CHAPTER ONE INTRODUCTION
This chapter is comprised of seven sections. The background of the study is presented first. This is followed by research problems which highlight the issues to be investigated in this study. The purpose and objectives of the study are explained in the third section. The fourth section presents the research questions. The significance of the study is discussed in the fifth section, followed by operational definition in the sixth section. The final section outlines the structure of the whole thesis.
1.1 Background of the Study
Entrepreneurial orientations (EO), as one dimension of entrepreneurial behavior (Lumpkin & Dess, 1984), have consistently been proven by research (Zahra, 1996; Lumpkin & Dess, 1996; Covin, 1991) to influence performance significantly. Addi- tionally, the recent trend in entrepreneurship research shows the search for anteced- ents or determinants of this EO. The variables that have been studied mostly and which show positive influence on EO are personality traits (McClelland, 1962; Beck- erer & Maurer, 1999) and characteristics of owner manager of SMEs (Hornaday & Aboud, 1991; Brockhaus, 1980; Carland et al., 1988). As a result of this, personal values have recently received attention by Western scholars (Schwartz, 2009; Trian- dis, 1995; Kotey & Meredith, 1997; Shane et al., 2003; House et al., 2004; Morris & Schindehutte, 2005) and a few Eastern scholars (T-Asiedu, 1993; Busenitz and Lau, 1996; Cheung & King, 2004, Mansor, 2000; Audretsch et al., 2007). In Malaysia, alt- hough SMEs is one of the priority sectors of the government due to the sector’s high contribution to GDP, research on SMEs is still far reaching as most research in Ma- laysia concentrates on achieving the profiling characteristics (Hashim, 2002; Mansor,
2005), and examining problems and challenges (Hashim et al., 2010, Hashim, 2000b) of SMEs. The what and how to make them improve, and grow are not widely researched; hence offering limited ideas to the Malaysian government on how best to improve the owner managers of SMEs who are Malays.
Malaysia comprises three major ethnic groups who are the Malays, Chinese and Indians. The differences in ethnicity and religion that each race embraces may have been conflicting to any one race; yet have given some impact on the life style of the Malays. This is so said because culture and religion are widely discussed in the literature to move behavior in so many aspects (Tayeb, 2003; Hofstede, 1991, 1992; House, 2004; Mansor, 2002). Hence to say, mingling with different races for so long and moreover the historical ‘divide and rule’ policy once implemented have resulted in Malay owner managers’ values to change gradually. This has resulted in changes to the behavior as well. Mohamad (2003), in particular, has contended that the policy of divide and rule during the colonial era has somewhat affected the character of the Ma- lays to a considerabe extent. Consequently, this has rendered them to become impo- tent, politically and economically. What are the values that have changed and how have these values affected behaviors are some of the issues that recent studies in Ma- laysia have failed to consider studying. While this has been so locally, on the other part of the world, personal values have been found by Western researchers to be an important contributor to entrepreneurial orientation and growth (e.g. Kotey & Mere- dith, 1997; Blackman, 2003; Hofsted, 1991).
In Malaysia, businesses have been taken up by the Chinese to a great extent ever since the colonial era. Hence, their entrepreneurialism in business has existed for a long time. This explains why they continue to grow and prosper. The Malays who were known to be farmers during the colonial era have been slow in catching up to the level of the Chinese business. Nevertheless, their progression in business undertakings has been facilitated by the support from the Malaysian government (Mohamad, 2003). Table 1.1 shows the percentage of Bumiputera involvement in business, as compared to the non- Bumiputera.
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Source: MITI (2007)
The kind of support provided by the government (in the form of financial capital, training, information and strategies) is embedded in the Ninth Malaysia Plan and the Third Industrial Master Plan. Moreover, in 2004, the National SME Development Council was introduced to further develop and sustain the growth of the SME sector in the national economy (Hashim, 2007). The efforts carried out include improving the infrastructure and capability of SMEs (especially SMEs belonging to the Malays), building the capacity and capability of SMEs, and enhancing SMEs access to financ- ing. These efforts seem beneficial, particularly for the manufacturing sector. Consequently, the percentage of SMEs in the manufacturing sector was reported to have increased tremendously from 1999 to 2008 (see Hashim, 2010 for details).
The Productivity Report (2008) revealed that the value of outputs generated by SMEs in the manufacturing sector amounted to RM 100, 299 million (30.9 percent) of total manufacturing output. This figure has provided evidence in terms of the growth of SMEs owned by the Malays. On the other hand, the number of bankruptcies in SMEs has increased too. As reported in the Monthly Statistical Bulletin of the New Straits Times dated April 11, 2005, for the past 10 years since 1990 the number of bankruptcies has increased, particularly following the 1997-98 Asian financial crisis. In February 2005 alone, the number of bankruptcies was 150, 646 in total.
These figures indicate the existence of two different phenomena which need explanation in terms of the factors that have contributed to both success and failure. The factors that have been identified by research (Mohd Dali, 2001; Kamarudin, 2010) include management skill, competition, financial capital, technology literacy, knowledge, and politics, among others. However, personal attribute was not included as one of the reasons. Interestingly, Mohamad (2003) and Omar (2006) regard the as- pects mentioned earlier as personal characteristics of Malay owner managers. Con- ceptually, Mohamad (2003) and Omar (2006) relate the success and failure of those managers to the values that they hold. These values which have been held from gen- eration to generation are believed to have been shaped by religion, political power, economic and socio-cultural situation. This is explained next.
Generally, the Malay owner managers have gone through various stages in the process of change, and these have affected their values system either positively or negatively. The religious values that encourage one to be in harmony with in-group and out-groups, to prioritize others, to be modest, and to help those in need are em- bedded strongly in the Malay values. Coincidently, these values have also been em- phasized by the 4th Prime Minister, Tun Dr. Mahathir Mohamad. These values are held by Malaysians in every sector, be it public or private, in accompaniment with other eastern values so that harmonious life can be preserved. However, the eastern values conflict with the values that owner managers should hold in business. That is, to be different, owner managers should be competitive, achievement-oriented and in- dividualistic. Coincidently, these values have been found by research to be signifi- cantly related to business (Morris & Schindehutte, 2005; Kottey & Meredith, 1997; Blackman, 2003; McClelland & Koestner, 1996; Shane et al., 2003).
Besides that, since 1981, the Malay owner managers have also been given ex- posure to Japanese values by the then Prime Minister, Tun Dr. Mahathir Mohamad. This was one of his initiatives to increase efficiency and effectiveness. Tun Dr. Ma- hathir himself has learnt from the experiences of Japan and Korea in relation to nation building. That is, the secrets of Japanese success and its remarkable development lie in its labor ethics, morale and management capability. This initiative by Tun Dr. Ma- hathir called “The Look East Policy” was implemented to make the Malays observe and learn about the values of the Japanese, known as Bushido values. These values are embedded strongly in every Japanese individual, particularly when performing their daily routine activities. Under “The Look East Policy”, the people of Malaysia are encouraged to change their traditional views of Western countries as role models; to look instead towards Japan and South Korea as the Asian blueprint for economic success. Specifically, for increasing efficiency and effectiveness, the values of loyalty, diligent (hard work), discipline, and courage are emphasized to be followed and held, especially by workers in the public sector. These values have been communicated almost every day to give awareness and educate Malaysians about the importance of embracing these values in their daily lives.
The emphasis on embracing Bushido values among Malaysians is due to its closeness to Islamic values. When these two sets of values meet, a blending may oc- cur and results in a new cross-breed form of values. To the extent that this might have been the case, one might expect to find an extensive commonality of values among SMEs owner managers which the present study plans to uncover. With all these val- ues exposed and inculcated among the Malays, several issues that relate to the value concept of the Malays could be raised. The issues are as follows. How do those values affect their entrepreneurial orientations? Which values are common among Malay owner managers? Which of those values affect entrepreneurial orientations signifi- cantly? As contended by Mohamad (2003), an understanding of the values system and ethical codes of the Malays is prerequisite for the planning of their future. This is be- cause the values of most Malays are closely related to religious belief. He believes that without some understanding of Malay values, not only would it be impossible to correct wrong ideas due to incorrect interpretation, but plans for Malay progress would flounder because these plans would conflict with Malays’established values.
More often than not, the Malays have also been associated with the word ‘ layu ’ or wilt, which means lack of confidence, and always submit that to fate. Mo- hamad (2003) has mentioned in his book about this by relating to a proverb that reads, “rezeki secupak tak akan jadi segantang ” or “ a pot of rice cannot become four pots”.
Because of the fate connection, the Malays lack the motivation to put the extra effort. However, the researcher regards this as generalization made based on observation. Moreover, Alatas (1977, 2006) believes that the value of hard work has been the work ethics of the Malays before independence. This is so claimed because in their lan- guage, myth, folklore and their daily preoccupations, they explicitly or implicitly hold the value. According to Alatas (1977, 2006), hard work is seen to be held by the Ma- lays in the work of farming, fishing, planting, hand crafting, and house building, among others. Unfortunately, the Malays were not recognized as hard working natives by the British colonial. The British viewed them as independent farmers whom did not need to be hired. Moreover, their unwillingness to become a resource in the pro- duction system of colonial capitalism had caused them to earn a reputation of being indolent or lazy. Consequently, from there on, the Malays have been labeled as indo- lent Malays (Alatas, 1977, 2006). Assuming this as being incorrectly labeled, it is the task of the present study to identify the true values of the Malays, particularly the Ma- lay owner managers.
Today, the number of Malays who are involved in business has increased (Hashim, 2010). The stiff competition that they face continuously in the context of global business should have necessitated them to improve their knowledge and to gain confidence to excel. Moreover, their understanding of Islam today has advanced so they might reject anything that contradicts with the teachings of Islam. This can be seen in the increase in the number of Muslims in Malaysia who attends religious clas- ses every weekend (based on observation), many policies have been implemented by the government after reference with the Majlis of Fatwa, and an increased number of halal hubs due to increased concern by Muslims of halal food or products, among oth- ers. These actions or behavior have been taken up to comply to one of the important teachings of Islam, which reads, “Verily never will Allah change the condition of a people until they change it themselves” (Al Ra’d(13):11). This was further empha- sized by Prophet Mohamad (p.b.u.h) in his hadith “work hard as though you live for- ever, worship God as though you die the next day”. These have motivated the con- duct of the present study, which is to identify the self efficacy level among the Ma- lays, as self-efficacy alone is relevant to business (Chen et al., 2004), and is so much related to behavior (Bandura, 1987), This, in turn can reflect entrepreneurial orienta- tions. It is assumed that the stronger an owner manager holds on to Islamic values (courage, loyalty, hard work, discipline, honour), the higher is his or her self-efficacy level so the more entrepreneurial he or she becomes.
In Malaysia, there appears to be little research conducted on entrepreneurial orientation (Awang et al., 2009, Awang et al., 2010). Specifically, research about how entrepreneurial orientation of the Malay owner managers is related to personal values and internal motivation in the Malaysian context, appears to be scarce. Therefore, the purpose of the present study is to investigate not only the personal values of Malay owner managers, but also to examine the nature of impact these values have on internal motivation (self-efficacy) and entrepreneurial orientations.
1.2 The Research Problem
Many past studies (e.g. McClelland, 1960; Kotey & Meredith, 1997) focused heavily on the direct link between personal values and entrepreneurial orientation, but ne- glecting what actually drives a person to get involve in certain entrepreneurial orienta- tions. The relevant literature indicates that very few studies show the linkage between values and motivation (McClelland, 1961; Naffziger et al., 1994; Kassahun, 2005; Lather & Mohan, 2007). However, many show the direct linkage either between personal values-entrepreneurial orientations (Schwartz, 2009; Morris & Schindehutte, 2005; Triandis, 1995; Tayeb, 2003; Shane et al., 2003) or between motivationentrepreneurial orientations (or behaviors) (Bandura, 1977; 1989, 1997; Chen et al., 1998; Shane et al., 2003; Chen et al., 2004).
Personal values and motivation are two important organizational behavior variables that receive much attention in the entrepreneurship area. The literature search suggests that these two variables could influence the entrepreneurial orientations of SME owner managers. Likewise, both Omar (2006) and Mohamad (2003) strongly believe that personalogical characteristics as one of the important reasons why Malay owner managers fail or succeed in their businesses. However, these factors are not addressed as contributing factors towards their success or failures.
Mohamad (2003) believes that the Malaysian government might have chosen wrong approaches to solve SME owner managers’ problems if they had identified the wrong issue(s). If Malay owner managers had not been progressing accordingly, this would not be a surprise. Despite this concern, limited studies have been attempted to examine the interrelationships between personal values, internal motivation, and entrepreneurial orientations of Malay owner managers in Malaysia.
The review of the literature has revealed the following research issues. First, there has been few attempts made by researchers to study entrepreneurial orientation from the organizational behavior perspective. Good interactive models of entrepre- neurship (Gartner, 1985; Greenberger and Sexton, 1988; Herron and Sapienza, 1992) developed by prominent scholars from various disciplines (psychology, sociology, economics, anthropology, socio-psychology) are several as found in the literature. However, the models have mostly described about the phenomenon of new venture creation. As reported by Naffziger et al. (1994), investigations regarding personality differences between entrepreneurs and non entrepreneurs have been pursued by nu- merous researchers (the most recent Rausch & Frese, 2007; Okhomina, 2004), but the discussion of the concept of entrepreneurial motivation and values is rare in the litera- ture, except for the purpose of explaining why people start new firms. This has not been widely researched because values and motivation are treated as the same person- al characteristics when they are in fact not. This is supported by the findings of Elizur and Sagie (1996), where motivation and values fall under different categories.
There are also not many theories or models in the organizational behavior and management literature (Naffziger et al. ’ motivation theory; Porter-Lawler expectancy theory of motivation) that explain how entrepreneurial orientations have been predict- ed by values and motivation variables. The limited number of existing models that depict the important role of personal values and motivation in predicting entrepre- neurial orientations are those belonging to Bamberger’s values-performance frame- work (1983), Kotey and Meredith’s model of cluster position (1997) and Naffziger et al. (1994). However, those models are not comprehensive enough as either the ele- ment of values or motivation is missing from the whole integrative model. This shows that knowledge about the relationship among personal values, motivation and entre- preneurial orientations is still fragmented, and research to date is lacking in terms of generating a coherent theory. Thus the present study is expected to develop a compre- hensive interactive model that includes both personal values and self efficacy motiva- tion in order to predict entrepreneurial orientation.
Given this research gap, this study proposes to examine Malay owner manag- ers from the organizational behavior perspective. This is because, as suggested by Gartner (1988) and Bird (1989) it is high time for researchers to study entrepreneurs’ behavior / orientation against organizational behavior theories. Previous studies have also shown that personal values and motivation are among some factors that could influence entrepreneurial orientation of owner managers of SMEs. A streams of re- searches on values (Triandis, 1995; Schwartz and Sagie, 2000; Hofstede, 2001; Tayeb, 2003; Morris and Schindehutte, 2005; Schwartz, 2006; Okoro et al., 2008) and motivation (Naffziger et al, 1994; Bandura, 1997; Chen et al., 2001; Shane et al., 2003) reveal that these two organizational behavior variables are among the main fo- cus of scholars today. In Malaysia, minimal research attempts have been made to in- vestigate how these two variables (personal values and motivation) influence the en- trepreneurial orientation of owner managers, particularly the Malays. This is because the Malays are the focus group of the government in its effort to improve the econom- ic wellbeing of all races.
As explained above, the literature suggests there is a need for more empirical studies examining the relationship between personal values, motivational drives, and entrepreneurial orientations, of Malay owner managers. Further investigation in this area of organizational behavior would provide fresh findings of the interrelationships between personal values, internal motivation, business environment, and entrepreneurial orientation of Malay owner managers.
The second issue concerns the limited number of studies involving personal values and internal motivation of Malay owner managers. The identification of Malay values is important to be uncovered not only because they shape entrepreneurial be- haviors, but as contended by Bandura (1989), behavior is a function of people and en- vironment. Thus, the identification of values of Malay owner managers can help us to understand how the Malays perceive opportunity from the environment and what be- haviors they choose from their perceptions. As mentioned earlier by Mohamad (2003), he asserts that it is important to understand the value systems of the Malays as it is a prerequisite for the planning of their future. He believes that if the government failed to understand the values of the Malays, not only would it be impossible to cor- rect wrong ideas due to incorrect interpretation (i.e., the Malay adat or custom as be- longing to the Islamic teaching), but plans for the Malay progress would flounder be- cause these plans might conflict with the established values of the Malays.
Some cultures are believed to value entrepreneurship more than others, for ex- ample, those of the Chinese, Berbers, Jews, Greeks, Lebanese, Persians, and Ameri- cans (Dana, 1997; Shapero 1984; -- as in Morris & Schindehutte, 2005). These cultur- al values might also affect internal motivation in some ways. Studies relating to own- ers of SMEs’ individual characteristics and motivational drive to sustain business are rare in numbers. In addition, the literature review indicates that there have been lim- ited attempts to investigate how these two factors are related and which one (individ- ual characteristics - among others, personal values and internal motivation of self- efficacy) factor has more impact on entrepreneurial orientations.
Research done in the west on owner managers of SMEs identified that person- al values and internal motivation are among the reasons for owner managers to be or not to be entrepreneurial (Morris & Shcindehutte, 2005; Shane et al., 2003; Chen et al., 2004). Yet, in Malaysia, there is dearth of research on personal values and motiva- tional drive of owner managers (Mansor, 2000; Baharun & Kamaruddin, 2001; Bash- karan & Sukumaran, 2008). Rather, research on SMEs in Malaysia mostly focus on the strategic choice of SMEs (Hashim, 2006; Hashim and Zakaria, 2010; Ismail et al., 2004; Hashim, 2000a), challenges and problems of SMEs (Hashim, 2010, 2000b), characteristics and performance of SMEs (Hashim, 2006; Hashim and Wafa, 2002), business intention of SMEs (Mansor and Che Mat, 2010; Mohd Dali et al., 2009; Mansor, 2005; Syed Ali, Mansor, Ahmad and Ahmad, 2004), business practices (Mansor and Abidin, 2010), and organizational culture (Mansor, 2000; Mansor, 2004). The values of the Malays are described and discussed by a few scholars (Mo- hamad, 2003; AlAttas, 1970; Omar, 2006; Ali, 2007) mainly based on their observa- tions. Mohamad (2003) and Omar (2006), in particular, believe that the Malays are lazy and lack motivation due to their misconception of qada and qadar. This is be- cause the values of the Malays are developed from their custom and religion. Howev- er, AlAtas (1977, 2006) argued that the Malays are not as lazy as what had been de- scribed by English residence during the colonial era. According to him, the values of hard work and labor have been emphasized since 1918, especially in Kelantan admin- istration, as important work ethics. This shows that those values have been inculcated among the Malays long time ago. Hence, this view conflicted with the views of Mo- hamad (2003) and Omar (2006). Therefore, it is important to identify the true values of the Malays so that plans for Malay development could be effectively developed as has been claimed by Mohamad (2003).
In Malaysia, although there are numerous studies on motivation focusing mostly on motivation to start business (Mansor and Che Mat., 2010; Mansor, 2005; S. Ali et al., 2004; M. Dali et al., 2009), studies on owner managers’ motivational drive to be entrepreneurial are limited. Past studies on motivational drives mainly empha- size achievement motivation (McClelland, 1962; Shane et al., 2003). Furthermore, self-efficacy, another motivational factor that is considered an important motivational variable to explain behaviors, has not been emphasized, particularly in the local set- ting. Since very little research has been conducted on these areas in Malaysia, there is knowledge gap in terms of understanding of the values of Malay owner managers of SMEs, their internal motivation, and their behaviors. Therefore, this is one of the pur- poses of the present study, to fill the gap.
The third issue concerns the influence of business environment on internal mo- tivation and entrepreneurial orientation. Although the literature suggests that business environment could moderate the relationship between entrepreneurial orientation and performance (Covin and Slevin, 1987; Zahra, 1993, 1996; Dess et al. 1997; Green, Covin and Slevin, 2008; Awang et al., 2010), very few studies (Chen et al., 1998; Andreas et al., 1999) have actually investigated the moderate effects of business envi- ronment in explaining the relationship between internal motivation and entrepreneuri- al orientation. Moreover, as the findings from these studies were inconsistent, a con- clusive explanation could not be made on the relationship between business environ- ment, internal motivation and entrepreneurial orientation. More empirical evidences are needed to confirm the above interrelationships. Moreover, many psychologists (e.g. Bandura, 1989; Naffziger et al., 1997) have argued that the interaction between individual motivation and situational conditions have predicted behavior better than any one of these factors in isolation. Unfortunately, there is both lack of research and theory on this comprehensive context whereby the three variables (motivation, entrepreneurial orientation and environment) are interrelated.
The literature indicates that studies on entrepreneurial orientation are mostly carried out in relation to business performance (Kotey and Meredith, 1997; Bamberg- er, 1983; Dess et al., 1997; Covin, 1991; Awang et al., 2009). The impact of personal- ity or characteristics of owner manager on entrepreneurial orientations is also studied (Collins et al., 2004; Covin, 1991; Carland et al., 1988; Bird, 1989; Begley and Boyd, 1987). However, studies relating to the magnitude of entrepreneurial orientation being influenced by internal motivation are not widely carried out (Shane et al., 2003; Chen et al., 1998; Kotey and Meredith, 1997; Naffziger et al., 1994; Bamberger, 1983). Nevertheless, the findings of more recent studies (Chattopadhyay and Ghosh, 2008; Kumar, 2007; Baron, 2004) suggest that it is critical to combine personalogical char- acteristics and business environment in understanding entrepreneurial orientation. This is because as contended by Peterson (as in Hannah et al., 2008), each country or culture should develop its own meaning of entrepreneurship after promoting entrepre- neurial behaviors that fit societal norms. Therefore, only by intergrating personalogi- cal characteristics and environment, a researcher could explain the differences in the findings if the same research is to be replicated using other ethnic groups or conduct- ed for other countries in the future. Hence, the need to incorporate business environ- ment in a study involving SMEs and entrepreneurship is important. The present study purports to fill this gap.
Finally, another issue concerns the research method. The review of past stud- ies on personal values, internal motivation and entrepreneurial orientations uncovered the following methodological issues:
i. Despite the importance of personal values of owner managers and entrepre- neurs, limited studies have investigated the personal values of Malay owner managers.
The relevant literature indicates that personal values of Malay leaders have shifted from “laid back” to performance orientation (Kennedy & Mansor, 2000). This value is important to be held by Malay owner managers if they wanted to be successful. Since the Malay community and Malay managers’ personal values are reported to have changed ‘performance orientation’ (re- ferred to as vertical individualist by Triandis’s value dimension) (Kennedy & Mansor, 2000), Malay owner managers are expected to hold more or less simi- lar values. This is because Malay owner managers and Malay managers live in the same environment; hence they might have shared similar culture.
As there is lack of research that test the dimension of performance ori- entation (or vertical individualism) of Malay owner managers, there is also a need to empirically test the same value dimension on Malay owner managers. Moreover, the government has concentrated much attention on the Malays in order for them to develop and grow by as much as the Chinese owner manag- ers. Thus this study might provide some indication to the government with re- gards to the values that Malay SMEs should hold to be successful, should the findings show positive results.
ii. Next is the criticism of researches on the behavioral aspects of owner manag-
ers, that is, whether researchers are studying the same phenomena against a wide diversity of individuals selected as study participants. For instance, many studies have used students of management and business to be the subjects of research (Rokeach, 1973; Collins et al, 2000; Florin, 2007, Chen, Greene and Crick, 1998; Mueller and Goic, 2003). Students, as one segment of the total population, are doubtful to best represent owner managers as they are young and are considered to be in a group of elite class. Therefore, there is a need to study entrepreneurship using real owner managers as the sample to represent the population of SMEs.
iii. As reported by Rauch and Frese (2007), nearly all the traditional studies and reviews utilize simplified assumptions; hence ignoring potential mediating process and situational contingencies. The results would be biased if this po- tential mediating process was ignored unless certain variables that are found to be strongly related to entrepreneurial orientations (e.g. internal motivation) are controlled. Thus, a reliable conclusion could not be made yet concerning the relationship between personal values and entrepreneurial orientations. There- fore, the inclusion of self efficacy as mediating variable in the study could help reach conclusive results and at the same time fills the gap of research that utilize simplified assumptions.
iv. Methodologically, the entrepreneurship research on motivation and behavior which most often come to negative results (reported by Rauch and Frese, 2007) have not taken into consideration control variables that may result in the low correlation between the variables under study. Control variables such as gender, education, age of firms, and industry are important to be controlled if a relationship between personal values and entrepreneurial orientations, or relationship between internal motivation and entrepreneurial orientations is to be studied effectively. If these were not controlled for, they could be contributing factors to entrepreneurial orientations as well. Thus, treating these variables (firm age, industry and firm size) as control variables would produce more convincing unbiased results and fills the research gap as well.
v. It was also found that most instruments that are used to measure the psycho- logical aspects of SMEs are not tested rigorously for their reliability and valid- ity. The instruments could not be used with confidence without a rigorous test on those items. Thus, this present study would test the reliability and validity of the construct by using the Rasch Model, as it is believed to be the most reli- able tool that uses a logit ruler to accurately measure each individual item and person. This might produce robust results.
1.3 Research Question
The review of the literature discussed in Chapter 2 suggests that entrepreneurial orien- tations are related to either the owner managers’ personal values or their internal mo- tivation, and the business environment in which the business operates. In turn, the owner’s choice of entrepreneurial orientation is affected by his or her personal values and motivation, and the business environment. Based on the views presented in the literature, this study attempts to answer the following research questions.
1. What are the values held by Malay owner managers? Are these managers dif- ferent from each other in terms of the values that they hold? Which values matter the most?
2. Is there a relationship between personal values and entrepreneurial orienta- tions of Malay owner managers?
3. Is there a relationship between personal values and internal motivation of self- efficacy of Malay owner managers?
4. Is there a relationship between internal motivation of self-efficacy and entre- preneurial orientation of Malay owner managers?
5. Does internal motivation of self-efficacy mediate the relationship between personal values and entrepreneurial orientation?
6. Does business environment moderate the relationship between internal moti- vation of self-efficacy and entrepreneurial orientation?
1.4 Objectives of the Study
Based on the above research questions, this study attempts to achieve the following research objectives: to identify the values of Malay owner managers (including identifying the common values, the differences and values that matter the most to business), to examine the relationship between personal values and entrepreneurial orientations of Malay owner managers,to examine the relationship between personal values and internal motivation of self-efficacy of Malay owner managers, to examine the relationship between internal motivation of self-efficacy and entrepreneurial orientation of Malay owner managers, to examine the mediating effect of internal motivation of self-efficacy on the relationship between personal values and entrepreneurial orientation of Malay owner managers, and to examine the moderating effect of business environment on the relationship between internal motivation of self-efficacy and entrepreneurial orientation of Malay owner managers.
1.5 Scope of the Study
This study focuses only on small scale SMEs owned by the Malays. They belong to this category if they employed a total number of five to fifty employees. Additionally, this study only involved Malay owner managers who operate in the manufacturing industry and have been in business within five to ten years.
Only small scale SMEs are chosen for this study because the individual owner of the small scale SMEs makes most of the important decisions, and his or her actions are for the success of the company. Moreover, the literature (Lumpkin and Dess, 2001; Wiklund and Shepherd, 2005) indicates that owner managers of small firms are able to develop their businesses and quickly introduce new products because of their flexibility and quick response to the environment. Thus, it is more likely that their personal values and motivation influence the culture, style and entrepreneurial orien- tation of the company. Therefore, to choose small size firms for this study is a good one as the entrepreneurial orientations of a firm is actually from the owner managers’ own decisions and actions. The owner makes every decision related to business, thus projecting the entrepreneurial orientations more clearly. This would determine the consistency and accuracy of response when answering the questionnaires distributed to them. Besides that, the effectiveness of the research findings could also be achieved.
This study chooses only SMEs of the manufacturing industry because they are involved directly with the production process. Therefore, they must keep abreast of information to strategize so that their products would always be accepted. This re- quires them to have high sensitivity to environmental changes. Thus, they must have certain entrepreneurial orientations and hold certain values to guide them in making business decisions. Thus, the entrepreneurial orientations can be effectively seen among manufacturers than among retailers or SMEs in the service industry. Further- more, the literature indicates that the manufacturing industry has been a favorite sam- ple frame for many prior studies of a similar nature (Rauch & Frese, 2007; Knight, 1997; Zahra & Garvis, 2000; Davidsson et al., 2007). The manufacturing sector is the backbone of Malaysia’s continuous economic growth and is the main sector that con- tributes to the active role played by Malaysia in the world market (Yu, 2001). It is therefore significant to study how SMEs in the manufacturing sector are doing so that something could be done if the results indicated some weaknesses.
This study focuses on only one industry instead of several industries because as reported by Rauch and Frese (2007), in order to study effectively the relationship between motivation and entrepreneurial orientation among SMEs, one should treat industry as a control variable, that is, to study SMEs from one industry of the same country. Moreover, the literature indicates that different types of SMEs respond to the environment differently (Dickson & Weaver, 1997, Zahra & Garvis, 2000; Davidsson et al., 2007; Malecki, 2009).
The present study focuses only on Malay owner managers of SMEs because Malays are reported to be the majority in the population of the country. They make up 64 percent out of the 28 million in population (Social Statistics Bulletin, Malaysia 2010 Department of Statistics). Thus, the data is large and easily available compared to the data of other ethnic groups. With a large data set employed for this study, the likelihood to have robust results is higher. Moreover, the results and findings would be significant to the Malaysian government in searching for new approaches to im- prove the Malay SMEs.
The study chooses only firms that operate for more than five years because they have already passed the critical stage of survival (Pickle & Abrahamson as in Covin & Slevin, 1989). The firms that have passed the survival stage would project their entrepreneurial orientations more clearly, and they are more confident in per- forming tasks that are related to business including decisions to take risks. If firms with various ages were selected, it would be difficult to determine the relationship be- tween self-efficacy and entrepreneurial orientations; and between personal values and entrepreneurial orientations; as firm age might be one of the contributing factors to entrepreneurial orientations. Moreover, various firm ages might also reflect different life cycle stage of firms and these would influence their decision making and strate- gies.
1.6 Significance of the Study
This thesis is expected to provide several contributions, in terms of the theory, practice and methodology.
First, this study is the extension of Kotey and Meredith (1997), Rausch and Frese (2007)’s study to analyze personalogical characteristics of entrepreneurs and their entrepreneurial orientations. However, this study is different as it integrates two organizational behavior variables of personalogical characteristics, that is, personal values and self efficacy motivation, to predict entrepreneurial orientations. This study would also be different because it focuses on entrepreneurial orientations to explain behaviors. This study would be an addition to the SME literature as it conducted for the local context. Moreover, there is lack of studies (Awang et al., 2010; Awang et al., 2009; Hashim, 2010; Mansor et al., 2010 ; Mansor, 2004; Mansor, 2005; S. Ali et al., 2004) that are conducted on SMEs in the local context.
Second, this study would provide new knowledge for the entrepreneurship and organizational behavior literature since past studies concentrated on either per- sonal values or self efficacy motivation alone, not investigating both the personal val- ues and self-efficacy, and the impact of business environment at the same time. As a result, many past findings are not able to predict entrepreneurial orientations of SMEs effectively. The integrative approach that this study has would provide a spectrum of effective entrepreneurship model for trainers and the government as this model may provide a clear picture as to how the two organizational behavior variables affect en- trepreneurial orientations.
As the study focuses on the personalogical characteristics and employs Rasch Model to explain the psychometric aspects, the findings would assists management trainers and consultants to identify areas of improvement, especially on the psychological as- pect so that a more effective module could be design to help SMEs which are in need of advice and ideas. Moreover, these personalogical characteristics are important to study and understand because they facilitate policy makers to understand entrepre- neurial orientations of business owners. The research findings have implications for the delivery of programs, financing, and management assistance for small enterprises, as well as implications for entrepreneurial development. Although it would not be practical to formulate policies and to design assistance programs for different personal value types, the delivery of assistance programs can be specially tailored for both per- sonal value types and internal motivation drive.
The findings and conclusions would be a useful foundation for furthering research on the interrelationships between personal values, internal motivation, business environment, and entrepreneurial orientation. This is particularly useful for countries in Asia, like Thailand, Indonesia, Philippine and Africa, as they have similar historical and social development policies and programs. Another implication would be in the area of entrepreneurship pedagogy, whereby linking the relationship between psychological characteristics and entrepreneurial orientation could be used as a technique for identifying students for entrepreneurial careers.
This study would also give some exposure to the Malay owned SMEs on the role of their personal values, internal motivation, entrepreneurial orientation and busi- ness environment in sustaining their businesses. This would certainly give them some clues as to which personal values and motivation could lead them to be entrepreneuri- al and successful should the relationships be found to be significant. The idea of holding the right values that might be revealed from the analyses might be a useful tool for selecting business partners on the basis of the right personal values and for evaluating applicants for entrepreneurship positions in the corporate world.
Since there are limited measures of religious values developed by past research, the new construct that the present study is expected to develop could serve as additional measures for religious values. Furthermore, the application of Rasch Measurement Model in identifying classification of Malay owner managers and differences among them would be early attempts made in the social science study.
1.7 Definition of Key Terms
The following research terminologies/acronyms are used in this study.
Entrepreneurial orientation (EO) - Limpkin and Dess (1997) defined EO as a firm’s strategic orientation, portraying entrepreneurial decision-making styles, methods and practices.
Personal values (PV) - was defined by Schwartz (1992) as concepts or belief that pertain to desirable end states or behaviors and transcend specific situations in guiding selection or evaluation of behavior and events, and are ordered by rela- tive importance.
Internal motivation - was defined by Shahani (2008) as a state in which an individual is motivated by internal factors as opposed to external agents.
Self-efficacy - was defined as an individual’s belief (or confidence) about his or her abilities to mobilize motivation, cognitive resources, and courses of action that are needed to successfully execute a specific task within a given context (Ban- dura, 1997; Stajkovic and Luthans, 1998).
Business environment (BE) - Athey (1982) described it as the aggregate uncontrolla- ble factors that have an influence on the effectiveness of a system. Small scale SME - The definition of SME in this study conforms to that issued by the Malaysian government in 2005 (National SME Development Council). SMEs are identified according to the number of employees, and the cut off points vary by industry sector. In the manufacturing sector, enterprises with less than 50 employees but more than 5 employees are classified as small.
Malay owner manager - refers to business owners who are Malays and run the busi- ness on their own.
1.8 Organization of the Thesis
This thesis is divided into five chapters. After the introduction chapter, the second chapter deals with the literature review which helps to develop the theoretical frame- work for this thesis. The framework consists of four theoretical constructs: entrepre- neurial orientations (dependent variable), personal values, motivation (self-efficacy), and environmental influences on entrepreneurial processes. Additionally, Chapter 2 will present a review of previous empirical findings on the relationship between these concepts. This in turn results in the development of the hypotheses. The introduction of a new theoretical framework for the assessment of SMEs’ entrepreneurial orientations will be discussed in the last part of Chapter 2. The underpinning theory that supports the formulation of the new theoretical framework is also covered here.
Next, Chapter 3 deals with the research methodology, revealing most of the empirical choices that are made for the thesis. Here, method and sample are discussed as well as the concepts. The concepts are operationalised for the measurement in Chapter 4. Chapter 4 continues with the introduction of the main empirical findings, and this represents one of the first attempts to address values, motivation and entre- preneurial orientations of owner managers, empirically. Rasch Measurement Model and SPSS hierarchical regression analysis will be used to assess the determinants and influences of personal values and motivation of SMEs on the entrepreneurial behav- iors. These will be made under different environmental settings in order to test wheth- er a universal, contingency or configurational model best fits the data. Chapter 5 con- cludes with a summary of the main findings, contributions, and shortcomings of the study as well as implications and suggestions for future research on the topic.
CHAPTER TWO LITERATURE REVIEW
This chapter reviews the literature related to entrepreneurial orientation, personal values, internal motivation and business environment. Since the study involves two areas, that is, organizational behavior and SMEs, how organizational behavior might be connected to SME is discussed first.
2.1 Organizational Behavior and SMEs
Organizational behavior (OB) is defined by McShane and Glinow (2008) as a study of what people think, feel, and do in and around organization. Cook (1992) describes organizational behavior as a unique area as it has its roots from disciplines such as anthropology, sociology and psychology, but organizational behavior research schol- ars have defined their boundaries by examining behaviors and motivations that take place within an organization.
Many theories have been developed to understand behavior (Maslow theory of needs, Hezberg two factor theory, Porter-Lawler Expectancy theory, Theory of Hu- man Values, Social Cognitive Theory, Social Learning Theory, and others have been developed under this premise). Since OB involves the study of people in organiza- tions, it is worth to study SMEs in the OB perspective in certain aspects. This is be- cause SMEs’ owners are just like managers in that they also plan and make decisions. In light of this, Bird (1992) observes that the types of managerial work identified in most managerial work studies (Kotter, 2001; Minztberg, 1973; Stewart, 1967) are similar to the types of work undertaken by the owner of SMEs. Except that, manage- rial work is likely to be manifested (enacted, interpreted and retained) in a fundamen- tally different manner when compared to entrepreneurial work. This is because man- agers are not owners. They are paid to plan and their planning is based on what is aimed by their organization, whereas for owners of SME or entrepreneurs, their plan- ning is based on what they wanted to achieve for their own organization. If there are similarities between entrepreneurs and managers, theories developed under this prem- ise could be employed to explain the behavior of both managers and entrepreneurs or SME owners.
Moreover, as suggested by Gartner, Bird, and Starr (1992), one should adopt organizational behavior theories and also make use of qualitative methodologies available if a study on entrepreneurial behavior is to be conducted. They argue that the motivation of an entrepreneur might change overtime; hence the expectancy theo- ry (related to self efficacy motivation) could be used to understand entrepreneurial behavior better. Therefore, following Gartner et al. (1992), this study will employ theories and concepts of organizational behavior in studying entrepreneurial orienta- tion of SMEs.
2.2 Entrepreneurial Orientation
Lumpkin and Dess (1996) defined entrepreneurial orientation (EO) as the process, practices, and decision making activities that lead to new entry. They refer to the above as a firm’s strategic orientation, portraying entrepreneurial decision-making styles, methods and practices. Similarly, Burgelman (1983) described the above as closely linked to strategic management and strategic decision making process. Deci- sion making activities, practices, strategic orientations reflect directions of behaviors chose by entrepreneurs. Lumpkin and Dess (1996) also refer to entrepreneurial orien- tations as entrepreneurial behaviors.
Based on those definitions, entrepreneurial orientations can be described as the directions of actions and practices which project a firm’s strategic movement for the future. Entrepreneurial orientation is always treated as the independent variable to firm performance. This is because performance being treated as a measure for firm success or achievement is believed by research scholars (Covin & Slevin, 1989; Zah- ra, 1996; etc.) to be due to strategic orientations (entrepreneurial orientation) of firms. Research (Covin & Slevin, 1989; Naman & Slevin, 1993; Wiklund, 2003; Zahra & Garvis, 2000; Krauss et al., 2007; Awang et al., 2009) has consistently found that en- trepreneurial orientations are positively related to business performance. Since the relationship is found to be consistent and is confirmed to have positive impact on per- formance, the present study aims to identify factors that influence entrepreneurial ori- entations. The present study also assumes SMEs that show high level of entrepreneur- ial orientation as SMEs that have good performance. On this basis, entrepreneurial orientation will be treated as the dependent variable. The following section discusses factors influencing entrepreneurial orientations and their relationship with important determinants which are found in the literature.
2.2.1 Factors Influencing Entrepreneurial Orientation
As in Kotey and Meredith (1997), the three basic factors that influence strategic orien- tations (entrepreneurial orientations) of an organization as have been identified by Thompson and Strickland (1993) are management, environmental variables and firm’s internal sources. The degree in which management and environmental variables influ- ence entrepreneurial orientation has been debated by a number of research scholars.
As stated by Montanari (1978), the greater the influence of environmental variables the less will be the impact of management on entrepreneurial orientation. This is based on the view that in a strong environment (where governmental support, financial incentives, unlimited resources are easily available) owner managers do not have to strategize as hard as when the environment is weak (stiff competition, lack of governmental support, scarcity of resources). In dynamic, unpredictable and changing environments, SME owners are said to have the greatest influence on entrepreneurial orientation because in difficult situations, it is the owners’ creativity, proactiveness, risk taking and consistent effort which make them survive.
On the other hand, Porter (1991) argued that management would always have some influence on strategic orientations in spite of the impact of the environment. Porter explained that over time, managers could create and sustain competitive ad- vantage through continuous innovation, improvement, and upgrading of resources.
Bamberger (1983) also provided the same view by stating that business strate- gy (one dimension of EO) are the products of manager’s vision which in turn origi- nate from their personalities. This is supported by Lumpkin and Erdogen (2004) who identify that founders and executives of an organization could exert important influ- ence on the actions of an organization. Lumpkin and Erdogen (2004) further suggest- ed that values and behaviors could be explained by the attraction-selection-attrition framework. This framework asserts that the values of the founders would influence the value system in an organization because the founders would try to attract and se- lect people who share their values. New entrants would also try to find organizations that fit their value systems (Sneider, Goldstein & Smith, 1995). Consequently, the values of the founders would exert important influences on the organizational culture.
Since organizational culture projects the direction of an organization (Lumpkin and Erdogen, 2004), this also reflects the strategic orientations or entrepreneurial orienta- tions of the organization. Since the strategic orientations are shaped and determined by owner managers in the direction consistent with their personal tendencies (values, personalities, motivation) (Miller, 1983; Miller & Toulouse, 1986; Covin, 1991; Bamberger, 1983; Lumpkin & Erdogen, 2004; Blackman, 2003), entrepreneurial ori- entations is seen as the projection of owners’ personal tendencies (personal value, personalities, motivation, etc.)
For instance, Covin (1991) posits that the owner of SME is at the center of all the enterprise’s behavior. In addition, Miller (1983) also believes that the SME owner is powerful enough to override obstacles to the successful realization of his or her business strategies. Basing on this view, owner managers are said to have considerable discretion in ‘controlling’ the external and internal constraints affecting their businesses. Consequently, it is expected that the personal values of the entrepreneur would influence the EO of the organization.
Based on the above argument, the present study takes the challenge to find ev- idence with respect to the magnitude of influence of the personalogical characteristics and environment on entrepreneurial orientation. Could it be that the environment has no influence on entrepreneurial orientation in the case of strong personalogical char- acteristics of entrepreneurs? If personalogical characteristics had stronger influence, does that mean owner managers do not have to worry about environmental changes? Such questions were not addressed by past researchers with regards to entrepreneurial orientation studies.