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

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Progress in Business Innovation & Technology Management

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External Environment Factors Influencing the Technology Adoption-Diffusion Decision in Malaysian Manufacturing Small Medium Enterprises (SMEs)
Murzidah Ahmad Murad* and John Douglas Thomson
Graduate School of Business and Law RMIT University, Melbourne, Australia E-mail: murzidah.ahmadmurad@rmit.edu.au 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

Email: murzidah.ahmadmurad@rmit.edu.au

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

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 of manufacturing 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) Kim and Galliers (2004) Santarelly and Daltri (2003) Scupola (2003) Customer demand Supplier perspective Business environment Global markets Dynamic market Competitors Suppliers Customers Sadowski, Maitland, Van Dongen (2002) Competitive pressure External support Incentives Market condition Competitors

Chengalur-Smith, Duchessi (1999)

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 Mr. A Mr. B Mrs. C Mr. D Position Project Manager Operations Director Managing Director Manager Responsibility regarding technology decides on certain company project and technology to use for the project decides what technology to be adopt for companys operations makes decisions on technology after discussions with the Executive Vice President of the company 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 achieve maximum 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 downturn over 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.

EXTERNAL FACTORS

Customer Competitors Economy Malaysian Government regulation

Innovation (Technology) decision process in Malaysian manufacturing companies

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 factors when 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.
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