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Progress in Business Innovation & Technology Management 001 (2011) 013-022

Email: [email protected]

External Environment Factors Influencing the Technology Adoption-Diffusion

Decision in Malaysian Manufacturing Small Medium Enterprises (SMEs)

Murzidah Ahmad Murad* andJohn Douglas Thomson

Graduate School of Business and Law RMIT University, Melbourne, Australia E-mail: [email protected]

Graduate School of Business and Law RMIT University, Melbourne, Australia

ABSTRACT

This paper is based upon an initial study that researches the external environment factors that may influence

technology adoption decision processes in Malaysian manufacturing Small and Medium Enterprises(SMEs).

The preliminary semi structured interviews were conducted with four managers of Malaysian manufacturing

companies to obtain their insights of topic. Their experiences and opinions of the external environment

factors that influence their decisions to adopt new technology into their business operations have been

gained for further research purposes.

2011 APBITM Society. All rights reserved.

Keywords: technology adoption, Malaysian manufacturing Small and Medium Enterprises (SMEs), external

environment factors

I. Introduction

The epistemology of technology diffusion and adoption is survival (Okada 2006; Bennet & Bennet,

2004). Competition and adaptation have been issues for any business entity to survive in the business world.

To understand the competitive environment of technology adoption decisions by a business entity, it is

necessary to look into the external factors that may influence the technology adoption decision.

Abdullah (2002) stated that one of the important issues in Malaysias economic growth is technology

adoption among Malaysian Small and Medium Enterprises (SMEs) to enable them to be more competitive

and survive in the global business environment. Kuan & Chau (2001) agreed that on SMEs abilities to

utilize technology can render it competitive and sustainable. Realizing the importance of technology

diffusion, the Malaysian Government has attempted to ensure the adoption of technologies which will

Contents lists available atProBITM

Progress in Business Innovation & Technology

Management

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Murzidah Ahmad Murad, John Douglas Thomson /Progress in Business Innovation & Technology Management 001 (2011) 013-022

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contribute efficiently and effectively towards the development of competitive Malaysian industries (The

Ninth Malaysian Plan, 2006).

However, Malaysian Government technology policy continues to focus mainly on encouraging

innovation and not on the diffusion of technology. Such policy leads to too little adoption of technology

(Rosnah, Lo & Hashmi, 2005). Malaysian manufacturing SMEs are aware of the potential benefits ofmanufacturing technologies. Unfortunately, these manufacturing companies lack of understanding of

specific ways in which technology can help their businesses (Rosnah, Megat & Osman, 2004).

Moreover, Zaya (2005) found that although manufacturing companies are aware of a wide range of

technologies, they only make use of a few of them. The argument is strengthened by Asgari & Wong (2007)

who identified that one of the barriers to industrialization is the lack of technology adoption by industry.

This research is concerned with industrial manufacturing technology used by Malaysian manufacturing

companies. In particular, industrial manufacturing technologies which includes machinery and equipment in

production operations. Industrial manufacturing technology can be the catalyst for Malaysia to become a

high-tech nation (The Ninth Malaysian Plan, 2006).

This research aims to provide an initial understanding of factors that may influence Malaysian

manufacturing companies technology decision process. For this papers purposes, the researcher is

examining the organizations external environment factors that influence technology adoption decisions in

four Malaysian manufacturing companies. Further research will be necessary to obtain thorough data

coverage of the issue.

II. Literature review

2.1 The innovation (technology)-decision process

According to Rogers (2003), the technology-decision process is the process through which an

individual (or other decision-making unit) passes from first knowledge of a technology, to forming an

attitude toward the technology, to a decision to adopt or reject or to implement the new idea, and to confirm

this decision. Rogers (2003) diffusion of innovation theory consists of five stages in the innovation-decision

process (Figure 1):

Figure 1. Model of stages in the innovation-decision process (Rogers, 2003; Damounpor, 1991)

From Figure 1, it can be seen that (Rogers, 2003, pp. 169):

1. Knowledge occurs when an individual (or other decision-making unit) is exposed to the innovations

existence and gains some understanding of how it functions;

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2. Persuasion (attitude formation) occurs when an individual (or other decision-making unit) forms a

favorable or unfavorable attitude toward the innovation;

3. Decision occurs when an individual (or other decision-making unit) engages in activities that lead to

a choice to adopt or reject the innovation;

4. Implementation occurs when an individual (or other decision-making unit) puts an innovation to use;and

5.Confirmation occurs when an individual (or other decision-making unit) seeks reinforcement of an

innovation-decision already made, but he or she may reverse this previous decision if exposed to conflicting

messages about the innovation.

These stages were summarized into two phases by Damanpour (1991):

1. Initiation; and

2. Implementation.

In the first phase, initiation, the firm considers the need to introduce the innovation, it researches for

information, training is carried out, resources are proposed, the process is evaluated and finally the decision

to adopt the innovation is made. In the second phase, implementation, first use of the innovation is made,

and subsequently organizational routines are modified appropriately.

Premkumar and Roberts (1999) consider five phases in the adoption process, which are similar to

Rogers technology-decision process. There consist of:

1. Awareness;

2. Persuasion;

3. Decision;

4. Implementation; and

5. Confirmation.

Coombs, Saviotti & Walsh (1987) suggest that the term diffusion relates to the level of adoption of

innovation. Adoption has also been considered as part of the diffusion process and a measure of its success

(Albors, Hervas & Hidalgo, 2006).

According to Ayres (1969), diffusion of a new technology is the evolutionary process of replacement of

an old technology by a newer one. Organizations that do not accept new technologies and do not alter

themselves to accept the new technologies will fall behind (Davidoff & Kleiner, 1991).

Rogers (1962) diffusion of innovation theory provides the initial foundation for this research.

2.2 External environment factors

The fundamental approach to study the adoption and diffusion of new technologies is the diffusion of

innovations theory (Rogers, 2003). The literature on adoption and diffusion of innovations has mostly

focused on the factors affecting adoption and diffusion. One of the factors that affect technology adoption

and diffusion includes the environment context (Scupola, 2003; Tonartzky and Fleischer, 1990). The

environment context includes the external actors and factors that affect a companys decision to adopt a

technology, either directly or indirectly. These may include customers, competitors, market, government or

economy. The external environment comprises the industry (suppliers and customers), the competitors, and

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dealing with regulatory bodies such as the government (Tonartzky and Fleischer, 1990). Scupola (2003)

stressed that the competitors, the suppliers and the customers can exert direct or indirect pressures on SMEs

to adopt new technology.

A summary of the external factors mentioned in the literature that affect technology adoption in

companies is shown in Table 1.

Table 1. External factors affect technology adoption

External factors

Burca, Fyner and Marshall (2005) Customer demand

Supplier perspective

Kim and Galliers (2004)

Santarelly and Daltri (2003)

Business environment

Global markets

Dynamic market

Scupola (2003) Competitors

Suppliers

Customers

Sadowski, Maitland, Van Dongen (2002) Competitive pressure

External support

Incentives

Chengalur-Smith, Duchessi (1999) Market condition

Competitors

Among the external factors relating to technology adoption, the researcher has found the following are

common:

customer demand; competitors; supplier perspective; dynamic market;

government support; and Government regulation.

III. Methodology

The data for this study was collected through semi-structured interviews to facilitate participants

ability to express their viewpoints more openly than may be the case with more structured interview

situations (Flick, 1998).

The participants were first approached by email to get their permission to interview them and set the

interview date. The participants who agreed to participate in the interview were contacted via telephone to

confirm their participation. The researcher visited the selected companies in Malaysia and interviewed the

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decision maker of each company to get an initial idea and data for further research. The interviews were

conducted face to face and digitally recorded. Prior to the interview session, the study was outlined more

formally, confidentially, anonymity confirmed and gave participants freedom to choose not to answer any

question. The participants then signed a consent form and gave permission for the interview to be digitally

recorded. Each interview lasted approximately 40 minutes.From the interview data, the researcher transcribed the digitally recorded interviews. In order to

facilitate a data analysis, the researcher used the following process: reading through the transcription and

examining all data (review data); coding the data; looking for themes and sub-themes (search and extraction);

interrelating themes and description; and interpreting the meaning of the themes and descriptions

(summarization)

IV. Results

4.1 Interviewee position and role on technology decision

The interviewees were asked about their position in the company (Table 2). They also were asked about

their role regarding making technology decisions in their company. It is important to ensure their

knowledge of technology and their authority in technology decision making.

Table 2. The role of the interviewee in the company regarding technology decision making

People Position Responsibility regarding technology

Mr. A Project Manager decides on certain company project and technology

to use for the project

Mr. B Operations Director decides what technology to be adopt for companys

operations

Mrs. C Managing Director makes decisions on technology after discussions

with the Executive Vice President of the company

Mr. D Manager decides what technology or equipment is to be used

in the company

4.2 Companies profile

Company one (C1) is a medium sized electronics based manufacturing company. C1 is a well

established supplier of security and convenience products to some of the worlds major retail and wholesale

companies. C1 offers specialized design, manufacturing, marketing, logistics and customer service.

Company two (C2) is a Malaysian-based medium sized electronic manufacturing company. C2

operations include grinding, slicing, lapping and polishing processes. C2 also offers value added contract

manufacturing and engineering services to clients across multiple industries.

Company three (C3) is a small sized oil and gas equipment manufacturing company. C3 specializes in

alternative technology solutions for its clients, leveraging on their network of business alliances to achievemaximum exposure to a technology and integrating the available products, services and resources to

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optimize the solution to its clients requirements.

Company four (C4) is small sized food based manufacturing company. C4 manufactures ice products

(ice block and ice cube) for both business and household purposes. C4 prides itself in its technological

competence in manufacturing ice products.

4.3 External factors that influence technology adoption and diffusion

A number of themes emerged consistently. The data has been organized into these themes. The

themes are discussed in an order suggested by the intensity with which participants explored them.

4.3.1 Customer

All the participants in the interview perceived that competitors influence their decision when adopting

technology into their company. Demand from customers influenced them to look into new product

development and operations which influenced them to adopt a new technology into their operations. One of

the participants (C4) stated that, I always look into the pattern of our customer. If the customer needs a new

product from us, I will consider investing into new operations and new technology.

Other participants (C1 and C3) agreed that customers influenced their technology decisions, We have

to consider the demand of the customer as well. If customer demand is less, then theres no point in adopting

new technology into our operations..We have to consider customer expectations and customer demand.

Demand from the customer gives effect for company (C3) to make a decision to develop a new product and

eventually to adopt a new technology into their operations, So, I would say the requirement has to be there,

the demand has got to be there. Creating the demand has to be there too.

4.3.2 Competitors

Malaysian manufacturing SMEs would like to be both different and competitive in the global

marketplace. In order to be successful in their marketplace, Malaysian manufacturing SMEs should give

some attention to their competitors. C2 mentioned that There is also the concern of the competitors. We

have concern of competitors especially the Chinese manufacturers. One of the ways to be different is to

strengthen operations and catch up with new technology. We always make sure that we are competitive in

the market by making sure our technology produces products that competitive in the market, C4.

Companies always strive hard to raise their competitive advantages by adopting new technology.

4.3.3 Malaysian Government regulation

All four companies agree that Malaysian Government regulation does not affect their decision to adopt

a new technology into their operations. Malaysian government regulation on technology does not give

much impact on our company.

C1 mentioned that, So far we dont face any problems with regulation because we dont have a direct

relation with the Malaysian Government since we are a private institution. We are 100% privately owned. So,

there is no direct link to the government fund. This is agreed by C3 who pointed out that Malaysian

regulation regarding technology is actually no hamper to any technology transfer or adopting decision.

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4.3.4 Economy

From the findings, there are similar perspectives from the participants about the influence of the

economy on their technology decision adoption. One of the participants said:

C1: Economy, yes it will affect our production as well. From this Global Financial Crisis downturnover the last one or two years, our production is down. So, we definitely dont want to spend on adopting

new technology into our operation during that period.

This is also agreed by C2, So, I guess external factors - for sure economy would be one thing. C4

confirmed that Economy crisis does impact our operation. This shows that Malaysian manufacturing

SMEs see that the ups and downs in national economy will bring pressure onto their technology adoption

decision processes.

However, only one participant mentioned that the economy did not really affect their business operation

and did not influence their decision to adopt new technology into their company. He said that:

C3: The recent economic crisis, we are not badly affected. Our operation is still operating as usual.

V. Discussion

Malaysian manufacturing SMEs always strive hard to be competitive and survive in the business world.

In order to survive in the business world, Malaysian manufacturing SMEs have to adapt to the rapid changes

in the business environment including adopting new technology to improve their operations. Previous study

suggests external environment factors could influence the technology adoption decision process (Burca,

Fyner and Marshall, 2005; Sadowski, Maitland, Van Dongen, 2002; Scupola, 2003; Tonartzky and Fleischer,

1990).

The initial interviews with four Malaysian manufacturing SMEs attempted to find the external factors

that may influence adoption of industrial manufacturing technology in Malaysian manufacturing companies.

The information obtained from this research found that external environment factors influence Malaysian

manufacturing SMEs technology adoption and diffusion.

The results of this study show that Malaysian manufacturing SMEs find there are four principal

external environment factors that may influence their decisions to adopt a new technology into their business

operations. The four external environment factors relating to technology adoption are:

customers; competitors, Malaysian Government regulations; and economy.The results of this research indicated that all factors in the external environment factors are important to

take into account. These factors have a noticeable impact on the decision to adopt new technology in the

manufacturing SMEs in Malaysia. They also show that external environment factors are important and may

influence Malaysian manufacturing SMEs decisions to adopt new technology into their companies.From this analysis and based on the literature study, the conceptual framework of external environment

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factors that may influence the technology adoption process in Malaysian manufacturing technologies is

shown in Figure 2. The initial findings of these factors are expected to assist the researchers in the next

phase.

Figure 2. Conceptual framework (Authors, 2010)

Consequently, the conceptual framework in this paper provides one of the elements for the model of

industrial manufacturing technology adoption-diffusion in Malaysian manufacturing SMEs. It is expected to

facilitate Malaysian manufacturing decision makers to consider and plan potential adoption of industrial

manufacturing technologies. This research is anticipated to provide further support for the innovation

decision process model developed by Rogers (2003).

VI. Conclusion

In conclusion, the research found that while diffusion of innovation research is supported in Malaysia,

external factors should be included as principal determinants of technology adoption. Malaysian

manufacturing companies should comprehensively understand external environment factors before making

decisions on technology adoption. Furthermore, the Malaysian Government should consider these factorswhen giving assistance to Malaysian manufacturing companies regarding technology adoption.

VII. Directions for future study

Future research and discussion will be conducted to explore thoroughly the factors that facilitate or hinder

technology adoption and diffusion. The researcher may also look into other innovation diffusion and

adoption models such as Technology Adoption Model (Davis, 1989), Interessement (Akrich, Callon&

Latour, 2002) and others. Further research will expand upon this study, investigating the related internal and

external factors, additional organizations across a range of industry sector categories and use quantitative

techniques to validate all factors.

EXTERNAL FACTORS

Customer Competitors Economy MalaysianGovernmentregulation

Innovation (Technology)

decision process in Malaysian

manufacturing companies

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