Integration of Information Technology among Small and Medium-Sized Enterprises in Malaysia: A Value-Chain Examination

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Introduction

Small and medium-sized enterprise (SME) firms are generally considered as small firms with the flexibility of equipment and human resources (van Dijk, 1995). They are often characterized by strong entrepreneurial leadership (O'Gorman and Doran, 1999) and generally serve as sub-contractors or suppliers of goods and services to large corporations.

Following the footsteps of their large and multinational clients, who generally operate in competitive international markets, SMEs too have to comply with such competitive forces in their business environment. The often stringent demand for quality imposed by the market obligates many SMEs to maintain high production standards, efficient processes, and control systems. These environmental forces are exerting pressure on the SMEs to replace traditional approaches with new management concepts and tools in formulating breakthrough strategies that lead to changes in their operational paradigm.

Winch and McDonald (1999) maintained that in order to address limitations of the SMEs, there is a need for the adoption of innovative new approaches with regards to their managerial skills and business processes which would enable them to maintain their competitive positions. One such innovative new approach is through a business infrastructure which is capable of supplying accurate real-time information to where and when it is needed (Yusuf and Little, 1998). The effective and efficient use of this information, in turn, depends upon a purposely built infrastructure that incorporates the relevant business knowledge base, control of processes and activities, and allows the necessary and continuous training to produce knowledgeable skill workers. With the right combination of knowledge base, skills and competency, managers would be better equipped with the resources to make the necessary planning that will maintain or enhance the firms' competitive positions. Management activities will thus be improved through better control and timely internal and external information exchanges.

In this respect, SMEs should consider information technology (IT) integration as an important approach in their pursuits to maintain their competitive position (Mutsaers, van der Zee and Giertz, 1998). IT integration can be defined as the use of computer-based technological hardware, data, and software applications that is shared and accessed for organizational use over a communication network (Wyse and Higgins, 1993). The purpose of such an integration exercise is to strengthen the firm's operational efficiency and effectiveness in responding to customer needs and competitive pressures (Mutsaers, van der Zee and Giertz, 1998; Julien, 1999).

The role of IT in such organizations is vital because it contributes to the fundamental changes that are needed for production, co-ordination, and management towards achieving these goals (Morton, 1991). IT has helped organizations in pursuit of quality improvements to design goods that are easier to manufacture, improve new product cycle time through cross-functional integration of systems, and use electronic networks to speed up communications internally, with suppliers, and customers. The effect of integrating information technology is to add value to the efforts of the organization in their pursuit for productivity improvements by providing an efficient means of generating the required information to make the necessary decisions and take appropriate actions (Nolan, 1995).

Without exception, SMEs in Malaysia are faced with similar challenges. The small and medium enterprises play an important role in providing linkages to the export-oriented industries by contributing significantly in terms of value added and labor absorption, particularly in the manufacturing sector which is considered the primary engine of growth. Therefore, it is imperative that they tap the vast potentials that IT has to offer towards enhanced business performance. …