PSZ 19:16 (Pind. 1/97)
UNIVERSITI TEKNOLOGI MALAYSIA
BORANG PENGESAHAN STATUS TESISυ
JUDUL:
Enhancing Global Competitiveness for Penang Electronics and
Electrical Small and Medium Industries Through Improving Linkage
Programmers.
SESI PENGAJIAN:
LEE HUAY KUAN
Saya
(HURUF BESAR)
mengaku membenarkan tesis (PSM/Sarjana/Doktor Falsafah)* ini disimpan di Perpustakaan
Universiti Teknologi Malaysia dengan syarat -syarat kegunaan seperti berikut:
1.
2.
3.
4.
Tesis adalah hakmilik Universiti Teknologi Malaysia.
Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan
pengajian sahaja.
Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara
institusi pengajian tinggi.
**Sila tandakan ( 4 )
SULIT
(Mengandungi maklumat yang berdarjah keselamatan atau
kepentingan Malaysia seperti yang termaktub di dalam
AKTA RAHSIA RASMI 1972)
TERHAD
(Mengandungi maklumat TERHAD yang telah ditentukan
oleh organisasi/badan di mana penyelidikan dijalankan)
TIDAK TERHAD
Disahkan oleh
__________________________________
_____________________________________
(TANDATANGAN PENULIS)
(TANDATANGAN PENYELIA)
Alamat Tetap:
80, Lorong Mahsuri 7,
Bayan Baru, 11950
Penang
Tarikh:
CATATAN:
8th January 2006
Prof. Dr. Nooh Bin Abu Bakar
Nama Penyelia
Tarikh:
8th January 2006
* Potong yang tidak berkenaan.
* * Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak
berkuasa/organisasi berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu
dikelaskan sebagai SULIT atau TERHAD.
υ Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara
penyelidikan, atau disertasi bagi pengajian secara kerja kursus dan penyelidikan, atau
Laporan Projek Sarjana Muda (PSM).
SUPERVISOR’S DECLARATION
We hereby declare that we have read this thesis and in
our opinion this thesis is sufficient in terms of scope and
quality for the award of the degree of Doctor of Engineering.
Signature
:
…………………………………………
Name of Supervisor I
:
Prof. Dr. Nooh Bin Abu Bakar
Business & Advanced Technology Centre,
Universiti Teknologi Malaysia,
Kuala Lumpur, Malaysia.
Date
:
8th January 2006
Signature
:
...............................................................
Name of Supervisor II :
Prof. Madya Dr. Ir. Eric KH Goh
Universiti Sains Malaysia,
Penang, Malaysia
Date
8th January 2006
:
BAHAGIAN A – Pengesahan Kerjasama*
Adalah disahkan bahawa projek penyelidikan tesis ini telah dilaksanakan melalui
Kerjasama antara __________________________ dengan _________________________
Disahkan oleh:
Tandatangan
: ……………………………………………….
Nama
: ………………………………………………..
Jawatan
(Cop rasmi)
: ……………………………………………….
Tarikh: …………….
* Jika penyediaan tesis/projek melibatkan kerjasama.
Bahagian B - Untuk Kegunaan Pejabat Sekolah Pengajian Siswazah
Tesis ini telah diperiksa dan diakui oleh:
Nama dan Alamat Pemeriksa Luar I
:
Dr. Goh Kim Huat
63, Jln Perindustrian Silibin 1
Kawasan Perindustrian Ringan Silibin
30100 Ipoh
Perak Darul Ridzuan.
Nama dan Alamat Pemeriksa Luar II
:
Abd Razak Bin Saleh
Centre For Research and Consultancy
Universiti Utara Malaysia
06010 Sintok
Kedah Darul Aman
Nama dan Alamat Pemeriksa Luar II
:
Prof. Dr. Mohamad Sharif Bin Nabi Baksh
Fakulti Kejuruteraan Mekanikal
UTM, Skudai
Nama Penyelia lain
(jika ada)
:
Disahkan oleh Penolong Pendaftar di SPS:
Tandatangan
: ……………………………………………….
Name
: GANESAN A/L ANDIMUTHU
Tarikh:
……………
ENHANCING GLOBAL COMPETITIVENESS OF PENANG
ELECTRONICS AND ELECTRICAL SMALL AND MEDIUM
INDUSTRIES THROUGH IMPROVING LINKAGE PROGRAMMES
LEE HUAY KUAN
A thesis submitted in partial fulfilment of the
requirements for the award of the degree of
Doctor of Engineering (Engineering Business Management)
Business & Advanced Technology Centre
Universiti Teknologi Malaysia
JANUARY 2006
DECLARATION
I declare that this thesis entitled “ Enhancing Global Competitiveness for
Penang Electronics and Electrical Small and Medium Industries Through Improving
Linkage Programmes” is the result of my own research except as cited in the
references. The thesis has not been accepted for any degree and is not concurrently
submitted in candidature of any other degree.
Signed : …………………………………………
Name
:
LEE HUAY KUAN
Date
:
8th January 2006
II
ACKNOWLEDGEMENT
This thesis was made possible with the help and support of many people.
Although I am solely responsible for the study and its findings, there are many
external contributions which I must acknowledge.
I am much indebted to my academic supervisor, Prof. Dr. Nooh Bin Abu
Bakar from BATC who have given in valuable advice and guidance throughout the
preparation of this thesis.
Special thanks to my co-academic supervisor, Associate Professor Ir. Dr.
Eric KH Goh from University Science Malaysia (USM), for their wise counseling,
help and guidance on the application of the statistical tools to analyze the data from
the industrial survey.
I wish to express my sincere appreciation to Mr. K Gobalan, Manager
(Industry and Trade) from Penang Development Corporation for the supply of
industrial data and his kind permission to have access to the valuable information
about Penang’s manufacturing industry from the PDC’s library.
My sincere appreciation and gratitude also go to various professional and
knowledgeable persons, for their recommendations and information made available to
me, which I considered a valuable contribution to this study; their understanding and
co-operation during the survey interview. Without their support and co-operation, I
could not have completed this research study. I would like to take this opportunity to
extend my special thanks to them.
Last, but not least to my beloved wife Siew Lan, my daughters Tze Theng
and Tze Yin for their love, patience, encouragement and continuous support which
have made it possible for me to pursue this programme.
III
ABSTRACT
Penang has positioned itself to become one of the most industrialized states
in Malaysia, and has taken up the challenge of achieving Vision 2020. Due to the
present economic slowdown, it is timely to carry out a research on the formulation of
an innovative linkage programmes and improvement strategies for SMIs in Penang’s
electronics and electrical manufacturing industry in facing the global competition. The
next phase of industrialization strategy needs to be more innovative, given the new
challenges and opportunities at both domestic and international levels. The
government and MNCs should continue to ensure a liberal and conducive investment
climate and emphasize the role of SMIs to support the industrial development in
Penang. The innovative linkage programme need to base on the “Partners in
Development” principle, whereby the SMIs, MNCs and the government work together
as a team. The rationale of the linkage programme is to increase productivity and
international competitiveness towards further improving the economic growth of
Penang. In order to attain a 100 percent on data return, face-to-face interviews or
personal delivery of the survey questionnaire were carried out on 115 respondents
from two difference groups, i.e. SMIs and MNCs whose activities are related to
electronics and electrical manufacturing industry in Penang. The research finding
enables SMIs to get the most benefit from the presence of the MNCs, with the strong
support from the state government. There are two prong aspects of this research :
firstly to understand specifically the extent of those innovative programmes; secondly
the identification of strategies to improve the programmes or to remove the obstacles
to potential programme. No doubt, after the implementation of these programmes and
strategies, together with the combined efforts from MNCs and government, Penang
SMIs will be more competitive.
IV
ABSTRAK
Pulau Pinang telah meletakkan dirinya sebagai salah sebuah negeri
perindustrian yang termaju di Malaysia. Ia telah menyahut cabaran untuk
merealisasikan Wawasan 2020 dengan komitmen padu daripada industri tempatan dan
pihak kerajaan. Berikutan kemerosotan ekonomi masa kini, maka amat sesuai satu
penyelidikan ke atas penggubalan program jalinan inovatif dan strategi bagi industri
pembuatan elektronik and elektrik SMI diusahakan untuk menghadapi saingan global.
Strategi perindustrian yang seterusnya hendaklah lebih inovatif memandangkan
kemunculan cabaran baru dan peluang di peringkat tempatan dan antarabangsa. Pihak
kerajaan dan MNC hendaklah memastikan suasana pelaburan yang menggalakkan dan
liberal diteruskan dengan menekankan peranan SMI untuk menyokong perkembangan
industri di Pulau Pinang. Program jalinan inovatif perlu berdasarkan prinsip “Partners
in Development” iaitu SMI, MNC dan kerajaan bekerja sebagai satu pasukan.
Rasional program jalinan itu ialah meningkatkan produktiviti dan saingan
antarabangsa dalam menuju ke arah peringkatan perkembangan ekonomi Pulau
Pinang. Untuk mendapat balik 100 peratus maklum balas, satu tinjauan soal jawab
secara temu duga bersemuka atau melalui penghantaran dan pengutipan borang soal
selidik perseorangan telah dijalankan ke atas 115 individu daripada dua kumpulan
iaitu SMIdan MNC tentang aktiviti-aktiviti mereka yang berkaitan dengan industri
pembuatan eletronik and elektrik di Pulau Pinang. Penyelidikan ini membolehkan SMI
mendapat manafaat yang sepenuhnya daripada kewujudan MNC dengan sokongan
yang kuat daripada kerajaan negeri. Terdapat dua aspek yang berjaya diperoleh
daripada penyelidikan tersebut : yang pertama adalah untuk memahami dengan lebih
tepat sejauh mana lingkungan program- program inovatif itu; yang kedua, mengenal
pasti strategi-strategi untuk memperbaiki program-program ataupun menghapuskan
halangan- halangan yang mungkin akan timbul dalam program- program yang bakal
dijalankan. Maka, tidak lagi diragui bahawa dengan pelaksanaan program-program
dan strategi-strategi daripada usaha sama MNC dan kerajaan, SMI Pulau Pinang akan
lebih berdaya faing.
V
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE
DECLARATION
II
ACKNOWLEDGEMENTS
III
ABSTRACT
IV
ABSTRAK
V
TABLE OF CONTENTS
VI
LISTS OF TABLES
XIV
LIST OF FIGURES
XVI
LIST OF ABBREVIATION
XX
LIST OF APPENDICES
XXIV
I
INTRODUCTION
1.1
Introduction
1
1.2
Problem Statement
3
1.3
Research Objective
3
1.4
Research Hypothesis
4
1.5
Scope
6
1.6
Importance of this Research
6
1.7
Research Methodology
8
1.8
Thesis Outline
9
1.9
Summary
10
VI
II
LITERATURE REVIEW
2.1
Introduction
11
2.2
Linkages for SMIs in Manufacturing Industry
11
2.2.1
Benefits of Linkages
12
2.2.2
MNCs Self-Interest in Forging Links with SMIs
13
2.2.3
Business Networking
15
2.2.4
Technology Networks and Linkages
16
2.2.5
Internet Linkages on Business Transaction
17
and Technology Acquisition
2.1.6
2.3
2.4
2.5
Technology Transfer Through Linkages
18
Role to Play on Linkages Programmes
19
2.3.1
Government Role
19
2.3.2
MNCs Role
21
2.3.3
SMIs Role
24
Success Story on Business Linkages Between MNCs and SMIs
25
2.4.1
Ardennes from France
25
2.4.2
Engtek from Penang
26
Measures Taken to Strengthen the Linkages for SMIs
27
2.5.1
Main Ingredients of Successful Linkages Programme
29
2.5.2
Criteria on Selection of Potential Suppliers for
31
Linkages Programme
2.5.3
2.6
Measures by MNCs to Create and Deepen Linkages
32
Specific Linkages Promotion Programmes for Benchmarking
34
2.6.1 Ireland’s National Linkages Programme
35
2.6.2 Thailand’s BUILD Programme
37
SMI Development Experiences for Benchmarking
39
2.7.1 Taiwan Experience
40
2.7.2 Singapore Experience
44
2.8
Review on How Others Conducting Similar Type of Research
51
2.9
Summary
51
2.7
VII
III
OVERVIEW OF SMIs IN PENANG MANUFACTURING
INDUSTRY
3.1
Introduction
52
3.2
Penang Manufacturing Industry Transformation
53
3.3
Outline of Manufacturing Sector in Penang
56
3.4
Challenges Face by Penang’s Manufacturing Industry
58
3.5
Threats to Penang’s Manufacturing Industry
60
3.5.1
60
Understand the Reasons Investors Relocating from
Penang
3.5.2
Risks of Investors Relocating Faceed by Penang
62
Industry
3.6
Role of SMIs in Penang Manufacturing Industry
62
3.6.1
Higher Employment Generation
64
3.6.2
Reuse of Scrapped Machinery & Equipment
64
3.6.3
Training Ground for Industrial Skills and
64
Entrepreneurship
3.7
3.6.4
Supplier for Specialized Market Segment
65
3.6.5
Ancillary and Supporting Industry Role to MNCs
65
3.6.6
Potential Export Contribution for Specific Markets
66
Constraints Encountered by SMIs in Penang Manufacturing
66
Industry
3.7.1
Inadequate Skilful Manpower
67
3.7.2
Lack of Management Skills
68
3.7.3
Inadequate Finance
69
3.7.4
Lack of Marketing Penetration
69
3.7.5
Low Technological Level and Outdated System
70
3.7.6
Lack of Research and Development and Technical
71
Assistance
3.7.7
Inadequate Raw Material
72
3.7.8
Inadequate Industrial Land, Building and
73
Infrastructure
3.7.9
Inadequate Linkage with Large Industry
VIII
73
3.7.10 Lack of Knowledge on Information and
76
Communication Technology
3.7.11
3.8
Small Scale and Volume Production
76
3.7.12 No Vision and Strategy for the Future
77
3.7.13
77
Low Reliability
Threat of AFTA to Penang’s SMIs on Manufacturing Industry
77
3.8.1
“FUTURE” Approach to Counter AFTA Reaction
78
3.8.2
SMIs Role in Coping with Challenges due to AFTA
79
3.8.3
Public Sector in Confronting AFTA Challenges
80
3.9
Summary
82
IV
RESEARCH METHOLODOGY
4.1
Introduction
83
4.2
Flow Chart of Research methodology
83
4.3
Design & Development of Questionnaire Survey and
85
Structured Interview
4.4
4.3.1
Questionnaire Design
85
4.3.2
Questionnaire Contents
86
4.3.3
Research Population
87
4.3.4
Research Sample Selection
87
4.3.5
Research Sample Size
88
4.3.6
Research Rating System
89
Data Collection Strategy
90
4.4.1
Survey Procedure
91
4.4.2
Survey Limitation
91
4.4.3
Survey Administration
92
4.4.4
Opening and Confidentiality Statement
92
4.4.5
Improvement Gain from Pilot Study
93
4.4.6
Data Recording
94
4.5
Statistical Analysis Techniques Used
94
4.6
Summary
95
IX
V
DATA ANALYSIS
5.1
Introduction
96
5.2
Data Presentation and Analysis
96
5.2.1
Organization Profile and Perception
97
5.2.2
Technology Transfer and HR Development
101
5.2.3
Sales and Marketing
106
5.2.4
Technology and Quality Level
111
5.2.5
Information and Communication Technology
116
5.2.6
Public Sector Incentives and Schemes
121
5.2.7
Linkages Programme and Plan
125
5.2.8
Industrial Development Plan and Problem
130
5.2.9
Future Action Plan and Strategy
135
5.2.10 Business Operation Behaviour and Reaction
140
5.3
Conclusions of Data Presentation and Analysis
145
5.4
Hypothesis Testing
150
5.4.1
Hypothesis No. 1
150
5.4.2
Hypothesis No. 2
151
5.4.3
Hypothesis No. 3
153
5.4.4
Hypothesis No. 4
154
5.4.5
Hypothesis No. 5
156
5.4.6
Hypothesis No. 6
157
5.4.7
Hypothesis No. 7
159
5.4.8
Hypothesis No. 8
161
5.4.9
Hypothesis No. 9
162
5.5
5.4.10 Hypothesis No. 10
164
Summary of Hypothesis Testing
166
X
VI
PROGRAMMES AND STRATEGIES IMPLEMENTATION
6.1
Introduction
167
6.2
Implementation of Programmes and Strategies
167
6.2.1
Setting Up a One Stop Service Counter for SMIs
168
6.2.2
Penang to Attract More FDI
169
6.2.3
Effective SMI Development Mechanism
171
6.2.3.1 Formulation of Industrialization Strategy
172
6.2.3.2
Specific Assistance Programme
173
6.2.3.3
Intel SMI Development Approach
176
6.2.3.4
Technological Capability Development
177
6.2.4
Penang’s Own Brandname for Long Term Benefits
178
6.2.5
Specific Strategies to Cope with Economic Downturn
179
6.2.5.1
Strategies at Industry Level
179
6.2.5.2
Strategies at Corporate Level
179
6.2.5.3
Strategies at Business Level
180
6.2.6
Measures to Help SMIs Become More Export
180
Oriented
6.2.6.1 Strategy Thrust for SMIs to Be Globalized
182
6.2.6.2 Action Plan to Be Exported Oriented
183
6.2.6.3 Improvement Factors on Products Export
184
6.3.6.4
185
Immediate Challenges on Exporting
Marketing
6.2.7
Critical Elements of IT for Penang’s Industrial
186
Structure
6.2.7.1
Driving Forces Behind E-Business
186
6.2.7.2
Government Action Plan to Promote
188
E-Business Utilization
6.2.7.3
6.2.8
Funding for ICT Implementation
Key Adjustments on HR Development Towards
190
191
Industrialization
6.2.8.1
High Expectation of Manpower Supply
192
6.2.8.2
Developing More Science, IT and
193
Engineering Oriented Workforce
XI
6.2.9
6.2.8.3
Better Marketing and Sales Ability
194
6.2.8.4
Good Attitude, Values and Work habits
195
6.2.8.5
Business Leadership and Management Skill
195
Achieve International Quality Standard
196
6.2.9.1
Towards Total Quality Management
197
6.2.9.2
Competing Market Place Via Quality
197
Consciousness
6.2.10
Upgrading Industrial Technology Through R&D
199
6.2.10.1 Create New Business Opportunities
200
6.2.10.2 Improvement on Product Quality and
200
Production Processes
6.2.10.3 Market Orientation for Industrial R&D
201
in Universities
6.2.10.4 Changing the Attitude of SMIs Towards
202
R&D
6.2.11 Boost and Enhance Science and Technology (S&T)
6.2.11.1 Government Role to Play to Boost Science
202
203
and Technology
6.3
Summary
205
VII
CONCLUSION
7.1
Introduction
206
7.2
Research Conclusions
207
7.2.1 Identification of Root Causes on Investors Relocating
207
from Penang
7.2.2 Understand Key Concerns of SMIs in Penang
207
Manufacturing Industry
7.2.3 Empirical Data and Conclusion from Survey Interview
208
7.2.4 Programmes and Strategies Implementation on SMIs
209
Development
7.2.5 Lessons for Penang to Learn from Other Industrialized
Countries
XII
211
7.3
Publication from this Research
212
7.4
Novelty of this Research
212
7.5
Further Research Recommendation
213
REFERENCES
215
Appendices A – K
230 - 250
XIII
LIST OF TABLES
TABLE NO.
TITLE
PAGE
2.1
Business Linkages Between Penang SMIs and Foreign Parters
13
2.2
Factories in PDC Industrial Areas by Country of Origin
39
3.1
“Big Lumps” Investment by MNCs in Penang
56
3.2
Factories in Operation by Sectors in PDC Industrial Areas
57
3.3
Value Added by Sectors in PDC Industrial Areas
57
3.4
Retrenchment in Malaysia categorize by State in 2003
59
3.5
Retrenchment in Malaysia categorize by Profession in 2003
59
3.6
Estimated Distribution of Firms by Size in PDC Industrial Areas
63
3.7
Main Centres for Research & Development in Malaysia
72
5.1
Simple Tabulation of Result for Hypothesis No.1
150
5.2
Cross tabulation of Result for Hypothesis No.1
151
5.3
Independent Samples T-Test for Hypothesis No.1
151
5.4
Simple Tabulation of Result for Hypothesis No.2
151
5.5
Cross tabulation of Result for Hypothesis No.2
152
5.6
Independent Samples T-Test for Hypothesis No.2
152
5.7
Simple Tabulation of Result for Hypothesis No.3
153
5.8
Cross tabulation of Result for Hypothesis No.3
154
5.9
Independent Samples T-Test for Hypothesis No.3
154
5.10
Simple Tabulation of Result for Hypothesis No.4
154
5.11
Cross tabulation of Result for Hypothesis No.4
155
5.12
Independent Samples T-Test for Hypothesis No.4
155
5.13
Simple Tabulation for Result of Hypothesis No.5
156
5.14
Cross tabulation of Result for Hypothesis No.5
157
5.15
Independent Samples T-Test for Hypothesis No.5
157
5.16
Simple Tabulation of Result for Hypothesis No.6
158
5.17
Cross tabulation of Result for Hypothesis No.6
158
5.18
Independent Samples T-Test for Hypothesis No.6
159
5.19
Simple Tabulation for Result of Hypothesis No.7
159
5.20
Cross tabulation of Result for Hypothesis No.7
160
5.21
Independent Samples T-Test for Hypothesis No.7
160
XIV
5.22
Simple Tabulation of Result for Hypothesis No.8
161
5.23
Cross tabulation of Result for Hypothesis No.8
162
5.24
Independent Samples T-Test for Hypothesis No.8
162
5.25
Simple Tabulation of Result for Hypothesis No.9
163
5.26
Cross tabulation of Result for Hypothesis No.9
164
5.27
Independent Samples T-Test for Hypothesis No.9
164
5.28
Simple Tabulation of Result for Hypothesis No.10
164
5.29
Cross tabulation of Result for Hypothesis No.10
165
5.30
Independent Samples T-Test for Hypothesis No.10
165
6.1
Organizations Involved in promotion of SMIs
173
6.2
Financial Assistance Programmes Participant Organization
175
6.3
HR & Information Support Programmes Participant Organization
175
6.4
Correlation Between Quality and Cost
199
XV
LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
1.1
Penang Manufacturing Development Trend (1990-2003)
1
1.2
Penang Manufacturing FDI Trend Data (1997-2004)
2
1.3
Five Major Thrusts for Sustainability in Penang
7
2.1
Strategic Options Available for MNCs to Obtain Inputs
14
2.2
Business Networking in Manufacturing Industry on International
16
Arena
2.3
Government Role on Linkage Programme
20
2.4
MNCs Role on Linkage Programme
22
2.5
SMIs Role on Linkage Programme
25
2.6
Policy Focus for Promotion of Linkages
28
2.7
Main Ingredients of Successful Linkage Programme
29
2.8
MNCs Measures to Create and Deepen Linkages
32
3.1
Penang Industrial Characteristics (1970 – 1980)
54
3.2
Penang Industrial Characteristics (1980 - 1990)
54
3.3
Penang Industrial Characteristics (1990 – 2000 & Beyond)
55
3.4
Key Contributions of SMIs on Industrialization
63
3.5
Constraints Encountered by SMIs on Industrialization
67
3.6
Intel “SMART” Approach of Supplier Development Model
74
3.7
“FUTURE” Approach to Counter AFTA
79
4.1
Flow Chart of Research Methodology
84
4.2
Survey Questionnaire Contents
86
4.3
Formula for Simple Random Sampling Size
88
5.1
Distribution of Type of Surveyed Companies
97
5.2
Years of Operating of Companies Surveyed
98
5.3
Seriousness of Business Performance Affected
99
5.4
Reasons of Present Unsatisfactory Business Performance for
101
Penang’s SMIs
5.5
Potential of SMIs to Learn Up New Technology and Skills
101
5.6
Channels for Contact with Latest Technology Invention and
102
XVI
Development from Overseas
5.7
Problems Encountered in Training Employees for SMIs
103
5.8
Methods on Technology and Managerial Skills Improvement
105
5.9
Assistance on Products Exporting
106
5.10
Countries on Products Exporting
107
5.11
Percentage of Business Activity on Exporting
109
5.12
Forecast on Penang’s Economic Situation
110
5.13
Methods on Technology and Quality Improvement and Upgrading
111
5.14
Critical Strength of SMIs to be Competitive
113
5.15
Inhibiting Factors that Hinder SMIs from Attaining International
114
Quality System Certification
5.16
General Performance of Penang’s SMIs
115
5.17
Factors that Restrict Penang’s SMIs from Adopting ICT
117
5.18
Efforts Needed from Government to Promote ICT Utilization
118
Among SMIs
5.19
Company Involvement in Homepage
119
5.20
Achievement on Return of Investment from Website
120
5.21
Participation of Government Incentives and Assistance Schemes
121
5.22
Difficulty Encountered on Development Assistance Application
122
Assistance Application
5.23
Reasons of Poor Participation by SMIs on Government Assistance
123
Programme
5.24
SMIs Expectation from Industrial Development Assistance
124
Programme
5.25
Declaration on Receiving of Circular/ Newsletter from Government
125
Authority
5.26
Awareness of Government Development Assistance Programmes
126
5.27
Problems of Existing SMIs Development Assistance Programmes
128
5.28
Companies Having Active Business Linkages or Sub-contracting
129
Activities
5.29
Favourable Sector for New Investors
130
5.30
Disadvantages of Operating Manufacturing Industry in Penang
131
5.31
Intention to Integrate Company’s Operation Forward or Backward
133
5.32
Factors that Still Attract Foreign Investors to Set Up Facilities in
134
XVII
Penang
5.33
Company’s Plan to Relocate Their Manufacturing Industry from
135
Penang
5.34
Preferred Location for Set Up of New Manufacturing Facility
136
5.35
Reasons for Certain MNC’s Moving Out from Penang
137
5.36
Factors that Able to Lead Penang’s Manufacturing Industry for a
139
Faster Recovery
5.37
Preference to Work on Familiar Job Rather Than New Job
140
5.38
Referring Organization for Guidance on Technical, Business and
141
Marketing Information
5.39
Corrective Measures to Keep Company Sustaining During
142
Recession Period
5.40
Problems Encountered by SMIs on Business Operation
144
6.1
Effective SMI Development Mechanism
172
6.2
Measures to Become More Export Oriented
181
6.3
Strategy Trust for SMIs to Be Globalized
182
6.4
Crucial Elements of ICT on Penang’s Industry Structure
186
6.5
Driving Forces Behind E-Business
187
6.6
Global E-Business Growth
188
6.7
Key Adjustments of HR Development Towards Industrialization
192
6.8
Achieve International Quality Standards
196
6.9
Upgrade Industrial Technology Through R&D
200
XVIII
LIST OF ABBREVIATIONS
ACCCIM
-
Associated Chinese Chamber of Commerce and Industry of
Malaysia
AFTA
-
ASEAN Free Trade Area
ASEAN
-
Association of South East Asian Nations
ASLI
-
Asian Strategy and Leadership Institute
BOI
-
Board of Investment (Thailand)
CAD
-
Computer Aided Design
CAM
-
Computer Aided Manufacturing
CEO
-
Chief Executive Officer
CGC
-
Credit Guarantee Corporation
CIM
-
Computer Integrated Manufacturing
CNC
-
Computerized Numerical Controller
COSEC
-
Core Sills for Effectiveness and Changes (Singapore)
CRM
-
Customer Relationship Management
DBS
-
Development Bank of Singapore
DFM
-
Design for Manufacturing
DOE
-
Design for Experiment
E&E
-
Electronics and Electrical
EDB
-
Economic Development Board (Singapore)
EDAS
-
Economic Development Assistance Scheme (Singapore)
EIB
-
European Investment Bank (Spain)
EIF
-
European Investment Fund (Spain)
ERP
-
Enterprise Resources Planning
EU
-
European Union
FDI
-
Foreign Direct Investment
FIREBS
-
Fire Insurance, Real Estate & Business Services
FIZ
-
Free Industrial Zone
FMM
-
Federation of Malaysian Manufacturers
FRIM
-
Forest Research Institute of Malaysia
FREPENCA -
Free Industrial Zone of Penang Companies Association
FSMI
Fund for SMIs
-
XIX
FTZ
-
Free Trade Zone
GDP
-
Gross Domestic Product
GSP
-
Global Supplier Programme
HDD
-
Hard Disk Drive
HRD
-
Human Resources Development
HRDF
-
Human Resources Development Fund
ICT
-
Information and Communication technology
IC
-
Integrated Circuit
IDC
-
International Data Center
IDIC
-
Industrial Development and Investment Center
ILP
-
Industrial Linkage Programme
IMP
-
Industrialization Master Plan
IMP2
-
Second Industrialization Master Plan
IMR
-
Institute of Medical Research
INTECH
-
Initiatives in New Technology Scheme (Singapore)
ISO
-
International Organization for Standard
ITAF
-
Industrial Technical Assistance Fund
IT
-
Information Technology
JICA
-
Japan International Cooperation Agency
JIT
-
Just In Time
JV
-
Joint Venture
KL
-
Kuala Lumpur
LDC
-
Less Developed Country
LIS
-
Light Industries Services
LIUP
-
Local Industries Upgrading Programme (Singapore)
LMW
-
Licensed Manufacturing Warehouse
LOI
-
Letter of Intent
LSI
-
Large Scale Industry
MARDI
-
Malaysia Agricultural Research & Development Institute
MATRADE
-
Malaysia External Trade Development Corporation
MDAS
-
Market Development Assistance Scheme (Singapore)
MIDA
-
Malaysian Industrial Development Authority
MIDF
-
Malaysian Industrial Development Finance Berhad
MIEL
-
Malaysia Industrial Estate Limited
XX
MITI
-
Ministry of International Trade and Industry
MIER
-
Malaysian Institute of Economic Research
MIMOS
-
Malaysia Institute of Microelectronics System
MTDC
-
Malaysian Technology Development Corporation
MNC
-
Multinational Corporation
MOEA
-
Ministry of Economic Affairs (Taiwan)
MOF
-
Ministry of Finance
MSC
-
Multi Super Corridor
NCB
-
National Computer Board (Singapore)
NIC
-
Newly Developed Country
NIOSH
-
National Institute of Occupational Safety & Health
NLP
-
National Linkage Programme
NPB
-
National Productivity Board (Singapore)
NPC
-
National Productivity Corporation
NUS
-
National University of Singapore
OECD
-
Organization for Economic Cooperation and Development
PC
-
Personal Computer
PDC
-
Penang Development Corporation
PFI
-
Participating Financial Institute
PLC
-
Programmable Language Controller
PORIM
-
Palm Oil Research Institute of Malaysia
PPAS
-
Product Development Assistance Scheme (Singapore)
PSDC
-
Penang Skills Development Centre
PSDP2
-
Second Penang Strategic Development Plan
QA
-
Quality Assurance
R&D
-
Research and Development
RLS
-
Robot Leasing Scheme (Singapore)
RM
-
Ringgit Malaysia (1US$ = 3.8RM)
RRIM
-
Rubber Research Institute of Malaysia
SARS
-
Severe Acute Respiratory Syndrome
SDF
-
Skills Development Fund (Singapore)
SDN BHD
-
Sendirian Berhad (Private Limited)
SEB
-
Small Enterprise Bureau (Singapore)
SECAP
-
Small Enterprise Computerized Accounting Programme
XXI
SERI
-
Socio-Economics and Environment Research Institute
SIFS
-
Small Industries Finance Scheme (Singapore)
SISIR
-
Singapore Institute of Standards and Industrial Research
SINGLAS
-
Singapore Laboratory Accreditation Scheme (Singapore)
SMI
-
Small and Medium Scale Industry
SIRIM
-
Standards and Industrial Research Institute of Malaysia
SMIDEC
-
Small and Medium Industries Development Corporation
SMBB
-
Small and Medium Business Bank (Taiwan0
SPSS
-
Statistical Package for Social Science
TAF
-
Technology Acquisition Fund
TDB
-
Trade Development Board (Singapore)
TNC
-
Transnational Corporation
TQM
-
Total Quality Management
UNCTAD
-
United National Conference on Trade and Development
USM
-
Universiti Sains Malaysia
VDP
-
Vendor Development Programme
WRHR-
Wholesales, Retail, Hotel & Restaurant
WTO
-
World Trade Organization
XXII
LIST OF APPENDICES
APPENDIX
A
TITLE
Letter from Penang State Government Endorsing this
PAGE
230
Research
B
Research Recommendation Letter from Penang MIDA
231
C
Research Recommendation Letter from Penang
232
Development Corporation (PDC)
D
Research Recommendation Letter from Penang Seagate
233
Industries Malaysia Sdn Bhd (MNC)
E
Research Recommendation Letter from LKT Engineering
234
Sdn Bhd (LSI)
F
Research Recommendation Latter from Eetek Electrical
235
Switchgear Sdn Bhd (SMI)
G
Confirmation Letter on Acceptance of Technical Paper
236
from this Research for RAMM 2003 International Conference
H
Abstract of Technical Paper Published from this Research
237
Study
I
Complimentary Letter from PDC
238
J
Supporting Letter from KK Choong Engineering Sdn Bhd
239
K
Survey Questionnaire
240
XXIII
CHAPTER 1
INTRODUCTION
1.1
Introduction
Penang’s economy has dramatically transformed from an agriculture and trade-
based economy in the late sixties to a leading industrial state with a diversified and
broad-based economic structure today. The contribution of the manufacturing sector to
the Penang state’s GDP has increased about threefold from 15.1 percent in 1970 to
45.3 percent by 2003 as shown in Figure 1.1.
50.00%
GDP Percent
40.00%
Manuf'ing
30.00%
20.00%
Agriculture
10.00%
0.00%
1970
1980
1990
2003
Source : Penang Development Corporation (2004)
Figure 1.1 : Penang Manufacturing Development Trend (1970 – 2003)
2
Penang may have developed its competitive edge in the seventies to nineties,
the state now has to contend with increasing competition from the region, as well as
from other new emerging economies.
In the face of stiff competition from the emergence and continued growth of
China, coupled with the very aggressive development of Thailand, Vietnam and India
had provided further pressure to Penang as a viable investment destination.
All markets after AFTA implementation by 2010 will be open and
accessibility will be based on merit of quality, pricing, market niches and cultural
preferences. In this very open system, it becomes vital to develop the right
programmes and strategies for the Penang SMIs in electronics and electrical
manufacturing industry.
The competitive and very challenging global environment for investments has
results in slowdown in inflows of FDI to Penang as shown in Figure 1.2.
5
4
3
FDI (RM B)
2
1
0
1997
1998
1999
2000
2001
2002
2003
2004
Year
1997
1998
1999
2000
2001
2002
2003
2004
FDI (RM)
0.42B
1.28B
4.60B
3.56B
3.58B
1.99B
1.46B
1.02B
Source : Malaysian Industrial Development Authority (2005)
Figure 1.2 : Penang Manufacturing FDI Trend Data (1997-2004)
3
PSG (2001-a) pointed out that in light of those changes, with the right
strategies on strengthening the competitiveness of the small and medium industries in
Penang electronics and electrical manufacturing industry, Penang needs to improve the
existing linkages programmes and incentive schemes to broaden and deepen its
economic base.
Major issues that hinder the realization of the full development potential of
each sector of the linkage programmes and strategies have to be identified and
analyzed. Development strategies and linkage programmes need to be high-lighted and
strategies formulated. All these should take into consideration the broader context of
future national, regional and international trends. These strategies and programmes
should see Penang as a major recipient of international investment, as it shifts to
higher value-added manufacturing activities.
1.2
Problem Statement
Due to the present economics slowdown, coupled with the increasing
competition from those new economics, Penang small and medium industries in
electronics and electrical manufacturing industry need to enhance global
competitiveness through improving linkage programmes.
1.3
Research Objective
The main objective of this research study is to highlight the important issues
as recommendations to the Penang state authority in formulating action plans and
strategies through effective linkage programmes.
From the main objective above, the following are the sub-objectives of the
research :
a) To identify problems of SMIs in Penang electronics and electrical
manufacturing industry;
4
b) To determine the important factors that contribute to the
competitiveness of SMIs in Penang electronics and electrical
manufacturing industry;
c) To identify the perception of industries (MNCs and SMIs) on variables
affecting SMIs in Penang electronics and electrical manufacturing
industry performance;
d) To identify the challenges and expectation from SMIs in Penang
electronics and electrical manufacturing industry.
1.4
Research Hypothesis
Brain storming and discussion sessions were carried out with few
industrialists and government agencies on the core issues faced by the Penang’s
manufacturing industry, lead to the development of the Hypothesis as listed below.
Through the survey interviews with various industry professional from SMIs and
MNCs, the following hypothesis which are related to linkage programmes and
improvement strategies will be verified :a) Hypothesis #1
Penang’s manufacturing industry still have the potential to revive once the
global economy situation improves.
b) Hypothesis #2
Technological and managerial skills of most Penang manufacturing
industry’s SMIs have met the requirements of the MNCs expectations.
c) Hypothesis #3
Government have provided sufficient information, guidance and assistance
to SMIs on exporting their products.
5
d) Hypothesis #4
The key expectation from SMIs through the linkage programme is for
technological improvement, rather than the company’s profitability.
e) Hypothesis #5
SMIs need to expand their utilization of Information and Communication
Technology (ICT) in order to be competitive in technology and marketing.
f) Hypothesis #6
Present industrial development incentives and schemes are effective and
impressive enough as compared to other countries to attract new investors
and retain existing investors.
g) Hypothesis #7
Existing linkage programmes for SMIs need to be further reviewed and
improved to meet present technological and market competitiveness
requirements.
h) Hypothesis #8
The present increasing overhead and labour costs are the main factors for
Penang’s manufacturing industry to lose out in the global market.
i) Hypothesis #9
Electronics and electronics industries will still remains as the main
steam of the manufacturing sectors in Penang for the next five years.
j) Hypothesis #10
As compared with other industrial developed countries, Penang is still
remains a top choice for manufacturing industry set up by foreign
investors.
6
1.5
Scope
This research is confines to the small and medium industries in Penang
electronics and electrical manufacturing industry.
1.6
Importance of this Research
This research study will contribute to a better understanding of problems
involved in development of SMIs in electronics and electrical manufacturing industry
in Penang which can be summarized as follows :a. To help SMIs expand their business and manufacturing activities which
can bring in more government revenue;
b. To assist SMIs in expanding and diversifying the industrial base of the
state towards enhancing international competitiveness, increase the valueadd in products and exports, domestic investments, employment
opportunities and hence the standard of living and quality of life of the
people;
c. To develop improvement strategies on how SMIs and MNCs can work
together to increase the productivity and economic viability of the state
towards the common goal of a more prosperous and progressive Penang;
d. To re-orientate the government to be more service-oriented in its
approach so as to provide a more conducive environment for SMIs to
operate profitably, as well as to expand as rapidly as possible to generate
more profits.
In essence, the rationale of the innovative linkage programme and
improvement strategy is to increase productivity and international competitiveness
towards sustaining, if not, further improving the economic growth of the state.
Through this programme, greater progress can be achieved so that Penang can realize
7
her vision of becoming an industrialized state by the year 2020, as emphasized by the
ex- Prime Minister Tun Dr. Mahathir Bin Mohamad (Mahathir, 1997).
This research study is in line with the 2nd Penang Strategic Development
Plan (PSDP2) – 2001 to 2010 (PSG, 2001-a) which is strongly based on the concept of
SUSTAINABILITY in heading towards Vision 2020 of Malaysia is as shown in
Figure 1.3 (PDC, 2003-a). This study met PSDP2 expectation by looking into the
improvement and remedial measures on two of the five major thrusts, i.e., economic
competitiveness and external linkages.
Vision 2020
PSDP2
SUSTAINABILITY
Economic
Competitiveness
Ecological
Balance
Caring
and
Sharing
Cultural
Vibrancy
External
Linkage
- Economic
- Environment
- Social
- Culture
- Globalization
Good Governance (Public and Private)
Source : Penang Development Corporation, PSDP2, 2003
Figure 1.3 : Five Major Thrusts for Sustainability in Penang
8
1.7
Research Methodology
This research was conducted in three parts :
In the first part of this study, a review was conducted on the existing
literature on the industry, both in Penang and internationally, with a particular focus
on the problems and activities of SMIs on electronics and electrical manufacturing
industry. This included academic, official and public sources. The academic sources
consisted of books, journal articles and graduate/ undergraduate report on various
aspects of the SMIs in Penang and others countries. The official sources included
studies and previous surveys of the SMIs in Penang, conducted by government and
semi- government bodies. The public sources consisted of articles from local and
foreign newspapers, magazines and websites. A summary of the relevant material is
presented in the reference section.
The second part of the research collected aggregate data on the SMIs for
electronics and electrical manufacturing industry drawn mainly from the annual
census of industrial production conducted by the Malaysia Department of Statistics
(DOS, 2003), MIDA, PDC, SERI and DCT Consultancy Services. These data provide
a better understanding of the performance of the electronics and electrical industry in
Penang.
The third part of the research involve a face-to-face interview or personal
delivery of survey questionnaire to 115 firms and organizations whose activities are
related to electronics and electrical manufacturing industry in Penang. Each in depth
survey interview lasting from one to two hour were conducted with the CEO,
managing director, proprietors, top and middle management personnel of the SMIs
and MNCs. The interviews were conducted through the month of December 2002 to
June 2003. A questionnaire was designed consisting of 50 questions (Appendix K).
Information gathered was qualitative as well as quantitative in nature. Valuable
insights into the problems and suggestions on improvement were obtained as a result
of the interviews. The material and data from the interviews are analyzed and
presented in chapter V.
9
1.8
Thesis Outline
This thesis consists of seven chapters, as described in the table of contents.
Chapter I
- Introduction
This chapter sums up the needs, objectives, benefits, hypothesis statements
and research methodology of this study.
Chapter II
- Literature Review
This chapter reviews the merits and benefits of linkage programmes and
strategies for SMIs in the manufacturing industry.
Chapter III
- Overview of SMIs in Penang Manufacturing Industry
This chapter outlines the overview of the manufacturing industry’s SMIs
in Penang, followed up with the experiences from other industrial developed
countries on their SMIs development programmes and strategies.
Chapter IV - Research Mathodology
This chapter looks through the research methodology which examines the
research design on development of questionnaires and structured interviews.
Chapter V
- Data Analysis
This chapter analyses on the data collected from the survey interviews,
the Hypothesis are tested and the results presented.
Chapter VI - Strategies and Programmes Implementation
This chapter describes the development and implementation plan of the
innovative linkage programmes and improvement strategies.
Chapter VII - Conclusion
This conclusion chapter summarizes the finding of the research study.
10
1.9
Summary
In this chapter, the author have developed a clear objective, listed out all
Hypothesis, discussed the research outlines, methodology and benefits from this
research study. This is formulated into a conceptual framework for a more systematic
procedure to commence the research.
CHAPTER II
LITERATURE REVIEW
2.1
Introduction
This chapter presents the important programmes and measures on linkages
that contribute to the competitiveness and challenges for SMIs in Penang electronics
and electrical manufacturing industry.
The specific linkage promotion programmes from other industrially
developed countries are also discussed for Penang to benchmark.
2.2
Linkages for SMIs in Penang Manufacturing Industry
Linkages are importance to both MNCs and SMIs. If MNCs can procure
inputs locally, particularly in host countries in which labour costs are low, they can
lower their production costs. Besides to increase their specialization and flexibility,
also able to adapt the technologies and products better and faster to local condition by
subcontracting directly to local suppliers.
This is the main reason why technologically advanced local suppliers are of
growing importance in the attraction of new investors, particularly of high value
activities and functions. The trend to greater outsourcing and to concentrate on core
competencies also raises the competitive benefits of MNCs.
12
2.2.1
Benefits of Linkages
Fitzgerald, R. (2000) emphasized that SMIs can also benefit from linkages
with MNCs. Besides the raised output and employment to the links suppliers, the
indirect impacts on supplier capabilities are probably more important. Linkages with
MNCs provides SMIs with powerful channels for exchange of information, technical
knowledge and skills. The end result can promote production efficiency, productivity
growth, technological and managerial capabilities and market diversification in
suppliers.
The achievement from supplier does not only end here as under the right
conditions, the domestic suppliers can be developed to become a global supplier or
MNC. Some examples are given below.
KK Choong Engineering of Penang is a small firm with global perspective. It
has developed an international network to sell its ultra-violet IC cleaning machine. Its
partner is the Equipment Semiconductor Corporation (ESC) from USA. This linkages
cover such areas as joint research and manufacturing as well as distribution and
marketing. Using alliances strategically has meant that even a small company like KK
Choong Engineering can develop sophisticated linkages with established distribution
networks over several continents.
Autoveyor (Penang) Sdn Bhd entered into a co-marketing arrangement with
Simplematic Corporation of USA in order to penetrate the clean-room chain conveyor
market. Autoveyor found Simplematic Corporation’s help valuable in navigating
through clean-room conveyor regulations, documentation requirements and customs
procedures as well as in negotiating with appropriate government departments. Few
more similar examples in Penang which quoted by Yeang, B.J. (2000) are as shown in
Table 2.1.
13
Table 2.1 : Business Linkages Between Penang SMI and Foreign Partners
Penang Local SMI
Foreign Hi-Tech Partner
Products
1 KK Choong Engineering
Equipment Semiconductor
Ultra- Vialet IC
Sdn. Bhd.
Corporation, USA.
Cleaning Machine
2 Autoveyor Sdn Bhd
Simplematic Corporation,
Clean Room Chain
USA
Conveyor System
3 Eng Technology (M) Sdn Advantest Corporation,
Test Handlers &
Bhd
Japan
System
4 Globetronic (M) Sdn Bhd Sumitomo, Japan
Component Parts
5 LKT Industrial Sdn Bhd
Riken Plastic, Japan
IC Tray
6 TransCapital (M) Sdn Bhd Repeaters Technology, USA
Telecom Repeaters
Source : Penang Development Corporation, 2003.
Despite these and many other examples of business linkages in Penang.
Penang’s SMIs have generally seemed to be slow to make full use of the opportunities
and advantages inherent in linkages. It seems, rather, that the art of linkages is far
more developed and sophisticated in Japan and Singapore than it is in Malaysia.
(Fitzerald, R., 2000).
2.2.2
MNCs Self-Interest in Forging Links with SMIs
UNCTAD (2001) pointed out that economical changes are making supply
chain management more critical to the competitiveness of MNCs. In some countries,
especially on electronics and electrical side, they are spending more than half its
revenues on purchased inputs. Some MNCs are contracting out the entire
manufacturing process to independent ‘contract manufacturers’, keeping only such
functions as R&D, design and marketing. In these cases, supply change management
obviously becomes even more important.
MNCs has three options for obtaining inputs (Figure 2.1) :
-
Import them;
-
Produce them locally in house; or
-
Procure them from local supplier.
14
Strategic Options Available for MNCs
to Obtain Inputs
Imports
From
Other
MNCs
From
Foreign
Suppliers
In-House
Production
Local
Sourcing
From
Domestic
Suppliers
From
Foreign
Affiliates
Figure 2.1 : Strategic Options Available for MNCs to Obtain Inputs
The extent to which MNCs forge linkages with domestic suppliers is
determined by the balance of costs and benefits. While the costs and benefits reflect a
large number of industry-specific factors, the most important concern is the local
availability of qualified suppliers. The lack of efficient suppliers is often the key
obstacle to the creation of local linkages. In many demanding activities, MNCs
therefore actively encourage foreign suppliers to establish local facilities or prefer to
produce in-house.
Some MNCs have supplier development programme which include offering
considerable support to suppliers by transferring technology, training suppliers’ staff,
providing business-related information and lending financial support.
Bang et al. (1999) agreed that the objective is usually to expand the number
of efficient suppliers and help existing suppliers improve their capabilities in one or
several areas. However, suppliers development efforts are typically not expanded to all
suppliers. MNCs tend to focus on a limited number of suppliers providing the most
important strategically inputs.
15
Another advantage of linkages between MNCs and domestic suppliers is the
increase of the local integration and “rooting” of MNCs and make them more
committed to the local economy. Since linkages involves cost and effort by MNCs,
stronger linkages with local suppliers make it more difficult for them to divert or pull
out.
2.2.3
Business Networking
A trend towards increased business networking which has become an
essential feature of doing business today. The Penang government should recognize
this trend and leverage its own resources by working with private sector to stimulate
the creation of networks. Business networks allow successful small and medium-sized
business from any economic sector to co-operate and collaborate in seizing business
opportunities. Such business build critical mass, thereby gaining the competitive
advantages of scale, scope and speed to undertake joint projects in domestic and
global markets.
Yeang, B.J. (2000) stressed that the business networks are rapidly becoming
a new platform to support small- business competitiveness, especially in the
international arena (Figure 2.2). The Penang government has recognized the
increasing important role that networking plays as a first step in fostering business
linkages. In particular, they can help to :-
Acquire world- class business skills;
-
Gain access to new financial instruments and capitals;
-
Use competitive advantage based upon knowledge, innovation,
technologies, quality or productivity;
-
Develop and diversify global export markets.
16
GOVERNMENT
MNC
FOREIGN
HITECH SME
Provide
-
Technology
Expertise
Capital
Equipment
Training
Regional & Global
Markets
LOCAL SMI
PARTNERSHIP
TO SUPPLY
MNCs
&
WORLD MARKET
Provide
- Knowledge of Local
Market & Technical
Manpower
- Venture Capital
- Competitive Cost
Source : Penang Development Corporation, 2003
Figure 2.2 : Business Networking in Manufacturing Industry on International Arena
2.2.4
Technology Networks and Technology Linkages
ASLI & PDC (1998) have identified that the most important business
networks that exist in Penang today are those designed to stimulate the development of
new technologies and technological capabilities. There are a few Penang examples of
long-standing co-operation technical agreements, especially in the test equipment and
semiconductor machinery (Table 2.1). While contend to let the private sector take the
lead in developing such networks and linkages, the state government should encourage
their formation by acting as a catalyst and facilitator as well as by offering some
financial contributions to help the co-operation activites get started.
17
2.2.5
Internet Linkages on Business Transaction and Technology Acquisition
Per the studies by PSG (2002), the networks and tools of the information
revolution allow all companies to communicate with their counter-part without regard
to time, place or even common language. This used to be limited to large and global
companies; only they could afford to have offices at customer site, in national capitals
or around the world to communicate with their customers and government authorities.
Now even the smallest company or an individual entrepreneur can obtain
information from the government via the internet. Information on procurement
opportunities can be obtained at any time of the day, anywhere in the world – from
those agencies that are on the procurement networks.
Some bids can be prepared and submitted electronically – from anywhere in
the world. No longer is a company that is located hundreds or thousands of miles from
the procurement office, at a time or cost disadvantage in obtaining bid information or
in submitting the bid. Nor do small companies have to hire representatives to
physically search bid boards, overnight mail request for proposals and hand-carry bid
responses.
Search engines on the internet permit powerful search on regulations, rules,
marketing or scientific information and general data on any topic one can imagine.
These features are useful to the specialists that research topics for large companies.
But to small businesses, they represent an entirely new way to obtain information.
Instead of having to hire a consultant or a specialist in the national capital, SMIs can
do it without any outside help or expense.
PSG (2001-b) stated that for the global market place, the existing internet
provide a way to disseminate information of the company and its products that the
company makes or the services that it provides to tens of millions of users. For a few
hundred ringgits, the small company can have its home page or be hosted on other
websites.
18
2.2.6
Technology Transfer Through Linkages
JICA/ PDC (2001) pointed out that there are two distinct methods through
which the MNCs helps the local supporting industries improve their technological
knowledge. One is by engineers from the MNCs actually teaching the staffs of the
local firms what to do, working with them to make products needed by the MNCs
through what is termed as Vendor Development Programme (VDP).
The other method is by giving the local suppliers the specifications and then
pushing them to supply the products which meet the very exacting standards. By
giving assurance that there will be a ready market, if the products meet the
specifications, the MNCs provide local firms the confidence to source for new, but
nevertheless expensive technologies, such as investments in automatic CNC machines.
Further improvements of the performance of the local firms can be achieved
by allowing the MNCs to audit the factories. The auditing process involves giving
points to all conceivable aspects of the production process and activities. The audited
firm will then be given copies of the checklists with scores to show which area meets
expectations and which needs up-grading.
PSDC (2002) noted that the contributions of the MNCs to technology
transfer is also channeled through contributions to outside organizations, e.g. Penang
Skills Development Centre, which help train young Penangites to fit into the
manufacturing sector.
The contributions of MNCs on training can be in various forms. These
include providing funds to establish and run the center or having their managers to sit
in the management committee and other sub- committee of the center, to identify and
develop courses relevant to the needs of the manufacturing sectors and allowing their
engineers to conduct courses. Some of the bigger MNCs such as Intel. HP, Motorola,
AMD, Seagate, etc, have donated state-of-the-art machines to Penang Skill
Development Center (PSDC) for training purposes.
19
2.3
Roles to Play on Linkages Programmes
According to Fonnesbech and Kofoed (1998), it is well recognized that the
long-term sustainability of the manufacturing sector depends very much on the
availability of a strong and reliable network of SMIs to provide the critical industrial
linkages. Failure to nurture, develop and promote credible SMIs would mean failure to
establish the needed industrial linkages to support our long-term industrialization
programmes.
SMIs must use creativity and innovative strategies in building their market
niches, both domestically and globally. SMIs should not only concentrate on building
up entrepreneurial expertise but also be competitive in the very dynamic market place.
SMIs must always on the alert and keep updated with the national trading
environment.
The strategy to build competitive SMIs is based on three basic approaches,
namely the measures taken by the government, the MNCs and the SMIs respectively.
The government and the MNCs will play the role of facilitating the growth of the
SMIs while the SMIs have a bigger role to play in improving and upgrading
themselves.
2.3.1
Government Role
SMIs require assistance as shown below from the government in order to
develop into global companies, the government contributions are as shown in
Figure 2.3 (Ong, C.I., 2000) :
20
Government Role
on Linkage Programme
Provision of Basic Foundation
Special Tax Incentives
Simplify and Expedite
Administrative Procedure
Subsidize Licensed Software
Purchase
Partnership in Creating Training Institutions
Figure 2.3 : Government Role on Linkage Programme
2.3.1.1 Provision of Basic Foundations
The government can facilitate the SMIs to become competitive by
strengthening their basic foundation, to equip them so as to meet the requirement of
MNCs which include education and logistics infrastructure, as well as a strong
industrial framework. The provision of world-class education and logistics
infrastructure is very important in assisting the industry, particularly the local SMIs to
compete in the global market.
2.3.1.2 Simplify and Expedite Administrative Procedure
With the comparison of the Malaysia administration procedures with the
neighbouring advanced countries like Singapore, certain differences will be noticed. A
common complaint is the long approval procedure required by the government, SMIs
are finding it rather tedious to comply with the procedures and requirement that have
been imposed on them.
21
2.3.1.3 Special Tax Incentives
To encourage further linkages between the MNCs, participating companies
requesting more tax incentives. These should include capital reinvestment, tax holiday
for high value- added industries, and double tax deduction on R&D.
2.3.1.4 Subsidize Licensed Software Purchase for SMIs
The SMIs have been significantly affected by the recent enforcement on
software piracy by the government authority, which cut off their resources to purchase
the various types of software used in production and administrative process. With the
Technology Acquisition Fund (TAF) available for the purchase of the Enterprise
Resource Planning (ERP) system, it is still not good enough. SMIs need to be
encouraged and motivated to possess their own legal software. As such there is a need
for the government to subsidize licensed software purchases by the SMIs. This would
encourage them to not only adopt ICT (Information and Communication Technology)
but also to automate their production processes.
2.3.1.5 Partnership in Creating Training Institutions
The formation of the training institution on skills development, as well as
global supplier programme, is important for the SMIs. The government has an
important role in facilitating such partnership, with the training institution in providing
the courses and the industry supply of workers for the training.
2.3.2
MNCs Role
Through the local sourcing by linking with local SMIs on acquiring services
from them, the MNCs contributions are as shown in Figure 2.4 (Goh, B.L., 2000) :
22
MNCs Role
on Linkage Programme
Access to MNCs Expertise
Financial Support
Technology and Skills
Upgrading
Assessment, Review and
Benchmarking
Brokering Strategic
Alliance
Assignment of MNCs
Staff to SMIs
Figure 2.4 : MNCs Role on Linkage Programme
2.3.2.1 Access to MNCs Expertise
Goh, B.L. (2000) pointed out that SMIs that are supplying or providing
services to the MNCs will have greater access to MNCs innovation centers, as well as
their engineers and consultants. The fact that MNCs can help to develop SMIs has
been proven by Intel and Motorola in Penang. The MNCs can assist by providing
assistance in terms of machinery and equipment, technology and training, in term of
design capability, flexible manufacturing as well as ISO certification.
Access to these capabilities would enable SMIs to enhance their
technological and managerial know-how and capabilities, thus providing them greater
opportunity to compete in the global market. It is imperative that SMIs have been
developed through such means should carry out this tradition of developing more
suppliers.
23
2.3.2.2 Assignment of MNCs Staff to SMIs
Normally the MNCs will assign their technical and professional staff to the
SMIs that are supporting them. This would enable transfer of technological and
managerial know-how to the SMIs, thus preparing them for greater challenges in
innovation and technological changes.
2.3.2.3 Technology and Skills Upgrading
Goh, B.L. (2000) agreed that some of the MNCs support the efforts of the
skills development centers. A classic example is the support given by MNCs to the
Penang Skills Development Centre (PSDC), which was established based on a
tripartite agreement between the government, industry and academia.
By supporting such training and skills upgrading programmes, the MNCs are
actually facilitating greater access to their training programmes. In additional to such
support, the MNCs also participate in the adoption, mentoring and coaching
programmes, such as the Global Supplier Programmes (GSP), which is jointly
promoted by the PSDC and the Small and Medium Industry Development Corporation
(SMIDEC).
Such programmes are aimed at upgrading the technical and management
capabilities of the SMIs. In additional to participating in training programmes, the
MNCs also render technical resources and leadership skills to the skills training
centers.
2.3.2.4 Assessment, Review and Benchmarking
With the rapid development in technology, MNCs constantly carry out
assessment, review and benchmarking exercises. By doing so, the SMIs update
themselves with the latest technology, as well as market trends.
24
SMIs are less capable of conducting such activities. As by the nature of their
low cost structure, they have lower resource capabilities. The MNCs can share their
knowledge particularly on market trends with their delicated supplier. By doing so, the
SMIs could update themselves with the latest trends in the global market.
2.3.2.5 Brokering Strategic Alliances
Goh, B.L. (2000) also commended that the MNCs also help to broker
strategic alliance or carry out business matching for their supplier. It is common for
suppliers to land themselves with overseas projects due to the recommendations of
their MNCs customers locally. Such support given to the local suppliers allow SMIs to
go global.
The business association with the MNCs also generates awareness among the
SMIs on the availability of support schemes, incentives and training programmes, as
well as facilitates business-to-business consumers transactions.
2.3.2.6 Finance Support
Some MNCs also provide financial support or assist the SMIs in applying for
bank loans. Most SMIs especially new start-up lack collateral and track record to
qualify for bank loans, MNCs can render their support by providing machinery and
equipment, consigned material as well as orders.
2.3.3
SMIs Role
Rafidah Aziz (2003) highlighted that most importantly the SMIs must be
enthusiastic enough to help themselves and have the will to succeed. As such, they
must understand the total concept of their business; understand that there are common
concerns among the industry, including SMIs and also strive to overcome those
concerns; be capable of competing in the global market and willing to collaborate for
25
the betterment of their business; must be fully committed and be focused on their core
competencies or niche areas (Figure 2.5).
SMIs Role
on Linkage Programme
Enthusiastic to Help
Ownself
Understand Total
Business Concept
Capable to Face Global
Competition
Willing to Collaborate
for Betterment
Focused on Core
Competency
Fully Committed on
Business
Figure 2.5 : SMIs Role on Linkage Programme
2.4
Examples of Success Stories on Business Linkages Between MNCs and
SMIs
In general, the effectiveness of a linkages programme is largely context
specific and relates closely on the economic environment and institutional setting.
Also, active programme implementation depends heavily on the presence of effective
domestic and international chambers of commerce, aggressive participation of MNCs
and SMIs and a strong involvement of the government authority. Two good examples
are as follows :-
2.4.1
Ardennes from France
According to Eberhard, L. (1999), cooperation between large and small
manufacturing firms can extend beyond customer and supplier relationships. This may
26
bring considerable advantages to all concerned in the development of the state or a
country. An example is found in the Ardennes region of Northeastern France. The
National Planning and Productivity Commission suggested to the heads of several
large enterprises in the region that close cooperation be established between big and
small companies. The purpose would be to provide the sometimes less well
capitalized, staffed and equipped small firms with better theoretical managerial,
production and sales background, with training for their executives and technicians
and with practical examples of successful applications of improved methods in the
factory and in marketing.
The idea was welcomed by most of the bigger firms in the areas. They
readily offered to open their factories to representatives of the smaller firms and to
loan out their executives and engineers for consultation.
Many progress has already achieved, particularly in work simplification and
planning. The commercial expansion group also has obtained excellent results. Most
important, perhaps, is the very noticeable improvement in relations between individual
companies and businessmen in the region.
The advantages of this program to small enterprises are obvious, i.e., expert
help in solving their problems and creation of a climate conducive to great efficiency.
The big companies also have benefited from the progress made by the smaller firms
which are often their suppliers or customers.
The project has proved so successful, in fact, that similar one has been
organized in many other regions of the country.
2.4.2
Engtek from Penang
Fonnesbech and Kofeod (1998) identified that Eng Hardware Engineering
Sdn Bhd is a typical example of how an ancillary firm has grown over the past years
by exploiting the opportunities available within the FTZ in Penang.
27
The company started in 1974 as a backyard activity with a relatively small
amount of capital. Its first venture was the making of jig and fixtures/ machined parts
and it primarily serviced the maintenance needs of the MNCs. As business prospered,
the company re-invested its profits into precision tool and die. The level of technology
was progressively upgraded by exposure to the service products, working in liaison
with the experienced MNCs engineers and also through self- development undertaken
via on-the-job research.
In line with the company’s policy of diversification, the later years saw the
company investing in new product lines, like tungsten carbide tooling, disc drive
peripherals and components, etc.
Engtek grew up in a policy environment conducive to enterprise
development. Under Malaysia’s Vendor Development Programme, MNCs have been
encouraged to assist local suppliers to become competitiveness at the global level. In
addition, the government accorded pioneer status to selected local SMIs, which
entitled them to generous tax rebates, thus strengthening their investment base, Engtek
has benefited from both factors.
Engtek has engaged in close partnerships with MNCs. For example, Intel
provided financial as well as technical assistance needed for the company to produce
semi-automated wire-bonders in 1981. With partners such as Advanced Micro Devices
(AMD), Robert Bosch, Fujitsu, Hewlett Packard (HP), Maxtor, Readrite and Seagate,
Engtek has been involved in designing products, bringing in its specific experience in
product and gaining a competitive edge against the potential competitors. Partnerships
with MNCs also help Engtek to internationalize and to become a MNC on its own.
2.5
Measures to Strengthen Linkages for SMIs
Government can encourage the creation and deepening of linkages between
MNCs and SMIs with the linkages policies. The key objective of government on this
effort is to stimulate linkages (Figure 2.6), that raise the efficiency of production and
28
contribute to the efficiency of production and contribute to the diffusion of knowledge
and skills from MNCs to the SMIs. Perhaps the most important factor influencing
linkages formation is the availability of SMIs with competitive costs and quality. This
is, of course, related to the Penang’s level of development.
Measures to Promote the
Creation of New Linkages
Developing
SMIs
MNCs
Measures to Promote the
Deepening of Existing Linkages
With a View to Developing
Domestic Suppliers
Specific Determinants
Inward FDI, Available of Viable Suppliers, Level
of Development, Size of Economy, Economic and
Institutional Framework, Human Resources,
Policy Environment, etc.
Source : UNCTAD World Investment Report 2001 – Promoting Linkages.
Figure 2.6 : Policy Focus for Promotion of Linkages
29
The technological and managerial capabilities of SMIs also determine to a
large extent the ability of Penang economy to absorb and benefit from the knowledge
that linkages can transfer.
Another key requirement, often stressed by MNCs, is the “right Attitude”
towards continuous improvement, and in particular, a commitment to upgrade quality
on the part of suppliers.
2.5.1
Main Ingredients of Successful Linkages Programmes
It is not easy to make a conclusion on the effectiveness of the government
linkages programmes, as each takes place in a specific economic environment and
there are always many other variable factors that may influence the process.
There are factors that bring suppliers and foreign affiliates together and to
strengthen their linkages, regardless of the industries involved. Common objectives of
all linkages programmes are to increase domestic production and employment,
upgrade the capabilities of domestic suppliers and make MNCs more rooted in the
local economy.
Generally, the main ingredients of successful linkages programmes are as
shown in Figure 2.7 (Koh, T.K., 2001) :-
Main Ingredients of Successful
Linkage Programme
Strong Political
Commitment
Clear Defined Lines
of Responsibility
Effective PublicPrivate Partnership
Figure 2.7 : Main Ingredients of Successful Linkage Programme
30
2.5.1.1 Strong Political Commitment
The more linkages promotion programmes are embedded in policies that
facilitate enterprise development in general and also with the strong commitment from
the government, the higher is the likelihood that they will succeed. A successful
implementation should involve the local and national government, the business
community and trade unions, as well as interaction with regional universities and
research institutions.
2.5.1.2 Clearly Defined Lines of Responsibility
Some linkages programmes tend to have conflicting or overlapping lines of
authority, with overall policies responsibility and implementation situated in different
ministries and agencies. Such a situation needs an urgent call for special efforts to
coordinate and restructuring, as well as providing a better publicity on the function
and responsibility of each ministries and agencies.
2.5.1.3 Effective Public-Private Partnership
The ultimate aim of any linkages programme is to get more revenue for the
country. The programme will only be sustained if they are technically and
commercially profitable for the firms involved.
SMIs need government assistance to encourage more local sourcing by
MNCs. Government need the cooperation from MNCs and their parent companies to
identify the parts and components for local sourcing and give advice on programmes
needed. To gain the general mutual trust for all parties, government need to ensure that
linkages programmes are staffed by professional with the appropriate skills and
experiences to ensure successful implementation.
The government should increasingly rely on the measures that address
market failure and reduce the costs and risks for linkage partners. This requires the full
31
involvement and cooperation of the linkage partners – MNCs, SMIs and industrial
association.
2.5.2
Criteria on Selection of Potential Suppliers for Linkages Programme
Targeting potential suppliers implies, first, the identification of industries in
which local firms have the capacity to forge linkages or in which this capacity can be
successfully developed.
Koh, T.K. (2001) stressed that government should use various criteria to
select local firms with the potential of becoming suppliers to foreign affiliates. These
relate to technical and production capabilities, size, ownership, industry and the
quality of the top management of the local firms, in term of vision and eagerness to
improve their firms. In identifying potential domestic suppliers, government need to
work closely with foreign affiliates to ensure that they identify market requirement
properly, such as demand, supply capacities, quality and other requirement. To be
effective, from the beginning involve the private sector in their efforts.
Suppliers selected for linkages programmes should classified into different
categories, based on firms capabilities, competitive advantages and chances of success
in a linkage programmes. Government can classify local suppliers in four categories,
as shown below :a. Already suppliers;
b. Ready to become suppliers;
c. Suppliers that require assistance in specific areas to become suppliers;
d. Firms that cannot become suppliers in the short term.
Present government’s resources are provided to assist the first two categories
of firms and very little effort is on the last two categories of firms. To strengthen the
supporting base of SMIs in Penang’s manufacturing industry, the contribution from
the last two categories of firms cannot be neglected, they can be a new wave of
potential energizer to boom the Penang’s manufacturing industry.
32
2.5.3
Measures Taken by MNCs to Create and Deepen Linkages
Linkages programmes can have two broad objectives : to increase domestic
sourcing by MNCs and to deepen and upgrade existing linkages, both with the
ultimate aim of upgrading the capacities of local suppliers to produce higher valueadded goods in a competitive environment.
Koh, T.K. (2001) also pointed out that as part of the FDI promotion,
government can target MNCs that are particularly interested in developing strong
supply links with domestic suppliers. The principal purpose of linkages programmes is
to encourage and support MNCs and domestic suppliers to strike up and deepen
linkages. Government should also encourage participating MNCs to agree to coaching
and mentoring arrangement with promising local firms as shown below (Figure 2.8) :-
MNCs Measures to Create and
Deepen Linkages
Technology Transfer
Providing Training
Sharing Information
Financial Support
Organization & Managerial Know-How Assistance
Figure 2.8 : MNCs Measures to Create and Deepen Linkages
2.5.3.1 Transferring Technology
a. Product Technology
- Provision of proprietary product know-how;
- Transfer of product designs and technical specifications;
33
- Technical consultations with suppliers to help them master new
technology;
- Feedback on product performance to help suppliers improve
performance; and
- Collaboration in R&D.
b. Process Technology
- Provision of machinery and equipment to suppliers;
- Technical support on production planning, quality management,
inspection and testing;
- Visits to supplier facilities to advise on layout, operations and quality;
- Formation of “cooperation clubs” to interact with suppliers on
technical issues; and
- Assistance to employees to set up their own firms.
2.5.3.2 Providing Training
- Training courses for suppliers personnel;
- Offering access to internal training programmes;
- Sending teams of experts to suppliers to provide in-plant training; and
- Promoting of cooperative learning among suppliers.
2.5.3.3 Sharing Information
- Informal exchanges of information on business plan and future
requirement;
- Provision of annual purchase orders;
- Provision of market information; and
- Encouraging suppliers to join business association.
34
2.5.3.4 Giving Financial Support
- Providing special or favourable pricing for suppliers’ products;
- Helping suppliers’ cash flow through advance purchases and payments
and prompt settlements;
- Long-term financial assistance through the provision of capital, guarantees
for bank loans, the establishment of funds for working capital on suppliers
needs, infrastructure financing, sharing of the costs of specific projects
with suppliers and leasing.
2.5.3.5 Organization and Managerial Know-How Assistance
- Assistance with inventory management, Just-in-time and other systems;
- Assistance in implementing quality assurance systems;
- Introduction to new practices, such as network management, financial,
purchase and marketing techniques
2.6
Specific Linkage Promotion Programmes for Benchmarking
Some industrially developed countries have formulated a more proactive and
systematic approach by setting up specific linkage promotion programmes, dedicated
to bring MNCs and SMIs together and to strengthen their linkages.
The ultimate aim of such programmes is to increase domestic production and
create more employment as well as make MNCs more committed to stay with the
local economy. Most importantly, they can upgrade the capabilities of domestic
suppliers. The relative importance of these objectives varies and has shifted over time.
For example, the programmes in Singapore were initially triggered by the need to
increase employment; subsequently, emphasis shifted to technology upgrading
(UNCTAD, 2001).
35
Three elements are common to most linkage programmes :a. The supply of market and business information;
b. Arrange matchmaking such as trade fairs or data bases;
c. Provide managerial and technical assistance, training, audits and financial
assistance or incentives to support the local suppliers.
Few examples of the specific government linkages promotion programmes
which can be used for benchmarking by Penang government, such as Ireland’s
National Linkage Programme and Thailand’s BUILD Programme.
2.6.1 Ireland’s National Linkage Programme
According to UNCTAD (2001), since the mid-1980s, Ireland has been
providing various linkages programmes designed to strengthen the commitment of
foreign enterprises to the Irish economy. The current National Linkage Programme
(NLP) was introduced in 1998 with objective to work in partnership with domestic
suppliers to develop a sustainable competitive advantage leading to a significant
increase in profitable sales, exports and employment. Two key tasks of this
programme are : firstly, to support Irish domestic suppliers to build capacity, innovate
and create new partnership; secondly, to assist international investors to source and
identify key suppliers in Ireland.
Potential suppliers to MNCs in the electronics industry were the target
primarily for this program. The NLP worked closely with foreign affiliates, as well as
their parent companies, to identify specific parts and components that can be produced
locally and to identify the domestic suppliers that are capable to take up the
challenges. A key criterion used for selecting companies to participate in the Supplier
Development Programme is based on the aggressiveness of company’s management
team which should be “forward thinking, ambitious and dynamic”.
To those selected local suppliers, the NLP works out a plan to solve their
operational problems making use of available assistance programmes. That include
conducting development activities and assisting them to enter into subcontracting
36
arrangement with foreign affiliates. The NLP is also actively promoting a restructuring
of local industry by ‘marrying’ supplier companies through mergers and cooperation,
rather than focusing on the development of the single-component providers.
As each company has its own distinctive ambitions, capabilities and needs,
they need to work out separate solutions tailored to meet their individual expectations.
A ‘Development Adviser’ helps suppliers to assess their needs and capabilities,
formulate an agreed “growth plan” to develop them to meet requirement.
NLP also set up task force to support SMIs on marketing capabilities as they
are often weak on market development due to lack of expertise and financial
resources. The activities include :a. Market information and research on market trends, competition, logistics,
market strategy options, product development and design upgrading of
skills;
b. Company promotional activities, such as trade fairs, advertising,
literature and public relations;
c. Training in areas include that of supply chain management.
NLP also set up a sophisticated electronic database called the supplier search
facility, which covers suppliers in 20 countries. The searches on flexibility can be
done by industry, by company or by product.
In summary, the programmes has contributed to the development of domestic
suppliers of high-quality goods and services, delivering their products and services
both locally and overseas. Some lessons that Penang can be used for benchmarking
from the Irish experience are as follows :a. Matchmaking needed to upgrade the capabilities of potential and existing
supplier;
37
b. With the limited resources, efforts should focus on those SMIs that have
the greatest potential for growth;
c. Close collaboration with foreign affiliates and their parent MNCs is
crucial;
d. Close coordinate and collaboration amongst the various government
agencies involve in assisting local suppliers are critical elements.
2.6.2
Thailand’s BUILD Programme
UNCTAD (2001) pointed out that in promoting domestic and foreign
investment, the Board of Investment (BOI) of Thailand created a linkages programme
in 1992 – called BUILD (BOI’s Unit for Industrial Linkages Development). The main
objective of this programme is to link large enterprises – foreign or domestic – with
SMIs. The key tasks are to strengthen the assembler and parts suppliers relationship;
to promote the development of domestic suppliers; to increase production efficiency
and quality; and to promote cooperation among foreign investors, domestic suppliers
and the Thai government towards the common goal.
Five main activities of BUILD as follows :
-
Providing information about subcontracting opportunities, using a
comprehensive computerized database;
-
Matchmaking services for individual firms;
-
Technical and management assistance to local suppliers interested in
developing subcontracting relationships with foreign affiliates;
-
Provision of detailed technical and market information on establishing
supplier industries in areas with high potential on subcontracting;
-
Organization and coordination of training courses to upgrade the
marketing and technological capability of domestic suppliers.
38
Matchmaking services and information provision are the key activities of
BUILD. Two specific activities were launched in 1997, the Vendor Meet Customers
Programme (VMC) and the ASEAN Supporting Industry Database (ASID).
The VMC programme was established mainly to target on foreign affiliates
and to encourage them on local sourcing of parts and components, particularly
electronics and automotive parts. BOI acts as a broker to arrange meeting for buyers
or assemblers and vendors or suppliers, to prevent the involvement of third party
which will greatly affecting their pricing competitiveness. The programme arranges
for suppliers to visit assembly plants, to enable potential suppliers to learn about the
products and process requirement of assemblers which assemblers make contact with
potential local subcontractors.
Members of the BUILD programme established a Subcontracting Promotion
Club in 1999 to form a strategic alliances where members are sharing information on
incoming orders and subcontract each other, when the order received exceeds the
individual’s capacity to complete the delivery within the needed time frame.
The ASID programme can be considered as one of the ASEAN’s initiates to
provide the awareness of supplier industries in member countries. ASID provides
information on over 12,000 manufacturers in various ASEAN industries, of which
roughly 7,000 firms are in Thailand. This is a very system whereby it permit free
global access to ASEAN industry information by any interested party.
With the relationship with various organization, such as the Industrial
Finance Corporation of Thailand, the national Science and Technology Development
Agency and connections with the vocational education system from the government
agencies, BUILD provides the technical and management assistance to assist local
suppliers in solving difficulties and meeting customer’s demand.
39
2.7
SMI Development Experiences for Benchmarking
An important factor in preparing a technology plan for Penang is to examine
the experiences of achievements by other countries with similar factor competitive
advantages as well as those which have forged successful strategies. Asian developed
countries like Taiwan and Singapore are two key investors to Penang’s manufacturing
industry (Table 2.2), they are particularly relevant to Penang for benchmarking, as
they have achieved remarkable industrial growth and export successes in the
electronics and electrical manufacturing industry.
Table 2.2 : Factories in PDC Industrial Areas by Country of Origin
( As at 31 December 2002)
Country
No. of Factories
Employment
Actual Paid Up
(No. of Persons)
Capital (RM mil)
Taiwan
62
12,770
741.7
Japan
62
19,887
1,456.8
United States
37
35,025
710.1
Singapore
28
4,151
164.5
Others
27
18,554
329.2
Germany
12
9,237
156.9
Hong Kong
4
2,870
118.0
United Kingdom
4
3,608
98.5
Total Foreign
235
106,102
3,775.6
Investment
Source : DCT Consultancy Services Sdn Bhd, Penang. (2003)
Note : This analysis only covers factories with more than 50% equity being hold by
any one country.
It is instructive to see how Taiwan and Singapore government managed to
identify their respective market niches and to mobilize their resources to exploit the
market potentials successfully, in order to help their SMIs. The comparison of these
countries with respect to their policies, strategies and assistance programmes on SMIs
is useful to Penang to learn from their experiences in order to further upgrade our
industrialization development progress.
40
2.7.1
Taiwan Experience
According to Guerrieri et al. (2001), the Taiwan experience shows that with
the combination of sound industrial strategy, back by appropriate policy instruments,
incentives and coordinated planning with the private sector, have resulted to make
their successful experiences unique. Taiwan’s strength lies in its ability to shift
resources quickly into new opportunity area, whenever the opportunities arises, then
quickly move out into other areas when the market trends changed. This flexibility is
made possible with the existence of a large number of SMIs which have been actively
promoted by the government over the years.
Taiwan entrepreneurs are fast and flexible enough to look outward to
Southeast Asia, to relocate some of their industrial location in order to reduce cost.
Taiwan local electronics industry concentrate more on technology- intensive activities
at home while some of the more labour- intensive operation were shifted offshore.
2.7.2.1 Taiwan Industrial Development Strategy
Mathew, J.A. (2002) stressed that to be in line with the worldwide trend
toward the development of regional economies, by making full use of Taiwan’s
existing manufacturing base and advantageous geographic position as well as to
continue the policy of encouraging foreign investment, the Ministry of Economic
Affairs (MOEA) of Taiwan has been working actively to sign Letters of Intent (LOIs)
for the formation of strategic alliance with multinational enterprises with the ultimate
intention to attract prominent enterprises throughout the world to invest in Taiwan.
The purpose of this effort is to facilitate the joint development of AsiaPacific markets by Taiwan- based and multinational enterprises as well as to
accelerate the upgrading of Taiwan industries and the strengthening of their
international competitiveness.
41
2.7.2.2 Role of Taiwan’s Government in Helping SMIs
Mathew, J.A. (2002) also pointed out that the Taiwan government has shown
significant improvement in transforming the country from a labour-intensive economy
to a capital-intensive and technology-intensive industrial economy. Several government
bodies and financial institutions have been set up to help SMIs as follows :a.
The Ministry of Economic Affairs (MOEA)
In Jan 1981, the MOEA established a special division, the Small and
Medium Firm Division, to provide guidance and assistance to SMI in seven areas :
-
Fund procurements;
-
Technology improvements;
-
Production management and quality control;
-
Management efficiency and export promotions,
-
Resolution of financial and accounting problems;
-
Establishment of satellite factories;
-
Special assistance to SMIs participating in production of military goods
b. The Ministry of Finance
The key task of Ministry of Finance is to monitor government finance,
customs, taxation, public debts, monetary matters revenue and government
monopolies. The Ministry of Finance provides direct assistance to SMIs as follows :-
Provide assistance to export-oriented SMIs to ease the stringent
conditions for working capital around the end of the year.
-
Financial assistance for SMIs development programme.
-
To ensure those involved in processing of loan documentations in the
financial intermediaries are equipped with good understanding of the
tasks and duties involved in provide assistances and funds to SMIs;
42
-
Make procedure clear that loan officers will no longer be held personally
liable for bad loans unless cheating or fraud are involved. This ruling will
encourage loan officers to extend more loans to SMIs who are
supposedly to be of higher credit risks as compared with larger firms.
c. The Central Bank of China
The regulation of money and credit, issues notes, management of foreign
exchange and operation of the overseas banking system are closely monitored by the
Central Bank of China. Export- Oriented SMIs Programme has been introduced in
1981 which requires the Central Bank of China and financial intermediaries to extend
loans to SMIs in export- oriented industries.
The Central Bank of China allocates certain budget for extending credit or
discounting bills to help SMIs obtain short-term credit.. In addition, SMIs in the
machinery industry are able to procure medium- term and long- term loans at
preferential interest rate.
d.
The Small and Medium Business Bank (SMBB)
In 1976, th Small and Medium Business Bank was established with the view
of extending loans mainly to SMIs. A minimum of 70 percent of total loans must be
extended to SMIs. The SMBB has been providing loans to SMIs at preferential rate of
interest in order to help them to purchase computerized facilities and to develop new
products.
e.
The Economic Council of Cooperation
The Economic Council of Cooperation was established to assist small and
medium enterprise in five major areas, i.e., technology, management, marketing,
financial assistance and promotion of cooperation among companies.
43
f. The National Economic Council
The National Economic Council holds great responsibility to upgrade the
technological and managerial skills and financial position of small and medium
companies. Six steps which the Council have been taken to improve the industrial
policies for SMIs are as follows :-
Establishment of effective and integrated industrial policies;
-
Improve SMIs accounting practices;
-
Deregulate the banking system gradually;
-
Revise the taxation system;
-
Encourage financial institutions to extend loans to SMIs; and
-
Enlarge and strengthen the Small and Medium Business Guarantee Fund.
g.
The Industrial Development and Investment Center (IDIC)
The primary task of IDIC is to carry out matters related to the promotion of
investment. Its operations can generally be divided into the following six categories :-
Promotion of domestic and overseas investment;
-
Study of and making of suggestions regarding the domestic investment
environment,
-
Identification and study of investment opportunities;
-
Reporting on investment environments and compilation of investmentrelated publication;
-
Promotion of technical cooperation between domestic and overseas
manufacturers.
Furthermore, the IDIC’s Technology Transfer Service Center helps domestic
enterprises to face the challenges due to Taiwan’s economic transition and enhance the
international competitiveness of the nation’s products by bringing in industrial
technology from overseas. This is made possible by recruiting industrial experts to
return from aboard to work at home to help up the upgrading of domestic industries.
44
2.7.2
Singapore Experience
According to Chew, S.B. (2000), the electronics industry has emerged as one
of the Singapore’s most important industry. Since 1980, the Singapore government has
placed much emphasis on high technology as a future area of high growth.
Microelectronics, information technology, robotics and computerization intelligence,
and communication technologies represent key areas identified under that policy. The
basic goal was to succeed in having an effective industrial promotion, manpower
training and R&D policy to upgrade the country’s technological competence.
The Singapore government has been actively helping SMIs in three areas, i.e.
firms with capital constraints, firms with an output constraints and firms with an
entrepreneurial constraints. The government has therefore help capital – constraints
companies to obtain loans at low interest rate, output – constraints companies to
secure market overseas and entrepreneurial – constraints companies to speed up the
process of economic restructuring by producing high value – added product through
upgrading and retraining of workers.
Singapore government is aware of the importance of SMIs in its economy.
Generally, the official support for SMIs comes from five main organizations as shown
below :a. Economic Development Board (EDB)
b. Singapore Institute of Standards and Industrial Research (SISIR)
c. National Productivity Board (NPC)
d. Skill Development Fund (SDF)
e. Trade Development Board (TDB)
2.7.3.1 Economic Development Board (EDB)
The EDB was established in 1961. The key function of the EDB is not only
to promote the establishment of new industries in Singapore but also to monitor the
growth of existing ones. To keep up with the pace of rapid industrialization in
Singapore, the EDB has organized several areas of administration for SMIs as follows
:-
45
a) Light Industries Services (LIS) was set up with key function to assist
SMIs with their financial, organization and technical problems. The
loans service included hire purchase schemes for equipment as well as
short- term loans for working capital which SMIs normally found
difficult to obtain. The loans service was operated through local
commercial banks. The approval of loans were decided based on the
basis of the integrity and experience of the SMIs and the potential of
improvement of the enterprise.
b) Product Development Assistance Scheme (PDAS) which provides
grants of up to 50 percent of the direct development costs of the project.
SMIs developing high technology products, including market and
technical feasibility studies are eligible for the grants. The scheme was
upgraded later to include any firms which produce a commercially
marketable product with a satisfactory track record and have the
capability to market the product.
c) In collaboration with the Development Bank of Singapore (DBS), the
Small Industrial Finance Scheme (SIFS) was set up. The SIFS aims to
help SMIs on the further development and technical upgrading of the
operations. Other services includes providing advice on buying,
installation, implementation and software programming to provision of
management expertise.
d) EDB’s Small Enterprise Bureau (SEB) was set up to act as a one- stop
consultancy center for local business. The SEB comprise three
department :- The general Assistance Department provides general assistance to
SMIs;
- The Loans and Grants Department gives advice on the types of loans
that local businessmen can arrange with banks, and on the types of
grants available from the EDB.
- The Planning and Co-ordination Department officers work closely
with sister agencies, like the Singapore Industries of Standards and
46
Industrial Research (SISIR), the Trade Development Board (TDB),
the National Productivity Board (NPC) and the Skills Development
Fund (SDF), in order to upgrade their technological and managerial
skills.
e) To further help SMIs to upgrade technologically, the Local Industries
Upgrading Programme (LIUP) was launched by SEB. MNCs are given a
grant if they train local suppliers in areas such as management, quality
control, production process, technology and equipment. Up to 90 percent
on the MNCs training costs which include costs incurred in workshops,
training, consultancy services and factory visits were reimbursed by SEB.
It is a win-win situation : the MNCs will have higher quality product
from effectively-trained and more knowledgeable local suppliers, while
the local firms will gain easy opportunity to learn up the latest
technological developments.
f) EDB has worked together with the National University of Singapore
(NUS), the National Computer Board (NCB) and the Telecoms to help
SMIs. A Small Business Consultancy Unit, management audit services
and Business Administration are set up and make available to SMIs at a
highly subsidized fee.
g) The EDB set up an umbrella scheme called the Economic Development
Assistance Scheme (EDAS) to bring together the following five schemes
:- Small Industries Finance Scheme – Soft loans for small local firms to
purchase machinery and factories.
- Capital Assistance Scheme – Fixed or floating rate term loans from 5 to
15 years for investors. Technology transfer is a must to qualify.
- Product Development Assistance Scheme – Grants for developing
products, production process, acquiring new technology and licenses.
- Venture Capital Scheme – A grant to invest in venture fund and high
technology projects. The aim is to encourage transfer of technology and
47
generate the local venture capital industry.
- Business development Scheme – The newest scheme in which grants are
given to SMIs with a minimum of 30 percent local equity to explore
overseas markets and technology tie-up opportunities.
2.7.3.2 Singapore Institute of Standards and Industrial Research (SISIR)
Chew, S.B. (2000) highlighted that the SISIR is an important technical and
consultant agency of the ERB which provide assistance to SMIs. The activities of the
SISIR have been extended to the following :a. Provide standardization;
b. Improvement in the design of product and process;
c. Development of new products;
d. Assistance in the transfer of technology relevant to the needs of SMIs;
e. Technical assistance in their export drive; and
f. Assistance in improving production and quality control system.
The purpose is to promote technology transfer for SMIs, the SISIR has set up
the Material Technology Centre, the Design and Development Centre, the Industrial
Research Centre and the Technical Information Centre. Its main objective is to provide
information on the latest development in technology relevant to SMIs and to improve
their capability on technical services, research services and development support.
To help SMIs improve their export performance, the SISIR provides
information on overseas technical requirements, and helping them by inspecting and
testing their products.
To maintain and improve standard of testing and related activities, the SISIR
has introduced the Singapore Laboratory Accreditation Scheme (SINGLAS).
In the area of production and quality control, the SISIR has set up a Quality
Systems Department to implement Total Quality Control Programmes. Officials from
the SISIR have frequently visited many SMIs to identify their problem areas.
48
2.7.3.3 National Productivity Board (NPB)
The National Productivity Board which was established in 1972 with key
task to improve work attitudes, productivity and labour- management relations in
order to help boost the performance and efficiency of SMIs. SMIs receive advisory,
diagnostic and consultancy services in four ways (Chew, S.B.,2000):a. Diagnosis and review management problems;
b. Analysis of training requirements and training programmes to solve
efficiency problems;
c. Schemes or mechanisms to help specific productivity problems; and
d. Help to make full use of the assistance from various government agencies
and private consultants.
NPB provide training programmes to managers of SMIs which cover topics
to improve their managerial skills such as management assistance, financial
management and accounting, corporate planning and control, and corporate strategy in
the manufacturing sector. The courses focus on the problems and issues commonly
faced by SMIs.
NPB also provide SMIs with industrial networking, i.e. after office hour
gatherings of small entrepreneurs in similar industries to establish contacts, exchange
views and gather information.
2.7.3.4 Skills Development Fund (SDF)
The SDF was established in 1979 to provide financial assistance to SMIs for
the training of skills relevant to Singapore’s economic restructuring effort. The SDF
offered the following schemes of financial incentives (Chew, S.B., 2000) :a. The Training Grant Scheme
This scheme was launched in 1979 to provide assistance to SMIs for
implementing training pogrammes to upgrade the skills of their workers.
49
b. The Interest Grant for Mechanization Scheme
This scheme was introduced in 1980 to encourage firms to invest in
more advanced machinery and equipment to replace inefficient
conventional labour- intensive method of operation. SMIs which
require term loans or hire purchase financing for the purchase of such
machinery and equipment, are eligible to apply for an interest grant to
help reduce the interest cost burden.
c. The Small Industrial Technical Assistance Scheme
This scheme was launched in 1982 to help SMIs upgrade their technical
operation and management techniques, including the hiring of
consultants to help them decide on software requirement.
d. Robot Leasing Scheme (RLS)
This scheme was launched in 1984 to help SMIs to computerize and
automate their facilities. RLS consists an Automation Application
Centre which is a low- cost consultancy unit and the head office which
offers financial services.
e. The Development Consultancy Scheme
This scheme was introduced in 1981 to provide financial assistance to
SMIs in need of external expertise on consultation and implementation
in the areas of business operations, technical know- how, management
and manpower training.
f. The Initiatives in New Technology Scheme (INTECH)
This scheme was introduced in 1984 to provide financial assistance to
projects in the knowledge- intensive field, which are needed by the
current industrial expectations, especially on the development of the
highly trained scientists and professionals to carry out the research on
the knowledge-intensive activities in new technology.
50
g. Core Skills for Effectiveness and Change (COSEC)
This scheme was established in 1986 to provides assistance to SMIs to
recruit experts and train supervisors to help the workers gain a set of
five core skills : communication, personal effectiveness, problem
solving, work economics and computer literacy. In return, these skills
will improve and overcome three common areas of inadequacy :
commitment to work, job competence and capacity for change.
2.7.3.5 Trade Development Board (TDB)
TDB was established in 1983 in response to strong requests from the
business community to boost up the international economic development and rising
trade protectionism. A one- stop trade information service was set up to provide
personalized advisory service to exporters and traders. The main users of the TDB’s
resources are usually SMIs which normally lack of overseas market connections
unlike the large and foreign firms.
In 1985, a Market Development Assistance Scheme (MDAS) was launched
to help SMI, offers cash grants for export promotion activities such as setting up
overseas office, improving product and package designs, marketing new products and
services, and developing new market.
Chew, S.B. (2000) stressed that SMIs are expected to benefit from the
MDAS because many of them do not have the necessary funds to increase their
marketing efforts overseas. MDAS can help to pay for their overseas marketing trips
to promote exports, to pay for trade fairs and missions, and to provide promotional
publication and package designs.
51
2.8
Review on How Others on Conducting Similar Type of Research
The author glad to have the kind guidance and advise from Mr. Ganesh
Rasagam, CEO of DCT Consultancy Services Sdn Bhd (authorized consultant for
Penang Development Corporation) on the proper methodology to carry out this
research.
Per the advice from Mr. Ganesh, most research study follow three key
procedures. Firstly, to study the literature review in order to have a better picture of
the background of the topics studied; secondly, to collect all necessary data to have a
better understanding of the performance and thirdly, to carry out the survey interview
to those concerned personnel in order to visualize the actual field problems or
constraints, so that conclusion can be derived from the findings.
2.9
Summary
In this chapter, the author switch the attention to a more specific discussion of
the various aspects of linkages on strategies and quoted few success stories on
linkages between MNSc and SMIs. A conceptual framework on the role to be played
by government, MNCs and SMIs itself on the SMIs development was developed.
It can be concluded that the success of linkages programmes build on the
mutual self-interest of MNCs and SMIs, together with the backing from trade
organizations and government authority. Effective linkages capable of strengthening
the competitiveness of SMIs, giving them an advantage position in global market
networks and make MNCs fully committed in the local economies.
No doubt to say, the more linkages promotion policies that go parallel with
SMIs development and targeted FDI promotion policies, the more they are likely to be
successful.
CHAPTER III
OVERVIEW OF SMIs IN PENANG ELECTRONICS
AND ELECTRICAL MANUFACTURING INDUSTRY
3.1
Introduction
Penang, a historic port and regional center, is also well known for its old
world cosmopolitian city and scenic beauty. It has grown from an economy that was
based on coastal trading and agriculture to an industrial power house. Penang leads the
industrialization of the northern states of Malaysia which has already established its
name as a world class manufacturing center (PDC, 1999-b).
PDC (2003-a) stressed that Penang has always been at the forefront of
Malaysia’s development, even during colonial days and this remained unchanged. It
may be the second smallest state but it is one of the most industrialized state in the
country.
Its early recognition of industrialization as the most effective engine of
growth was matched by its awareness in the early 1970s that electronics was the
industrial wave of the future. Beginning as a cheap assembly center for US electronics
makers, it has now developed into a sophisticated hub for advanced and high precision
electronics items with a reputation of quality and product superiority that matches
California’s Silicon Valley (Tan et al, 2000).
53
3.2
Penang Manufacturing Industry Transformation
Tan et al. (2000) pointed out that it is undoubted to claim that Penang has
been a successful center for manufacturing, particularly in the electronics industry for
the past three decades. Penang’s strength is in the assembly and test operations. Such
operations are normally labour intensive except for some innovative industries that
have begun to automate their processes. However such dependency on one aspect of
the value chain, namely assembly and test, is rather risky.
In 1999, the present Prime Minister of Malaysia YAB Dato Seri Abdullah
Ahmad Badawi had mentioned on his opening speech at the international new
millennium conference, that to develop along the value change to include higher value
added services such as design, R&D, distribution, logistics as well as marketing would
help Penang in the long term, as labour is no longer cheap. Furthermore, the emerging
industrializing countries that are competing with Penang have lower wage rates as
well as equally qualified and skilled labour force (Abdullah, 1999).
Penang can no longer rely on its abundance of cheap labour but instead
should depend on the skills, knowledge and technology capabilities of its people to
create a productivity driven society. As such, there is also an urgent need for the
government to prioritize the development of human resources and higher value added
services in order to develop and retain Penang’s core competency in manufacturing, in
particularly the electronics and electrical sectors.
According to PDC (1999-a), Penang’s manufacturing industry have been
transformed from Traditional Manufacturing (1970 – 1980) (Figure 3.1) to Advanced
Manufacturing (1980 – 1990) (Figure 3.2) and reaching today status of World Class
Manufacturing (1990 – 2000 & beyond) (Figure 3.3).
54
Penang Industrialization Characteristics (1970 – 1980)
- Traditional Manufacturing
-
Mass Production
Departmentalization
Scientific Management
Command Style Management
Complex Manual Systems
Financial Secrecy
High Production Inspection
High Inventory
Poor Customer Service
Poor Quality
Long Cycle Time
Poor Record Keeping
Shortage and Expediting
Month- End Push
Figure 3.1 : Penang Industrialization Characteristics (1970 – 1980)
Penang Industrialization Characteristics (1980 – 1990)
- Advanced Manufacturing
-
Computerization
CNC / CIM
CAD / CAM
Improved Customer Services
Reduced Business Cost
Reduced Inventory
Increased Flexibility
Improved Information Technology
Cellular Manufacturing
Just-In-Time Delivery
Self- Directed Work Teams
Productivity Improvement
Focus on Long Term Profitability
Better Time to Market
Quality Function Deployment
Concurrent Engineering
Figure 3.2 : Penang Industrialization Characteristics (1980 – 1990)
55
Penang Industrialization Characteristics (1990 – 2000 & beyond)
- World Class Manufacturing
-
Organizational Agility
Organizational Flexibility
Integrated Information Technology
Highly Capable Production Methods
Individual Customized Short Life Cycle Products
High Level Customization
Integrated Flexibility
Enriching the Customer
Global Co-Operation
Technology Flexibility
Highly Skilled and Educated
Knowledge Database System
Flexibility Management
Structures System
Virtual Organization
E-Marketing & E-Society
Figure 3.3 : Penang Industrialization Characteristics (1990 – 2000 & beyond)
PDC (2003-a) claimed that both foreign and local companies which have
established projects and reinvested in Penang have been convinced that setting up their
business in Penang have been rewarding as the progress of economic restructuring has
resulted in new opportunities which were not thought of before. Several MNCs have
announced significant reinvestments indicating their confidence in Penang (Table 3.1).
They have found that Penang is like a holiday resort in a high-technology era. Penang
is in fact an attractive investment center and a holiday resort combined into one.
56
Table 3.1 : “Big Lumps” Investment by MNCs in Penang
Year
Company
Total (RM Billion)
1997
Agilent
1.00
Intel
1.40
1998
Toray
1.00
Intel
1.40
1999
Motorola
0.30
Osram
0.38
AMD
1.00
Agilent
0.70
Seagate
0.80
2000
Intel
0.40
Agilent
0.50
2002
Agilent
1.00
Total
9.88
Source : Penang Development Corporation, 2003
The strategic geographical location of Penang, a stable government, excellent,
well-developed and modern infrastructure facilities, a quality of life that is comparable
with developed nations, an intelligent, disciplined, hardworking and dedicated labour
force and favourable incentives for the investors, are all key factors why Penang has
long been and will continue to be a major attraction for foreign investors.
3.3
Outline of Manufacturing Sectors in Penang
The industrialization drive in Penang commenced in the early 1970’s and the share of
the manufacturing sector in terms of its contribution to the state economy is 45.3
percent in 2003 (Table 1.1) illustrating the dominant role of the manufacturing sector
(MIDA, 2004).
This remarkable progress has been led by the electronics and electrical
industries. The structure of Penang’s manufacturing sector is shown in Table 3.2 :-
57
Table 3.2 : Factories in Operation by Sector in PDC Industrial Areas
( as at 31 December 2002)
Sector
No of
Employment
Factories
(Persons)
Electronics / Electrical
164
84,642
Fabricated Metal Products
153
11,735
Plastic & Plastic Products
83
7,112
Paper & Paper Products
66
5,322
Chemical / Fertilizer
51
4,535
Machinery
39
1,876
Food Processing / Canning
30
2,139
Textiles & Garments
23
12,204
Others
22
4,405
Basic Metal Industry
21
2,245
Rubber Based Products
21
4,311
Transport Equipment
18
3,056
Processing of Agricultural Product
10
949
Non- Metallic Mineral Products
9
1,243
Animal Feeds
8
375
Timber Based/ Wood Products
8
291
Professional & Scientific
5
4,640
Total
731
150,080
Source : DCT Consultancy Services Sdn Bhd, Penang (2002)
Pay-Up
Capital
(RM Million)
3,001.6
834.0
267.2
1,008.2
679.2
114.1
115.2
365.1
67.0
461.4
101.7
126.7
97.4
204.0
35.1
5.1
106.9
7,589.8
The domination of foreign investments in Penang is especially clear in the
electronics and electrical industry. The electronics and electrical industry employs
41.2 percent of the work- force in the industry, and generates more than 64.7 percent
of the value added of the industrial production (Table 3.3). The domination of the both
electronics and electrical industry is due to a rather one-sided attraction of this
industry from the state government.
Table 3.3 : Value Added by Sector in PDC Industrial Areas
(January – December 2002)
Sector
No. of Firms
Input
Output
Responded
(RM mil)
(RM mil
Electronics / Electrical
60
22,997.07
25,710.99
Textile & Garments
10
1,172.62
1,403.53
Chemical / Fertilizer
19
1,388.23
1,625.98
Fabricated Metal Products
40
641.98
755.32
Professional & Scientific
3
206.60
470.90
Paper Products & Printing
20
344.38
444.23
Transport Equipment
7
487.40
582.04
Machinery
16
222.91
284.69
Value added
(RM mil)
2,713.92
230.91
237.75
113.34
264.30
99.85
94.64
61.78
58
Rubber Based Products
Food Processing/ Canning
Plastic & Plastic Products
Agricultural Products
Basic Metal Products
Animal Feeds
Non-Metallic Products
Others
Timber / Wood Products
Total
9
12
19
5
6
4
2
7
2
237
258.64
155.07
246.97
1,376.81
244.83
230.61
52.38
143.95
11.30
30,121.35
380.49
207.43
295.62
1,423.26
309.90
249.81
55.53
162.24
16.04
34,314.11
121.86
52.36
48.65
346.45
65.07
19.20
3.15
18.29
4.74
4,192.76
This is based on data from 237 (32.4%) respondents only, total number operating
factories are 731.
Source : DCT Consultancy Services Sdn. Bhd., Penang (2003).
Note : Value Added = Output - Input
As stated in PDC (2003-a), especially the semiconductor industry is most
dominating and Penang is one of the regions in the world – if not the one region –
housing the largest amount of semiconductor companies. As a consequence the ‘Pearl
of the Orient’ has now received the more futuristic name ‘Silicon Island of the East’.
3.4
Challenges Faced by Penang’s Manufacturing Industry
The sources of growth of the Penang economy will continue to be the
manufacturing and services industries, primarily in the export-oriented electronics and
electrical sector (Table 3.2). The focus of the Penang government in enhancing
economic growth will therefore remain unchanged. The emphasis and intensity of
effort will have to change in view of the challenges facing the state and the influence
of global competitive market environment.
There are few clear indications of the challenges that Penang government
need to face and find the remedial solutions for :a) The declining of new foreign direct investment in manufacturing (refer
Figure 1.);
b) Increasing unemployment in the manufacturing sector, mostly in the
electronics and electrical sectors (refer Table 3.4 & 3.5);
59
Table 3.4 : Retrenchment in Malaysia Categorize by State in 2003
State
No. of Employees
Penang
5621
Selangor
4239
Johore
4207
Kedah & Perlis
2652
Perak
1849
Negeri Sebilan
745
Sarawak
632
Malaca
461
Pahang
380
Kelantan
326
Others
205
Total
20777
Source : Malaysia Human Resource Dept (2004)
Percent
25.3
20.4
19.4
12.8
8.9
3.6
3.0
2.2
1.8
1.6
1.0
100.0
Table 3.5 : Retrenchment in Malaysia Categorize by Profession in 2003
Profession
No. of Employees
Manufacturing
14710
Restaurant, Retail & Hotel
1932
Finance, Insurance & R.E.
1371
Social Services
706
Construction
665
Transport & Storage Services
644
Agriculture, Forestry & Fishing
499
Mineral
187
Electric, Gases & Water
42
Others
21
Total
20777
Source : Malaysia Human Resources Dept (2004)
Percent
70.8
9.3
6.6
3.4
3.2
3.1
2.4
0.9
0.2
0.1
100.0
PDC (2001) highlighted that for the manufacturing sector to continue to
drive the Penang economy over the coming years, a few serious challenges as shown
below need to be addressed in order to facilitating the transition from an input driven to
a productivity driven sector.
a) Deepening and diversifying the industrial base of Penang by established
manufacturing capacity through promoting Research and Development
(R&D), distribution, marketing and logistics activities.
60
b) Emphasizing the FDI in greater value-added and higher-end technology,
such as opto-electronics and photonics, bio-technology and mobile
appliances.
c) Establishment of innovative networks through horizontal integration
among firms, research institutions and customers.
d) Look into improving product and process technology, cultivate product
innovation, efficient managing, marketing and service capabilities.
Upgrade the skill and knowledge level of the local workforce.
e) Strengthen the linkages and integrations between MNCs, SMIs and
government agencies (e.g., PDC, PSDC, MIDA, etc.), as well as
improving infrastructure quality in the industrial areas.
3.5
Threats to Penang’s Manufacturing Industry
To really understand the main reason that attract the MNCs to invest in
Penang, it must be realized that some of their residence in Penang will be just
transitory. Most MNCs are publicly owned companies in their own country of origin
and the purpose of relocating their manufacturing operations in Penang is due to
cheaper labour that ensure a high profit margin. Based on this first ultimate rule of
business which is profit, if the opportunities arises where another country can offer
better conditions compared to Penang, they will start to weigh the benefit of staying
versus the option of moving away from Penang.
3.5.1
Understand the Reasons Investors Relocating from Penang
A good example of such transitory business attitude by MNCs is for the disk
drive industries. 10 years ago, Singapore was the world’s largest producer and
exporter of disk drive. Some of the biggest names, e.g. Seagate, Western Digital,
Quantum and etc, had set up operation in Singapore. With increasing production cost
61
and labour constraints, the majority of these industries in Singapore had moved to
Penang. Today, Penang appear to have taken over the position.
Now countries like China and Thailand offering attractive investment
incentives and the availability of limitless human resources, compete for the favour
from both high-tech and low-tech MNCs. The present trend shows that quite a number
of disk drive companies in Penang have already relocated to China and Thailand, the
experience of Singapore will soon be that of Penang.
Globalization of all aspects of trade including transportation and
communication and technology have made the complexities of shifting and moving
equipment and skilled personnel much simpler. Apple Computers has been able to
shift an entire factory from USA to Singapore in a matter of few weeks. All they had
to do was to pack everything in a couple of jumbo jets and reinstall everything in a
Singapore factory. Therefore, it is relatively easy for the foreign investors to move
when they choose to.
Due to recent global economic slowdown, it has create a new trend where
some manufacturers have move their operations closer to their development centers.
The reasons are, firstly, because of changing tastes and fashions, there is the need to
minimize inventory and minimize holding cost. A good example is Prai Seagate have
moved the whole operation to China while targeting on China large market share;
Penang Seagate has moved part of the slider fabrication operation to Thailand to be
closer to the slider assembly plant for supply chain purpose.
Secondly, the growing complexity of technology, the need for the designers
and developers of the products to work closer with the production center to iron out
production problems. Long distances, even the tele-conferencing can hamper the
abilities of an engineer to understand and fix a problem. This represent another reason
for the MNCs moving out from Penang.
62
3.5.2
Risks of Investor Relocating Faced by Penang Industry
The risk of the MNCs relocating elsewhere is a problem both the federal and
local state government have had to deal with, especially after the global economic
slowdown in 1997. The factors are mainly changes in the international
manufacturing environment, cost concern or modes of production.
In 2000s, Penang seems to face a new risk of the MNCs relocating,
especially when China has opened even further to foreign investments and made it
attractive for MNCs to relocate. To some extent there are already a few of the MNCs
relocating to China but many still waiting for further development.
The people interviewed can be divided into two groups, one being very
pessimistic and afraid of the “new” China, the other group believing that the future is
still bright even with the “new” China.
For the moment the MNCs are here in Penang, the question is how long they
will stay. Some of the MNCs have already started to look to China and Thailand, and
if everybody starts to do the same, Penang could be in trouble in 5 to 10 years times.
3.6
Role of SMIs in Penang Manufacturing Industry
The Small and Medium Industries Development Corporation defines SMIs in
the manufacturing sector, as those with a total number of full time employees of not
exceeding 150 or annual sales turnover of not exceeding RM25 million (Fozian Ismail,
2004).
According to DCT (2002), Penang SMIs constitute a large majority (71.7%)
in the manufacturing sector (Table 3.6). However, more important than their majority
percentage, is the significant role which SMIs play in the overall economic
development of the state.
63
Table 3.6 : Estimated Distribution of Firm by Size in PDC Industrial Areas
(As at 31 December 2002)
Sector
Total
Small &
%
Large
Factories Medium
Electronics / Electrical
164
76
46.3
88
Textile & Garments
23
6
25.0
17
Basic Metal Industries
21
18
85.7
3
Fabricated Metal Products
153
133
86.8
20
Machinery
39
33
84.2
6
Non- Metallic Products
9
7
75.0
2
Food Processing / Canning
30
25
83.3
5
Agricultural Products
10
9
85.7
1
Animal Feeds
8
6
75.0
2
Chemical / Fertilizer
51
40
79.2
11
Rubber Based Products
21
19
91.7
2
Plastic & Plastic Products
83
72
86.7
11
Timer / Wood Products
8
8
100.0
Paper Products / Printing
66
46
69.0
20
Professional & Scientific
5
2
33.3
3
Optical Goods, Controlling
18
8
44.4
10
& Transport Equipment
Others
22
18
81.8
4
Total
731
524
71.7
207
Source : DCT Consultancy Services Sdn. Bhd., Penang (2003)
%
53.7
75.0
14.3
13.2
15.8
25.0
16.7
14.3
25.0
20.8
8.3
13.3
0.0
31.0
66.7
55.6
18.2
28.3
The potential contributions of SMIs towards the Penang state’s future
industrialization effort are many. The key contributions of SMIs on industrialization
are elaborated and evidence provided as shown in Figure 3.4 (Moha, 1999).
Key Contributions of SMIs
on Industrialization
Higher Employment
Generation
Reuse of Scrapped Machinery
and Equipment
Training Ground for Industry
Skills and Entrepreneurship
Supplier for Specialized
Market Segments
Ancillary and Supporting
Industry Role for MNCs
Potential Export Contribution
for Specific Markets
Figure 3.4 : Key Contributions of SMIs on Industrialization
64
3.6.1
Higher Employment Generation
The argument in favour of SMIs by Moha (1999) is that it creates substantial
employment opportunities. SMIs generally have better opportunities for the use of
relatively labour intensive production techniques and may thus employ more labour
than others.
Since SMIs use less capital, a given amount of capital will create more
employment if it is spread over a large number of SMIs, than if it is concentrated in a
few large ones. Thus, from a short-term employment creation point of view, SMIs
should be given special encouragement.
3.6.2
Reuse of Scrapped Machinery and Equipment
There is another aspect of the saving argument by Moha (1999) which will
benefit to the industry, i.e. SMIs often purchase second hand material, equipment and
machinery from large establishment which would otherwise have been scraped.
Although the productivity and yield of these second hand equipment and
machinery may be low but the fact that output can still be obtained from these
equipment, which if not utilized by SMIs would have been ended up in the scrap yard.
On this viewpoint, there is a net saving to society.
3.6.3
Training Ground for Industry Skills and Entrepreneurship
Berman, P.D. (1998) believes that SMIs play a very important role of serving
as a training gound for developing the skills of industrial workers and entrepreneurs.
SMIs often provide good training and experience to people who did not manage to
secure an upper secondary or degree education and would have found difficulty to
have the opportunity to work in the large establishments.
65
Many small-scale entrepreneurs gained their skills, knowledge and training
while working with SMIs, at the same time they also built up their capital and business
networkings. When the time is right, they set up their own SMIs, put into practice not
only the skills and knowledge they have acquired but also the entrepreneurial talents.
SMIs thus also play a very useful role of developing entrepreneurship.
Micro Machining (M) Sdn Bhd (presently known as TOWAM)– subsidiary
of National Semiconductor (presently known as Fairchild), the biggest US based
mould & die tooling shop in Penang during the 70s –80s, was a very good example
where it have trained and developed quite a huge numbers of successful tooling &
equipment SMIs for Penang manufacturing industry.
Two present MNCs - LKT Engineering and Eng Hardware Engineering –
key tooling & equipment SMIs during the 70s – 80s, have also produced a wide
networking of new generation of SMIs for Penang’s manufacturing industry.
3.6.4
Supplier for Specialized Market Segments
Berman, P.D. (1998) noted that SMIs play the useful role of supplying a
substantial part of the demand for simple and cheap consumer goods at prices which
cater for the lower income group. SMIs is also capable of providing specialities for
very limited or specialized markets which are too small to be justified economically
for mass production by larger firms. Normally, larger firms are not interested for those
small volume productions.
3.6.5
Ancillary and Supporting Industry Role to MNCs
Chee, P.L. (1999) stressed that many SMIs play a very important role as
ancillary and supporting industries to MNCs which produce parts, components and
engineering services, often on a sub- contract basis. There is also great potential for
SMIs to diversify into producing the machinery, equipment and accessories for other
industry.
66
3.6.6
Potential Export Contribution for Specific Markets
Clapham, R. (2000) agreed that some SMIs also play a very important role as
exporters of manufactured products to other countries. According to the feedback from
the researcher’s questionnaire survey, over 90 percent of the Penang’s SMIs are
already involved in exporting to oversea, such as to Thailand, Singapore, Philippines,
Hong Kong and China.
Overall, it can be concluded that apart from the very small enterprises, SMIs
in Penang are actually able to export to a certain extent. The major constraint that
hampers SMIs export seems to be the lack of contact and information to enter into the
foreign market. If these barriers can be identified and removed by the government
authorities, SMIs can potentially play an even greater role in contributing to Penang’s
export earnings.
3.7
Constraints Encountered by SMIs in Penang’s Manufacturing Industry
Penang SMIs face various problems and encounter various policy constraints
and disincentives, which put them at a disadvantages against larger industries.
JICA/PDC (2001) pointed out that the problems encountered by SMIs in Penang are
similar to other countries. Broadly, the problems of Penang’s SMIs can be grouped
accordingly as follows (Figure 3.5) :
67
Constraints Encountered
by SMIs
Inadequate Skillful Manpower
Lack of Management Skills
Inadequate Financial Resources
Lack of Market Penetration
Low Tech Level & System
Lack of R&D / Tech Assist.
Inadequate Raw Material
Inadequate Industrial Land
Inadequate Linkage with MNCs
Lack of Knowledge on ICT
Small Scale/Volume Production
No Vision/Strategy for Future
Lower Reliability
Figure 3.5 : Constraints Encountered by SMIs in Industrialization.
3.7.1
Inadequate Skilled Manpower
Wong and Chan (2001) pointed out that SMIs blame the larger ones for
taking away their skilled workers by offering them better wages and conditions of
work. SMIs finds it difficult to obtain and retain skilled labour because of its inability
to pay high wages comparable to those of larger establishments. Most of the
employees in SMIs regard the experience gained as a form of training and means of
developing skills that would give them access to a higher paid job and improved social
security benefits in the large establishments.
Besides using their present post as stepping stones to a better position and
job; in a number of cases, the SMIs workers resigned to set up their own business once
they have acquired the necessary skills. This is particularly true in the Penang tooling
fabrication sector where quite a number of the owners from tooling fabrication
68
workshop were the ex-employees of Micro Machining (M) Sdn Bhd, LKT
Engineering and Eng Hardware Engineering.
Also, per author’s personal opinion, some of the government- sponsored
vocational training programmes lacks relevancy to the needs of the industry. Most
available programmes are often limited in scope and thus is unable to develop skilled
workers at a rate sufficient to cater for an expanding industrial sector. Programming
on machinery control system, vision & sensor system, Six- Sigma methodology,
Design for Manufacturing (DFM), Design for Experiment (DOE), SPC & Statistic
tools, quality deployment system, robotic control system, automation control system
and many others are most needed for the Penang’s SMIs in manufacturing industry.
3.7.2
Lack of Management Skills
OECD (2001) observed that management problems arise mainly because
many of the SMIs entrepreneurs have a relatively low level of formal education with
limited training or professional qualification. Thus they have limited exposure to
modern management principles and practices. They lack the all round managerial
competence. Unlike their large- scale counterpart, small industries are unable to rely
on specialists to look after each of the functional areas of management. On the
contrary, the SMIs entrepreneurs generally have to handle every business aspect
himself.
Although certain institutes do organize seminars and short courses on
management and accounting techniques from time to time, these are often targeted for
high-salaried personnel from the larger corporations. These courses are therefore quite
irrelevant to the needs of the SMIs. Besides, the fees charged for these courses are
expensive that many SMIs cannot afford them.
69
3.7.3
Inadequate Financial Resources
According to ASLI (2001), many SMIs were started by entrepreneurs mainly
through utilizing their own savings or the savings of their families, relatives or friends.
Hence the availability of cheap external loans that SMIs can have access to, is crucial
to their survival, expansion and upgrading.
Unfortunately, SMIs have only limited access to external institutional credit
which carries substantially lower interest rate. On the average, the value of a loan
received by a large establishment is normally a few times more than that received by a
small establishment. Thus, not only do small establishment receive a smaller
proportion of bank loans but the value of such loans is also very much smaller. Also,
most commercial banks tend to favour large customers and do not provide adequate
credit facilities to SMIs.
Besides, small loans are expensive to process and research on the feasibility
of lending such loans could be time- consuming. Often too, SMIs may not have made
out a good enough case for themselves, via the necessary papers and data needed to
apply a loan. Moreover, as SMIs do not contribute substantially to bank deposits, they
do not get priority as compared to larger corporate depositors.
3.7.4
Lack of Marketing Penetration
OECD (2001) pointed out that marketing problems encountered by SMIs in
Penang can be categorized into two areas, i.e., overseas market and domestic market.
For the overseas market, SMIs normally lack information and awareness
about the export procedures, markets and contact opportunities. This is due to the lack
of assistance from the authorities and the various trade or business organizations in
overseas market promotion. With the absence of sales promotion overseas, many
foreign consumers are unaware of the products made by SMIs while SMIs activities
are unaware of the market opportunities abroad. That ends up with SMIs’s activities
only being limited to the local or domestic market.
70
Even within the local or domestic market, there is a general lack of market
demand analysis and limited marketing assistance programmes that have been initiated
by the government specifically for SMIs.
Eberhard, L. (1999) suggested that another major potential that can extend
the market opportunities for SMIs is the ‘sub- contracting’. In Japan, many SMIs are
actively participating in sub-contracting projects under which they supply MNCs with
spares, components and accessories as well as manufacturing services, such as subassembly, installation, welding, surface finishing treatment & etc.
3.7.5
Low Technological Level and Outdated System
Wong, K.C. (2000) believed that low technological level and utilization of an
outdated system of production is very much related to limited financing. This
contributes to the lack of capital and assets to invest in the state-of-the-art machinery
and equipment, as well as to increase the skill capability of labour force results in low
technological level of SMIs. The low technological level of the local SMIs is also
attributed to the lack of skilled labour force, and the mindset of the owner/ proprietors
of the SMIs.
Local SMIs are mostly family-owned or established by personnel with only
technical expertise. As such, the owners/ proprietors of these SMIs lack management
expertise that would enable them to understand the importance of training and
retraining of their work force, as well as the importance of providing a favourable
working environment for their workers.
Due to the rapid changes in technology, in the electronics industry, in
particular, product life cycles are getting shorter. This indicates shorter time to market,
and in order to be suppliers to the MNCs that are competing in the global market, local
SMIs who are not able to upgrade their technological capability and able to meet the
requirement of the MNCs will soon be phased out from the market competition.
71
The local SMIs must have the initiative to continuously upgrade their
technological level in accordance with the requirements of their customers. These
technological may not be the latest in the market but must be able to comply with their
customers’ demands.
3.7.6
Lack of Research and Development and Technical Assistance
Wong, K.C. (2001) stressed that another serious problem confronting the
SMIs is that of obtaining assistance in upgrading their existing production technology
or acquiring new technological innovations. Being small scale in operation, most of
these SMIs cannot afford to engage in their own R&D. Their local market orientation
and lack of overseas contacts, their generally lower educational background and
possibly even language barriers, tend to result in their lacking exposure to the latest
technological development in their field. Most of them could not afford to pay the
consultant fees to hire the necessary experts to advice on the feasibility of various
alternative technological improvements.
Moreover, the number of public authorities available locally where SMIs can
turn to for technical advice is also very limited, and of these (mainly PDC, MIDA,
SIRIM and universities) very few of their existing facilities and services are
publicized. Consequently, from the survey data as shown in Chapter V, on SMIs
regarding technical issues, business opportunities or marketing information, 33.1
percent of them rely on business counterpart, manufacturers or suppliers for help,
another 30.0 percent depends on advice from their peers in the industry and 16.4
percent of them refers to consultancy firms. In the absence of external technological
assistance, many SMIs continue to rely on traditional technology and out- dated
equipments
Except for the few selected industries of traditional importance (e.g. rubber,
palm oil and forestry), there should be more organization by the government on R&D
programmes for the majority of manufacturing activities in which SMIs predominate
(Table 3.7).
72
Table 3.7 : Main Centres for Research and Development in Malaysia
R&D Organization in Malaysia
1
Palm Oil Research Institute of Malaysia (PORIM)
2
Rubber Research Institute of Malaysia (PPIM)
3
Malaysia Agricultural Research and Development Institute (MARDI)
4
Forest Research Institute of Malaysia (FRIM)
5
Institute of Medical Research (IMR)
6
Malaysia Institute of Microelectronics Systems (MIMOS)
7
Standard and Industrial Research Institute of Malaysia (SIRIM)
Source : Malaysian Industrial Development Authority
3.7.7
Inadequate Raw Material
According to Moha (1999), the shortage of raw materials appears to be
another important problem for many of the SMIs. Raw materials are either unavailable
or difficult to obtain immediately. The shortage of raw material was probably a
structural problem which arose out of the excessive demand on a world-wide basis.
As a result of the shortage of raw material and the consequent increase in
prices, many of the SMIs found that their profit margins drastically reduced. The
prices of their products could not be increased, either because of the elastic nature of
the demand or not being able to gain customer’s approval for the price increase.
SMIs appear to be more severely affected by the shortage of raw materials
than the larger firms. SMIs located in the outlying areas were even more severely
affected by the shortage. In suppliers’ market, supplies are often sold on a ‘first come,
first served’ basis. Since the rural SMIs are often located far from the main sources of
supplies, they are frequently at a disadvantage.
The SMIs are also at a disadvantage when they purchase raw materials
because the quantities they need are not attractive to suppliers. Thus, they have to pay
a higher price in cash or a higher rate of interest over a brief period of time.
73
3.7.8
Inadequate Industrial Land, Building and Infrastructure
Moha (1999) also noticed that inadequate industrial land is one of the biggest
problems for any manufacturing project in most part of the country. It has been one of
the main obstacles to industrial expansion and new investments. Although there are
abundance of unused land in Penang, there is simply not enough industrial land being
developed by the state development corporation or by the private sector, particularly
more so for the SMIs.
While the state government engage in the development of industrial estates
and industrial infrastructure, these development tend to cater for the larger
manufacturing plants. SMIs generally either do not qualify or cannot afford the cost.
Factory building provided by MIEL, although meant specifically for the SMIs, are
generally inadequate to cater for the demand.
SMIs need to be located within or near populated areas to deliver their goods
and services, recruit their workers and procure their supplies economically. The lack
of planning for SMIs in the urban areas has resulted in many factories operating
illegally in areas other than zoned for industry. Even the normal plans for expansion of
existing production may be hampered due to the lack of room for expansion.
Some of these SMIs cause environmental pollution (noise, smell, etc.) and
may pose as health and fire hazards while others may cause traffic obstruction and
become a source of community disturbance.
3.7.9
Inadequate Linkages with Large Industry
Linkages with larger industry or MNCs is marginal among Penang’s SMIs.
Unlike Japan where 60 percent of the SMIs are involved in sub- contracting
(Eberhard, L, 1999), Pining SMIs suffer from the absence of linkages with large
downstream firms. The questionnaire survey conducted by author clearly indicated
that only 39.7 percent of the SMIs surveyed had fostered some linkage with other
74
larger firms and MNCs in term of sub- contracting business transaction on part
fabrication and sub-assembly works.
Mathews, J.A. (2002) noted that in the case of Taiwan and Korea, large
downstream firms provide financing, quality control and technical assistance to
upstream SMIs.
To date however, the actual linkage established through sub-contracting has
been negligible. Establishment of linkages is an important factor to consider in the
development of SMIs. According to Lim, C.T. (2000), Intel “SMART” approach of
Supplier Development Programme (Figure 3.6) is a very good model for other larger
industries to benchmark and to produce the total solution or global SMIs for the
Penang’s manufacturing industry.
Harvesting
T
Total solution supplier,
global supplier
Government
R
Nurturing
A
M
Refine through
training and coaching
& Supporting
Bodies
Allocate and increase
opportunities appropriately
Match to business needs &
provide initial training
Government
& Supporting
Bodies
Seeding
S
Sourcing for suppliers
who are willing & capable
Figure 3.6 : Intel “SMART” Approach of Supplier Development Model
Lim, C.T. (2000) stressed that Intel Malaysia has developed one of the most
comprehensive programme for supporting supplier development and upgrading. The
so-called ‘SMART’ approach consists of five steps :-
75
a. First step : S – Sourcing for right supplier
To select suppliers that are willing and capable of participating in the
programme. Intel analyses a potential candidate from four perspectives
- Its management (including vision of the CEO and the company financial
stability);
- Its human resources;
- Its technical, materials and process capabilities; and
- Its cost competitiveness.
b. Second step : M – Match to business need & provide initial training
To match with business need and assist selected suppliers by initial training.
c. Third step : A – Allocate and increase opportunities appropriately
To allocate business to suppliers at the level of complexity appropriate to
their capabilities and the needs of Intel.
d. Fourth step : R – Refine through training and coaching
To help supplier to raise capabilities by continuous training and coaching.
Continuous training of supplier is provided partly by inviting them to send
their staff to Intel’s internal training courses, and partly through courses in
the Penang Skills Development Centre (PSDC). PSDC analyses gaps in the
capability of the suppliers’ workforce and provides courses to plug these
gaps.
Coaching involves regular supplier reviews and continuous dialogue. Intel
will shares new information on technical roadmaps and expected future
technical and business requirement early in the process. Teams of engineers
or relevant experts from Intel are sent to assist suppliers when situation
needed.
e. Fifth step : T – Total solution supplier, global supplier.
To develop them into global supplier with the ability to meet international
standards and export directly. The goal is that Intel should not account for
more than 20% of any supplier’s sale.
76
3.7.10
Lack of Knowledge on Information and Communication Technology
PSG (2002) confirmed that the trend of today’s business-to-business
transaction has moved towards paperless transaction and at very high speed. Local
SMIs will be required to adopt the ERP (Enterprise Resource Planning) and eventually
CRM (Customer Relationship Management) systems and communicate via internet if
they want to be successfully and be competitive globally. Progress and advancement
in communications and transactions will be based on speed and also being paperless.
As such, the local SMIs without the latest developments in ICT (Information and
Communication Technology) would be left behind in global competition.
The successful development of the ICT is needed to upgrade manufacturing
ability in order that Penang can quickly seize the opportunities created by
globalization and trade liberalization. This can materialize with the strong
government push for ICT, proper planning of programmes and the skilful management
of their implementation with the joint participation of public agencies, private
industries and the people of Penang.
3.7.11
Small Scale and Volume Production
According to Ong, C.I. (2000), the SMIs normally do not have economies of
scale. The profit margins are normally insignificant as the volume of production is
rather small. This will hinder their efforts to expand. The other problems such as lack
of skilled work force, financing and technology competency will further worsen the
situation.
The lack of volume of production may hamper the efforts of the SMIs to
develop their technological capabilities. As the volume is too small to justify
automation, SMIs will most likely maintain their original mode of production rather
than adopting and implementing newer and more advanced one. The lack of volume
also discourages the SMIs from increasing their production capacity. This prevent
them from receiving large orders when opportunities arise.
77
3.7.12
No Vision and Strategy for the Future
As one of the key weakness, the local SMIs also lack the well defined vision
and a formulation of strategies for the future. The SMIs without a vision and strategy
are normally unable to plan their direction of growth and they do not have a target to
benchmark their growth. This results in haphazard growth among the SMIs as
commented by Ong, C.I. (2000).
3.7.13
Lower Reliability
Also, as believed by Ong, C.I. (2000), any SMIs who are lacking the
business code, skilled labour force, finance and technological know-how, normally
will result in low reliability in quality and delivery. Low reliability on products or
services will further de-link the SMIs from MNCs as the SMIs are unable to comply
the requirement and expectation of the MNCs.
3.8
Threat of AFTA to Penang’s SMIs on Manufacturing Industry
FMM (2002) emphasized that there is a greater sense of urgency for the
Penang SMIs to be efficient and competitive so that they can meet the challenges of
international standards on technology, quality, pricing and delivery among ASEAN
countries; especially with the proposed ASEAN Free Trade Area (AFTA) by the year
2010. The challenges of AFTA to Penang’s SMIs is that they can have the market
access to the ASEAN region with a population of 325 million, after the
implementation of AFTA.
Similarly, if Penang’s SMIs are not quality and technology conscious or
price effective, they will not only be able to sell their products to other ASEAN
countries, but conversely other ASEAN products will be able to penetrate into the
Penang market and put our SMIs out of business.
78
With the coming of AFTA, it is a threat to the local SMIs that are presently
supplying to the MNCs in the electronics and electrical industry and global market, as
they will face difficulty in competing with the other suppliers and sub-contractor from
the others regions of the world, e.g. China, Thailand and Vietnam. The rising cost of
production and declining productivity have and will prompt more firms, whether local
or foreign, to relocate to lower cost locations, like China and Thailand.
In the questionnaire survey done by the author, 39 percent of the SMIs
indicated that they would probably relocate some parts of their operation outside
Penang or outside Malaysia (refer sec 5.2.9.1). This implies that Penang will lose out
to the neighbouring countries if the industries including the supporting and ancillary
industry starts to move out. This is mainly because the support and ancillary industry
is an important determining factor for competitiveness and industrial cluster
development. As such, Penang government innovative linkage programmes and
strategies would play a more crucial role now in retaining investments as well as
attracting new ones because Penang can no longer promoted as a low cost location.
3.8.1
“FUTURE” Approach to Counter AFTA Reaction
To prepare for the coming of WTO and AFTA, Penang’s SMIs are under
pressure to open up their local market to much bigger international players. This have
make it difficult for the SMIs to predict the future. “They cannot predict the future….
but they can prepare for it…..”. Whether they like it or not, they have to live with this
competitive global market environment (PDC, 1999 – b).
PDC (1999-b) stressed that as listed below are some of the issues that
Penang’s SMIs needs to consider and to prepare for their “FUTURE” to face the threat
from WTO and AFTA (Figure 3.7) :-
79
Find out the economy, corporate culture and corporate governance to
meet global marketplace requirements and expectations.
Uunderstand the forces driving and shaping changes in the Penang
marketplace and how SMIs can prepare their organization to receive
these inevitable changes.
Tap practical advices and views from peer professionals and experts.
Undergo changes in perception of own self image as a market leader.
Review organization’s
current practices and benchmark them against
emerging issues from other developed nations
Enable Penang’s SMIs to succeed in the new millennium.
Source : Penang Development Corporation
Figure 3.7 : “FUTURE” Approach to Counter AFTA
3.8.2
SMIs Role in Coping the Challenges Due to AFTA
FMM (2001-a) proposed to the SMIs in Penang’s manufacturing industry
that the following preparation plans are needed to cope with the challenges due to
AFTA implementation :
- SMIs must face the realities of AFTA and must work closely together
through industry groups to be prepared for the dynamics of the move
towards economic integration in the region;
80
- SMIs must upgrade, improve efficiency and productivity to remain
competitive. Quality products must be manufactured and R&D must be
carried out to be ahead of competitors;
- They should also examine their size of operations and produce for
ASEAN market, rather than just the domestic market, to reap the
economics of scale;
- Knowledge of distribution and marketing in ASEAN must be enhanced.
They must improve their marketing capabilities and knowledge of
ASEAN market and be less dependent on middlemen, such as Singapore;
-
Encouragement must be given to further market made-in-Penang
products in ASEAN countries through participation in trade fairs and
missions in ASEAN;
-
SMIs must examine the possibilities of sourcing intermediate products or
components from cheaper sources of ASEAN so as to maintain its
competitive edge;
-
It is necessary that the quality of skilled labour be improved upon and
efforts must be made to increase the pool of technicians and skilled
workers through further industrial and vocational training.
3.8.3
Public Sector Role in Confronting AFTA Challenges
For the public sectors, the action plans recommended by FMM (2001-a) are
as follows :
81
- Efforts must be made to assist lowering the cost of production, either
through fiscal and monetary measures or through improvements in
administrative regulations, rules and procedures.
- Infrastructure facilities must be continuously upgraded and maintained.
Interruptions in electricity supply must be minimized as much as possible.
Efficient transport system must be worked towards contributing
manufacturers competitiveness. Privatized entities must be efficient and
must monitor their performance by issuing indicies of their performance
in comparison to similar entities in ASEAN.
- The investment environment must continue to be conducive and attractive.
Further reductions in corporate tax in line with ASEAN countries
corporate tax would further improve Penang’s attractiveness for
investment.
- The service sector, particular banking, transportation and insurance must
be efficient and competitive so as to assist the manufacturing community
to face the challenges of AFTA.
- Currency exchange rate should be competitive with other ASEAN
countries.
- The interest rate should be monitored and should be based on a rate that
would be reasonable to investors in term of borrowing and cost of capital.
- To have a proper human resources programme, together with a
sound education policy that would provide adequate skilled manpower
relevant to industry’s needs.
82
3.9
Summary
In this chapter, the author has discussed the historical, political, social and
cultural settings as they affect and will affect SMIs development. Also, as a good
benchmark to follow, the government should aim at institutionalizing the progress of
the developing SMIs from other industrial developed countries. In fact, Penang is able
to pick up a few good lessons that can be learnt from those countries.
It should be highlighted here that the entrepreneurs of SMIs must also help
the government by helping themselves. They should take training of workers seriously
and always be prepared to upgrade technology and management know- how. Certain
nations have been successful in industrial development because there is good rapport
between the government and the private sector. That’s clearly indicated the
importance of linkage programmes among government, MNCs and SMIs.
CHAPTER IV
RESEARCH METHODOLOGY
4.1
Introduction
As outlined in chapter I, this study focuses on the role and influence of MNCs
and government agencies on the development of SMIs established in the state of
Penang. After having achieved a general overview of the industry at Penang through the
study of relevant literatures, the design of research to get empirical evidence was then
followed. This chapter will present the details of the research design, design &
development of questionnaire and survey interview, data collection strategy and
statistical analysis techniques.
4.2
Flow Chart of Research Methodology
The research methodology can be described as guidance for a systematic and
organized effort to carry out this research. These involves a series of well-thought-out
and carefully executed activities which will enable the author to know how
organizational problem can be solved or at least minimized as shown in Figure 4.1.
84
Design & Development of Questionnaire
Survey &Structured Interview
-
Design Questionnaire Format
Define of Questionnaire Contents
Determine Research Population
Select Sampling Method
Confirm Sample Size
Determine Rating System
Data Collection
- Decide Survey Procedure
- Specify Study Limitation
- Define Survey Administration
Method
- Conduct Pilot Study
- Questionnaire Review
Data Analysis
-
Data Recording
Data Study
Data Analysis
Research Conclusion
Figure 4.1 : Flow Chart of Research Methodology
85
4.3
Design and Development of Questionnaire Survey and Structured
Interview
Blaxter et al. (1998) stated that the method of interviewing varies depending on
the purpose and the respondents. The interview method that used for this research study
is partly structured, partly semi- structured. The first part of the interview was
structured and seek out information, such as perception of the firm, the company
structure or other “factual data”. The semi- structured part was used in order to obtain
more qualitative information from the respondents, such as the relations between a
company and the government authorities, the relations in between the different bodies
of the government and the respondents environment consciousness.
4.3.1
Questionnaire Design
The questionnaire utilized for the survey is a composite adapted from
numerous works, including those from Japan International Cooperation Agency
(JICA/PDC, 2001), Economic Research Centre –University of Singapore (Pang and
Lim, 1997), Malaysia Jabatan Perdana Menteri (Abdul Aziz Mahmud, 1996), and
Malaysia External Trade Development Corporation (MATRADE, 2000), supplemented
by items representing the researcher’s study concerns in the context of Penang’s
environment.
As can be seen in Appendix I, the questionnaire has used close-ended questions
in a multiple choice format, so that ambiguity was minimized. The major advantages of
the closed or structured responses are that the questions are easier to answer, easier to
code and analyze, shorten the interview process and make it easier to comment on
sensitive subjects. It is believed that respondents would be more willing to reveal both
their virtues and vices by checking “those that apply” on a standard list, rather than by
answering open questions. It was found that the greatest advantage of the coded
responses is that answers are comparable from person to person. This comparability is
critical in this empirical study.
86
4.3.2
Questionnaire Contents
The author’s questionnaire is divided into ten sections, each reflecting a
general subject. The needs are as follows :
a. These are the typical important factors to measure the performance of
electronics and electrical manufacturing industry.
b. These enables the survey respondents to see a logical connection between
the questions and also enable the author to have an overview of the whole
industry. Figure 4.2 describes the details of the sections for the
questionnaire.
Section
1
Organization Profile & Perception
Collect information on the organization profile that include the
type of organization, business activity and general perception on
present economic situation.
Section
2
Technology Transfer & HR Development
Collect information on the effect and impact of technology
transfer & HR development for SMIs.
Section
3
Sales & Marketing
Collect information on the present scenario and impact on
business performance of SMIs due to economic slowdown.
Section
4
Technology & Quality Level
Collect information on the present strengthes and weaknesses
of Penang’s SMIs in facing global competition.
Section
5
Information & Communication Technology
Collect information on the problems encountered by SMIs
on ICT implementation.
Section
6
Public Sector Incentives & Schemes
Collect information on the difficulties encountered and
reasons for poor responses by SMIs.
Section
7
Linkages Programme & Plan
Collect information on the general perception and awareness
of the proramme and plan by SMIs.
87
Section
8
Industrial Development Plan & Problem
Collect information on the view points on Penang industrial
development and expansion plan from SMIs.
Section
9
Future Action Plan & Strategy
Collect information on the facts and factors on how the Penang’s
manufacturing industry can be more competitive.
Section
10
Business Operation Attitude & Philosophy
Collect information on their personal perceptions on the right
operation attitude and philosophy to be successful in the present
economic slowdown situation.
Figure 4.2 : Survey Questionnaire Contents
4.3.3
Research Population
For this research, the research population concentrated on the SMIs within the
electronics and electrical manufacturing industry in Bayan Lepas Free Trade Zone and
Industrial Parks. In order to examine the linkages effect from both sides, those MNCs
which SMIs were supplying their products were also interviewed.
4.3.4
Research Sample Selection
Random sampling method is applied in this research study. In the questionnaire
survey, all the respondents were from the Bayan Lepas FTZs and industrial areas, since
most of the electronics and electrical manufacturing industries are concentrated on these
two areas; it was concluded that the samples should be able to represent the whole
electronics and electrical manufacturing industries in Penang.
This survey research was based on the “Directory of Factories – Penang”
(PDC, 2002) as the sample frame and the sample firms were randomly selected from the
list according to the category under MNCs and SMIs.
88
4.3.5
Research Sample Size
The determination of right sample size depends on the confidence level need
and the margin of error that can be tolerated. The higher the level of confidence needed
from the sample estimate and the smaller the error margin, the larger the sample will be
needed and vice versa. The specific formula apply by the author for calculating sample
size is based on a random sampling as shown in Figure 4.3.
n=
NZ² x p (1-p)
NB²+[Z²x p(1-p)]
Where N = population size
Z = Z statistic from normal distribution
For 80% confidence level, Z = 1.28
For 85% confidence level, Z = 1.45
For 90% confidence level, Z = 1.65
For 95% confidence level, Z = 1.96
p = estimated satisfaction level
B = margin of error
Source : Kan, S. H. (1998)
Figure 4.3 : Formula for Simple Random Sampling Size
According to Kan, S.H. (1998), the required sample size decreases as
satisfaction level increases. This is because the larger the p value, the smaller its
variance, p(1-p) = pq. When an estimate for satisfaction level is not available, using a
value of 50% (p=0.5)) will yield the largest sample size that is needed because pq is
largest when p=q.
Base on PDC Dec 2002 statistic data as shown in Table 3.2, out of the total of
731 manufacturing firms registered under PDC in Penang, 164 firms are from the
89
electronic and electrical manufacturing industry. The sample size for this survey with
95 percent of confidence level will be as follows :
n = 164 x (1.96²) (0.5)(1-0.5)
164 (0.05)²+ [1.96² x 0.5 x 0.5]
= 115
So, at least 115 respondents inclusive of SMIs and MNCs with activities
related to electronics and electrical industry selected for the survey was considered
highly representative of the total population.
4.3.6
Research Rating System
A scale was designed to measure the characteristics of the respondents who
complete it or respondents as judges of the objectives presented to them (Sekaran ,
2000). The emphasis here is on measuring attitudinal differences between people.
The following rating scales are used for this research study :a. Simple Category Scale (Dichotomous)
The simple category scale has two response choices, there are “Yes” or
“No”. This scale is particular useful for demographic questions or where a
dichotomous response is adequate.
e.g. Is your company having homepage to promote your business activities ?
b. Multi Choice, Single Response Scale
When there are multi options for the rater and only one answer is sought.
The cumulative feature of this scale can be beneficial when a complete
picture of the respondent’s choices is desired.
e.g. The main problem with the overall existing SMIs development program.
- Program not reflect the needs.
90
- Lack of publicity.
- Lack of efficient officer with well understanding on industrial needs.
- Poor monitoring and follow-up system.
- Application procedure too complex.
c. Likert Scale
The Likert scale is the most frequently used variation of the summated rating
scale. Summated scales consist of statements that express either a favourable
or unfavourable attitude towards the object of interest. The respondent is
asked to agree or disagree with each statement on a 5-points scale.
e.g. The electronics and electrical industries will still remain as the main
stream of the manufacturing sectors in Penang for the next five years ?
4.4
-
Strongly Agree
-
Agree
-
Neither Agree nor Disagree
-
Disagree
-
Strongly Disagree
Data Collection
The survey interviews were carried in the field from December 2002 to June
2003, all conducted personally by the author . On the average, each interview lasted an
hour to one and a half hour. The author’s experience was that there was general good
cooperation and response from the peoples approached.
In order to minimize difference in carry out the survey, the objectives of
each question reviewed and the level of information needed was clarified with each of
the respondents.
91
4.4.1
Survey Procedure
The following procedures were taken to approach the relevant issues :a. SMIs were interviewed based on a questionnaire to understand the
problems they faced in the areas of technology transfer & HR development,
sales and marketing , technology and quality level, information and
communication technology, public sector incentives, linkages programmes,
industrial development plan, future action strategy and business operating
behaviour;
b. MNCs with activities related to electronics and electrical manufacturing
industry were interviewed based on the same questionnaire to provide
solutions in extending assistance and guidance to SMIs;
c. Based on the finding of the two survey groups, a mismatch of views held
by SMIs and MNCs and possible measures to bridge the gap was
considered for the future development of SMIs. This report was prepared
primarily based on the findings of the two survey groups above, the
comments and suggestions are reflected in this report as much as possible.
4.4.2
Survey Limitation
Limitations as listed below exist for the surveys and interviews conducted on
SMIs and MNCs. This limitation must be kept in mind in referring to this survey.
-
On the time dimension, this empirical study limited to a single point in
time, i.e., they represent a “snapshot view”. The data collected are the
respondents personal perception and may or not be the true facts of the
situation.
92
4.4.3
Survey Administration
Resources are very important at this stage, for example, postal surveys are
generally less expensive and time consuming than personal interviews. Nevertheless, in
postal surveys there is a high rate of “non-response”. It was being understood from
DCT (2002) on conducting survey that if postal survey is utilized, normally the return
rate is only around 20 to 30 percent. For this research study, in order to attain 100
percent on data return and also to ensure that questionnaire questions are fully
understood by difference group of respondents, face-to-face survey interview or
personal delivery and collection of the survey questionnaire was decided.
The main intention on selection of face-to-face survey interview is that
clarification and further explanation can be carried out if the respondent encountered
with doubt on certain questions. This allow the author to obtain an overall view of the
operation of the industry and to be in a position to judge the validity of many
interpretations arising out of the analysis.
4.4.4
Opening and Confidentiality Statement
To ensure that the information can be collected with maximum reliability and
validity, on the advice of knowledgeable and experience peoples, the two key measures
which must be taken are as follows :a. It is critical to highlight before the interview that this survey is conducted
not for government agencies and is basically for academic research
purposes only, the respondents are free to express their true feelings and
comments.
b. Give them the assurance that all information collected would be treated
strictly confidential and no individual person or business enterprise’s
opinion, complaint or recommendation would be identified in the report
unless the prior permission was obtained.
93
4.4.5
Improvement Via Pilot Study
The questionnaire was initially pre-tested to a small group of five respondents
each from MNCs and SMIs, with the intention of pre-testing the technical details of the
subject in the questionnaire and the applicable of the rating scale technique to be
utilized in the actual study. In fact, the questions of this questionnaire were revised and
improved at least 5 times during the pilot study. The comments and suggestions of the
respondents regarding improvements of the quality of the questionnaire were integrated
into the final revision of the questionnaire.
The pre-test showed that it was generally easier to use close-ended questions
with multi choice format. This format greatly reduce the time taken for the respondent
to answer the questions. The length of the questionnaire did not prove to be a problem
with the respondents.
The improvement done after the pre-test are as follows :
a. The contents of survey questionnaire become more quantitative and
Qualitative;
b. Rephrased certain questions in a simple and concise language so that
everybody understands the questions within the same context;
c. Each question deal with only one dimension or aspect. If several dimension
of aspect of question in one response, it will be difficult for the
respondents to answer;
d. The understanding, level of difficult and willingness to answer sensitive
questions were detected.
e. The time taken to answer the questionnaire can be planned.
94
4.4.6
Data Recording
The questionnaire turned out to work quite well and the layout of the
questionnaire are categorized by ten difference sections; each section with five related
questions written one after the other. This helped the researcher by making it possible to
lead on to the next question and therefore the interview became very smooth.
As suggested by Silverman et al. (2000), as soon as possible after the
interview, the researcher should try to compile the information obtained during the
interview. This was done to prevent any distortion of the information which might
affect the authenticity of the survey result. In this case, a tape recorder would have
helped but in general it can have a restrictive influence on the interviewees and
therefore make the interview less open.
Generally, the design of the research method was found to fulfill its purpose
very well. It succeeded in giving answers to the questions as well as raised a lot of new
ones.
4.5
Statistical Analysis Techniques Used
A large portion of the analysis uses simple or cross tabulation and descriptive
statistics. The mean, frequency and percentile are computed for all variables. All
statistics were tested for significant at 95 percent of confidence interval.
For the multi choices question, the respondents are requested to select the most
important factor, frequency and percentile method is used to identify the ranking of
importance for each answer.
Likert scale question consists of statement that express either a favourable or
unfavourable attitude towards the subject of interest. The results are tested by using one
proportion test. The null hypothesis was failed to reject whenever the P-value is greater
than 0.05.
95
Independent samples t-test was used to confirm if the opinion regarding any
particular hypothesis between SMIs and MNCs differs. This test was used as SMIs and
MNCs are from two distinctive different groups and no overlapping between two can
occur. The test measures if the mean value of any question or statement of the two
groups differs.
To analyze the data of this research study, Statistical Package for Social
Sciences (SPSS) version 11.0 is used.
4.6
Summary
This chapter has elaborated on the theory and outlined the methodology used in
the study. It described the research design, design & development of questionnaire
survey and structured interview, data collection strategy and procedures, and the
statistical analysis techniques.
These various processes and procedures were the methods by which the data
were organized before they were subject to statistical analysis. Both descriptive and
inferential statistical were made on the data. The results of these analysis will be
presented in chapter V. By means of the mass of empirical data acquired through this
study, it give a glimpse of the problems that are involved in Penang manufacturing
industry’s SMIs.
CHAPTER V
DATA ANALYSIS
5.1
Introduction
This chapter presents the result of the data analysis of this research. This
research study is intended to formulate support measures through company diagnosis,
market analysis, problem root causes, constraints and expectations for Penang’s SMIs
in electronics and electrical manufacturing industry. The combination of the effort and
action plan from the government agencies and MNCs will lead to the improvement in
manufacturing performance and competitiveness of SMIs in Penang.
5.2
Data Presentation and Analysis.
The first part of the chapter reviews the demographic data and the second part
provide a brief descriptive analysis of the data on the sample of 115 respondents,
which serves to reflect the characteristics and behaviour of the population.
97
5.2.1
Organization Profile and Perception
5.2.1.1 Type of Surveyed Companies
Findings :
The breakdown of the type of organizations surveyed is as shown in Figure
5.1. The final sample consisted of 115 respondents, the data indicated that the
organizations surveyed are 73 SMIs (63%) which are the main target for this research
study; followed by 42 MNCs (37%) which are the main engine to support and
develop those SMIs. These two groups will be referred to from now on as SMIs and
MNCs, and they are the two key players in the Penang’s manufacturing industry.
42
SMIs
MNCs
73
Type of Organization
SMIs
MNCs
Total
Frequency
73
42
115
%
63.0
37.0
100.0
Cum %
63.0
100.0
100.0
Figure 5.1 : Distribution of Type of Surveyed Companies.
5.2.1.2 Years of Operating of the Surveyed Companies.
Findings :
The cross tabulation of the two groups as shown in Figure 5.2 has indicated a
slight difference in the years of operation. MNCs generally having longer years of
establishment in Penang’s manufacturing industry, a majority of 59.5% with more
than 15 years and 23.8% between 10 to 15 years. Whereas for SMIs, most of them at
45.2% with 10 to 15 years, follow by 20.5% with 5 to 10 years of experiences in
business.
98
Frequency
40
30
SMIs
20
MNCs
10
0
< 5 Yrs
5-10 Yrs
Years of Operating
Less than 5 Years
Between 5 to 10 Years
Between 10 to 15 Years
More than 15 Years
Total
10-15 Yrs
SMIs
Frequency
11
14
33
15
73
%
15.1
19.2
45.2
20.5
100.0
>15 Yrs
MNCs
Frequency
0
7
10
25
42
%
0
16.7
23.8
59.5
100.0
Figure 5.2 : Years of Operating of Organization Surveyed.
The 0% of MNCs with years of operating less than five years clearly
indicated there are no or less new big investors come in to set manufacturing facilities
in Penang. The state government should seriously look into this matter for the possible
root cause and come out with the plans to attract the new investors.
5.2.1.3
Seriousness on company’s business performance affected due to global
economic slowdown.
Findings :
As shown from the cross tabulation in Figure 5.3, the business performance
of majority of SMIs at 50.7% were quite seriously affected by 31- 50%; whereas for
MNCs, majority of them at only 28.6% were quite serious affected due to the present
global economic slowdown.
Frequency Percent
99
40
30
SMIs
20
10
0
MNCs
> 70%
Seriousness %
More tan 70%
51 to 70%
31 to 50%
10 to 30%
Less than 10%
Total
51-70%
31-50%
SMIs
Frequency
1
11
37
22
2
73
10-30%
%
1.4
15.1
50.7
30.1
2.7
100.0
< 10%
MNCs
Frequency
4
5
12
11
10
42
%
9.5
11.9
28.6
26.2
23.8
100.0
Figure 5.3 : Seriousness of Business Performance Affected
The result obtained confirms that the business performance is more seriously
affected for SMIs as compared with MNCs. According to the questionnaire survey
interview findings, there are many factors which affected their business performance.
The government authority should seriously look into their problems and quickly come
out with the remedial plans to improve the situation.
5.2.1.4 Main reason of present unsatisfactory business performance for SMIs in
Penang’s manufacturing industry.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most important factor out from the total of five choices based on
their personal perception. Since collected data are categorical, frequency distribution
table with percentage is used to rank the seriousness of each factor. Cross tabulation
for the most effective channel which Penang’s SMIs can get in contact with the latest
technological invention and development from overseas is as shown in Figure 5.4.
100
Frequency Percent
70
60
SMIs
50
40
MNCs
30
20
10
0
Ans #1
Soft Market
Demand
SMIs
MNCs
60.3%
45.2%
Ans #2
Ans #3
New
External
Competitor
1.4%
9.5%
Ans #4
Ans #5
Insufficient
Lose Out
Government On Pricing
Support
Competition
9.6%
24.7%
7.1%
11.9%
Lose out
On Tech
& Quality
2.7%
19.5%
Figure 5.4 : Reasons of Present Unsatisfactory Business Performance for Penang’s
SMIs.
Summary :
• The results show that both SMIs and MNCs are having the same viewpoint on
the most important factor that affecting Penang’s SMIs business performance.
SMIs/ MNCs - Soft market demand due to the global economic slowdown.
•
Second most important affecting factor as follows :
SMIs - Lost out due to pricing competition.
MNCs - Lost out due to technology and quality of products.
•
Third affecting factor as agreed as follows :
SMIs - Insufficient government support to promote and expand marketing
outlet.
MNCs - Lost out due to pricing competition.
101
5.2.2
Technology Transfer and HR Development.
5.2.2.1 Government and MNCs have done a great job in providing
opportunity for SMIs to expose and learn up new technology and skills.
Findings :
From the cross tabulation as shown in Figure 5.5 below, 15.1% of SMIs and
23.8% of MNCs agreed that government and MNCs have done a great job in SMIs’s
technology and skills upgrading. It was also noticed that 65.7% of SMIs and 66.7% of
MNCs have highlighted that government and MNCs still need more effort and good
planning to improve the efficiency and effectiveness of the local SMIs.
50
Frequency
40
SMIs
30
20
MNCs
10
0
Yes
Yes
No
Need Improvement
No
SMIs Freq
11
14
48
Need Improve't
%
15.1
19.2
65.7
MNCs Freq
10
4
28
%
23.8
9.5
66.7
Figure 5.5 : Potential for SMIs to Learn up New Technology and Skills.
Summary :
• The results show that both SMIs and MNCs agreed that government and MNCs
have not done enough in providing opportunity for SMIs to expose and learn
up new technology and skills.
102
5.2.2.2 Channels by which Penang can get in contact with the latest
technological invention and development from overseas.
Findings :
For the above statement, the respondents from both SMIs and MNCs are
requested to pick the most important factor out from the total of five choices, based on
their personal perception. Since all collected data are categorical, frequency
distribution table with percentage is used to identify the criticalness of each factor.
Cross tabulation for the reasons of present unsatisfactory business performance for
Penang’s SMIs is as shown in Figure 5.6.
Frequency Percent
40%
30%
20%
MNCs
10%
0%
SMIs
MNCs
SMIs
Ans #1
Importation
of Equip &
Machinery
26.0%
31.0%
Ans #2
Foreign
Prof/ Tech
Personnel
27.5%
21.4%
Ans #3
Ans #4
Ans #5
Overseas
Training
Internet
Browsing
37.0%
33.3%
6.8%
11.9%
Royalty
Payment
On Patent
2.7%
2.4%
Figure 5.6 : Channels for Contact with Latest Technology Invention and
Development from Overseas.
Summary :
• The results show that both SMIs and MNCs are having the same viewpoint on
the most effective channel which SMIs can get in contact with the latest
technological invention and development from overseas.
103
SMIs/ MNCs - Training of staff in overseas.
•
Second important channel as follows :
SMIs - Train by foreign professional/ technical personnel locally.
MNCs - Learn from the importation of capital equipment/ machinery.
•
Third important channel as follows :
SMIs -
Learn from the importation of capital equipment/ machinery.
MNCs -
Train by foreign professional/ technical personnel locally.
5.2.2.3 Main problem encountered in training the employees for SMIs
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most important factor out from the total of five choices based on
their personal perception. Since all collected data are categorical, frequency
distribution table with percentage is used to identify the criticalness of each factor.
Cross tabulation for the problems encountered in training the employees for SMIs is as
shown in Figure 5.7.
Frequency Percent
50%
40%
SMIs
30%
20%
MNCs
10%
0%
Ans #1
No Suitable /
Appropriate
Courses
SMIs
MNCs
20.5%
16.7%
Ans #2
Cannot
Release
Emp. For
Training
12.3%
19.0%
Ans #3
Ans #4
Lose
Employees
After
Training
43.8%
26.2%
Ans #5
Lack of
Fund for
Training
19.2%
31.0%
Figure 5.7: Problem Encountered in Training Employees for SMIs.
Employees
not
Interested
To learn
4.2%
7.1%
104
Summary :
•
The results show that both SMIs and MNCs have different viewpoint on the
main problem in training the employee for SMIs as follows :
SMIs - Losing employees after training.
MNCs - Lack of fund allocation on training.
• Second affecting problem is as follows :
SMIs - Cannot find suitable or appropriate courses.
MNCs - Losing employees after training.
•
Third affecting problem is as follows :
SMIs - Lack of fund allocation on training.
MNCs - Cannot release employees for training.
5.2.2.4
Method which technological and managerial skills for Penang’s SMIs
can be improved and upgraded faster.
Findings :
From the above statement, respondents from both SMIs and MNCs are
requested to pick the important factor out from the total five choices based on their
personal perception. Since all collected data are categorical, frequency distribution
table with percentage is used to identify the criticalness of each factor. Cross
tabulation for the methods which technological and managerial skills for Penang’s
SMIs can be improved and upgraded faster is as shown in Figure 5.8.
105
Frequency Percent
70%
60%
50%
SMIs
40%
30%
MNCs
20%
10%
0%
Ans #1
More
Training
Programmes
16.4%
9.5%
SMIs
MNCs
Ans #2
Ans #3
Technology
Transfer
From MNC
39.7%
61.9%
Ans #4
Trade Fair/
Technical
Seminar
15.1%
4.8%
Ans #5
On Job
Training
26.0%
21.4%
Internet for
New Tech
Infomation
2.8%
2.4%
Figure 5.8 : Method on Technological & Managerial Skills Improvement.
Summary :
•
The results show that both SMIs and MNCs are having the same viewpoint on
the most effective method which technologically and managerial skills can be
improved and upgraded.
SMIs/ MNCs - Technology transfer from MNCs.
•
Both SMIs and MNCs also shared the same thinking that the second most
effective method is as follows :
SMIs/ MNCs - Learn through on the job training.
•
Both SMIs and MNCs still share the opinion on the third effective method is as
follows :
SMIs/ MNCs - More in-house or off-site training programme for employees.
106
5.2.3
Sales and Marketing.
5.2.3.1 Key assistance on products exporting for SMIs needed from government.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most important factor out from the total of five choices based on
their personal perception. Since all collected data are categorical, frequency
distribution table with percent is used to identify the criticalness of each factor. Cross
tabulation for the assiatances on products exporting for SMIs needed from government
is as shown in Figure 5.9.
Frequency Percent
40%
30%
20%
10%
0%
SMIs
MNCs
SMIs
MNCs
Ans #1
Info on
Market Exp./
Linkage
Contact
32.9%
33.3%
Ans #2
Simplify
Export
Regulation/
Procedure
16.4%
16.7%
Ans #3
Ans #4
Exporting
Incentive/
Assistance
35.6%
28.6%
Ans #5
Overseas
Trade Fair/
Exhibition
Arrangement
9.6%
14.3%
Efficient/
Helpful
Liaison
Officer
5.5%
7.1%
Figure 5.9 : Assistances Needed on Products Exporting.
Summary :
•
The results show that SMIs and MNCs have different viewpoints on the most
important assistance that SMIs needed from government in exporting their
products.
SMIs - Better incentive and guidance on products exporting.
MNCs - Sufficient information on global market expectation and business
linkages contact.
107
•
Second important assistance needed by SMIs is as follows :
SMIs - Sufficient information on global market expectation and business
linkages contact.
MNCs - Better incentive and guidance on products exporting.
•
Both SMIs and MNCs share the same opinion for the third important
assistance which SMIs needed on products exporting from government.
SMIs/ MNCs - Simplify exporting regulations and procedures.
5.2.3.2 Key country for products exporting.
For the above statement, respondents from both SMIs and MNCs are
requested to pick the key country out from the total of five choices based on their
personal perception. Since all collected data are categorical, frequency distribution
with percent is used to identify the criticalness of each choice. Cross tabulation of the
key countries for products exporting is as shown in Figure 5.10.
Frequency Percent
50%
40%
SMIs
30%
20%
MNCs
10%
0%
Ans #1
SMIs
MNCs
Thailand
35.6%
14.3%
Ans #2
China
19.2%
7.1%
Ans #3
USA
27.4%
40.5%
Figure 5.10: Countries on Products Exporting.
Ans #4
Ans #5
Japan
4.1%
16.7%
Other
13.7%
21.4%
108
Summary :
•
The results show that both SMIs and MNCs have differences in key country
for their exporting their products.
SMIs
- Thailand.
MNCs - USA.
•
Second largest importer for their products is as follows :
SMIs
- USA.
MNCs - Other (Europe, Korea, Hong Kong, etc.).
•
Third largest importer for their products is as follows :
SMIs
- China.
MNCs - Japan.
5.2.3.3 Percentage of company business activities rely exporting market
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most appropriate percentage out from the five choices based on
their personal perception. Since all collected data are categorical, frequency
distribution table with percentage is used to identify the involvement of their business
on exporting. Cross tabulation for the percentage of involvement on exporting is as
shown in Figure 5.11.
109
70%
Frequency Percent
60%
50%
SMIs
40%
30%
MNCs
20%
10%
0%
SMIs
MNCs
Ans #1
> 75%
16.5%
66.7%
Ans #2
51 – 75%
12.3%
19.0%
Ans #3
36 – 50%
21.9%
2.4%
Ans #4
Ans #5
< 25%
41.1%
9.5%
0%
8.2%
2.4%
Figure 5.11 : Percentage of Business Activity on Exporting.
Summary :
•
The result show that majority of the SMIs and MNCs have differences in the
percentage of business activity relied upon for exporting their products.
SMIs - Less than 25%.
MNCs - More than 75%.
•
Second higher percent of business activity on exporting their products
SMIs - 36 – 50%.
MNCs - 51 – 75%.
•
Third higher percent of business activity on exporting their products
SMIs - More than 75%.
MNCs - Less than 25%.
110
5.2.3.4 Forecast on the economic situation of Penang manufacturing industry
for the next five years.
For the above statement, respondents from both SMIs and MNCs are
requested to give their forecast on the economic situation of Penang manufacturing
industry for the next five years based on his/ her personal perception. Since all
collected data are categorical, frequency distribution with percentage is used to
identify the weighting of each forecast. Cross tabulation for the weighting of the
forecast is as shown in Figure 5.12.
Frequency Percent
60%
50%
SMIs
40%
30%
20%
MNCs
10%
0%
SMIs
MNCs
Ans #1
Progress of
Improvement
11.0%
16.7%
Ans #2
Ans #3
Remind as Present
Situation
38.4%
47.6%
Expecting to
Become Worse
50.6%
35.7%
Figure 5.12 : Forecast on Penang’s Economic Situation.
Summary :
•
The results show that majority of the SMIs and MNCs have differences in
forecasting the economic situation of Penang manufacturing industry for the
next five years.
SMIs - Business performance expecting to become worse.
MNCs - Business performance remain as present situation.
•
Second bigger number of the respondents with forecast as follows :
SMIs - Business performance remain as present situation.
MNCs -
Business performance expecting to become worse.
111
•
Remaining of the respondents with forecast as follows :
SMIs/ MNCs -
5.2.4
Business performance shows signs of improvement.
Technology and Quality Level.
5.2.4.1 Method which the technological and quality for Penang’s SMIs can be
improved and upgraded faster.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most effective method which the technological and quality for
Penang’s SMIs can be improved and upgraded faster based on his/ her personal
perception. Since all collected data are categorical, frequency distribution table with
percentage is used to identify the criticalness of each factor. Cross tabulation of the
selection is as shown in Figure 5.13.
Frequency Percent
40%
30%
SMIs
20%
MNCs
10%
0%
Ans #1
Linkage
With MNCs
SMIs
MNCs
30.1%
33.3%
Ans #2
Expose to
Stronger
Market
Competition
11.0%
14.3%
Ans #3
Ans #4
Ans #5
Effective
Incentive/
Vendor
Reward for
Development
Good
Programme Performance
16.5%
20.5%
7.2%
7.1%
Good
Initiative/
Aggressive
Attitude
21.9%
38.1%
Figure 5.13: Methods on Technology and Quality Improvement and Upgrading.
112
Summary :
•
The results show that majority of the SMIs and MNCs have different
viewpoints on the method which the technology and quality for Penang’s SMIs
can be improved and upgraded faster.
SMIs - Linkage with MNCs.
MNCs - Good initiative and aggressiveness attitude of SMIs.
•
Second most favoured method is as follows :
SMIs - Good initiative and aggressive attitude of SMIs.
MNCs - Linkage with MNCs.
•
Third most favoured method is as follows :
SMIs - Better incentives and rewards for SMIs with better performance.
MNCs - Exposure to stronger market competition.
5.2.4.2 Most critical strength of SMI that enable them to be competitive in the
global market.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most critical strength of SMIs that enable them to be competitive
in the global market based on his/ her personal perception. Since all collected data are
categorical, frequency distribution table with percent is used to identify the important
of each strength. Cross tabulation of the selection is as shown in Figure 5.14.
113
80%
Frequency percent
70%
60%
SMIs
50%
40%
30%
MNCs
20%
10%
0%
Ans #1
SMIs
MNCs
High Quality
Product at
Lower Cost
50.7%
71.4%
Ans #2
Stronger
Fianacial
Backing
19.2%
11.9%
Ans #3
Ans #4
Good
Support by
MNCs
8.2%
2.4%
Ans #5
Strong
Sales and
Marketing
5.5%
4.8%
Strong
Engineering
and R&D
16.4%
14.3%
Figure 5.14 : Critical Strength of SMIs to be Competitive.
Summary :
•
The result show that majority of the both SMIs and MNCs have the same
perception on the most critical strength of SMIs that will enable them to be
competitive in the global market is as follows :
SMIs/ MNCs - Capable to supply high quality product at lower cost.
•
Second most critical strength as agreed is as follows :
SMIs - Strong financial backing and planning.
MNCs - Strong engineering and R&D team.
•
Third most critical strength as agreed is as follows :
SMIs - Strong engineering and R&D team.
MNCs - Strong financial backing and planning.
114
5.2.4.3 Major inhibiting factor which hinder SMIs from attaining the
international quality system certification (e.g. ISO).
Findings :
For the above statement respondents from both SMIs and MNCs are
requested to pick the major inhibiting factor which hinder SMIs from attaining the
international quality system certification based on his/ her personal perception. Since
all collected data are categorical, frequency distribution table with percentage is used
to identify the weighting of each factor. Cross tabulation of the selection is as shown
in Figure 5.15.
Frequency Percent
40%
30%
20%
MNCs
10%
0%
SMIs
MNCs
SMIs
Ans #1
Certification/
Consult. Cost
too High
38.4%
31.0%
Ans #2
No
Incentive
on Cert’n
26.0%
16.7%
Ans #3
Ans #4
Lack of Staff
on Manage
of System
21.9%
35.7%
Ans #5
Complex
Application
Procedure
6.8%
9.5%
No
Necessary
to Apply
6.8%
7.1%
Figure 5.15 : Inhibiting Factors that Hinder SMIs from Attaining International
Quality System Certification.
Summary :
•
The results show that majority of the SMIs and MNCs have different
viewpoints on the major inhibiting factor which hinder SMIs from attaining the
international quality system certification is as follows :
SMIs
- Certification and consultation costs too high.
MNCs - Lack of knowledgeable staff to manage the system.
115
• Second major inhibiting factor as agreed is as follows :
SMIs
- No incentives for achievement of quality system certification.
MNCs - Certification and consultation costs too high.
•
Third major inhibiting factor as agreed is as follows :
SMIS
- Lack of knowledgeable staff to manage the system.
MNCs - No incentives for achievement of quality system certification..
5.2.4.4 General performance of Penang’s SMIs in manufacturing industry with
respect to technology and product quality performance.
Findings :
For the above statement, respondents from both SMIS and MNCs are
requested to comment on the general performance of the Penang’s SMIs in
manufacturing industry with respect to technology and product quality performance
based on their personal perception. Since all collected data are categorical, frequency
distribution table with percentage is used to identify the general comment. Cross
tabulation of the selection is as shown in Figure 5.16.
Frequency Percent
60%
50%
30%
20%
MNCs
10%
0%
SMIs
MNCs
SMIs
40%
Ans #1
Excellent
0%
0%
Ans #2
Good
47.9%
38.1%
Ans #3
Average
46.6%
57.1%
Figure 5.16 : General Performance of Penang’s SMIs.
Ans #4
Fair
4.1%
4.8%
Ans #5
Poor
1.4%
0%
116
Summary :
•
The result shows that majority of the SMIs and MNCs have differences in their
comments for the general performance of Penang’s SMIs is as follows :
SMIs
- Good in performance.
MNCs - Average in performamce.
•
Second majority of respondents agreed is as follows :
SMIs
- Average in performamce.
MNCs - Good in performamce.
•
Third majority of both SMIs and MNCs have the same opinion is as follows :
SMIs/ MNCs - Fair in performance.
5.2.5
Information and Communication Technology (ICT).
5.2.5.1 Factors that restrict Penang’s SMIs from adopting ICT.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most critical factor that restrich Penang’s SMIs from adopting
ICT based on their personal perception. Since all collected data are categorical,
frequency distribution table with percent is used to identify the weighing of each
factor. Cross tabulation of the selection is as shown in Figure 5.17.
117
Frequency percent
60%
50%
SMIs
40%
30%
20%
MNCs
10%
0%
Ans #1
Lack of Fund
On
Implement’n
SMIs
MNCs
53.4%
47.6%
Ans #2
Lack of
Right Staff
to Manage
System
16.4%
9.5%
Ans #3
Ans #4
Doubtful
on Transact
Security
System
5.5%
7.1%
Ans #5
Difficulty to
Get
Government
Subsidy
11.0%
4.8%
Lack of
Awareness
on Benefit
of System
13.7%
31.0%
Figure 5.17 : Factors that Restrict Penang’s SMIs from Adopting ICT.
Summary :
•
The results show that both SMIs and MNCs have the same perceptions about
the key factor that restrict Penang’s SMIs from adopting ICT is as follows :
SMIs/ MNCs - Lack of fund (high cost for implementation and
management of the system).
•
Second most important factor as agreed is as follows :
SMIs - Lack of IT human resources to manage the system.
MNCs - Lack of awareness on the benefit of ICT utilization.
•
Third most important factor as agreed is as follows :
SMIs - Lack of awareness on the benefit of ICT utilization.
MNCs - Lack of IT human resources to manage the system.
118
5.2.5.2 Government effort needed to promote ICT utilization for SMIs.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most important effort from government needed to promote ICT
for SMIs based on their personal perception. Since all collected dats are categorical,
frequency distribution table with percent is used to identify the weighting of each
effort. Cross tabulation for the selection is as shown in Figure 5.18.
Frequency Percent
50%
40%
20%
MNCs
10%
0%
SMIs
MNCs
SMIs
30%
Ans #1
Monetary
Assistance /
Incentive
42.5%
38.1%
Ans #2
Sufficient
Training to
IT Staff
8.2%
11.9%
Ans #3
Ans #4
Reduce Red
Tape on
Assist App’n
15.1%
23.8%
Ans #5
Publicity
on Benefit
of Using
16.4%
11.9%
Effective
Networking
System
17.8%
14.3%
Figure 5.18 : Efforts Needed from Government to Promote ICT Utilization Among
SMIs.
Summary :
•
The results show that majority of the SMIs and MNCs have the same opinion
on the key effort needed from government to promote ICT utilization among
SMIs.
SMIs/ MNCs - Provide monetary assistance and incentive.
•
Second key effort as agreed is as follows :
SMIs
- Provide good and effective ICT networking system.
MNCs - Reduce red tape on technology acquisition assistance fund for ICT.
119
•
Third key effort as agreed is as follows :
SMIs - Strong publicity and promotion on benefits of ICT utilization.
MNCs - Provide good and effective ICT networking system.
5.2.5.3 Company having the homepage to promote the business activities.
Findings :
For the above statement, respondents from both SMISs and MNCs are
requested to commit on whether they have homepages to promote their business
performance, especially to the overseas market. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the
weighing of each category. Cross tabulation for the respondents who involved on
Frequency Percent
homepage is as shown in Figure 5.19.
50%
40%
SMIs
30%
20%
MNCs
10%
0%
SMIs
MNCs
Ans #1
With Homepage
92.9%
67.1%
Ans #2
Without Hompage
7.1%
32.9%
Figure 5.19 : Company Involvement in Homepage.
Summary :
•
The results show that majority of the SMIs and MNCs are involved in
homepage activities to improve their business performance.
120
5.2.5.4 Achievement of return on investment from the website.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to comment on their achievement of return on investment through their
involvement on website. Since all collected data are categorical, frequency distribution
table with percent is used to identify their gain from website. Cross tabulation of their
Frequency Percent
achievement is as shown in Figure 5.20.
SMIs
MNCs
70%
60%
50%
40%
30%
20%
10%
0%
SMIs
MNCs
Ans #1
More Than
Expected
6.0%
19.7%
Ans #2
What As
Expected
33.4%
48.7%
Ans #3
Less Than
Expected
60.6%
31.6%
Figure 5.20 : Achievement of Return on Investment from Website.
Summary :
•
The results show that majority of the SMIs and MNCs are having different
level of achievement on their involvement on website is as follows :
SMIs - Achieving less than expected.
MNCs - Achieving what is being expected.
•
Second bigger group of respondents with achievement as follows :
SMIs -
Achieving what is being expected.
MNCs -
Achieving less than expected.
121
5.2.6
Public Sector Incentives and Schemes.
5.2.6.1 Participation of government incentives and assistance schemes under
industrial development programme.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to confirm their participation in government incentives and assistance
schemes under industrial development programme. Since all collected data are
categorical, frequency distribution with percentage is used to identify their number of
Frequency Percent
participated respondents is as shown in Figure 5.21.
60%
50%
SMIs
40%
30%
MNCs
20%
10%
0%
SMIs
MNCs
Yes
Obtained Government
Incentive/ Assistance
35.6%
59.5%
No
Without Government
Incentive/ Assistance
56.2%
38.1%
Figure 5.21 : Participation in Government Incentive and Assistance Schemes.
Summary :
•
The results show that only 56.2% of the SMIs and 59.5% of the MNCs
participate in the government incentives and assistance schemes under the
industrial development programme.
122
5.2.6.2 Difficulty experienced in applying government industrial development
assistance programme.
Finding :
For the above statement, respondents from both SMIs and MNCs are
requested to indicate whether they have ever encountered any difficulty in applying
government industrial development assistance programme. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the
efficiency of the concerned department. Cross tabulation of the selection is as shown
in Figure 5.22.
Frequency Percent
80%
60%
SMIs
40%
MNCs
20%
0%
SMIs
MNCs
Yes
Encountered Difficultiy in
Applying Government
Assistance/ Scheme
32.9%
26.2%
No
No Problem in Applying
Government Assistance/
Scheme
67.1%
73.8%
Figure 5.22 : Difficulty Encountered on Development Assistance Application
Summary :
•
The results show that majority of the SMIs and MNCs do not encounter
difficulty on applying the government industrial development assistance
programme.
123
5.2.6.3 Reason for poor participation by SMIs on government development
assistance incentives and schemes.
Finding :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the key reason for poor participation by SMIs on government
development assistance incentives and schemes based on their personal perception.
Since all collected data are categorical, frequency distribution table with percentage is
used to identify the weighing of each reason. Cross tabulation of the selection is as
shown in Figure 5.23.
Frequency Percent
50%
40%
20%
MNCs
10%
0%
SMIs
MNCs
SMIs
30%
Ans #1
Lack of
Awareness/
Information
45.2%
38.1%
Ans #2
Unclear
Application
Procedure
15.1%
11.9%
Ans #3
Ans #4
Stringent
Qualifying
Criteria
23.3%
26.2%
Ans #5
Application
Will Not Be
Accepted
9.6%
14.3%
Not
Attractive
Benefit
6.8%
9.5%
Figure 5.23 : Reasons of Poor Participation by SMIs on Government Assistance
Programme.
Summary :
•
The results show that both SMIs and MNCs are have the same sequence of
priority on criticalness of the reasons for the poor participation by SMIs on
government assistance programmes is as follows :
Key reason
- Lack of awareness and informationare not readily available.
Second reason - Qualifying criteria too stringent, processing and approval
time too long.
124
Third reason
- Lack of guidance and unclear application procedure.
5.3.6.4 SMIs expectation from the industrial development assistance programme
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the key SMIs expectation from the industrial development assistance
programme based on their personal perception. Since all collected data are categorical,
frequency distribution table with percentage is used to identify the weighing of each
factor. Cross tabulation of the selection is as shown in Figure 5.24.
Frequency Percent
40%
30%
SMIs
20%
0%
SMIs
MNCs
MNCs
10%
Ans #1
Introducing
Business
Contact
20.5%
21.2%
Ans #2
Arrange
Business
Linkage
35.6%
31.9%
Ans #3
Ans #4
Provide
Capital
Financing
31.5%
25.3%
Ans #5
Provide
Technical
Guidnace
8.2%
16.8%
Provide
Business
Guidance
4.2%
4.8%
Figure 5.24 : SMIs Expectation from Industrial Development Assistance
Programme.
Summary :
•
The results show that both SMIs and MNCs have the same sequence of priority
on the SMIs expectation from the government industrial development
assistance programme is as follows :
125
Key expectation
- Arrange business contact (local and overseas).
Second expectation
- Provide working capital financing.
Third expectation
- Provide business contact information (local and
overseas).
5.2.7
Linkages Programme and Scheme.
5.2.7.1 Circular/ newsletter regularly received from government authority on
Penang manufacturing activities, opportunities, progress trends or
incentive/programme availabled.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to confirm the receipt of any circular/ newletter have been regularly
received from government authority on Penang’s manufacturing industry activities,
opportunities, progress trends or incentives/ programme availabled based on their
personal perception. Since all collected data are categorical, frequency distribution
table with percentage is used to identify their declaration. Cross tabulation for their
Frequency Percent
declaration is as shown in Figure 5.25.
SMIs
MNCs
100%
80%
SMIs
60%
40%
MNCs
20%
0%
Yes
Received Regular Update on
Penang Manufacturing
Activities from Government
11.0%
31.0%
No
Not Received Regular
Update on Penang Manuf.
Activities from Government
89.0%
69.0%
Figure 5.25 : Declaration on Receiving of Circular/ Newsletter form
Government Authority.
126
Summary :
•
The results show that majority of the SMIs and MNCs are in agreement that
they do not receive circular/ newsletter regularly from the government
authority on Penang’s manufacturing activities, opportunities, progress trends
or incentive schemes/ programmes.
5.2.7.2 Awareness of Government Aided Assistance Programmes
Respondents from both SMIs and MNCs are requested to pick those
government aided assistance programmes that they are aware of. Since all collected
data are categorical, frequency distribution table with percentage is used to identify the
degree of awareness of each programme. Cross tabulation of the selection is as shown
in Figure 5.26.
80%
Frequency Percent
70%
60%
50%
40%
30%
20%
10%
0%
Ans #1
Ans #2
Ans #3
Ans #4
SMIs
SMIs
MNCs
VDP
22.5%
52.4%
GSP
21.9%
33.3%
ILP
9.6%
19.0%
SMIPP
20.5%
31.0%
Ans #5
Ans #6
Ans #7
Ans #8
MNCs
ITAF
30.1%
21.0%
TAF
17.8%
14.3%
HRDF
61.6%
76.2%
MAS
15.1%
7.1%
Figure 5.26: Awareness of Government Development Assistance Programmes
127
Summary :
•
The results show that majority of the SMIs and MNCs only very familiar with
Human Resources Development Fund (HRDF) and are not quite aware the
existence of the rest of the programmes.
•
Second programme that companies are commonly aware of is as follows :
SMIs
- Industrial Technical Assistance Fund (ITAF).
MNCs - Vendor Development Programme (VDP).
•
Third programme that companies are commonly aware of is as follows :
SMIs
- Vendor Development Programme (VDP).
MNCs - Global Supplier Programme (GSP).
5.2.7.3 Problems with the overall existing development assistance programmes.
For the above statement, respondents from both SMIs and MNCs are
requested to pick the most critical problem with the existing SMIs development
assistance programme based on their personal perception. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the
weighing of each problem. Cross tabulation of the selection is as shown in Figure
5.27.
128
Frequency Percent
50%
40%
SMIs
30%
20%
MNCs
10%
0%
SMIs
MNCs
Ans #1
Not Reflect
Needs of
SMIs
30.1%
26.2%
Ans #2
Ans #3
Lack of
Publicity &
Awareness
42.5%
23.8%
Ans #4
Lack of
Efficient
Officers
11.0%
16.7%
Ans #5
Poor
Follow Up/
Monitoring
9.6%
21.4%
Complex
Application
Procedure
6.8%
11.9%
Figure 5.27 : Problems of Existing SMIs Development Assistance Programmes.
Summary:
•
The results show that majority of the SMIs and MNCs have different
viewpoints on the problem with the existing SMIs development assistance.
programmes is as follows :
SMIs
-
MNCs •
Programmes do not sufficiently reflect the needs of SMIs.
Second most critical problem is as follows :
SMIs
-
MNCs •
Lack of publicity and low awareness by SMIs.
Programmes do not sufficiently reflect the needs of SMIs.
Lack of publicity and low awareness by SMIs.
Third most critical problems is as follows :
SMIs
-
MNCs -
Lack of officers with sufficient knowledge on the industrial needs.
Poor monitoring and follow up on system after implementation.
129
5.2.7.4 Company having active business linkages or sub-contracting
activities with any of the MNCs or SMIs.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to confirm whether they are having the active business inkages or subcontracting activities with any of the MNCs or SMIs. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the percent
of respondents with involvement. Cross tabulation of the respondents with
involvement is as shown in Figure 5.28.
Frequency %
80%
60%
MNCs
20%
0%
SMIs
MNCs
SMIs
40%
Yes
Involve in Sub-Conctacting
Activities
39.7%
57.1%
No
Not Invole in SubContracting Activities
60.3%
42.9%
Figure 5.28 : Company having Active Business Linkages or Sub-Contracting
Activities.
Summary :
•
The results show that majority of the SMIs 60.3% do not have the active
business linkages or sub-contracting activities with MNCs, while 60.3% of the
MNCs confirms that they are participating in this type of activities.
130
5.2.8
Industrial Development Plan and Problem.
5.2.8.1 Sector favoured by investors for manufacturing industry set up in
Penang.
Findings :
For the above statement, respondents from both the SMIs and MNCs are
requested to choose the most favourable sector of the manufacturing industry which
they will invest in if they have the opportunity. Since all collected data are categorical,
frequency distribution table with percentage is used to identify the most favourable
sector agreed. Cross tabulation for the preferred choice is as shown in Figure 5.29.
Frequency %
40%
30%
MNCs
10%
0%
SMIs
MNCs
SMIs
20%
Ans #1
Electronics
& Electrical
27.4%
33.4%
Ans #2
Computer
& IT
9.6%
38.1%
Ans #3
Ans #4
Tooling &
Machinery
35.6%
19.0%
Ans #5
Plastic
Others
8.2%
0%
19.2%
9.5%
Figure 5.29 : Favourable Sector for New Investors.
Summary :
•
The results show that majority of the SMIs and MNCs are have differences in
opinion on the most favourable choice of sector for the new investment isas
follows :
SMIs -
Tooling, equipment and machinery fabrication.
MNCs -
Computer and IT base products.
131
•
Both SMIs and MNCs have the same second most favourable choice of sector
is as follows :
SMIs/ MNCs - Electronics and electrical base products.
•
Third most favourable choice of sector is as follows :
SMIs - Others ( Food processing, automation, waste recycle, etc.).
MNCs -
Tooling, equipment and machinery fabrication.
5.2.8.2 Disadvantages of operating the manufacturing industry in Penang at
present economic situation.
Finding :
For the above statement, respondents from both SMIs and MNCs are
requested to pick the key disadvantage of operating the manufacturing industry in
Penang at present economic situation, if any. Since all collected data are categorical,
frequency distribution table with percentage is used to identify the weighing of each
disadvantage. Cross tabulation of the selection is as shown in Figure 5.30.
Frequency %
40%
30%
SMIs
20%
MNCs
10%
0%
Ans #1
Rising Labour/
Overhead Cost
SMIs
MNCs
37.0%
33.3%
Ans #2
Shortage
of
Skill
labour
24.7%
9.6%
Ans #3
Lack of
Market
Outlet
23.3%
31.0%
Ans #4
Ans #5
Effieient
Government
& Political
Stability
12.3%
19.0%
Others
2.7%
7.1%
Figure 5.30 : Disadvantages of Operating Manufacturing Industry in Penang.
132
Summary :
•
The results show that majority of the SMIs and MNCs have the same
viewpoint on key disadvantage of operating manufacturing industry in Penang
as follows :
SMIs/ MNCs -
•
Increasing labour and overhead costs.
Second most important disadvantage agreed isas follows :
SMIs
- Difficulty in recruiting skill labour and high labour turnover.
MNCs - Difficulty in obtaining good market outlet.
•
Third most important disadvantage agreed isas follows :
SMIs
- Difficulty in obtaining good market outlet.
MNCs - Lack of attractive incentives/ assistance schemes from
government.
5.2.8.3 Company intention to integrate the operation backward or forward to
include more stages of manufacturing for the product
Findings :
For the above statement, respondents from both SMIS and MNCs are
requested to confirm their company intention to integrate the operation backward and
forward to include more stages of manufacturing for their product. Since all collected
data are categorical, frequency distribution table with percentage is used to determine
their commitment. Cross tabulation of the commitment is as shown in Figure 5.31.
133
Frequence %
80%
60%
40%
MNCs
20%
0%
SMIs
MNCs
SMIs
Yes
Plan to Intergrate
Operation for More Stages
of Manufacturing
61.6%
28.6%
No
No Plan to Intergarte
Operation for More Stages
of Manufacturing
38.4%
71.4%
Figure 5.31: Intension to Integrate Company’s Operation Forward or Backward to
Include More States of Manufacturing.
Summary :
•
The results show that majority of the SMIs at 61.6% declared that they intend
to integrate their company operation forward or backward to include more
stages of manufacturing for their product while majority of MNCs do not agree
so as most of the MNCs are concentrating on their core business.
5.2.8.4 Factor that still attract foreign investors to set up facilities in Penang at
present economic situation.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the key factor that still attract foreign investors to set up
facilities in Penang at present economic situation. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the
weighing of each factor. Cross tabulation for the selection is as shown in Figure 5.32.
Frequency Percent
134
SMIs
MNCs
50%
40%
SMIs
30%
20%
MNCs
10%
0%
Ans #1
Low labour/
Overhead
Cost
8.2%
7.1%
Ans #2
Attractive
Incentive/
Subsidizes
16.4%
11.9%
Ans #3
Ans #4
Sifficient
Skillful
labour
26.0%
40.5%
Ans #5
Efficient /
Stable
Government
37.0%
35.7%
Others
12.4%
4.8%
Figure 5.32 : Factors that Still Attract Foreign Investors to Set Up facilities in
Penang.
Summary :
•
The results show that majority of the SMIs and MNCs confirmed that the most
important factor that still attract foreign investors to set up facilities in Penang
is as follows :
SMIs - Efficient government and political stability.
MNCs - Sufficient skillful and disciplined workforce.
•
Second most important factor as agreed isas follows :
SMIs - Sufficient skillful and disciplined workforce.
MNCs - Efficient government and political stability.
•
Third important factor as agreed by both SMIs and MNCs isas follows :
SMIs/ MNCs - Attractive investment incentives and subsidizes.
135
5.2.9
Future Action Plan and Strategy.
5.2.9.1 Company’s plan to relocate partial/ whole of operation to other state
of Malaysia or other country.
Findings :
For the above statement,respondents form both SMIs and MNCs are
requested to confirm whether they are having the plan to relaocate partial/ whole of
their operation to other state of Malaysia or other countries. Since all collected data are
categorical, frequency distribution table with percent is used to confirm the standpoint.
Cross tabulation of their standpoint is as shown in Figure 5.33.
Frequency %
80%
40%
MNCs
20%
0%
SMIs
MNCs
SMIs
60%
Yes
Plan to Relocate Operating
Location
38.4%
33.3%
No
No Plan to Relocate Operating
Location
61.6%
66.7%
Figure 5.33 : Company’s Plan to Relocate their Manufacturing Operation from
Penang.
Summary :
•
The results show that majority of the SMIs at 61.6% and MNCs at 66.7% do
not have plans to relocate partial/ whole of their manufacturing operation to
other state of Malaysia or other countries. The movement of the other one
third should not be neglected as their relocation from Penang will greatly affect
the Penang economy. This is the top priority concern which Penang
government should seriously look into and come out with the necessary
remedial plan.
136
5.2.9.2 Preferred location for set up of new manufacturing facility.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the preferred location for the set up of new manufacturing
facility, if they have such plans. Since all collected data are categorical, frequency
distribution table with percentage is used to identify their preferred location. Cross
tabulation of their selection is as shown in Figure 5.34.
Frequency
Percent
80%
60%
SMIs
40%
MNCs
20%
0%
Ans #1
Penang
SMIs
MNCs
23.3%
4.8%
Ans #2
Other State
in Malaysia
5.5%
0%
Ans #3
Ans #4
Ans #5
Thailand
China
Others
35.6%
28.5%
30.1%
64.3%
5.5%
2.4%
Figure 5.34: Preferred Location for setting up of New Manufacturing Facility.
Summary :
•
The results statistically shows that majority of the SMIs and MNCs have
difference in preference to set up their new manufacturing facility is as follows
SMIs
- Thailand.
MNcs - China.
•
Second preferred location as agreed is as follows :
SMIs
- China.
MNCs - Thailand.
137
•
Both SMIs and MNCs share the same third preferred location is as follows :
SMIs/ MNCs - Penang.
5.2.9.3 Reason for certain MNCs manufacturing facilities moving out from
Penang.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the key reason behind certain MNCs manufacturing facilities to
move out from Penang. Since all collected data are categorical, frequency distribution
table with percentage is used to identify the weighing of each reason. Cross tabulation
of their selection is as shown in Figure 5.35.
Frequency Percent
50%
40%
SMIs
30%
20%
MNCs
10%
0%
Ans #1
Increasing
Overhead /
Labour Cost
SMIs
MNCs
43.8%
42.9%
Ans #2
Ans #3
Better
Opportunity
from Other
Countries
19.2%
31.0%
Ans #4
Lack of
Sufficient
Skilled
Workforce
4.1%
2.7%
Ans #5
Better
Political
Incentives
Issues and
form Other Government
Countries Performance
24.7%
8.2%
21.4%
2.0%
Figure 5.35 : Reasons for Certain MNCs Moving Out From Penang.
138
Summary :
•
The results show that majority of the SMIs and MNCs confirm that the key
reason for certain MNCs manufacturing facilities moving out from Penang is
as follows :
SMIs/ MNCs - Increasing overhead and labour costs.
•
Second key reason as agreed is as follows :
SMIs - Better incentives and subsidizes offered from other countries.
MNCs - Higher market opportunity from other countries.
•
Third key reasons as agreed is as follows :
SMIs - Higher market opportunity from other countries.
MNCs -
Better incentives and subsidizes offered from other countries.
5.2.9.4 Factors that able to lead Penang’s manufacturing industry for a faster
recovery economically.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the key factor that isable to lead Penang’s manufacturing
industry for a faster recovery economically, due to present global economic
slowdown. Since all collected data are categorical, frequency distribution table with
percentage is used to identify the weighing of each reason. Cross tabulation of the
selection is as shown in Figure 5.36.
139
Frequency Percent
40%
30%
SMIs
20%
MNCs
10%
0%
Ans #1
Better
Incentives /
Subsidies
SMIs
MNCs
26.0%
21.1%
Ans #2
Ans #3
Better
Pricing
Competitive
-ness
32.9%
28.6%
Ans #4
Strong
Promotion
to Outside
World
13.7%
2.4%
Ans #5
More
Efficient
Government
Authority
17.8%
31.0%
More
Effective
Linkages
with MNCs
9.6%
16.9%
Figure 5.36 : Factors that Able to Lead Penang’s Manufacturing Industry for a Faster
Recovery.
Summary :
•
The results show that majority of the SMIs and MNCs confirmed that the most
important factor that would be able to lead Penang’s manufacturing industry
for a faster recovery economically is as follows :
SMIs
- Better pricing competitiveness as compared with other nations.
MNCs - More efficient and effective government authority, reduction of
unnecessary red tape.
•
Second most important factor as agreed is as follows :
SMIs
- Better incentives/ subsidizes.
MNCs - Better pricing competitiveness as compared with other nations.
•
Third most important factor as agreed is as follows :
SMIs
- More efficient and effective government authority, reduce
unnecessary red tape.
MNCs - Better incentives/ subsidizes.
140
5.2.10
Business Operation Behaviour and Reaction.
5.2.10.1 In business it is better to work on what really familiar, rather that trying
on something that do not know well.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine their business viewpoint on whether prefer to work on what
really familiar, or rather to try on something new that do not know well. Since all
collected data are categorical, frequency distribution table with percentage is used to
identify their viewpoint. Cross tabulation of the selection is as shown in Figure 5.37.
Frequency %
100.00%
80.00%
SMIs
60.00%
40.00%
MNCs
20.00%
0.00%
SMIs
MNCs
Yes
To Work on Jobs that
Familiar With
83.6%
73.8%
No
Try on New Jobs that Not
Really Know Well
16.4%
26.2%
Figure 5.37 : Preference to Work on Familiar Job Rather Than New Job.
Summary :
•
The results show that majority of the SMIs and MNCs confirmed that from a
business viewpoint, it is better to work on what they are familiar with or
having the expertise in , rather than trying to work on new thing that they do
not know well.
141
5.2.10.2 Organization for referring to when guidance needed on technical issue,
business opportunity of marketing information.
Findings :
For the above statement, responding from both SMIs and MNCs are
requested to determine the organization that they normally refer to when guidance are
needed on technical issue, business opportunity and marketing information. Since all
collected data are categorical, frequency distribution table with percentage is used to
the familiar level of each organization. Cross tabulation of the selection is as shown in
Figure 5.38.
Frequency Percent
40%
30%
SMIs
20%
MNCs
10%
0%
Ans #1
Ans #2
Government
Agency
MNCs
12.3%
24.8%
8.2%
16.7%
SMIs
MNCs
Ans #3
Ans #4
Consultancy
Firm /
Manufacturer
16.4%
14.3%
Ans #5
Professional/
Business
Partner
33.1%
31.0%
Industrial
Friend
30.0%
13.2%
Figure 5.38 : Referring Company for Guidance on Technical, Business and
Marketing Information.
Summary :
•
The results shows that majority of the SMIs and MNCs confirmed that when
their company need guidance on technical issue, business opportunity and
marketing information, normally they will refer to their professional or
business counter part.
•
Second most favourable organizations as agreed is as follows :
SMIs
- “Industrial” friends.
MNCs - Government agencies.
142
•
Third most favourable organizations as agreed is as follows :
SMIs
- Consultancy firm or manufacturers.
MNCs - MNCs.
5.2.10.3 Corrective measures that company has taken to sustain business
during the recession period.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the most important corrective measure that the company should
take to keep their business sustaining during the recent recession period based on their
personal perception. Since all collected data are categorical, frequency distribution
table with percent is used to identify the weighing of each measure. Cross tabulation
of the selection is as shown in Figure 5.39.
Frequency Percent
60%
50%
30%
MNCs
20%
10%
0%
SMIs
MNCs
SMIs
40%
Ans #1
Ans #2
Ans #3
Ans #4
Downsizing
Workforce/
Capacity
Expenses
Control/
Reduction
SubContracy for
Lower Cost
12.3%
24.5%
58.9%
42.9%
6.8%
11.9%
Ans #5
Relocate to
Lower
Wages
Country
1.4%
2.4%
New Market
Expansion/
Diversification
20.6%
18.3%
Figure 5.39 : Corrective Measures to Keep Company Sustaining During the
Recession Period.
143
Summary :
•
The results show that majority of the SMIs and MNCs are confirming that the
most important corrective measure that their company has taken to keep
sustaining during the recession period is as follows :
SMIs/ MNCs - Budget/ expenses control and reduction.
•
Second most important measure as agreed is as follows :
SMIs
- Look for new market or products expansion/ diversification.
MNCs - Downsizing workforce and production capacity.
•
Third most important measure as agreed is as follows :
SMIs
- Downsizing workforce and production capacity.
MNCs - Look for new markets or product expansion/ diversification.
5.2.10.4 Critical problem encounter by SMIs in business operation.
Findings :
For the above statement, respondents from both SMIs and MNCs are
requested to determine the most critical problem encountered by SMIs in their
business operation based on their personal perception. Since all collected data are
categorical, frequency distribution table with percentage is used to identify the
weighing of each problem. Cross tabulation for the problems encountered is as shown
in Figure 5.40.
144
Frequency Percent
50%
40%
SMIs
30%
20%
MNCs
10%
0%
Ans #1
Difficulty in
Raising
Capital
SMIs
MNCs
27.4%
19.0%
Ans #2
Difficulty in
Getting
Market
Outlet
43.8%
42.9%
Ans #3
Ans #4
Difficulty in
Achieving
Good
Business Sys.
4.1%
7.1%
Ans #5
Complex
Government
Regulation/
Procedures
8.2%
7.1%
Competition
With MNCs
for Good
labour
16.5%
23.9%
Figure 5.40 : Problems Encountered by SMIs on Business Operation.
Summary :
•
The results show that majority of the SMIs and MNCs have the same
viewpoint that the most critical problem SMIs encountered in their business
operation is as follows :
SMIs/ MNCs - Difficulty in penetrating global market.
•
Second most critical problem as agreed is as follows :
SMIs - Difficulty in raising capital and obtaining financing.
MNCs - Competition with larger establishment for good labour.
•
Third most critical problem as agreed is as follows :
SMIs - Competition with larger establishment for good labour.
MNCs - Difficulty in raising capital and obtaining financing.
145
5.3
Conclusions of Data Presentation and Analysis
The analysis of the data gathered from the questionnaire survey are
summarized as follows :5.3.1
Organization Profile and Perception
a. The total number of organizations surveyed was 115 which included 73
SMIs and 42 MNCs.
b. Setting up of new companies, especially the MNCs, in the trend of
declining.
c. Majority of SMIs at 50.7% with business performance affected by 3150% due to global economic slowdown.
d. Main reason of present unsatisfactory business performance for SMIs is
due to soft market demand.
5.3.2
Technology Transfer and HR Development
a. Government and MNCs have not done enough in providing opportunity
for SMIs to expose and learn up new technology and skills.
b. Most effective channel which SMIs can get in contact with latest
technological invention and development from overseas is by training of
staff in overseas.
c. Main problem encountered in training of employees for SMIs is losing of
them after training, due to better offer from other company.
d. Technological and managerial skills for Penang’s SMIs can be improved
and upgraded faster through technology transfer from MNCs.
146
5.3.3
Sales and Marketing
a. Critical assistance on product exporting needed by SMIs from
government is better incentives and procedure guidance.
b. Key products exporting country for SMIs is Thailand.
c. Percentage of company business activities depend on exporting market
for SMIs is less than 25%.
d. SMIs forecasted that the economic situation of Penang manufacturing
industry for the next five years expecting to become worse.
5.3.4
Technology and Quality Level
a. Method which technology and quality level for Penang’s SMIs can be
improved and upgraded faster through linkage with MNCs.
b. Most critical strength of SMIs that enable to be competitive in the global
market is their capability to supply high quality product at lower cost.
c. Main inhibiting factor which hinder SMIs from attaining the international
quality system certification is the cost of certification and consultation
too high to them.
d. General performance of Penang’s SMIs in manufacturing industry on
technology and quality is only average as judged by MNCs.
5.3.5
Information and Communication Technology (ICT)
a. Key factor that restrict Penang’s SMIs from adopting ICT is lack of fund
on implementation and management of the system.
147
b. Government effort needed by Penang’s SMIs to promote ICT utilization
is to provide monetary assistance and incentive.
c. Majority of the surveyed SMIs are involved in website to improve their
business performance.
d. Majority of the surveyed SMIs achieving less than expectation on return
of investment from the website.
5.3.6
Public Sector Incentives and Schemes
a. Only 35.6% of surveyed SMIs participate in the government incentives
and assistance schemes under the industrial development programme.
b. Majority of the surveyed SMIs do not encounter difficulty on applying
the government industrial development assistance programme.
c. Reason for poor participation by Penang’s SMIs on government
development assistance incentives and schemes are lack of awareness
and information not readily available.
d. Arrangement of business contact, both locally and overseas, is the key
expectation of Penang’s SMIs from the industrial development assistance
programme.
5.3.7
Linkages Programme and Scheme
a. Majority of the surveyed SMIs do not receive circular/ newsletter
regularly from the government on Penang’s manufacturing activities,
opportunities, progress trends or incentive schemes/ programmes.
b. Majority of the surveyed SMIs only familiar with Human Resources
Development Fund (HRDF).
148
c. Lack of publicity that lead to low awareness is the key problem with the
overall existing development assistance programmes.
d. Majority of the surveyed SMIs do not have the active business linkages
or sub-contracting activities with MNCs.
5.3.8
Industrial Development Plan and Problem
a. Tooling, equipment and machinery fabrication are favourable sectors by
surveyed SMIs for manufacturing facility set up in Penang.
b. Increasing labour and overhead costs is the key disadvantage of operating
manufacturing industry in Penang.
c. Majority of the surveyed SMIs intended to integrate their company
operation forward and backward to include more stages of manufacturing
for their products.
d. Key factor that still attract foreign investors to set up facilities in Penang
at present economic situation is our efficient government and political
stability.
5.3.9
Future Action Plan and Strategy
a. Majority of the surveyed SMIs do not have plan to relocate partial/ whole
of their manufacturing operation to other state of Malaysia or other
countries.
b. Most preferred location for SMIs to set up their new manufacturing
facility is Thailand.
c. Key reason of certain MNCs for relocating their manufacturing facilities
from Penang is the increasing labour and overhead costs.
149
d. Most important factor that SMIs can contribute to lead Penang
manufacturing industry towards a faster recovery economically is better
pricing competitiveness as compared with other nations.
5.3.10
Business Operation Behaviour and Reaction
a. Majority of both SMIs and MNCs confirmed that from business
viewpoint, it is better to work on something that familiar, rather than
those that do not know well.
b. When guidance on technical issue, business opportunity and marketing
information are needed, both SMIS and MNCs will refer to their
professional and business counter part.
c. Both SMIs and MNCs agreed that the most important corrective measure
that company can take to sustain their company during recession period
is on budget/ expenses control and reduction.
d. Most critical problem that SMIs encountered in their business operation
is the difficulty in penetrating into the global market.
150
5.4
Hypothesis Testing
5.4.1
Hypothesis No.1 : Penang’s manufacturing industries still have the
potential to revive after the global economy
situation recovered.
Ho : Percentage of agree equal or less than 50%
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.1 : Simple Tabulation of Result for Hypothesis No. 1
Frequency
Percent
Cum %
Strongly Disagree
1
0.9
0.9
Disagree
30
26.1
27.0
Neither Agree nor Disagree
39
33.9
60.9
Agree
37
32.2
93.0
Strongly Agree
8
7.0
100.0
Total
115
100.0
From the survey, the author tabulated the data obtained from the
respondents into frequency distribution table for the hypothesis as in Table 5.1. The
table shows that only 39.2% of the respondents agreed with this hypothesis. There
are 33.9% of them wondering what will be the future for Penang. Based on the low
percent of agreed respondents and high percent of “wonderers”, it looks like that it is
the high time for the Penang’s government authority to come out with the necessary
remedial measures to rebuild the confidence level of Penangites and investors on the
prospects and opportunities of the Penang’s manufacturing industry.
By applying one proportion test with 95% confidence interval, with the Pvalue of 0.993 (>0.05), the result confirms that there is no significant majority (only
39.2%) of the respondents agreed that Penang’s manufacturing industry still have
the potential to revive after the global economy situation recovered.
Hence, Ho is not rejected and it is concluded that Hypothesis No.1 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception on this Hypothesis
between SMIs and MNCs, cross tabulation of the results is as shown in Table 5.2.
151
Table 5.2 : Cross Tabulation of Result for Hypothesis No.1
SMI
%
MNC
Strongly Disagree
1
1.4
0
Disagree
21
28.8
9
Neither Agree nor Disagree
20
27.4
19
Agree
27
37.0
10
Strongly Agree
4
5.4
4
Total
73
100.0
42
%
0
21.4
45.2
23.8
9.4
100.0
Table 5.3 : Independent Samples T-Test Result for Hypothesis No.1
Dimension Mean
t-value
Significant
SMI
3.16
Hypothesis No.1
0.275
0.784
MNC
3.21
By applying the independent samples t-test with 95% confidence interval,
with the t-value of 0.274 and significant value at 0.784 (>0.05), the result in Table
5.3 confirms that Hypothesis No.1 at 5% significant level, there are no significant
differences in perception between SMIs and MNCs.
5.4.2
Hypothesis No.2 : Technological and managerial skills of most
Penang’s SMIs in manufacturing industry have
achieved the requirement per MNCs expectation.
Ho : Percentage of agree equal or less than 50%
Ha : Percentage of agree greater than 50%.
Data Analysis :
Table 5.4: Simple Tabulation of Result for Hypothesis No. 2
Frequency
Percent
Cum %
Strongly Disagree
1
0.9
0.9
Disagree
26
22.6
23.0
Neither Agree nor Disagree
34
29.6
53.0
Agree
46
40.0
93.0
Strongly Agree
8
7.0
100.0
Total
115
100.0
152
From the survey, the author tabulated the data obtained from the
respondents into frequency distribution for the hypothesis as in Table 5.4. The table
shows that only 47.0% of the respondents agreed with this hypothesis. There are
29.6% of them declared that they are neutral on their standpoint. As less than 50% of
the respondents agreed and high percent of neutral parties, the SMIs in Penang’s
manufacturing industry should take this as an indicator to be more effective and
efficient in order to be able to survive in this competitive market environment.
By applying one proportion test with 95% confidence interval, with the Pvalue of 0.772 (>0.05), the result confirms that there is no significant majority (only
47.0%) of the respondents agreed that the technological and managerial skills of
most Penang’s SMIs in manufacturing industry have achieved the requirement per
MNCs expectation.
Hence, Ho is not rejected and it is concluded that Hypothesis No.2 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception of this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.5
Table 5.5 : Cross Tabulation of Result for Hypothesis No.2
SMI
%
MNC
Strongly Disagree
1
1.4
0
Disagree
17
23.3
9
Neither Agree nor Disagree
18
24.7
16
Agree
34
46.6
12
Strongly Agree
3
4.1
5
Total
73
100.0
42
%
0
21.4
38.1
28.6
11.9
100.0
Table 5.6 : Independent Samples T-Test Result for Hypothesis No.2
Dimension Mean
t-value
Significant
SMI
3.29
Hypothesis No.2
-0.121
0.904
MNC
3.31
By applying independent samples t-test with 95% confidence interval, with
the t-value of –0.121 and significant value of 0.904 (>0.05), the result in table 5.6
confirms that Hypothesis No.2, at 5% significant level, there are no significant
differences in perception between SMIs and MNCs.
5.4.3
153
Hypothesis No.3 : Government have provided sufficient information,
guidance and assistance to SMIs on exporting their
products.
Ho : Percentage of agree equal or less than 50%
Ha :
Percentage of agree greater than 50%
Data Analysis :
Table 5.7 : Simple Tabulation of Result for Hypothesis No. 3
Frequency
Percent
Cum %
Strongly Disagree
7
6.1
6.1
Disagree
41
35.7
41.7
Neither Agree nor Disagree
45
39.1
80.9
Agree
21
18.3
99.1
Strongly Agree
1
0.9
100.0
Total
115
100.0
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in Table 5.7. The table shows that
only 19.2% of the respondents agreed with this hypothesis. There are significant
number of respondents at 39.1% do not have any comments, as they claimed that
they are not aware about the assistance that are provided by the government. It looks
like now is the time for the government to create more awareness to the public on
the type of services provided.
By applying one proportion test with 95% confidence interval, with the Pvalue of 1.000 (>0.05), the result confirms that there is no significant majority (only
19.2%) of the respondents agree that the government has provided sufficient
information, guidance and assistance to SMIs on exporting their products.
Hence, Ho is not rejected and it is concluded that Hypothesis No.3 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.8.
154
Table 5.8 : Cross Tabulation of Result for Hypothesis No.3
SMI
%
MNC
Strongly Disagree
5
6.8
2
Disagree
30
41.1
11
Neither Agree nor Disagree
23
31.5
22
Agree
15
20.5
6
Strongly Agree
0
0
1
Total
73
100.0
42
%
4.8
26.2
52.4
14.3
2.4
100.0
Table 5.9 : Independent Samples T-Test Result for Hypothesis No.3
Dimension Mean
t-value
Significant
SMI
3.29
Hypothesis No.3
-0.121
0.904
MNC
3.31
By applying the independent samples t-test with 95% confidence interval,
with the t-value of 0.121 and significant value at 0.904 (>0.05), the result in Table
5.9 confirms that Hypothesis No.3, at 5% significant level that there are no
significant differences in perception between SMIs and MNCs.
5.4.4
Hypothesis No. 4 : Key expectation from SMIs through the linkages
programme is for technology improvement ,
rather than company profitability.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.10 : Simple Tabulation of Result for Hypothesis No. 4
Frequency
Percent
Cum %
Strongly Disagree
3
2.6
2.6
Disagree
39
33.9
36.5
Neither Agree nor Disagree
37
32.2
68.7
Agree
32
27.8
96.5
Strongly Agree
4
3.5
100.0
Total
115
100.0
155
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in Table 5.10. The table shows that
only 31.3% of the respondents agreed with this hypothesis. Before the survey, the
researcher’s perception was that the SMIs should have the mental attitude of looking
forward on technology improvement through the linkages with MNCs. In actual fact,
the survey data certified that they are more interested on company profitability
rather than technology improvement. The government should try to create the
awareness on the importance of technology enhancement as a long term strategy
plan among the SMIs.
By applying one proportion test with 95% confidence interval, with the Pvalue of 1.000 (>0.05), the result confirms that there is no significant majority (only
31.3%) of the respondents who agree that key expectation from SMIs through the
linkages programme is for technology improvement, rather than profitability.
Hence, Ho is not rejected and it is concluded that Hypothesis No.4 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.11.
Table 5.11 : Cross Tabulation of Result for Hypothesis No.4
SMI
%
MNC
Strongly Disagree
1
1.4
2
Disagree
22
30.1
17
Neither Agree nor Disagree
24
32.9
13
Agree
23
31.5
9
Strongly Agree
3
4.1
1
Total
73
100.0
42
%
4.8
40.5
31.0
21.4
2.4
100.0
Table 5.12 : Independent Samples T-Test Result for Hypothesis No.4
Dimension Mean
t-value
Significant
SMI
3.07
Hypothesis No.4
1.715
0.089
MNC
2.76
156
By applying the independent samples t-test with 95% confidence interval,
with the t-value of 1.715 and significant value at 0.089 (>0.05), the result in table
5.12 confirms that Hypothesis No.4, at 5% significant level that there are no
significant differences in perception between SMIs and MNCs.
5.4.5
Hypothesis No. 5 : SMIs needed to expand their utilization on ICT, in
order to be competitive in technology and marketing.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.13 : Simple Tabulation of Result for Hypothesis No. 5
Frequency
Percent
Cum %
Strongly Disagree
0
0
0
Disagree
1
0.9
0.9
Neither Agree nor Disagree
20
17.4
18.3
Agree
61
53.0
71.3
Strongly Agree
33
28.7
100.0
Total
115
100.0
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in Table 5.13. The table show that
81.7% of the respondents agreed with this hypothesis. A significant majority of the
respondents from Penang’s manufacturing industry have clearly declared that ICT is
critical to them if they want to be competitive in the global market. This indicates
the foresight of the Penang’s SMIs on technology advancement and market
competitiveness requirement. The Penang government should reduce the
unnecessary red tape to make the application of ICT assistance scheme easier for
SMIs.
By applying one proportion test with 95% confidence interval, with the pvalue of 0.000(<0.05), the result confirms that asignificant majority (81.7%) of the
157
respondents agree that SMIs need to expand their utilization of ICT in order to be
competitive in technology and marketing.
Hence, Ha is not rejected that and it is concluded that Hypothesis No.5 is
supported by the majority of the respondents surveyed.
To further understand the difference in perception of this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.14
Table 5.14 : Cross Tabulation of Result for Hypothesis No.5
SMI
%
MNC
Strongly Disagree
0
0
0
Disagree
1
1.4
0
Neither Agree nor Disagree
14
19.2
6
Agree
39
53.4
22
Strongly Agree
19
26.0
14
Total
73
100.0
42
%
0
0
14.3
52.4
33.3
100.0
Table 5.15 : Independent Samples T-Test Result for Hypothesis No.5
Hypothesis No.5
Dimension
SMI
MNC
Mean
4.04
4.19
t-value
-1.102
Significant
0.273
By applying the independent samples t-test with 95% confidence interval,
with the t-value of –1.102 and significant value at 0.273 (>0.05), the result in Table
5.15 confirms that Hypothesis No.5, at 5% significant level that there are no
significant differences in perception between SMIs and MNCs.
5.4.6
Hypothesis No. 6 : Present industrial development incentives and
schemes are effective and impressive enough as
compared to other countries, to attract new
investors and retain existing investors
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
158
Data Analysis :
Table 5.16 : Simple Tabulation of Result for Hypothesis No. 6
Frequency
Percent
Cum %
Strongly Disagree
7
6.1
6.1
Disagree
46
40.0
46.1
Neither Agree nor Disagree
41
35.7
81.7
Agree
16
13.9
95.7
Strongly Agree
5
4.3
100.0
Total
115
100.0
From the survey, the author tabulated the data from the
respondents into frequency distribution table for the hypothesis as in Table 5.16. The
table shows that only 18.2% of the respondents agreed with this hypothesis. There
are significant number of the respondents at 46.1% who stressed that in order to
compete to attract investors with those newly emerging developing countries, like
China, Thailand, etc. and for Penang to remain as the preferred choice of location for
those investors, those industrial development incentives and schemes must be better
or at least on par with the competitors.
By applying one proportion text with 95% confidence interval, with the Pvalue of 1.000 (>0.05), the result confirms that there is no significant majority (only
18.2%) of the respondents agree that government have provided sufficient
information, guidance and assistance to SMIs on exporting their products.
Hence, Ho is not rejected and it is concluded that Hypothesis No.6 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.17.
Table 5.17 : Cross Tabulation of Result for Hypothesis No.6
SMI
%
MNC
Strongly Disagree
4
5.5
3
Disagree
33
45.2
13
Neither Agree nor Disagree
22
30.1
29
Agree
11
15.1
5
Strongly Agree
3
4.1
2
Total
73
100.0
42
%
7.1
31.0
45.2
11.9
4.8
100.0
159
Table 5.18 : Independent Samples T-Test Result for Hypothesis No.6
Dimension Mean
t-value
Significant
SMI
2.67
Hypothesis No.6
-0.498
0.619
MNC
2.76
By applying the independent samples t-test with 95% confidence interval,
with the t-value of –0.498 and significant value at 0.619 (>0.05), the result in table
5.18 confirms that Hypothesis No.6, at 5% significant level that there are no
significant differences in perception between SMIs and MNCs.
5.4.7
Hypothesis No. 7 : Existing linkages programmes for SMIs need to be
further reviewed and improved, to meet present
technology and market competitiveness.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.19 : Simple Tabulation of Result for Hypothesis No. 7
Frequency
Percent
Cum %
Strongly Disagree
0
0
0
Disagree
2
1.7
1.7
Neither Agree nor Disagree
7
6.1
7.8
Agree
59
51.3
59.1
Strongly Agree
47
40.9
100.0
Total
115
100.0
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in Table 5.19. The table shows that
92.2% of the respondents agreed with this hypothesis. A very significant majority of
the respondents highlighted that Penang’s effort on linkages programmes to help
SMIs is still lacking and lots of suggestions and recommendations were received
from the respondents, where they all stressed that improvement on linkages
160
programme is very critical to Penang to prevent the current bad condition from
becoing worse.
By applying one proportion test with 95% confidence interval, with the Pvalue of 0.000 (<0.05), the result confirms that the significant majority (92.2%) of
the respondents agreed that the existing linkages programme for SMIs need to be
further reviewed and improved to meet technology and market competitiveness
requirement.
Hence, Ha is not rejected and it is concluded that Hypothesis No.7 is being
supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.20.
Table 5.20 : Cross Tabulation of Result for Hypothesis No.7
SMI
%
MNC
Strongly Disagree
0
0
0
Disagree
0
0
2
Neither Agree nor Disagree
2
2.7
5
Agree
40
54.8
19
Strongly Agree
31
42.5
16
Total
73
100.0
42
%
0
4.8
11.9
45.2
38.1
100.0
Table 5.31 : Independent Samples T-Test Result for Hypothesis No.7
Dimension Mean
t-value
Significant
SMI
4.40
Hypothesis No.7
1.802
0.074
MNC
4.17
By applying the independent samples t-test with 95% confidence interval,
with t-value of 1.802 and significant value at 0.074 (>0.05), the result in Table 5.21
confirms Hypothesis No. 7, at 5% significant level that there are no significant
differences in perception between SMIs and MNCs.
5.4.8
161
Hypothesis No. 8 : Present increasing overhead and labour costs are
the main factor for Penang’s manufacturing
industry to lose out in the global market.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.22 : Simple Tabulation of Result for Hypothesis No. 8
Frequency
Percent
Cum %
Strongly Disagree
1
0.9
0.9
Disagree
16
13.9
14.8
Neither Agree nor Disagree
11
9.6
24.4
Agree
55
47.8
72.2
Strongly Agree
32
27.8
100.0
Total
115
100.0
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in table 5.22. The table shows that
75.6% of the respondents agreed with this hypothesis. A great significant number of
respondents understood well that the overhead and labour costs in Penang is getting
higher and higherand it looks like Penang is slowly lose out to those new developing
industrial countries, like China , Thailand, etc. For Penang to counter this costs
disadvantage, improvement on products’ quality and productivity, shorter
production and delivery lead time, brand name, etc, are really urgently needed to
secure a position in this keen marketing environment.
By applying one proportion test with 95% confidence interval, with the Pvalue of 0.000 (<0.05), the result confirms that a significant majority (75.6%) of the
respondents agreed that the present increasing overhead and labour costs are the
main factor that is causing Penang.s manufacturing industry to lose out in the global
market competition.
Hence, Ha is not rejected and it is concluded that Hypothesis No.8 is being
supported by the majority of the respondents surveyed.
162
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.23.
Table 5.23 : Cross Tabulation of Result for Hypothesis No.8
SMI
%
MNC
Strongly Disagree
0
0
1
Disagree
8
11.0
8
Neither Agree nor Disagree
6
8.2
5
Agree
38
52.1
17
Strongly Agree
21
28.8
11
Total
73
100.0
42
%
2.4
19.0
11.9
40.5
26.2
100.0
Table 5.24 : Independent Samples T-Test Result for Hypothesis No.8
Dimension Mean
t-value
Significant
SMI
3.99
Hypothesis No.8
1.535
0.128
MNC
3.69
By applying the independent samples t-test with 95% confidence interval,
with the t-value of 1.535 and significant value at 0.128 (>0.05), the result in table
5.24 confirms Hypothesis No.8, at 5% significant level that there are no significant
differences in perception between SMIs and MNCs.
5.4.9
Hypothesis No. 9 : Electronics and electrical industries will still
remain as the main stream of the manufacturing
sectors in Penang for the next five years.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
163
Data Analysis :
Table 5.25 : Simple Tabulation of Result for Hypothesis No. 9
Frequency
Percent
Cum %
Strongly Disagree
1
0.9
0.9
Disagree
15
13.1
14.0
Neither Agree nor Disagree
22
19.1
33.1
Agree
61
53.0
86.1
Strongly Agree
16
13.9
100.0
Total
115
100.0
From the survey, the author tabulated the data from the
respondents into frequency distribution table for the hypothesis as in Table 5.25. The
table shows that 66.9% of the respondents agreed with this hypothesis. Generally the
majority of the respondents still agree that the electronics and electrical
manufacturing industry will remain as the key sectors for Penang. The strong selling
points are the ample supply of highly skilled workforce, excellent product quality,
strong supporting industries, committed and stable government. To balance up with
the increasing costs incurred, Penang urgently need to come out with the necessary
remedial measures to counter this disadvantage.
By applying one proportion test with 95% confidence interval, with the Pvalue of 0.000 (<0.05), the result confirms that a significant majority (66.9%) of the
respondents agree that the electronics and electrical industries will still remain as
the main stream of the manufacturing sectors in Penang for the next five years.
Hence, Ha is not rejected and it is concluded that Hypothesis No.9 is being
supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.26.
164
Table 5.26 : Cross Tabulation of Result for Hypothesis No.9
SMI
%
MNC
Strongly Disagree
1
1.4
0
Disagree
11
15.1
4
Neither Agree nor Disagree
10
13.7
12
Agree
44
60.3
17
Strongly Agree
7
9.6
9
Total
73
100.0
42
%
0
9.5
28.6
40.5
21.4
100.0
Table 5.27 : Independent Samples T-Test Result for Hypothesis No.9
Dimension Mean
t-value
Significant
SMI
3.62
Hypothesis No.9
-0.691
0.491
MNC
3.74
By applying the independent samples t-test with 95% confidence interval,
with the t-value of -0.691 and significant value at 0.491 (>0.05), the result in Table
5.27 confirms Hypothesis No.9, at 5% significant level that there are no significant
differences in perception between SMIs and MNCs.
5.4.10
Hypothesis No.10 : As compared with other industrial developing
countries, Penang is still the top choice for
manufacturing industry set up by foreign
investors.
Ho : Percentage of agree equal or less than 50 %
Ha : Percentage of agree greater than 50%
Data Analysis :
Table 5.28 : Simple Tabulation of Result for Hypothesis No. 10
Frequency
Percent
Cum %
Strongly Disagree
9
7.8
7.8
Disagree
30
26.1
33.9
Neither Agree nor Disagree
38
33.0
67.0
Agree
31
27.0
93.9
Strongly Agree
7
6.1
100.0
Total
115
100.0
165
From the survey, the author tabulated the data from the respondents into
frequency distribution table for the hypothesis as in Table 5.28. The table shows that
only 33.1% of the respondents agreed with this hypothesis. From the table, it is
clearly indicates that there are almost an equal percentage of respondents who agree,
disagree and remain neutral standpoint in their interviews. It looks like most of them
are not really feel optimistic about the future of Penang’s manufacturing industry.
This is a warning to the Penang government to treat this issue as top priority to put
in extra efforts to strengthen the public confidence level to attract new and to retain
existing investors.
By applying one proportion test with 95% confidence interval, with the Pvalue of 1.000 (>0.05), the result confirms that no significant majority (only 33.1%)
of the respondents agree that Penang is still a top choice for manufacturing industry
set up by foreign investors compared with other developing countries.
Hence, Ho is not rejected and it is concluded that Hypothesis No.10 is not
being supported by the majority of the respondents surveyed.
To further understand the differences in perception on this hypothesis
between SMIs and MNCs, cross tabulation of the result is as shown in Table 5.29.
Table 5.29 : Cross Tabulation of Result for Hypothesis No.10
SMI
%
MNC
Strongly Disagree
7
9.6
2
Disagree
22
30.1
8
Neither Agree nor Disagree
20
27.4
18
Agree
19
26.0
12
Strongly Agree
5
6.8
2
Total
73
100.0
42
%
4.8
19.0
42.9
28.6
4.8
100.0
Table 5.30 : Independent Samples T-Test Result for Hypothesis No.10
Dimension Mean
t-value
Significant
SMI
2.90
Hypothesis No.10
-0.942
0.348
MNC
3.10
166
By applying the independent samples t-test with 95% confidence interval,
with the t-value of –0.942 and significant value at 0.348 (>0.05), the result in table
5.30 confirms that regarding Hypothesis No.10, at 5% significant level that there is
no significant differences in perception between SMIs and MNCs.
5.5
Summary of Hypotheses Testing
In all the hypotheses, there is no statistically significant differences
between MNCs and SMIs are listed below.
No. Hypothesis
1
Penang’s manufacturing industry still have the
potential to revive after the global economy situation
recovered.
2
Technological and management skills of most
Penang manufacturing industry’s SMIs have
achieved the requirement per MNCs expectation.
3
Government have provided sufficient information,
guidance and assistance to SMIs on exporting their
products.
4
Key expectation from SMIs through the linkage
programme is for technology improvement, rather
than company profitability.
5
SMIs needed to expand their utilization on ICT, in
order to be competitive in technology and
marketing.
6
Present industrial development incentives and
schemes are effective and impressive enough as
compared to other countries, to attract new investors
and retain existing investor.
7
Existing linkage programmes for SMIs need to be
further reviewed and improved to meet present
technology and market competitiveness.
8
Present increasing overhead and labour coat are the
main factors for Penang’s manufacturing industry to
lose out in the global market competition.
9
Electronics and electrical industries will still remain
as the main stream of the manufacturing sector in
Penang for the next five years.
10 As compared with other industrial developed
countries, Penang is still a top choice location for
manufacturing industry set up by foreign investors.
P-Value
0.993
(>0.05)
Conclusion
False
0.772
(>0.05)
False
1.000
(>0.05)
False
1.000
(>0.05)
False
0.000
(<0.05)
True
1.000
(>0.05)
False
0.000
(<0.05)
True
0.000
(<0.05)
True
0.000
(<0.05)
True
1.000
(>0.05)
False
CHAPTER VI
PROGRAMMES AND STRATEGIES IMPLEMENTATION
6.1
Introduction
The Penang’s manufacturing sector need to take new dimensions and new
characteristics to meet new global market expectations. This leads to the key question
what will be the future for the Penang’s manufacturing sector which in turn leads to
issues of what are the recommendations and lines of actions that are needed to be
taken for the SMIs for Penang to attain such achievements.
No doubt, any growth and development can only be achieved through the
broadening, deepening and strengthening of the manufacturing base. As a result, the
manufacturing sector will have to become more technology, skill and capital intensive
as well as environmental friendly. It is critical to forge better linkages particularly
among SMIs, MNCs and government agencies.
6.2
Implementation of Programmes and Strategies
The electronics and electrical industries are facing a lot of challenges for
them to expand in Penang. The critical question is how to attract new investments in
these industries in order to broaden its base and enable it to grow further.
Innovative linkage programmes and improvement strategies can encourage,
not only the relocation of new foreign investments to Penang, but also the
168
development of SMIs for local manufacturing industries. These should include the
following :
6.2.1
Setting Up a One Stop Service Counter for SMIs
The results from the questionnaire survey strongly recommended that
Penang government should set-up a one stop trade information service counter,
managed by well experienced and qualified staffs who should capable of providing the
following services to the SMIs :a. To provide the right business perspective and understand well the real
market scenario and expectation. Staffs of the organization should be
recruited from the business community in the manufacturing industry.
With their experiences on the industrial environment, thorough
understanding of the real market scenario and expectation, only they will
provide the right and realistic business proposal to the requestor.
b. It should be the all in one point for trade promotion with products display
centre, trade information and documentation centre, buyers and sellers
meeting place as well as telecommunication and banking services to ease
the communication and business transaction with both local and overseas
customers.
c. To encourage Penang’s exporters to invest and develop their own market
programmes. To achieve this objective, a market incentive programme
with some form of financial assistance should be provided to those
exporters who encountered financial difficulties due the high cost of
market entry.
d. It should work hand-in-hand with private trade and industrial
associations/ institutions, in formulating the right trade development
strategies, plans and programmes to upgrade the local suppliers to meet
the global market expectation.
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e. It should maintain a comprehensive database of information on markets,
products, buyers and suppliers by requiring exporters and importers to
furnish information on matters relating to their business, other than trade
secrets.
f. To engage in industrial activities for promoting and developing trade and
service, such as organizing trade and exhibition in Malaysia and abroad,
as well as participation in trade fairs and trade missions.
No doubt, there is an urgent need on the establishment of a one-stop trade
information service center, to provide personalized advisory service for the Penang’s
SMIs which do not have the same degree of overseas market connection as large and
foreign firms. SMIs felts that they are not likely to be successful unless Penang is able
to help then to secure new market in overseas. Such a set-up is necessary if Penang is
to achieve the targets of early achievement of Vision 2020 by 2010 (Koh, T.K., 2001).
Against the back fire of global economy slowdown and the proposed AFTA
by the year 2008, there is a greater sense of urgency for the SMIs to be more efficient
so that they can face the challenges from the foreign competitors.
6.2.2
Penang to Attract More FDI
Per the feedback from the author survey interview, with the increased
competition for FDI, it is necessary for the government to review and re-strategize the
state’s foreign investment promotion policy, to regain Penang’s competitiveness as a
preferred investment location.
Penang government should speed up the following measures to make Penang
more attractive and competitive destination by embarking on creating a more business
friendly environment, as a means to woo foreign investors.
a. Speeding up the issuance of licenses and land titles to foreign companies;
170
b. Extending the time that foreign skilled workers are allowed to stay in the
country;
c. Standardizing the procedures for licenses to be approved for foreign
investors, making approval of land titles and other requirement automatic
for investors whose projects have been approved;
d. Provide longer tax breaks such as tax-free “pioneer status” and the
investment tax allowance for investors already in Malaysia;
e. Allowing foreign investors to take advantage of research and
development grants; and
f. Allowing companies to deduct the cost of research and development
grants.
These measures are likely to bear fruit over the medium to long term and not
immediately. In the short term, it’s not surprising if no foreign firm has the mind to
invest at the moment. With the current weak FDI situation, if one talks about
expansion, they would not consider to expand now as there are excess capacity
everywhere. As for new start-ups, the question that will definitely arise is – China with
its cheaper and ample labour force will stand out as a more attractive investment
destination in the region.
Also, it is not longer a matter of just attracting FDI as in the past but
attracting the right kind of FDI. Penang is now finding itself trapped between low cost
countries like China and Thailand and highly-industrialized ones like South Korea and
Singapore. Beside that the labour force in Penang is no longer cheap based on cost,
and yet are not skilled enough to move up the value chain either. These are the key
issue which needs serious review and improvement.
Furthermore, China still has the competitive edge of cheaper labour and a
ready domestic market of more than one billion people. This is the main reason that
attracted certain of the Penang MNCs to shift their operation to China.
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Also the worry that the US attacked on Iraq has stirred anti American
sentiment in predominantly Muslim Malaysia. American Malaysian Chamber of
Commerce’s President Timothy Garlad had said that fewer US companies are likely to
invest in new Malaysia factories, because of the slowing global economic and concern
about anti-American sentiment here. Malaysia has traditionally counted on the US to
provide the bulk of its FDI (Star, 2003).
According to MIDA (2003), applications from US companies for
manufacturing investment in Malaysia halved on 2002 to RM 1.3 billion from RM 2.6
billion in 2001. That clearly indicated how serious is the side effect due to all the
above factors.
6.2.3
Effective SMI Development Mechanism
The surveyed respondents have emphasized the importance on the success of
the effects to accelerate and deepen the industrial base of Penang, so as to prepare the
state for earlier achievement of Vision 2020 by 2010 requires a comprehensive and
integrated plan for the promotion and development of SMI.
The success needs the team effort with the federal government authority such
as SMIDEC to come out with the effective SMI development mechanism, these
strategies should include appropriate financial support, strengthening of the linkages
arrangement between SMIs and MNCs, measures to raise the level of Skills among
SMIs employees, technology and management capacity and measures to penetrate
international markets (Figure 6.1).
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Effective SMI Development Mechanism
Formulation of Industrialization Strategy for SMIs
Specific Assistance Programmes
SMIs Development Approach
Technological Capability Development
Figure 6.1 : Effective SMI Development Mechanism
6.2.3.1 Formulation of Industrialization Strategy for SMIs
Since SMIs differ in terms of their level of operation, technology and
organizational structure; the strategic approach to develop them would have to be
target-specific, rather than a general approach. A new strategy should be adopted to
provide a new thrust in providing assistance to SMIs. In order to adopt such approach,
it is important to have comprehensive information on the profile, structure, technical
and managerial practices, products, specialization, marketing and financial supporting,
etc of SMIs.
The implementation of this approach requires that SMIs be categorized on
the basic of their market potential. In the case of Korea, the categorization is done as
follows (Amsden, A., 2000) :
a. SMIs that can be developed but to remain as Small Scale Industry;
b. SMIs to be developed into Large Scale Industries;
c. SMIs that need to change their line of business.
173
In the case of Penang, the categorization can be based on the experience of
Korea which have shown to have produced sound result.
6.2.3.2 Specific Assistance Programme
Some of the strategic areas that should be emphasized are :Firstly, to strengthening the inter-industry linkages. Since sub-contracting
provides a useful mechanism for developing linkages between small and large
enterprises, the Penang government should start a Sub-Contracting Exchange as this
indeed is an important move in the right direction. A number of factors, as gathered
from the author’s survey interviews, have been identified as the reasons of weak
linkages between MNCs and SMIs. These includes :
a. Poor quality of products;
b. Delay in delivery;
c. Lack of requirement for sub-contracting because of sufficient self
production capacity on the part of large firms;
d. Shortage of suitability qualified SMIs;
e. Poor management and technology skill of SMIs.
In the light of these problems, efforts from the Penang government should be
made that once products of SMIs has been identified for sub-contracting arrangement,
they should be given other support assistance such as financial support, upgrading of
technology and managerial skills, etc. List of Institutions involved in the promotion of
SMIs in Penang is as shown in Table 6.1 should be made more aware and user friendly
to them.
Table 6.1: Organizations Involved in Promotion of SMIs
No
1
Level
State
Abbr.
BTVC
2
Federal
BITM
3
Federal
BPIM
Name of Institution
Bumiputera &
Technology Venture
Capital
Bank Industri &
Technology Malaysia
Bank Pembangunan
Infrastructure
Malaysia
Organization Profile
A venture capital of the Penang
municipally targeting bumiputera
companies
A development bank owned by
Ministry of Finance
An institution financing SMIs for
capital investment and land
acquisition
174
4
Federal
FMM
Federation of
Malaysian
Manufacturers
Malaysia Technology
Development
Corporation
Malaysia Industrial
Development Finance
5
Federal
MTDC
6
Federal
MIDF
7
Federal
MIDA
Malaysian Industrial
Development
Authority
8
Federal
MOED
9
Federal
NPC
Ministry of
Entrepreneur
Development
National Productivity
Corporation
10
State
PIKS
Pusat Industri Kecil
Sederhana
11
State
PDC
Penang Development
Corporation
12
State
PSDC
Penang Skills
Development Center
13
Federal
SIRIM
Standard & Industrial
Research
Development
Corporation
14 Federal SMIDEC Small & Medium
Industries
Development Corp.
Source : Penang Development Corporation (2002)
A federation made up of 2000 +
manufacturers
A joint venture with MITI,
corporation in promote R&D and
joint venture
An affiliated financial institution
of MITI, specializing in loans
mainly for SMIs
An affiliated authority of MITI,
which play important role in the
promotion and coordination of
industries
A ministry supervising the
promotion of bumiputera
companies and VDP
An institution supervising
productivity and quality, an
affiliated organization of MITI
established in 1962
A SMIs promotion center
established by Penang municipally
in 1992
A public corporation established
by Penang municipally in 1969,
which supervises the promotion of
industries and urban development
The first human resources
development center established by
American MNCs in 1989, which is
supported by the PDC
An affiliated public corporation of
MOF established in 1996, which
conducts training, R&D and
certification tests
An affiliated public corporation of
MITI, key corporation for the
promotion of SMIs
Secondly, assistance should also be made available to SMIs, in order to assist
them to penetrate foreign markets through supporting programmes provided by SMIsrelated organization as shown in Table 6.2 & 6.3. Product contracts should be
established with foreign buyers, marketing chains and wholesalers so that markets for
SMIs products can be expanded. For this purpose, foreign marketing agents should be
175
engaged to provide the necessary information, contacts and the latest designs so that
products can be tailored to the market needs
Table 6.2 : Financial Assistance Programmes Participation Organizations
Financial Assistance
Name
Equipment Working Market
ISO Cert’n Tax
R&D Intro’n
&Business Funds
Develop’t
Reduction/
of
Start Up
exemption
New
Tech’g
MOED
X
BPIM
X
MIDF
X
X
BITM
X
X
MIDA
X
X
SIRIM
X
MTDC
X
X
X
SMIDEC
X
X
X
X
X
X
X
BTVC
X
PDC
X
X
Source : Penang Development Corporation (2002)
Table 6.3 : HR & Information Support Programmes Participation Organizations
HR Development
Name
Business
Guidance
ISO
Cont’l
Cert’n Tech’q
Information Services
Tech
Policies/
Train’g Econo’y
MOED
X
X
NPC
X
X
FMM
X
X
X
SIRIM
X
X
MTDC
X
SMIDEC
X
PDC
X
PSDC
X
X
X
PIKS
Source : Penang Development Corporation (2002)
Market
Develop
New
Intro’n
Tech’g Investor
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
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6.2.3.3 SMIs Development Approach
Intel’s three pronged approach on SMIs development can be taken by other
companies as a benchmark to develop their own circle of technical support (Intel,
2000) :i) Develop Supplier Capabilities and Competencies
a. Collaborate with PSDC to develop suppliers capabilities through training
on Global Supplier Programme (GSP);
b. Collaborate with National Institute of Occupational Safety and Health
(NIOSH) on safety certification training;
c. Share company’s internal training courses;
d. Continuous improvement through coaching on SMIs briefings and
dialogues, business technical reviews; and
e. Preposition technical capital capabilities through early involvement and
sharing of technical roadmaps.
ii) Provide Business Opportunities
a. Adopt SMIs Under the Global Supplier Programme (GSP);
b. Drive localization of foreign items;
c. Organize business matching session for potential SMIs; and
d. Lead local SMIs to international scene, like facilitate strategic alliance or
field local SMIs for international projects.
iii) Partner With Government and Supporting Bodies
a. Community advisory panel established to obtain continuous feedback;
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b. Establish linkages with various government and non-government
agencies, e.g. SMIDEC, MIDA, Chamber of Commerce, etc.
c. Participate actively in community and government sponsored SMIs
development activities, e.g. showcase, trade fair, etc.
6.2.3.4 Technological Capability Development
SMIs faced problem when developing their high-tech industrial capability,
i.e., they are far away from the leading sources of innovation in advanced countries
such as USA, Europe or Japan.
There are various mechanism for developing technological capabilities for
SMIs. As per the feedback from the surveyed respondents, to achieve the objective,
the SMIs need to pursue more than one of these mechanisms at any one time and to be
more effective they need to change the mix of mechanisms over time as the SMIs
progress technologically. Generic mechanisms on technology capability development
for SMIs are as shown below :a. Learning by working in companies possessing the technology;
b. Imitation / reverse engineering;
c. Subcontracting (and learning associated with the process);
d. Licensing;
e. Technology transfer agreements;
f. Recruitment of experienced / trained personnel;
g. Use of consultants / contract R&D firms;
h. Purchase of technology;
i. Acquisition of technology sources;
j. Own R&D;
k. Joint R&D with others;
l. Technology swapping (cross-licensing)
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6.2.4
Penang Own Brandname for Long Term Benefits
The questionnaire survey results highlighted that Penang’s SMIs must realize
that global, regional and local changes will continue to impact them more rapidly than
before. Especially after the implementation of WTO / AFTA agreements and
emergence of China, local SMIs should be concerned about survival, tougher
competition, declining profit margin and long-term business viability.
After developing our skills manufacturing for somebody else, Penang can
then take the next step, that is to copy from somebody else, slight changes through
cosmetic changes or technical improvement and transform it become a new product.
This copying business is a time honoured method of developing own indigenous
product. If Penang play its cards right, it should be successful as a seller of cheap and
quality products.
“Intel” and “AMD” microchips have been designed and made in Penang,
while “Dell” computers, “Motorola” walkie-talkie, “Clarion” car stereos are also
designed and assembled in Penang. Such successful contract manufacturing operation
prove that Penang can produce world-class products but have not focus on developing
world-class own brandname. Penang should move one step ahead and promote its
own brandname. Brandname is important because it will help establish Penang
companies in the minds of customers worldwide, as in the case of “Sony” and “IBM”.
Some people might say it is incredibly difficult for Malaysian companies to
develop international brands. And yet, today, Malaysia export “Proton” cars, “Boh”
tea and “Selangor Pewter”.
However, if Penang local SMIs keen to gain even a small taste of the success
enjoyed by “BMW”, “Coca-Cola”, “Microsoft” and “Nokia”, they should realize that
effective branding is the stepping stone to reach that objective.
Branding presents a realistic opportunity as a key which opens the door to
global market niche. Making a world-class product is one thing, marketing it
effectively for long term business sustainability and profit is another.
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Brandname is one of the important issue to be recognized worldwide and this
matter was not reported in the discussion of the result, but the topic was stressed as an
important factor through the interviews with the surveyed respondents.
6.2.5
Specific Strategies to Cope with Economic Downturn
Per the results from the questionnaire survey, it have firmly concluded that to
gain the competitive advantage in the market, there should be aggressive management
of cost structure at all stages of the manufacturing value chain ranging from
production to exports. This should be done with the aim of reducing cost, increasing
efficiency and productivity and improving the competitiveness of Penang products in
the international market.
Overall, companies’ performance and sustainability will be affected and
recovery may need specific strategies as shown below :-
6.2.5.1 Strategies at Industry Level
At industry level, the affected companies may consider the following
strategies :-
Share common resources, such as financial services, designing, R&D or
manufacturing facilities.
-
Consolidate by merger or integration.
-
Re-assess value chain by cutting down the “value subtract” process, e.g.
sub-contractors.
-
Immediately implement manufacturing strategies by emphasizing the
value-added process.
6.2.5.2 Strategies at Corporate Level
Some of the recovery actions that may be practical at the corporate level are
as follow:-
180
-
Reviewing and consolidating portfolio currently, cash cow division are
more important than anything else.
-
Maintaining strategies investment overseas if possible.
-
Concentrating more on core business locally.
6.2.5.3 Strategies at Business Level
At the business level, the impacted companies may need to :-
Concentrate on cost control and credit management, meanwhile maintain
current business levels.
-
Trim down the fats and go back to basic by reviewing what “must have”,
“good to have” and “nice to have”.
-
Re-align cash flow and re-negotiate cash commitment with credits, as
well as restructure accruals from clients. Remember that the clients are
actually also in the same position as the SMIs – cash trapped.
6.2.6
Measures to Help SMIs Becoming More Export Oriented
Most of the surveyed respondents agreed that the new conditions of
competition which are gradually emerging due to global economic slowdown have
create additional difficulties for SMIs, making it essential to introduce special
measures to encourage and support them so they can adapt to the new market
conditions and become more export-oriented as shown in Figure 6.2.
181
Measures to Help SMIs Becoming More Export Oriented
Strategy Thrust to Be Globalized
Action Plan to Be Export Oriented
Improvement Factors on Products Exporting
Immediate Challenges on Export marketing
Crucial Elements of IT for Penang’s Industrial Structure
Figure 6.2 : Measures to Become More Export Oriented .
Penang’s SMIs have a serious weakness in the field of marketing,
particularly in export marketing. The sales department is the most neglected
department in the firms, mainly due to lack of market data, no or poor-quality sales
brochures, lack of knowledge or information on foreign markets and export
procedures and practices, etc.
A good quality products alone do not guarantee market acceptance. SMIs
need to promote their products aggressively especially in new market. Firstly, they can
engage professionals to assist them in formulating marketing strategies. Secondly,
they can get government assistance through Business Planning and Development
Schemes, as well as Market Development Grant to undertake market studies and to
participate in international trade fairs, exhibitions and trade missions.
182
6.2.6.1 Strategy Thrust for SMIs to Be Globalized
Figure 6.3 explains the strategy thrust that the Penang’s SMIs must follow, in
order to ensure its survival as the industry becomes more globalized.
More Competitive
Global-Orientation
(B)
Bright Future
Protected
Opened
(C)
Bleak Future
(A)
Less Competitive
Domestic-Orientation
Figure 6.3 : Strategy Trust for SMIs to Be Globalized.
The market in Penang will continue to be liberalized and protection will be
removed after the AFTA implementation in 2008, thus allowing the industry to be
integrated internationally (represented by the horizontal axis). If the SMIs do not
change to meet the globalization expectation, it will be swept from the present position
“A” into the position of “C”. SMI in position “C” will continues to serve only the
domestic market in an environment, that is already opened to international
competition. Obviously the future for such a SMI will be bleak, as it is likely to be
lose out in the competition.
Therefore, in order for the SMI to be able to survive in the market, they
should move to the position “B” which indicate that it has successfully upgrade itself
to be part of the global supply chain, adapted to the global-orientation which will give
183
them a strong foundation to deal with international competition in a more open
environment.
Penang’s SMIs in manufacturing should begin to cultivate relationship with
MNCs and other ASEAN manufacturers, with the ultimate aim of achieving a regional
or international networks supply chain. The resource sharing and co-operation
amongst its participants will allow the whole group to achieve competency and
competitive power.
6.2.6.2 Action Plan to Be Export-Oriented
SMIs are the “nursery” for tomorrow’s export enterprises. The first step in the
international arena is, of course, difficult and labourious, due to many SMIs do not
have the necessary infrastructure or experience.
Per the feedback from the surveyed respondents, Penang government should
develop a special programme, seeking to provide support for SMIs taking their first
step in the international arena and gradually become export enterprises. These
programmes should encourage and support their orientation towards foreign markets
and to permit them to familiarize themselves with the techniques and practices of
foreign trade in order to enable them to gradually become export enterprise.
The programmes should comprises the following aspects as shown below :a. Organization of Trade Missions Abroad for SMIs
- To encourage the mangers of SMIs to carry out business visits to
foreign countries in order to learn about market conditions and the
possibilities and requirements for industrial and commercial cooperation to promote their products. These visits will enable them to
decide whether-and under what conditions-a market could accept their
products and to give them an opportunity to develop commercial
contact and links.
184
b. Invitation of Foreigh Buyers
- To encourage the managers of SMIs to invite foreign buyers to visit
their installation or exhibitions of their productions in order to
influence their buying decisions or to establish more permanent
industrial and commercial co-operation.
c. Participation in International Trade fair
- To encourage the managers of SMIs to exhibit and promote their
products in international trade fairs aboard.
d. Creation of Commercial Image and Publicity Brochures
- To encourage the managers of SMIs in improving their commercial
image and promoting their products by appropriate means, e.g. sales
brochures. By “commercial image” means the unique way in which a
company presents its names and logo.
6.2.6.3 Improvement Factors on Products Exporting
Penang products lose out to competitors due to the price factor. Although a
successful pricing strategy is computed based on the demand for the products and
competition in a given market, some of the variables influencing the cost of
production are beyond our control.
Based on feedback from the questionnaire survey, the following are some of
the factors that have contributed to the failure to export Penang products in specific
market which need serious planning and improvement :a. Uncompetitive pricing;
b. Outdated or inappropriate designs;
c. Poor quality or inconsistent quality;
d. Unwillingness to modify or adapt product;
e. Lack of follow-up on enquires;
f. Slow in quoting prices for prospective buyers;
g. Inability to provide appropriate product samples;
185
h. Poor catalogues and products brochures;
i. Inability to meet quality and delivery required at the right time;
j. Lack of advertising and promotion;
k. No strong linkages with importers, to jointly promote products
and market products;
l. Fail to monitor market trend and seasonality, customer preference
or expectation;
m Lack of distinct image for Penang’s products in the international
market. Penang manufacturers should create and nurture their own
brands for their products and services.
6.2.6.4
Immediate Challenges on Export Marketing
To meet successfully the challenges of globalization, Penang’s SMIs must
continue to strengthen and reinforce its public-private sector relationship. Mutually
beneficial working relationships is important if Penang is to sustain its economic and
social development efforts successfully in the context of the increasingly globalized
economic structure and system.
Due to the present keen market competition, as agreed by most of the
surveyed respondents that in order to have a firm standing in the global export market,
immediate challenges to Penang’s SMIs are as follows :a. Diversification of export market;
b. Export of services;
c. Export of world-class Penang brandnames that meet the
requisite global standards;
d. Realizing the opportunities afforded by the AFTA;
e. Aggressive marketing to have global market outreach; and
f. Operating with “global mindset” to ensure Penang remain
highly competitive.
186
6.2.7
Crucial Elements of IT for Penang’s Industrial Structure
Majority of the surveyed respondents stressed that the effort to achieve a
developed nation status by the year 2020, the Malaysia government should
emphasized on Information Technology (IT) as a crucial element that must be
acquired by the industry (Figure 6.4). One important question to Penang is whether
members of the industries in Penang possess the IT facilities, knowledge and skill to
prepare them toward E-Business ?
Crucial Elements of ICT for Penang’s Industrial Structure
Driving Forces Behind E-Business
Government Action Plan to promote E-Business Utilization
Benefits of E-Business Towards SMIs
Funding for ICT Implementation
Figure 6.4 : Crucial Elements of ICT for Penang’s Industrial Structure
6.2.7.1 Driving Forces Behind E-Business
The Internet should be used as a means to improve work efficiency, via its
promotion of information exchanges. As an example, internet connects consumers and
sellers on an international scale and creates new markets where there were no market
at all. It also contribute to cost reduction. Therefore, SMIs should be fully aware the
important and driving forces behind the E-Business (Figure 6.5).
187
Cost Saving
Improve Customer
Service
Accuracy of Data
Trading Request
Quick Access to
Information
E–
Business
Increase Globalization
Reduce Cycle Time
Business Online
Competitive Advantage
Figure 6.5 : Driving Forces Behind E-Business
Furthermore, the internet makes it possible to dispatch information all over
the world and to receive technical, industrial information from an unlimited number of
sources. It also makes it possible to use e-mail, establish office LANs, view real-time
moving pictures, perform information exchanges with remote places and remote
monitoring of cargo distribution and facilities.
The Penang government should initiate several moves to encourage a new IT
revolution among SMIs based on the industrial development and via information
technology. To promote competition, these must include introduction of access
networks and reorganization of networking connection control, deregulation and other
measures to increase the diffusion and sophistication of the internet in order to capture
some of the market share of the global E-Business growth (Figure 6.6), Chin, K.F.,
(1999) pointed out that per IDC prediction, the projected revenue on E-Business will
grow from US$10 billion in 1997 to about US$1.3 trillion by 2003.
188
1400
USD (Billion)
1200
1000
800
600
400
200
0
'97
'98
'99
'00
'01
'02
'03
US$ (Billion)
Year
1997 1998
1999 2000
2001 2002
2003
US$ (Billion)
10
120
400
1300
43
180
780
Source : International Data Center (IDC), 1999
Figure 6.6 : Global E-Business Growth
6.2.7.2 Government Action Plan to Promote E-Business Utilization
To ensure the success in the E-Business utilization, the ideas suggested by
the surveyed respondents for action to be carried out by government ministries and
national organizations are as follows :a. Identify the Needs of SMIs
Establish focus group of SMIs to identifying general and countryspecific needs in sales, marketing and communication.
b. Identify the Needs of Buyers
Carry out research into why online purchases remain limited and what
can be done to encourage increased online sales to customers and
businesses.
189
c. Find Out the Percentage of E-Business Utilization
Establish how many companies have websites, whether they allow their
customers to purchase online and the extent to which they use the internet
themselves to make purchases.
d. Determine the Return on Investment in Websites
Determine to what extent SMIs are achieving a return on their
investments in their websites. Carry out industry-specific research into
the relationship between websites visits and leads sales made.
e. Improve Efficiency and Effectiveness of Supply Chain Operation
Run workshops for supply chain managers on how to apply internet
technology to improve the efficiency and effectiveness of SMIs
supply chain operations.
f. Maximize Internet Utilization
Train SMIs on how to source products and services through search
agents and how to evaluate suppliers over the internet.
g. Document Internet Search Techniques
To make the internet as user friendly as possible to the SMIs, government
should compile a manual on internet search techniques.
h. Training on Design, Development and Maintenance of Website
Training programme or seminar to equip SMIs with best practices in EBusiness and supply chain applications.
i. Online catalogue of SMIs Products and Services
Government should take the initiative to create the online catalogues of
SMIs products and services which visitors can view the website with just
a few clicks on the keyboard.
j. Stimulate Competition on Development of Website
To raise awareness of what is take to succeed in E-Business operation,
government should stimulate competition in the development of E-
190
Business projects among SMIs, industrial sectors and e-business
development organizations.
k. Create Efficient Business Search Engine
Business and consumers need a well-organized search engine to speed up
their search for products and services.
6.2.7.3 Funding for ICT Implementation
Many SMIs in Penang still have a “wait and see” attitude when facing the
issue of applying ICT in their working environment. With the coming of AFTA
implementation, they need to adopt ICT if they want to remain competitive.
Enterprise Resource Planning (ERP) or Customer Relationship Management
(CRM) is the powerful system for SMIs to be more effective and efficient. Many SMIs
complained about the shortage of funding on setting up the systems. From the survey
interview it is noticed that many SMIs are not aware that there are two sources for
them to secure the necessary funding to implement ICT system in their working
environment, i.e. government grants and soft loans from banks.
Government grants are offered by Ministry of International Trade and
Industry (MITI) via Small and Medium Industries Development Corporation
(SMIDEC) for buying the ERP software for manufacturing and manufacturing-related
services where 50 percent of the approved project cost is supported by the government
and another half by the applicant.
Government grant cover different areas. Firstly, for the purchase of ERP or
CRM software, implementation charges for system study customization, training,
purchase of related networking equipment and server and professional fee to carry out
system integration works.
Secondly, SMIDEC also providing grants for other e-manufacturing
software, such as Computer Integrated Manufacturing (CIM), Enterprise Resource
Management (ERM) and Supply Chain Management (SCM).
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Thirdly, for local electronics and electrical companies, SMIDEC also assist
SMIs to implement the RosettaNet – an internet base messaging standard for global
SCM. RosettaNet greatly benefited companies in the supply chain to communicate and
doing business electronically through common code for sourcing parts and
components.
Fourthly, SMIDEC grant also cover upgrading of engineering design
capabilities and encourages them to carry out their own design-in-house. The grants
also included the purchase of design software or subscription fee/ license for on-line
engineering design services, related hardware, peripheral and networking equipment
and related training.
6.2.8
Key Adjustments on HR Development Towards Industrialization
The results from the questionnaire survey clearly indicated that with the
emergence of the large populated markets of China and India that could offer ample
workforce supply with competitive labour costs; if Penang still based on the same
strategies as that undertaken in the last decade, it will be under severe threat. Average
hourly wage rate in Penang can be few times higher than that in the less developed
Asian economies. In fact, during the questionnaire survey conducted by the author,
data shown that Penang’s products pricing currently are not competitive in relation to
their counterparts in the less-developed economies of Asia.
With the present dynamic global competition and technology advances, in
order to be relevant to the current and future needs, HR development must take into
consideration of the fast changing environment that is becoming more market and
technology driven. The critical influence of knowledge acquisition and the ability to
use such knowledge effectively must form a crucial part of any HR development
programme.
The transformation that will be taken place in the value-chain
industrialization, will require substantial adjustments to be made in HR development.
The key issues and adjustments that Penang must undertake are as shown in
Figure 6.7):-
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Key Adjustments on HR Development Towards Industrialization
Higher Expectation of Manpower Supply
Developing More Science, IT and Engineering Oriented Workforce
Better marketing and Sales Ability
Good Attitude, Value and Work Habits
Business Leadership and Management of Intrinsic Resources
Figure 6.7 : Key Adjustments on HR development Towards Industrialization
6.2.8.1 Higher Expectation of Manpower Supply
The main problem that electronics and electrical industry will face is the
quality of recruited manpower. The following are some measures which must be
considered to improve the quality of technical manpower, mainly engineers and
technician :a. The training of engineers and technicians has to be application-based and
job-related, relating theory to practical work situations and comprising of
more laboratory and design courses. There is also a need to expose them
to the new manufacturing technologies adopted by the industry, such as
computer-controlled CNC machine.
b. There is also a need to re-orientate the system of industrial training to
reinforce the theories taught at the institutions. In this regard, lecturers
can also be attached to the industry to update their knowledge on current
usage of technology.
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c. With the increasing demand for electro-mechanical technicians and
engineers, there is a need to review the syllabus of the institutions and
universities to meet the needs of the growing use of new technology in
industry.
d. There is a need for greater linkage between universities / institutions and
industry to improve the system of education and training for the
electronics and electrical industry. Industry on its part must be willing to
provide engineers, who can teach part-time at universities / institutions.
The linkages can also be in the form of curriculum advisory committees
and in the donation of training equipment.
6.2.8.2. Developing More Science, IT and Engineering-Oriented Workforce
No body will deny that, one of the most essential competitive advantages for
any firms is to have the workforce with good technological competency. With the
technological superiority, one is able to set technical standards which weaker
competitors must comply, i.e., one is able to set the rules of competition and profit
from it immensely. Many good examples can be quoted to illustrate this point, for
example the domination of computer operating software market by Microsoft,
microchips by Intel, high performance ceramics by Kyocera, DVD by Sony and
photographic films by Kodak.
To build up their technical competency, Penang enterprises must be
cultivated to be more innovation as this will strengthen their capability to compete, not
just on price but on other attributes based on technological advantages, and hence
allows them to differentiate themselves from others to achieve their specialty.
To gain market advantages by moving into more automated manufacturing
systems requires supporting professionals in the fields of production, electronics &
electrical and mechanical engineering. As per technologies advancement expectation,
technical skills requirement are become more hybrid in nature, requiring crossfunction knowledge and multi proficiency in different disciplines of engineering
fields.
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With the increasing trend on technology level, automation and
computerization has become increasing important. Today, Penang’s market is lacks
qualified and experienced people for operations and maintenance of these highly
sophisticated processes. HR development must also given heavy emphasis to the
development of this category of people.
6.2.8.3 Better Marketing and Sales Ability
Due to increase of export-oriented manufacturing operation, the demand of
personnel in marketing and sales is correspondingly increasing. With the increasing
sophistication of consumers, there is a need to continuously maintain customer
relationship and to monitor the changing customers behaviour. Also, as more and
more facilities in Penang become the regional supply hub under the integrated
manufacturing concept, marketing and sales management functions will begin to form
a more important part of the supply chain.
In Penang context’s of industrialization, HR development of marketing and
sales personnel will have to take into consideration the following dimensions :a. The need to have international marketing skills which will include
knowledge of specific attributes of the markets, such as the culture,
language and geography;
b. The skill to use tools of IT, such as consumer database to monitor
consumer behaviour and electronics commerce for direct marketing
and communication; and
c. The need for multi-disciplinary skills to facilitate the sharing of
information and knowledge with other members of the team, such as
R&D and production personnel who are likely to be more technically
oriented.
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6.2.8.4
Good Attitude, Value and Work Habits
Today, competition is not just about technical superiority but must be
reinforced by workforce having the right attitude and work habits. This calls for the
people’s commitment to continuous improvement, learning, adaptation and agility.
Due to the fast and constant changing environment, there is the need to
emphasize on the demand for multi-functional skills, cross-cultural personal
interactions and ability to work as a team. Penang’s industrialization is also one that is
export-oriented, therefore, attitude of self-centredness cannot be permitted. Gaining
competitive advantages in speed, technological superiority and world-class efficiency
requires working with business partners, and sometimes, even competitors both at the
domestic and international area.
The other virtues that should be extensively promoted are :- The strive for perfection, achieving a high degree of quality
consciousness;
- The strict observation of time;
- The practice of integrity;
- The need for constant learning; and
- Environment consciousness.
6.2.8.5
Business Leadership and Management Skill
The lacking of good managers is one of the key problems that are currently
faced by the SMIs. The managers have the responsibility to provide the strategic
direction of development of the enterprise, the exercise of good leadership and
decision forms the turning point to the survival of the enterprise.
Leadership skill is required even much more in SMIs, where the
management and owner are the same people and resources are limited. Leadership is
required in formulating the vision and mission of the enterprise. This requires strategic
thinking skills and knowledge. It also demands leadership and the ability in making
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technology, processes and people operate in an integrated manners, so that full
benefits arising out of such interaction are realized.
With greater emphasis on technology, the managing of intellectual assets
and knowledge had become strategically more important as compared with traditional
management concerned with only management labour, capital and equipment. Unlike
physical assets, there are intrinsic resources that are not easily identifiable, as they are
in the minds of the employees.
In a technology-driven environment, the ability to tap the thinking power,
knowledge and information available to an enterprise in order to bring out the tangible
results will be a competitive competency which is highly valuable. HR development
must equip managers with the skills to effectively deal with the management of these
intrinsic resources whether they exist in the minds of people or in database.
6.2.9
Achieve International Quality Standards
As confirmed from the feedback of the surveyed respondents, majority of the
SMIs still without the ISO certification, mainly due to lack of fund and knowledgeable
staff to manage the system. Government should encourage more SMIs to work
towards to accreditation to a quality management system by apply for ISO
certification. It is important for them to have knowledge of all modern quality
management techniques as shown in Figure 6.8.
Achieve International Quality Standards
Towards Total Quality Management (TQM)
Competing Market Place Via Quality Consciousness
Figure 6.8 : Achieve International Quality Standards
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SMIs must be made to realize that consumers are becoming increasingly
quality conscious and unless high standards of quality are attained, it is very difficult
for them to survive in this keen competitive global market.
6.2.9.1 Towards Total Quality Management (TQM)
Although Penang’s SMIs are aware of the important of quality, they are still
not aggressively in implementing the Total Quality Management (TQM) concept
towards achieving the manufacturing excellence. TQM is not just set up a department
on quality control, writing quality regulations or formulating procedure for handling
customer complaints. Most critical is the strong commitment from top management in
focusing on constant quality improvement within the whole organization.
Per the feekback gathered from the surveyed respondents, TQM requires
total committed participation and recognition by everyone of the organization to
ensure that the whole organization environment is geared towards supporting TQM
initiatives and programmes by the following behaviour changes :a. Treat quality goals as top priority for the success of the organization;
b. Emphasizing on building long-term resilience rather than short-term
gains;
c. Setting the realistic level of quality excellence to be achieved;
d. Analyzing quality issue through the use of statistical data;
e. Improving employees’ skill on quality through more training;
f. Changing employees’ mindset to be less tolerant towards inefficiencies
and poor quality, encourage them to be proactive in identifying and
solving quality issues.
6.2.9.2 Competing Market Place Via Quality Consciousness
Since China announced the opening of her door to the global economy
coupled with the increasing labour costs in Penang and shifting of Foreign Direct
Investment (FDI) to other Asian countries, Penang companies especially the
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manufacturing industries were badly hit by this global economy senario. The Penang’s
manufacturing industries needed to find ways to move up to value-added and
technology intensive manufacturing if Penang is to maintain her competitiveness in
the global market.
Due to all the above factors, the market environment is looking forward for
cheaper mass production for certain products and Penang manufacturing industry need
to struggle hard to achieve the best quality in products in order to maintain her
competitive edge over other competitors.
Certain powerful and quality initiatives tools, such as Six Sigma, Statistical
Process Control, Design for Experiment, etc, can help manufacturing industries to
create a more sophisticated and improved production processes leading to superior
quality and at the same time lowering the production costs.
Traditional perception that increasing quality means increasing costs has
been proven wrong by the implementation of these effective quality tools. In actual
fact, the highest quality can also result in lowest cost and this has surprised many top
management of the organizations. Higher quality product give the company a better
competitive advantage over others in today’s global economy and quality should be
the key strategy that any company simply cannot effort to ignore.
Cheong, W.C. (2003) highlighted that The correlation between quality and
cost is as shown in Table 6.4. This table clearly indicates how much does it cost an
organization to run at various quality level that not meet customer expectation. All
companies should strive hard to achieve ultimate goal of Six Sigma in performance –
the numerical definition of Six Sigma is to achieve 3.4 defects per million, or
99.99966 per accuracy.
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Table 6.4 : Correlation Between Quality and Cost
Six Sigma Process Capability – Quality vs Cost
Sigma
Defects per Million
Cost of Poor Quality Status
6 Sigma 3.4 defects per million
< 10% of sales
World Class
5 Sigma 230 defects per million
10% - 15% of sales
4 Sigma 6,200 defects per million
15% - 20% of sales
Industry Average
3 Sigma 67,000 defects per million
20% - 30% of sales
2 Sigma 310,000 defects per million
30 - 40% of sales
Con-Competitive
1 Sigma 700,000 defects per million
40% - 50% of sales
6.2.10
Upgrading Industrial Technology Through R&D
Most of the surveyed respondents emphasized that to achieve the Malaysia’s
vision to build a scientific and highly industrialized nation by the year 2020, the
Penang government should outline appropriate strategies and programmes to
strengthen the state’s science base and support technological development. For Penang
to move towards high value-added and high-technology industries, industrial R&D
must be treated as top prioriy, in order for Penang to develop its indigenous
technological capabilities. However, the private sector’s in present involvement in
R&D in Penang is still very low.
The SMIs are expected to played a more active role in industrial R&D as a
means to not only gaining new technological capability but also to build local
technological capability to absorb and adapt foreign technology, particularly in the
development of new and improved products and process.
The government should give the incentives to companies to do research and
development and tax breaks in the form of double-deductions are useful. Penang’s
SMIs must understand the long term benefits of being innovative and how over the
long run the returns will justify the current expenditures.
In view of the important role that SMIs to play in Penang industrialization, it
is critical to promote industry relevant research projects through close collaboration
between public R&D institutions and the private sector. The main objective is to
develop products, processes, services and technologies as well as to improve the
efficiency and competitiveness of the SMIs. To achieve this objective, the Penang
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state government should assist and upgrade SMIs through the following R&D
involvement (Figure 6.9) :
Upgrade Industrial Technology Through R&D
Create new Business Opportunities
Improvement in Product Quality and Production Process
Market Orientation for Industrial R&D in Universities
Changing Attitude of SMIs Towards R&D
Figure 6.9 : Upgrade Industrial Technology Through R&D
6.2.10.1 Create New Business Opportunities
The end result of research work which together with R&D institution could
open up new and viable business opportunities for the SMIs, particularly to venture
into value-added and higher technology areas.
The SMIs must understand that the results (i.e. profit) cannot be achieved
immediately and this investment should be treated with a long-term perspective.
However, in the long-term, the benefits and profits to be gained could be manifold.
6.2.10.2 Improvement in Product Quality and Production Processes
Through the joint venture effort with public research institutions, SMIs could
have the opportunity to be involved in research activities that would enhance the
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quality of their products, or improve their production processes which would lead to
an increase in productivity and reduce cost of the production.
The author’s survey interviews result shows that the level of collaboration
between SMIs and R&D institutions is still very low in Penang and they are not really
aggressively to move into this direction. In this regard, both the R&D institutions and
government authority have a role to play in promoting industrial R&D for SMIs.
The R&D institutions should intensify their efforts in creating awareness
among the SMIs on the institutions activities and capabilities, the type of research
work that are currently being carried out as well as their research findings. To make
the system more effective, they should staff with capable personnel who are service as
well as business oriented.
On the other hand, SMIs must have a firm strategy and vision by undertaking
R&D as a long term investment which will not bring immediate returns. SMIs should
therefore must make full use of the benefits available from the R&D activities in order
to be able to compete with others in a highly dynamic and competitive world
economy. In this respect, the government should play a leading role to encourage and
assist SMIs to participate in the R&D activities.
6.2.10.3 Market Orientation for Industrial R&D in Universities
In some developed countries like Germany, Britain, Korea, Taiwan, etc, the
government implemented a good system by corporating their R&D liaison body in
their universities to enable their industries R&D to be market oriented (FMM, 1993).
In this regard, it is strongly recommended the Penang government to carry out a study
on such successful models so that the similar programme can be transferred and
implemented in Penang.
In order to attract and motivate more universities researchers to carry out the
research within the industry, better incentives scheme and a conducive environment
should be prepared and arranged for them. Also, greater flexibility on time should be
allowed for the researchers to be more involved in consultancy and research work for
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the industry. This practice still has a big gap to be closed as compared with other
industrial developed countries.
6.2.10.4 Changing the Attitude of SMIs Towards R&D
As a long-term business strategy, the Penang government should educate the
SMIs on the importance of having difference viewpoint towards R&D with strong
emphasize on R&D and technology development in order to generate new business
opportunities and revenue sources for the company.
This objective can be fulfilled only with team work effort among the
government agencies, universities and R&D institutions, as well as industry
association. They should form a working committee to formulate the appropriate
strategies, remedial measures and programmes towards changing the mindset of the
Penang’s SMIs on treating industrial R&D as a long-term investment, to be able to
compete with the foreign suppliers.
6.2.11
Boost and Enhance Science and Technology Among SMIs
Penang has moved into a new phase in its industrial development in the
2000s with the launching of the 2nd Penang Strategic Development Plan (PSDP2).
PSDP2 aims at promoting the industrial integration and improving the technological
environment in order to ensure the competitiveness in the global market. One of the
key tasks of the industrial policy in the Penang industrial development plan is to shift
the manufacturing sector towards more capital and technology intensive industries,
producing higher value-added products with better quality and more pricing
competitive.
Per the results from the questionnaire survey, it was suggested that his can be
make possible through both process and product improvement in terms of quality and
technology with the establishment of a strong scientific and technical infrastructure.
To achieve this objective, the Penang government should heavily emphasized the issue
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of increasing industrial research and development (R&D) and strengthening the
science and technology (S&T) base in the industrial development plan.
6.2.11.1 Government Role to Boost Science and Technology
Penang government should ensure continuous scientific and technological
developments that will further improve the economic growth and overall development
for the achievement of a wider-based, scientific and technological advanced industrial
society by the year 2020. To fulfill this objective, Penang government should planned
out the new strategies and action plans to boost and enhance the role of science and
technology (S&T) in the longer term development perspective. These must include :
a. The setting up of a S&T help desk in the trade development offices,
mainly in carry out the research and compiling technical information on
S&T advances and technical development in other industrial development
countries and supplying such information back to the Penang industry for
benchmarking.
b. Those in house R&D activities by SMIs should also be entitled for the
R&D incentives that are currently provided for research works carry out
by approved research companies or institutions. This will encourage the
R&D activities among SMIs, instead of only being limited to the larger
industries. Indirectly, this would also motivate SMIs to set up their inhouse R&D which will benefit them in the long-term.
c. The current approval of double deduction incentives (DDI) for R&D is
not so favoured by the industry because the requirement of detailed
disclosure of the research project concerned during the application
submission which will infringe on the confidentiality of their project.
The approval procedure should be made more flexible by relaxing the
disclosure requirement with certain controlled guidelines and criteria.
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d. Specific grants should be provided as start-up funds for SMIs
aimed at developing new products/ process or upgrading existing
products/ process. This will further encourage SMIs to enhance on R&D
activities as financial burden is normally the main obstacle.
e. Encourage the setting up of industry-specific R&D centers by foreign
investors in Penang to foster the research oriented intellectual will greatly
benefit the local suppliers. To motivate the establishment of such centers,
additional incentives should be given and increasing the flexibility on the
use of expatriate researchers will definitely make the implementation
become more effective.
f. Computer-added design (CAD) and computer-added manufacturing
(CAM) can greatly improve productivity and enhance the competitiveness
of Penang manufactured products. Because of that, a better financial
assistance scheme must be given to encourage greater utilization of
computer-aided manufacturing and robotics among the manufacturing
industries.
g. Industrial fair and seminar can be an effective channels on technology
transfer and enrichment as they provide the necessary opportunities for
the meeting of buyers and sellers of technology and equipment.
h. To encourage innovation on new invention and development, effective
laws for the protection of intellectual property and patent system must be
enforced. Loose control on intellectual property protection will further
discourage the arrival of new investors.
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6.3
Summary
This research strongly recommended that the government take prompt action
to come up with the remedial measures against possible adverse impact due to the
economic slowndown would have on the Penang economy. The author’s survey
interview also had indicated some weakening in the industrial linkages and
development for SMIs. From hereon, Penang government should focus its efforts on
formulating and refining various linkage programmes and improvement strategies to
prepare Penang to face the increasing global competition.
As part of its responsibilities, the state government should promote the growth
and development of the SMIs for the Penang’s manufacturing industries. They should
seriously emphasize and closely monitor those innovative linkage programmes and
improvement strategies as proposed in this chapter.
With common motivation and dedication, Penang should able to meet the
challenges and overcome the problems along the way and create a dynamic base of
SMIs in the march to become an industrialized and developed state.
CHAPTER VII
CONCLUSION
7.1
Introduction
The electronics and electrical industry presents considerable potential trust
area to spearhead Penang’s industrial restructuring into the 2000s. It is however, also a
highly competitive industry. On a global scale, Penang will also have to compete for
new foreign investments with other countries with similar advantages. The fact that in
the electronics and electrical lines, Penang is already a major world producer which
gives her a head start over the other third world locations. But the situation being
dynamic, Penang will have to continue to extend this advantage with active promotion
and government support for foreign investment so that Penang will continue to grow
and lead the country into achieving our Vision 2020 objective.
The great challenge is how to translate what is already here into more broadbased industrialization process in terms of investment technology and employment. In
particular, the task is to encourage greater integration between SMIs with MNCs
together with the strong support from the government. All these linkages programmes
also calls for new entrepreneurship, a more liberal economic environment, stronger
commitment to technology and innovation and for greater improvement in skill and
human resources development.
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7.2
Research Conclusions
7.2.1
Identification of Root Causes on Investors Relocating from Penang
The main problems facing the industry now have led to unstable and
uncertain employment and income, especially in the semiconductor and disk drive
sectors. Penang is also in a weaker competitive position as compared with other
cheaper labour countries such as China, Thailand and Vietnam. Due to all those
unfavourable factors, there is an urgent need for the government to come out the
solution to solve the problem as listed below in order to place Penang again in a
competitive position to compete in the global market.
a. Growing operation cost locally;
b. Better incentives and subsidies from other countries;
c.
7.2.2
Bigger market opportunities from other countries.
Understand Key Concerns of SMIs in Manufacturing Industry
From the research study conducted, the key concerns faced by the Penang’s
SMIs in manufacturing industry are as listed below. For the future of Penang’s
economy, the state government should seriously look into all these issues and come
out with the necessary remedial measures to improve them.
a. Sales and Marketing
- Need better incentives and guidance on products exporting;
- Need more information on global market expectation and business
linkages contact;
- Need to further simplify exporting regulations and procedures.
b. Technology and Quality Level
- Lack of capability to supply high quality product at lower cost;
- Lack of strong engineering and R&D team;
- Lack of strong financial backing on technology upgrading.
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c. Linkages Programme and Scheme
-
Lack of publicity and low awareness by SMIs;
-
Programmes do not sufficiently reflect the needs of SMIs;
-
Lack of officers with sufficient knowledge on the industrial needs.
d. Information and communication Technology
-
Lack of fund on implementation and management of system;
-
Lack of IT human resources to manage the system;
-
Lack of awareness on the benefit of IT utilization.
e. Industrial Development Plan and Problem
- Increasing labour and overhead cost;
-
Difficulty in recruiting suitable workforce;
-
Difficulty in obtaining good market outlet.
f. Business Operating Behaviour and Reaction
7.2.3
-
Difficulty in penetrating global market;
-
Difficulty in raising capital and obtaining financing;
-
Competition with larger establishment for good labour.
Empirical Data and Conclusion from Survey Interview
It present a broad overview of the whole problem and an integrated
perspective based on all pieces of information and data collected from the survey
interview, as listed below it describe the overall problems that are involved in
Penang’s SMIs development.
This leads to the recommendations for strategies and programs
implementation suggested to the Penang government. In short, the author synthesize
the findings which is necessary in order to understand the problems in Penang’s SMIs
development.
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7.2.3.1 Critical Manufacturing Environment Needed for Competitive
Advantage
a.
Efficient government and political stability;
b. Sufficient skillful and disciplined workforce;
c.
7.2.3.2
Attractive investment incentives and subsidies.
New Strategies for a New Business Environment
a.
Increasing market share in existing market;
b. Entering new market with existing products;
c. Developing new product for existing market.
7.2.3.3 Important SMIs Capabilities
a. Capability to supply high quality product at lower cost;
b. Strong financial backing and planning;
c. Strong engineering and R&D team.
7.2.3.4 Strategic Initiatives Undertaken Needed by Government
a.
Better pricing competitiveness as compared with other countries;
b. More efficient and effective government authority;
c. Better incentives and subsidies.
7.2.4
Programmes and Strategies Implementation on SMIs Development
The recommendations of those linkage programmes and improvement
strategies from this research as listed below are able to assist the Penang’s SMIs to be
more competitive in the global market. These can only be materialized with the
combine effort of Penang state government and MNCs to develop a more efficient
and effective SMIs that capable in order to meet the present highly competitive
environment expectation.
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a. There is an urgent need on the establishment of a one-stop trade
information counter to provide personalized advisory service for the
Penang’s SMIs which lack of overseas market connection,
b. With the increased competition for FDI, government need to review and
re-strategize the foreign investment policy in order to regain Penang’s
competitiveness as a preferred investment location,
c. Effective SMI development mechanism needed which included
appropriate financial support, strengthening linkages between MNCs and
SMIs, raise skill level of SMIs on technology/ management capability
and assistance to penetrate international market,
d. Penang should create own brand name for long term benefits, especially
after the implementation of WTO/AFTA agreements and emergence of
China in the international market,
e. Specific strategies to cope with economic downturn which included cost
reduction, increasing efficiency & productivity and improving the
competitiveness of Penang products in the international market.
f. To introduce special measures to encourage and support SMIs to the new
market condition and become more export-oriented,
g. Government should encourage a new IT revolution among SMIs on the
industrial development in order to capture some of the market share of the
global E-Business growth,
h. HR development towards global industrialization expectations which
included development of more technical oriented workforce, better
marketing/ sales ability, good attitude/ working habits, business
leadership and management of intrinsic resources.
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i. To achieve international quality standard. SMIs must be made to realize
that customers are becoming increasingly quality conscious and unless
high standards of quality are attained, otherwise it is very difficult for
them to survive in this competitive global market.
j. Upgrading industrial technology through R&D in order for Penang to
move towards high value-added and high-technology industries. Penang
need to develop its indigenous technological capabilities to meet the
global market requirement.
7.2.5
Lessons for Penang to Learn from other Industrialized Countries
The successful experiences of Taiwan and Singapore with respect to their
development polices, strategies and assistance programmes to help the SMIs,
definitely will be beneficial to Penang for benchmarking in order to further upgrade
Penang industrialization development progress.
7.2.5.1 Lesson to Learn from Taiwan
The Taiwanese government has provided assistance to SMIs through various
ministries and agencies, namely, the Ministry of Economic Affairs, the Ministry of
Finance, the Central Bank of China and the national Economic Council. Most of its
industrial policies are aimed at eliminating or reducing the financial burdens of SMIs.
The foreign MNCs initially provided not only their market (exports), but also the
influx of technology. Nonetheless, the key strength of Taiwan lies in the many local
industries that it has built up and the niche market strategy that they are pursuing.
7.2.5.2 Lesson to Learn from Singapore
The Singapore experience shows that the government is very determined to
help the SMIs. The government has introduced numerous policies and programmes to
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help SMIs in Singapore with the intention that SMIs can quickly capitalize on these
facilities and thereby improve their business competitiveness. Singapore have been
successful in economic development because there is good rapport between the
government and the private sector. Singapore entrepreneurs are also capable of
adapting western technology and management know-how to their unique cultural
environment. Singapore emphasis on providing the human resources and physical
services infrastructure to support and encourage MNCs to use Singapore as regional
“high-tech” production and R&D center has achieved much success.
7.3
Publication from this Research
a. “Challenges of the Penang’s SMIs in Electronics Manufacturing
Industry to Meet the Globalization and AFTA Scenario”
It was accepted for presentation and publication in the 3rd International
Conference on Recent Advances in Material, Minerals and Environment (RAMM
2003), which was held in Penang on 20-22nd Oct 2003.
b. “Strategies and Improvement to Prepare Penang Manufacturing
Industry SMIs in Facing Global Competition”
A summarized report submitted to Penang Development Corporation as
reference for their action plan. A complimentary letter received from PDC on April
2005 for the proposals and suggestions on Penang SMIs development (Appendix J).
7.4
Novelty of this Research
As understand from Mr. K. Gobalan, the manager who in-charged of industry
and trade division from Penang Development Corporation, so far there are nobody has
proposed on the overall linkages and improvement strategies together with empirical
data for Penang SMIs from electronics and electrical manufacturing industry.
213
Hoping that this research will trigger more research on this topic so that it is
possible to improve further the quality of Penang SMIs and place them on a more solid
position in this aggressive and challenging global market environment.
7.5
Further Research Recommendation
The finding of this research will be extremely useful to Penang government
and would greatly assist them in their planning and coordination efforts. Through the
proper understanding and implementation, the findings of this research will be
mutually beneficial to all parties, including SMIs, MNCs and government.
Completion of this research study can also indicate that much more further
studies are required on other industries, besides electronics and electrical sector. The
scenario on other states of Malaysia also requiring further investigation. Some of the
suggestions are as follows :a. Fabricated Metal Products Industry
This research findings are mainly concentrated on those MNCs and SMIs
with business activities related to electronics and electrical manufacturing industry.
Since fabricated metal products industry is the second largest manufacturing industry
in Penang, it will definitely contribute great benefit to Penang, if further study can be
expanded into this sector so that the difference in expectations and requirements will
be notified.
b. New Linkages Programmes and Strategies
The technology is keep on improving and market expectations also changing
from time to time, the new linkages programmes and strategies need to be updated to
match with technology and marketing expectation. Further research is needed to
review and update these programmes and strategies on their impact to the SMIs.
214
c. Broader Information on SMIs Development
Another set of data would be needed to clarify some interpretation appearing
in future research. A new study should seek information on the following :-
How Penang SMIs represents SMIs from other states ?
-
How Penang SMIs in electronics and electrical sector represents
SMIs in other industrial sectors ?
-
Are there unique features in linkages programmes and
improvement strategies in Penang state compared to other
geographic areas ?
-
Are the linkages programmes and improvement strategies
developed useful in explaining similarities in other states, regions
or indeed nations ?
No doubt to say, to match with the moving technology and market
expectation, further research study needs to be explored. This present research can
hopefully be taken as a reference or guidance and considered as part of the literature
review. This piece of information, at least, can provide a framework against further
study in the field of linkages programmes and strategies for SMIs in manufacturing
industry could be conducted.
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APPENDIX A
231
APPENDIX B
232
APPENDIX C
233
APPENDIX D
234
APPENDIX E
235
APPENDIX F
236
APPENDIX G
237
APPENDIX H
238
APPENDIX I
239
APPENDIX J
240
APPENDIX K
QUESTIONNAIRE
A Survey on “Enhancing Global Competitiveness for Penang
Electronics & Electrical Small and Medium Industries Through
Improving Linkage Programmes”.
This is a research study for an Engineering Doctorate Programme with UTM conducted
by HK Lee. Data will be collected and analyzed. Results of the survey will be
published, but no identifying information of the individual opinions and suggestions
will be released without your permission.
Survey Contents
Survey divided into ten sections, each section consists of five questions.
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
Organization Profile & Perception
Technology Transfer & HR Development
Sales & Marketing
Technology & Quantity Level
Information & Communication Technology
Public Sector Incentives & Schemes
Linkages Programme & Plan
Industrial Development Plan & Problem
Future Action Plan & Strategy
Business Operating Behaviour & Reaction
241
1)
Organization Profile & Perception
a) Type of organization
( ) Small and Medium Scale Industry / Enterprise (SMI)
( ) Multinational Corporation (MNC)
b) Years of operating of company in Penang.
( ) Less than 5 years
( ) Between 5 to 10 years
( ) Between 10 to 15 years
( ) More than 15 years
c) Seriousness on company’s business performance affected by global economic
slowdown.
( ) Very seriously (more than 70%)
( ) Seriously (51 – 70%)
( ) Quite seriously (31 – 50%)
( ) Not so seriously (10 – 30%)
( ) Slightly affected (less than 10%)
d) Main reason of present unsatisfactory business performance for SMIs in Penang
manufacturing industry.
( ) Soft market demand due to global economic slowdown
( ) New external competitors enter into present market share
( ) Insufficient government support to promote and expand marketing outlets
( ) Lose out due to pricing competition
( ) Lose out due to technology and quality of products
e) Penang’s manufacturing industry still have the potential to revive once the global
economy situation recovered.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
242
2)
Technology Transfer & HR Development
a) Government and MNCs have done a great job in providing opportunity for
SMIs to expose and learn up new technology and skills
( ) Yes
( ) No
( ) Yes, but need improvement.
b) Most effective technology transfer method which Penang’s SMIs can get in contact
with the latest invention and development from overseas.
( ) Importation of capital equipment and machinery
( ) Foreign professional / technical personnel
( ) Training of local personnel overseas
( ) Browsing the internet
( ) Royalty payment for the use of patents
c) Main problem encountered in training the employees for SMIs.
( ) Cannot find suitable or appropriate courses
( ) Cannot release employees for training
( ) Losing employees after training
( ) Lack of fund allocation on training
( ) Employee not interest to learn new skill / technology
d) Method which technological and management skills for Penang SMIs can be
improved and upgraded faster.
( ) More in- house or off- site training programme for employees
( ) Technology transfer from MNCs
( ) Expose employees to trade fair and technical seminar/ symposium
( ) Learn through on the job training
( ) Higher utilization of internet for the new technology / system
e) Technological and management skills of most Penang manufacturing
industry’s SMIs have met the requirements of the MNCs expectations.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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3)
Sales & Marketing
a) Key assistance on products exporting for SMIs needed from government
( ) Information on global market expectation & business linkage contact
( ) Simplify exporting regulations & procedures
( ) Incentives & assistances on products exporting
( ) Arrangement of exhibition & trade fair to promote products to overseas
( ) Knowledgeable and helpful liaison officer
b) Key country for your products exporting.
( ) Thailand
( ) China
( ) USA
( ) Japan
( ) Other
c) How heavy do you company business activity rely on exporting market ?
( ) Very heavily (more than 75%)
( ) Heavily (51 – 75%)
( ) Quite heavily (36 – 50 %)
( ) Not so heavily (less than 25%)
( ) Zero exporting
d) Forecast on the economic situation of Penang manufacturing industry for the
next five years.
( ) Business performance in the progress of improving
( ) Remain the same as present situation
( ) Business performance expecting to become worse
e) Government have provided sufficient information, guidance and assistance
to SMIs on exporting their products.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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4)
Technology and Quality Level
a) Method which technological and quality level for Penang’s SMIs can be improved
and upgraded faster.
( ) Linkage with MNCs/ LSI/Es
( ) Expose to stronger market competition
( ) Effective vendor development programme
( ) Better incentives and rewards for SMI/Es with better performance
( ) Good initiative and aggressiveness attitude of SMI/Es
b) Most critical strength of SMIs that enable them to be competitive in the global
market.
( ) Capable to supply high quality product at lower cost
( ) Strong financial backing and planning
( ) Good support and backing by MNCs
( ) Strong sales and marketing team
( ) Strong engineering and R&D team
c) If the international quality systems certifications (e.g. ISO) for SMIs have
yet to be attained, please state the major inhibiting factor.
( ) Certification and consultation cost too high
( ) No incentives for achievement of quality system certification
( ) Lack of knowledgeable staff to manage the system
( ) Complex and cumbersome application procedure
( ) Not necessary for our products / services
d) General performance of Penang manufacturing industry’s SMIs on technology,
product quality and reliability.
( ) Excellent
( ) Good
( ) Average
( ) Fair
( ) Poor
e) Key expectation from SMIs through the linkage programme is for technological
improvement, rather than the company’s profitability.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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5)
Information & Communication Technology (ICT)
a) Main factor that restrict SMIs from adopting ICT.
( ) Lack of fund (high cost for implementation and management)
( ) Lack of IT consultants and human resources to manage the system
( ) Doubtful security over information transfer and payment system
( ) Difficult to get ICT development assistance subsidy from government
( ) Lack of awareness on the benefit of ICT utilization
b) Best method government can do to promote ICT utilization for SMIs.
( ) Provide monetary assistance and inventive
( ) Provide sufficient training to IT staffs
( ) Reduce red tape on technology acquisition assistance fund for ICT
( ) Strong publicity and promote on benefits of ICT utilization
( ) Provide good and effective ICT networking system
c) Is your company having your own homepage to promote the company business
activities ?
( ) Yes
( ) No
d) Has your company obtained the return on investment from the website ?
( ) Obtain more than expected
( ) Obtain what expected
( ) Obtain less than expected
e) SMIs need to expand their utilization of Information & Communication
Technology (ICT) in order to be competitive in technology and marketing.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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6)
Public Sector Incentives & Schemes
a) Has your company applied / obtained any of the incentive / assistance scheme
from government under industrial development programme ?
( ) Yes
( ) No
b) Have you encountered any difficulty in applying/ obtaining the industrial
development assistance programme or scheme from the government ?
( ) Yes
( ) No
c) Main reason for poor participation on government aided development schemes /
incentives plan by the SMIs.
( ) Lack of awareness, information not readily available
( ) Unclear application procedure
( ) Qualifying criteria too stringent, processing and approval time too long
( ) Waste of time, even if apply will probably not be accepted
( ) Benefit and incentive not attractive enough
d) What do SMIs expected most from the development assistance programme ?
( ) Introducing business contact (local and oversea)
( ) Arrange business linkages (local and oversea)
( ) Provide working capital financing
( ) Provide technical guidance
( ) Provide business guidance
e) Present industrial development incentives and schemes are effective and
impressive enough as compared to other countries to attract new investors and
retain existing investors.
( ) 5. Strongly disgree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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7)
Linkages Programme & Scheme
a) Has your company received any circular or newsletter regularly on Penang’s
manufacturing activities, opportunities progress trends or incentive schemes /
programmes available from any of the government authority ?
( ) Yes
( ) No
b) Which of the following programmes are you aware of ?
( ) Vendor Development Programme (VDP)
( ) Global Supplier Programme (GSP)
( ) Industrial Linkage Programme (ILP)
( ) Small and Medium Scale Industries Promotion Programme
( ) Industrial Technical Assistance Fund (ITAF)
( ) Technology Acquisition Fund (TAF)
( ) Human Resources Development Fund (HRDF)
( ) Modernization and Automation Scheme for SMIs
c) Main problem with the overall existing SMIs development programmes.
( ) Programmes do not sufficiently reflect the needs of SMIs
( ) Lack of publicity and low awareness by SMIs
( ) Lack of officers with sufficient knowledge on the industrial needs
( ) Poor monitoring and follow up system after the implementation
( ) Application procedure too complex, requirement too stringent
d) Is your company having the active business linkages or sub-contracting
activities with any of the MNCs or SMIs ?
( ) Yes
( ) No
e) Existing linkage programmes for SMIs need to be further reviewed and
improved to meet present technological and market competitiveness
requirements.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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8)
Industrial Development Plan & Problem
a) If your company intended to plan a new investment on manufacturing industry in
Penang, which sector you will be interested ?
( ) Electronics & electrical base products
( ) Computer & IT base products
( ) Tooling, equipment & machinery fabrication
( ) Plastic base products
( ) Others
b) What is the disadvantage, if any, of operating the manufacturing industry
in Penang at present economic situation ?
( ) Rapidly rising labour and overhead cost
( ) Difficulty of recruiting suitable skill labour and high labour turnover
( ) Difficulty in obtaining good market outlet
( ) Lack of attractive incentives and assistance schemes from government
( ) Distance from input sources and market (high transportation cost)
c) Do your company have plan to integrate your operations backward or forward,
to include more stages of manufacturing for your products ?
( ) Yes
( ) No
d) Main factor that still attract foreign investors to set up facilities in Penang at
present economic situation.
( ) Low labour and overhead costs
( ) Attractive investment incentives and subsidizes
( ) Sufficient skillful and disciplined labour force
( ) Efficient government and political stability
( ) Non of the above, then what ? _______________________________
e) Present increasing overhead and labour costs are the main factors for Penang’s
manufacturing industry to lose out in the global market
competition
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
249
9) Future Action Plan & Strategy
a) Is your company have plan to relocate partial / whole of your operation
to other state of Malaysia or other country ?
( ) Yes
( ) No
b) If you have the plan to set up a new manufacturing facility, which will be
your targeted prefer location ?
( ) Penang
( ) Malaysia other state
( ) Thailand
( ) China
( ) Others
c) Main reason for certain MNCs manufacturing facilities moving out from Penang.
( ) Increasing overhead and labour cost
( ) Better marketing opportunity from other countries
( ) Lack of sufficient supply of highly skilled workforce
( ) Better incentive and subsidizes offered from other countries
( ) Political issues and government performance
d) Main factor that government able to help Penang’s manufacturing industry for
a faster recovery due to present global economic slow down.
( ) Better incentives & subsidizes from government
( ) Better pricing competitiveness as compared with others nations
( ) Strong promotion of Penang’s manufacturing industry to outside world
( ) More efficient and effective government authority, reduce unnecessary
red tape
( ) More effective linkages with established worldwide MNCs
e) Electronics & electrical industries will still remain as the main stream of the manufacturing
sectors in Penang for the next five years.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree
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10)
Business Operating Behaviour & Reaction
a) In business, it is better to work on what you are familiar with, rather than trying
on new thing that you don’t really know well.
( ) Yes
( ) No
b) If your company need guidance/ advice on technical issue, business opportunity or
marketing information, which organization you will be referring to ?
( ) Government agency (SIRIM, PDC, MIDA, etc.)
( ) MNCs
( ) Consultancy firm / manufacturer
( ) Professional / business counter part
( ) ‘Industrial’ friends
c) During the recent recession, what is the top priority remedial measure which your
company has taken to keep the company sustain ?
( ) Downsizing workforce and production capacity
( ) Budget / expenses control and reduction
( ) Sub-contracting certain jobs / operations to lower cost sources
( ) Plan to relocate to other lower wages country
( ) Look for new market or products expansion / diversification
d) All business face problem. What is the most critical problems encountered
by SMIs in their business ?
( ) Difficulty in raising capital / obtaining credit
( ) Difficulty in obtaining good market outlet
( ) Difficulty in achieving good business management system
( ) Difficulty with government complex & stringent regulations / procedures
( ) Competition with larger establishment for good labour
e) As compared with other industrial developed countries, Penang is still remain a
top choice location for the manufacturing industry by foreign investors.
( ) 5. Strongly disagree
( ) 4. Disagree
( ) 3. Neither agree nor disagree
( ) 2. Agree
( ) 1. Strongly agree