CHAPTER 3

RESEARCH METHODOLOGY

Chapter three derives the methodology taken into consideration for this research. At the

beginning of this chapter discussion on population and sampling techniques and later statistical

methods used to analyze the data were explained. Finally the chapter ends with hypothesis testing

explanation.

3.0 Introduction

This chapter illustrates research methodology deployed to gather empirical evidences for

this study. By having appropriate research design, sample and procedure research questionnaire

measurement instruments, pilot-study and statistical analysis would able to address the answer to

research questions as well as hypotheses populated in Chapter one and two respectively. This

present study was classified as correlation research using quantitative analysis approach. The

chapter ends by elaborating statistical tools used such as descriptive analysis, reliability test and

regression analysis were the main analysis tools used in this research to test the hypothesis

generated in previous chapter.

3.1 Research Design

This present study was a deductive research which coincides with relevant literatures,

defined theoretical framework and hypotheses testing to relate the empirical relevance’s. It is more

relevant to be classified as positivist approach as it was more collated with quantitative data

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collection approach and statistical analysis. Correlation study was much more appropriate for this

present study to determine the significant between organization learning with competitive

advantage, collective human capital with competitive advantage and mediating effect of

competitive advantage towards organizational learning and firm performance as well as collective

human capital and firm performance respectively. The data collection method identified as cross-

sectional rather than time series.

All MNEs listed in Northern region of Malaysia (Penang, Kedah and Perak states) were

the population frame for this research. It was because those firm have gone through years of

experience in manufacturing are expected to have a better understanding in-terms of how well the

organizational learning in the industry being acquired, disseminate and shared. Meantime, by

having the right appropriate experience in the industry would also create the ability to articulate

the competitive advantage as well as firm performance with competitive advantage. In the present

study, the targeted respondents should meet conditions as highlighted below:-

1. Respondents should have at least ten years managerial or supervisory experiences in

MNEs respectively regardless any department or organization.

2. Only foreign invested MNEs with manufacturing capabilities able to respond as they

have investments capability and abilities to develop and sustain the organization.

Above conditions have been illustrated to avoid any outliers observed and also to avoid to

skew the data due to non-relevance respondents. The first condition, able to articulate the

experience gained in MNE, to ensure that managers and supervisors would have gained vast

experiences in dealing their respective organizations towards meeting firm performance. By

delivering and meeting the defined organization goal and aligning their goal towards firm goal

which significantly delivers to firm performance. Also it ensures the organization is positively

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engaging towards firm performance in Malaysia. It was a managers’ and supervisors’ expectation

in general regardless any department or organization have to meet and deliver operation cost

effectiveness, set appropriate expectations, ensuring on complying to ethics as well as firm policies

and standards are being followed, ability to make drastic and risk taking decisions for business

continuity and executing development plan for the organization. With this generalized

expectations it makes any managers or supervisors with a minimum of ten years of managerial

experience in MNE would able to reflect the firm performance towards respective managerial

governances and competence relating towards firm performance.

Secondly, any MNEs with manufacturing capabilities encouraged to respond. It was due

to the abilities of the firm to have the performance detailed out clearly on the measureable and

only in manufacturing capability MNEs have the tendency and approach to have all the supporting

organization and departments to align towards firm performance. As it creates as interdependent

approach to support each other in order to meet one objective or goal at the end which agreed upon.

Research and design firms were not included as it is more time based performance. Whereas,

manufacturing was quantity based where there is a continual business demand and supply have to

meet. In order to meet the manufacturing deliverable which also determines the revenue of the

performance of the MNE, supporting department and organization would tie in order to meet the

overall performance. Department like purchasing, buyer, information technology, planning,

finance, human resources, facilities, training and industrial engineering have to support equally

with manufacturing and engineering department or organization in order to deliver the required

and desired results as well as goals which determines firm performance.

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 This makes the unit of analysis for this research were organizations managed by managers

as well as supervisors from any MNEs as the job expectations are almost equal and balance. With

the conditions imposed above judgment sampling techniques were employed.

3.2 Population

Figure 1.1 and Table 1.3 have illustrated that Penang state was been heavily invested by

foreign investors in 2015. As well as surrounding states like Kedah and Perak also benefited due

to this investments. Thus, for this study, it would be conducted in Penang, Kedah and Perak states

respectively as population. With MNEs successfully operating in a manufacturing process, it

would have established the practices of organizational learning and collective human capital and

might have observed the contributions towards firm performance as well as mediating effect of

competitive advantage in business continuity. Manufacturing classified here as assembly and test

of the products being owned by the company. Origin of the MNEs are from United States of

America, European Nation, Japan, China, Taiwan and Korea. The industries were segmented to

Electrical and Electronics, automotive, aviation, energy, medical products and food and beverages.

The Data was collected from managers as well as supervisors in the MNEs organizations, who

were currently responsible of day-to-day operations, delivering bottom-line results and settings

direction to the respective organization aligning to firm objectives and goal which contributes

towards firm performance as overall. Key note to be considered here was Fab technology and

design and development industry was excluded from this present research. It was found to be, fab

and design industry not only produce products, but it is in smaller scale in terms of productivity as

well as mainly for the engineering development purpose. Also, they have high technology,

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automated machineries which require highly skilled employees to operate and troubleshoot them.

Thus it was excluded.

3.3 Sample Size

With the regard to sample size, population of this present study consists of MNEs in Bayan

Lepas Free Trade Industrial Zone (Penang), Prai and Batu Kawan Industrial Zone (Penang), Kulim

High Tech Park (Kedah) and Kerian Industrial Zone (Perak) as prescribed in Northern corridor of

Malaysia. Based on Sekaran & Bougie (2011), the defined sample size as the actual number of

sample chosen to reflect or represent the population behavior or characteristics. Nevertheless,

appropriate sample size was chosen mainly to address research objective, extent at confidence

interval, acceptable risk in predicting the confidence level, amount of variability in population,

cost and time constraints and huge size of population itself. There were few researchers have

introduced mathematical model, rules of thumb guidelines for determining sample size based on

their research findings.

Role of thumb was proposed by Roscoe (1975) for determining size in multivariate

research. The sample size preferably ten times or more as long as the number of variables in the

study (Sekaran & Bougie, 2011). Using rule of thumb for this present study with 17 variables (four

for organizational learning, three for collective human capital, five for competitive advantage and

five for firm performance respectively) making it to have a minimum of 170 sample size for this

research. Referring to mathematical model developed by Green (1991), suggested sample size to

be based on power analysis was more than fifty plus with eight multiply the number of predictors

for testing multiple correlation for the research. Thus, for this present study there were a total of

seven predictors (four grouped under organizational learning and three grouped under collective

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human capital respectively) making it to be 106 as sample size using mathematical model.

MacCallum, Widaman, Zhang & Hong (1999), also recommended that sample size could be

considered from five to ten times per variable identified in respective research to conduct factor

analysis. Using this approach, the present study would desire approximately a sample size from 85

to 170 with 17 variables being identified for this present study.

Hair, Black, Babin & Anderson (2010) stated that it requires a larger sample size to ensure

statistics are reliable with minimal sampling errors. In Partial Least Square- Structural Equation

Modelling (PLS-SEM) analyses, the sample size should size to determine the means of power

analyses wherever there is a large number predictors are concerned. Also, it was highly

recommended a sample size of 200 as a concentrate estimate of a 95% confidence internal for

predicted power of regression based on power analysis in Cohen (1988) by Ding, Velicer & Harlow

(1995) stated that a sample size of 200 was adequate to estimate structural equation modelling

which also stress the risk of having the sample size of less than 100 may possess an improper

statistical solutions to detect its real significance. In the view of the above justification suggestions

as well as a minimum sample size of 200 as a target was set to meet the PLS-SEM analysis as well

as for this present study to be statistically reliable and significant.

3.4 Data Collection Procedure

Based on the sampling plan described as in Table 3.1 below, researcher will send out hard-

copy questionnaires with cover letter to various organizations entities across multiple MNEs in

Bayan Lepas Free Trade Industrial Zone (Penang), Prai and Batu Kawan Industrial Zone (Penang),

Kulim High Tech Park (Kedah) and Kerian Industrial Zone (Perak) as prescribed in Northern

corridor of Malaysia. Delivery of the questionnaires were done by via postal to Human Resources

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Department with debrief of the present study and research is about and how will it benefit and help

Malaysia to be competitive with organizational learning and collective human capital in

manufacturing industry. A keynote, on the confidentiality of the MNE as well as respondents

would be retained as well as the data used in the research would be anonymized during statistical

analysis allowing non-traceability as well as correlation could be done as it would not reveal any

respond identifiable information.

It also stated as a key note for Human Resource personnel to identify the right managers

as well supervisors aligning to unit of analysis of the research. The managers and supervisor should

currently manage an organization regardless any department in the MNE with an accumulated of

ten years of working experience respectively.

The results from these data expected to provide a summary of the finding based on the

respondents. The response time of this questionnaire expected to be within two to four weeks after

the official mail / letter being posted to HR personnel. The data collection would be continued till

the minimum sampling size of 200 respondents is achieved, which dragged the data collection

from 4 weeks to 4 months. The study was conducted February to June 2017 time frame.

Table 3.1

Population and sampling size per industrial zone.

State Industrial Zone Population Sampling Size

Penang Bayan Lepas Free Trade Zone 94 72

Penang Prai and Batu Kawan Industrial Zone 53 41

Kedah Kulim High Tech Park 56 43

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 Perak Kerian Industrial Zone 59 44

Total 262 200

(Source: Companies list were obtained from Federation of Malaysian Manufacturers (2014)).

3.5 Questionnaire Design and Variable Measurement

The questionnaire was designed based on the unit of analysis studied in the research. All

the questions in the questionnaire were based on the hypotheses generated which aligns to the unit

of analysis. Erroneous results may occur if the questions were not answering the unit of analysis

which leads off beam conclusions (Sekaran, 2003). The present study consists of two independent

variable, one mediating and one dependent variable. All these variables were measured pertaining

to the knowledge utilization and learning by the employee in the organization through the

experience gained to deliver towards firm performance. Thus, resourced based theory and

organization learning theories have been adopted as an underlying theory for this research.

Organizational learning, collective human capital, competitive advantage and firm performance

were measured.

The questionnaire was designed in English language and was not translated into Bahasa

Malaysia which is a local national language with the intention, English is the common language

spoken in MNEs. If it was required, the splitting original question to two or more would be done

to avoid double-barreled issue (Sekaran & Bougie, 2010). The questionnaire used in this study

attached in Appendix A. The questionnaire was segmented to a total of five sections. Section A

consists of the company as well as responding background. Section B would be measured for

organizational learning. Collective human capital measurement in section C. Section D measured

MNEs competitive advantage and Section E measured firm performance respectively.

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3.5.1 Control Variables

This present study limits to the manufacturing segment regardless of any industry type.

Nevertheless, the age of the company and the size of the company have a positive relation in terms

of the firm performance (Damanpour, 1992). Thus, it has been identified as a control variable for

this present study and the question for the respondents would be “How long has your current

employed firm been operating in Malaysia?”. The respondents have to select one from the listed

category “< 5 years”, “6-10 years”, “11-14 years”, “15-19 years” and “> 20 years”. Followed by,

“How many full-time employees are working in your current employed MNE?” The respondents

are given “< 1000”, “1001-3000”, “3001- 5000”, “5001-7000”, “7001-9000” and “> 9001” to

selected.

3.5.2 Measurement of Organizational Learning

Organizational learning variable was being adopted and measured by the determinants

constructed by Jimenez-Jimenez & Sanz-value (2011), which consists of knowledge acquisition,

knowledge distribution, knowledge interpretation and organizational memory. Each of these

determinants have three specifics questions which characterize the determinant and being

measured by five point Likert scale measurement as illustrated in Table 2.5. Where by the

measurement starts from 1 – Strongly disagree, 2 – Disagree, 3 – Moderate, 4 – Agree and 5 –

Strongly Agree. The final determinant of organizational learning was added in specifying do the

responded having greater or lesser than ten years of experience in respective work nature in MNEs.

A total of fifteen questions were set for this dimension measurement.

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Table 3.2

Determinants and items derivation for organizational learning

Study by Dimension Items

Jiménez- Knowledge 1. Employees attend to conferences and exhibitions that

Jiménez acquisition provide knowledge about their job regularly.
& Sanz- 2. Availability of consolidated and resourceful R&D and
Valle operation policy.
(2011) 3. New ideas and approaches to work
performance are experimented continuously.

1. The company has formal mechanisms to guarantee the

Knowledge sharing of best practices among the different fields of the
distribution activity.
2. There are individuals within the organization who take
part in several teams or divisions and who also act as
links between them.
3. There are individuals responsible for collecting,
assembling and distributing internal employees’
suggestions.

1. All members of the organization share the same aim, to

which they feel committed employees share knowledge
and experiences by talking to each other.
Knowledge 2. Teamwork is a very common practice in our company.
interpretation 3. The company has directories or e-mail filed according to
the field of expertise, belong to, so as to find an expert on
a concrete issue at any time.

1. The company has up-to-date databases and of its

operational knowledge.
2. There is access to the organization’s databases and
Organizational documents through some kind of network.
memory 3. Databases are always kept up-to-date.
4. My company encourages internal training and knowledge
sharing.
5. There are adequately trained and skilled employees to
conduct training within the company.
6. Those who conduct the training have approximately 10
years or more experience in the subject matter.
(Source: Adapted from Sampe (2012))

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3.5.3 Measurement of Collective Human Capital

The human capital scale has been adopted from (Seidu, 2011) to measure the average level

of collective human capital of the employees in the firm. The selection was adapted to describe

operation related knowledge, skills and abilities (KSA). Sample questions were “Our employees

working in the firm are highly skilled in performing their task” and “our employees working in the

firm are creative and independent”. Alpha scale reliability was noted as 0.87. These measurements

were found to be adequate to measure the significance of collective human capital in Malaysia.

Thus, determinants were being measured using a five point Likert scale; 1 – Strongly disagree, 2

– Disagree, 3 – Moderate, 4 – Agree and 5 – Strongly Agree. A total of six questions were set for

this dimension measurement.

Table 3.3

Determinants and items derivation for collective human capital

Study by Dimension Items

Subramaniam Knowledge, 1. Employees working in this firm are highly skilled in

and Youndt, Skills and performing their task.
(2005) abilities (KSA) 2. Employees working in this firm are widely knowledgeable
in the industry.

1. Employees working in this firm are highly creative and

Creative bright in the industry.
2. Employees working in this firm are widely considered as
experts in their particular jobs and functions.

Independent 1. Employees working in this firm develop new ideas and

suggestions at their particular jobs and functions.
2. Employees working in this firm are independent in
performing their particular jobs and functions.
(Source: Adapted from Seidu (2011))

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3.5.4 Measurement of Competitive Advantage

Referring and to be based on Table 2.4, competitive advantage variable was measured in

the context of innovation, differentiation, marketing differentiation, low cost leadership, quality

differentiation and service differentiation respectively. Which was adopted from Chelliah (2004).

These measurements were found to be adequate to measure the significance of MNE performance

in Malaysia. Thus, determinants were measured using five point Likert scale1 – Strongly disagree,

2 – Disagree, 3 – Moderate, 4 – Agree and 5 – Strongly Agree. A total of twenty two questions

were set for this dimension measurement.

Table 3.4

Determinants and items derivation for competitive advantage

Study by Dimension Items

Beal & Innovation

Yasai- differentiation 1. R &D of new products.
Ardekani 2. Marketing new products.
(2000) 3. Selling high priced products.
4. Obtaining patents / copyright.
5. Innovative marketing techniques.

Marketing 1. Building brand / company identification.

differentiation 2. Advertising / promotional programs.
3. Securing reliable distribution channels.
4. Improvement of existing products.
5. Producing a broad range of products.

Low cost 1. Efficiency and productivity improvements.

leadership 2. New manufacturing processes.
3. Improvement of existing manufacturing processes.
4. Reducing costs throughout the firm.
5. Reducing manufacturing costs primarily.
3.
Quality 1. Strict product quality control.
differentiation 2. Benchmarking best manufacturing processes anywhere.
3. Immediate resolution of customer problems.

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 4. Product improvements based on gaps in meeting customer
expectations.

Service 1. New customer services.

differentiation 2. Improvements of existing customer services.
3. Improvements of sales force performance.
(Source: Adopted from Chelliah (2004)).

3.5.5 Measurement of Firm Performance

The firm performance measurement was tied to costing, performance, the quality of the

product and service performance, new product performance in MNE assembly and test

environment, delivery performance and flexibility performance in assembly and test environment

which adopted to the chances in the customer orders and demand respectively as stated by

Azadegan & Dooley (2010). Below were the dimensions and items governed for this research.

Determinants were measured using a seven point Likert scale; 1 – Strongly Disagree, 2 – Slightly

Disagree, 3 – Disagree, 4 – Neither Agree or Disagree, 5 –Agree, 6 – Slightly Agree, and 7 –

Strongly Agree. A total of ten questions were set for this dimension measurement.

Table 3.5

Determinants and items derivation for firm performance

Study by Dimension Items

Azadegan Cost performance 1. Our firm meets internal manufacturing cost reduction
& Dooley goals.
(2010) 2. Our firm improves manufacturing cost as compared to
competitors.
Quality
performance 1. Our firm meets defect rate reduction goals.
2. Our firm improves the defect rate as compared to
competitors.

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 New product
performance 1. Our firm meets new product release in time reduction
goals.
2. Our firm improves new product release compared to
competitors.
Delivery
performance 1. Our firm meets delivery speed and reliability
improvement goals.
2. Our firm improves delivery speed and reliability as
compared to competitors.
Flexibility
performance 1. Our firm meets customization request or demand.
2. Our firm improves the response to customization request
as compared to competitor.
(Source: Adapted from Sampe (2012))

3.5.6 Pilot Study for the Measurements and Questionnaires.

The questionnaire has been sent to my current supervisor to review as well as fellow

industrial colleagues whom are managers as well as supervisors to review. The objective of the

pilot study of the questionnaire was to gather the feedback in terms of grammatical usage, usage

of the questions are understandable and ability of the response to questions are acceptable or

needed further improvement. Feedbacks were gathered and analyzed the improvised the

questionnaire. Firstly the comments were on the usage of organization performance compared to

firm performance. As certain questions was resembling firm performance and a few resembling

organizational performance. Thus, the recommendation given to either standardize one of it.

Followed by the ticking symbol should be standardized and should be not be used different

symbol. Another suggestion or feedback brought up the colleagues are avoiding using “your firm”

phrase in the questions. As the respondents are employees of the firm unless the respondents are

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the owner of the firm than it is acceptable. Since the respondents are employees in the firm the

phrase was addressed as “your organization”.

Despite the questionnaires are adopted the questions are adjusted to suit the current

research based on above feedbacks which were amended accordingly in table 3.2 and 3.4

respectively. Firm performance statement in table 3.5 was replaced with our firm. A total of three

revisions of questionnaires were done till it was agreed by the respondents and felt the

questionnaire was acceptable, and understandable. Then it was accepted. Table 3.2 to 3.5 were the

latest amended table after all the feedback being captured.

Nevertheless the questionnaire was assessed during proposal defense and was asked to

improve the demographic portion. Since the questionnaire was designated for managers and

supervisors, questions pertaining to current position in current MNE was removed as it is found

not valid. Similarly on the question “what was your position when you started career in a MNE”

also removed it was found not relevant to current study as well. Since the position when you started

the career was excluded, subsequently where was your first career started and number of job

change in your career and number of job change in MNE were excluded respectively. With this,

common questions like “Your gender and age” are added respectively. Questions that relevance to

the current study like “How long you have been in the managerial role”, “Which department are

you currently attached to?”, “Number of subordinates under your current organization?” and “your

highest academic qualification?” have been included to make the research even more relevant.

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Table 3.6

Cronbach’s alpha score of instrument scales (n=30)

Construct No. of Items Cronbach’s Alpha

Knowledge Acquisition 3 .820

Knowledge Distribution 3 .743

Knowledge Interpretation 3 .946

Organizational Memory 6 .935

Collective Human Capital 6 .975

Competitive Advantage 22 .923

Firm Performance 10 .896

(Source: Developed for this study)

According to Hair et al., 2011, reliability refers to the extent to which a scale produces

consistent results if measurements are made repeatedly, and if measures are free from error and

therefore yield consistent results. Construct or composite reliability was widely used to measure

reliability, and utilizes Cronbach’s alpha. For this study all the constructs measured were within

the reliability result and suitable to pursue for the research measurement.

3.6 Statistical Analysis

In this data analysis two main statistical tool was being used. They were Statistical Package

for Social Sciences (SPSS version 20 for Windows) as well as Smart Partial Least Squares –

Structural Equation Modelling (PLS-SEM or Smart PLS version 3.6). SPSS was used to do the

analysis on data entry, data screening and transformation, checking for missing data, assessing

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normality for distribution to understand the pre-lim analysis of the data. It was used to understand

descriptive statistics analysis to indicate the profile of respondents and firm characteristics as well

as to use reliability analysis for construct items.

Whereas, Smart PLS was used to analyze measurement model testing for loading and

cross-loading, Average Variance Extracted (AVE), Composite Reliability and Discriminant

Validity with inter-construct correlations. Similarly for structural model testing for path

coefficient, standard error, standardized estimate t-value and hypotheses supported or non-

supported, Explained Variances (R square) and Effect size are being analyzed using Smart PLS.

Therefore, this research was a Confirmatory Factor Analysis (CFA) instead of Exploratory Factor

Analysis (EFA) as the constructs were based on current existing literature on relevant theories as

well as established questionnaires.

3.6.1 Descriptive analysis

Descriptive analysis encompasses percentage, frequency, mean and standard deviation of

the data, which will be tabulated according to the demographics of the data sets of the respondents.

Descriptive statistics include conversion of raw data into a form that would provide

information to describe a number of factors in a situation. In most organizational research,

according to Sekaran (2003), at the very minimum, it is usually to see how often and event occurs

(frequency). Furthermore, organizational research also considers the means or average score of a

set of data collected, as well as the extent of the variability in the set (i.e., the central tendencies

and dispersion) of the independent and dependent variables. The present study performed

descriptive statistics such as mean values and standard deviation to describe the respondents that

participated in the survey. Among the data being analyzed are length of working in MNE, current

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position, length of firm operating in Malaysia, the number of countries the firm is operating in, the

origin of the firm, the segment of the firm industry and full time employees count.

3.6.2 Goodness of Measure and Test of Hypotheses

For a good research to complete would depend the adequate measurement. Validity and

reliability of a study would be reflected in the goodness of measure. How well the instrument

measures the concept projected to measure is what validity meant. The consistency of the

measurement of the instruments referred as reliability (Sekaran & Bougie, 2010). According to

Sekaran (2003) reliability analysis would indicate non biases. PLS-SEM was used to analysis the

response of the questionnaires to understand the goodness of measure and to test the hypotheses

generated in Chapter two respectively.

PLS-SEM is a modelling approach focused on maximizing the variable exploitation of the

dependent underlying constructs, and to distinguish a robust estimation of structural models. PLS-

SEM was expected to explain the variance dependencies and determine the quality of the

measurement of the characteristics compared to conventional analysis of the multiple regression

analysis model. It is also expected PLS-SEM to estimate the loading of its indicator variables for

predicting exogenous constructs with the reference of endogenous constructs. By avoiding the

shared variance among the indicator variables based on same construct which signifies to the

coefficients (Hair et al., 2011).

Despite PLS analysis, SEM was used as a second generation of multivariate data analysis

method to support the theoretical impact of linear and additive cause model (Wong, 2013). SEM

consists of two main segments to analyze the variables. The segments were classified as inner and

outer model to analyze the relationship of the variables. The inner model was to show the

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relationship between latent variables which highlights the relation of independent and dependent

variables. Whereas, the outer model shows the relevance between underlying variables and its’

observed indicators. Partial modelling was being used to estimate the partial ordinary least squares

regression models and structural model coefficients respectively. With the formative

measurement, the latent variables are determined as independent variable and through multiple

regression model the latent constructs was estimated as dependent variable and assigned indicators

as independent variable. To address the indicators individually as dependent variable reflective

measurement model and regression model with single regressions were used (Hair et al., 2011).

PLS behaves as a fundamental approach on assumptions for soft modelling application to

SEM without any assumption to data distribution. Useful for structural equation modelling with

limited participants and skewed to data distribution. PLS-SEM may not tabulate the adequate

results when the sample size is small, less available theory or hypothesis as well as unable to

predictive accuracy paramount and current model specification. Thus, PLS-SEM is a regression

based approach which minimizes residual variances of endogenous constructs which results a

lower degree of variables (Hair et al., 2011).

According to Wong (2013), PLS-SEM analysis was used to explain endogenous variable

variance, inner path coefficients sizes and significance, outer model loading and significance,

reliability indicator, internal consistency reliability, convergent validity, discriminant validity and

lastly understanding structural path significance thru bootstrapping approach.

3.6.3 Evaluation of Measurement Model

Measurement model was classified to address the analysis of the outer models of the

variables. It measures the relevance and relationship between latent variables with observed

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indicators. It would be also determined the reliability and validity of the measures of each construct

and provides the accuracy in the reliability measures and convergent validity and discriminate

validity (Chin, 2010).

3.6.3.1 Convergent Validity

Strongly agree (converge) was being determined and defined by using convergent validity

to construct the underlying measure on how high or low respective loading are. The measures

when widely distributed from 0.50 to 0.90 in range; it would establish a concern on homogeneous

and phenomena of interest. If the measure was narrowed from 0.70 to 0.90 in range would reflect

for a higher confidence. The average variance explained (AVE) have to be examined in convergent

validity. By doing it so, AVE with 0.50 illustrates a significant degree of convergent validity, by

accepting the latent variable has more than half of its’ indicator variance (Hair et al., 2011).

3.6.3.2 Discriminant Validity

Discriminant validity is a measurement which relates to its’ own variable measure, instead

of overlapping in variances. Thus, discriminant validity would also avoid two variables sharing

the same measurement types which are not conceptually distinct. Nevertheless, each measure

would have a strong relation to construct it capability to reflect and should not have any relation

with another variable. Fornell-Larcker criterion and cross loading are two main measurements

used to measure discriminant validity. In order to meet AVE for Fornell-Larcker each of latent

construct should be greater than the highest squared correlation with another latent construct.

Whereas, for cross loading validity indicators loading which is relevant to latent construct should

be higher than its’ loading with the rest of the variables (Hair et al., 2011).

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3.6.3.3 Composite Validity

To analyze the response from the questionnaire reliability measurement was needed. Thus,

composite reliability measurement was required to measure internal consistency of measured

variables. The composite reliability value with 0.70 above would indicate it as strong significance.

Nevertheless, the measurement from 0.60 to 0.90 is also acceptable for exploratory research.

Measurement with 0.60 and below was classified as poor reliability relation (Hair et al., 2006).

3.6.3.4 Loading and Cross Loading

Despite of overall measurement of composite reliability, individual variable was required

to measure its’ reliability using loading and cross loading measurement. Each variable reliability

measurement or its’ absolute standardized loading should be higher 0.70. If any of the variables

falls in the range of 0.40 to 0.70 it would be considered for removal of this indicator which leads

to increase of the AVE. Variables with 0.40 and below should be confirmed on removal from the

analysis (Hair et al., 2011).

3.6.4 Evaluation of Structural Model

Structural model was used to analysis the inner model to understand the significance of the

relationship between independent and dependent variable. The primary criteria to evaluate the

structural model is using R-squared measures. Which measures the path coefficients R-squared

refers to the quantity variance of the construct defined in the question explained by the model. The

higher the R-squared determining the significance and prediction-orientated PLS-SEM. Thus the

value from 0.75 and above is classified as strong relation. Value from 0.50 to 0.75 is classified as

21
moderate and value from 0.25 to 0.49 is considered as weak relation respectively (Hair et al.,

2011).

In the PLS structural model, individual path coefficients were being interpreted based on

standardized beta coefficients of ordinary least square regressions which was analyzed through the

bootstrapping procedure. The significance of the hypotheses paths were determined by

standardized beta coefficient.

3.6.5 PLS-SEM Bootstrapping to Test Hypotheses

PLS engages a non-parametric bootstrapping to analyze the hypothesis standard errors.

Through adequate sample distribution which represents the population distribution would result

more accurate results. Bootstrap sampling was based on resampling number which discovers the

coefficient estimation in LS-SEM to determine the significance. The results from coefficient, the

student t - test can be performed to determine the significance of the path model relationship. With

critical t-values of two-tailed test is 1.65 which is the significance level of ten percent, 1.96 is

significant at five percent and 2.58 is insignificant level of one percent. The sequence of

significance are from higher to lower respectively (Hair et. al, (2011).

In the conventional way to test the hypotheses, firstly control variables are regressed with

the dependent variable. Followed by adding with the independent variable. It is to measure

significant impact of the control variables towards the dependent and independent variables. The

significance of the model was identified through the significance of 𝑅 2 . Through the standardized

co-efficient (beta) the predictive ability of the independent variables being examined.

They are three steps to be followed to examine the mediating effects. Firstly, to regress the

control variable with the dependent variable. Secondly, regression was continued with independent

22
and dependent variable to measure the significance. Lastly, mediating variable was entered with

dependent and independent variable. The standardized beta value would able to articulate the

significance of the mediating variable with dependent and independent variable (Baron & Kenny,

1986).

3.6.6 Tests on Nonresponse Bias

By using cross tabulation and chi-square test on non-response bias was done for nominal

measurement. To compare early and late respondents scale measurement of the independent-

samples and t-Test procedures were used. To provide a basis for extrapolations Armstrong and

Overton (1997) was used to measure the time trends. Delayed respondents are assumed to be

similar to those non respondents.

3.7 Chapter Summary

From the theoretical framework as illustrated in Figure 2.13, it was operationalized to

understand the significance of organizational learning, collective human capital, competitive

advantage, and firm performance. Competitive advantage in this research was configured as a

mediator to determine the firm performance. In conclusion, this chapter outlined the details of the

research design. The measurement for each variable, data collection and analysis methods were

highlighted and explained. The challenge was to collect the data, analyse and interpret the data in

a correct and meaningful way as to give this study a real meaning in investigating the problem

statement of the present study.

23
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