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