Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 Key Determinants of Green Entrepreneurship among SMEs in Malaysia Ramraini Ali Hassan* and Rafidah Nordin** Entrepreneurial activities had contributed tremendous benefits to the humankind. It does not only create jobs, but also changes people’s lives. Despite the great contribution of entrepreneurship towards developing a nation’s economy, these activities have its own drawbacks. Consequently, some of these activities may downgrade the quality of the environment. Environmental issues have been discussed since 1970’s and have been an on-going discussion in recent years globally. The concept of green economy focuses primarily on the intersection of the environment and the economy and has been the key issue discussed in the 1992 Rio Conference. Within the summit, it seems that all parties cannot mandate green economy in consensus. The summit requires entrepreneurs to respond to green entrepreneurship policy incentives by themselves. Previous research highlighted that most developed countries often stress more on being green in their attempts to exploit market opportunities, while developing countries often focus more on entrepreneurship alone in their efforts to fulfil the market needs. Malaysia is still considered a developing country and is expected to become a developed country by the year 2020. It seems very crucial to investigate the green entrepreneurship scenario in a developing country like Malaysia. Therefore, this research explores the scenario of green entrepreneurship and investigates key determinants towards promoting green entrepreneurship particularly among SMEs in Sabah, Malaysia using a quantitative approach. The result of this research is expected to contribute significantly towards policy formulation among government agencies responsible for environmental protection as well as promoting green entrepreneurship in Malaysia. Keyword: Green entrepreneurship. entrepreneurship, green economy, developing country, Field of Research: Entrepreneurship 1. Introduction Entrepreneurship plays a vital role in a country’s economic growth. It is among the fundamental human activities towards achieving a competitive economy and it is also a commonplace activity among many countries around the globe. Through the entrepreneurial activities that occur all around the world, new innovations and ideas are discovered as a means of better living. The contribution of entrepreneurship is significant to the nation’s economic and non-economic development. Besides increasing the quality of our life, it also changes individual’s life, enhances products and procedures. Thus, allowing for the emergence of new established companies and new employment opportunities. Even with the benefits it carries along, entrepreneurial activity does have its own drawback with regards to the environmental quality since it also contributes to environmental degradation. Recently, most international organizations such as the World Bank, UNCTAD, UNIDO, WTO and FAO (Farinelli, Bottini, Akkoyunlu, & Aerni, 2011) were focusing their discussions on the importance of global transformation towards a greener technology as well as greener economy. The idea of green economy concentrates *Dr. Ramraini Ali Hassan, Faculty of Business, Economics and Accountancy, University Malaysia Sabah, Jalan UMS, 88400, Kota Kinabalu, Sabah, Malaysia. Email : ramraini@yahoo.com **Rafidah Nordin, Faculty of Business, Economics and Accountancy, University Malaysia Sabah, Jalan UMS, 88400, Kota Kinabalu, Sabah, Malaysia. Email: rafidahnordin@gmail.com Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 principally on the intersection between the environment and the economy and was highlighted during a discussion in the 1992 Rio Conference, the United Nations Conference on Environment and Sustainable Development. From the discussion, it was concluded that since entrepreneurial activities were observed as the main cause for environmental degradation, entrepreneurs themselves have to play a major role in managing the environmental sustainability issue (Tilley & Young, 2009). After the global financial and economic crisis, most countries placed an important role of entrepreneurship in boosting their nation’s economic activity. Most priorities are given to environmental-friendly investments and ventures. This includes those projects and activities that improve energy efficiency that increase commitment towards environmental protection (OECD, 2011). Malaysia is not lagging behind in this effort. The Malaysian government has made a strong commitment to reinforce sustainability development in a developing country like Malaysia. A sustainable economic growth relies upon a carefully protected environment. The role of the Ministry of Energy, Green Technology and Water (KeTTHA) is very important and play a significant role in improvising Malaysia’s environmental performance (Yacob & Moorthy, 2012). Green entrepreneurial practice (GEP) might have a different perspective from one country to another (Min & Galle, 2001), and in Malaysia, from one state to another state due to the different culture and socio-economic conditions of each state. In Malaysia, information with regards to sustainable practices among small and medium enterprises (SMEs) still remains scarce. As Omar and Samuel (2011) asserted, SMEs embarkation on environmental management was still less promising than larger firms. The aim of this research is to identify the key determinants that lead to green entrepreneurship practices among SME entrepreneurs particularly in the state of Sabah, Malaysia. Over recent decades, Sabah has been heavily reliant on the exploitation of its natural resources, forests, coastal habitats and sea. The ‘business as usual’ scenario often involves a repeated logging of forests for largescale monoculture plantations. 2. Literature Review Green Economy The green economy focuses primarily on the intersection between the environment and the economy. United Nations Environment Programme (UNEP) has defined the green economy as the results in improved human well-being and social equity, while significantly reducing environmental risks and ecology scarcities which can be thought as one which is low carbon, resources efficient and socially inclusive. The United Nations Environment Programme (UNEP) is the leading global environmental dimension of sustainable development within the United Nations system and serves an authoritative advocate for the global environment. “A green economy is one whose growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency as well as prevent the loss of biodiversity and ecosystem services. These investments need to be catalyzed and supported by targeted public expenditure, policy reforms and regulation changes. This development path should maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset and source of public benefits, especially for poor people whose livelihoods and security depend strongly on nature” (Green Economy, 2015). Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 There are a number of related terms that describes the green entrepreneurship and have been used interchangeably in the previous research such as ecoentrepreneurship, ecopreneurship, environmental entrepreneurship, sustainable entrepreneurship, ecological entrepreneurship, enviro-preneurship or sustainopreneurship (OECD, 2011). While the green entrepreneurship is a concept, the implementer of the concept is termed as a green entrepreneur. In other words, green entrepreneurs provide the source for starting and sustaining a green economy by providing green products and services, introducing greener production techniques, boosting demand for green products and services, and creating green jobs. Green entrepreneur As has sometimes been observed, an entrepreneur is anything but difficult to perceive, easy to recognize and hard to define (Schaper, 2010). Entrepreneur can be defined as ‘a person who have ideas of new business opportunities and creates enterprises from scratch and normally have limited resources and with an abundance of risks’ (Schaper, 2002). They may act as catalysts for change and advancement in both economic and environmental perspectives (Volery, 2002). As summarized by Kamarulzaman, Hirawaty, Nawi, et. Al, (2012), the conviction that entrepreneurs are not environmentally aware, or couldn’t care less to be, is rapidly getting to be obsolete as currently, there is an expanding number of green entrepreneurs known as ecopreneurs. According to Kirkwood and Walton (2010), the growth in eco-friendly entrepreneurs may be partially due to increasing market opportunities for sustainable products and services. Customers are becoming increasingly environmentally conscious. As summarized by Edobor & Ogunleye (2015), numerous clients are losing trust in bigger enterprises and have desires of organizations to show more social and natural obligation. Schumpeter (1934) contended that the advancements made by business visionaries are the vital elements in monetary improvement and the focal variables in the exchange cycle. Further, there is influencing affirmation in Volery (2002) that over the previous decades the regular habitat development does not run as one with the protection of nature. Expanding contamination levels, loss of biodiversity, area corruption, and environmental change are just some examples of this situation. This recommends an expanding requirement for ecological obligation in ecopreneurship is critical. The fundamental element differentiating the green entrepreneur from the traditional entrepreneur is that, the green entrepreneur tries to make a plan of action that is both monetarily beneficial as well as makes ecological actions concurrent with social quality. The green entrepreneur does this by engaging in activities such as ecotourism, recycling, energy efficiency, sustainable mobility, organic agriculture and renewable energy among others, and the number of green jobs associated to these new activities (Lacroix & Stamatiou, 2007). Green Entrepreneurship There seems to be no solid definition of entrepreneurship especially with respect to the degree of innovation and size of a specific activity that consider as entrepreneurial. Nonetheless, entrepreneurs are business people who envision new business opportunities and ventures by taking risks and changing their ideas into profitable and commercial reality. Nonetheless, green is a term that is applicable relatively and absolutely depending on the intended meaning of the user of the term. In popular usage, the expression ‘green’ is used in both a relative and an absolute sense. “Green” can refer to either a product or a process. “Green is a term used showing moving towards environmental or ecological sustainability. (Pearce & Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 Barbie, 2000). There is an essential difference between the way of looking at green entrepreneurship in developed countries and developing countries. Developed countries tend to put more emphasize on the term ‘green’ and on the market opportunities. In contrast, developing countries tend to focus more on the term ‘entrepreneurship’ and on the market needs instead. Green entrepreneur often struggle to survive, due to unstable commitment from the public sector, whose support is being easily overturned by everyday changes in politics and lobbying (Farinelli, Bottini, Akkoyunlu, & Aerni, 2011). According by Moorthy, Yacob, Chelliah, & Arokiasamy (2012), the concept of green is still very new to Malaysian SME owners/managers, though many green conferences, seminars and campaigns have been carried out for quite some time. The concept for green process and products in Malaysia is at the early stages stage. There is only a little knowledge about the green idea in Malaysia in spite of all endeavours from governmental and private institutions. About Sabah Sabah is a state in Malaysia that is situated in the East Malaysia. It is located on Borneo Island and it occupies the northern tenth of the island. Its tropical climate and abundant rainfall support some of the most biologically diverse and ecologically significant habitats known as lowland rainforests, richly vegetated mountains, peat swamps and coastal mangroves. It is well-known as ‘The Land Below the Wind’, is the second largest state in Malaysia. The region compasses 72,500 sq. kilometres, finished with a coastline encompassed by the South China Sea in the West, the Sulu Sea in the Northeast and Celebes Sea in the East, Sabah sits on the northern-most piece of Borneo, the third biggest island on the planet, favoured with an abundance of natural resources and indescribable beauty of its nature, Sabah is the mixture of extraordinary and distinctive cultural identity and ethnicity of its folks, with the climate that considered to be tropical. Sabah is blessed with its lavishness of flora and fauna whereby the jungles in Sabah are classified as rainforest. The economy of Sabah has always been heavily dependent on the export of its primary and minimally processed commodities. Aside from the usual lumber milling, the agriculture, tourism and manufacturing sectors are growing vastly, and it is quickly becoming the main source of economy in Sabah. However, petroleum, palm oil and cacao still remained three of the most exported commodities from the state. Due to the land's rich natural resources, almost 1/7 of the land in areas around Sabah is suitable for agriculture development. Figure 1 described where is Sabah located in the map of Malaysia whilst Table 1 described Sabah at glance (Malaysia at a glance, 2015). Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 Figure 1, Map of Sabah, Malaysia.. 2012 2013 2014 2015 73,902 73,902 Total 3.43 Male 1.79 3.61 3.67p 3.74e 1.89 1.92p 1.95e 1.64 1.72 1.75p 1.78e 2.6 5.1 1.7p 1.7e GDP at constant 2010 prices (RM million) 61,223 63150e 66,283p GDP per capita at current prices (RM) 19,487 18,647e 19,672p 3.2 3.1e 5.0p Labour Force ('000) 1,579.8 1,669.4 1,703.9 Employed ('000) 1,494.5 1,583.4 1,624.4 85.3 86 79.5 67.4 69.9 70.0 5.4 5.2 4.7 2 Area (km ) Population (million) Female Average Annual Population Growth Rate (%) Gross Domestic Product (GDP) GDP Growth (%) Employment Unemployed ('000) Labour Force Participation Rates, LFPR (%) Unemployment Rate (%) Table 1, Sabah at a Glance SMEs Definitions As summarized by Jan Khan & Khalique (2014), throughout the world, the role of small and medium sized enterprises (SMEs) is turning out to be progressively noticeable and is seen as very crucial to the world economies (Wiklund & Shepherd, 2005). SMEs can be established in any locality for any sort of business activity in urban or rural area (Khalique et al., 2011). The abbreviation form of SME is regularly used as a part of universal associations and in European Union nations, for example, the United Nations (UN), the World Bank and the World Trade Organization (WTO). The small and medium business (SMB) is additionally overall in a couple of different nations of the world (Syed et al., 2012). In Malaysia the SME Corporation is an agency that is responsible towards the development of small and medium enterprises (SMEs) which was established on the 2nd of May 1996. It is a central coordinating agency that formulates overall policies and strategies for SMEs as well as coordinate the implementation of the development programmes. Further, in 2004 the National SME Development Council (NSAC) was established that acts as the highest policy making body to formulate strategies for SME development across all economic sectors in the country. The NSDC is chaired by the Prime Minister of Malaysia (SME Corporation Malaysia, 2015).The definition of SMEs in Malaysia according to SME Corporation Malaysia as the Secretariat to the NSDC, is tabulated in Table 2. Jan Khan & Khalique (2014) summarized that the classification and definition of businesses are generally based on the quantifiable characteristics such as number of employees, sales volume or worth of assets. The particular definition for SMEs, utilized by every nation as a part of the world, is generally taking into account a few distinctive criteria which Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 incorporate deals or resources, number of workers and levels of capital, (Mohammad, 2012). No uniform meaning of SMEs is accessible in the literature. Category Manufacturing Services & Other Sectors Small Medium Sales turnover from RM300,000 to less than RM15 million OR full-time employees from 5 to less than 75 Sales turnover from RM300,000 to less than RM3 million OR full-time employees from 5 to less than 30 Sales turnover from RM15 million to not exceeding RM50 million OR fulltime employees from 75 to not exceeding 200 Sales turnover from RM3 million to not exceeding RM20 million OR fulltime employees from 30 to not exceeding 75 Table 2, Definition by Size of Operation (SME Corporation Malaysia, 2015) Based on Table 2, in the event that a business fulfils either one criteria over the diverse sizes of operation, then the smaller size will be pertinent. For instance, if an association's business turnover falls under microenterprise however job falls under small, the business will be deemed as a microenterprise. According to Jan Khan & Khalique, (2014), some advanced economies have succeeded because small and medium enterprises form a fundamental part of the economies, comprising over 98% of total establishments and contributing to over 65% of employment as well as over 50% of the gross domestic product. In spite of the fact that, the numbers may be lower in Malaysia, SMEs can possibly contribute significantly to the economy and can give a solid establishment to the development of new businesses and additionally reinforcing the current ones, for Malaysia's future advancement. Now the economy is shifting from industry-based to a knowledge-based economy to achieve the vision 2020 to become a developed country (Jan Khan & Khalique, 2014) According to Samad (2007), competitive and resilient SMEs are imperative in the improvement and development process of the Malaysian economy including the adoption of appropriate strategy, as SMEs have great potential to be the engine of the economic growth as could be seen in other developed countries. In Malaysia, most SMEs require support or assistance from the government, especially to be more competitive in the global business environment. Key determinants to green entrepreneurship among SME entrepreneurs in Malaysia Accordingly, in terms of green entrepreneurship practices, previous research has highlighted various key determinants towards promoting green entrepreneurship practices among SME entrepreneurs. The factors are: a) Economic benefits In general, one will always think that to apply green entrepreneurship in daily operation will be costly as additional measures is required when implementing it. For example when applying an Integrated Building System (IBS) for building construction, if looking on the materials only will be costly. IBS can be considered as green entrepreneurship since applying the system will reduce the uncertainty during construction and hence has a better control of the work process. Even though the materials cost is a bit higher, the work can be carried out faster and fewer workers Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 are required to perform the works if compared to the conventional method. With better control of the work process, the total cost of carrying out the job will be competitive enough for this system to be chosen. Economic benefits can also be in the form of green incentives. As highlighted in the previous research (Ahmed, Julian, & Mahajar, 2006), incentives for green entrepreneurship include tariff reduction, attractive export incentive, opportunities to reduce inventories and a few other incentives are able to help in promoting green entrepreneurship in Malaysia. b) Site location These factors of site location will look into how the implementation of green entrepreneurship will be affected. In general, one will think that if the location is a bit far from the town area, the implementation of green entrepreneurship is a bit difficult. In theory, one needs access to the readily supply chain in adopting this green entrepreneurship. Say, to implement IBS system for building construction, the road leading to site must be readily available. The materials which is in a modular form needs to be transported to the project site. Without good access road, this green entrepreneurship cannot be implemented and hence has to adopt the conventional method in carrying out the work. For agriculture sector, this access road issue will not contribute much on the success of implementing the green entrepreneurship. The work control process is a more practical way of achieving the success. The location of waterways and internal access must be fully determined in establishing the most suitable area for plantations. c) Government policies Government has a major role to play in making sure the success of implementing the green entrepreneurship. Incentive to be given for adopting the green entrepreneurship will be a catalyst to the company. This is to include grant, tax deduction and others that to be given to any company that adopting green entrepreneurship in their daily operations. For Malaysia case, this development of green entrepreneurship is directly under the ‘Kementerian Tenaga Teknology Hijau Dan Air’ (KeTTHA). The agency been established in April 2009, with green entrepreneurship as one of their main function has shown government’s commitment in adopting green entrepreneurship. Sabah Forestery Department has also shown a great impact on the green entrepreneurship practices in Sabah. Based on the above, the theoretical framework is established. Economic benefits Site location Government policies Figure 2, Theoretical Framework. Green entrepreneurship practices Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 3. The Methodology and research hypotheses Based on the framework, the study proposes the following hypotheses: H1: Economics benefits influences the green entrepreneurship in Malaysia. H2: Site location of industry influences the green entrepreneurship in Malaysia. H3: Government policies influences the green entrepreneurship in Malaysia. The first part of the research will be qualitative in nature which comprise of interviews with SME entrepreneurs in Malaysia. The second part of this study is a quantitative type of research which specifies a correlation study. It is mainly to analyze the relationships among variables. This study will utilize a cross sectional data collection method. Currently there are approximately almost 500 SME entrepreneurs in Sabah (SMECorp, 2015). In the first phase of data collection, a purposive sampling method selecting a mixture of SMEs across industries ranging in size will be carried out. Interviews will then be carried out with the SME entrepreneurs to understand in-depth their day-to-day activities, problems and difficulties in practicing green entrepreneurship. The second phase of data collection involves the distribution of survey questionnaires to the SME entrepreneurs in Sabah which will be selected randomly from the list provided by SMECorp. Data collected from the completed questionnaire will be coded and analyzed using the aid of statistical analysis tool, Statistical Package for the Social Science Software (SPSS) version 21.0. Inferential statistics will be used in hypotheses testing for all variables. The factor analysis will be used for all items in this study in order to confirm the dimensions of the concept that have been operationally defined, as well as indicating which of the items are appropriate for each dimension (Sekaran and Bougie, 2009). In addition, the reliability test will be used to test the reliability of each item. Next the Correlation and Multiple Regression will also be used in this study; Correlation analysis will also be used to establish concurrent and predictive validity or convergent and discriminate validity and Multiple regression analysis will be used to assess the degree and the character of the relationship between the independent variables and dependent variable. 5. Expected findings and Conclusions This is a preliminary study on green entrepreneurship in Malaysia. Therefore, at this stage only three key variables are highlighted particularly when established data on the green entrepreneurship practices among SMEs in Malaysia especially in Sabah is scarcely available. The acceptance of SMEs in adopting the green entrepreneurship practices in their daily operation can also be questioned. In general, the perception among the industry players is an extra cost that will be directly associated with the green entrepreneurship practice. Lacking of available data is obviously seen during the studies. This is similar for the key determinants that influence the adaptation of green entrepreneurship practices. Three key determinants were discussed; economic benefits, government policies and site locations. This study will help to provide an understanding on the key determinants of green entrepreneurship, as different nature of businesses required different approach in adopting green entrepreneurship practice. Hence, proper planning can be done beforehand, which will result in higher Proceedings of 33rd International Business Research Conference 4 - 5 January 2016, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-94-8 probability of success. On the three key determinants being discussed that are Economic benefits, and Site Locations and Government policies; ranking of these three key determinants need also be established. This will benefit the SMEs players, as one can forecast the direction in anticipating the green entrepreneurship practices. Green entrepreneurship among SMEs in Malaysia, especially in Sabah is obviously scarce. The acceptance of SMEs in adopting the green technology in their daily operation can be questioned since in general, one will think that extra cost will be directly associated with it. Lack of studies and available data are noticeable when carrying out the studies. This is also the same for the key determinants that influencing the adaptation of the green technology. Further studies will be carried out in near future on the three key determinants being discussed which are the economic benefits, motivation and knowledge, government policies and site locations. Ranking of these five key determinants will be made and thus will be benefited to the development of the green technology among the SMEs in Malaysia. References Ahmed, Z. U., Julian, C. C., & Mahajar, A. J. (2006). Export incentives and international entrepreneurship in Malaysian firms. International Journal of Entrepreneurship and Innovation, 7(1), 49-57. Cohen, B., & Winn, M. I. (2007). 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