THE IMPACT OF TRANSFORMATIONAL LEADERSHIP AND HUMAN RESOURCE
DEVELOPMENT PRACTICES ON INNOVATIVE WORK BEHAVIOUR IN MALAYSIAN SMES: THE
MEDIATING ROLE OF ALTRUISM
BY
MOHANAD S.M. ALNAJJAR
A thesis submitted in fulfilment of the requirement for the degree of Doctor of Philosophy (Business Administration)
Kulliyyah of Economics and Management Sciences International Islamic University Malaysia
SEPTEMBER 2018
ii
ABSTRACT
Innovation ability and practice have become the deciding factors of organisational growth and sustainability. Being innovative is more important for SMEs, which represent the vast majority of all establishments in most countries but their contributions to economic growth has been limited due to lack of innovativeness, among other factors. This study investigates the impact of some organisational factors, namely transformational leadership and human resource development practices, on innovative work behaviour of employees in Malaysian innovative SMEs. Altruism of followers is introduced as a mediating variable. Using a quantitative research method, innovative employees and their direct supervisors in 79 of the SMEs that have been certified under the 1-InnoCER certification programme, which was introduced by SME Corp. Malaysia in 2010, participated in the study. A purposive sampling technique was employed, where a total of 298 completed questionnaires were received from each group. The findings show no significant differences between the responses from employees and their supervisors for the same questions with 83.18 per cent of the ratings are exactly the same or differing by one level on the Likert scale. Structural equation modelling was employed for hypotheses testing. Suppression effect was detected in the original model due to the high correlation between TL and HRD practices. Hence, corporate support for innovation was introduced in the adjusted model as a second order construct that combines both highly correlated constructs.
CSI was found to have significant direct and indirect (through altruism) relationships with IWB. Employees whose perception of organisational support is high tend to be more altruistic, and those possessing proactive personality are found to be more willing to engage in IWB. The impact of altruism on IWB was higher for female employees than the males. The findings call for actions to be taken by both organisational leaders and policy makers to enhance the contribution of SMEs to the economy through IWB. Also, the study triggers the attention of researchers to further investigate the role of altruism in other settings at the individual and organisational levels. However, replicating this study and generalising its findings in other contexts should be carefully handled due to individual and cultural differences.
iii
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iv
APPROVAL PAGE
The thesis of Mohanad S.M. Alnajjar has been approved by the following:
______________________
Supervisor Junaidah binti Hashim
______________________
Co-supervisor
Rozailin binti Hj Abdul Rahman
______________________
Internal Examiner Rafikul Islam
______________________
External Examiner
Ilhaamie binti Abdul Ghani Azmi
______________________
External Examiner Mohd Rosli bin Mohamad
______________________
Chairman Akram M Z M Khedher
v
DECLARATION
I hereby declare that this thesis is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.
Mohanad S.M. Alnajjar
Signature ……… Date ………..
vi
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA DECLARATION OF COPYRIGHT AND AFFIRMATION OF
FAIR USE OF UNPUBLISHED RESEARCH
THE IMPACT OF TRANSFORMATIONAL LEADERSHIP AND HUMAN RESOURCE DEVELOPMENT PRACTICES ON INNOVATIVE WORK BEHAVIOUR IN MALAYSIAN SMES:
THE MEDIATING ROLE OF ALTRUISM
I declare that the copyright holders of this thesis are jointly owned by the student and IIUM.
Copyright © 2018 Mohanad S.M. Alnajjar and International Islamic University Malaysia. All rights reserved.
No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below
1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.
2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.
3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.
By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.
Affirmed by Mohanad S.M. Alnajjar
………. ……….
Signature Date
vii
To the soul of my father
For all the great sacrifices he made, which inspire me and my siblings to lead a meaningful life as per the guidance of Allah and to help those in need.
To my caring mother
For being my first teacher, who continuously and unconditionally provides me with love and care, which I always feel despite the long distances between us.
To my loving wife
For filling my life with happiness since the day I met her, for appreciating my work and for supporting me through thick and thin.
viii
ACKNOWLEDGEMENT
All glory is due to Allah whose grace and mercies have been with me throughout the duration of my programme. Although it has been tasking, His blessing on me eased the herculean task of completing this thesis.
I am fully indebted to Professor Datin Dr Junaidah Hashim whose enduring disposition, kindness, promptitude and thoroughness have facilitated the successful completion of my work. Despite her many other commitments, she was always ready to spare some time to discuss the progress of my writing. Her guidance related to both academic and moral issues has been invaluable to the completion of my thesis. I would like to also acknowledge the technical support of Dr Rozailin Abdul Rahman, as the co-supervisor.
Also, I am very grateful to my wife Natasha Senieur. Not only has she been patient with me throughout the duration of my study, but she also helped editing and proofreading my writing.
Lastly, I glorify Allah once again for enabling me to successfully round off the effort of writing this thesis. Alhamdulillah
ix
TABLE OF CONTENT
Abstract ………... ii
Abstract in Arabic ………. iii
Approval Page ………..………. iv
Declaration ………..……….. v
Copyrights ………..……... vi
Dedication ………... vii
Acknowledgement ……….... viii
List of Tables ……….……... xii
List of Figures ………..……. xiv
List of Abbreviations ……… xv
CHAPTER ONE: INTRODUCTION ………..………. 1
1.1 Background of the Study ………..……… 1
1.2 Malaysian Small and Medium-Sized Enterprises ……… 5
1.3 Problem Statement ………... 10
1.4 Research Questions ……….. 12
1.5 Research Objectives ………. 15
1.6 Significance of The Study ……… 17
1.7 Definition of Terms ……….. 20
1.7.1 Definition of Innovative Work Behaviour ……….………. 20
1.7.2 Definition of Transformational Leadership Style …………. 20
1.7.3 Definition of Human Resource Development …………..… 21
1.7.4 Definition of Altruism ………..……… 22
1.7.5 Definition of Perceived Organisational Support ….……… 22
1.7.6 Definition of Proactive Personality …………..……… 23
1.8 Research Scope ……… 24
1.9 Chapter Summary ………. 24
CHAPTER TWO: LITERATURE REVIEW ………..……… 26
2.1 Social Exchange Theory ………... 26
2.2 Innovative Work Behaviour ………. 33
2.3 Transformational Leadership ………... 40
2.4 Human Resource Development Practices ……… 44
2.5 Altruism ……… 49
2.6 Conceptual Framework and Hypotheses Development …………... 54
2.6.1 The Relationship between Innovative Work Behaviour and Transformational Leadership ……… 55
2.6.2 The Relationship between Innovative Work Behaviour and Human Resource Development Practices ...………. 58
2.6.3 The Relationship between Innovative Work Behaviour and Altruism ……….………...… 60
2.6.4 The Relationship between Transformational Leadership and Altruism ………... 63
x
2.6.5 The Relationship between Human Resource Development
Practices and Altruism ……….. 66
2.6.6 The Mediating Role of Altruism ……….. 69
2.6.6.1 The Mediating Role of Altruism in the Relationship between TL and IWB ……….. 69
2.6.6.2 The Mediating Role of Altruism in the Relationship between HRD Practices and IWB.... 72
2.6.7 The Moderating Impact of Perceived Organisational Support ………. 73
2.6.7.1 The Moderating Impact of POS on the Relationship between TL and Altruism ………... 74
2.6.7.2 The Moderating Impact of POS on the Relationship between HRD Practices and Altruism ………... 75
2.6.8 The Moderating Impact of Proactive Personality on the Relationship between Altruism and IWB ………. 76
2.6.9 The Moderating Impact of Gender on the Relationship between Altruism and IWB ……….. 80
2.7 Chapter Summary……….. 82
CHAPTER THREE: RESEARCH METHODOLOGY ……….……… 84
3.1 Research Design ………... 84
3.2 Operational Definition of Terms ……….. 86
3.2.1 Definition of Innovative Work Behaviour ………... 86
3.2.2 Definition of Transformational Leadership ……….. 87
3.2.3 Definition of Human Resource Development Practices …... 89
3.2.4 Definition of Altruism ……….. 90
3.2.5 Definition of Perceived Organisational Support ………….. 92
3.2.6 Definition of Proactive Personality ……….. 93
3.3 Variables and Measures ………... 94
3.3.1 Measure of Innovative Work Behaviour ……….. 94
3.3.2 Measure of Transformational Leadership ……… 97
3.3.3 Measure of Human Resource Development Practices ……. 102
3.3.4 Measure of Altruism ………. 105
3.3.5 Measure of Perceived Organisational Support ………. 109
3.3.6 Measure of Proactive Personality ………. 111
3.4 Research Instrument ………. 112
3.4.1 Validity of the Research Instrument ………. 113
3.4.2 Reliability of the Research Instrument ………. 115
3.5 Research Population and Sample ………. 115
3.5.1 Population of the Study ……… 116
3.5.2 Research Sample ……….. 120
3.6 Data Collection ………. 122
3.7 Data Analysis ………... 124
3.8 Chapter Summary ………. 129
CHAPTER FOUR: DATA ANALYSIS AND DISCUSSION OF FINDINGS ………... 131
4.1 Data Collection Results ……….. 131
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4.2 Response Rate ……… 133
4.3 Descriptive Statistics ……….. 135
4.3.1 Frequencies ……… 135
4.3.2 Comparison between Ratings of Employees and Their Supervisors ………. 137
4.4 Data Screening ………... 138
4.4.1 Test of Normality ………... 138
4.4.2 Test of Multicollinearity ……… 139
4.4.3 Test of Outliers ………... 139
4.4.4 Missing Values ………... 140
4.5 Reliability Test ………... 141
4.6 Exploratory Factor Analysis ……….. 142
4.7 Confirmatory Factor Analysis ……… 146
4.8 Path Analysis ………. 151
4.8.1 The Adjusted Model .……….. 154
4.9 The Mediating Effect of Altruism ……….. 158
4.10 The Moderating Effect of Gender, POS And PP ………... 160
4.11 DISCUSSION TO ANSWER THE RESEARCH QUESTIONS... 163
4.11.1 Answering RQ1: The Relationship between TL and IWB ………...……….….. 165
4.11.2 Answering RQ2: The Relationship between HRD and IWB ………... 167
4.11.3 Answering RQ3: The Relationship between Altruism and IWB ………..…. 170
4.11.4 Answering RQ4 and RQ5: The Mediating Role of Altruism in the Relationship between TL and IWB ….... 172
4.11.4.1 The Relationship between TL and Altruism.. 172
4.11.4.2 The Relationship between HRD Practices and Altruism ……….. 174
4.11.4.3 The Mediating Role of Altruism …………... 175
4.11.5 Answering RQ6: The Moderating Role of Perceived Organisational Support …………..……….. 177
4.11.6 Answering RQ7: The Moderating Role of Gender …..… 179
4.11.9 Answering RQ8: The Moderating Role of Proactive Personality ……….……….. 180
4.11 Chapter Summary ……….. 182
CHAPTER FIVE: PRACTICAL IMPLICATIONS, RECOMMEND- ATIONS AND CONCLUSION ………... 184
5.1 Summary of Findings……… 184
5.2 Theoretical Contribution ……….. 185
5.3 Practical Implications ………... 187
5.4 Recommendations for Future Research and Practice ………... 189
5.3.1 Change of Past Behaviours ……… 190
5.3.2 Introduction of New Practices ……… 191
5.5 Limitations of the Study ………... 193
5.6 Conclusion ……… 195
REFERENCES ……….. 198
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LIST OF APPENDICES
Appendix Page No.
APPENDIX I: QUESTIONNAIRE – EMPLOYEE‘S FORM ………..….... 232 APPENDIX II: QUESTIONNAIRE – MANAGER‘S FORM …………..… 239 APPENDIX III: LETTER TO SME CORP. MALAYSIA …….…………... 247 APPENDIX IV: ADDITIONAL TABLES AND FIGURES …….………... 249 APPENDIX V: VALIDITY ASSESSMENT ……….…...… 262 APPENDIX VI: ASSESSING THE ORIGINAL MODEL …….………….. 267 APPENDIX VII: ASSESSING THE ADJUSTED MODEL …….……….... 272
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LIST OF TABLES
Table No. Page No.
1.1 Definition of SMEs in Malaysia 7
2.1 Summary of literature related to the factors affecting innovative
work behaviour 39
2.2 Selected HRD definitions, Hamlin and Stewart (2011) 46 3.1 Different measures of innovative work behaviour (de Jong and
Hartog, 2010) 95
3.2 The items selected to measure innovative work behaviour 97 3.3 The items selected to measure transformational leadership 101 3.4 The items selected to measure human resource development
practices 104
3.5 The items selected to measure altruism (adapted) 107 3.6 The items selected to measure altruism (introduced) 108 3.7 The items selected to measure perceived organisational support 110 3.8 The items selected to measure proactive personality 112 3.9 Summary of the scales used in the study, their validity and
reliability 114
3.10 Classification of the certified innovative SMEs 119 3.11 Geographical distribution of the innovative certified SMEs in
Malaysia 119
4.1 Responses received from employees and managers using online
and traditional survey 134
4.2 Demographic characteristics of respondents 136 4.3 Comparison between the ratings given by employees and their
supervisors 138
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4.4 Reliability test for the main constructs in the study 142
4.5 KMO and Bartlett's Test 143
4.6 Rotated component matrix 145
4.7 Testing for five different models based on the items entered for
altruism 147
4.8 Comparison between the fit indices of five models based on the
items entered for altruism 148
4.9 Testing for convergent and discriminant validity (original model) 150 4.10 Testing the hypotheses of the direct links between constructs 151 4.11 Testing for convergent and discriminant validity (adjusted
model) 157
4.12 Testing the hypotheses of the direct links between constructs 158 4.13 Testing the mediating role of altruism in both the initial and
adjusted models 159
4.14 Testing the moderating role of gender, perceived organisational support and proactive personality (the original model) 161 4.15 Testing the moderating role of gender, perceived organisational
support and proactive personality (the adjusted model) 163 4.16 Summary of testing hypotheses (original model) 182 4.17 Summary of testing hypotheses (adjusted model) 182
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LIST OF FIGURES
Figure No. Page No.
1.1 Assessment criteria of 1-InnoCERT programme 9
2.1 Conceptual Framework 55
4.1 Scree plot output using principal components extraction method
and Varimax rotation 144
4.2 The selected measurement model (Model 2) 149 4.3 Adjusted structural model combining TL and HRD practices into
corporate support for innovation 156
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LIST OF ABBREVIATIONS
AMOS Analysis of a Moment Structures ASEAN Association of Southeast Asian Nations AVE Average Variance Extracted
CFA Confirmatory Factor Analysis CFI Goodness of Fit Index
DF Degrees of Freedom
EFA Exploratory Factor Analysis GDP Gross Domestic Product
HDR Human Resource Development HRDF Human Resource Development Fund IQR Interquartile Range
IWB Innovative Work Behaviour KMO Kaiser-Meyer-Olkin
LMX Leader-Member Exchange MCAR Missing Completely At Random MLQ Multifactor Leadership Questionnaire MYR Malaysian Ringgit
NNFI Non-Normed Fit Index
NSDC National SME Development Council OCB Organisational Citizenship Behaviour
OECD Organisation for Economic Co-operation and Development POS Perceived Organisational Support
xvii PP Proactive Personality
RMSEA Root Mean Square Error of Approximation RQ Research Question
SET Social Exchange Theory
SMEs Small and Medium-sized Enterprises
SMIDEC Small and Medium Industries Development Corporation SPSS Statistical Package for the Social Sciences
TL Transformational Leadership VIF Variance Inflation Factor
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In today‘s business environment, innovation is identified as the key strategy to gain competitive advantage (Brem, Maier, & Wimschneider, 2016). It remains the most important element on which organisations rely to improve, compete and sustain (Fuller, Marler, & Hester, 2006). Based on the significant contribution of small and medium-sized enterprises (SMEs) to the economy, innovation is more important to SMEs than larger organisations (Saunila, Ukko, & Rantanen, 2014). SMEs represent the vast majority of total establishment in any country (OECD, 2004). However, most of the time, they are unable to secure enough financing for their operations (Wonglimpiyarat, 2015) unless they are innovative. Therefore, an SME without innovation is less likely to survive. Over the past three decades, a considerable number of studies argued that creativity of individual employees is the main driver for continuous innovativeness (de Jong & Den Hartog, 2007; Janssen, 2000; Sharma &
Chrisman, 1999; Scott & Bruce, 1994; Van de Ven, 1986). Supporting this argument, it is found that the introduction of new ideas is primarily influenced by personal, rather than interpersonal or organisational efforts (Björklund, Bhatli, & Laakso, 2013).
The innovation process involves generating new ideas and implementing them, and these are the two main components of innovative work behaviour (IWB) as identified by Yuan and Woodman (2010). This means that besides the individual
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initiatives to generate new ideas, these initiatives require collective actions to execute them within organisations. Therefore, the employee-organisation relationship is considered an essential determinant of organisational performance (Tansel &
Gazîoğlu, 2014). This relationship has drastically changed over the past few decades from being stable and predictable (Herriot & Pemberton, 1996; Sims, 1994) to becoming complicated and unmaintainable. Both managers and employees have goals that may not match with the organisational goals nor with the goals of other members in the organisation. The inevitable change that dominated the business environment has been the driver of the evolution in employee-organisation relationships (Johnson, Scholes, & Whittington, 2008). Understanding this is crucial to the development of strong employee-organisation relationships which lead to sustainability.
Nowadays, several challenges are found to threaten the survival of organisations including increased complexity and intensified competitiveness (Tidd &
Bessant, 2009). Practitioners and academicians were urged to look for possible ways to face these challenges. The focus has been on creating theories and business models in view of the different relationships between employers and their employees.
Nevertheless, one consistent result researchers have found is that employees tend to be highly motivated and committed to an organisation if they feel that their contributions to its success are valued and rewarded (Dawley, Andrews, & Bucklew, 2008; Fu &
Lihua, 2012). Enhancing an organisation‘s innovation capability and outcome is considered part of an employee‘s contribution to the organisational performance, and among the most important measures of organisational success (Yuan & Woodman, 2010). Innovative work behaviour (IWB) was introduced to indicate a process of continuous innovation that starts by individuals and is supported by the organisation.
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A few studies have focused on identifying the factors which contribute to driving IWB within organisations (Chen & Aryee , 2007; Dorenbosch, van Engen , &
Verhagen, 2005). For example, leadership style was found to significantly influence the way in which employees react and behave. This implies that an employee‘s IWB is necessarily impacted by how leaders plan and execute certain policies (von Stamm, 2009). Also, human resource development (HRD) is one of the very important programmes which have been repeatedly implemented by organisations to improve performance through employee innovativeness. Both constructs, HRD and IWB, have promising impacts on organisational outcomes, but the relationship between them has not been sufficiently investigated (Maura, Garavan, & Garbery, 2013). Yet, the positive perception of employees towards the organisation increases their level of commitment (Uçar & Ötken, 2010), and encourages positive behaviours in the workplace (Jain, Giga, & Cooper, 2013) including innovative work behaviour.
In organisations, providing the suitable support by managers, and how it is perceived by employees, is very important to enhance the employee-organisation relationship. This represents a real challenge for managers who, currently, have no choice but to work with people from different backgrounds with different personalities, beliefs and value systems (Parham, Lewis, Fretwell, Irwin, &
Schrimsher, 2015). The personality of individual employees guides their behaviour and influences their perceptions of their task, other individuals, and the organisation at large. For example, employees with proactive personality were found to have strong relationships with their managers, which make them more satisfied about their job and hence they more likely to engage in positive behaviours (Li, Liang, & Crant, 2010).
Proactive employees are also found to be more creative and innovative than others
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(Jiang & Gu, 2015; Seibert, Kraimer, & Crant, 2001). Furthermore, an employee‘s proactive personality may shape their voluntary helping behaviour (Rodopman, 2006;
Yang, Gong, & Huo, 2011).
However, altruism, which is also known as helping behaviour, has not been considered in management research since it contradicts the basic principles of capitalism which promotes self-interest maximisation. But with the revolutionary evolution of the business environment, researchers are currently investigating every possible element that may have a positive impact on organisational performance.
Altruism has been one of these elements and several recent studies argued its relevance to business operations (Guinot, Chiva, & Mallén, 2015; Mallén, Chiva, Alegre, & Guinot, 2015; Rosopa, Schroeder, & Hulett, 2013) while some are still cautious in considering its benefits (Batson & Ahmad, 2009). The common definition that researchers normally use for altruism—as a positive act which does not expect any kind return—is what influences their judgment (Haines, 1981).
This discussion gained more importance due to the increased number of factors that may affect organisations, either positivly or negatively. Another important element which researchers have increasingly considered in their studies is gender.
While many studies found no significant differences between male and female employees with respect to different organisational practices (Hankin, Abramson, Moffitt, Silva, McGee, & Angell, 1998; Igbaria & Baroudi, 1995; Moran, 1992), other studies confirmed the existance of gender differences in certain contexts (Burke &
Collins, 2001; Busch, 1995; Gefen & Straub, 1997). In reference to the scope of this study, Simpson and van Vugt (2009) suggest that males and females differ in exhibiting helping behaviours. Generally, the return of altruism as an element in the
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study of organisational behaviour, and its link to personality and other organisational components, offers a fresh and significant perspective which, if carefully utilised, has the potential to benefit organisations.
1.2 MALAYSIAN SMALL AND MEDIUM-SIZED ENTERPRISES
Malaysia is one of the fastest emerging economies in the region where SMEs play a significant role in reducing the unemployment rate, and helping the development of the industrial advancement (Omar, Arokiasamy, & Ismail, 2009; Rose, Kumar, &
Yen, 2006; Saleh & Ndubisi, 2006). Omar et al. (2009) emphasised the capacity and contribution of SMEs as fundamental in achieving the vision to become an industrialised, high-income nation. In view of accomplishing the same vision, the significance of transforming the Malaysian economy to be knowledge-based was highlighted (Khalique, Md. Isa, Shaari, & Hassan, 2013). SMEs represent over 98.5 per cent of the total establishments in Malaysia, and therefore the government has given special attention to their development. In July 2013, a new definition of SMEs was endorsed during the 14th meeting of the National SME Development Council (NSDC), and has been effective since 1 January 2014. The new definition divided the SMEs into two categories: manufacturing sector and services and other sectors.
The Malaysian economy has shifted from agriculture-based to industry-based over the past few decades, and it is currently moving towards becoming knowledge- based (Ong et al., 2010). SMEs especially in the manufacturing sector represent the backbone for economic in Malaysia (Radam et al., 2008). This notion is the same for most countries around the world, where SMEs contribute significantly to the creation
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of jobs which in turn accelerates the economic growth (Kongolo, 2010). Although their potential is great to serve the national economy, the participation of SMEs as a percentage of the overall performance of the economy is still limited in developing countries like Malaysia compared to their contribution to the developed economies.
The challenges faced by SMEs in developing countries, such as Malaysia, include lack of access to credit and formal business and social networks (Teoh & Chong, 2008).
Also, those SMEs lack sufficient knowledge about marketing techniques, branding and inefficient relationships with different stakeholders (Muhammad et al., 2010).
The latest profile of Malaysian SMEs was released in September 2017 indicating that SMEs represent 98.5 per cent of the total establishments in the country (907,065 out of 920,878 establishments). This information was based on the Economic Census 2016. In Malaysia, SMEs have been growing at an average rate of 6.5 per cent, which is greater than the annual growth of the country‘s Gross Domestic Product (GDP) of about 4.5 per cent. Yet, according to the Department of Statistics Malaysia, the contribution of SMEs to three of the major facets of Malaysia‘s economy namely GDP, employment and exports is limited to only 36.6 per cent, 65.3 per cent and 18.6 per cent, respectively. Therefore, the government has established several agencies to implement a number of programmes to support SMEs.
According to the new definition, any organisation in the manufacturing sector whose sales turnover is less than MYR50 million or it employs less than 200 full-time workers is classified as SME. For an organisation from the services and other sectors, it is classified as SME if its sales turnover is less than MYR20 million or the total number of full-time workers it employs is below 75. Depending on which category the organisation belongs to, the fulfilment of either one of the two qualifying criteria—
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sales turnover or number of full-time employees—is enough for a business to be deemed as an SME. Table 1.1 shows details of the explanation of the definition and the classification of SMEs with respect to their size (small or medium) as provided in the special report ‗Guideline for New SME Definition‘ (SME Corp. Malaysia, 2013).
The new definition also states that in the manufacturing sector a small-sized enterprise either generates sales turnover between MYR300,000 and MYR 15 million or employs a total of 5 to 75 full-time workers. A medium-sized enterprise in the same sector either generates sales turnover between MYR15 and MYR50 million or employs a total of 75 to 200 full-time workers. In the services and other sectors a small-sized enterprise either generates sales turnover between MYR300,000 and MYR3 million or employs a total of 5 to 30 full-time workers. In addition, a medium- Sized enterprise in the same sectors either generates sales turnover between MYR3 and MYR20 million or employs a total of 30 to 75 full-time workers. This definition is the reference to all government agencies which aim to deal with SMEs either in terms of financial or administrative support.
Table 1.1: Definition of SMEs in Malaysia
Sector Small Medium
Manufacturing Sales turnover from MYR300,000 to less than MYR15 million OR full-time employees from 5 to less than 75.
Sales turnover from MYR15 million to not exceeding MYR50 million OR full-time employees from 75 to not exceeding 200.
Services & Other Sectors
Sales turnover from MYR300,000 to less than MYR3 million OR full-time employees from 5 to less than 30.
Sales turnover from MYR3 million to not exceeding MYR20 million OR full-time employees from 30 to not exceeding 75.
Source: www.smecorp.gov.my
