Barriers and Challenges for Technology Transfer in

Malaysian Small and Medium Industries

1
M.A. Burhanuddin,
1
Fahmi Arif,
2
V. Azizah
1
Faculty of Information and Communication Technology
2
Institute of Tech. Management and Entrepreneurship
Universiti Teknikal Malaysia Melaka,
Ayer Keroh, 75450 Melaka, Malaysia
E-mail: burhanuddin@utem.edu.my,
fahmi_ra@utem.edu.my, azizahvaheed@gmail.com
Anton Satria Prabuwono
Faculty of Information Science and Technology
Universiti Kebangsaan Malaysia,
43600 UKM Bangi, Selangor D.E., Malaysia
E-mail: antonsatria@ftsm.ukm.my



Abstract Small and medium-scale industries (SMI) have
played a very important role in Malaysian economy.
Particularly in terms of employment generation, better income
distribution and as a training ground for entrepreneurs before
investing in a larger scale businesses. However, there are many
factors inhibiting the adoption of new technologies especially
related to Information and Communication Technology (ICT)
in the challenging world today. It is important to identify the
primary obstacles they face with regard in adopting new
technology. In order for them to survive in a long run, this
study identifies problems and constraints faced by SMI in
Malaysia. Then, focus on the challenges and barriers for them
in adopting new technology. The researchers visited few food-
processing SMI in the Southern Region of Malaysia and make
comparison with few important publications on SMI
development.
Keywords- ICT adoption, small and medium industries, barriers
and challenges
I. INTRODUCTION
The fast-changing global industrial environment is
forcing companies to improve their competitiveness by
acquiring new technical skills and investing in more
advanced technologies. However, there are many factors
inhibiting the adoption of new technologies, particularly by
Small and Medium Industries (SMI). SMI play an important
role in sustaining domestic and regional economic growth, in
addition to being important agents for alleviating poverty in
developing countries. SMI also play a pivotal role in
innovation and productivity growth [1]. According to Small
and Medium Industri Corporation (SMIDEC), SMI are
defined as companies with capital less than RM1 million and
their annual sales turnover not exceeding RM25 million.
Their full-time employees are not exceeding 150 people.
SMI in Malaysia play an important role in the countrys
economic development it stimulate private ownership and
entrepreneurial skills; provide broad based sources of growth
whilst also acting as incubators for developing domestic
enterprises into large corporations. However, SMI
contribution to the economy is still relatively small. In
recognition of this, the Malaysian government put priority to
develop SMI sectors.
This is reflected in the national development agendas,
namely the Ninth Malaysia Plan and the Third Industrial
Master Plan (IMP3), in which the key strategies for SMI
development is extended from 2006 to 2010 and 2006 to
2015 periods respectively. The 2005 Census of
Establishment and Enterprise (Census) found that the bulk of
business establishments (99.2%) are SMI, of which about
80% are micro enterprises. The Census results also show that
SMI are a major source of employment, providing jobs for
over 5.6 million workers and accounting for 56% of total
employment. However SMI contribution to the economy is
still disproportionately low - SMI contributed only 32% of
gross domestic product and 19% of the total export value.
Similarly, productivity levels in the SMI were found to be
significantly lower than large enterprises as they generated
an average value added per employee of just RM14, 740, far
lower than the RM47, 830 generated by large enterprises [2].
Current research has shown that SMI play an important
role in the economic development of countries worldwide
[3]. In order for SMI to survive for more than a few years in
markets where there are large competitors, they must nullify
their size disadvantages either by forming alliances with
similar firms to increase the rate of market penetration and
reduce financial risk, or by utilising technology to overcome
diseconomies of scale and to produce innovations which
differentiate themselves significantly from larger
competitors. Because of SMI limited resources and relative
inability to absorb the costs and risks associated with in-
house technology development, they must often utilise the
process of technology transfer to take advantage of the
benefits gained by technology and innovation. For that
reason, [4] conclude that in small size company, the
successful of technology transfer is a pre-requisite for
company performance.
Considering that SMI have the potential to contribute
positively to a country's economic development and that an
SMI's ability to innovate has an impact on its ability to
survive in the long run, it is important to identify the primary
obstacles they face with regard in adopting new technology
and acquisition and to create tools and policies designed to
help them overcome these specific challenges.

2009 International Conference on Information Management and Engineering
978-0-7695-3595-1/09 $25.00 2009 IEEE
DOI 10.1109/ICIME.2009.39
258
2009 International Conference on Information Management and Engineering
978-0-7695-3595-1/09 $25.00 2009 IEEE
DOI 10.1109/ICIME.2009.39
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This paper takes a first step in identifying challenges and
barriers faced by SMI in Malaysia as the basic foundation for
strategy development which can be used to overcome the
aforementioned challenges faced by SMI with regard to
adopting technology and acquisition.

II. CONCEPT OF TECHNOLOGY TRANSFER
Technology transfer is use of the knowledge. In other
words, technology transfer or transfer of technology means
the transfer of knowledge. [5] considered that the transfer is
success when the technology is brought into market.
Therefore, transfer is not just a movement or delivery, but
the transfers can only success if technology is utilized [6].
So, it is application of technology and considered as process
by which technology developed for one purpose is used
either in a different application or by a new user. Technology
transfer is usually considered as dissemination of
information, matching technology with needs and creative
adaptation of items for new uses [7]. Technology transfer can
also be described as the process through which technology
moves from outside sources to the organization. The
complexity of this transfer process has been examined by a
growing number of researchers whose findings are being
impact upon technology policy decision making [8].

III. BARRIERS FACING BY SMI
In today globalised economy, Malaysian SMI will not be
able to compete successfully without making much more
effective use of Information Technology. However, despite
of their important contribution to exports, domestic supplies,
employment and economic growth, there is a wide
discussion about the barriers facing by local SMI. The
barriers prevent them from growing further and putting them
in a critical position to face the new challenges that are
arising from globalization, liberalization and extensive
organizational and technological change. It has been
documented that the barriers facing SMI in Malaysia
undermine their performance. The researchers, [8], [9], [10],
[11], and [12] highlighted many barriers and problems facing
by SMI to compete in a globalized market, which includes:
(i) Many SMI are still occupying land sites which have
not been approved for industrial use purposes;
(ii) Poor financial strength;
(iii) Low productivities;
(iv) Lack of skills for the new business environment,
(v) Lack of capabilities accessing to management and
technology; and
(vi) Heavy regulatory burden and procedures.

The findings are supported by [13], where he highlighted
that lack of access to the financial system, human resource
constraints and limited or inability to adopt technology is the
problem in SMI.
Malaysian government realized the problem and play an
important role to sustain SMI in the second Industrial Master
Plan (IMP2). Then, followed by the IMP3 from 2006 to
2020, to coincide with the countrys vision for 2020 [14].
The Malaysian Government has implemented various
policies and strategies under these plans. The IMPs were
formulated to enhance the growth of the manufacturing
sector across the entire value chain and cluster-based
industrial developments. Hence, this plan provides an
integrated approach to the development of industrial areas
and opportunities for growth of SMI [14]. Figure 1, below,
shows the phases of development of enterprises in Malaysia
Small and medium enterprises in many countries face myriad
challenges.


Figure 1 : Phases in SMI development [12]

IV. CONSTRAINTS OF SMI IN ADOPTING NEW
TECHNOLOGY
[15] stressed that the global industrial environment is
forcing companies to improve their competitiveness by
acquiring new technical skills and investing in more
advanced technologies. However, there are many factors
inhibiting the adoption of new technologies, particularly by
local SMI, including:
(i) Lack of capital investment funds;
(ii) Lack of managerial skills;
(iii) Inaccurate data and information on the progress of
SMI;
(iv) Lack of skilled and talented workers, which affects
the quality of production, efficiencies and
productivities;
(v) Limited capacity for technology management and
knowledge acquisition;
(vi) Limited access to finance and capital, and the
infancy of venture funds in initial or mezzanine
financing;
(vii) Difficulties to consult industrial expert; and
(viii)Limited staff to conduct research in new
technology and innovations;
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[13] concluded that SMI are unable to survive in a long
run, if they do not increase their competitiveness in the new
rapidly developing world of globalization. To achieve
business excellence [16] stated that organization need to
adopt information and communiation technology.
Appropriate information and communication technology can
help SMIs to cut their cost by improving internal process,
faster communication with customer, better promotion and
better distribution [17].
SMI still seem to have a painful time in deciding how
best to adopt technology in their business. The fact that most
SMI are still fully controlled by their founders who are IT-
illeterate. Research finding by [1] show that SMI owner in
Malaysia posses below-average ICT skill, as the result, level
of ICT adoption is lower than expected. Generally, the best
way to combat this is through education and IT awareness.

V. SMI CHALLENGES IN MALAYSIA
As discussed, there are a number of barriers and
constraints hinder technology transfer and development in
SMI. Particularly important in this context is the information
about the requirements for foreign technology and the
problems associated with the transfer process, such as
options, conditions, absorption and diffusion [18]. Moreover,
Malaysian SMI face many challenges, which have been
highlighted by [19], SMI development Plan, 2001-2005 [12]
and [20]. Later, [21] conducted the survey and listed few
SMI challenges to produce locally and market globally as
follows:
(i) Intensified global competition;
(ii) Price competition with other producers, such as
Indonesia, China, Thailand and India;
(iii) Ability to meet the challenges of market
liberalization and globalization;
(iv) Non-compliant products to ISO quality standard,
(v) Expensive infrastructure, and
(vi) Motivation to seek latest information and update the
knowledge.

The present study summarized challenges in Malaysian
SMI as follows:
(i) Lack of a comprehensive framework in terms of
policies towards SMI development,
(ii) Agencies use inconsistent definitions to categorize
SMI at the operational level,
(iii) There are too many agencies, or channels, for SMI
without effective coordination. This led to
redundancy afford and effect transparency to the
target groups,
(iv) Lack of transformation and monitoring SMI
progress from micro to large-scale business,
(v) Difficulties in accessing loans and other forms of
financial assistance,
(vi) Underutilization of technical assistance, advisory
services and other incentives made available by the
government and non-government organisations.
(vii) Non-leveraging of various incentives which are
provided by the promotion of Investment Act, 1986
and the Income Tax Act 1967.
(viii)Time consuming to investigate new systems;
(ix) Limited knowledge on capabilities of the current
systems;
(x) Lack of information on potential markets and
customers; and
(xi) Global competition.

VI. SUMMARY AND RECOMMENDATION
The present study compares few research works on
constraints, barriers and challenges facing by Malaysian
SMIs to adopt the technology. This is because the SMI
contribution to the economy in Malaysia is still relatively
small compared to other developed countries. The evidence
show that productivity levels in the SMI were found to be
significantly lower than large enterprises as they generated
an average value added per employee of just RM14, 740, far
lower than the RM47, 830 generated by large industries [2].
Some of the major constraints and problem identified
from the previous work are financial issues, low
productivities, managerial skill, technological skills, research
and development, expertise, human resource and global
competition. Some of the major challenges they are facing
are lack of a comprehensive framework in terms of policies
towards SMI development, too many agencies without
effective coordination, inaccuracy of data, difficulties in
getting loans on time, underutilization of technical
assistance, lack of skilled and talented workers, expensive
infrastructure and price competition with other competitors
from other countries such as Indonesia, China, Thailand and
India.
In general Malaysian SMI are still not prepared to
challenge in a global market. There are still many SMI think
that technology investment especially in IT as necessary only
for large industries and they believe that IT only for
automation process in manufacturing. Sometime they fell IT
adds no value and used to reduce a manpower. Infact,
practising IT can enable SMI to improve their business
models, enchance marketing strategies and create advance
customer relationships.
Considering those issues of barries, constrains and
challenges, SMI extremely need strategies to overcome that
situation. There are many strategies derived by government
and its agencies such as Small and Medium Industri
Corporation, Federal Agriculture Marketing Authority,
Malaysian Agriculture Research and Development Institute
etc., that can be adopt by SMI [21]. However, SMI in
Malaysia can follow, but not totally rely on government
agencies. They have to be more independent and start to
initiate their own path of progress by adopting different
strategies, which allow them to success in global markets,
increase their revenue and expand their business. The SMI
should work together as a business partner and implement
these strategies. This paper provides a platform for further
studies on appropriate strategies that can support Malaysian
SMI in defeating those barries and challenges.
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