internal factors for new venture growth in malaysian...

ISSN: 2232-0172 Vol 7 Issue 1, June 2018

pp. 83-103

A Contemporary Business Journal

Correspondence: M.V. Deepa, University Sains Malaysia, Malaysia. Email: [email protected]

Taylor’s Business Review, Vol. 7 Issue 1, June 2018 83

Internal Factors For New Venture Growth In Malaysian Manufacturing SMEs: An Empirical Study

M.V. Deepa Graduate School of Business (GSB), University Sains Malaysia

Gandhinathan Annamalai Northern Corridor Implementation Authority

© The Author(s) 2016. This article is published with open access by Taylor’s Press.

Abstract: Small and Medium Enterprises (SMEs) play an important role in the economic growth of nations. Despite the increasing number of SMEs, many firms find it difficult to survive beyond the first five years. New venture firms face many challenges in today’s globalized world. The purpose of this research is understood the internal drivers for new venture growth in Malaysian Manufacturing SMEs. The findings of this empirical study show that less innovation strategy and market disorientation were negatively influencing the new venture growth in Malaysian manufacturing SMEs. While companies have no control over the external factors, by focusing on the internal factors that enhance growth, companies can work towards surviving, sustaining and enhancing firm performance.

Keywords: New venture growth, internal factors, Manufacturing SMEs

1. INTRODUCTION

In the 21st Century, industrialization plays a key role in the economic growth of nations. Globalisation and rapid growth of technology have paved way of many entrepreneurial ventures and start-up companies(Kirkley & Kirkley, 2016). Small and medium-sized enterprises (SMEs) provide employment opportunities, lead innovation and propel economic growth (Ipinnaiye, Dineen, & Lenihan, 2017; Rigtering, Kraus, Eggers, & Jensen, 2014). Ninety-seven percent of business establishments in Malaysia are small and medium enterprises (SMEs). SMEs are responsible for nearly 36% of the country’s GDP, 65% of the country’s employment, and nearly 18% of Malaysia’s exports. As the pillar of Malaysian economy SMEs will accelerate economic growth and propel Malaysia into a developed high income nation by 2020 (Dai, Maksimov, Gilbert, & Fernhaber, 2014). The Government’s goal is for SMEs to contribute to 41% of Malaysia’s GDP and 23% exports by 2020 (Worldbank, 2016).

M.V. Deepa & Gandhinathan Annamalai


Growth of new venture businesses varies from that of larger established companies. It is of academic interest to understand the factors(internal and external) behind new venture survival and growth (Gilbert, McDougall, & Audretsch, 2006). Many companies are unable to sustain themselves over the long term and face problems and failures in their survival. SMEs across the globe have high failure rate within the first 60 months of being in operation. In a cross nation study, the SME failure rate for Australian SMEs was 23%, while more than 60% of Malaysian SMEs tend to wound up within 5 years of their existence (Ahmad & Seet, 2009). According to the 2014 annual report published by SSM (2014), the number of companies that closed down or filed bankruptcy from year 2012 to year 2014 has almost doubled, which is a very alarming state of affairs. During the fiscal year 2012, 17,092 companies closed down while the figures stood at 30,924 companies that closed down in 2014 as shown in Error! Reference source not found..

Table 1. Number of companies that have closed down from 2012 to 2014 Table 1. Number of companies that have closed down from 2012 to 2014 Year 2014 2013 2012 Companies wound up 1,744 2,581 2,419 Companies struck off (Section 308) 29,180 23,849 14,673

Source: (SSM, 2014) It is of high academic interest to understand the reasons for survival and

growth of companies. There is substantial amount of research available on the SME industry, discussing on success factors and beneficiaries of the SME industry in general. However, there have not been many research studies on internal drivers for new venture growth and the reasons for their successes or failures. Hence, it is critical to understand the internal factors that influence new venture growth for business sustainability and economic growth(Gilbert et al., 2006). A search of the literature on SMEs in Malaysia reveals that there is a gap in the study which examines the factors affecting performance of SMEs in Malaysia (Moorthy et al., 2012). The manufacturing sector is essential to innovation, technological progress, provide employment opportunities and is, thus, a key driver of economic growth (Ipinnaiye et al., 2017). In Malaysia, the manufacturing sector plays a key role in the economic development of country. Malaysia has been ranked as the world’s top manufacturing location in new suitability index by Cushman and Wakefield (Wan, 2016). The current study focuses on the manufacturing SMEs in Malaysia, which is considered to be a high value sector as well as being knowledge-based sector. Despite considerable academic attention on small businesses and their contribution to the economy over the last 30 years, our understanding of the drivers of business growth remains partial (Westhead & Wright, 2011). While considerable amount of research has been done on wide range of perspectives on topics related to SMEs and entrepreneurship, there appears to be little information on the internal factors



affecting new venture survival (Larrañeta, Zahra, & Galán González, 2014). The purpose of the current study is to understand the influence of internal drivers on new venture growth in Malaysian manufacturing companies.

2. LITERATURE REVIEW

Radzi, Shamsuddin, and Wahab (2017) have highlighted lack of financial capital, inadequate human resources, pace of technological advancement, difficulty to penetrate potential markets and competition from across the globe as some of the main challenges faced by Malaysian SMEs. Aziz, Rahim, and Bukhari (2017) in their research, emphasised the need to understand measures that paved way for small businesses to sustain and lead to new venture success. In studying a sample of small rural entrepreneurs in Malaysia, the external factors are more dominant than the internal ones in contributing to the business success (Kader, Mohamad, & Ibrahim, 2009). However, the scope of this study will focus on other internal factor prevalent in literature in related settings, as these are controllable by the firms. While the SMEs do not have any means to influence the external factors, it is vital for Malaysian SMEs to understand the internal factors that influence business growth (Moorthy et al., 2012). New venture SMEs play a major role in economic growth by creating jobs, triggering innovation and encouraging entrepreneurial skills (Ipinnaiye et al., 2017). Despite the economic contribution of SMEs and new ventures, the probability to wind up within first few years of operation is high. We must admit that young companies are fragile and the failure rate of start-ups remains high over time (Coad, Frankish, Roberts, & Storey, 2016). Most often than not, new ventures face difficulties in adopting to market conditions and managing their resources (Täuscher & Abdelkafi, 2017). When compared with established firms, new ventures face more uncertainties and their survival becomes questionable in the absence of growth (Larrañeta et al., 2014). While established businesses focus on sustaining their growth, new venture businesses primarily focus on survival and avenues for growth (Glowik & Sadowski, 2014). The new venture growth literature has primarily discussed why some ventures grow while others fail. However, the literature has largely disregarded the manner in which the growth has been attained (Kirkley & Kirkley, 2016). Surviving, registering growth and staying competitive is a big challenge to both SMEs and established firms (Wang, Thornhill, & De Castro, 2017). The decisions entrepreneurs make in the venture’s early years have profound long-lasting implications for performance (Yamakawa, Peng, & Deeds, 2015). Growth can occur in many different aspects of a firm’s operations, such as its cash flow, net income, customer base, sales, employment, and market share (Umrani, Johl, & Ibrahim, 2017). Different new venture businesses measure growth in varied



ways. However, most research studies have sales, market share and number of employees to measure growth in new venture firms (Gilbert et al., 2006).

An increasing number of new venture firms are internationalizing their business operations early in their life cycles (Fernhaber, 2013). Internationalization is a major element of a firm’s growth (Dangi, Ismail, Johari, & Noor, 2017). Schulz, Borghoff, and Kraus (2009) argued that most of the SMEs involved in internationalization generate their earnings more in global markets rather than in their home countries. In recent years, attention has begun to shift towards better understanding of the implications for new venture internationalization on performance (Love & Roper, 2015). Multiple studies have concluded a positive relationship between internationalization and performance (Khavul, Pérez-Nordtvedt, & Wood, 2010). A study by Coeurderoy, Cowling, Licht, and Murray (2012) found a positive, linear relationship between new venture internationalization and survival. According to Sleuwaegen and Onkelinx (2014), firms starting to internationalize early show superior growth rates in international markets. Running a business without any external capital (financing) shows that the business is in a good financial condition. External financing may increase the risk of bankruptcy due to inability to settle the debt within agreed period. Capital is the key element in both strength and weakness among SMEs. Running the business without any external capital (loan) reduces the financial risk of the business. Research also revealed capital insufficiency is the crucial problem among SMEs, which might be due to the difficulties to obtain external fund. Although the results should be taken with caution, nevertheless financial management is vital in order to face new business challenges as well as for the survival of the business in the future (Salikin, Ab Wahab, & Muhammad, 2014).

Start-ups traditionally rely on insider finance as it is harder to obtain external finance (Fraser, Bhaumik, & Wright, 2015). Carpenter and Petersen (2002) examined a large panel containing over 1600 small manufacturing firms and results indicate that the growth of most small firms is constrained by the availability of internal finance. Financial capital provides the flexibility needed to support the firm’s strategic endeavours (Love & Roper, 2015). The growth rate of small firms depends upon the availability of internal finance. Lack of financial support and access to internal finance is a major problem to low new firm creation, survival and growth (Olawale & Garwe, 2010). Studies for smaller firms also suggest that internal funding was more important for growth in smaller firms than for larger companies (Brinckmann, Salomo, & Gemuenden, 2011). New venture team attributes have been identified as critical resources for new venture growth and success (Unger, Rauch, Frese, & Rosenbusch, 2011). The competencies of entrepreneurial team are a unique, valuable, and difficult to imitate resource that can provide the basis for new ventures’ competitive advantages and enables new ventures to discover and exploit opportunities, plan strategies, and acquire additional resources. The education, experience, knowledge, and skills of new venture team is likely to



positively affect new venture performance (Jin et al., 2016). Prior industry experience provides new venture teams with knowledge of markets, suppliers, and industry conditions, and it has been found to have a significant relationship with new venture success (Rauch & Rijsdijk, 2013). Literatures revealed that competency are positively related to venture growth (Jin et al., 2017).

An important factor contributing to the success of new ventures is the level of their innovativeness (Taghizadeh, Rahman, & Ramayah, 2017). Because of the extreme international competition, demanding and fragmented markets, and fast changing technologies, innovation has been considered as one of the utmost factors of new venture firms’ success (Shapiro, Tang, Wang, & Zhang, 2015). Innovation has been considered as the most critical source of strategic change within the business environment, which helps firms to sustain in the marketplace. SMEs have a positive relationship with innovation and firm performance (Sun & Du, 2011). According to Umrani et al. (2017) new venture enterprises need innovation to create new markets, to increase product quality, expand product range, reduce labour costs, improve production processes and materials; reduce environmental damage and energy consumption; and replace products or services. The positive role of firm innovativeness on firm performance has been supported by many theoretical and empirical studies of new product developments, technology adoption and diffusion, process improvement, and innovation (Keskin, 2006). Market orientation refers to the organization wide generation, dissemination, and responsiveness to market intelligence (Martin & Javalgi, 2016). According to Mokhtar, Yusoff, and Ahmad (2014), market orientation is an important internal influence and has been shown to have a positive relationship to organizational performance. In a study of 170 SMEs from various industries in Sabah, Malaysia, Hassan and Sulaiman (2016) noted that market orientation has a significant relationship with SMEs success. According to Kader et al. (2009), business positioning and market orientation is very important internal factor in ensuring business success among SMEs. Munoz, Welsh, Chan, and Raven (2015) in a study on factors affecting microenterprise success in Malaysia commented that marketing orientation would help new ventures predict business performance.

3. CONCEPTUALIZED RESEARCH FRAMEWORK

Based on the literature review, a conceptualized research model is proposed for this study and is presented in Figure 1. This research model is supported by market based view and resource based view theory. The independent variables of the study are business positioning, capital investment, entrepreneurial ability and marketing knowledge. The dependent variable is new venture growth.



Figure 1. Conceptualized Research Framework

4. HYPOTHESES DEVELOPMENT

According to Mokhtar et al. (2014), market orientation is an important internal factor and his study has shown to have a positive relationship between market orientation and firm performance. All businesses require financial resources in order to grow. Lack of internal funds can be a constraint on business growth (Cassar, 2004). Internationalization is a major element of a firm’s growth (Chelliah, Sulaiman, & Yusoff, 2010). Innovation is key to organisational growth (Love & Roper, 2015). According to Rao, Chandy, and Prabhu (2013), innovation strategies of new ventures influence firm performance. Human capital attributes have been identified as critical resources for new venture success (Unger et al., 2011). According to Jin et al. (2017), new venture team competencies positively influences new venture performance. From the conceptualized research model, the research hypotheses for this study are formulated. Previous empirical findings pertaining to the relationships among the study variables are presented to support the proposed hypotheses. The research hypotheses for the current study are postulated to answer the research questions of the study as stated in the first chapter. There are five hypotheses that are to be tested in this study which include five predictor variables (independent variables).



Hypotheses Statement of Hypotheses

H1 Internationalization positively influences new venture growth in Malaysian manufacturing SMEs

H2 Internal financing constraint negatively influences new venture growth in Malaysian manufacturing SMEs

H3 New Venture Team Competencies positively influences new venture growth in Malaysian manufacturing SMEs

H4 Less Innovation Strategy negatively influences new venture growth in Malaysian manufacturing SMEs

H5 Market disorientation negatively influences new venture growth in Malaysian manufacturing SMEs

5. RESEARCH METHODOLOGY

The proposed study has adopted a quantitative research approach using the mail questionnaire survey recommended by Sekaran and Bougie (2010). The primary data has been gathered and compiled specially for the research at hand. A cross-sectional approach has been utilised in this study. In this study, the relationships between the independent and dependent variables have been examined, hence making this study a correlational investigation. The population of this study consists of manufacturing SMEs in Malaysia, which have listed in business directories published by SME Corporation Malaysia and Federation of Malaysian Manufacturers. Any manufacturing SME registered with SME Corporation Malaysia and who obliged to participate in the survey formed the sample for this study. For the purpose of this study, questionnaires were mailed to SMEs in four major locations namely Penang, Johor Bahru, Selangor and Kuala Lumpur. The minimum sample size required to apply PLS–SEM is about 50 respondents. As part of data collection, 700 questionnaires were mailed in July & August 2017, to manufacturing SMEs in the four major locations in Malaysia based on non-probability quota sampling. The questionnaire was mailed with self-addressed envelope to companies based on the listing available with SME Corporation Malaysia. The target participants of the questionnaire were members of the senior management who represented the SME companies with knowledge about new venture growth. 65 responses were obtained, which achieves a 9.7% response rate. The data collected for this research were analyzed using two statistical softwares; IBM Statistical Package for Social Sciences (SPSS) version 23 and Smart Partial Least Squares (SmartPLS) in Structural Equation Modelling (SEM) version 3.0. SPSS was used to analyze and summarize



the respondents’ demographic profile whereas SmartPLS was used to examine and conclude on the hypothesis developed in the earlier chapter based on the theoretical framework and its variables.

6. SIGNIFICANT FINDINGS AND RESULTS

Close to half of the respondents are SMEs located in Selangor (43.1%), followed by about one third of the respondent SMEs from Kuala Lumpur (30.8%). About 11 (16.9%) companies responded from Penang. There were a handful of six (9.2%) SMEs that responded from Johor Bahru. There were 20 SMEs (30.8%) which have been established for the past 3-4 years. Slightly more than one fourth (27.7%) of the companies that responded have been around for 5 – 6 years. 15 (23.1%) companies that responded for the current study have been in existence for 7- 8 years. There were 12 (18.5%) SMEs that are newbies in the industry with less than two years presence. About one third (33.8%) of the companies had 76-125 employees, while 18 (27.7%) companies had 26 – 75 employees. One-fourth (24.6%) of the SMEs who participated in the survey had 126 - 200 employees. Very few respondent companies accounting to 9% had less than 25 employees who worked for them. While 30 (46.2%) respondent firms had annual net revenue of RM 5 million to RM 25 million, 13 (20%) respondent firms reported annual net revenue lesser than or equal to RM 5 million. About 22 (33.8%) companies reported annual net revenue of more than MYR 25 million. Of the companies that responded, 28 (43.1%) SMEs that responded were Private Limited Companies. About 12 (18.5%) companies were partnership firms followed by 11 (16.9%) companies as joint venture; eight (12.3%) companies had limited liability partnership and six (9.2%) firms held sole proprietorship. In terms of position held by the representatives of the company, 20 (30.8%) were chief executive officers, 16 (24.6%) respondents were senior vice presidents, 12 (18.5%) respondents are vice presidents, eight (12.3%) respondents are Chief executive officers, seven (10.8%) respondents were Managing directors. The other group with two (3.1%) respondents included chief financial officer and director one each. About 15 (23.1%) respondents were electrical and electronics manufacturers, seven (10.8%) respondents each were from Food & Beverage products and palm oil & products followed by six (9.2%) companies from Rubber industry. Petrochemical products, textile & apparels and machinery& engineering sub sectors each had five (7.7%) respondents who participated in the survey. Metal & metal products; paper, printing & publishing and plastic products had three (4.6%) respondents each. Wood & wood products and leather subsectors had two (3.1%) companies who participated in the survey. Footwear and construction related material subsectors had one (1.5%) respondent each who participated in the survey.



The respondents of the current study rated the average scores from 4.36 to 2.82 out of 5.00 for the independent variables and an average of 5.61 out of 7.00 for the dependent variable. However, mean values of all the variables have been found to be above the midpoint 2.50 and 3.50 for Likert scale 1-5 and 1-7 respectively. Among the variables measured on Likert scale 1-5, market disorientation has the highest mean score of 4.46 with a standard deviation of 0.429, which reflects high agreement among the respondents. On the other hand, lack of internal financing has the lowest mean value of 2.82 with a standard deviation of 0.651, indicates that the respondents have slight differences in their opinions. Since, the standard deviation is less than one for all independent variables, there is more personal agreement (with less variation) among the respondents. The dependent variable, new venture growth (NVG), measured on a 7-point Likert scale has a mean value of 5.61, well above the average of 3.5 on a 7-point Likert scale. Interestingly, the study sample reflected new venture growth amongst Malaysian manufacturing SMEs. The VIF for each latent variable was less than 5, collinearity among the predictor variables is not an issue in the structural model, and we can go ahead with further analysis. The analysis was carried out to assess the extent to which data was subjected to common method bias of the respondents. In the present study, 31 components were extracted for 31 question items of the model variables using principal component analysis in the first factor run. The 31 extracted had Eigen value more than one and the total variance explained by the 13 factors (whose Eigen value is greater than one) was 81.519 percent and is well above the prescribed specification of 50 percent. Since a single factor did not emerge and the first factor did not account for most of the variance, this study concludes that the common method bias was not a major concern. The respondents were able to understand the questions well and respond without any bias.

This study applies Partial Least squares (PLS) using Smart PLS Version 3.0 and non-parametric bootstrapping (Wetzels, Odekerken-Schröder, & Van Oppen, 2009) with 5000 replications. First to be analysed was convergent validity which comprises a latent variable, main loadings, and question items, Composite Reliability (CR) and average variance extracted (AVE). The main loading for each question item is above the cut-off point of 0.5 in the present study, as the main loading ranges from 0.949 to 0.648. 10 question items were deleted due to main loading less than 0.708 for any further analysis. The Average Variance Extracted (AVEs) value ranged from 0.796 to 0.599. All independent variables had Cronbach alpha greater than 0.80 as shown in Table 2, thereby satisfying the rule of thumb recommended by Hair, Ringle, and Sarstedt (2013). The Cronbach alpha value for DV is slightly less which could be improved by including more samples.



Table 2. Measurement Model of VB-SEM (n=65) Latent Variable Indicator

(Question items)

Main Loading

AVE Composite Reliability

Cronbach's Alpha

Internal Financing Constraint

IF1 0.678 0.640 0.898 0.857 IF2 0.720 IF3 0.832 IF4 0.860 IF5 0.888

Internationalization INT2 0.944 0.796 0.921 0.879 INT3 0.865 INT4 0.866

Less Innovation Strategy

IS2 0.814 0.644 0.877 0.828 IS3 0.761 IS7 0.919 IS8 0.699

Marketing Disorientation

MO1 0.785 0.606 0.859 0.790 MO2 0.845 MO3 0.807 MO4 0.665

New Venture Growth

NVG1 0.648 0.599 0.815 0.667 NVG2 0.772 NVG5 0.884

New Venture Team Competencies

NVTC4 0.949 0.794 0.885 0.758 NVTC5 0.829

In discriminant validity assessment, the researcher has to examine the HTMT

ratio for every construct compared to other constructs. The values of the ratio for the intersection between two or more constructs are shown in Table 3. The result shows that every value is below 0.90. Nevertheless, the value is seen as valid if it is below 0.9 (Henseler et al., 2015). Thus, the HTMT ratio criterion is fulfilled. This present research inferred that discriminant validity is established since all discriminant validity measurements are satisfied. Overall, the measurement model demonstrated adequate convergent validity and discriminant validity fulfilling the construct validity for the measurement model of PLS.



Table 3. Discriminant Validity of measurement model-Heterotrait-Monotrait Ratio (HTMT) Latent variable IF INT IS MO NVG NVTC Internal Financing Constraint Internationalization 0.202 Less Innovation Strategy 0.138 0.156 Marketing disorientation 0.160 0.317 0.545 New Venture Growth 0.280 0.131 0.491 0.509 New Venture Team Competencies 0.346 0.179 0.184 0.168 0.319

The coefficient of determination R2 values of the endogenous variables lies

between 0 and 1 with 0 as complete lack of fit and 1 as perfect fit (Chin, 2010). For the current study, the independent variables together influence on the dependent variable (new venture growth) to the extent of R2 = 0.296 as shown in Figure2, which shows that the PLS model reasonably fits well for the data. The Q2 value was obtained by using the blindfolding procedure and in the current study, the predictive relevance Q2 for all endogenous construct (new venture growth) is greater than zero as shown in Figure 3, which implies the model has predictive relevance for all endogenous variables.

Figure 2. PLS-Path analysis of R-square values (n=65)



Figure 3. Blindfolding (DV) (Q2=0.082>0)

The results as shown in Figure 4 and Table 4 indicated that there were two direct effects which were negatively and significantly influencing on new venture growth (Dependent Variable) and they were less innovative strategies (β=-0.258, p<0.05) and market disorientation (β=-0.321, p<0.05). Whereas, the other direct effects of internationalization (β=0.195), internal financing (β= -0.152), and new venture team competencies (β= 0.000), on new venture growth were not significant as such, H4 and H5 were supported, whereas H1, H2 and H3 were not supported.

Table 4. Summary of PLS results: Direct effects

Hypothesis Path β value Standard Error t Statistic p Value Decision

H1 INT -> NVG 0.195 0.171 1.142 0.253 Not Supported

H2 IF -> NVG -0.152 0.159 0.955 0.340 Not Supported

H3 NVTC -> NVG 0.000 0.169 0.001 0.999 Not Supported

H4 IS -> NVG -0.258 0.124 2.085* 0.037 Supported

H5 MO -> NVG -0.321 0.169 1.894* 0.058 Supported Note: *p<0.05, t>1.645; SE: Standard Error



Figure 4. PLS output for testing population regression coefficients (t-values)

7. DISCUSSIONS

Despite the various measures taken by government agencies and SME Corporation to ensure the sustenance of SMEs, only 32.31% of the surveyed 65 Malaysian manufacturing SMEs considered themselves to be have growth in their new venture business. This clearly brings to light the need for new venture businesses to understand the internal and external factors that can help companies to survive and grow. In comparison to large corporations and established firms, new ventures face multiple challenges to start the business, survive and grow. The establishment of a new venture is a cumbersome process right from obtaining finance to marketing the product. Unlike established firms, new venture firms face myriad of obstacles to finance their ideas. With little or no business achievement to back them up, new venture SMEs face difficulties in borrowing money to fund projects and build their credibility with banks or venture capitalists. Firms that are able to sustain themselves with alternative methods of financing like internal financing are in a better position to survive and grow. The relatively low number of firms reporting growth could be because competition among SMEs is very high. While new venture businesses try to capture the market through new product development, exploring new horizons,



stiff competition from other SMEs and established firms, makes it all the more difficult for new venture firms to grow.

Business ventures with creativity and innovation survives the most, others have limited options to survive and grow in the market place. The increasing labour costs and lack of modernized technology to keep up with the rapid pace of development is being a hindrance for new venture growth. Another key factor to note is the limited resources available to new venture firms. Most often than not there is a shortage of manpower, funds, technical skills and so forth making it difficult for new ventures to grow. The findings of the study indicate that market disorientation negatively and significantly influences new venture growth in Malaysian manufacturing SMEs. The survey respondents strongly agreed that the inflexibility to adapt to rapidly changing external conditions lead to market disorientation with average mean score of 4.48 on a 5-point Likert scale. The lack of emphasis on studying the market environment was highlighted as the next important factor that leads to market disorientation with average mean of 4.46 on a 5-point Likert scale. Respondents have scored relatively low with average mean of 4.15 on the question item discussing the time taken by new ventures for new product launch. Respondents opined that failure to capitalize on first mover advantage can lead to market disorientation by scoring average mean score of 4.37 on a 5-point Likert scale. New venture firms are not sure of the market and are unable to predict the market place. The results reflect that new venture SMEs have limited knowledge compared to established SMEs and MNCs. There is also less information sharing amongst new ventures. The lack of information diffusion is creating challenges for new venture growth. Information exchange amongst SMEs is not prevalent. There is less collaboration among the new venture firms. At times, new venture firms tend to grab the opportunities of other new venture firms, thereby subduing the overall growth of new venture firms.

It is worthwhile to mention that less innovation strategy negatively and significantly influences new venture growth in Malaysian manufacturing SMEs. New venture businesses require innovation to some extent for new product development. The respondents surveyed for this study have opined that if routine work is done exemplarily firms can grow even with little innovation. The results reflect that innovation is not a hindrance to growth and generally there is an over emphasis on innovation by market players. The survey respondents felt new creative ideas do not help customers grow with highest average mean score of 4.54 on a 5-point Likert scale. This was supported by scoring average mean of 4.49 in favouring that innovative ideas are not quickly implemented by new venture businesses. The SMEs surveyed have responded that problems arising in new venture businesses are solved using creative solutions only to a limited extent with average mean score of 4.45. In new venture businesses, the respondents favoured that innovation is not viewed as key to organizational survival with average mean score of 4.22. The survey respondents felt that continuous innovative improvement



on daily business activities is not essential for new venture business with average mean score of 4.20. The respondents favour less the need to be first in market with new products with average mean score of 4.18 on 5-point Likert scale. The minimum average score of 3.22 was given for question regarding using creative methods in daily operations. Probably new ventures focus on running their business rather than placing emphasis on innovation and creativity.

The survey findings indicate that internationalization did not positively and significantly influence new venture growth. New venture firms are interested but are not able to nurture international markets maybe due to funding issues, product considerations or business positioning strategies. While new venture businesses have interest in internationalization strategies, they might face funding problems to grow their business in international markets. In addition, new venture SMEs at times have to play the supporting role of doing sub contract activities for large MNCs where opportunities to grow internationally is sparse. The respondents of this survey highly favoured the use of both personal and business networks at the international level to grow business with average mean score of 4.09 on 5-point Likert scale. To some extent respondents agreed that growth target has been achieved through internationalization with average mean score of 3.75. The survey respondents also agreed that previous experience of internationalizing business ventures come in handy with average mean score of 3.55. The SMEs who participated in this survey favoured less the need to go global from inception with low average mean score of 3.52. Surprisingly, internal financing constraint had no positive significant influence on new venture growth in Malaysian manufacturing SMEs. The results clearly show that SMEs found internal financing to be insufficient to do business and systems are not supportive for funding new venture businesses. While internal financing can grow the business at a small level, it is insufficient to grow beyond a point and SMEs require the support of external financing. The government agencies and banking system should encourage new ventures to grow by providing them financial viability. All the questions on internal financing constraint received low scores. The impact of initial financial resources on new venture growth had the highest average mean score of 2.49 on a 5-point Likert scale. The survey respondents have expressed that initial capital constraint hinders performance with average mean score of 2.48. The SMEs who participated in this research survey have given very low scores for the difficulties in procuring loans and difficulty to sustain business without external finance. New venture team competencies were not found to be positively and significantly influencing new venture growth. One of the main reasons for this could be that leveraging on competencies of NVTs is still in a primitive state in Malaysia. SMEs need to create an environment to groom new venture team competencies. In addition, competency is a very subjective term and more studies are required to understand the impact of new venture team competencies on new venture growth. A competency index for SMEs will be a useful guide. In the current survey conducted, respondents rated the



pivotal role of the new venture team in scanning & selecting opportunities as most important factor with average mean score of 4.54 on a 5- point Likert scale. The respondents agreed on the business networking skills of new venture teams to ensure business survival. The SMEs surveyed for the survey acknowledged that functional expertise of new venture teams adds value to new venture growth with average mean score of 4.26. Interestingly, the respondents gave low ratings on prior industry experience (average mean score of 3.38) and professional experience (average mean score of 2.62) of new venture teams. There seems to be varied levels of agreement on these factors by the survey respondents.

8. CONTRIBUTIONS OF THE STUDY

As SMEs increasingly contribute positively to the growth of the Malaysian economy, it is essential to ensure the success of these new ventures by understanding the underlying factors that contribute to the new venture growth. There is a lack of empirical studies on new venture growth in Malaysian manufacturing SMEs. In new venture firms, there is increased chances of failure. This research initiative attempted to examine which internal factors influence new venture growth of Malaysian manufacturing SMEs. Pointing out the internal drivers can provide new ventures with critical information for improving their businesses by reducing the risk of failure and increase chances of success. The relevance of the study is to ensure that entrepreneurs and existing new ventures are aware of the internal factors that could cause a company to grow. This research has identified the internal factors, which influence new venture growth. In developing countries, there is high encouragement for start-up business and it is for the business people to grab the available opportunities. This study will also provide a guide line for the various stakeholders and policy makers so that they may develop practices to prevent SME failure in the country. The opinion expressed by the SMEs can be viewed as future direction for nurturing new venture projects.

9. LIMITATIONS OF THE STUDY

The study has contributed to the knowledge of influence of internal factors on new venture growth in Malaysian manufacturing SMEs. However, the study covers selected places in Malaysia like Selangor, Kuala Lumpur, Penang and Johor Bahru. More places in Malaysia were not considered due to practical difficulties in data collection. The number of years of establishment for a firm to qualify as potential new venture respondent for the study was fixed as eight years based on literature



review. However, there is no standard demarcation on how to choose potential respondents for the study. Choosing younger firms might yield different results. The researcher encountered many difficulties in collecting primary data owing to the voluntary participation of the SMEs.

10. SUGGESTIONS FOR FUTURE RESEARCH

The research model of the current study can be applied to other SME sectors in Malaysia. A comparative study of manufacturing firms and service firms will throw more light on the differences in the relationship among the identified internal factors for new venture growth. Similarly, the external factors influencing new venture growth in Malaysian manufacturing SMEs can be identified and the effect of external factors on new venture growth can be studied.

11. CONCLUSIONS

SMEs play vital role in the economic growth of many nations. However, many start-up ventures do not survive beyond the first five years and sustain to succeed. The current research extends the knowledge of new venture growth in Malaysian manufacturing SMEs by developing a research model, which provides deeper insights into the relationship between internal factors, and new venture growth. This study was conducted amongst Malaysian manufacturing SMEs registered with SME Corporation and which have been established during or after the fiscal year 2009. To the knowledge of the researcher, this is one of the first descriptions of internal factors influencing firm growth in Malaysian SME manufacturing sector. The major theoretical contributions of the present study are identifying the internal factors that negatively influence new venture growth in the Malaysian manufacturing SMEs using the Market Based View (MBV) and Resource Based View (RBV) theory. Overall, the study identifies the contributing factors to improve new venture growth and concludes that less innovation strategy and market disorientation negatively influence the new venture growth in Malaysian manufacturing companies.

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Dr. M.V. Deepa lectures in business management courses for postgraduate students at various private universities. Her primary research focus is in the areas of operational service quality with specific interest in airline service quality. Her research interests also include turnaround strategies, business performance and New Venture Growth of Malaysian SMEs.

Gandhinathan Annamalai is an Engineer by profession, currently attached to Northern Corridor Implementation Authority. His work focuses primarily on implementing projects liaising with SME companies. As part of his work, he was intrigued to research further on how to grow and sustain performance of start-up new venture companies in the SME segment.

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