as a result of efficient leadership. Against these findings, the overall dimension score obtained was 2.48, which categorizes the national automotive sector into the ‘proactive’ level. It is level 3 of technology entrepreneurship capability on a scale of 1 to 4. It is obvious that the firms on average have good business and technology understanding but are only moderate in exploiting them to create opportunities and to achieve their business goals. They indeed
200
face difficulty in creating competitive products and penetrating the foreign market though they report a high awareness of technology. Thus, they are confronted with challenges which require immediate improvements in terms of strategy, technology capability, and entrepreneurship skills to be able to compete in the increasingly competitive environment.
7.4
Factors that Hinder Building of Technology Entrepreneurship Capability
The analysis presented in Chapter 6 has identified a list of impeding factors that hinder the national automotive industry from building technology entrepreneurship capabilities. These factors are presented according to the four factors of technology entrepreneurship.
7.4.1
Industrial Environment Context
As the establishment of the national automotive industry is a state-led initiative, various categories of assistance were provided by the government to protect the industry. The large pool of vendor firms was created and developed with government assistance. In fact, the growth of the national automotive parts and components industry was a result of government encouragement to promote entrepreneurship development through the setting up of vendor firms. These firms were protected from competition from foreign firms. In turn, the assistance and protection provided by the government have created complacency within the industry. The national automotive vendor firms have been enjoying the complacent environment that ultimately has inhibited them from searching for new market scope and tapping opportunities from abroad. As a result, most of the local vendor firms supply parts and components only to Proton.
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7.4.2
Firm
The introduction of AFTA has permitted the entry of many foreign cars in the local market; as such, the volume of sales of the national car, namely Proton, has dropped tremendously. This has a direct impact on the local vendor firms’ performance; it has deteriorated as the volume of sales for the national car decreased. The decreased demand for the national car has affected the vendor firms so badly that some of them are unable to sustain their businesses, especially those firms that do not have a structured road-map to enable them to stay fairly competitive in the market. The relatively poorly drawn strategies of some of the vendor firms has led to their poor performance in most of the other seven key dimensions of technology entrepreneurship, particularly core competencies, technology paradigm and linkages.
7.4.3
Technology
The current economic scenario requires the vendor firms to produce products that are good in quality and low in price. The local vendor firms are comparatively less capable of producing competitive products due to relatively poor capability in terms of technology. In the survey conducted, most of the vendors encountered limitation in their technological ability to improve their performance, and ultimately this constrains business expansion. Most of the local vendor firms appear to have limited linkages with foreign firms. For many firms, their efforts at building strategic alliances with foreign firms were relatively less significant due to poor absorption of technological knowledge from their foreign alliances. Thus, technological development has not shown any improvement among the parts and components vendor firms. This issue is ‘pinching’ the vendors from further improvement and advancement, and therefore, an actionable
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recommendation is needed to encourage technological development of the national automotive industry.
7.4.4
Entrepreneur
The increasingly competitive global scenario demands competitive entrepreneurs who are knowledgeable and multi-skilled. Most of the Proton parts and components vendors are in the average category in terms of acquisition of knowledge, and low to medium in terms of skills. As such, most of them generally specialize in one type of job specification. The limited knowledge-base of most of the Proton vendors has led to the difficulty in producing competitive products both in terms of price and quality. The local entrepreneurs are therefore restrained by limited skill and knowledge ability to respond to competitive pressure. In addition, most of the vendors who are the firms’ leaders possess ‘heroic’ type of character as practiced in the traditional entrepreneurship. As such, most of the Proton vendors prefer to work individually, instead of in teams. Such individualistic characteristics contradict with the globalization phenomenon which encourages team effort in the world automotive industry’s drive towards lean production; the lean production concept is viewed as a response to global competition (Womack et al., 1990). Hence, the Proton parts and components vendors are confronted with the problem of changing the ‘individual’ work concept to team performance so as to emulate the world industry leaders.
7.5
Recommendations
The above discussion and summary calls for a number of recommendations to foster the development of technology entrepreneurship in Malaysia. Suggestions are listed in an effort to effectively upgrade the technology entrepreneurship capability of the national
203
automotive parts and components industry. The globalization scenario requires the firms to be independent and competitive. Some government protection measures can no longer be extended though the national automotive industry still needs government protection though not forever. New ways of staying abreast with other competitors have to be strategized. In view of such circumstances, this study recommends suggestions in relation to the four main factors and eight key dimensions of technology entrepreneurship.
7.5.1
Industrial Environment Context – Awareness and Search
The policy implications of this study are based on the results obtained from the analysis of technology entrepreneurship capability. As most of the local vendor firms encounter difficulties in enlarging their market scope, it is imperative for the government to indicate awareness of the urgent need for the national automotive parts and components vendor firms to enlarge the market scope of the local products. It is suggested that the government adopt a particular automotive engineering standard according to the local industrial environment as was introduced by the Japanese government in 1919 through its Ministry of Commerce and Industry to enlarge the size of the Japanese national market (Odaka,1999). The engineering standard introduced by the Japanese government had encouraged the general development of the machinery industry, and upgraded the quality of the domestic machines. In fact, the introduction of the Japanese engineering standard and related industrial policies fostered the development of automobile industry in Japan (Odaka,1999). Besides, the local parts and components vendor firms are also urged to search for opportunities in an alternative market to enable them to expand their market size, and ultimately realize economies-of-scale relatively easily. If this is achieved, the vendor firms do not have to depend on a single manufacturer as practiced by some of
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the national automotive parts and components vendor firms. The survey results show that some vendor firms are totally dependent on the national car manufacturer and sell their parts and components only to Proton, and not to other manufacturers or OEMs. This saw their sales performance dipping badly when the sales volume of the Proton car decreased as a result of AFTA implementation.
7.5.2
Firm – Strategy and Core Competency
The focus of this recommendation is to encourage the development of strategic plans through appropriate long-term road maps that would enable the realization of the growth potential of the national automotive industry. It is suggested that the government draw up a particular strategic plan under the National Automotive Plan for the development and growth of the national automotive industry. The NAP, which was designed to overcome the challenges faced by the local automotive players has set five major objectives: (i) to promote a competitive and viable automotive sector; (ii) to become a regional hub for manufacturing, assembly and distribution; (iii) to enhance value added and local capabilities; (iv) to promote export-oriented Malaysian manufacturers and parts and components vendors; and (v) to promote competitive and broad-based Bumiputera participation. Nevertheless, the objectives set were general, and did not address the problems faced by the industry players specifically. Therefore, the NAP is recommended to incorporate vision and growth strategies for the different parts and components of the automotive industry. Specific plans and programs need to be drawn for each type of the automotive business nature such as metal, electrical and electronics, rubber, plastics, castings, and others in order to achieve vision and growth for the different types of automotive parts and components. Only then, can the vendor firms explore their niche area and specialize, which is in accordance with world trends in the automotive
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suppliers who prefer to focus on their core activities rather than encompassing the whole market spectrum. For example, the large automotive supplier, Delphi, has sold off units that are not part of its core activities, and Lear, on the other hand, has started to focus on interior systems (UNCTAD, 1999). In addition, this study suggests that the government pass a legislation to specialize on a particular type of automobile according to the national automotive industry’s capability and competency. This is significant to enable the national automotive parts and components vendor firms to build on their core competencies. As suggested by the Institute of Developing Economies (IDE) of Japan, Malaysia can specialize in compact cars with automatic transmission; while Thailand and Indonesia can continue to specialize in pick-up trucks and multi-purpose vehicles (IDE, 2007). With that, the national automotive industry will have a clear direction on creating competitive advantage though rivals are expected in the production of compact cars, notably India and China.
7.5.3
Technology – Technology Paradigm and Linkages
In the present world scenario, sustaining competitiveness is significant and it can be achieved through continuous technological developments and cost improvements. The national automotive industry has to find alternative ways to improve the technology used in the value-chain of the automobile. As such, the vendor firms require a shift in their technology paradigm to keep abreast with the new technologies that are being applied to automobiles. The shift in technology paradigm will enable the national automotive industry to emulate world automotive industry leaders such as the United States, United Kingdom, and Japan.
In terms of linkage, the national automotive vendor firms should find a market niche globally. They must go global to tap export markets and reduce their dependency on the national OEM. This is crucially important as global networks are replacing local 206
supply linkages; the endeavor for a global network has led to considerable consolidation and restructuring of the parts and components industry in countries such as Brazil, the Czech Republic, India, Poland and South Africa (Humphrey and Memedovic, 2003). Indeed, the world’s vehicle manufacturers are making serious efforts to consolidate and rationalize to gain access to global markets. Thus, it is recommended that the local vendor firms find ways to consolidate through the vendors’ association as such an exercise would promote sharing of expertise to produce competitive parts and components.
7.5.4
Entrepreneur – Learning and Leadership
As the vendor firms require skilled labor at all levels of the automotive value chain, it is imperative that the entrepreneur is equipped with multiple skills so as to be able to advise the workers accordingly and to encourage a multi-skill culture at the firm. As such, the entrepreneur has to make an attempt to reward multi-skilled workers and it can be exercised through job rotation, which is practiced by the Japanese car maker, Toyota (ILO, 2000). Besides, the education and training system also has to address industry needs for multi-skilled human resources. It is therefore recommended that the government particularly highlights the significance of collaboration between institutions of higher learning and industries for producing multi-skilled and competitive workers. A special grant can be awarded to the institutions of higher learning that have collaborative programs for industry players. In addition, the incorporation of entrepreneurship courses in various technical-based programs such as engineering is regarded essential to equip engineering students with entrepreneurship knowledge, as well to inculcate an entrepreneurial culture among the students with technological background; this exercise is essential to generate human resources who are multi-skilled and compatible. The
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integration of entrepreneurship and technical course is offered by University of Kuala Lumpur (UniKL) in its different engineering courses at its various branch campuses such as mechanical engineering at UniKL Malaysia France Institute (UniKL-MFI), automotive parts and components engineering at UniKL Malaysia Spanish Institute (UniKL-MSI), electrical and electronics engineering at UniKL British Malaysia Institute (UniKL-BMI), and other courses at different branch campuses; all these engineering courses are complemented by an entrepreneurship course to instill entrepreneurial capability to the future engineers or technology entrepreneurs as required by industries. The vendors, who are entrepreneurs, have the responsibility as firm leaders to break away from the traditional practice of working alone to perform as a team member. It is suggested that the vendors move away from the ‘heroic’ character as practiced in traditional entrepreneurship to the teamwork concept, which is associated with lean production. This is essential as lean production is a widely accepted concept to create competitive advantage. It can thus be seen that the competitiveness of the Proton vendor firms depends partly upon the leadership of the entrepreneurs.
7.6
Future Studies
To facilitate the accumulation of knowledge in the field of technology entrepreneurship, this study suggests two generic types of knowledge expansion on the topic for future scholarly inquiry: vertical and horizontal. For vertical expansion of knowledge, the research area may include technology entrepreneurship development within the technology entrepreneurship spectrum. Future studies may look into the development and growth of the four factors of technology entrepreneurship in order to suggest a technology entrepreneurship path for achieving competitive advantage. For example, a study of technology entrepreneurship capability of the automotive industry suggests the
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possibility of building technology entrepreneurship capability of the various parts and components of an automobile such as engine, tire, chassis and others. For horizontal expansion, future researchers may look into other facets that are affected by developments in technology entrepreneurship. Horizontal expansion of knowledge should enable the introduction or inhibition of new aspects to the technology entrepreneurship discipline. For instance, the building of technology entrepreneurship capability of the automotive industry affects the performance and development of other industrial sectors that are related such as rubber, metal, plastics and others. Future research may then consider analyzing other industrial sectors and the relationship among the inter-related sectors. It may be interesting to analyze further the creation of an environment conducive for technology entrepreneurship activity to flourish.
7.7
Conclusion
This study is distinct from previous studies as it contributes to Malaysia’s industrial and entrepreneurship development by being among the pioneer studies employing an improvised technology entrepreneurship capability framework that denotes the technology entrepreneurship capability of the national automotive industry at a period when the state-supported national automotive industry is being badly affected by the regional trade policy, AFTA. As such, this study sought to understand the trend of entrepreneurship development in Malaysia, and identified the root of technology entrepreneurship practice, prior to determining the technology entrepreneurship capability level of the national automotive parts and components industry, which was the main objective of this thesis. This study also examined the impact of industrial environment change on the automotive industry in terms of technology entrepreneurship, and consequently identified the strengths and weaknesses of the national automotive parts and
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components industry. Thus, the outcomes from this study should be useful to the automotive industry players particularly to overcome their weaknesses in building technology entrepreneurship capability, and generally to provide guidelines to the policy makers in drafting government policies to upgrade the technology entrepreneurship capability of the national automotive industry and to promote the drive towards technology entrepreneurship in Malaysia. The contributions of this study to literature include a relatively new definition of the term ‘technology entrepreneurship’, and the identification of a set of factors to provide a better understanding of the term; and a set of key activities of technology entrepreneurship to achieve competitive advantage at firm level. This study has supplemented literature on technology entrepreneurship by exploring a new research area, the automotive industry as a case study. In addition, this study has developed a modified version of the approach of Bessant et al.(2000) to the innovation capability audit tool, which is suited to the study of technology entrepreneurship and the Malaysian industrial context in terms of changes in the key dimensions, and the categorization of dimensions for the analysis between the degree to which firms are aware of technology entrepreneurship issues, and how well the firm is prepared to put them into practice. In providing an improvised technology entrepreneurship audit framework, this study has provided the gateway for further research on the appropriate dimensions and the research areas to be explored. It may be interesting to examine the technology entrepreneurship capability of other industrial sectors and the impact of their capabilities on the Malaysian economy or other developing countries.
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224
Appendix A Table 1 Summary of Characteristics of 11 Proton Vendor Firms - Casting
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10156
Bumiputra
Large
(PVL)
26/07/1984
1985
32,653
267
2
10474
Bumiputra
Large
(PVL)
01/06/1993
1995
20,297,099
100
3
10619
NonBumiputra
SME
(PVL)
14/04/1980
1988
274,490
40
4
10723
Bumiputra
Large
NA
26/07/1984
1985
NA
NA
5
10827
Foreigner
Large
(PVL)
22/04/1989
1999
34,030,811
650
6
10988
NA
SME
(PVL)
06/12/2003
1993
NA
162
7
11918
Foreigner
Large
(PVL)
18/04/1989
1990
42,098,449
393
8
12167
Foreigner
SME
(PVL)
01/06/1998
1999
1,278,000,000
110
14775
NonBumiputra
SME
(PVL)
18/05/1996
1999
NA
NA
9 10
15059
Foreigner
NA
NA
01/01/2000
2003
NA
NA
11
17720
Foreigner
Large
(PVL)
01/01/2004
2004
358,787,500
1,170
Table 2 Summary of Characteristics of 35 Proton Vendor Firms – Electrical & Electronics
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
1
10389
Bumiputra
SME
(PVL)
02/03/1994
1994
4,867,487
69
2
10457
Bumiputra
SME
NA
01/01/1988
1988
NA
NA
3
10478
SME
(PVL)
06/12/1983
1985
2,070,000
12
4
10486
Large
(PVL)
30/09/1981
1985
69,252,078
136
5
10510
SME
(PVL)
01/01/1984
1985
31,000,000
139
6
10592
Large
NA
31/12/1970
1998
260,000,000
273
7
10630
Large
(PVL)
07/08/1989
1994
122,394,373
639
8
10631
SME
(PVL)
24/02/1995
1995
14,607,068
14
9
10766
Bumiputra
SME
(PVL)
01/01/1993
1993
31,842,141
8
10
10769
Bumiputra
SME
(PVL)
02/10/1991
1996
4,384,486
NA
11
10861
Foreigner
Large
NA
02/12/1988
1988
322,000,000
895
10941
NonBumiputra
SME
(PVL)
15/03/1973
1985
61,553,613
102
12
NonBumiputra NonBumiputra NonBumiputra NonBumiputra NonBumiputra NonBumiputra
NO. OF STAFF
225
Table 2, continued
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
13
10986
Bumiputra
Large
(PVL)
12/10/1983
1985
106,481,897
254
14
11056
Foreigner
Large
(PVL)
28/04/1972
1985
NA
1,486
15
11071
Bumiputra
Large
(PVL)
25/09/1978
1994
124,144,000
180
16
11147
Foreigner
Large
(PVL)
19/10/1985
1991
66,768,318
304
17
11230
Bumiputra
Large
(PVL)
10/01/1985
1996
NA
287
18
11233
Bumiputra
Large
(PVL)
15/08/1972
1985
18,900,000
267
19
11254
Foreigner
Large
(PVL)
13/11/1984
1985
109,045,000
474
20
11590
Foreigner
Large
(PVL)
03/04/1980
1988
1,376,000,000
1,288
21
11767
Large
NA
06/02/1990
1990
56,965,620
401
22
12165
SME
(PVL)
09/02/1985
1996
3,062,926
10
NonBumiputra NonBumiputra
23
12171
Foreigner
SME
(PVL)
05/06/1995
1995
3,623,000
11
24
12700
Foreigner
Large
(PVL)
01/01/1996
1996
84,064,705
629
25
12703
Bumiputra
SME
NA
01/01/1999
1999
NA
NA 554
26
13491
Bumiputra
Large
(PVL)
06/01/1993
2000
93,468,892,30 0
27
13633
Bumiputra
SME
(PVL)
25/04/1989
1989
24,855,457
99
28
13710
NonBumiputra
SME
(SPR)
04/11/1997
2000
3,080,239
102
29
14853
Bumiputra
SME
(PVL)
23/01/2002
2003
NA
17
NA
(PVL)
31/10/1980
1985
NA
138
SME
(PVL)
01/01/2004
2004
259,372,926
85
Bumiputra
SME
(PVL)
04/04/1996
2002
52,725,597
144
30
14945
31
15002
32
15345
NonBumiputra NonBumiputra
33
18881
NA
SME
(PVL)
01/01/2006
2006
7,000,000
10
34
30545
Foreigner
NA
NA
01/01/1999
1999
NA
NA
35
31651
Foreigner
NA
NA
01/01/2000
2005
NA
NA
Table 3 Summary of Characteristics of 82 samples of Proton vendor firms – Metal
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10469
Bumiputra
SME
(PVL)
01/01/1990
1990
NA
NA
2
10489
NonBumiputra
Large
(PVL)
09/07/1980
1985
65,794,149
278
3
10501
Foreigner
Large
(PVL)
01/03/1992
1993
127,000,000
333
4
10503
NA
SME
(PVL)
21/09/1992
1992
1,891,185
34
5
10512
Bumiputra
SME
(PVL)
16/03/1990
1990
4,868,494
38
6
10513
Bumiputra
Large
(PVL)
12/03/1988
1988
18,347,698
167
226
Table 3, continued
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
7
10514
Bumiputra
SME
(PVL)
06/09/1990
1991
9,712,371
114
8
10515
Bumiputra
SME
(PVL)
13/07/1985
1991
7,913,086
98
9
10516
Foreigner
Large
(PVL)
14/10/1980
1985
156,381,000
439
10
10518
Bumiputra
SME
(PTS)
13/01/1995
1995
21,424,800
61
11
10532
NonBumiputra
SME
(PVL)
01/01/1980
1985
23743917.00
94
12
10549
Bumiputra
SME
(PVL)
10/02/1982
1985
5,105,106
58
13
10555
Bumiputra
SME
(PVL)
12/06/1990
1990
11,007,943
159
14
10564
Bumiputra
SME
(PVL)
01/01/2000
2002
NA
NA
15
10584
NonBumiputra
SME
(PVL)
28/03/1980
1988
11,000,000
103
16
10633
NA
Large
(PVL)
03/07/1991
1993
NA
186
17
10660
NonBumiputra
SME
(PVL)
10/11/1983
1985
15,000,000
153
18
10665
Foreigner
SME
(PVL)
26/07/1993
1993
19,680,270
148
19
10751
Bumiputra
SME
(PVL)
19/02/1992
1993
13,400,000
280
20
10756
Bumiputra
Large
(PVL)
05/01/1994
1995
25,593,992
236
21
10792
NA
Large
(PVL)
18/04/1983
1985
117,173,092
749
22
10793
NA
SME
(PVL)
18/04/1993
1993
64,801,819
56
23
10830
Bumiputra
SME
(PVL)
11/11/1993
1993
3,870,302
49
24
10831
NonBumiputra
SME
(PVL)
10/08/1987
1988
5,830,000
89
25
10854
Bumiputra
SME
(PTS)
14/06/1995
2000
12,000,000
141
26
10869
Bumiputra
SME
(PVL)
01/01/1993
1993
NA
38
27
10898
Bumiputra
SME
NA
01/01/1985
1985
NA
NA
28
10953
Bumiputra
SME
NA
12/04/1993
1994
3,774,819
88
29
10960
Bumiputra
SME
(PVL)
01/01/1993
1993
65,221,000
53
30
10961
Foreigner
SME
(PVL)
01/01/1990
1990
62,746,000
50
31
10972
NonBumiputra
Large
(PVL)
18/06/1980
1985
23,825,000
151
32
10975
Bumiputra
Large
(PVL)
01/02/1982
1985
190,557,401
397
33
10994
Bumiputra
Large
(PVL)
01/07/1993
1993
88,813,000
531
34
11007
Bumiputra
SME
(SPR)
30/04/1992
2000
24,150,305
154
35
11015
Bumiputra
Large
(PVL)
29/10/1990
1992
118,363,000
718
36
11021
NonBumiputra
SME
NA
01/09/1980
1993
39,815,309
207
37
11028
Bumiputra
Large
(PVL)
20/01/1989
1989
24,830,035
221
38
11045
NA
SME
NA
27/08/1996
1997
NA
NA
39
11074
Bumiputra
SME
(PVL)
14/05/1991
1993
21,000,000
81
40
11075
Bumiputra
Large
(PVL)
11/06/1984
1985
36,592
89
41
11076
Bumiputra
Large
(PUL)
25/02/1985
1991
74,304,552
314
42
11098
Foreigner
SME
(PVL)
15/07/1993
1997
10,492,247
73
43
11122
Foreigner
SME
(PVL)
01/12/1985
1985
87,795,483
49
44
11161
Bumiputra
SME
(PVL)
05/12/1980
1997
24,100,000
123
45
11214
Bumiputra
Large
(PVL)
28/02/1984
1985
44,132,634
320
227
Table 3, continued
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
41
11076
Bumiputra
Large
(PUL)
25/02/1985
1991
74,304,552
314
42
11098
Foreigner
SME
(PVL)
15/07/1993
1997
10,492,247
73
43
11122
Foreigner
SME
(PVL)
01/12/1985
1985
87,795,483
49
44
11161
Bumiputra
SME
(PVL)
05/12/1980
1997
24,100,000
123
45
11214
Bumiputra
Large
(PVL)
28/02/1984
1985
44,132,634
320
46
11227
Foreigner
SME
(PVL)
01/01/1982
1987
38,000,000
153
Large
(PVL)
26/07/1980
1985
31,570,895
349
Large
(PVL)
07/08/1982
1985
94,506,955
515
NonBumiputra NonBumiputra
47
11240
48
11241
49
11296
Bumiputra
SME
(PVL)
16/11/1974
1988
333,456
11
50
11299
Foreigner
Large
(PVL)
14/05/1984
1988
80,700,000
262
51
12021
NonBumiputra
SME
(PVL)
19/09/1990
1999
3,944,367
66
52
12163
Bumiputra
SME
(PVL)
01/01/1995
1995
190,000
8
Large
(PVL)
03/12/1971
1991
195,000,000
817
SME
(PVL)
25/02/1985
1985
18,339,917
350
NonBumiputra NonBumiputra
53
12880
54
13063
55
13260
Foreigner
SME
NA
31/12/1997
2000
3,900,000
8
56
13620
Foreigner
NA
(PVL)
01/01/2000
2000
NA
NA
57
13786
NonBumiputra
SME
(PVL)
14/02/1998
2000
2,756,003
47
58
13895
Bumiputra
SME
(PVL)
05/06/1998
1998
158,326
46
59
14063
Bumiputra
SME
(PVL)
28/06/1985
1997
1,673,000
7
SME
(PVL)
15/07/1991
1995
NA
NA
SME
(PUL)
18/11/2001
2002
NA
NA
NonBumiputra NonBumiputra
60
14115
61
14117
62
14127
Bumiputra
Large
(PVL)
05/09/1997
1999
100,106,294
366
63
14147
NA
SME
(PVL)
21/01/1989
1989
16,661,589
125
64
14666
Bumiputra
SME
NA
22/03/1995
1995
1,021,592
18
65
15172
Bumiputra
SME
(PTS)
01/01/2000
2003
NA
NA
66
15225
NA
SME
(PVL)
10/03/1992
1996
5,500,000
56
67
15488
Bumiputra
SME
(PVL)
23/08/1993
2003
1,000,000
45
Bumiputra
SME
NA
12/04/2004
2004
NA
18
NA
68
15760
69
30112
Foreigner
NA
01/01/1998
1998
NA
NA
70
30295
Foreigner
NA
NA
01/01/1998
1998
NA
NA
Foreigner
NA
NA
01/01/2000
2000
NA
NA
71
30515
72
30809
Foreigner
NA
NA
01/01/2000
2000
NA
NA
73
30925
Foreigner
NA
NA
01/01/2000
2001
NA
NA
74
30964
Foreigner
NA
NA
01/01/2000
2001
NA
NA
Foreigner
NA
NA
01/01/2000
2001
NA
NA
NA
75
30972
76
30974
Foreigner
NA
01/01/2000
2001
NA
NA
77
30976
Foreigner
NA
NA
01/01/2000
2001
NA
NA
Foreigner
NA
NA
01/01/2000
2001
NA
NA
78
30985
228
Table 3, continued
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
79
31100
Foreigner
NA
NA
01/01/2000
2000
NA
NA
Foreigner
NA
NA
01/01/2000
2002
NA
NA
NA
01/01/2000
2003
NA
NA
(PVL)
01/01/2000
2004
NA
NA
80
31141
81
31321
Foreigner
NA
82
31345
Foreigner
NA
Table 4 Summary of Characteristics of 27 Proton Vendor Firms – Plastics
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10270
NonBumiputra
SME
(PVL)
05/10/1991
1993
22,260,846
191
2
10301
Bumiputra
SME
(PTS)
03/06/1993
1994
8,042,844
28
3
10488
NonBumiputra
Large
(PVL)
07/04/1981
1990
1,000,000
619
4
10504
Bumiputra
SME
(PVL)
12/02/1993
1993
NA
7
5
10520
Bumiputra
SME
(PVL)
01/01/1990
1990
8,194,000
50
6
10523
Bumiputra
Large
(PVL)
27/11/1987
1987
24,798,638
316
7
10548
Bumiputra
SME
(PVL)
01/12/1985
1985
15,331
63
8
10629
NonBumiputra
SME
(PVL)
01/01/1994
1994
5,601,815
79
9
10659
Bumiputra
Large
(PVL)
07/08/1982
1988
76,567,789
61
10
10727
NonBumiputra
Large
(PUL)
01/10/1969
1985
29,290,013
490
11
10755
Bumiputra
SME
NA
07/05/1991
1995
18,290,446
163
12
10794
Bumiputra
SME
(PVL)
15/03/1988
1988
14,114,614
220
13
10944
Foreigner
SME
(PVL)
05/10/1990
1998
23,400,000
145
14
11042
Bumiputra
SME
(PVL)
31/12/1982
1985
12,340,000
159
15
11079
Bumiputra
SME
(PVL)
13/10/1988
1989
405,703
NA
16
11116
Bumiputra
SME
(PVL)
09/05/1992
1992
10,980,200
145
17
11179
NonBumiputra
Large
(PVL)
05/06/1984
1985
1,000,000
305
18
11244
Bumiputra
SME
(PVL)
28/12/1988
1988
13,418,865
306
19
11245
Bumiputra
Large
(PVL)
26/09/1988
1988
29,631,918
230
20
11669
Bumiputra
Large
(PVL)
10/12/1985
1985
225,000,000
619
21
12160
Bumiputra
SME
(PVL)
23/07/1993
1993
313,030
14
22
12628
Bumiputra
Large
(PVL)
03/01/1995
1999
44,223,856
226
23
12643
Foreigner
SME
(PVL)
12/07/1996
1999
45,512,949
52
24
13791
Foreigner
Large
(PVL)
24/11/2000
2002
30,000,000
162
25
13883
Foreigner
SME
(PVL)
17/02/1983
2005
11,259,870
72
26
14032
Foreigner
SME
(PVL)
09/03/1984
2003
210,075,220
77
15206
NonBumiputra
SME
(PVL)
14/08/1990
2003
6,823,952
40
27
229
Table 5 Summary of Characteristics of 19 Proton Vendor Firms – Rubber
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10684
NonBumiputra
SME
(PVL)
05/12/1979
1985
9,998,107
190
2
10701
Foreigner
Large
(PTS)
01/09/1972
1985
83,471,000
713
3
10729
Foreigner
SME
(PVL)
27/11/1989
1991
19,500,000
150
Large
NA
11/12/1975
1985
67,320,000
345
SME
(PVL)
14/10/1992
1997
14,025,878
46
NonBumiputra NonBumiputra
4
10819
5
10826
6
10987
Foreigner
SME
(PVL)
16/01/1991
1992
28,812,000
29
7
11006
Bumiputra
Large
(PVL)
01/01/1985
1985
27,698,180
472
11020
NonBumiputra
Large
(PTS)
17/06/1988
1988
29,000,000
376
Large
NA
10/06/1989
1991
27,291,000
349
Large
NA
20/12/1979
1985
715,238,000
1,568
SME
(PVL)
24/03/1986
1990
5,503,548
80
SME
(PVL)
30/09/1994
1996
40,300,000
134
8 9 10
11089 11108
Bumiputra NA NonBumiputra NonBumiputra
11
11140
12
11177
13
11205
Bumiputra
SME
(SPR)
15/06/1985
1993
16,000,000
122
14
11271
NonBumiputra
SME
(PVL)
03/07/1981
1985
11,000,000
147
15
11364
Foreigner
SME
(PVL)
13/12/1988
1989
13,000,000
172
16
11878
NonBumiputra
Large
NA
12/07/1985
1985
209,258,000
1,224
17
14133
Bumiputra
SME
(PVL)
23/05/1994
2001
NA
38
01/01/2000
2003
NA
NA
01/01/2000
2001
NA
NA
18
14760
NA
SME
NA
19
30977
Foreigner
NA
NA
Table 6 Summary of Characteristics of 38 Proton Vendor Firms – Others
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10117
Bumiputra
SME
NA
28/09/1989
1989
NA
NA
2
10466
Bumiputra
SME
(PVL)
14/12/1993
1993
19,192,541
68
3
10496
NonBumiputra
Large
(PVL)
02/01/1980
1985
64,752,853
416
4
10563
Bumiputra
Large
(PVL)
06/09/1983
1989
263,584,955
334
5
10565
Bumiputra
Large
(PVL)
06/09/1983
1989
84,409,100
121
6
10566
Bumiputra
SME
(PVL)
27/09/1965
1993
14,138,760
142
7
10704
Bumiputra
SME
(PVL)
29/09/1983
1985
6,935,984
153
8
10795
NA
SME
(PVL)
11/11/1980
1985
7,761,683
47
9
10816
Foreigner
SME
(PVL)
04/10/1990
1991
12,429,000
85
10838
NonBumiputra
SME
(PVL)
14/07/1980
2001
6,759,351
80
10
230
Table 6, continued Summary of Characteristics of 38 Proton Vendor Firms – Others
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
11
10850
Foreigner
SME
(PVL)
01/11/1982
1985
7,478,000
108
12
10863
Foreigner
Large
(PVL)
17/11/1980
1985
212,600,000
666
13
10866
Bumiputra
SME
NA
19/08/1980
1985
NA
NA
14
10868
NonBumiputra
SME
(PTS)
30/09/1994
1993
NA
109
15
10875
Bumiputra
Large
NA
19/04/1985
1985
69,016,000
443
10891
NonBumiputra
SME
(PVL)
09/03/1995
1995
4,929,901
58
Foreigner
NA
NA
01/01/1998
1998
NA
NA
SME
(PVL)
11/11/1992
2003
3,600,000
39
SME
(PVL)
01/01/1983
1993
NA
96
SME
(PVL)
01/12/1985
1985
26,383,632
269
Large
(PVL)
31/10/1983
1985
31,290,186
190
SME
(PVL)
27/06/1984
1985
17,000,000
116
16 17
10913
NonBumiputra NonBumiputra NonBumiputra NonBumiputra NonBumiputra
18
10954
19
11126
20
11152
21
11237
22
11671
23
11850
Bumiputra
SME
(PTS)
19/12/1997
1997
5,155,612
54
24
12164
Foreigner
Large
(PVL)
23/11/1990
1999
39,654,683
204
25
12198
Foreigner
SME
NA
01/01/1991
1991
NA
NA
26
14433
Bumiputra
SME
NA
01/01/2000
2003
NA
NA
27
14506
Bumiputra
SME
NA
03/01/1995
2004
NA
NA
28
14622
Bumiputra
SME
(PVL)
03/02/1995
2003
NA
43
29
14847
Bumiputra
SME
(PVL)
01/01/1999
1999
NA
11
30
15095
Bumiputra
SME
(PVL)
26/01/1994
2005
484,000
11
31
15593
NA
SME
(PVL)
28/06/2000
2004
47,315,896
409
32
16115
Bumiputra
SME
NA
01/01/1996
1996
NA
NA
33
16380
NA
SME
(PVL)
01/01/2004
2004
1,000,000
5
34
17475
NonBumiputra
SME
(PVL)
01/01/1984
2004
31,000,000
139
35
17543
Bumiputra
SME
(PVL)
01/01/2004
2004
50,300,000
32
NA
36
30044
Foreigner
NA
01/01/1998
1998
NA
NA
37
30101
Foreigner
NA
NA
01/01/1998
1998
NA
NA
38
31430
NA
NA
(PVL)
01/01/2000
2004
NA
NA
231
Table 7 Summary of Characteristics of 5 Proton Vendor Firms – Insufficient Information
NO.
VENDOR CODE
OWNERSHIP
SME STATUS
*TYPE OF BUSINESS
DATE OF INCORPORATION
YEAR OF BUSINESS
ANNUAL TURNOVER (2005)
NO. OF STAFF
1
10873
Foreigner
SME
NA
NA
0
13,218,589
13
SME
NA
25/03/2000
0
227,458
15
2
12168
NA
3
30990
NA
NA
NA
01/01/2000
0
NA
NA
4
30970
NA
NA
NA
01/01/2000
0
NA
NA
NA
NA
NA
0
NA
NA
5
19108
NA
Note: NA : Not Available *Type of Business SPR: sole proprietorship PTS: partnership PVL: private limited PUL: public limited
232
Appendix B Table 1 Responses of Personal Communication (pers.comm)
No
Firm
Designation
No.
Requested
Date
Anonymity
Time (Hour)
1
5
Senior Executive 1
Requested Anonymity
04/08/06
10.00
2
20
Senior Manager 3
Requested Anonymity
04/08/06
14.00
3
6
Executive 1
Requested Anonymity
07/08/06
09.30
4
4
Manager 1
Requested Anonymity
07/08/06
14.30
5
11
CEO 2
Requested Anonymity
07/08/06
18.00
6
7
Manager 3
Requested Anonymity
15/08/06
15.00
7
9
CEO 1
Requested Anonymity
15/08/06
18.00
8
10
Manager 4
Requested Anonymity
16/08/06
14.30
9
8
Senior Executive 2
Requested Anonymity
16/08/06
17.00
10
25
Manager 5
Requested Anonymity
17/08/06
14.00
11
12
CEO3
Requested Anonymity
17/08/06
16.00
12
19
Manager 6
Requested Anonymity
18/08/06
15.00
13
23
Senior Executive 3
Requested Anonymity
18/08/06
17.00
14
22
Manager 7
Requested Anonymity
18/08/06
19.00
15
16
Manager 8
Requested Anonymity
22/08/06
09.00
16
18
Vendor 1
Requested Anonymity
22/08/06
14.00
17
14
Vendor 2
Requested Anonymity
23/08/06
14.30
18
15
Vendor 3
Requested Anonymity
23/08/06
15.30
19
17
Vendor 4
Requested Anonymity
23/08/06
16.30
20
31
Vendor 5
Requested Anonymity
24/08/06
09.00
21
30
Vendor 6
Requested Anonymity
24/08/06
11.00
22
21
Vendor 7
Requested Anonymity
24/08/06
14.00
233
Table 1, continued
No
Firm
Designation
No.
Requested
Date
Time
Anonymity
23
24
CEO 4
Requested Anonymity
24/08/06
17.00
24
26
Manager 9
Requested Anonymity
25/08/06
09.00
25
13
CEO 5
Requested Anonymity
25/08/06
10.00
26
27
Manager 10
Requested Anonymity
25/08/06
14.00
27
34
CEO 6
Requested Anonymity
28/08/06
14.00
28
35
Manager 11
Requested Anonymity
29/08/06
11.00
29
29
Manager 12
Requested Anonymity
29/08/06
16.00
30
38
Senior Manager 4
Requested Anonymity
05/09/06
10.00
31
33
Manager 13
Requested Anonymity
06/09/06
10.00
32
32
Manager 14
Requested Anonymity
06/09/06
17.00
33
28
Manager 15
Requested Anonymity
08/09/06
14.00
34
36
Vendor 8
Requested Anonymity
12/09/06
10.00
35
43
Manager 16
Requested Anonymity
12/09/06
13.00
36
42
Manager 17
Requested Anonymity
13/09/06
10.00
37
41
CEO 8
Requested Anonymity
14/09/06
14.30
38
37
Manager 18
Requested Anonymity
15/09/06
09.30
39
39
CEO 7
Requested Anonymity
15/09/06
18.00
40
44
Manager 19
Requested Anonymity
21/09/06
09.00
41
40
Vendor 9
Requested Anonymity
21/09/06
17.30
42
3
Manager 2
Requested Anonymity
30/10/07
15.00
43
1
Senior Manager 1
Requested Anonymity
29/11/07
16.00
44
2
Senior Manager 2
Requested Anonymity
29/11/07
16.30
234
Appendix C Table 1 Technology Entrepreneurship Capability Assessment Score Technology Entrepreneurship Factors & Dimensions Firm
Key Questions
Assessment Statements
1. Where is your firm located?
1.My firm is located strategically
2.Provide some background information of your firm?
2.My firm’s main activities are profit oriented
3. What are the main activities of your firm?
3.My firm experienced positive growth during this period (2003-2006)
Strategy
4. What is the size of your firm? 5.What is your annual turnover? 6.What is your capital expenditure? 7. What is your product/process market orientation? 8. How is the market distribution of your product/process? 9. How many staff/s do you have and what are their qualifications? 10. What is the ratio of R&D staff to the total number of staff? 11. Does your firm deliver benefits that exceed those of competing products? 12. How do you formulate your strategy?
Assessment Score Strongly Disagree
Disagree
Agree
Strongly Agree
1
2
3
4
4.The market for my product/process is extensive 5.My product/process meets market demand/needs 6.My product/process is of high quality 7.My firm is well equipped with technological infrastructure 8.The staff are highly loaded with extensive duties and responsibilities 9.The average level of education of the staff is certificate 10.There is a very few number of researchers/ R&D staff/ Professional staff. 11.My firm has the ability to utilize its resources effectively 12.My firm is able to bring its product/process faster to the market than its competitors
235
Table 1, continued Technology Entrepreneurship Factors & Dimensions Firm Core Competency
Key Questions
13. What are your firm’s main strengths and weakness? 14. Does your firm have any distinctive competency/ies? 15. Does your firm deliver the same benefits as its competitors? If yes, is it at a lower cost?
16. Is your firm able to bring its product/process faster than its competitors? 17. Does your firm perform one or more value creating or adding activities that ultimately create more value than its competitors?
Assessment Statements
Assessment Score Strongly Disagree
Disagree
Agree
Strongly Agree
1
2
3
4
13. My firm has a good plan of action of utilizing technology optimally 14.My firm has its own distinctive competencies 15.My firm has the ability to acquire and adapt technology according to the firm’s needs 16.My firm offers better benefits than its competitors 17.My firm offers same benefits as its competitors but at a lower cost 18.My firm performs value creating/ adding activities on a continuous basis
18. How different is your product in comparison to the competitors’? -lower cost or -superior benefits
Technology Technology Paradigm
1. Did any invention or innovation occur during this period (2003-2006)? 2. What is the percentage invested in R&D? 3. Have you patented before? 4. Is there any internet connectivity? 5. What is the percentage of internet access to the staff? 6. What are the main technology priorities of your firm?
19.Technology plays an important part in my firm 20.My firm has invented or innovated during this period (2003-2006) 21.My firm has patented during this period (2003-2006) 22.My firm has latest technological infrastructure 23.My firm has a proactive approach to encourage innovation on a continuous basis
236
Table 1, continued Technology Entrepreneurship Factors & Dimensions Technology Technology Paradigm
Key Questions
7. What are the main technology priorities of your firm? 8. How much does your firm invest (in percentage) in technology? 9. How much do you know about the existing technology? 10. How long have you been using the same technological knowledge and technology skills?
Linkages
3. What are the experiences accumulated? 4. Is learning encouraged in your firm?
Strongly Agree
1
2
3
4
27.My firm has been using the same technology since the previous model
29.My firm has good partner/s
2. What is the highest qualification of the entrepreneur?
Agree
26.My firm has adequate knowledge of the existing technology in-use
12. Do you have any linkages; if yes, with whom?
1. Do you know the vision and mission of your firm?
Disagree
25.My firm has invested heavily in technological development during this period (20032006)
28.My firm’s technological development is at par with its competitors
14. What have you achieved from the linkages activity?
Assessment Score Strongly Disagree
24.My firm knows its main technology priorities
11. How often do you make changes to your technology and who/what determined these changes to technology?
13. What do you aim to achieve from the linkages?
Entrepreneur Learning
Assessment Statements
30.My firm exploits the linkages activity for its advantage 31.My firm achieve its goal through its linkages
32.The entrepreneur knows well the firm’s vision and mission 33.The entrepreneur has post-graduate degree (codified knowledge) 34.The entrepreneur has extensive experience and is skillful (tacit knowledge) 35. The entrepreneur encourages learning activity and creates a learning culture in his firm
237
Table 1, continued Technology Entrepreneurship Factors & Dimensions Entrepreneur Leadership
Key Questions
9. Are you seen as authentic and decisive? 10. Are you focused on creating a priority list and sticking to it ? 11.Do you care to build relationships, and communicate vision? 12. Do you offer helpful feedback and good coaching to all employees? 13. Do you evidence the capability to keep learning and energy flowing in the firm, retain optimism?
Assessment Statements
Assessment Score Strongly Disagree
Disagree
Agree
Strongly Agree
1
2
3
4
36. The entrepreneur articulates a clear, compelling vision for the venture and stimulates the employees to achieve high performance. 37.The entrepreneur strives to develop a sustainable competitive advantage through building new competencies and products in a timely way. 38.The entrepreneur has the guiding vision and passion that allow him to communicate effectively. 39.The entrepreneur offers helpful feedback and good coaching to all employees. 40.The entrepreneur with solid experiences, adequate knowledge and relevant skills help to shape and build leadership skills.
Context Awareness
1. Is your firm aware of the latest environmental changes? 2. Does the firm recognize the assistance provided by the government?
Search
41.My firm is well aware of the environmental changes, e.g. policies and technological development 42. The firm recognizes the assistance provided by the government.
3. Does your firm explore opportunities and threats?
43.The firm continuously explore opportunities and threats
4. Is your firm able to make use of the threat by changing it to an opportunity and to the firm’s advantage?
44.The firm is able to change the threat to opportunity.
238
Appendix D Table 1: The National Automotive Vendor Firms Total Average Dimension Score FIRM NO
DIMENSION
1
Awareness
2
Search
3
Strategy
4
Core Competency
5
Technology Paradigm
6
Linkages
7
Learning
8
Leadership
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
3
3
4
3
3
4
3
3
4
3
3
3
3
3
3
3
4
3
3
3
3
3
3
4
3
3
3
3
3
3
2
3
2
3
3
2
2
2
2
3
2
3
3
2
3
3
3
2
2
3
2
3
2
2
3
2
3
2
2
3
2
2
2
2
2
2
2
2
3
2
2
2
2
3
2
2
2
1
2
2
1
2
2
2
2
2
2
2
2
2
2
3
2
3
2
3
2
3
2
2
3
2
2
3
2
2
2
2
2
2
2
3
2
3
2
3
3
2
3
2
2
3
3
3
3
2
2
2
3
3
2
2
2
2
2
2
2
2
3
2
3
2
2
2
3
2
2
2
2
3
3
3
2
2
2
3
3
2
2
3
2
3
2
3
2
2
2
3
1
2
2
1
3
1
3
2
3
1
1
3
3
2
3
3
2
3
2
3
1
2
3
2
3
3
1
2
3
3
2
3
2
3
3
3
1
2
2
3
3
3
3
2
3
2
3
3
3
2
3
2
3
2
3
3
2
3
2
3
3
3
3
2
3
2
3
2
3
3
2
3
FIRM NO
DIMENSION
1
Awareness
2
Search
3
Strategy
4
Core Competency
5
Technology Paradigm
6
Linkages
7
Learning
8
Leadership
Average 31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
3
3
3
3
3
3
3
3
3
3
3
3
4
3
2
3
3
3
3
3
3
3
3
3
3
3
3.10
2
3
3
2
2
2
3
3
3
2
2
3
3
3
3
3
3
2
2
2
3
2
3
2
3
2
2.50
2
3
2
2
2
2
3
2
2
2
2
3
2
2
3
2
2
2
3
2
2
3
2
2
2
2
2.10
3
2
3
2
2
3
3
2
2
2
3
3
2
3
3
2
2
2
2
2
3
2
2
2
3
2
2.40
2
3
3
3
2
3
2
3
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
3
2
2.30
3
2
2
2
3
3
2
2
3
2
3
2
3
3
3
3
2
1
2
2
2
2
1
3
3
2
2.3
2
2
2
3
2
2
3
2
3
3
3
2
3
2
3
2
3
3
2
3
2
3
2
2
3
3
2.50
2
2
3
2
3
2
3
2
2
3
3
3
2
3
3
2
3
2
3
3
2
3
2
3
3
3
2.60
TOTAL AVERAGE DIMENSION SCORE (TADS)
2.48
239
Appendix E SERIAL NO………………………
Malaysia Technology Entrepreneurship Survey affix business card here
To be completed for: Doctoral Study (PhD) in Technology Entrepreneurship at Department of Science & Technology, Faculty of Science, University of Malaya, Kuala Lumpur. Authorized by:
From:
To be completed by:
Syahida Abdullah PhD Student
PLEASE COMPLETE AND RETURN THIS FORM BY 28 SEPTEMBER 2006 IMPORTANT •
This inquiry will benefit the parts and components vendor firms by allowing the policy makers to better understand the needs of vendor firms and ultimately develop effective technology, economy and automotive policies and programmes that will strengthen the technology entrepreneurship capability of the national automotive industry in Malaysia.
•
It is illegal for us to reveal your data or identify your business to unauthorised persons. Nothing that we release will allow you or your firm to be identified.
INFORMATION •
This survey collects information about technological and entrepreneurial activities, including firm’s performance and capability, technological capability, entrepreneur’s ability, and industrial environment’s preparedness of Malaysia’s national automotive parts and components industry for three years period between 2003 and June 2006.
•
The survey aims: o
to determine the technology entrepreneurship capability of the national automotive vendor firms, and the impact to the industry caused by the globalization and liberalization phenomena.
o
to identify the strengths and weaknesses of the national automotive parts and components industry in terms of technology entrepreneurship capability.
•
The questionnaire consists of 15 printed pages, excluding the cover page and encompasses four major sections: context, firm, technology, and entrepreneur.
•
For further information, do not hesitate to call: Ms.Syahida Abdullah at 013-2242470, or email:
[email protected],
[email protected]
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You are kindly requested to answer all questions.
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Your urgency in replying this survey is highly appreciated.
THANK YOU FOR YOUR COOPERATION AND VALUABLE TIME SPENT 240
Introduction This questionnaire requests information on technology entrepreneurial activities in your firm during the three years period from 2003 to June 2006. The questionnaire looks into the issue of technology entrepreneurship by categorizing the questions into four sections according to the four factors of technology entrepreneurship that are the contextual industrial environment, the firm’s performance and capability, the technological capability, and the entrepreneur’s ability.
A. Context – Industrial environment 1. Sources of information for technology and entrepreneurship activities 1.1
Please indicate the sources of knowledge or information used in your technological
entrepreneurial activities, and their importance during the period 2003 to June 2006. (please tick one box in each row)
Internal
Market
1.1.1
Within the firm
1.1.2
Other firms within the firm group
1.1.3
Suppliers of equipment, materials,
Degree of importance
Not used
Low
Med
High
Not used
Low
Med
High
Not used
Low
Med
High
Not used
Low
Med
High
components or software
Institutional
1.1.4
Clients or customers
1.1.5
Competitors
1.1.6
Consultants
1.1.7
Commercial laboratories/ R&D firms
1.1.8
Universities/other tertiary institutions
1.1.9
Government research organisations
1.1.10 Other public sector e.g. bus. links, Govt. offices 1.1.11 Private research institutes
Specialised 1.1.12 Technical standards 1.1.13 Quality standards and regulations 1.1.14 Health, safety and environmental standards and regulations
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Others
1.1.15 Professional
conferences,
meetings
Not used
Low
Med
High
1.1.16 Trade associations 1.1.17 Technical/trade
press,
computer
databases 1.1.18 Business matching, fairs, exhibition
1.2
Is your firm aware of the latest environmental changes, and what is your view on your
firm’s performance after the implementation of AFTA and NAP?
1.3
Does your firm explore opportunities and threats?
1.4
Is your firm able to make use of the threat by changing it to an opportunity and to
firm’s advantage?
2.
Government support for technology entrepreneurship
2.1
Did your firm receive any Government support (financial or other assistance and
advice) for technological and entrepreneurial-related activities in the period 2003 – June 2006? No
Go to question
2.3
Yes
2.2
What were the sources of this government support for technology entrepreneurship-
related activities in the period 2003 to June 2006?
(please tick all that apply) Financial support
2.3
2.2.1
State government
2.2.2
Federal government
Other participation
Has your firm participated in or received programs in the period 2003 to June 2006?
(please tick all that applies to you) 2.3.1
Vendor Development Programme (VDP)
2.3.2
Technology Development Flagship (MSC-TDF)
2.3.3
Malaysia Venture Capital (MavCap-Ignite)
2.3.4
SME Bank
2.3.5
Others - ……………………………………………………
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B. Firm 3. Please briefly describe your firm’s main product (goods or services): Product: …………………………………………………………………….. Nature of business: …………………………………………………………. Category: …………………………………………………………………… Type of business: ……………………………………………………………
4. Did any of the following significant changes occur to your firm during the threeyear period 2003 – June 2006? (please tick one) The firm was established ……….. Turnover increased by at least 10% due to merger with another firm or part of it. Turnover decreased by at least 10% due to sale or closure of part of the firm. None of the above
5. Basic economic information about the firm (a) 2003 5.1
(b) June2006
Total turnover: market sales of goods and services including export and taxes. (RM)
5.2
Exports of goods and services (enter nil if inappropriate)
5.3
Capital expenditure (enter nil if inappropriate)
5.4
(RM)
(RM)
Number of employees (incl. full-time contract workers)
Of which: Approximate proportion sent for training Technology and engineering courses (%) Motivation programs (%) Other programs/courses and the percentage _______________________________ (%)
6. Where is your firm’s largest market (market orientation)? (please tick one) Local1 Regional2 National International 1 2
Situated within approximately 50 km of your firm Situated within approximately 100 km of your firm 243
7. Please state the distribution of your product to the market? OEM \ Year
2003
2006
Proton
(%)
Perodua
(%)
Naza
(%)
UMW Toyota
(%)
Honda
(%)
Tan Chong (Nissan)
(%)
Ford
(%)
Oriental Hyundai
(%)
Inokom
(%)
Others__________________
(%)
8. Did your firm make major changes during the period 2003 to June 2006 in the following and how far did business performance improve as a result? (please tick one box in each row) Impact on performance Not used 8.1.1
Low
Med
High
Implementation of new or significantly changed corporate strategies e.g. mission statement, market share.
8.1.2
Implementation of advanced management / organisational techniques within your firm e.g. knowledge management, quality circles.
8.1.3
Implementation of new or significantly changed organisational structure e.g. Investors in People, diversification of business
8.1.4
Changing significantly your firms marketing concepts/strategies e.g. marketing methods
8.2
What is your strategy for achieving competitive advantage and sustainability of your
firm?
244
C. Technology 9. Technological Capabilities 9.1
How did your firm acquire technology? (please tick one)
Patents acquisition Licensing agreement Purchase of machinery and equipment Purchase of turnkey plants Overseas training Imitation In-house capability development Others (please specify)
Technical Collaborator:-_______________________
9.2
Can you indicate the extent of your firm’s use of e-business activities over the period
2003 to July 2006. (please tick all that applies to you)
9.2.1
Basic internet
9.2.2
Internet used for information
9.2.3
Customers can place orders through the internet site
9.2.4
Commerce with other businesses through the internet site
10. Innovation An innovation, as defined in this survey, is a new or significantly improved product (good or service) introduced to the market or the introduction within your firm of a new or significantly improved process. The innovation is based on the results of new technological developments, new combinations of existing technology or utilisation of other knowledge acquired by your firm.
10.1
Product innovation (goods and services)
For this survey, product innovation is referred to as a good or service which is either new or significantly improved with respect to its fundamental characteristics, technical specifications, incorporated software or other immaterial components, intended uses, or user friendliness. The innovation should be based on the results of new technological developments, new combinations of existing technology or utilisation of other knowledge by your firm. This research is interested in products new to your firm – even if already on the market – as well as those that are new to your market.
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10.1.1 During the three year period 2003 – June 2006, did your firm introduce any technologically new or significantly improved products (goods or services) which were new to your firm? No
Go to question 10.2
Yes
10.1.2 How were these products developed? (please tick one) Mainly by your firm or firm group Mainly by your firm in co-operation with other firms or institutions Mainly by other firms or institutions
10.1.3 Please estimate in percentage how your turnover in June 2006 was distributed between products (goods and services) introduced during the period 2003-June2006 which were: 10.1.3.1 New to your firm
%
10.1.3.2 Significantly improved
%
10.1.3.3 Unchanged or only marginally modified
%
Total turnover in June2006
%
10.1.4 During the three-year period 2003-June2006, did your firm introduce any new or significantly improved products (goods or services) which were also new to your firm’s market? No Yes
Please estimate the share of turnover of these products in June 2006? ____(%)
10.1.5 Please give a short description of your most important production innovation:
10.1.6 What is the category of your current product technology? (You may tick more than one answer) 10.1.6.1 Simple fabrication and primarily using borrowed technology 10.1.6.2 Replacement Equipment Manufacture (REM) 10.1.6.3 Original Equipment Manufacture (OEM) 10.1.6.4 Own Designed Manufacture (ODM) 10.1.6.5 Own Brand Manufacture (OBM)
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10.2
Process innovation
For this part, the research is interested in new or significantly improved technology for production or the supply of goods and services. The research is interested in processes new to your firm – even if already in use in your industry – as well as those that are new to your industry.
10.2.1 During the three-year period 2003-June2 006, did your firm introduce new or significantly improved processes for producing or supplying products (goods or services) which were new to your firm? No
Go to question 10.3
Yes
10.2.2 How were these processes developed? (please tick one) Mainly by your firm or firm group Mainly by your firm in co-operation with other firms or institutions Mainly by other firms or institutions
10.2.3 During the three-year period 2003-June 006, did your firm introduce new or significantly improved processes for producing or supplying products (goods or services) which were new to your industry? No Yes 10.2.4 Please give a short description of your most important process innovation:
10.3.
Innovation activities not completed or abandoned
During the period 2003-June 2006, did your firm have any projects to develop or introduce new or significantly improved products (goods or services) or processes that were: (please tick all that applies to you) 10.3.1 Abandoned 10.3.2 Still in-progress 10.3.3 Not yet completed but seriously delayed 10.3.4 Not even started
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10.4
During the period 2003-June2006, did your firm have any other innovation activities
to develop or improve products or processes e.g. basic R&D, technology watch? No Yes
10.5.
Factors hampering innovation
A range of factors may inhibit your ability for technological development. Please grade the importance of the following constraints during the period 2003-June2006: (Please tick one box in each row)
Economic
10.5.1 Excessive perceived economic risks
factors
10.5.2 Direct innovation costs too high
Importance No effect
Low
Med
High
No effect
Low
Med
High
No effect
Low
Med
High
No effect
Low
Med
High
10.5.3 Cost of finance 10.5.4 Availability of finance
Internal
10.5.5 Organisational rigidities within the firm
factors
10.5.6 Lack of qualified personnel 10.5.7 Lack of information on technology 10.5.8 Lack of information on markets
Government
10.5.9 Research grant
Incentive
10.5.10 Tax rebate
factors
10.5.11 Scheme/package (protection)
Other
10.5.12 Impact of regulations or standards
factors
10.5.13 Lack of customer responsiveness to new goods or services
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10.6
Innovation – related expenditure in 2006
Did your firm engage in the following innovation activities in 2006? (Please estimate expenditure where appropriate) Please estimate innovation expenditure in 2006, incl. personnel and related investment expenditure (in % of total expenditure)
10.6.1 Research and development (R&D)
%
10.6.2 Acquisition of external R&D
%
10.6.3 Acquisition of machinery and equipment (including training) in connection with product or process innovation.
%
10.6.4 Acquisition of other external knowledge such as licenses to use intellectual property (e.g. patents, know-how) or specialized services (e.g. consultants, universities)
%
10.6.5 All design functions, including industrial, product, process and service design and specifications for production or delivery.
10.7
%
10.6.6 Internal or external training for your personnel directly related to innovation activity.
%
10.6.7 Internal or external marketing activities aimed at the introduction of your firm’s innovations. (Innovation related expenses).
%
Effects of Innovation
Please indicate the impact that your innovation activities have had on your firm in the period 2003 to June 2006? (Please tick one box in each row) Degree of impact None Product 10.7.1
Increased range of goods or services
oriented 10.7.2
Opened new market or increased market share
effects
Improved quality of goods or services
10.7.3
Low
Med
High
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Degree of impact
Process 10.7.4
None
Low
Med
High
None
Low
Med
High
Improved production flexibility
oriented 10.7.5 Reduced unit labour costs effects
10.7.6
Increased production capacity
10.7.7 Reduced materials and/or energy per produced unit
Other
10.7.8 Improved environmental, health and safety aspects
effects
10.7.9 Met quality and product standards
11.
Linkages
For this survey, linkages means active participation in joint projects (including R&D) with other firms. It does not necessarily imply that either partner derives immediate commercial benefit from the venture. Pure contracting out of work, where there is no active collaboration, is not defined as linkages in this survey.
11.1
Did your firm have any co-operation arrangements on technological and
entrepreneurial activities with other firms or institutions from 2003 to June 2006? No
Go to question
12
Yes
11.2 Note:
Please indicate the type of linkages and location M1 - Malaysia
J2 - Japan
K3 - Korea
T4 - Taiwan
US5 - United States
O6 - Others
(Please tick all that applies to you) Type of partner Internal
11.2.1 Other firms within the firm group
Market
11.2.2 Suppliers of equipment, materials,
M1
J2
K3
T4
US5
O6
M1
J2
K3
T4
US5
O6
M1
J2
K3
T4
US5
O6
M1
J2
K3
T4
US5
O6
components or software 11.2.3 Clients or customers 11.2.4 Competitors 11.2.5 Consultants 11.2.6 Commercial labs / R&D firms
Institutional
11.2.7 Universities or other tertiary inst. 11.2.8 Government research organisations
Specialized
11.2.9 Private research institutes 250
D. Entrepreneur 12
Learning activities If you have internal learning activities:
12.1
Of total employees (incl. full time contract workers), Approximate proportion sent for training in 2003 and 2006 12.1.1 Technology and engineering courses (%) 12.1.2 Motivation programs (%) 12.1.3 Other
programs/courses
and
____________________________________
12.2
the
percentage
(%)
Can you indicate the extent of your employer’s knowledge acquisition over the period
2003 to July 2006. (Please tick all that applies to you)
12.2.1 Certificate 12.2.2 Diploma 12.2.3 Degree 12.2.4 Post-graduate degree
12.3
The number of the following professionals and their qualification in 2003 and June 2006
Professional Owner/Entrepreneur
Highest Qualification SPM
Cert
Dip
Deg
2003 (no)
( please tick one)
Masters
PhD
June2006 (no)
Others
Consultant/s Manager R&D Engineer Production Engineer Supervisor Technical Assistant Technician/Maintenance Operators Others
12.4 How did your firm engage in learning activities during the three-year period 2003June2006? Continuously Occasionally
251
12.5
Firm with no learning activity
12.5.1 If your firm had NO learning/training activity in the period 2003 to June 2006, please indicate why it has not been necessary or possible or desirable. (Please tick all that applies to you)
Firm policy does not allow Firm conditions do not allow No encouragement from the management Others
12.6
What mechanisms are in place to enable learning and continuous improvement within
the firm?
13.
Leadership Internal research and development (R&D) If you have internal R&D activities:
13.1
How many persons and percentage (%) were involved in R&D activities within your firm in 2003 and 2006? (incl. Technical/Research Assistants under R&D dept) 2003 2006 ppl , % ppl , %
13.2
How did your firm engage in R&D during the three-year period 2003-June2006? Continuously Occasionally
13.3
The characteristic of your entrepreneur leader
13.3.1 The entrepreneur articulates a clear, compelling vision for the venture and stimulates the employees to achieve high performance. Yes No
13.3.2 The entrepreneur strives to develop a sustainable competitive advantage through building new competencies and products in a timely way. Yes No
252
13.3.3 The entrepreneur uses a collaborative style while setting high standards and driving toward achievement. Yes No
13.3.4 The entrepreneur displays an inner strength and a constant set of values that every employee knows and can rely on. Yes No
13.3.5 The entrepreneur has a strong sense of awareness of the internal and external issues to create competitive advantage. Yes No
13.3.6 The entrepreneur offers helpful feedback and good coaching to all employees. Yes No
13.3.7 The entrepreneur has solid experiences, adequate knowledge and relevant skills that have helped shape and build his leadership skills. Yes No
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GLOSSARY Capability: refers to the whole range of skills and knowledge to take action, to intervene in the made world, and to create new or improved products or systems. Clusters: Technology clusters are geographic concentrations of interconnected companies, academic or government research institutions, financial institutions, and other service providers working together to achieve innovation for economic growth. Contract workers and consultants: People working under contract for the firm normally to undertake specific services often on a short-term basis. Domestic: For this study, domestic refers to activities in Malaysia Employees: Full-time equivalents excluding partners and directors of the corporation. Entrepreneurship: illustrated as a dynamic process of creative destruction, in which the idea of innovation changes the basic technological and demand parameters of the economy. (Schumpeter,1943) Firm: For this study, we are focusing on automotive vendor companies. Growth: We are focusing on the companies that have increased in terms of number of employees or revenues or others over the past 5 years or less. Innovation: For this study, innovation is translating knowledge into new or improved products, processes and services that improve the firm’s competitiveness. Invention: is the conceiving of a new idea (Twiss, 1974). Product: includes goods and services. For this study, product refers to parts and components (plastic, metal, rubber, electrical & electronics, glass), tools, die and mould, engineering design and distribution R&D (Research and Development): Expenditure on scientific research and experimental development through which new or improved products, processes and services are produced. Technology: as the ability to carry out productive transformation, and includes the ability to act, a competence to perform, transforming materials, energy and information in one set of state into another more highly valued state (Stan Metcalfe, 1995). Technology entrepreneurship: a merge of two disciplines: technology and entrepreneurship, and identifies four factors to achieve competitive advantage. Technology entrepreneurship factors: refers to the context of industrial environment, firm’s performance, technological capability, and entrepreneur’s ability.
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Appendix F Definition of Small and Medium Enterprises (SMEs) Malaysian SMEs can be grouped into three categories : Micro, Small, or Medium. These groupings are decided based on EITHER • •
the number of people a business employs OR on the total sales or revenue generated by a business in a year.
I. Number of Employees Based on the number of full-time employees : Primary Agriculture
Manufacturing (including Agro-Based) & MRS*
Services Sector (including ICT**)
Micro
Less than 5 employees
Less than 5 employees
Less than 5 employees
Small
Between 5 & 19 employees
Between 5 & 50 employees
Between 5 & 19 employees
Medium
Between 20 & 50 employees
Between 51 & 150 employees
Between 20 & 50 employees
Primary Agriculture
Manufacturing (including Agro-Based) & MRS*
Services Sector (including ICT**)
Micro
Less than RM200,000
Less than RM250,000
Less than RM200,000
Small
Between RM200,000 & less than RM1 million
Between RM250,000 & less than RM10 million
Between RM200,000 & less than RM1 million
Medium
Between RM1 million & RM5 million
Between RM10 million & RM25 million
Between RM1 million & RM5 million
II. Annual Sales Turnover Based on annual sales turnover :
Note: *MRS : Manufacturing-Related Services ** ICT : Information and Communications Technology
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