SMEs in Malaysia trying to expand their business internationally



Most of the SMEs in Malaysia nowadays are trying to expand their business beyond boundaries to achieve much higher performance in other foreign countries in order to generate more earnings in international market. According to Root, 1994b; Terpstra & Sarathy, 1997), export-import is the most popular way that enterprises become international because since exporting requires minimum resources, while allowing high flexibility, and it also offers substantial financial marketing, technological, and other benefits to the enterprise. "Export-Import activities" however to simplify the term would be known as "internationalization". Internationalization is a major dimension of the growth of a firm (Peng & Delios, 2006). Market liberalization and digitalization are encouraging large corporations and SMEs to operate beyond their national borders and compete with each other in foreign countries and new regions (Barnema, Baum & Mannix, 2002). During the past decade, popular terms used in the economic circles have been "globalization", "internationalization" and "liberalization". A study conducted by the Organization for Economic Cooperation and Development (OECD) (1887) on the globalization of SMEs, provides evidence from 18 member countries which discover that Small and Medium Enterprises (SMEs) are internationalizing more rapidly than in the past and provides evidence of small firms, that became involved in international business activities almost from inception.

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In Malaysia, the role of government of Malaysia and the SME business strategy (Hashim & Hassan, 2008) further encourage the development of the SME sector. It is stipulated very clearly in the National Economic Policy and the Malaysian Development Plans (the five-year plans). Two main policy guidelines established are: (a) the SMEs should produce quality and high value-added products and services for both domestic and export markets, and (b) the SMEs should increase productivity through the use of innovative and modern technology and management which will help to increase the competitiveness of the SMEs in the export market (Hashim, 2000a).

Problem Statement

In order to implement internationalization process successfully, there are many factors that an entrepreneur or company's manager does need to take in consideration. "An idea that is not dangerous is unworthy of being called an idea at all" which observed by Elbert Hubbarb stated the notion that building long term relationships play an important rules when companies wishes to perform internationalization process. Building long term relationships delivers superior benefits and advantages when compared to relationships of a shorter duration is an assumption that has largely remain unchallenged. According to Dabkholkar et al., 1994, there is the strong conviction that emphasize the majority of research in industrial marketing relationships that an exchange must be maintain in longer duration in order to be successful yet the literature on buyer-seller relationships has generally failed to examine relationships over time and their subsequent performance outcomes. "A basic tenet of success internationalization relationship is that companies pertaining from maintaining long-term relationships than short-term relationships". This sentiment, however, has comes to be questioned: "What should a company do to create or maintain good relationships with their foreign clients?"; "What factors should they put more efforts to strengthen their relationship with international clients?". The interaction approach recognizes business relationships as being comprised not only of resources exchange (i.e. products/services, money and information), but also of social exchanges from interpersonal contacts between individuals filling various roles in the seller (exporter) and buyer (overseas distributor) organizations. While some researchers have attempted to study the relationships between exporter and overseas distributor with the emphasis on other variables and performance, the relationship between parties and its outcomes has received very limited attention.** The growing acknowledgement of the significance of the relationship marketing approach which priorities the establishment of excellent customer service long-term associations and personalized forms of communication with customers might have encouraged companies to re-examine their use of the customer's language. Besides that, many of the companies believe that innovative behavior and entrepreneurship are valuable in order to solve the new challenges of international marketing. Environment dynamics, new information and communication technologies as well as more open, global market conditions are drivers of challenges for international as well as processes and structure of competition and collaboration. Rapid continuous change requires new solutions and other procedures and routines when designing marketing channels, communication with foreign customers, servicing products and others. Exporter-importer relationships are of particular importance because exporting has become a crucial means for company to achieve the goals of revenue generated. And it also helps the countries to increase economic growth and prosperity. Since export provides a way to help countries improve their balance-of-payment, trade deficit, employment rate and standard of living. Thus, there is a need to investigate the needs to maintain and improving the exporter-importer relationship. (e.g communication language, innovative technologies leading, and products/services)

General Objectives

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The objectives of this study are to understand the significance of export-import relationship development and the importance of internationalization process.

Specific Objectives

Investigate the important factors (technology innovative, time, product characteristics) to be take in consideration as company competitive advantages when implementing internationalization process or compete in different foreign countries;

Examine the influence of managerial behavior (e.g. cooperative, dependence, trust, and relationship distance) on the effectiveness of creating successful internationalization process and exporter-importer relationship.

Understand the significance of different communication language to different countries plays an important role to stimulate the success of internationalization process.



2.1 Definition of Internationalization

Internalization has been given a lot of definition by several academicians and researchers.

According to Anderson (1993) and Buckley Casson (1998) define internationalization as, traditionally viewed as a process which a company moves from operating solely in its domestic marketplace to foreign markets which was not their standard practices previously.

Different marketing strategies and management of unfamiliar environments through internal and external factors implement across borders (Cavusgil, Ghauri, & Agarwal, 2002; Mcgoldrick, 2002; Root, 1992) further extended the definition above.

Johanson & Vahlne, 1977; Prashantham, 2005) have a holistic view of internationalization by defining it as

"A process in which a firm gradually increase their international involvement and also the process of adapting firms' operations to international environments that a firm often concentrates in vital growth, useful learning outcomes and enhanced financial performance. Furthermore, it is also described as an innovation of the firm that often entails decision-making under conditions of uncertainty, where knowledge is vital."

From all the definitions given by experts and researchers, internationalization process concluded as an innovative way for companies to implement their company domestics operations into a higher international level at foreign countries and across borders, in which overall financial performance can be improve and companies products and services to be known at different potential markets internationally.

Unlike domestic service/products, internationalization process requires companies to cross borders and embrace a foreign culture either by using international products or services. However, there are much differing between international products and international services. Unlike international products which companies can enter foreign markets by using a variety of modes including exporting, franchising, joint ventures, and build/ buy. Contrary to it, for international services the crossing of borders is both diverse and difficult because of their inherent characteristics (e,g. intangibility, inseparability, heterogeneous)

2.2 Factors Influencing Internationalization Process

In the contemporary economic development environment, the most remarkable trends are represented by the internationalization and the globalization of businesses. However, the differences in time factor perceived exclusively as the commercial type external expansion towards different foreign markets within the internationalization process of SMEs at the moments. For Global Border type SMEs appears an early internationalization compared to their inception moment. The combination of entrepreneur's competencies, innovative level and inclination towards risk taking was conditioned in order to assure a competitive advantage for the enterprise, while the existing organizational structure is subjected to the existing business environment. The new private SMEs should depending on their knowledge gained from foreign market experiences to start their international trade activities (Mcnaughton, 2000,pp.100,110) and by the speed of their international development Jones, 1999,p.16) are subjected to the differences throughout the time needed to implement it. In other words, in the circumstances for performing internationalization process, SMEs need to be innovative enough in order to generate great and stabile performance in time. Hence, the internationalization process requires the mobilization of a set of resources and competencies to achieve success on it.

However, there is some factors to determine the success level of internationalization process, which depending on if the export result are or not under the control of the enterprise and of the entrepreneur. Consequently, the controllable factors refer to the internal factors of SMEs such as:

The SMEs own characteristics - their attitudes and perceptions towards internationalization process such as commitment for export activities materialized in successful marketing strategies; the competitiveness of the products to be exported, the advantages offered and the barriers in front of the export activities; international and client orientations); export behavior (enterprise's implication in exports sales planning, in the presentations and adaptation of the products to be sold on foreign markets); competencies, skills (international experience, foreign language proficiency and etc);

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SME's international marketing strategy - international marketing research (the enterprise's capability to run a marketing research in order to develop); segmentation and foreign market targeting (segmentation strategies and target segment identification); marketing mix adaptation (products-strengths, adaptation warranties, after-sales service price; distribution - direct/indirect channels, distribution networks, delivery time; promotion -usage of promotional media and its adaptation);

The enterprise's characteristics and international business knowledge - the size of the enterprise and technological intensity; external contacts and foreign networks creation (connection with the foreign clients, relations with foreign entities); information regarding foreign markets; export planning; export marketing strategy planning and implementation.

In the international business literature, fewer preoccupations toward the identification, analysis and empirical verification of the uncontrollable external factors, which determine the SMEs internationalization by exporting and conditioning their performance in this content. Uncontrollable factors such as:

Technology Intensity. According to Johanson & Vahlne (1977) and Prashantham (2005), they described "Internationalization" is a process which a firm gradually expand their business involvement internationally and adapting firms' operations to international environments. In addition, a rapid change such as technologies and economics requires company to be innovative enough to create competitive advantage for the company itself so that the company may sustain their competencies in the market. Being an innovative firm allows it, on one hand, to obtain products with superior characteristics than the ones offered by the competitors (product innovations) and, on the other hand, to reduce costs of production and prices (process innovation). In this way, the innovative firms obtain some competitive advantages that give them the possibility to compete in an active way in different markets. As stated by Hoffman, Parejo, Pessant, and Perren, (1998), the firms' innovative capability is a key driver for sustainable competitive advantage in today's rapidly changing markets.

The characteristics of the national market (national policy regarding exports, market attractiveness) and of the targeted foreign markets (attractiveness, competitiveness, commercial, geographical and psychological barriers).

2.3 Useful Internationalization Constructs

It is no secret that differences between cultures in consumer preferences, buying habits, and spending patterns had potentially generate difficulties for all those companies that want to trade their business and operation across border. (Lovelock and Wirtz, 2007) Different cultures, speaking language, behavior patterns, and so on, all these issues had became a fundamental important problems that company should increasingly put more attention on and to have an attentive understanding of how these evaluations and outcomes of providing high-quality services and cross-border customer relationships (CCR's) in the beginning before making any decision to take part in creating relationship marketing activities (RAM's) especially for those intangible nature of services. According to Dahringer (1991), service providers face different challenges than product providers when exporting their services in multiple geographic markets with the reasons of different consumer's behavior, attitudes, spending pattern and so on, which all these issues require service providers should take some time to observe and understand all those foreign cultures thoroughly before its delivery. In particular, the intangible nature of services makes itself difficult for customers to evaluate the quality of the service before its deliver to the customers, which has significant implications for the effectiveness of marketing activities used to signal service quality and creating good cross-border customer relationship (CCR'S).(Zeithaml,1981). Overall, the relevance of cross-border customer relationships (CCRs) and relationship marketing activities (RAMs) as potential drivers of the useful internationalization constructs and to gain competitive advantages (Berry 1983; Bitner 1995; czepiel 1990; Gronroos 1995; Heskett et al. 1994; Palmatier 2006). There is a strong connection between RAMs and CCRs to construct a useful and success internationalization performance. However there are three attributes of RAMs that companies should put more attention and improve onwards in order to implement internationalization process;

Market Knowledge

International marketing knowledge such as trade barriers, trade policy, foreign national culture, sales negotiations between buyer-seller and others those related to international trade activities are significant in internationalization process. Insufficient or lack of international marketing knowledge can be seriously considered to be the major obstacle for the companies in the development of international operations. According to Denis & Depelteau (1985), Johanson & Wiedersheim-Paul (1975) they define that international marketing knowledge is accumulated information about foreign markets, their operations and performance over time which is dynamic, vary from country to country, and differ according to the level and the extent of international involvement of the firm. Acquisition and accumulation of both internal-external knowledge by firms and individuals, either through experiential learning or indirect means, combined to the existing stock of knowledge which relating to the specific markets and across borders over time, can provides a useful platform to enhance the growth prospects of the firm and its application could create a capability international market expansion for the firm in the future. (Kogut & Zander, 1993; Yang et al. 1992; Nelson & Winter, 1982). How the firms use marketing knowledge which they gained and adapt their capabilities held within the firm is seen as being essential to its understanding, how it is, and can be applied within and across foreign markets that is important.

Market Commitment

Market commitment relates to an involvement of the firm that can restrict its freedom of action. Commitment between both parties buyer-seller / export-import relationship has been well established as a crucial factor in relationship development and continuity (Dwyer, Schurr, and Oh 1987; Morgan and Hunt 1994). It is an essential ingredient for building successful long-term relationship and maintaining it for a long period. Research had shown that a strong relationship commitment has many benefits including reducing uncertainty, increasing exchange efficiency and satisfaction, and enhancing performance and profitability (e.g., Anderson and Weitz 1992; Brown, Lusch, and Nicholson 1995; Dwyer, Schurr, and Oh 1987; Lusch and Brown 1996)

Commitment however may involve reciprocal or shared obligations and may not involve resources solely, but also the attitudes, psychological obligations and intentions of decision-makers and relationship between firms. Deepening commitment in international markets reflects management knowledge, experience, and future expectations of risk and returns resulting from increased international involvement (Johanson & Vahlne, 1977). Firms invest in exchange relationship to gain access to other firms' resources, mutually adapt and adjust over time to increase the degree of commitment level between them (Forsgren & Johanson, 1992; Johanson & Mattsson, 1988; Johanson, 1989). Market commitment must corporate the strength of bonds and relationships between both parties.

Market Involvement

International marketing involvement cross-border is a multi-dimensional concept which may bring a lot of effects to a company growth in current and future period. Johanson & Vahle (1977) and Johanson & Wiedersheim-Paul (1975) argued that the extent of market involvement of the firm reflects from the type of organizational form and the extent of foreign market coverage. Luostarinen & Welch (1990) further explained that the dimensions of international market involvement beyond the organizational mode and market coverage to include consideration of product, organizational internal-external structure, organizational capacity, managerial attitudes and behavior.



This chapter will help to elaborate on how the research was carried out and how the data obtained were analyzed. This chapter will be the core of this study because the methodology of a research is important in determining the reliability of the study. The study was conducted by intercept interview of the general export-import company's workers.

The following elements will be elaborated in this chapter: (1) The source of research data, (2) Data collection method, (3) Sampling process, (4) Questionnaire design, (5) Data measurement scale, (6) Statistical techniques, (7) Data analysis

Before proceed to any further, the researcher would like to refresh the memory of the reader upon the objectives of this study.

3.1 Objectives of the Study

3.1.1 General Objective

The objectives of this study are to understand the significance of export-import relationship development and the importance of internationalization process.

3.1.2 Specific Objectives

Specifically, the objectives of this research are:

Investigate the important factors (technology innovative, time, product characteristics) to be take in consideration as company competitive advantages when implementing internationalization process or compete in different foreign countries;

Examine the influence of managerial behavior (e.g. cooperative, dependence, trust, and relationship distance) on the effectiveness of creating successful internationalization process and exporter-importer relationship.

Understand the significance of different communication language to different countries plays an important role to stimulate the success of internationalization process.

Hypotheses Development

In order to achieve the objective above, hypotheses were developed. The null hypothesis of this research determines that a successful and well-planned internationalization process can be an effective approach for companies to develop a good and long-lasting export-import relationship, which are as follows:

Creative technology innovative and unique product characteristics create competitive advantages to the companies when implementing internalization process in different foreign countries;

Good managerial behaviors especially commitment, cooperation and involvement between two parties is most important ingredient of developing successful internationalization process and strengthening the relationship between each other;

Adoption of foreign communication language according to the foreign countries that companies enter can be an effective marketing tool in order to approach in the targeted countries.

3.3 Sources of the Research Data

Both the primary and secondary data were used for the purpose of the study. A substantiate amount of the secondary data were obtained from the Internet. The secondary data that are related to internationalization process and export-import relationship was obtained from journals, books, magazines and other related articles. However, the primary data was of the most importance. The primary data was obtained from the respondents consisting of general export-import companies' workers through a survey. The primary data was collected by using a sets of questionnaire designed in line with the objectives of the study.

3.4 Data Collection Method

As said earlier, this research depends on the primary data that was collected through a survey and the secondary data consisting of related journals and articles. The survey was sent to participants from various industries. The elements in the data collection will be discussed in the following headings.

3.4.1 Sampling Process

The target population for investigating the internationalization process and export-import relationship development was the workers who work in the companies that participated in export-import activities for long period.

3.4.2 The Sample Size

A total of 100 respondents of the workers were surveyed for the purpose of this study. Amongst the 100 respondents will be included the companies in the export-import industry (B2B, B2C, G2C, and G2B).

3.4.3 Sampling Method

The researcher used the Simple Random Sampling (SRS) method to determine the respondents of the company's workers. The initial 100 samples of the company's workers were selected using the SRS method from the general public, which gives equivalent opportunity for them to be selected from the sample framework.

3.5 Questionnaire Design

The questionnaire design covered the general export-import companies' workers. Relevance and accuracy are two basic criteria to be met if the questionnaire is to achieve the research purpose. To achieve these ends, the questionnaire was designed in line with the objectives of the study. This can be elaborated as follows:

3.5.1 Questionnaire Design for the Internet Users

The Questionnaire design for the respondents consists of two parts. There are:

The background of the respondents.

The background of the respondents section discusses the general information about the respondents. The research used a frequency analysis to obtain summary statistics that describe the typical value and the spread of the observations

Effective internationalization process used to develop a good and long-lasting export-import relationship,

A descriptive analysis was used to calculate statistics that summarize the values of a variable. Cross tabulation was also used to count the number of cases that have different combinations of values of two or more variables, and to calculate summary statistics and tests. Variables and Data Measurement Scale

The variables studied in this research were numbered (coded in the form of numbers). Two different scales were used, which are:

The Nominal Scale

The Likert Scale The Nominal Scale

Nominal scale was used to classify objects, individuals or groups. Although it may seem rather simple, many frequently studied variables in business inquiry are nominal in nature. When using nominal scales, the measurements are divided into mutually exclusive and collectively exhaustive subsets. For example:

What is the average monthly income?

Less than RM1000

RM1000 to RM2000

RM2001 to RM3000

More than RM3000

Not applicable (e.g student )

The nominal scale was used in section A and B of the consumer. The Likert Scale

The Likert scale used to show the degree of agreement and disagreement to a particular statement that range from very positive to very negative. This scale is highly reliable when it comes to the ordering people with regards to a particular attitude. Generally, respondents were given 6 alternatives; strongly agree, agree, slightly agree, slightly disagree, disagree and strongly disagree.

Strongly Agree Slightly Slightly Disagree Strongly

Agree Agree Disagree Disagree

6 5 4 3 2 1

3.6 Statistical Techniques

Data obtained was analyzed using the Descriptive Statistical Techniques such as frequency analysis and cross tabulation.

3.6.1 Descriptive Analysis

Descriptive follows the research hypothesis because it embraces statistics when it used. For the case at hand, it is generally stated in null form, which means no relationship or difference. The researcher constructed the frequency distribution as a means to summarize the data collected from the survey. This section is divided into two parts.

Frequency Analysis

Cross tabulation. Frequency Analysis

Frequency analysis provides statistics and graphical displays that are useful for describing many types of variables and giving a general picture pertaining to the variables in the study. The frequency analysis shows the mean, variance, standard deviation and range of the data. Cross Tabulation

Cross tabulation analysis procedure forms two-way and multi-way tables and provides 22 tests and measures of association for two-way tables. The structure of the table and whether categories are ordered determine what test or measure to use. Cross tabulation's statistics are computed for two-way tables only. For example, if GENDER is a layer factor for a table of MARRIED (yes, no) against LIFE (is life exciting, routine, or dull), the results for a two-way table for the females are computed separately from those for the males.

Cross tabulation helps to identify the trend in which the respondents form their opinion and also to identify the general perception and acceptance of the respondents.

3.7 Data Analysis

The data collection from the survey was entered into the computer for further processing. The SPSS (Statistical Package for Social Science) for Windows program is the software used to analyze the data for this research.