A Profile of Malaysia International SME. Mapping Current Performance On National Policies and Strategic Objectives

A Profile of Malaysian International Small
and Medium Enterprises:

Mapping Current Performance on National
Policies and Strategic Objectives
Mohd. Najib Saad* and Aida Idris**
Internationalization is recognized in many countries as an important resource for organizations growth and
expansion. In Malaysia, there have been numerous policies, strategies and support programs formulated by
the government aimed at fostering the development of internationalization of Small and Medium Enterprises
(SMEs). This paper intends to look into Malaysian policies on business internationalization and to derive
a profile of its international SMEs, with the aim of evaluating the effectiveness of these policies in developing
firm competitiveness in international markets. The findings revealed that Malaysian SMEs are still at their
early phase of involvement in international business, with a low portion of their markets, sales and profits
derived from internationalization, despite numerous policies, strategies and programs supporting their
internationalization development. This suggests that present policies and strategies concerning SMEs
internationalization require urgent reviews and revisions to better suit their needs and the ever-changing
global environment. Policy makers are also advised to consider the relevance of various regulations which
may hamper the growth of SMEs at the international level.
Introduction
Internationalization is a key element of growth of a firm (Peng and Delios, 2006). It is especially
important for Small and Medium Enterprises (SMEs) since they generally have a small
financial base and a limited domestic scope (Barringer and Greening, 1998). Many SMEs
from developed nations are generating income in the foreign markets more than in the home
countries. These enterprises can be described as born global or instant internationals
(traditional SMEs which enter international market almost from inception), backsources
(SMEs who re-concentrate their international activities back to the home base) and born
regionals (SMEs that gain their force out of a local embeddedness and never shift capacity
beyond export activities) (Schulz et al., 2009). Due to the huge economic contributions of
SMEs, most countries have implemented policies with the objective to support them to
*
Research Scholar, Graduate School of Business, Faculty of Business and Accountancy, University of Malaya,
Kuala Lumpur, Malaysia; and is the corresponding author. E-mail: najib1969@yahoo.com
* * Associate Professor, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia.
E-mail: aida_idris@um.edu.my
60 2014 IUP. All Rights Reserved.
The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014
increase their international activities and boost economic growth (EC, 2007). The most
observable approach in which governments can influence SMEs development is through
direct support policies and programs that are created to assist SMEs to overcome size-related
disadvantages (Smallbone and Welter, 2001).
In Malaysia, SMEs are considered as the backbone of economic growth in driving industrial
development (Amini, 2004; Radam et al., 2008; Hoq et al., 2009; and Khalique et al., 2011). At
present, there are approximately 645,000 SMEs, which account for 97.3% of total business
establishments. Malaysian SMEs have remained resilient since 2011, with the SME GDP
continuing to grow at a faster rate of 6.8% than the overall economy of 5.1%. Their positive
development over the years has resulted in SMEs contribution to GDP increasing gradually
from 29.4% in 2005 to 32.5% in 2011. However, this figure is still a long way from achieving
the national master plan target of 41% by 2020 (DOSM, 2011). As a strategy to achieve the
target, the government has increased efforts to strengthen the performance of SMEs by
formulating various policies, incentives and programs based on three main thrusts:
(1) strengthening the enabling infrastructure; (2) building firms capacity and capability;
and (3) enhancing firms access to financing (NSDC, 2009/10). The concern is that, while
these policies and programs may be able to improve the overall performance of local SMEs,
they appear to be too generic to have a significant impact on internationalization.
In view of the above, this paper was intended to look into the effectiveness of current
government policies and strategies concerning the internationalization of Malaysian SMEs.
By analyzing a profile of these firms, the study was able to conclude empirically the extent to
which Malaysian SMEs have met the desired targets specified by the government. The profile
included different aspects of internationalization of local SMEs and their performance
indicators, as follows: (1) percentage of companies total sales from international operations;
(2) percentage of companies profit from international operations; (3) total number of
companies international markets; (4) duration of companies involvement in international
operations; and (5) financial and non-financial performance of the companies. Discrepancies
between the profile and targets set by the government would suggest weaknesses in policydesign and strategy-implementation and help identify areas for improvement. Hence, the
paper is expected to contribute to knowledge on Malaysian SMEs internationalization by
revealing specific policy-related issues which are impeding their development at present.
Literature Review
The paper discusses major dimensions of internationalization and firm performance
commonly found in the literature which can be used to compile a profile of international
businesses.
Dimensions of Internationalization
A comprehensive study by Sullivan (1994), conducted for the development of meaningful
measures of internationalization, concluded that foreign sales as a percentage of total sales is
A Profile of Malaysian International Small and Medium Enterprises:
Mapping Current Performance on National Policies and Strategic Objectives
61
increase their international activities and boost economic growth (EC, 2007). The most
observable approach in which governments can influence SMEs development is through
direct support policies and programs that are created to assist SMEs to overcome size-related
disadvantages (Smallbone and Welter, 2001).
In Malaysia, SMEs are considered as the backbone of economic growth in driving industrial
development (Amini, 2004; Radam et al., 2008; Hoq et al., 2009; and Khalique et al., 2011). At
present, there are approximately 645,000 SMEs, which account for 97.3% of total business
establishments. Malaysian SMEs have remained resilient since 2011, with the SME GDP
continuing to grow at a faster rate of 6.8% than the overall economy of 5.1%. Their positive
development over the years has resulted in SMEs contribution to GDP increasing gradually
from 29.4% in 2005 to 32.5% in 2011. However, this figure is still a long way from achieving
the national master plan target of 41% by 2020 (DOSM, 2011). As a strategy to achieve the
target, the government has increased efforts to strengthen the performance of SMEs by
formulating various policies, incentives and programs based on three main thrusts:
(1) strengthening the enabling infrastructure; (2) building firms capacity and capability;
and (3) enhancing firms access to financing (NSDC, 2009/10). The concern is that, while
these policies and programs may be able to improve the overall performance of local SMEs,
they appear to be too generic to have a significant impact on internationalization.
In view of the above, this paper was intended to look into the effectiveness of current
government policies and strategies concerning the internationalization of Malaysian SMEs.
By analyzing a profile of these firms, the study was able to conclude empirically the extent to
which Malaysian SMEs have met the desired targets specified by the government. The profile
included different aspects of internationalization of local SMEs and their performance
indicators, as follows: (1) percentage of companies total sales from international operations;
(2) percentage of companies profit from international operations; (3) total number of
companies international markets; (4) duration of companies involvement in international
operations; and (5) financial and non-financial performance of the companies. Discrepancies
between the profile and targets set by the government would suggest weaknesses in policydesign and strategy-implementation and help identify areas for improvement. Hence, the
paper is expected to contribute to knowledge on Malaysian SMEs internationalization by
revealing specific policy-related issues which are impeding their development at present.
Literature Review
The paper discusses major dimensions of internationalization and firm performance
commonly found in the literature which can be used to compile a profile of international
businesses.
Dimensions of Internationalization
A comprehensive study by Sullivan (1994), conducted for the development of meaningful
measures of internationalization, concluded that foreign sales as a percentage of total sales is
61
one of the most common and reliable measures of internationalization. In a separate research,
Reuber and Fischer (1997) considered three components for measuring the
internationalization of SMEs which include foreign sales as a percentage of total sales. These
components are: the percentage of the firms employees that spend over 50% of their time on
international activities, the geographic scope of sales of the firm, and foreign sales as a
percentage of total sales. Later, Contractor et al. (2003) measured internationalization through
the Eigenvector-weighted sum of foreign sales/total sales, number of foreign employees/
number of total employees and number of foreign offices/number of total offices. Overall, it
can be concluded that research has identified three major dimensions of internationalization,
namely, the extent, speed and scope of internationalization (Zahra and George, 2002). These
dimensions are elaborated as follows.
Extent or Degree of Internationalization

Most prior studies examined the extent or degree of internationalization (McDougall and Oviatt,
1996; Karagozoglu and Lindell, 1997; Reuber and Fischer, 1997; Burgel and Murray, 1998; and
Zahra et al., 2000), which is measured by the percentage of a firms sales generated from foreign
markets. Others have applied more than one factor in measuring this variable. For example,
Sullivan (1994) used foreign sales as a percentage of total sales, foreign assets as a percentage of
total assets and foreign subsidiaries as a percentage of total subsidiaries to measure the degree of
internationalization. Alternatively, Reuber and Fischer (1997) measured the degree of
internationalization of Canadian software firms using the percentage of foreign sales and the
percentage of employees that spend more than 50% of their time on international activities.
Speed of Internationalization
Alternatively, some studies were concerned with the speed of internationalization (Roberts
and Senturia, 1996; Lindquist, 1997; Fontes and Coombs, 1997; Reuber and Fischer, 1997;
and Burgel and Murray, 1998). This is broadly defined as the duration from the inception of
the firm to when the firm generates foreign sales. Reuber and Fischer (1997) further described
the duration that a firm operated domestically before generating any foreign sales as a delay
and treated it as a behavior of the firm, which indicates its international challenges and
strategies. Robert and Senturia (1996) too used speed as a measure of internationalization
and defined it as the time at which a firm first initiates its global activities.
Scope of Internationalization
Finally, the scope of internationalization is measured by the number of foreign markets
within which the firm operates. These foreign markets are categorized by countries or by
regions (Roberts and Senturia, 1996; Reuber and Fischer, 1997; Burgel and Murray, 1998; and
Zahra et al., 2000). Zahra et al. (2000), for example, measured the scope of internationalization
based on the number of foreign countries to which the firms sell their products. Likewise,
Reuber and Fischer (1997) viewed the scope of internationalization as the firms geographic
scope of sales.
62
Firm Performance
Studies have suggested that internationalization leads to improved performance of SMEs
(Hitt et al., 1997; Westhead et al., 2001; Lu and Beamish, 2006; and Pangarkar, 2008), regardless
of limitations in financial and human resources. However, measuring the performance of
international organizations is rather a complex problem. Past studies have studied the
performance outcomes of internationalization mostly from the financial perspective, using
measures such as return on equity, return on assets and growth of sales. Some empirical
studies on the relationship between internationalization and financial performance include
Bloodgood et al. (1996), who discovered a positive but marginally significant relationship
between the extent of internationalization and firm income, while McDougall and Oviatt
(1996) suggested that there is no relationship between internationalization and return on
investment of the firm. Despite these mixed empirical results, financial performance indicators
are still very commonly used since they are more standardized and easily measured.
Business Internationalization Policies

The development of SMEs and diversification of their structure over time through
employment and output share, output composition, market orientation and location are
related to many factors including the level of economic development and government
promotion programs (Tambunan, 2008). At present, there is an increased acceptance of the
fact that SMEs contribute positively to the wider social and economic restructuring of a
country (Smallbone and Welter, 2001). So as to capture these economic and social benefits,
virtually all governments have become more supportive of this sector in recent years (Wren
and Storey, 2002). The most understandable way that a government can influence SMEs is
through direct support policies and programs that are planned to assist small firms overcome
size-related disadvantages (Smallbone and Welter, 2001). Government support programs in
terms of general financial support or preferential treatment for entrepreneurial ventures
(Spencer and Gomez, 2004), resources available through government procurement programs
(Doutriaux, 1998), tax incentives (Harrison and Mason, 1988), business development
assistance (Phillips, 1993), and export assistance (Reynolds, 1997) help to create a conducive
regulatory environment that can assist individual entrepreneurial efforts.
Acs et al. (2001) observed that government policies have an influence on the path of
internationalization of SMEs. In other words, specific policies and programs can help SMEs
to develop the most effective entry modes for their internationalization exercise, which
include joint ventures, subsidiaries, franchising, licensing, etc. besides exporting. Other studies
on internationalization policies (Kang and Park, 2012) indicated that their effects on SME
performance are not always direct. For example, while financial assistance can directly increase
the production capacity of a firm, this type of support can also indirectly improve its
innovativeness through the establishment of a research unit to pursue market knowledge
and product developments.
63
Research Context
An Overview of Malaysian SMEs
In early history, the development of the Malayan economy (the country was then known as
the Malay Peninsula or Malaya) involved the trading of commodities such as porcelain and
spices. Later, throughout three hundred years of British rule, the economy mainly focused on
producing global commodities, especially tin, rubber and palm oil. This situation continued
even after the country secured independence in 1957, well into the 1970s. In the early 1980s,
SMEs in Malaysia were still largely in agriculture and small service sectors such as wholesaling,
retailing and restaurants (Ahmad, 2012).
The Malaysian economy took a turn in the late 1980s, when diversification from the
mining and agricultural sectors to manufacturing activities led to strong economic growth
(Aris, 2007). According to Gomez and Jomo (1998), as a major exporter of tin, rubber, palm
oil, pepper, tropical timber and petroleum, together with a fast developing manufacturing
sector, Malaysia was then widely recognized as one of the most successful countries in the
world. The manufacturing sector contributed to an increase in Malaysian exports, especially
of electrical and electronic products, and became the key factor in sustained economic growth.
This economic transformation led to the establishment of many SMEs in the manufacturing
sector. However, the development strategy for SMEs during that period mainly concentrated
on domestic markets, small-scale industries and in particular, the creation of the indigenous
commercial and industrial community (NSDC, 2005).
Since the mid-1990s, the role of SMEs in the development of the Malaysian economy has
become more significant. Due to the Asian financial crisis in 1997-1998, and other forces of
globalization, these enterprises were marked as a means for generating domestic-led
investment, stimulating economic expansion and increasing job opportunities in the country
(Aris, 2007). Subsequently, SMEs have been transformed and strengthened as a mechanism
to encourage domestic investment whilst providing significant links in the development of
a broad-based, globally competitive industrial sector in the future. Supported by the
government through various programs and incentives, local SMEs have grown tremendously
and can be found in a wide range of economic activities domestically. Rather than focusing
on just manufacturing and agricultural sectors, they are also extensively involved in services
and have proven to be resilient and sustainable (NSDC, 2009/10). However, little is known
about their status and performance in the international environment, and more studies are
needed to assess the effectiveness of existing internationalization policies and strategies set
by the government.
Definition of SME in Malaysia

Since there is no established worldwide definition of SMEs (Hooi, 2006; and Omar and
Ismail, 2009), most researchers have used their own definitions, according to their specific
focus (Abdullah and Bakar, 2002). From the perspective of international business, researchers
64
and practitioners have defined SMEs based on the socioeconomic development of each country
(Chelliah et al., 2010). For example, in the United States, these enterprises are defined as
companies with 500 or fewer employees (Cavusgil et al., 2008). Lin and Chaney (2007) defined
Taiwanese SMEs as business establishments with 650 employees or less.
In 2005, the National SME Development Council (NSDC) approved the use of standard
definitions for Malaysian SMEs in the manufacturing, manufacturing-related services, primary
agriculture and service sectors. This definition of SME is based on two criteria, i.e., the total
sales turnover/revenue by a business in a year, or the number of full-time employees by a
business. As shown in Table 1, SMEs in Malaysia can thus be categorized into three sizegroups: micro, small and medium. However, the actual sales and employees criteria may differ
within each group according to the sector in which the firm operates. For instance, a micro
enterprise in the manufacturing sector generates less than RM250,000 per annum but for
primary agriculture, the figure is only RM200,000 per annum.
Table 1: Definition of Small and Medium Enterprises in Malaysia
Manufacturing
(Including Agro-Based)
and ManufacturingRelated Services
Primary Agriculture
Services Sector
(Including ICT)
Micro
Annual Sales Turnover:

Less than RM250,000 OR
Number of Full-Time
Employees: Less than 5
employees

Number of Full-Time
employees

Number of Full-Time
employees
Small

From RM250,000 to less
than RM10 mn OR
Number of Full-Time
Employees: From 5 to less
than 50 employees

than RM1 mn OR Number
of Full-Time Employees:
From 5 to less than 20
employees

than RM1 mn OR Number
of Full-Time Employees:
employees
Medium

From RM10 mn to less
than RM25 mn OR
Number of Full-Time
than 150 employees

From RM1 million to less
than RM5 million OR
Number of Full-Time
than 50 employees

From RM1 mn to less than
RM5 mn or Number of
Full-Time Employees:
employees
Size
Source: National SME Development Council (NSDC), SME Annual Report 2011/12
Policies and Incentives for Malaysian SMEs Internationalization

To strengthen SMEs development and facilitate their growth in the global environment,
various incentives, programs and policies have been implemented by the government. These
include long-term strategic planning, export agents, financial agents, negotiators and tax
and incentives, which are further discussed below.
65
Long-Term Strategic Planning

Long-term policies and institutional frameworks exist in the form of country-level master
plans. As a response to the Asian financial crisis of the late 1990s, the NSDC was established
in 2004 with the aim of formulating policies especially for SME development. The council
also works closely with other agencies, ministries, banks and financial institutions, giving
support to SMEs and monitoring their outcomes. Primary areas of focus have been captured
in the 8th Malaysia Plan (2001-2005), which emphasized the development of SMEs in the
manufacturing sector. Later, the 9th Malaysia Plan (2006-2010) and the Third Industrial
Master Plan (2006-2015) continued to outline key strategies for the development of SMEs by
enhancing their capabilities as regional and global entities. Funding and business advisory
services have been made available through central agencies such as the External Trade
Development Corporation, Technology Development Corporation and SME Corporation,
thereby increasing SMEs access to capital, as well as their productivity and market capacity.
Export Agent
The Malaysia External Trade Development Corporation (MATRADE) plays a significant
role as a facilitator for the internationalization of local SMEs. Numerous initiatives have
been launched by this agency to assist the engagement of these enterprises in export activities.
Mainly, the corporation is responsible for developing overseas markets for the products and
services of SMEs. Additionally, its Market Development Grant scheme provides assistance
in developing these export markets. Specific grants can be used for international trade fairs,
investments and trade missions, negotiations to access foreign markets, promotional activities
in export markets, initial investments in establishing offices abroad, outsourcing, monitoring
of international projects, contracts and tenders, and conducting offshore market research
(MATRADE, 2009 and 2011).
Financial Agent
Besides management, production and marketing support for the internationalization of SMEs,
the Malaysian government also provides specific financial services for them to penetrate
overseas markets. The Multi-Currency Trade Financing scheme operated by EXIM Bank
facilitates financial transactions for SMEs, which include suppliers credit (financing that
enable exporters to execute orders in hand), overseas contract financing and export service
facility, buyer credit (loans granted to foreign buyers of Malaysian goods and services), Malaysia
Kitchen Financing Facility (designed to finance the establishment of Malaysian restaurants
overseas) and Overseas Project Financing (Exim Bank, 2006).
Negotiator
In order to create fair competition and opportunities for SME exporters, the Malaysian
government is actively involved in trade negotiations, and regional and bilateral trade
agreements to reduce trade barriers. However, the success of these G-to-G arrangements
depends highly on the ability of Malaysian SMEs to comply with market requirements in
terms of product quality, delivery schedules and pricing.
66
Tax and Incentives

In a bid to encourage public-listed SMEs to expand and compete internationally, stamp
duties and real property gain taxes are exempted for any mergers and acquisitions undertaken
by companies listed on the Malaysian bourse. Malaysian-owned SMEs that acquire foreignowned firms to learn about high technology production or gain new export markets are also
granted a tax deduction equivalent to the acquisition costs for five years (SMIDEC, 2009).
Additionally, incentives and grants are provided to companies able to produce quality
Malaysian brands and distinguish its products in the global market. These incentives include
outsourcing inputs for business activities and seeking out lower cost inputs, increasing
productivity and upgrading technology, business collaborations to improve production, market
research and product development, creation of a pro-business environment, continued efforts
to enhance delivery systems and reduce the cost of doing business, and enhancing conditions
of market access through tariff negotiations under bilateral, regional and World Trade
Organization agreements.
Methodology
The current research applied a quantitative survey approach using self-administered
questionnaire (See Appendix) to collect data from a sample of Malaysian SMEs that were
operating internationally up to December 2013. Consistent with past practices (Roth, 1992;
Carpano et al., 1994; and Roth and ODonnell, 1996), respondents chosen for the survey were
the owner or the highest ranking officer of the firm, who were the most knowledgeable about
their organizational characteristics, management style, international operations and
performance. Three main sources of SME directory were contacted to identify potential
respondents, namely, the Federation of Malaysian Manufacturers (FMM), SME Corporation
Malaysia (SMECorp) and MATRADE. In this study, international SMEs were defined as forprofit companies that engaged in exporting, importing, licensing or outsourcing activities,
franchising, joint-ventures and wholly-owned subsidiaries.
The above database produced a total of 1,200 SMEs as the study sample. Data collection
was carried out by mailing a covering letter explaining the purpose of the survey, a copy of the
questionnaire and a postage-paid envelope to all 1,200 firms. The questionnaire consisted of
three parts, described below:
Part I Demographic characteristics, i.e., form of ownership, location of headquarters,

business duration, industry type, annual sales and number of employees.
Part II International business characteristics, i.e., duration of international

operations, countries involved in internal transactions, number of foreign markets,
percentage of sales from international operations and percentage of profit from
international operations.
Part III Overall financial performance, i.e., the average over the past five years of
Return on Equity (ROE), Return on Assets (ROA) and sales growth.
67
Within four months after mailing, a total of 252 questionnaires were returned, out of
which, 237 were fully completed. This yielded an effective response rate of 20%. After initial
data screening for missing data, outliers and normality, the Statistical Package for the Social
Science (SPSS) Version 18 was used to analyze the data and produce descriptive analyses of
the study such as means, standard deviations and frequencies.
Results
A descriptive analysis was performed to establish a profile of the respondents that participated
in this study. This profile is elaborated in the following sub-sections while key results of the
frequency analysis are summarized in Table 2.
Table 2: A Profile of Malaysian International SMEs
Duration of Time Company Experience in Current Industry
Period
Frequency
Up to 1 year
Percentage
2 5 years
57
24.1
6 10 years
63
26.6
11 15 years
36
15.2
16 20 years
25
10.5
More than 20 years
56
23.6
237
100.0
Total
Duration of Time Company Experience in International Operations

Period
Frequency
Percentage
1 5 years
118
49.8
6 10 years
62
26.2
11 15 years
15
6.3
16 20 years
14
5.9
More than 20 years
28
11.8
237
100.0
Total
International Business Transactions

Foreign Markets
Frequency
Percentage
ASEAN Countries
113
47.7
85
35.9
North America Countries
3.8
European Union Countries
19
8.0
Other Countries
11
4.6
237
100.0
Asian Countries
Total
68
Table 2 (Cont.)
Number of International Markets
No. of Countries
Frequency
Percentage
15
141
59.5
6 10
47
19.8
11 15
22
9.3
16 20
3.4
19
8.0
237
100.0
More than 20
Total
Total Sales from International Operations

Percentage of Sales
Frequency
Percentage
1 20
100
42.2
21 40
58
24.5
41 60
28
11.8
61 80
31
13.1
More than 80
Total
20
8.4
237
100.0
Profit from International Operations

Percentage of Profit
Frequency
Percentage
1 20
122
51.5
21 40
45
19.0
41 60
26
11.0
61 80
29
12.2
More than 80
15
6.3
237
100.0
Total
Average Return on Equity

Percentage of Return
Frequency
Percentage
20 0
15
6.3
1 20
62
26.2
21 40
48
20.3
41 60
70
29.5
61 80
32
13.5
More than 80
10
4.2
237
100.0
Total
Average Return on Assets

20 0
Frequency
16

Percentage
6.8
69
Table 2 (Cont.)
Frequency
Percentage
1 20
67
28.3
21 40
50
21.1
41 60
63
26.6
61 80
28
11.8
More than 80
13
5.5
Total
Percentage of Growth
237
Average Growth of Sales
Frequency
100.0
Percentage
20 0
14
5.9
1 20
56
23.6
21 40
52
21.9
41 60
50
21.1
61 80
50
21.1
More than 80
15
6.3
237
100.0
Total
Demographic Characteristics
Of the 237 SMEs surveyed, 12.2% of the respondents were sole proprietorships, while
partnerships and private limited companies constituted 11.4% and 76.4%, respectively. In
terms of geographical location, most of the firms were located in urban areas (60.3%), very
likely due to the good infrastructure and facilities available. The remaining 31.6% were in
suburban areas, whilst the rural areas accounted for 8%.
Further analysis revealed that out of the total number of respondents, 41.4% were involved
in manufacturing activities, 35.4% in services and 23.2% were directly involved in agricultural
businesses. Certain industry sectors were more heavily represented due to the concentration
of SMEs in areas that are economically developed and supported by the government. In the
manufacturing sector, more than half were in the three key subsectors, namely, food and
beverages (27.6%), electrical and electronics (16.3%), and textiles and apparels (15.3%).
Most of the respondents in the service sector were involved in professional services (27.4%),
wholesale and retail trade (19.0%) and transportation and telecommunication (14.3%),
followed by the agricultural sector which constituted 23.2% of the respondents, who were
mainly involved in crop plantation and horticulture (67.3%) and poultry farming (23.6%).
Examination of the annual total sales of the manufacturing firms indicated that 57.1% of
the sample fell within the medium category with RM10 mn to RM25 mn annual total sales.
33.7% fell within the small category with RM250,000 to RM9.9 mn annual total sales, and
9.2% within the micro category with less than RM250,000 annual total sales. Therefore,
more than half of the manufacturing firms were generating sales at the higher end of the
survey range. With regard to the number of full-time employees, more than half of the
70
manufacturers had between 51 and 150 employees (60.2%), while another 34.7% had between
5 to 50 employees, and only 5.1% had fewer than 5 employees.
Similar to the manufacturing sector, most of the respondents in the services and
agricultural sectors had annual total sales within the medium category with RM1 mn to RM5
mn annual total sales (56.8%). 26.6% fell within the small category with annual total sales
between RM200,000 to RM999,999, and 16.6% were under the micro category with annual
total sales of less than RM200,000. In terms of employment, more than half of the respondents
within the services and agricultural sectors fell within the medium category, having between
20 and 50 employees (53.2%). Another 33.1% of these enterprises had between 5 and 19
employees, while the micro category comprised 13.7%.
About 24.1% of the participating firms began their operations less than 5 years ago, while
another 26.6% had been operating for 5 to 10 years, and 23.6% had an establishment of more
than 20 years. This indicates that the majority of the SMEs involved in this study had less
than 10 years business experience and were considered relatively young.
Speed of Internationalization
As for the duration of internationalization, nearly half of the participating firms (49.8%) had
been involved in international operations for 1 to 5 years and 26.2% for 6 to 10 years. At the
other end of the scale, only 12% had more than 20 years international experience. Therefore,
it is clear that most of the SMEs surveyed were in their early phase of involvement in
international business and very likely through low-level modes of entry with limited physical
presence in the foreign market such as exporting.
Scope of Internationalization
With regard to transactions, nearly half of the firms surveyed (47.7%) conducted them within
the ASEAN region, 35.9% with Asian countries and the remaining 16.4% with North
American, European Union and other countries around the world. This suggests that due to
their young age, a majority of the respondents have only conducted transactions with business
partners nearest to home, possibly because of a high degree of similarity between the two
markets. Similarly, a majority (59.5%) have transacted with fewer than 5 countries, while
19.8% have penetrated fewer than 10. This is again consistent with the short duration they
have spent as international players, and their choice of exporting as the entry mode.
Extent of Internationalization
Analysis of the percentage of sales from international operations shows that 42.2% of the
SMEs enjoyed between 1 and 20% sales from such sources, whereas 24.5% generated
international sales of between 21 and 40%. In addition, more than half of them (51.5%)
received between 1 and 20% profit from international sources and another 19% between 21
and 40%. This provides further evidence that a majority of the respondents were small global
players with relatively low levels of foreign sales and profits.
71
Financial Performance
Financial performance analysis showed that over the past five years, the biggest group (29.5%
of respondents) recorded a ROE of 41 to 60%. 26.2% of them managed to achieve a ROE of
between 1% and 20%, while 20.3% achieved 21% to 40%. In terms of ROA, 28.3% of the
respondents recorded 1% to 20% and 21.1% managed to achieve 21% to 40%. As for the
average sales growth, 23.6% of them generated 1% to 20%, and 21.9% had 21% to 40%.
Although these figures generally indicate a healthy financial performance among the
respondents, some attention must be drawn to those recording a negative performance. As
shown in Table 2, around 6% of the respondents had a negative average ROE, ROA and sales
growth in the past five years.
Discussion
The above findings suggest that a majority of the SMEs surveyed in this study were still in the
early stages of internationalization, having just 1 to 5 years experience in international
operations. Further analysis revealed a low penetration of foreign markets, with operations
in only 1 to 5 countries, particularly within the ASEAN region. More than half were
generating less than 40% of their total sales and profits from international operations.
However, analysis of financial performance showed that most of the firms generated healthy
rates of ROE, ROA and sales growth over the past five years. This suggests that, at present,
the financial success of most Malaysian international SMEs is still highly dependent on their
domestic operations. Hence, in the context of policy-setting and strategy-implementation,
there is a need to take a relook at the effectiveness of current internationalization policies
and strategies designed by the government.
Policy-making in the entrepreneurship field is complex and messy (Asghar et al., 2011).
Many aspects of government policy affect different levels of entrepreneurial activity, for
example, regulatory policies, trade policies, labor market policies, regional development
policies, social policies, gender policies, etc. The mix of policy options will depend on various
factors including the prevailing attitude of the population towards entrepreneurship, the
structure of the labor force, the size and the role of government and the dominance of
existing levels of entrepreneurial activity (Lundstrom and Lois, 2005).
Earlier in the paper, it was mentioned that internationalization support programs for
Malaysian SMEs can be divided into five categories, namely, financial and credit assistance;
technical and vocational training programs; extension and advisory services; marketing and
market research; and infrastructure support (Abdullah et al., 2001). An outstanding
characteristic of these programs, except for tax incentives, is that they are very much focused
on issues such as financing, market research, production capacity and infrastructure targeted
for exporters. Other modes of internationalization such as joint ventures, wholly-owned
subsidiaries, licensing, franchising, etc., have not received an equal emphasis. As a result,
Malaysian international SMEs have not been able to create a strong physical presence abroad
which is important in branding and customer relations.
72
Additionally, the numerous agencies established to provide assistance and advice in

internationalization are not well-coordinated, often resulting in processes which are confusing
and tedious for business-owners. Duplication of functions too has rendered them less
productive and effective than they should be. A most common problem is the extent of
bureaucracy or red tape which causes operational delays for businesses (Ariff and Abubakar,
2003). Gomez and Jomo (1998) also argued that government policies are more likely to
support larger corporations than SMEs. To be precise, better access to government tenders
and credit assistance have been granted to politically well-connected companies. These
practices have naturally produced negative effects for the SME sector which is already
struggling with a lack of capital, skills and experience, business networks and market knowledge
(Abu Bakar et al., 2006; Saleh and Ndubisi, 2006; Samad, 2007; and Hashim, 2012).
The above carries significant implications for practitioners, policy-makers and scholars
in international business and should provide lessons for future improvements. From a
managerial perspective, SMEs must realize the importance of exploring other modes of
internationalization besides exporting (Acs et al., 2001). Benchmarking themselves upon
successful Asian international firms such as Toyota, Samsung and AirAsia will reveal how
limited exporting is as a mode of entry, especially in their effort to penetrate markets in
developed countries. However, to create opportunities through more sophisticated entry
modes, entrepreneurs and managers must first equip themselves with excellent market
knowhow and business networks. This requires not only technical skills and experience, but
also expertise in cross-cultural, communication, negotiation and partnership management.
For policy-makers, there is a need to develop strategies and action plans which can cultivate
a more venturesome attitude among SMEs. Current programs that overemphasize exporting
must be reviewed and revised to motivate Malaysian international SMEs into becoming true
international players with a greater physical presence abroad. Obviously, this effort must be
extended beyond merely providing tax incentives for mergers and acquisitions. In this respect,
some policies and programs which deserve greater attention include the development of
skilled expatriate managers, introduction of internationalization subjects at lower levels of
education, and creation of a national identity which fosters strong international credibility.
Improving coordination among related agencies and streamlining their functions to reduce
red-tape should also be treated as a top priority.
Finally, the study should be able to stimulate further scholarly interest in policy effects on
SME internationalization, particularly in terms of developing a more refined framework
which takes into account contextual factors in a non-western setting. As earlier mentioned,
studies (Smallbone and Welter, 2001; and Kang and Park, 2012) have suggested that
government policies and programs can affect SME internationalization both directly (e.g.,
improving production capacity) and indirectly (e.g., create research units which in turn
stimulate innovative organizational culture). Thus, in the context of Malaysia, it would be
interesting to examine whether current policies and programs are able to go beyond the
technical aspects of internationalization into softer yet more long-term areas of SME
development involving the entrepreneurial mindset and behaviors of the business community.
73
Conclusion
Especially in developing economies, SMEs are often considered as the most important engine
of job and wealth-creation, and the main tool for building national competitive advantage.
Since SMEs generally have a small financial base and a limited domestic scope,
internationalization has become a particularly important growth strategy for them. To help
SMEs overcome size-related disadvantages, various government policies and programs have
been implemented which have both direct and indirect effects on their internationalization
performance.
The current study was concerned with the effectiveness of Malaysian internationalization
policies and programs in developing the potential of home-grown SMEs as international
business players. Using a quantitative approach, a profile of Malaysian international SMEs
was generated which described their international business characteristics and performance.
The findings of the study indicate that although the overall financial performance of Malaysian
international SMEs is good, that success has been largely dependent on their domestic
operations. Furthermore, the number of foreign markets penetrated remains low, with a
geographical scope which is limited only to neighboring countries. An analysis of present
policies and programs suggested a tendency to emphasize exporting as the primary mode of
entry, while the potential of other entry models has been largely underdeveloped.
Hence, from the perspective of policy-setting and strategy-implementation, the study
has underlined the urgency of reviewing and revising current practices towards maximizing
opportunities through other entry modes besides exporting. For practitioners, policy-makers
and scholars, this involves a detailed understanding of both direct and indirect effects of
internationalization policies and programs on the entrepreneurial mindset and behavior of
Malaysian SMEs. Clearly this topic deserves greater attention in future internationalization
research, especially in developing countries.
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78
Appendix
Questionnaire
This questionnaire asks about your companys international businesses and experiences.
It should take not more than 15 minutes of your time to complete this questionnaire.
The questions have no right or wrong answers and only assess your belief.
Please send the completed questionnaire back to the researcher.
Section 1
Company Information
1. Please check the category that best describes your companys primary area of business:
a. Manufacturing:
Food and Beverages
Wood and Wood Products
Rubber and Plastic Products
Machinery and Equipment
Transportation
Textiles and Apparels
Chemicals and Chemicals
Metals and Metal Products
Products
Electrical and Electronics
Non-Metallic Mineral Products
b. Services:
Education and Health
Professional Services
Restaurant and Hotel
Transportation and Communication
Computer Industry Services
Wholesale and Retail Trade
Telecommunication
Others (Please Specify) __________
c. Agriculture:
Plantation and Horticulture
Fishery
Poultry Farming
2. Approximately what are the annual total sales of your organization?
a. Manufacturing:
Large: More than RM25 mn
Medium: RM10 Million RM25 mn
Small: RM250, 000 RM9.9 mn
Micro: Less than RM250, 000
b. Services and Agriculture:
Large: More than RM5 mn

79
Appendix (Cont.)
Medium: RM1 mn RM5 mn
Small: RM200, 000 RM999, 999
Micro: Less than RM200, 000
3. Approximately how many full-time employees does your company have?
a. Manufacturing:
Large: More than 150 employees
Medium: 51 150 employees
Small: 5 50 employees
Micro: Less than 5 employees
b. Services and Agriculture:
Large: More than 50 employees
Medium: 20 50 employees
Small: 5 19 employees
Micro: Less than 5 employees
4. Most of your international business transactions are conducted with __________
ASEAN Countries
Asian Countries
North American Countries
European Union Countries
Other Countries (Please Specify) _______________
5. Please rank the following entry strategies according to the rate of usage by your own
company, ranging from 1 (Low rate) to 6 (High rate).
Entry Strategy
80
1.
Exporting / Importing
2.
Licensing / Outsourcing Activities
3.
Franchising
4.
Joint Venture
5.
Wholly Owned Subsidiary
Appendix (Cont.)
6. Duration of your companys experience in current industry.
Up to 1 year
2 5 years
6 10 years
11 15 years
16 20 years
More than 20 years
7. Location of your companys Head Office.
Urban
Suburban
Rural
8. Form of Ownership Status.
Sole-Proprietor
Partnership
Private Limited Company (Sendirian Berhad)
Others (Please Specify) ________________
9. Business Status.
Bumiputera
Non-Bumiputera
Section 2
The following statements pertain to the extent that your firm is involved in international
markets or international operations.
1. Please estimate the percentage of your companys last year total sales from international
operations.
0%
1% 20%
21% 40%
41% 60%
81
Appendix (Cont.)
61% 80%
More than 80%
2. Please estimate the percentage of your companys last year profit from international
operations.
0%
1% 20%
21% 40%
41% 60%
61% 80%
More than 80%
3. Please indicate the total number of your companys international markets.
0
15
6 10
11 15
16 20
More than 20
4. Please estimate how long your company has been actively involved in international
operations?
0
1 5 years
6 10 years
11 15 years
16 20 years
More than 20 years
Section 3
The following statements describe your companys financial performance, ranging from 1
(0% and less), 2 (1% -20%), 3 (21% - 40%), 4 (41% - 60%), 5 (61% - 80%) and 6 (More
than 80%).
82
Appendix (Cont.)
Statement
1.
Average Return on Equity (ROE)

over the past five years period.
2.
Average Return on Assets (ROA)

over the past five years period.
3.
Average growth of sales over the

past five years period.
Thank you for completing this questionnaire. Your response will be kept strictly
confidential.
If you like to receive an overall result of this study, please provide your contact information.
Name:
Address:
Tel:
Fax:
E-mail:
Kindly send the completed questionnaire back to the address provided on the envelope
(attached with this questionnaire).
Reference # 33J-2014-09-04-01

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A Profile of Malaysian International Small

and Medium Enterprises:

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Extent or Degree of Internationalization

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Business Internationalization Policies

Definition of SME in Malaysia

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Annual Sales Turnover:

Policies and Incentives for Malaysian SMEs Internationalization

Long-Term Strategic Planning

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Tax and Incentives

Part I Demographic characteristics, i.e., form of ownership, location of headquarters,

Part II International business characteristics, i.e., duration of international

More than 20 years

Duration of Time Company Experience in International Operations

More than 20 years

International Business Transactions

North America Countries

European Union Countries

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Total Sales from International Operations

Profit from International Operations

Average Return on Equity

Average Return on Assets

A Profile of Malaysian International Small and Medium Enterprises:

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Additionally, the numerous agencies established to provide assistance and advice in

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

6. Amini A (2004), The Distributional Role of Small Business in Development,

19. Doutriaux J A (1998), Government Procurement and Research Contracts at Start-up

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Wood and Wood Products

Rubber and Plastic Products

Machinery and Equipment

Textiles and Apparels

Chemicals and Chemicals

Metals and Metal Products

Non-Metallic Mineral Products

Restaurant and Hotel

Transportation and Communication

Computer Industry Services

Wholesale and Retail Trade

Others (Please Specify) __________

A Profile of Malaysian International Small and Medium Enterprises:

Licensing / Outsourcing Activities

Wholly Owned Subsidiary

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

The IUP Journal of Business Strategy, Vol. XI, No. 3, 2014

Average Return on Equity (ROE)

Average Return on Assets (ROA)