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INVOLVEMENT OF MALAYSIAN SMES IN LOGISTICS: POTENTIAL
AND PROSPECTS

Che Mohd Zulkifli Che Omar
Faculty of Management and Economic
Sultan Idris Education University
Malaysia

Osman Jusoh
Faculty of Management and Economic
Sultan Idris Education University
Malaysia


Abstract

Specifically the purpose of this study will help the SMEs within which the companies operating to
determine the level of their logistics practices, challenges and performance and relate it to the benefit to
the Malaysian SMEs. This research attempt to examines the general characteristics of generic capabilities
of SMEs owner/manager, management practices adopted by Malaysian SMEs and challenges faced by
Malaysian SMEs which engages in logistic industry. This research also attempt to investigate if there
exists a relationship between general characteristics of generic capabilities, management practices,
challenges and business performance. This research employed survey research design and was cross-
sectional in nature. A total of 394 respondents from SMEs Logistic Company participated in this
research. The result of the descriptive analyses show that respondent rank entrepreneurial trait has a
higher characteristic of capability in SMEs owner/manager in operating their company. The second and
third were management capability, financial capability, technical capability and innovation capability.
The result of the descriptive analyses also show respondent rank Customer relation Practices as a highest
management practices applied in Logistic SMEs. The result of the analyses revealed that two out of three
independent variables are positively associated with business performance significantly. These results
imply that the higher level of independent variables (characteristics of capability and management
practices) the better business performance would be. In this analysis, characteristics of capability seemed
to have a strongest association with the r value of 0.524 followed by management practices (r = 0.368).
However, challenges in logistics SME variables with the r = 0.036 indicated that this variables almost has
correlation with business performance. In addition, the multiple regression analyses also found all
variables have positive relationship with business performance. However, only characteristic of
capability has strong significant relationship with business performance. According to the value R value,
combination of these three variables (characteristics of capability, management practices, and challenges)
can only predict 27.6% toward business performance. While72.4% can be predicting by other variables
that need to be identified in the future. Based on F statistic (43.488) at p value 0.01, we can conclude that
the model that has been form is appropriate. As a conclusion, the research findings have contributed to
the body of knowledge and provided further understanding of characteristics of generic capabilities,
management practices, challenges and its relationship to business performance in the Malaysian Logistic
SMEs.

Keywords: Malaysian logistics SMEs, Generic capabilities, Management practices, Business
performance

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INTRODUCTION

In a matter of a few decades, Malaysia has transformed its economy from one based on
agriculture to one driven by trade. Central to powering the growth of this economic
transformation is its trading with other nations. International trade has become a critical
component of Malaysias economic engine. Given the importance of international trade to
Malaysia, much of which is seaborne, freight logistics has assumed a very prominent role in
providing the backbone to facilitate it. Freight logistics is one of the key elements in the
production process. The management of the freight logistics chain involves the integration of
various service providers to provide a total supply chain solution.


The governments commitment and concern for the development of SMEs was made evident
from the early 1970s with the introduction of the New Economy Policy in 1971, which aimed to
improve peoples welfare, and restructure ethnic economic imbalances. Furthermore, the
governments commitment to the development of SMEs can also be seen in the second Industrial
Master Plan (IMP2), which ended in 2005, followed by the Third Industrial Master Plan (IMP3),
from 2006-2020, coinciding with the countrys vision for 2020 (MITI, 2005).

Malaysia is a fairly mature market, but surprisingly, only a fraction of the more than half a
million SME establishment ship their products internationally. They have not taken full
advantage of the support and solutions provided by local ports (Westport Malaysia News, 2006).
A reduction in trade barriers and the emergence of advanced technologies have led to a great
interest in logistics in recent years (Gunasekaran and Ngai, 2003). Unlike large firms, most
SMEs may not compete directly against large enterprises because of their limited resources
(Cooper et al., 1986). Moreover, according to Kotelnikov (2007), SMEs are the drivers of
economic growth and innovation. The total number of SMEs in the economy depends on the rate
of SME creation and rate of SME destruction. However, the contribution of SMEs to the
economy is still relatively small. In recognition of this, the government has made the
development of SMEs a high priority area. This is reflected in the national development agendas,
namely the Ninth Malaysia Plan (9MP) and the Third Industrial Master Plan (IMP3), in which
the key strategy for the development of SMEs is outlined for the periods 2006-2010 and 2006-
2015.

Small and Medium Enterprises (SMEs) in Malaysia are a rapidly growing force. Recognizing the
growing impact of SMEs on Malaysias aspirations to become a developed nation by 2020, the
government set up the Small and Medium Industries Development Corporation (SMIDEC) in
1996 to oversee their business needs. The focus of SMEs is on building their unique
competencies and striving for effective customer and supplier management (Lee et al., 1999).
SMEs that are logistically competitive need to exhibit high levels of achievement in these five
capabilities, as they aim to become crucial and integral members of the global supply chain
(Council of Logistics Management, 1995).




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BACKGROUND

SMEs in many countries face severed and numerous challenges. At the theoretical level previous
studies have identified some of the barriers facing SMEs (for example Wan, 2003; Stuti, 2005;
Moha, 1999; Hall, 2002; and SMIDEC, 2002). Wan (2003) highlighted the many challenges
facing SMEs in a globalized environment, including a lack of financing, low productivity, a lack
of managerial capabilities, access to management and technology, and a heavy regulatory
burden. In the Malaysian context, SMEs face many similar challenges, which have been
highlighted by the APEC survey (1994), the SMI development Plan, 2001-2005 (SMIDEC,
2002), Ting (2004), the UPS survey (2005) and others. For example, the major challenges
include lack of access to loans, limited adoption of technology, lack of human resources and
competition from MNCs and globalization.

It is important to know the practices and performance of SMEs engaging in logistics in Malaysia.
Several external factors continue to encourage the organization to adopt the new way of
conducting business, including increasing globalization, decreasing barriers to international trade
(i.e AFTA), improvement in information availability through information technology and
increasing customer demand (Sahay & Mohan 2003; Gunasekaran et al, 2003). In order to
survive, the SMEs must be able to reduce costs, improve quality and provide a rapid response to
the customers needs. One of the ways of achieving that competitive edge is through the
implementations of the best logistic practices.

The main issues facing industry involve a lack of information about industrial players. There is
no firm record of the number of players in the freight logistics industry, and other critical details
about them concerning their size, range of service, or status of operation whether it is local or
foreign. Many of them are not registered with any association. In addition, a lack of information
about players in the industry have made it difficult for the relevant authorities to assess the state
of the industry to devise polices to promote and develop it.

THE PURPOSE OF THE STUDY

Specifically the purpose of this study will help the SMEs within which the companies operating
to determine the level of their logistics practices, challenges and performance and relate it to the
benefit to the Malaysian SMEs. This research has concluded that effective implementation of
logistics practice will give the competitive advantage to the organization. This study will
determine this in the context of Malaysian SMEs.

The specific objectives of this study are:
1. To examine the general characteristics of the generic capabilities of SME owners and
managers.
2. To examine the management practices adopted by Malaysian SMEs engaging in the
logistics industry.
3. To examine the challenges faced by Malaysian SMEs engaging in the logistics industry.
4. To examine the relationship of the general characteristics of generic capabilities,
management practices, challenges and business performance.
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5. To examine the predictive power of general characteristics of generic capabilities,
management practices, and challenges toward business performance.

Research Questions

1. What are general characteristics of generic capabilities of SME owners and managers?
2. What management practices are adopted by Malaysian SMEs engaging in the logistics
industry?
3. What challenges are faced by Malaysian SMEs engaging in the logistics industry?
4. What is relationship between characteristics and management practices toward SMEs
business performance?
5. How to predict power of general characteristics of generic capabilities, management
practices, and challenges toward business performance?

LOGISTIC IN MALAYSIASMEs

This section gives an outline description of SMEs in Malaysia and examines the literature
relating to previous research concerning the logistics SMEs, general characteristics of capability,
management practices, challenges, and business performance.

The logistics operations include purchasing, distribution, the managing of inventories,
packaging, manufacturing and even customer services (Bowersox and Closs, 1996) Logistics
defined as the technology for controlling physical flows and information flows (Colin and Fabbe,
1993) is a major contributor to performance development in large corporations, and in this
context it is more commonly known as logistics efficiency (Chow et al., 1994). The firm
becomes efficient with its partners and customers by reducing the cost of logistics activities:
suppliers, warehousing, production, transportation, and delivery. Sink et al., (1996) identify the
function and activities of logistics service providers. The details are presented in Table 1.

Table 1: Activities of logistics service providers
Function Activities
Transportation

Warehousing

Inventory management
Order processing
Information system

Packaging
Shipping, forwarding, (de)consolidation, contract delivery, freight bill
payment/audit, household good, relocation, load tendering, brokering
Storing, receiving, assembling, returning goods, marking/labelling, knitting
Forecasting, location analysis, network consulting, slotting/layout design
Order entry fulfilment
EDI, e-commerce, Internet, WWW, routing/scheduling, AI, and expert systems
Designing, recycling
Source: Adapted from Sink et al., (1996)

Sohail and Sohail (2003) predicted that Malaysian companies will moderately increase their
commitment in the logistics services in the near future through the implementation of activities
such as warehouse management, inventory replenishment and order fulfilment.
SMEs require quick and cost-effective solutions to expand beyond the borders of Malaysia.
SMEs will be accorded fast and reliable transport and logistics services to get their goods across
the globe, since they can find instant access to more than 300 ports around the world, all at
competitive tariff rates (Westport Malaysia News, 2006). Furthermore, SMEs looking for
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warehouse and cold-storage facilities can use the Westports facility, which has total logistics
solutions at very low cost. Some SMEs wanting to expand beyond our borders intend to set up
joint ventures in the production and distribution of halal products for the international market.

Logistics encompasses all of the information and material flow throughout an organization. It
includes everything from the movement of a product or a service that needs to rendered, through
the management of incoming raw materials, production, and the storing of finished goods, to
delivery to the customer and after sales service (Pollitt, 1998)

In todays highly competitive environment, many companies are aiming to gain a share of the
global market and to take advantage of higher production and sourcing efficiency. A key
determinant of business performance nowadays is the role of the logistics function in ensuring
the smooth flow of materials, products and information throughout a companys supply chains
(Sum et al., 2001).

The general problems that arise in corporate logistics include delayed and inaccurate
information, incomplete services, slow and inefficient operations and high product damage rate.
The possible consequences include an inability to provide inter-linked services, high operating
costs, a high rate of inaccuracy, and a lack of flexibility in responding to changing demand
requirements. Furthermore, SMEs face barriers of a number of different kinds, including the lack
of information, limited financial and technical resources, and lack of a well-trained work force
(APEC SMEs, 2003). According to Yong, O. K. (2006) the challenges include a speedy time to
market, just-in-time delivery, lean inventories, short turn-around in transit, and low-cost
clearance at borders. Meanwhile, there must be greater focus on core competencies, ensuring
greater supply-side efficiency among the networked and allied partners.

Chiu (1995) identified the Critical Success Factors (CSFs) in effective logistics management.
These include good planning of the logistics system, a well-designed distribution organization,
the prudent selection of allied companies, a close relationship with trading partners, good
logistics investment analysis, the elimination of barriers to logistics management, the
commitment of top management, and continuous improvement in logistics.

GENERAL CHARACTERISTI OF LOGISTICS MALAYSIA SMEs

Entrepreneurial Traits

Studies have acknowledged different factors that are attributable to the success of an
entrepreneur especially to SMEs of logistic factors. However, given the limited time and
resources available for this research, only four personality traits are included for this study. There
are the need for achievement, locus control, innovations and creativity and propensity of risk
taking. Small and medium sized enterprises are created by entrepreneurs. These entrepreneurs
are also responsible for making decisions and solving problems in their organizations. Moreover,
these entrepreneurs tend to exhibit certain characteristics. According to Fafuente and Salas
(1989), the entrepreneurial characteristics can influence the type of firm to be created as well as
the manner in which it is managed. For this reason, it is important to understand the
entrepreneurial characteristics of SMEs.
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The table 2 below displays the three groups of entrepreneurial characteristics that can influence
the success of an SME.

Table 2: Entrepreneurial Characteristics
Personality Characteristics Sociological Factors Demographic factors
Need for achievement
Locus of control
Innovation Capability
Propensity of taking risk
Desire for responsibility
High level of energy
Future orientation
Commitment to work
Flexibility
Tolerance for ambiguity
Tenacity
Knowledge
Experience
Skill at organizing
Reputation
Perception of desirability
Perception of feasibility
Role model and mentors
Entrepreneurial parents
Age
Gender
Education
Marital Status
Sources: Dollinger (1999) and Zimmerer and Scarborough (2008)

Management Capability

Some authors attempted to identify the logistics capabilities a firm may possess and their
relationship to other variables. Lynch et al., (2000) studied the effects of logistics capabilities
and corporate strategy on company performance. They examined process capabilities, value-
added service capabilities, cost leadership strategy, and differentiation strategy. Their result
indicated that process capabilities were positively linked to a cost leadership strategy while
value-added service capabilities were positively linked to a differentiation strategy.

Morash et al., (1996) examined the relationship between logistics capabilities and performance.
The capabilities were grouped into two areas, demand oriented and supply-oriented capabilities.
Demand-oriented capabilities included pre-sale and post-sale customer service, delivery speed,
delivery reliability and responsiveness to target markets. Supply-oriented capabilities included
widespread and selective distribution coverage, and low total cost distribution.

Lack of Managerial and Technical Expertise

In many studies conducted on the common problems of small enterprises, the lack of managerial
and technical expertise is the most reported. According to Chee (1986), this problem results from
entrepreneurs having relatively low level of formal education and limited training in new
management principles and practices.

According to Pickle and Abrahamson (1990) inadequate management can lead a small business
to fail to identify and respond to changing social, economic and environmental conditions, which
can result in serious problems and even the eventual failure of the firm. Furthermore, these
authors indicate that SME owners encountered problems such as lack of experience in product or
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service lines, lack of management experience, over-concentration on experience and
incompetence of management.

Technical Capability

According to Chee (1986) small business are seriously affected by the shortage of skilled labour.
Chee discovered that SMEs have to compete with large companies for skilled workers. However,
with regard to this problem, SMEs blamed the large companies for taking away their skilled
workers by offering them better wages and working conditions.

Baumack (1998) noted that in a tight labour market the competition between small and large
business for competent employees is intensified, particularly for college graduates and certain
types of skilled worker. In another study, Mohd Jan et al., (1990) reported that as labour
intensive enterprises, small businesses are unable to attract and then retain skilled workers, and
that one out of four small businesses have problems in attracting the right kind of worker.

Innovation Capability

According to Martins and Terbalance (2003), Mavondo and Farrell (2003), Robbins and Coulter
(1999), Ozsomer et al., (1997), Kao (1996), Robert and Weiss (1998), Drucker (1985), and
Kanter (1983), an innovative organization is characterised by its ability to channel creativity into
useful outcomes. These authors agree that innovative organizations have the ability to take
creative ideas and turn them into useful products, services or work methods. In other words, the
relative strengths of innovative organizations lie in their entrepreneurial ability to change,
experiment, transform and revolutionize.

According to Megginson, et al., (1991), besides being sources of new ideas, materials, processes,
and services, small businesses tend in general to be more flexible in their operations. Small
businesses have the tendency to be able to switch their production readily in the face of changing
demands within their field and capacity.

Marketing Capability

Mohd Jan et al., (1990) found that SMEs perceived their inability to generate sufficient sales and
low profit margins as their common marketing problems. According to the authors, the
marketing problems resulted from their inability to access channels of distribution and market
information.

Shahadan et al., (1988) also reported that SMEs have marketing problems. The authors indicated
pricing, late payment from customers, inability to provide quality products and lack of
promotional strategies as the marketing constrains of SMEs. The study indicated that only 40
percent of SMEs advertise their products, using mainly signboards and yellow pages.




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Quality System Capability

In order to make SMEs competitive, numerous quality models or approaches have been proposed
(Husband, 1997). The issue of whether quality methods can be effectively utilised by SMEs
remains uncertain (Husband, 1997). Common quality models, such as quality systems and
certification, have been adopted by some SMEs, and yet the rate of implementation is low in
comparison to larger organisations (Brown and van der Weile, 1995; Terziovski et al., 1997; and
Ramsey, 1998). More holistic quality models, such as total quality management (TQM), also
appear to exhibit low implementation rates (Ghobadian and Gallear, 1996; van der Weile and
Brown, 1998). Therefore, the issue of whether quality methods can be applied to SMEs needs to
be explored more thoroughly. Issues related to identifying quality methods that are useful to
SMEs and at what stage should they be introduced need to be examined.

Financial Capability

Business, particularly SMEs, need better financing capabilities in order to improve their success
rates (Van Auken and Carter, 1989). In another study, Diah (1985), in Mohd Jan et al., (1990)
identified the inability to raise capital and limited access to institutional credit as two major
problems typically affecting SMEs. Similarly, the study conducted by Shahadan et al., (1990),
also found that majority of the SMEs experience shortage of capital or difficulty in obtaining
loans.

MANAGEMENT PRACTICESIN LOGISTICS MALAYSIAN SMEs

Information Sharing

Following their extensive review of the existing literature on SCM, Li et al., (2002a) proposed
several variables relating to information sharing between players in the supply chain. The
following are factors related to Supply Chain Management (SCM) information sharing practices:
sharing of valuable (business proprietary) information among parties, informing of changes,
sharing of core business knowledge and business plans. Information sharing describes the extent
to which one party in the chain communicates critical and proprietary information to another
party in the chain (Monezka, 1998).
Through information sharing practices, the supply chain players (trading partners) can
coordinate their activities and help to avoid uncertainties (Ulusoy, 2003). Both suppliers and
buyers can share the information relating to demand forecast, production plans or schedules and
inventory data.

Customer Relation Practices

Li et al., (2002) summarized customer relationship dimensions that included the frequent
evaluation of customer complaints through formal or informal procedures, frequent interaction
with customers, follow up and giving service, measuring and evaluating customer satisfaction,
expectations of customers, facilitating and helping customers, a sense of fair play and evaluating
the importance of relationships.
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Customer responsiveness through enhancing the customers ability to seek assistance has a great
impact on overall company performance (Tan et al., 1999). Furthermore, an effort to improve
customer satisfaction and practicing customer needs analysis will improve productivity and sales
growth, and increase the companys earnings (Kuei et al., 2001).

CHALLENGES FOR LOGISTICS MALAYSIAN SMEs

Despite their important contribution to exports, employment and economic growth, there is wide
recognition in the literature of the challenges and barriers facing SMEs in Malaysia, preventing
them from growing further and putting them in a critical position to face the new challenges
arising from globalization, liberalization and extensive organizational, institutional and
technological change. It has been documented that the barriers facing SMEs in Malaysia
undermine their performance. Some of the literature, including Wan (2003); Stuti (2005); Moha
(1999); and SMIDEC (2002), highlight many challenges facing SMEs in a globalized
environment, for example from a lack of financing, low productivity, lack of managerial
capabilities, access to management and technology, heavy regulatory burden among many
others. In the previous study, Malaysia SMEs face many challenges, which have been
highlighted by the APEC survey (1994); the SMI development Plan 2001-2005 (SMIDEC 2002);
and also Ting (2004), and UPS (2005).

OVERALL BUSINESS PERFORMANCE

Nash (1993) claimed that profitability is the best indicator of whether an organization is doing
things right, and so profitability can be used as the primary measure of organizational success.
Furthermore, Doyle (1994) pointed to profitability as the most common measure of performance
in western companies. Profit margin, return on assets, return on equity, return on sales are
considered to be the common measures of financial profitability (Robinson, 1982; Galbraith &
Schendel, 1983). Abu Kassim et al., (1989) found sales, sales growth, net profit and gross profit
among the financial measures preferred by Malaysian manufacturing firms.

Stank et al. (2003) conducted a survey to address a logistics service providers performance and
how it related to the market, customer satisfaction and loyalty. The model distinguishes between
three different kinds of performance: relational performance, operational performance and cost
performance.

METHODOLOGY

This chapter discusses the methodology used in this research. It is divided into subtopics, which
are, research framework, data collection method, subject of study, instrument used, research
procedure, and data analysis.

Research Framework

The dependent variable in this study is business performance, measured by the increase in sales,
overall profits, market scope (internal and domestic market), awards and achievements, market
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share, the rate of employee turnover, the number of skilled employees, and market acceptance of
the company image.

The independent variable in this study involves management practices that measure or determine
what practices are implemented by the SMEs. The dimensions include information sharing and
customer relations practices. General characteristics of capabilities are also identified as an
independent variable. The dimensions include entrepreneurial traits, management capability,
technical capability, innovation capability, marketing capability, quality system capability, and
financial capability. Another variable for this project involves challenges in Malaysian Logistics
SMEs.

Sampling

For the purpose of collecting the data for this research, the Directory of Malaysian Logistics
2006/2007 was used. However, the list of business names and addresses was compared with the
SME info website. The Directory consists of an extensive list of the business names and
addresses of logistics firms associated with the Federation of Malaysian Freight Forwarders
(FMFF). The reason for using this Logistics directory is that FMFF is among the most
established associations of logistics firms. It consists of the firms in large industries, and in small
and medium industries, but in this project we concentrate on small and medium industries.

To determine the sample size for the research project, Roscoes (1975) rule of thumb was used.
A sample size of more than 30 but not less than 500 was appropriate for most research. Based on
the above discussion, the sample size of the study was 349 and this considered to be appropriate
and justified as suggested by Krieje and Morgan Table of Determining Sample Size (Sekaran,
2007). However, to ensure sufficient participation and a high response rate, and to cater for the
missing non-responses, a sample of 500 set of questionnaires were distributed to all respondent.
However, from 500 set administered only 351 were return and analyze (69.8%) rate of return


















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Figure 1: Theoretical Framework

10.3 Data Collection Method

The main research instrument used to collect data in this study is the questionnaire. This
instrument is partly adopted from previous research projects, and partly developed through the
detailed review of the literature.

The Pilot Study

Prior to their adoption for the actual study, the questionnaires were tested on 30 Logistics SMEs
in the Perak area. Perak was chosen on the basis of convenience, cost saving, and time
constraints. The objective of the pilot study was to test the reliability and validity of the
questionnaire. Another objective was to determine whether or not all the items in the test were
well understood by the respondents. Apart from that, another objective of the pilot study was to
get the suggestions, opinions, and constructive comments from the respondents. The feedback
from respondents, in terms of language clarity and comprehensiveness were gathered and taken
into consideration. Ambiguous questions were amended and technical jargon or clichs were
avoided. The number of items was reduced so that the time taken to complete the questionnaire
became shorter. Consequently, the reliability was also improved after several items were dropped
and several statements reworded.

In addition, the objective of conducting a pilot study is to test the reliability and validity of the
questionnaire or instrument used. The test of reliability is very important as it determines the
stability and consistency of the measurement in order to avoid bias (Sekaran, 2007, Malhotra et
al, 1999).


Business
Performance


Characteristic
Practices
Challenges
Evolution of the
environment
Owner-managers
perception of evolution
Creation of techno-
organizational form
Distinctive
competencies
(R&D, training,
learning)
Entrepreneurial
competencies
(training,
advice)
-Activity system: market, product, process
-Cooperation systems: shock adaptation
mechanism
Controllability
SME

Adopted: (Guilhon and Guilhon, Peguin, 1993)
Sources: Logistics efficiency within the small enterprise framework
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The Reliability Test

The data collected from the questionnaire were analyzed using SPSS version 16.0. A reliability
analysis was carried out and various section were found to be reliable and valid according to
Cronbachs Alpha, the overall reliability coefficient scores obtained for the questionnaire being
0.7856. Generally, the reliability coefficient indicates that there was a high level of consistency
in the responses given by the respondents (Cronbach, 1990). The internal consistency was used
to determine the reliability level. According to Nunnally and Bernstein (1994) a reliability
coefficient of 0.70 and above is considered more than acceptable for most behavioural science
applications. This reliability test is important because it is related to the validity concept, which
is to prove that the instrument used is consistent, stable, and predictable and will yield correct
results without room for doubt (Hair, et al., 1998).

DATA ANALYSIS PROCEDURES

Descriptive Statistics

The data collected from respondents were analyzed for frequency and central tendency. The data
used for the descriptive statistics to determine the level of inclination or adaptation of general
characteristics capabilities of SMEs, management practices, and challenges.

Correlations

In order to determine the relationship of all variable the tool to be used is correlation. Using this
tool an analysis of relationship could be made for management practices with business
performance, general characteristics of capability with business performance, and challenges
with business performance.

Regression

After completing the correlation analysis, the study will be continued with more detail analysis
using regression method. In the regression method, more than a single variable could be used to
predict another variable. It will be used to determine which general characteristics capabilities of
SMEs, management practices, and challenges that most causing business performance variable to
either increase or decrease.

DATA ANALYSIS AND FINDING

The aim of this study is to investigate the characteristics of capabilities, management practices,
and challenges in logistics SMEs in Malaysia. The analysis is explained in the following section:
the result of descriptive statistics, demographic variable, and descriptive analysis of variable
understudy (characteristics of capabilities, management practices, and challenges) in Logistics
SMEs in Malaysia. Next Section discussed the correlation analysis of component variable with
follow by linear regression analysis.


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Data Collected

The data for this project was collected from 349 SME logistics managers to represent Logistics
SME owners in Malaysia. The response rate was 69.8%. The population and sample for the study
was discussed at length in chapter four. The following subsection presents a descriptive summary
of the profile of the respondents.

Descriptive Summary of the respondents

The demographic data describes the overall picture and characteristics of the respondents taking
part in this study. The table 3 below shows the demographic factors relating to the respondents.

Descriptive Analysis

This is in line with the first objective of this research, which is to examine the general
characteristics and generic capabilities of SME owners and managers. The descriptive analysis is
presented in Table 4 below.

This analysis supports the second objective of this project, which is to examine the management
practices adopted by Malaysian SMEs in the logistics industry. The descriptive analysis is shown
in Table 5 below.

Table 3: Respondent Demographic Factors (n=349)
Characteristics Frequency Percent (%)
Gender
Male
Female

Level of Education
Primary
Secondary
College/University

Type of Company
Sole Proprietor
Sendirian Berhad
Partnership

Major Shareholder/Partner
Bumiputera
Non-Bumiputera
Other

Number of Employees
Less than 5
Between 5 and 50
Between 51 and 150

State of Origin
Johor

250
99


11
122
216


56
260
24


186
145
18


81
210
58


13

71.7
28.3


3.2
35
61.8


16
74.5
9.5


53.3
41.5
5.2


23.2
60.1
16.7


3.7
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Kedah
Kelantan
Kuala Lumpur
Melaka
Negeri Sembilan
Pulau Pinang
Perak
Sabah
Sarawak
Selangor
Terengganu
Pahang
12
23
32
38
2
13
86
10
8
75
20
17
3.4
6.6
9.2
10.9
0.6
3.7
24.6
2.9
2.3
21.5
5.7
4.9

Table 4: General characteristic generic capabilities of SMEs
Characteristics of Capabilities Mean Ranking
Entrepreneurial Trait
Management Capability
Marketing Capability
Quality System Capability
Financial Capability
Technical Capability
Innovation Capability
4.35
4.13
3.95
3.78
3.78
3.67
3.35
1
2
3
4
4
6
7

Table 5: Management practices in Logistics SMEs
Management Practices Mean Ranking
Customer Relation Practices
Information Sharing
4.08
3.83
1
2

The Third analysis was carried out to challenges in Logistics SMEs. This analysis parallels with
the third objective of this research which the descriptive analysis is shown in Table 6 below.

Table 6: Challenges in Logistics SMEs
Management Practices Mean Ranking
Problems with changing government policies and regulations 3.29 1
Problem with coordination across various government agencies 3.29 1
Problems with operating transport costs 3.21 3
Problems with infrastructure integration in the logistics network 3.20 4
Problems in getting better training from government and regulatory authorities to
promote logistics
3.02 5
Problems in distribution with regional imbalance 2.96 6
Problems with poor warehousing and storage facilities 2.94 7
Problems with unreliable IT
infrastructure (e.g. internet, phone line, broadband)
2.93 8
Problems in meeting the growing supply chain demand due to undeveloped domestic
industry
2.93 8
Problems with a high level of cronyism 2.82 10



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Correlation

The result of the analysis this section has fulfilled and answered the fourth objective of the study,
namely to determine the relationship between independent variables. Those independent
variables are characteristics of capability, management practices and challenges in logistics
SMEs in Malaysia. The Pearson product moment linear was used to test the develop objective.
The result of the test indicated that two out of three independent are associated positively with
business performance. It seems to conclusively prove that higher level of the characteristics of
capability and management practices and will ensure better business performance. Table 7 below
summarize the test result.

Table 7: Summary of the Test Result: Correlation between (characteristics of capabilities, management practices &
challenge) and business performance
Independent Variables Characteristics of
Capabilities
Management
Practices
Challenges
Business Performance Pearson 0.524** 0.368** 0.036*
Significant 0.000 0.000 0.505
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.10 level (2-tailed).

Table 7 shows that the Pearson product moment coefficient correlation result revealed that two
out of the three independent variables are significantly and positively associated with business
performance. These results imply that the higher the level of independent variables
(characteristics of capability and management practices) the better business performance is likely
to be. In this analysis, characteristics of capability seemed to have the strongest association with
the r value of 0.524, followed by management practices (r = 0.368). However, for challenges in
Logistics SME variable with the r = 0.036 indicated that this variable almost has correlation with
business performance.

Regression

The fifth objective of this research is to examine the predictive power of general characteristics,
including generic capabilities, management practices, and challenges toward business
performance. Multiple regressions can be conducted by three different methods (Hair et al.,
1998). Firstly, in the standard regression procedure, all independent variables are assumed to be
of equal importance and are entered into the regression equation. Secondly, in the multiple
regression procedures, independent variables are added to the regression equation in an order
pre-determined by the researcher. The choice of regression procedures depends on the objective
of the analysis. In the present study, the researcher used multiple regressions to check the
significance of the relationship between independent variables and business performance.

Multiple regression analysis is carried out in order to answer research questions posed in an
earlier section. One of the objectives is to find out how much the predictor variables
(characteristics of capabilities, management practices, and challenges) influence the rate of
business performance in logistics SMEs.

Based on this method, a regression model was developed to determine the relationship among
the variables under study. The model linear equation is as follows:
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OBP = + 1GC + 2MP + 3CH + e
Where

OBP = Overall Business Performance
= Constant
= Coefficient
GC = General Capabilities of Generic Capabilities
MP = Management Practices
CH = Challenges
e = Standard Error

The results of multiple regression analysis indicate that the multiple regression coefficient
R=0.525 with R
2
=0.276 signifies that 27.6% of the variation in the business performance was
statistically explained or accounted for by the three variables regression equation. Multiple
regression analysis results are shown in Table 8 below.

Table 8: Model Summary of Multiple Regression Analysis
R R
2
Adj R
2
Std. Error of the
estimate
F Sig F
0.525 0.276 0.270 0.53937 43.488 .000

a. Predictors: (Constant), GC, MP, CH.
b. Dependent Variables: Business Performance

Table 9: Multiple Regression Result for Independent and Dependent Variables
Variables Unstandardised Coefficients Std Coefficient T Significant
B Std Error Beta ()
Constant
Characteristics
Of Capabilities
Management
Practices
Challenges
0.530
0.693

0.114

0.012
0.299
0.084

0.73

0.034

0.468

0.088

0.016
1.772
8.249

1.550

0.347
0.77
0.000

0.122

0.729
Level of significance at p<0.01

Table 9 shows the result of the analyses shows that R
2
is statistically significant, with F=43.488
at p < 0.01. Thus the general expression in the form of the regression equation can be stated as
follows:

BUSINESS PERFORMANCE = (0.530) + 0.693 (Characteristics) + 0.693 (Management
Practices) + 0.012 (Challenges) + 0.299

The result of the multiple regression analysis indicated that all variables have positive
relationship with business performance. However, characteristics of capability only have a strong
significant relationship with business performance. According the R
2
value, the combination of
these three variables (characteristics of capability, management practices, and challenges) can
only predict 27.6% of business performance. While 72.4% can be predicted by other variables
that still need to be identified. Based on F statistics (43.488) at p value 0.00, we can conclude
that the model that has been used is appropriate.
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CONCLUSION AND RECOMMENDATION

The aim of this study is to investigate characteristics relating to generic capability, management
practices, challenges and business performance in logistics SMEs. Following the literature
review, the researcher found that there were gaps in our knowledge and theory regarding
characteristics relating to of generic capability, management practices, and challenges in logistics
SMEs. It was hoped that this study would investigate the theoretical linkages between
characteristics relating to generic capability, management practices, challenges and business
performance by answering the research questions.

Recommendations for future research

This research project has identified entrepreneur traits as higher characteristics of capability in
SME owners and managers in operating their company. The dimension that has been identified
including goal driven, need for achievement, locus control, propensity for taking risk, and future
orientation. It is recommended that further analysis need to be conducted to indentify other
dimensions that fall under entrepreneur trait such desire for responsibility, high level of energy,
commitment to work, flexibility and tolerance for ambiguity. In addition, tenacity, organizing
skill and reputation can be tested in future.

Logistics represents a regrouping of the movement and storage related activities into an
integrated whole, either by formal organization structures or conceptually in the minds of
management that historically may have been partly under production and partly under
marketing. This historical linkage prompted managerial personnel in other countries to identify
different logistics activities with either marketing or production management. The
conceptualization of logistics by Malaysian SME logisticians and how they matched various
logistics activities with other functional areas of management are seldom investigated. The
outcome of future research on this might shed some light on the problem, and might lead to more
interesting findings.

Logistics is marketing oriented and, as part of the companys marketing efforts, it plays a key
role in satisfying the firms customers and achieving a profit for the company. It is the business
and the industry sectors that tend to gain most from an efficient national logistics system. Hence,
in a resource-scarce nation such as Malaysia, business and industrial organizations must play an
active role in improving the logistics system capabilities by associating themselves with the
marketing strategies. There is the gap in process of implementation marketing in Logistics SMEs
which can be classifying in future.









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