Preparedness for ASEAN Economic Community (AEC): a case study of Malaysian SME manufacturing sector
| Published date | 08 July 2019 |
| Pages | 384-411 |
| Date | 08 July 2019 |
| DOI | https://doi.org/10.1108/JABS-01-2017-0018 |
| Author | Shelen W.H. Ho |
| Subject Matter | Strategy,International business |
Preparedness for ASEAN Economic
Community (AEC): a case study of
Malaysian SME manufacturing sector
Shelen W.H. Ho
Abstract
Purpose –The ASEAN Economic Community (AEC) initiative poses both significant opportunities and
difficult challengesto the Malaysian SME communities. This studyaims to investigate the preparedness
of the local SMEs to compete and exploit opportunities in a post-AEC era. The aim is to contribute to
existing literature and knowledge base on SMEs’ practices in the ASEAN region. The manufacturing
sector has been selectedfor study, and the research efforts focus on procurementcompetencies. SME
procurement practicesin the two largest manufacturing sub-sectors in Malaysia –resource-based (RB)
and electricaland electronics (E&E) –are explored.
Design/methodology/approach –Preparedness for AEC is gauged from four key performance
areas summarized from literature review. Six key resear ch activities are also identified for each
performance area from the findings of previous works. Data were collected using a survey
instrument and face-to-face interviews. Research methodology is primarily qualitative with
quantitative data for robustness check.
Findings –The findings reveal peculiar procurement practices in Malaysian SME manufacturers that
have significant implications on their preparedness to compete effectively post-AEC. The findings also
highlighted the key influences that have contributed to variations in Malaysian SMEs’ attitude toward
trade liberalization challenges and business process improvements in comparison with practices in
foreignfirms and more advanced economies.
Originality/value –Theoretical modelshave been adopted across business settingsand environments
by managers. This study reveals managerial practices in Malaysian SME manufacturers runcounter to
developed theories. The peculiarities and business attitudes of this resilienteconomic sector can be an
importantinput to managerial decision-makingwhen analyzing business activitiesin the region.
Keywords AEC impact on SMEs, Malaysian SMEs, Procurement competencies,
Procurement performance areas, SME manufacturing sector, SME procurement practices
Paper type Research paper
1. Introduction
The impact of trade liberalization and market deregulation on business performance
remains a contentious and empirical issue in the literature. For economists, trade has an
overwhelmingly positive impacton economic well-being. Indeed, the concept of trade at the
national and international levels is, in many respects, the cornerstone of the economics
discipline, and the gains from trade or commercial exchange are the foundation without
which modern economies could not exist. However, the benefits of trade and commercial
exchange can fade into insignificance compared to the disruption experienced by a
business community when it is their skill or operational process that is overtaken by
competitors who have learned to produce their product/service, or a substitute, more
efficiently. In this case, we would not expect the affected business community to welcome
the increased competition and the change that comes with it, even if the community
Shelen W.H. Ho is based at
Henley Business School,
University of Reading
Malaysia, Malaysia.
Received 31 January 2017
Revised 24 July 2017
17 October 2017
Accepted 25 October 2017
PAGE 384 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 13 NO. 3 2019, pp. 384-411, ©Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-01-2017-0018
recognizes that such economic evolution is the basis of economic growth and increased
prosperity.
This paper studies the SME manufacturing community in Malaysia and examines the
community’s preparedness for competition in the single market with the ASEAN Economic
Community (AEC) liberalizationinitiative. Successful liberalization and globalization requires
the integration of processes, practices and procedures across dispersed global
organizations to achieve coordination of worldwide activities. Organizations that aspire for
liberalization and globalization are required to adopt radical changes in their process and
organizational structures (Cavusgil et al., 2004). Among these radical changes is the need
to plan and allocate resources on a global basis to integrate and coordinate worldwide
manufacturing facilities, an essential element of implementing a globally integrated strategy
(Dunning, 1981;Porter, 1980). Manufacturing integration and coordination, in turn, requires
global value chain coordination if a global market advantage is to be established (Yeniyurt
et al.,2005
). A key element in integratingand coordinating global manufacturing facilities is
the procurement activity (Kotabe and Murray, 2004). In contrast with other mechanisms
necessary for global integration such as global product platforms, global talent pools and
global HR systems, global procurement has been enthusiastically adopted by large
organizations and multinationals, primarily because the benefits of uniform sourcing are
more apparent. However, does theSME community in Malaysia share the same enthusiasm
as large organizations and multinationals, given the distinctively different context of this
economic sector?
The author is aware that investigation into the preparedness of SMEs for AEC covers a
broad scope of competencies. Many countries realize that SMEs are the building
blocks of their economies. Although SMEs provide good opportunities for economic
development in a nation, they suffer from high failure rates. The US Small Business
Administration (2010) reported fewer than half of all new SMEs remains in operation
after five years. Malay Mail Online (2016) reported that eight out of ten small businesses
fail every year. One of the major reasons for the high failure rates of new SMEs is that
these organizations often have much fewer resources, such as financial reserves or
available credit to borrow, management expertise and technical support, when
compared with larger organizations. Therefore, effective resource management is of
critical importance for SMEs (Paik, 2011). Leenders et al. (2006) found procurement of
goods and services represents the largest single category of spending in most
manufacturing organizations, typically ranging from 50 to 80 per cent of revenues.
Thus, improving quality and productivity through effective supply managementpractice
is especially essential for SMEs when resources are scarce.
Literature reviews found limited research on the preparedness of Malaysian manufacturers
for AEC. In two related studies, Abidin et al. (2012) have attempted to gauge and
understand the general readiness of Malaysian private sector for AEC, while Yean (2004)
concludes that trade liberalizationunder the ASEAN Free Trade Area (AFTA) has negatively
impacted Malaysian automotive and electronic manufacturers, as they lost out because of
productivity and competitiveness issues. Previous procurement studies in Malaysia have
mainly focused on public sector, e-procurement and government procurement policies.
There is limited research work done on SME procurement practices and the decision-
making rationale. This paper aims to contribute to a better contextual understanding of the
procurement practices by Malaysian SME manufacturing setups when they are confronted
with challenges and opportunities post-AEC. The focus of this paper is to explore not only
the what but more importantly the how and why with SME practices. To have a more
meaningful understanding of this economic sector’s practices, the study intends to look
beyond behavior and explore the attitudes and assumptions in procurement decision-
making by the SME manufacturers.
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