Academic journal article IUP Journal of Business Strategy

A Profile of Malaysian International Small and Medium Enterprises: Mapping Current Performance on National Policies and Strategic Objectives

Academic journal article IUP Journal of Business Strategy

A Profile of Malaysian International Small and Medium Enterprises: Mapping Current Performance on National Policies and Strategic Objectives

Article excerpt

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 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 cd., 2008; Hoq et al., 2009; and Khalique et cd., 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 201E 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 policy- design 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 one of the most common and reliable measures of internationalization. …

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