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Determinants of Export Intensity in Malaysian Manufacturing

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Nur Aziha

on 6 June 2014

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Transcript of Determinants of Export Intensity in Malaysian Manufacturing

Thursday, May 22, 2014
By: Nur Aziha Mansor@Noordin
Determinants of Export Intensity in Malaysian Manufacturing SMEs: A Firm-Level Analysis
Export Intensity &
Firm Specific Characteristics
Export Intensity & Manufacturing
Sub-sector Characteristics

Problem Statement
Model Specification
Explanation of Variables
Data Sources
Data Limitation
Descriptive Analysis
Export Intensity & Firm
Specific Characteristics
Export Intensity & Manufacturing Sub-sector Characteristics
Monopolistic Competition Market
Oligopoly Market
Main Findings
Firm Specific Characteristics
1) All firm specific characteristics variables contribute to SMEs’ export performance.

2) The diversification strategy can be a tempting strategy to the Malaysian manufacturing SMEs

3) The manufacturing SMEs can increase their exports without expanding the size of employees or being longer in the sector as long as they are able to enhance operating efficiency
Sub-sector Characteristics

1) All sub-sector characteristics can influence the exporting performance of SMEs.

2) Sub-sector export intensity clarified that the collective export performance in a particular sub-sector certainly affects the firm-level export intensity

3) The higher the sub-sector concentration, the more successful the firms are in the worldwide

4) Sub-sector size produces negative export performance as the number of firms increase
Local Market Competition
1) Monopolistic competition market:
- All firm specific characteristics influence export performance.
- Only sub-sector export intensity contribute to the SMEs export
- Must prepare themselves to be more competitive by exporting diversified product to various markets to ensure survival in the highly competitive export market

2) Oligopoly market :
- Product diversification have no impact on export performance
- None of sub-sector characteristics contribute to the SMEs export
- Have to serve many international markets in maintaining high export performance and no need to diversify the output in order to intensify exports (well known with the product offered)
1) Government should identify new international market & facilitate SMEs exporter to enter the markets

2) Government should encourage and provide incentives for the SMEs to design and manufacture more marketable product.

3) The product diversification strategy : Avoid the dependency of SMEs on one product. The failure of one product in the global market can be backed up by other products.

4) By profiling the firms the Government able to identify which firm’s characteristics should be focused. For example; if a firm run a business in a sub-sector with medium to high concentration or in oligopoly market, product diversification is not the best choice to promote export. It is better for the Government to assist the firm to diversify its export market.
1) Managers should study the characteristics of their firms as well the sub-sectors they involved in.

2) The decision to expand the business size by employing more workers should be considered.

3) The long-established SMEs in the manufacturing sector are not necessarily good export performers.

4) For that reasons, to access business opportunities in the global market; managers should explore new international market by building client networks and exporting multiple saleable product by investing in the value creation R&D activities.

5) At the same time, managers should really understand their local market competitiveness before any strategy taken.
1) The sampling frame limits the confidence in generalizing the results to the entire population but at least the study can be the basis for the future researches.

2) A more comprehensive database would provide for greater confidence on those firm and sub-sector characteristics which are the function of export intensity and which are more likely to predict export performance.

3) The study on single-sector i.e. manufacturing may limit the ability to apply the findings to the firms in different industries.

4) Only focused on a one-year period.
1) Extend to other industries like services, agriculture, construction etc.

2) Broadens the model to multiple countries at least Asian countries so that generalizations of export performance theories can be assessed.

3) With multiple countries’ data, future researchers also enable to do meaningful comparisons since the firm and sub-sector characteristics may vary across countries.

4) The key determinants of exporting activities can be widened such as:
- managers’ educational level
- level of information and communications technology used
- firm location either in capital city or countryside
- amount spend on marketing and R&D, and many more.
Export value
Market diversification
Product Diversification
Sales value
Firm size
Firm age
The firms were matched by using business registration number that issued by Companies Commission of Malaysia (SSM)
1) In some cases, the exporters did not fill in correctly the registration numbers in Custom declaration form. Therefore the mapping process cannot be done for those particular firms.

2) Coverage of the trade data in 2009
In 2009, on average Malaysian manufacturing SMEs:
1)Export 25.5% of their sales to overseas
2)Market to 4 countries with a mix of 5 products.
3)Employ about 55 persons per firm
4)Exist in manufacturing sector about 17.3 years.
5)Garnering to 39.3% of market share in term of local market competitiveness (the largest four firms in sub-sector).
6)Export 29.8% of sub-sector sales to abroad.
7) Operate with 64 firms in one particular sub-sector.
- No substantial multicollinearity problems.
- None of the variables should be dropped from the model
- To cater heteroskedasticity problem that appear in the regression
- White test was conducted
- Robust standard errors had been used in this study.
- Small and medium enterprises (SMEs) - play a vital role in the Malaysia's industrialization program.

-Various programs and incentives - provided by government

- There are several government supporting agencies that offered business support and export assistance program like SME Corp. MATRADE, MIDA and EXIM Bank.

- Currently in Malaysia, the SME definition has been revised. Effective 1 January 2014, more firms will have opportunities to participate in SME support programs.

1) To investigate the relationship between firm-level export intensity and firm specific characteristics (export market diversification, product diversification, firm size and firm age).

2) To investigate the relationship between firm-level export intensity and manufacturing sub-sectors characteristics (market competition/ concentration, sub-sector export intensity and sub-sector size)

Export performance:

1) Malaysian SMEs do not portray an excellent performance even 97% of establishments in Malaysia are SMEs.

2) According to SME Annual Report, the contribution of SMEs export to the total export was:
- 18.9% in 2003 (SME Annual Report, 2005)
- 19% in 2005 (SME Annual Report, 2007)
- Target (became the national agenda): 22% in 2010 (SME Annual Report, 2008).

3)But yet, the latest data on SMEs exports still not published even in the latest SME Annual Report 2012/ 2013.
1) The ability to sustain in the international markets has become more critical in the recent years given the current global economic downturn.

2) Along with government support and globalization, some Malaysian SMEs have already involved in exporting and have a strong export based.

3)However the share of SMEs to total exports is only around 20%, lower than many other countries such as China, Korea, India, Hong Kong, and Taiwan (The Standard Chartered Bank Special Report, 2010).

4) The report emphasized SMEs in Taiwan and China appears to be more export-oriented compared to SMEs in Malaysia.

5) The big question is; why some Malaysian SMEs export a larger percentage of their total sales than others, although they are operating in the same manufacturing sector?

6) Do firms with different levels of export differ in terms of firm characteristics?

7) Are firm’s levels of export depending on the underlying sub-sector that they are operated in?
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