SME: Critical Success Factors for Entrepreneurs in Malaysia

Literature review

Although we hear success, stories about entrepreneurship in Malaysia, we have not detailed the critical factors that to this success. Therefore, this paper has made a significant contribution in highlighting the critical factors that have contributed to the success of young Malaysians in entrepreneurship. I hope at the end of the journey of this research the findings will be used by other young people in the developing world to enter into entrepreneurship successfully. Various studies have identified categories of key critical success factors that will be highlighted in this literature review.

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The research will also investigate the formal and informal attributes of founding entrepreneurs contributing to venture growth and government interventions. There is a significant relationship between venture growth and entrepreneurs with high personal initiative, focused on specific competency areas within operations, finance, marketing and human resources argues Raduan Che Rose, PhD; Marsh Kumar, PhD; lim li yen (2006);. Founding members determines the organization culture, structure and the equipment to be used, quality of products and services, competitive strategies planning and the improvement of product and services (Raduan Che Rose, PhD; Marsh Kumar, PhD; lim li yen 2006); The government of Malaysia recognized young people as an engine of stimulating growth in entrepreneurial activities and small businesses (Economic Planning Unit, 2006),). The government has introduced laws, established organizations, and developed programs to stimulate entrepreneurship.

Therefore, in this paper, I have highlighted significant critical factors that contributed to the success of young entrepreneurs in relation to Malaysia East Asia. They are identified as management, government support, cultural adaptability, risk management, marketing approach and partnership, easily available capital, availability of cheap human labor, and social network.

For the purpose of this research, an extensive literature review has been conducted on the critical factors that have led to the success of young Malaysian entrepreneurs and the strengths, weaknesses, opportunities and threats for them

Internal and external factors

  1. Economic Trends: The southern Asian countries are becoming global economic icons with growth rates to be admired by many. This has already had a global impact on global financial markets and is also affecting consumer spending. At first sight, this would seem a disproportionate reaction but high growth rates means consumers of incomes and good credit records obtain loans to venture into enterprenuership. These loans provide funds for individual growth increasing the purchasing power of citizens. The multiplier effect of this includes possible growth of the economy and a confidence-linked increase in purchasing power and consumer spending (Dana, L. 1987). Fact is that Malaysia has been experiencing growth rates in retail sales in the recent years suggests increase in purchasing power and economic development. Retail sales are a major driver of economic growth and may be viewed as an early response to growth in the other sectors of the economy and financial market. (Economic Planning Unit, 2006),).
  2. Competency: This is one of most crucial factors to ensure the success of new business anywhere in the world. In Malaysia entrepreneurs faced even greater challenges when they have successfully take their organizations to growth and as the company moves into this stage, it experienced what observers refer to as Strategic reflection point (Grove, 1996).. Once the company begins to grow rapidly, it will need to have more formal structures and coordination due to the increase in functional activities. In the growth stage, the entrepreneur is forced to focus on the long-term stability while maintaining the innovative and entrepreneurial spirit that made it successful in the first place. As the founding members of the company, the entrepreneur plays an important role in the long-term business success of a new venture. This calls for change to professionalism. ‘’Therefore, the assumption that a professional manager must be employed may no longer be valid. This study challenged the conventional wisdom by revealing the process by which successful entrepreneurs transform themselves into professional managers. While studies found that founders could have the competencies to perform equally well as professional managers, there are very few studies on the similarity and the areas of competencies these successful entrepreneurs and managers focused on for growth stage companies. Many studies found that majority of the business failure were due to the lack of management skills or competencies (O’Neill & Duker, 1986; Terpstra & Olson, 1993). Bruno, Leidecker, and Harder (1987) studied ten failed high-technology firms and concluded that there were three major reasons for the failure: 1) financial difficulties, 2) product/market problems and 3) managerial problems.” From we learn that professional education for most of Malaysians contributed to the growth of business enterprenuership.
  3. Technological Trends: Nearly a quarter of Malaysians are access to broadband Internet connections in their homes and this has made the access of information relating successful enterprenuership in other areas of the world. The number of home broadband users nationwide now equals the total number of entrepreneurs with Internet connection in 2007. The availability of internet services also helped Malaysians to raise revenue through international transactions thus raising start-up capital. The computer and accessories also contributed to the growth. The arrival of internet shops has also led to this growth of enterprenuership. Availability of technology has been viewed as the most powerful influencer was concerning purchasing patterns and search for information in Far East that Korea and Japan. This technological trend of Malaysians being reliant on the Internet for information is another factor that has been highlighted.
  4. Target Market: The target market that is “well being consumers” is available in the Malaysian. An important factor in the increase of wellness consumers are the population growth. In fact, it is reported that consumers higher disposable drivers of economic growth.
  5. Personal initiative: The prospect to create wealth and being their own boss has attracted many to be entrepreneurs (argues Raduan Che Rose, PhD; Marsh Kumar, PhD; lim li yen 2006). In their own words Raduan Che Rose, PhD; Marsh Kumar, PhD; lim li yen (2006) wrote, “Evidently, this has amplified the studies on small and medium enterprises’ (SME) growth and more importantly, the formal and informal attributes associated with the entrepreneurs who have led their companies successfully to growth-stage. The common research areas cited in the literature are such as entrepreneurs’ leadership, entrepreneurial orientation, management skills, competencies, human capital, personality traits and circle of network. McClelland (1961) asserted that qualities associated with a high need for achievement contribute to the success of new venture. Begley and Boyd (1987) found that entrepreneurs (founders) scored significantly higher than small business managers (non-founders) did in need for achievement, risk-taking propensity, and tolerance of ambiguity. Brockhaus (1982) reviewed a number of psychological characteristics and conclude that need for achievement, internal locus of control and a risk-taking propensity as attributes contributing to the success of new business start-ups. On the other hand, Brockhaus and Horwitz’s (1986) empirical findings showed that entrepreneurs with internal locus of control strive for high achievement. Mill (1984) suggested that risk taking is a key factor in distinguishing entrepreneurs from managers. It is believed that entrepreneurs take greater degree of risk especially in areas where they have control or competencies in realizing the profit. Many studies have included risk taking as a major entrepreneurial characteristic. Mitton (1989) confirmed that entrepreneurs eagerly undertake the unknown and uncertain circumstances, thus the entrepreneurial inclined individuals are expected to display more tolerance of ambiguity than others do. As far as innovativeness is concerned, Mitton suggested that it is the focal point of entrepreneurship and an essential entrepreneur characteristic. Indeed entrepreneurial literatures show that entrepreneurs are significantly more innovative than non- entrepreneur (Ho & Koh, 1992;) entrepreneurs’ personality traits have also been identified to have impact on organizational performance (Robinson & Sexton, 1994). Studies also found that personality traits such as locus of control and ambiguity tolerance influenced the business success directly and the business process indirectly (Entrialgo, Fernandez, & Vazquez, 2000). Kiggundu (2002) later added demographic variables to his study and found that personality traits have direct influence on the success of African entrepreneurs. Although studies on personality traits have played an important role in contributing to the success of entrepreneurs worldwide, nevertheless, personality traits have been criticized both on theoretical and empirical ground in the studies of entrepreneurship. Gartner (1988) in his research article entitled “Who is the entrepreneur?” mentioned that asking “Who” is the wrong question, but rather the personality of entrepreneur is only related to the success of business start-up through more specific mediating processes. This is because these factors are not relevant if there is no action and initiative taken by the entrepreneurs. Frese and Fay’s (2001) study conducted on a group of employees revealed that those with higher personal initiative performed significantly better in the workplace. Research on personal initiative concentrate on the self-starting nature of entrepreneurs: how they pursue success with their proactive attitude, how to seek and grasp opportunity with their proactive approach, and how to find any solutions or necessities to overcome barriers to achieve their goals (Frese, Kring, Soose, & Zempel, 1996; Frese, Fay, Hilburger, Leng, & Tag, 1997). Entrepreneurs with high initiative are able to stay ahead of their competitors, and are role model for their employees. Initiative is goal-directed and action-oriented (Frese et al., 1997) and, therefore, closely linked to an active strategy. It is also a psychological variable behind the reason whether a person has what it takes to become an entrepreneur. An entrepreneur with high personal initiative is someone who initiate to take action and to be proactive. Whether it is to determine the success of start-ups or to successfully lead a company to growth-stage, personal initiative, which represents the ability to self-start, proactive, and over-coming barriers plays a major role. Even so, majority of the research carried on personal initiative is in relation to employees’ performance and perhaps limited studies have been reported on personal initiative in relation to entrepreneurial success” from this extract we learn that most important factor that also contributed to the success was personal initiatives.
  6. Demographics: There is a growth in the population thus providing a market for goods and services. Recently, Emerging Trends survey indicates that this country has many people will to spend their incomes on local products. These facts equipped a huge population growth rate in the neighborhood countries has led to growth and development of enterprenuership.
  7. Socio-Political Trends: Politically Malaysia has been stable as most of their counterparts in the region. The culture of honesty, trustworthy and related morals that are in built when a person is growing in Malaysia has led to enterprenuership. This culture of honesty, openness and trustworthy has been seen in the national politics that has helped in the stability.
  8. Government’s role: the government of Malaysia played and is playing a major role in supporting the entrepreneurs both during start-up and venture growth. Many are unaware of funds and programs provided by the government, while some believes it is impossible to obtain such assistance, others are just simply ignorant of it. In comparison with neighboring countries pertaining to these support programs, an article mentioned that the literature published by the Malaysia Industrial Development Authority appears to be preoccupied with internal bureaucratic concerns rather than the entrepreneur’s needs (Dana, 1987). Malaysia government recognizes that about 25 percent of the country’s economic performance is contributed by the SMEs. Therefore, the government has put in place many regulatory, legal and financial frameworks conducive to SME start-ups and development under various strategic plans such as Second Industrial Master Plan (1995-2005), Financial Sector Master plan (2001-2010), Small and Medium Industry Development Plan (2001-2005) and Eight Malaysia Plan (2001-2005). Currently, there are five major areas of government support programs for SMEs in Malaysia, among which are: financial and credit assistance; technical and training assistance; extension and advisory services; marketing and market research; and infrastructure supports (Abdullah, 1999). Yusuf (1995) found in his study that government support is one of the critical success factors for small business in South Pacific. Governments in developing countries play a role in promoting and supporting companies by providing incentives and infrastructure. However, although there are numerous agencies and institutions established by the Malaysia government to assist SMEs, it is still unclear whether these programs are accessible to SMEs and how far do, SMEs utilize the programs. Therefore, it is also the interest of this research to investigate whether entrepreneurs of growing enterprises are utilizing government support programs to grow.

Competitive Analysis

Porter, the Father of Competitive strategies identified five forces that drive competition within an economy as follows:

  1. The threat of entry by new competitors into the economy: this is main problem of the competition. A new competitors comes in there chances that he will go with some of the buyers. Another related problem is entering new market either through geographical or vertical expansion.
  2. The intensity of rivalry among existing competitors that the change of strategies: the current competitors and the task of staying competitive in current market were identified by Porter as another problem that needed strategies.
  3. Pressure from substitute products.
  4. The bargaining power of buyers.
  5. The bargaining power of suppliers.

No matter which competitive force is to use the most important thing to keep in mind is the relationship between profit margins or returns and the intensity of competition. The higher the intensity of competition, the low is profits

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Porter Model Analysis for the Malaysian entrepreneurs

One of the more established competitors seen for Malaysian entrepreneurs is the west and the Asian counterparts in the world Markets. Most Asian countries are encouraging their citizens to engage in enterprenuership. This will lead to production of goods at a low cost that will affect the market

Intra-country Rivalry

  • Business acumen of Indians
  • Mushrooming of companies from west for cheap labor in the country.
  • Industrious Japanese and Koreans.
  • Cheap production from china
  • The entrepreneurs from Malaysian must be ready to face these challenges, which is an enormous task.

Buyers

There is huge population therefore Malaysians must take up challenge to promote their products through the current and modern means. The companies operating in Malaysian should think of geographical expansion, strategic alliances, and vertical integration to remain relevant.they can advertise targeting using (1)Television, print, radio, outdoor, and Internet ads (2) Company Web sites (3) In-store promotions, displays, and retailer-assisted cooperative advertising ( 4) Trade shows( 5) Product sampling through demonstration soft-ware ( 6) Consumer contests and promotions” and many others.

Suppliers

The companies operating in Malaysia are access to cheap labor and capital in for of government support. The bank loans are also part of the supplier that is cheaply available.

Substitute Products and Services

The availability of many industries from neighboring countries causes a threat of substitutes for products.

New Entrants

African countries are getting momentum. Should they take off successfully then Malaysian entrepreneurs will have it difficulty in competing. Take example of aggressive Nigerians or business minded Kenyans or the war Somalia with 70% of the population scattered all over the world for business. Should they come their entire trait then Malaysian will be having a problem.

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SWOT Analysis

Strengths

  • Unique Product Offerings; by nature Malaysian people value integrity thus they will tend to produce quality products.
  • Superb Location for Malaysia in the world map; Malaysia is at a strategic position in the world map as it acts as a gate to Australia and neighboring countries with ambitious people for progress. Just imagine the of the size of India and Indonesia being at the disposal Malaysian entrepreneurs.
  • Starting Small, But Thinking Big
  • Available huge labor force.

Weaknesses

  • Too Many competitors from the USA and Far East that is Japan and Korea for Malaysian market.
  • Most consumers had now access to internet.
  • Fluctuating financial performance:
  • Too, people starting the same ventures without innovations.

Opportunities

  • Enlarging of the Target Market: the market is expanding especially in their home country.
  • Increasing Awareness of People About home made products
  • Potentials of Informing More Customers about Product Offers through Internet and other means.
  • Increasing Demand due to increase of population.

Threats

  • Rising Prices of Raw Materials
  • Economic Downturn Brought By threats of Tsunami
  • Government regulations.

Comparative and competitive advantages.

Compare between countries, company, successful entrepreneurs receiving Ernst and Young award etc.

Quantitative and Qualitative Methods

There are two approaches that a researcher can use in a scientific research and they are deductive and inductive ways of approaching reality. A deductive approach starts with an existing theoretical basis followed by empirical observations, the two are then used to compare and make analyses of the scientific findings. On the other hand inductive approach, the researchers study the objects of research without relating the findings to existing theories, but form their own theoretical frameworks based on empirical findings. That is theory is the outcome of an inductive research and this is not applicable in this study but deductive will do. This is explained by the fact that the nature of the research in this paper is clearly guided by the theories of business and corporate level strategies and the how these strategies affect market share. These theories are will be used to analyze the empirical findings in order to reach conclusions and this involves empirical scrutiny and logical reasoning generated through the study, which is the characteristics of deductive study.

The intention of this study is to identify the critical factors that influence the growth of enterprenuership in Malaysian in comparison of other countries. The better way to approach this is to examine how this works in a specific context and a case study is only suitable in such contexts. The method through which this research will be done is discussed below. In general, there are two basic types of research associated with the scientific method. (1)”Quantitative research-this is based on collecting facts and figures, and (2) Qualitative research which is based on collecting opinion and attitudes”. Hermeneutics often prefer a qualitative method that is composed of collecting data or information through interviews or observations and analyzed this data/information in a narrative manner. Quantitative methods on the other hand compose of analyzing data or information statistically

The traditional affiliation between positivism and qualitative data collection will be averted in this study due to the call for interpretation. Combining hermeneutics and qualitative methods will allow for better understanding and application of results. Therefore, quantitative analysis will not be benefiting the study because the problem cannot be solved through strict numerical figures.

In my research, qualitative method is the most suitable method to probe into the subject, as the aims to analyze the factors that affect growth of entrepreneurship. Therefore, this report will develop an in-depth profile of market strategic types implemented by a multinational company and the best way to accumulate this information is from that multinational company. By so doing, semi-structured interviews with the most appropriate representatives of the company will generate clear and relevant results for this study. Interviews will benefit this study more than any other form of data collection due to the applicability of the information garnered in the interviews towards the theories of market growth strategies

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