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Thesis Chapter 1 - Factors Influencing the Performance of Malaysian SMEs in the Coating Industry

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Factors Influencing the Performance of Malaysian SMEs in the Coating Industry

Chapter One

The Problem and Its Background



Small and Medium Enterprises, as being one of the major determinants in economic growth & job generation have a special significance, not only in developed nations but also in enhancing and improving and existing economies (Cabbar, 2000). Small and Medium Enterprises in most nations have hindrances to access to finance, challenges in exploiting the technology, inadequacy of managerial capabilities, regulatory burdens and low productivity in their market environment. As noted by Cabbar (2000), due to the dynamic and productive features and attributes of Small and Medium Enterprises, they contribute to the growth of the economic and financial stability of the country and also very efficient in social life, as well. Some foreign literatures and documentations and analyses have shown that Small and Medium Enterprises need management skills, technological base of production system to be upgraded, information access systems, beside their financial needs to be met (Cabbar, 2000).

            In line with this, the growth and enhancement of Small and Medium Enterprises have been recognized in Malaysia as an essential and fundamental component in attaining sustainable economic growth. The authorities and business authorities and government officials in Malaysia have launched several proposals and programmes to facilitate and promote expansion of the Small and Medium Enterprises. These proposals and programmes aimed to generate the institutional and systematic conditions to support upgrading of business level capabilities, diversification and generation of new business. This is showing how much emphasis the Malaysian Government have put on the growth and enhancement of the Small and Medium Enterprises in Malaysia. Despite the amount of efforts spent by the business authorities and government officials, there have been very little examination and evaluation aimed at comprehensions on the determinants that have significant impact on Small and Medium Enterprises performance in Malaysia and further ensure the survival as well as sustainability of these Small and Medium Enterprises in its entire business operations.

            Small and Medium Enterprises have been playing roles such as offering and giving job opportunities, income distribution through market opportunities, rural growth and enhancement, increase investments and growth and enhancement of entrepreneurship (Kotey and Meredith, 1997). In addition to that, small firms with restricted resources will be expected to perceive its market environment as being diverse from that of a large industries with more resources and it is also likely to face diverse environment pressures in lieu with the market competencies (Gyampah et al, 2001). Some studies and literatures and documentations perceives that the performance of Small and Medium Enterprises is attributed by diverse determinants such as internal and external to the Small and Medium Enterprises themselves (Kotey and Meredith, 1997; Pearce and Robinson, 2002). Nonetheless, there is no inclusive e and thorough examination and evaluation on determinants that contribute to the growth and enhancement as well as performance of the Small and Medium Enterprises, and in this case, directly relevant to the coatings industry. Researches relevant to determinants contribute toward performance of Small and Medium Enterprises are limited.

There is only small number of literatures and documentations in enhancing and improving nations (Bjerke, 2000). In the last two decades, it seems that literatures and documentations on Small and Medium Enterprises focus on business authorities and government official’s role and policy in enhancing and improving Small and Medium Enterprises (Ainuddin and Saodah, 2001). In year 2000, Hashim (2000) have been able to utilized strategic model approach to explain the determinants that contributes and influence the performance of Small and Medium Enterprises. As has been noted by such theory, there are three strategic determinants which determine market performance; they are entrepreneurship orientation, organization structure as well as external market environment. The integration of three determinants mentioned here significantly influence market performance. According to Craig and King (1988) in his examination and evaluation he formulated a model to find out about Small and Medium Enterprise performance. The model have discussed that financial performance of Small and Medium Enterprises is affected and persuaded by management practice as internal factor and by market as external factor, both these variables which influent financial performance is also affected and persuaded by features of manager as antecedent variable.    

            In this regard, this dissertation analyses the determinants influencing the performance of Malaysian Small and Medium Enterprises in the Coating Industry in Malaysia. The examination and evaluation investigates the determinants that constraint market performance of Small and Medium Enterprises. in addition to that, the readiness of these Small and Medium Enterprises, and issues surrounding market competition, innovation as well as processes are discussed.  To identify the determinants influencing the performance of these Small and Medium Enterprises, surveys as well as other research processes are made and evaluated. This chapter starts with the background of the examination and evaluation, a brief review the nature of issues, aims and objectives, scope and limitation of the examination and evaluation, and the significance of the examination and evaluation.

Background of the Study

            In Coatings Industry particularly in Malaysian Small and Medium Enterprises, there are several determinants that significantly affect their performance. This part of the research study illustrates some determinants relevant to the examination and evaluation. Moreover, the presentation covers the idea of the researcher regarding performance of Malaysian Small and Medium Enterprises.

Entrepreneurship orientation

Entrepreneurship orientation refers more toward attitude. Previous literatures and documentations show that there are some outstanding manners and activities of entrepreneurs. Some of these manners and activities are, risk taker, proactive, flexible and innovative (Kotey and Meredith, 1997; Hashim, 2000; Ainuddin and Saodah, 2001).

Strategic Approach

Glueck (1980) said that strategic approach is an action to face environment by empowering coordinated resources in order to reach the goal. Generally, there are three generic strategies at organizational level which can be used in competition. They are cost leadership, diversification and focus (Porter, 1980).

Business Structure

There are two general organization structure, mechanic and organic (Burns and Stalker, 1961). In mechanic structure, relative pattern is not flexible and formal, there is clear division of work as well as the decision making is centralized. In organic structure, the relationship pattern is fairly informal, the decision making involve subordinates and relative flexible with regulations. Mechanic structure is  appropriate and applicable for stable environment while organic structure is suitable for dynamic environment (Miller and Toulouse, 1986).

Business environment

Environmental determinants and aspects consist of psychic as well as social determinants which directly considered in decision making of organization (Duncan, 1972). In this regard, uncertainty is a perception of someone’s incapacity to predict something correctly and significantly because he or she is unable to diverseiate between relevant and irrelevant data (Milliken, 1987). Environmental condition directly influents organizational ability to reach the goal, external environmental alterations and transformation such as business authorities and government officials policy, public taste, technology as well as socio-cultural bring effect toward organizational performance (Pearce and Robinson, 2000). Freeman (2000) concluded that base on observation in some nations, external condition, especially business authorities and government official’s policy, significantly influences the performance of Small and Medium Enterprises.

As a Business Development Manager in the coating industry, this examination and evaluation definitely presents a high level of interest to the author. Small and Medium Enterprises contribute significantly to the growth of the chemicals market in South East Asia (e.g. Malaysia). The understanding of the important determinants influencing the performance of Small and Medium Enterprises will help toward better planning to cater for the needs of the Small and Medium Enterprises.  


Aims and Objectives

Base on given data and information above, this examination and evaluation aims to find out on the influence of entrepreneurship of the owners of Small and Medium Enterprises, their strategic approach, organizational structure and the market environment conditions to the performance of Malaysian Small and Medium Enterprises in the coatings industry. This research is trying to answer three objectives: 

1.    Identify which of the determinants (entrepreneur orientation, strategic approach, and structure and market environment) are perceived to shape Small and Medium Enterprise performance in Malaysia's coating industry.

2.    Evaluate the relative significance of each factor in shaping Small and Medium Enterprise performance in Malaysia's coating industry.

3.    Examine the relationship between the relative determinants and organizational performance in Malaysia's coating industry.

Research Questions

            From the given objectives, this dissertation attempts to answer the following queries:

1.      What are the determinants that significantly affect the performance of Malaysian Small and Medium Enterprises in Coatings Industry?

2.      What are the levels of relationships of these determinants in accordance to the performance of Malaysian Small and Medium Enterprises in Coatings Industry?

3.      What are effects of these determinants in regards to the performance of Malaysian Small and Medium Enterprises in Coatings Industry?

Significance of the Study

1.1  Significance of the Study

Small and Medium Enterprises are constantly facing and encountering pressures brought about diverse determinants and aspects and aspects which hinder and obstruct efficient and effective transactions and operations. This results to greater responsibilities faced by the SMEs in Coating Industries management (Sparrow, Brewster & Harris, 2004). The competent market environment within particularly firms intensifies the need of business organisations to ensure that their industrial operations are well-managed even if they are earning lesser than the larger SMEs in Coating Industries (Wangury, 1996). The market environments are fast becoming complex and difficult added to the notion it quickly transforms and changes which entails firms to give emphasis on determinants and aspects which are most essential to their organisations survival (David, 2003)

In this light, it is essential that business like SMEs in Coating Industries must provide specific approach to ensure that they are still efficiently operation despite the pressure of the external environment.. Studying the essential and significant consideration relative to the SMEs in Coating Industries to serve the purpose as well as objectives of the SMEs in Coating Industries will determine and identify its success. Hence this paper aims on analysing the determinants that affects the performance of SMEs in Coating Industries through the perspective of their employees.  This paper is significant as it will serve as a guideline for other low-wage SMEs in Coating Industries on how to retain good employees.

This research paper will also be significant to SMEs in other parts of the world. The survey of the research study will help determine Small and Medium Enterprises adjust themselves to environmental factors. . In addition, this will also help initiate and implement management as it may pinpoint ways on working efficiently for their company, which could mostly be relevant to the achievement of performance growth.

Scope and Limitation

This dissertation only covers the determinants affecting the performance of Malaysian Small and Medium Enterprises in Coating Industry. The outcome of this examination and evaluation is limited only to the data gathered from books and journals about market growth and enhancement and from the primary data gathered from the result of the questionnaire survey and interview that will be conducted by the researcher.

            Moreover, there are inherent problems in the data due to the small time frame to conduct the examination and evaluation. Also, the survey process itself could have hindered the collection of results, particularly with firms that have previously been so inundated with requests for information from other researchers that they have adopted a policy not to answer questions relevant to the organizational growth and enhancement. Although inconclusive, the results of this survey should be viewed as indicative of the status of the Small and Medium Enterprise’s at the time of the survey.

Similarly, the sources from which Small and Medium Enterprise’s are gathering information regarding market performance need to be identified and measured in terms of their accuracy and efficiency. Additional surveys of Small and Medium Enterprise’s across other industry sectors also would be valuable.

1.2  Organization of the research dissertation in sections

The data collated through the primary resources and through the review of relevant literature, the employed, and utilised of the methodology mentioned earlier as well as data analysis will be presented in diverse and variety of sections.  The summaries of each section and part will be as follows:

Part 1 is the Introduction stating the rationale behind the paper.  Sections which include background of the study, rational, objectives, questions, scope and limitations and the organisation of the research study as well as limitation of the paper will be discussed.

Part 2 will present the information or general idea of the context of environmental affecting Small and medium enterprises as well as other relevant literature which have been documented in the past or previously documented. This may include literature about SMEs in Malaysian Coating Industry, performance management and change management.

 Part 3 will focus on the discussion of how the determinants mentioned affect the performance of the firm or SMEs in Coating Industries in Malaysia and the how it can be given enough strategic attention and matters concerning environmental factors which will affect its performance in the SMEs in Coating Industries in Malaysia.

Part 4 this section will provide insightful details about the effect of the given factors on performance of the Small and Medium Enterprises based on the perception for their employees

Part 5 this part will provide details on implementation strategy that Small and Medium Enterprises Coating Industry in Malaysia can employ to ensure that the factors will not affect their performance negatively,


Ainuddin, R.A and Saodah H.J, 2001. “Characteristics of       Entrepreneur-Owned Companies in Malaysia”. The 4th   Asian Academy of Management (AAM) Conference 2001     Proceedings (Volume 1), Johor Bahru, Malaysia, pp 133-           140. 

Bjerke, B.V, 2000. “A Typified, Culture-Based,   Interpretation of Management of SMEs in Southeast             Asia”, Asia Pacific Journal of Management, Vol 17, pp             103-132.

Cabbar, Y. 2000. Black-Sea Economic Cooperation Workshop on    Internet, E-commerce and SMEs. Speech delivered at the      Heaquarters of the BSEC Permanent International     Secretariat. Available at []. Accessed             [01/10/03].

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Kotey, B and Meredith, G.G, 1997. “Relationship Among        Owner/Manager Personal Values, Business Strategies,     and Enterprise Performance”, Journal of Small Business       Management, Vol 37, pp 37-62.

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Mintzberg, H. 1979. The Structuring of Organizations, New     Jersey: Prentice Hall

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Pearce II, J.A and Robinson Jr, R.B, 2000. “Strategic   Management: Formulation, Implementation and Control”,         Richard D Irwin Inc., USA.

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Stevenson H.H. and Gumpert D.E. 1991. The Heart of the     Enterprise, in W.A. Sahlman and H.H. Stevenson (eds)       The Entrepreneurial Venture, Boston: Harvard Business         School.


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