INNOVATION INTENSITY - Universiti Malaysia ?· Perpustakaan Universiti Malaysia Sabah dibenarkan membuat…

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INNOVATION INTENSITY: ITS ANTECEDENTS AND EFFECTS ON BUSINESS PERFORMANCE OF SMALL

AND MEDIUM ENTERPRISES (SMEs) IN THE MALAYSIAN MANUFACTURING

SECTOR

IFFI FITRIAH

PEBFL~TJ 1,~t.hlJ

UNIVEASITI MALA SlA SABAH

THESIS SUBMITTED IN FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE

OF DOCTOR OF PHILOSOPHY

SCHOOL OF BUSINESS AND ECONOMICS UNIVERSITI MALAYSIA SABAH

2007

UNIVERSITI MALAYSIA SABAH

BORANG PENGESAHAN STATUS TESIS@

JUDUL : INNOVATION: ITS ANTECEDENTS AND EFFECTS ON BUSINESS PERFORMANCE OF SMEs IN THE MALAYSIAN MANUFACTURING SECTOR

IJAZAH : DOKTOR FALSAFAH (ENTREPRENEURSHIP)

SESI PENGAJIAN : 2004-2007

Saya, IFFI FITRIAH mengaku membenarkan tesis Doktor Falsafah ini disimpan di Perpustakaan Universiti Malaysia Sabah dengan syarat-syarat kegunaan seperti berikut :

1. Tesis adalah hakmilik Universiti Malaysia Sabah 2. Perpustakaan Universiti Malaysia Sabah dibenarkan membuat salinan untuk tujuan

pengajian saya 3. Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara

institusi pengajian tinggi 4. TIDAK TERHAD

(Penuli : IFFI FITRIAH)

Alamat: Jalan Pasir Salamet no.16 Perumnas Bumi Pasir Rahayu Sukabumi 43145 Jawa Barat Indonesia

Tarikh : 30 Mac 2007

Disahkan oleh

-(Penyelia : Prof. Dr. SyEd 1l.zizi Wafa)

Tarikh: 5' /"1 /0 r I I

CATATAN :@ Tesis dimaksudkan sebagai tesis Ijazah Doktor Falsafah dan Sarjana secara penyelidikan atau dissertasi bagi pengajian secara kursus dan penyelidikan, atau Laporan Projek Sarjana Muda (LPSM)

DECLARATION

The materials in this thesis are original except for quotations, excerpts, summaries and references, which have been duly acknowledged

. , I~-

PS 4-002-090(A) July 7, 2007

ACKNOWLEDGMENTS

Praise and thanks to the Almighty Allah for giving me the strength and patience to cope with the problems and difficulties that I faced in completing this thesis.

I am deeply indebted to my supervisor, Prof. Dr. Syed Azizi Wafa who has guided me all throughout the project. The valuable suggestions he has offered had helped me com pleted my study.

I also wish to record my sincere appreciation and thanks to the dean and staff of the School of Business and Economics, Universiti Malaysia Sabah as well as the dean and staff of the Centre for Postgraduate Studies for their assistance during my period of study.

I must also express my gratitude to the involved manufacturing sector SMEs for their participation as the samples of this study and to so many individuals which is impossible to mention their names here for their help during the data collection stage of this study.

Finally, lowe a personal debt to all my family members. Their love and prayers gave me the determination to complete my study.

IFFI FITRIAH PS04-002-090(A) UNIVERSITI MALAYSIA SABAH July 7,2007

iii

ABSTRACT

This was a survey research which investigated five important issues concerning innovation intensity and business performance in Malaysian manufacturing Small and Medium Enterprises (SMEs). The first issue was concerned with levels of business orientations, innovative capability, and innovation intenSity. The second was concerned with effects of innovation antecedents (market orientation, learning orientation, entrepreneurial orientation and innovative capability) on innovation intenSity. The third was concerned with effects of innovation intenSity on business performance (subjective business performance, return on assets, sales, sales growth, and return on sales) . The fourth was concerned with moderating effects of environmental uncertainty on relationship between innovation intensity and business performance. The fifth was concerned with mediating effects of innovation intensity on relationship between innovation antecedents and business performance. A set of questionnaire was used as the research instrument and stratified systematic sampling was used to determine the research sample. The sample consisted of 182 SMEs in the Malaysian manufacturing sector but only 161 were used for further analyses. Data were analyzed using descriptive statistics and inferential statistics (factor analysis and regression analysis). Research hypotheses were tested at significance level of 0.=.05. Results of the first issue showed that levels of business orientations and innovative capability were slightly high, while level of innovation intenSity measured as a single scale was moderate. Concerning the second issue, only innovative capability had significant effects on innovation intensity. On the third issue, innovation intenSity had significant effect on subjective business performance and sales. Concerning the fourth issue, environmental uncertainty did not have any significant moderating effect on relationship between innovation intensity and business performance. Concerning the fifth issue, significant mediating effects of innovation intenSity were found on relationship between innovative capability and subjective business performance and on relationship between innovative capability and sales. In general, these findings provide wider implications for theory development, industrial practices, and industrial policymaking.

iv

ABSTRAK

INTENSITI INOVASI : ANTESEDEN DAN KESAN TERHADAP PRESTASI PERNIAGAAN ENTERPRIS KECIl DAN SEDERHANA

(EKS) DALAM SEKTOR PEMBUATAN DI MALA YSIA

Kajian ini merupakan suatu kajian survei yang mene/iti lima isu penting berka/tan inovasi dan prestasi pemiagaan da/am enterpris keCl! dan sederhana (EKS) da/am sektor pembuatan di Ma/aysia. Pertama, berkaitan tahap orientasi pemiagaan kemampuan berinovasi dan intensiti inovasi. Kedua, berka/tan kesan anteseden inovasi (orientasi pasaran orientasi pembe/ajaran, orientasi keusahawanan dan kemampuan berino vas!) terhadap intensiti inovas/: Ketiga, berkaltan kesan intenslti inovasi terhadap prestasi pemiagaan (prestasi pemiagaan subjekti" pu/angan ase0 j ua/an, pertumbuhan jua/an, dan pu/angan jua/an). Keempa0 berkaitan kesan penyederhanaan ketidakpastian persekitaran terhadap hubungan antara intensiti inovasi dan prestasi pemiagaan. Ke/ima, berkaitan kesan perantara intensiti inovasi terhadap hubungan antara anteseden inovasi dan prestasi pemiagaan. 500/ se/idik digunakan sebagai a/at penye/idikan dan kaedah pensampe/an sistematik ber/apis digunakan untuk menentukan sampe/ kajian. Sampe/ ka)iim terdiri daripada 182 EKS da/am sektor pembuatan di Ma/aysia tetapi hanya 161 digunakan untuk analisis se/anjutnya. Data diana/isis menggunakan kaedah statistik deskriptlf dan statistik taabiran (ana/isis faktor dan ana/isis regresi). Hipotesis kajian diu)! pada aras keertian a=. OS. Dapatan ka)!an berkaitan isu pertama mununjukkan tahap orientasi pemiagaan dan kemampuan berinovasi ada/ah agak tinggi, manaka/a tahap intenslti inovasi yang diukur secara bersepadu ada/ah sederhana. Bagi isu kedua, hanya kemampuan berinovasi mempunyai kesan signifikan terhadap intensiti inovas/~ manaka/a isu ketiga, intensiti inovasi mempunyai kesan signifikan terhadap prestasi pemiagaan subjektif dan jua/an. Bagi isu keempa0 kesan ketidakpastian persekitaran sebagai penyederhana ada/ah tidak signifikan terhadap hubungan antara intensiti inovasi dan prestasi pemiagaan. Bagi isu ke/ima, kesan intensiti inovasi sebagai pengantara ada/ah signifikan pada hubungan antara kemampuan berinovasi dan prestasi pemiagaan subjektlf dan pada hubungan antara kemampuan berinovasi dan jua/an. Secara umumnya, dapatan ka)!an ini memberikan imp/ikasi yang besar terhadap perkembangan teori, pengama/ industri, dan pembentukan dasar industri.

TABLE OF CONTENTS

DECLARATION

ACKNOWLEDGEM ENTS

ABSTRACT

ABSTRAK

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF APPENDICES

CHAPTER 1: INTRODUCTION

1.1. Background of the Study

1.2. Statement of the Problem

1.3. Objectives of the Study

1.4. Research Questions of the Study

1.5. Hypotheses of the Study

1.6. Scope of the Study

1.7. Significance of the Study

1.8. Definition of Terms

CHAPTER 2: SMALL AND MEDIUM ENTERPRISES IN MALAYSIA

2.1. Introduction

2.2. Definition of Enterprises versus Industries

2.3. Definition of Small and Medium Enterprises

2.4. Historical Development of SMEs in Malaysia

2.5. Policy Towards SMEs in Malaysia

2.6. Profile of SMEs in Manufacturing Sector in Malaysia

2.7. The Contribution of SMEs to Malaysian Economy

2.8. Characteristics of SMEs in Manufacturing Sector in Malaysia

2.9. Previous Research on Malaysian SMEs

v

Page

ii

iii

iv

v

ix

xii

xiii

1

9

12

13

14

14

15

18

24

24

25

34

40

43

47

52

54

vi

CHAPTER 3: REVIEW OF LITERATURE

3.1. Introduction 60

3.2. Issues on Innovation 60

3.2.1. Definitions and Dimensions of Innovation 61

3.2.2. Innovation in Small and Medium Enterprises 64

3.2.3. Innovation Intensity 72

3.3. The Resource-Based View (RBV) Theory and Innovation 73

3.4. Relationship between Innovation Antecedents and Innovation 78

3.4.1. Market Orientation and Innovation 78

3.4.1.1. The Market Orientation Concept 78 3.4.1.2. Studies on Market Orientation and 84

Innovation

3.4.2. Learning Orientation and Innovation 86

3.4.2.1. The Learning Orientation Concept 86 3.4.2.2. Studies on Learning Orientation and

Innovation 92

3.4.3. Entrepreneurial Orientation and Innovation 94

3.4.3.1. The Entrepreneurial Orientation Concept 94

3.4.3.2. Studies on Entrepreneurial Orientation and 100 Innovation

3.4.4. Innovative capability and Innovation 104

3.4.4.1. The Innovative capability concept 104 3.4.4.2. Studies on Innovative capability and

Innovation 107

3.5. Innovation and Business Performance 108

3.5.1. Business Performance Measurement Concept 108

3.5.2. Studies on Innovation and Business Performance 111

3.6. Environmental Uncertainty in Moderating Relationship between Innovation and Business Performance 114

3.7. The Mediating Effect of Innovation on the Relationship between Innovation Antecedents and Business Performance 116

3.7.1. Market Orientation and Business Performance 119

3.7.2. Learning Orientation and Business Performance 122

3.7.3. Entrepreneurial Orientation and Business Performance 123

3.7.4. Innovative Capability and Business Performance 124

3.8. Theoretical Framework of the Study 125

CHAPTER 4: RESEARCH METHODOLOGY

4.1. Introduction

4.2. Design of the study

4.3. Sampling Design of the Study

4.3.1. Population and Sampling Frame of the Study

4.3.2. Sample of the study

4.4. Instrument of the Study

4.4.1. The Questionnaire

4.4.2. Pretesting The Questionnaire

4.5. Methods of Data Collection

4.6. Test of Nonresponse Bias

4.7. Statistical Analysis of the Study

4.7.1 Descriptive statistics.

4.7.2. Inferential Statistics

4.7.3. Validity and Reliability Assessment

CHAPTER 5 : RESULTS OF THE STUDY

5.1. Introduction

5.2. Sample Profile of the Study

5.3. Validity and Reliability of the Research Instrument

5.4. Levels of Innovation Intensity/Business Orientations and

vii

128

128

129

129

133

137

138

147

149

150

152

152

153

159

162

162

164

Innovative capability 179

5.5. Hypotheses Testing 182

5.5.1. The Effects of Innovation Antecedents (Market Orientation, Learning Orientation, Entrepreneurial Orientation, Innovative Capability) on Innovation Intensity. 182

5.5.2. The Effect of Innovation Intensity on Business Performance and The Moderating Effect of Environmental Uncertainty on the Relationship between Innovation Intensity and Business Performance. 184

5.5.3. The Mediating Effects of Innovation Intensity on the Relationship between Innovation Antecedents (Market Orientation Entrepreneurial Orientation, Learning Orientation, Innovative Capability) and Business Performance 190

5.5.4. Summary of the Hypotheses Testing Result 196

CHAPTER 6: DISCUSSION, IMPLICATIONS, AND CONCLUSION

6.1. Introduction

viii

197

6.2. Discussions of the Findings 197

6.2.1. Levels of Business Orientations, Innovative capability, and Types of Innovation 197

6.2.2. Effects of Innovation Intensity Antecedents on Innovation 201

6.2.3. Effects of Innovation Intensity on Business Performance 204

6.2.4. Moderating Effects of Environmental Uncertainty on the Relationship between Innovation Intensity and Business Performance 206

6.2.5. Mediating Effects of Innovation Intensity on the Relationship between Innovation Antecedents and Business Performance 206

6.3. Implications of The Finding

6.3.1. Theoretical Implications

6.3.2. Practical Implications

6.3.3. Policy Implications

6.4. Conclusion

6.5. Limitations and Directions for Further Research

REFERENCES

APPENDICES

208

208

209

212

213

215

218

235

ix

LIST OF TABLES

No Title of Table Page

2.l. The EU Legal Definition of Enterprises 26 2.2. Definitions of Malaysian SMEs 34 2.3. Number of SMEs as Reported by Different the Government and

Different Agencies 44 2.4. Distribution of SMEs in the Manufacturing Sector (by Type) Census 45

2000 2.5. Distribution of SMEs in the Manufacturing Sector (by Sector) 45

Census 2000 2.6. Distribution of SMEs in the Manufacturing Sector (by Sector)

Census of Establishments and Enterprises, 2005 47 2.7. Contribution by SMEs to The Manufacturing Sector 48 2.8. Comparative Productivity Growth Rates 1996 and 2005 49 2.9. Distribution of SMEs by Key Indicators and Sectors, 2005 and 1996 51 2.10. Types of Certification Received by SMEs 53 2.1l. SMEs' Internal Sources of Financing 54 2.12. Summary of the Previous Studies on Malaysian SMEs 56 3.1. Dimensions of Innovation 66 3.2. Relative Advantages of Small and Large Firm in Innovation 70 3.3. Relative Disadvantages of Small and Large Firm in Innovation 71 3.4. Definitions of Organisational Learning 88 3.S. Dimensions and Definitions of Entrepreneurial Orientation 99 3.6. Summary of Studies on the Relationship between Market, Learning,

and Entrepreneurial Orientations and Innovation 102 3.7. Summary of Studies on the Relationship between Innovative

capability and Innovation 107 3.8. Summary of Previous Study on Correlation between Objective and

Subjective Measures 110 3.9. Summary of Studies on Effects of Innovation on Performance 113 3.10. Summary of Studies on Environmental Uncertainty as Moderator

Variables 116 3.1l. Previous Studies on the Effect of Market Orientation on Business

Performance 120 3.12. Previous Studies on the Effect of Entrepreneurial Orientation on

Business Performance 124 4.1. Division of Sampling Frame Number...

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