Business & Management Quarterly Review, 3(4), 12-31, 2012

ISSN 2180-2777

EXAMINING BUSINESS POTENTIAL AND GROWTH IN TEXTILE AND APPAREL

INDUSTRY: A CASE STUDY IN MALAYSIA

Norzaidi Mohd Daud, Noorazrin Izni Md. Nor, Norhayati Abu Bakar and Zunita Zubir
Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia

ABSTRACT

This article examines business potential and growth in textile and apparel industry in Malaysia. Based on
strategic management tools ABC Sdn Bhd is potential to be expanding and contribute to Malaysian
economic growth. This is probably the first that investigate textile and apparel industry in Malaysia using
extensive strategic management. The results provide insights on how the textile and apparel industry
could improve upon their business strategy.
Keywords: Business potential, growth, textile and apparel industry, Malaysia, case study

Background of Study
Textiles and Apparel industry
According to 3rd Malaysia Industrial Master Plan (MITI), textiles and apparel industry comprises two
main sub-sectors which are:-

(i) Textiles, which cover primary textiles, including activities such as polymerization, spinning,
weaving, knitting and wet processing;
(ii) Apparel, which include garments and clothing accessories (labels, buttons, zippers and packaging.

In 2011, the industry was the 10th largest export earner, contributing approximately 2.3 per cent to
Malaysia’s total exports of manufactured goods. Exports of textiles and textile products for the year 2011
were RM10.8 billion while imports amounted to RM6.6 billion. The main export items were yarn, woven
fabrics and apparels and imports were mostly yarn and woven fabrics. Malaysia’s apparel manufacturers
continue to maintain an excellent reputation for quality to meet high standards set by international
brands owner such as Nike, Adidas, DKNY, Tommy Hilfiger and etc. (MATRADE, 2012). New growth
areas in textiles industry have been targeted for promotion under the Third Industrial Master Plan
(IMP3). The growth areas for the industry include: industrial and home textiles; functional fabrics; high-
end fabrics and garments; ethnic fabrics; and key support facilities and services such as design houses and
fashion centers, specialized dyeing and finishing facilities, etc. Six strategic thrusts have been set for
further development of the industry during the IMP3 period (MITI, 2006). The thrusts include:

(a) Intensifying the promotion of investment in higher value-added textiles and apparel, including key
support services;
(b) Sustaining the market share in textiles and apparel and promoting exports of the targeted growth
areas;
(c) Intensifying regional integration of the industry;
(d) Enhancing domestic capabilities and facilitating the utilization of ICT and new technologies;
(e) Enhancing the skills of the workforce in designing production and marketing;
(f) Strengthening the institutional support for the further development of the industry.

During the Industrial Master Plan 2 (IMP2), the number of textiles and apparel companies
increased by 33.7 percent from 445 in 1996 to 595 in 2005 which is 253 was textiles companies and 342
apparel companies as shown in Table 1.
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Table 1: Number of companies in textiles and apparel in operation in 1996 and 2005

Number of Companies Change (%)

1996 2005 1996-2005
Textiles 164 253 54.3
Apparel 281 342 21.7
Total 445 595 33.7
Sources: Industrial Master Plan 2 (IMP2)

In 2006, the total export of textile and apparel amounted to RM10.6 billion, or the seventh largest
contributor to total value of manufactured exports of the country. Although the export share of textile and
apparel to the total exports has dropped from 3.5 percent in 1996 to 1.8 percent in 2006, its export value,
in fact, has increased. The exports of textile and apparel grew at a compound annual growth rate (CAGR)
of 4.1 percent, from RM6.8 billion in 1996 to RM10.6 billion in 2006. The major export markets for
Malaysian textile and apparel are United States, European Union, Turkey, and Canada. According to
MIDA, among the major Malaysian textile and apparel exporters are Penfabric, Penfibre, Ramatex, Pen
Apparel, Canteran Apparel, Tai Wah Garments, Sin Wah Industries, Hytex Apparels, Honsin Apparel,
Plas Industries and Esquel. The Malaysian export of textile and apparel accounted for approximately 2
percent of the world textiles and apparels trade. Import of textiles and apparels, mainly from China,
Taiwan, and Japan, have increased by an average annual growth rate of 2.5 percent, from RM4.1 billion in
1996 to RM5.4 billion in 2006. The main factor for import of raw materials, mostly textile yarns, woven
and knitted fabrics, was mainly due to the shortage of local supplies, both in quantity and quality.
Generally, the future of the Malaysian textiles and apparel industry is dependent upon consolidation,
upgrading of existing facilities, reducing costs and improving efficiency to remain competitive.

Overview of ABC Sdn Bhd

Table 2: ABC Sdn Bhd Financial Data Summary (2003-2010)

Year ended
2003 2004 2005 2006 2007 2008 2009 2010
31st Dec
RM’000
Sales 1,300 1,445 1,301 3,432 3,607 1,813 3,765 5,459
Net Profit/ (loss) 1 1 (41) 24 213 (504) 323 228
Shareholders’ fund 422 380 405 284 497 (7) 315 544
Sources: Audited Acc (2003-2010)

ABC Sdn Bhd, a bumiputra company operating in Kampung Melayu Subang. The company was
established in 2003 with main activities in the manufacture of apparel. The company is specialized in
uniforms and common products such as t-shirts, jogging suits and tracksuits. Since the establishment
until now, 90 percent of sales came from the acquisition of government contracts while 10percent are from
other sources. Table 2 indicated the company's earnings starting from the establishment until 2010. ABC
Sdn Bhdis manned by twenty five (25) employees’ with five (5) of them performing management function
and the remaining work in production floor. ABC Sdn Bhd has high dependency to foreign worker where
19 of its production workers are foreigner.

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They are employed for five (5) years contract. Most of them are from Indonesia, Pakistan and India.
ABC Sdn Bhd by definition published by SME by SME Corporation Malaysia is a Small and Medium
Enterprise (SME) and categorized as small business based on its number of employees and annual sales
turnover. Generally Malaysian SME category applies to four main sectors; primary agriculture,
manufacturing (including agro-based), manufacturing-related services (MRS) and services (including
information and communication technology). SME definitions as provided by SME Corporation Malaysia
as shown on Table 3. In Malaysia, 99.2 percent of businesses are SMEs, contributing 32 percent of the
nation’s gross domestic product (New Sunday Times, 2009). According to the SMEs survey 2011 report, a
total of 645,136 SMEs were operating their businesses in Malaysia in 2011, representing 97.3 percent of
total business establishments. The results showed that 90percent of the establishments were in the
services sector, 5.9 percent in the manufacturing sector and 3percent in the construction sector. The
remaining were in the agriculture sector (1%) and mining and quarrying (0.1%). SMEs in the services
sector were the largest, with more than 580,000 establishments representing 98.2 percent, followed by
SMEs in the manufacturing sector, 95.4 percent. Meanwhile SMEs in the construction sector represented
87.1 percent of the total establishments in that sector (The Star, 2012).

Table 3: Approved Standard SMEs Definitions (as of January 2011)

Size Number of full-time employees Annual sales turnover

Manufacturing (including Services sector (including Manufacturing (including Services sector
Agro-based & MRS) ICT and primary Agro-based & MRS) (including ICT and
agriculture) primary agriculture)
Micro Less than 5 full-time Less than 5 full-time Less than RM250,000 Less than
employees employees RM200,000
Small Between 5 and 50 full-time Between 5 and 19 full- Between RM250,000 and Between RM200,000
employees time employees less than RM10 million and less than RM1
million
Medium Between 51 and 150 full- Between 20 and 50 full- Between RM10 million Between RM1
time employees time employees and RM25 million million and RM5
million
Sources: SME Corp.

The survey showed that the percentage of micro establishments remained the same as compared
with the survey of 2005. Overall, the majority of SMEs or 77percent were micro-sized establishments,
followed by small establishments (20%) and medium-sized establishments (3%). According to the survey,
SMEs contribution to gross domestic product increased from 29.4percent in 2005 to 32.5percent in 2011
(The Star, 2012). Apparel in Malaysia is expected to experience positive growth with a strong performance
predicted over the forecast period. Apparel industry also seen as one of competitive sector and have a
bright future that will contribute to economic of the country. Economic recovery, the large amount of
discount activities organized by retailers, and dominance of international brands are gearing towards
higher demand in all categories within apparel in Malaysia. With the rising acculturation of Malaysia
with international brands around the world, it is likely to boost the growth of luxury brands further over
the forecast period (Euromonitor, 2012). Even though there is a strive competition from international
brands and local top brands, there is many local companies under SME categories that also doing a
business and contributes to economic growth. Therefore, this study looking at ABC Sdn Bhd as one of
apparel produces that focused on uniforms also contributes to economic of the country.
Consequently this study is to prepare a business development strategy to ABC Sdn Bhd to equip
them in driving its business to a greater height. To ensure the goal can be achieved the study will be
looking at both external and internal elements that influencing to the development of company. Each of
these elements needs to be addressed by using a tools and techniques irrespective of the size of the
organization. The significance of scanning internal and external environment comes from the fact that
successful strategies are achieved through the arrangement of the two aspects of these elements.

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It can be say that business development involves planning and managing these elements to ensure a
complete approach to business growth, and achievement of the owner’s goals. According to (Kaplan,
Norton, & Barrow, 2008) stated that the most successful company in their experience follow the systematic
strategic development process. From this flow the identification & analysis of key issues including
external and internal forces that affect the company’s strategy. This is followed by the formulation of the
new strategy and especially for new transformational strategies creating case for changes throughout the
organization. The intention for strategy formulation is to define where and how the organization will
compete. The platform issue is to ensure the changes in strategy are linked to changes in the planning in
execution processes and establish the boundaries of permissible change.
At the moment, there are various studies conducted on business development strategy by Gupta
(2000), Tabibi and Rohani (2011), Garthinda and Aldianto (2011) and Therith (2010). It covers various
locations and industries but produces different result even though they used the same tools and
techniques. However, there are minimal studies done on the business development strategy for Malaysia
SME business operating in apparel industry. Thus this study will concentrate on different type of sector
that is apparel manufacturing company, will definitely return with dissimilar and fascinating results
compare to previous studies on business strategy. Moreover, various studies indicated that business
development strategy is crucial to help the companies on the future direction, strategy and business
model. Moreover it will inform employees, board, investor and other about strategy and plan. From
business strategy it will identify the industry changes and key external trend. The business strategy
process is a unique business model for the company and distinct, business strategy and from that it also
systematically breakdown changes into decision stage to get the result. As such, the business development
strategy will help the businesses to strategies their future direction. Therefore, the knowledge of
understanding is very crucial to improve the company performance to ensure they enable to achieve the
desired goals. Without a strategy management has no roadmap to guide them. These findings have
practical implications for industry player academic researchers and apparel manufacturing company and
its ancillary manufacturing sector in Malaysia. The importance of certain elements the internal
environment is consisting of, depends on the specific characteristics of the external environment, for
example the importance of high liquidity ratio of an industry is greater during the period there is a credit
restraint in the financial sector. For instance, strengths and weaknesses are internal factors that create or
destroy value, given the external environment circumstances. These factors can include assets, intellectual
capital, and other resources (Curtis, 2008). Thus in this study an effective examination of internal and
external elements can be achieved through the use of the SWOT analysis. According to Curtis(2008) the
SWOT analysis, which may include all the previous information pertaining to external and internal
environment, doesn’t represent a self-sufficient tool of strategy formulation, but a rather preliminary but
valuable apparatus that is used to provide with the necessary data most of the supplementary tools used
in strategic planning.
The government has launched SME Master Plan (2012-2020) to boost the SME sector by the year
2020 (Dhesi, 2012). It is to acknowledge the importance of SME sector and their contribution to the
economy. It was reported in The Star (2010) that SME contributed 35percent of national GDP, 57percent
of the total employment and 20percent of the export (The Star, 2012) even though the sector is known for
lacking in term of financing, talent management, market access and market penetration (Lee,
2010).Further, the apparel industry is recognized as a highly competitive industry where the competition
is not only from same size corporation but as well as Multinational Corporation (Kalpande, Gupta and
Dandekar, 2010). They have low profit margin, the products produced are relatively generic, low in
technological usage and very labor intensive. Thus this research is designed to study the capability of ABC
Sdn Bhd both internally and externally in order to move forward in the apparel industry. This study is
guided by three objectives. They are:

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1. To identify strength and weaknesses of the company together with an opportunities and threat in
Malaysian apparel market.
2. To match tools and the strategy.
3. To proposed a most appropriate strategy for implementation.

RESEARCH METHODOLOGY
The data collection method
The study collected data or information from one source which is secondary data. Secondary data are
referred to information gathered by someone else other than the researcher.

Secondary Data
Secondary data were obtained from two main sources such as Internal and external sources. Internal
sources of the company's come from company profile and audited accounts for the years 2006 until 2010.
While for external data obtained from reading as journals articles, press releases, magazine articles, books
and newsletters which were obtained both offline and online. For online resources, the following websites
were obtained to extract the articles: www.emeraldinsight.com, www.smecorp.com.my and others.
Additional resources in from Pelan Induk PKS for the year 2012-2020 by Majlis Pembangunan PKS
Kebangsaan were also obtained.

Strategic Management Framework

In the case study of ABC Sdn Bhd, the information will be analyzed using the SWOT analysis, then
developed using Formulation of strategic management and to propose strategies available to the company.
Study conducted by (Tabibi & Rohani, 2011) and (Therit, 2010) also use the same method, which shows
this best method in getting the strategy for a company.

Figure 1: The Strategy-Formulation Analytical Framework

STAGE 1 : THE INPUT STAGE

1. Internal Factor Evaluation (IFE) Matrix

2. External Factor Evaluation (EFE) Matrix
3. Competitive Profile Matrix (CPM)

STAGE 2 : THE MATCHING STAGE

1. Internal External (IE) Matrix

2. Strategic Position and Action Evaluation (SPACE) Matrix
3. Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix

STAGE 3 : THE DECISION STAGE

Quantitative Strategic Planning Matrix (QSPM)

Source: (David, 2007)

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The tools for the research

According to (Tabibi and Rohani, 2011), the strategy-formulation techniques can be integrated into a
three-stage decision-making framework, as shown in the figure 7. The tools presented in this framework
can help strategists to identify, evaluate, and select strategies (David, 2007). Maxi-Pedia (2012) suggested
that the Strengths-Weaknesses-Opportunity-Threat (SWOT) playing a vital role. SWOT is utilized to
obtain information on the internal and external factors affecting ABC Sdn Bhd. Then, the strategy
formulation is developed through the three stages process. Internal audit conducted based on information
gathered from the following resources:

Company profile - for example company profile provided a few things such as: -

(i) Strengths - the company only has a contract from the government.
(ii) Weaknesses-The Company uses experiencedforeign workers from Nepal, Pakistan and India.

a) Audited account - This account is used to analyze the financial position of the company such as
sales, profits and expenses of the company.

Meanwhile, the external audit is developed with little assistance from Porter Five Factor Model. The
information collected from journals articles, press releases, magazine articles, books and newsletters
which were obtained both offline and online to complete the audit. In the case of ABC Sdn Bhd, one of the
examples for opportunities is government incentives given to the Small Medium Enterprise (SME)
business community. Several government agencies are involved such as SME Corp, MIDF-DFD and SME
Bank also provides grants and "Soft Loan" to the SME business (SME Corp). Among the threats faced by
ABC Sdn Bhd is the competition. The number of companies’ participate in the government tender is high.
Based on the analytical framework strategy Formulation (Figure 7), stage 1 consists of inputs such as
Internal Factor Evaluation (IFE), External Factor Evaluation (EFE) matrix and the Competitive Profile
(CPM). While the second stage of the matching stage consists of Internal External (IE) matrix, Strategy
Position and Evaluation (SPACE) matrix and the latter is the Threats-Opportunities-Weaknesses-
Strengths (TOWS) matrix. The last stage is the stage 3 is using Quantitative Strategy Planning Matrix
(QSPM) (Therit, 2010; Tabibi & Rohani, 2011). In our analysis, the tool in the 1st stage is IFE, EFE and
CPM comes from SWOT analysis. The weight and rating is given and calculation is getting from them.
These two item is based on the importance of the factors by giving the higher score which is 1.0 and the
minimum score is 0 (for wieght) and 4 is highest as compared to 1 is the lowest (rating). The higher the
score shows that the important of these factors for the company and it was suported by (Therit, 2010,
Tabibi & Rohani, 2011). The calculation for IFE and EFE matrix is:

Weighted Score = Weight x Rating

After combined the IFE and EFE weighted, the total score will be obtained and this will help in the
next stage of Internal External (IE) Factors. Apart from the IFE and EFE matrix, another method used in
the first stage is Competitive Profile Matrix (CPM). Through the company profile of ABC Sdn Bhd, it
states two main competitors in getting order from Ministry of Defense which is CDE Sdn Bhd and XYZ
Sdn Bhd. The information for both competitors is collected from report of the Company Commission of
Malaysia (CCM). Among the factors to be studied are product quality, market share and other several
critical factors.After finished the 1st stage, followed by 2nd stage and it is the matching stage where there

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are 3 methods used such as Internal External (IE) Factors, Strategy Position and Evaluation (SPACE)
matrix and the Threats-Opportunities-Weaknesses-Strengths (TOWS) matrix. In this stage, the matching
result will get from here. The result from IFE and EFE matrix will consolidated for a decision and the
combination result will get the IE Matrix. There are nine quadrants also has its own strategy and it will
provide an overview of what the company strategy is derived (Therit, 2010, Tabibi and Rohani,
2011)SPACE matrix is one of the strategy in matching stage. SPACE is used to determine where the
company is either Aggresive strategy, conservative, defensive or competitive strategy. calculation is as
follows:

X-axis = Competitive Advantages + Industry Strength

Y-axis = Financial Strengths + Environmental Strength

TOWS matrix is the last strategy in matching stage and the tools rely upon information derived
from the input stage to match external opportunities and threats with internal strengths and weaknesses.
Matching external and internal critical success factors is the key to effectively generating feasible
alternative strategies. When the TOWS matrix completed, the strategy will be available for this study, the
focus will be on the Strengths and Opportunity as the company should use the strength to take chances.
While others gained other strategies will not be ignored otherwise also be analyzed through analysis and
TOWS matrix summary. In a summary of the matching stage, each derived strategy will be taken into
account but the strategy that have the highest results will be analyzed through the third stage, which is
the decision stage. In the decision stage, at least two strategies with the highest result are chosen to
analyze. The Quantitative Strategic Planning Matrix (QSPM) is the last stage and tool to get the result.
Before putting the strategies into QSPM, this study will use the matrix analysis and TOWS summary to
get the result. The related alternative strategies will put in the summary and the tools in the 2nd stage will
used. The highest score will analyze in the QSPM. For the QSPM, the highest score in the grand total will
used as a strategy for the company. However, it must fit with the company. The systematic step in the
Quantitative Strategic Planning Matrix (QSPM) method makes the choosing processes of alternative
strategies at ABC Sdn Bhd can be done appropriately, therefore the continuous improvement processes
can be done in an effective way.

FINDINGS AND ANALYSIS

SWOT Analysis

Internal Factor (Strengths and Weaknesses)

The internal analysis describes the firm history and financial position. Firm history is from the company
profile, while financial position is based on the audited accounts for 5 consecutive years ie 2006 to 2010.
The study of internal analysis provides insight into the company’s strengths and weaknesses.

Strengths
Contract in Hand
The company has long term contracts with a number of government bodies such as the Kuala Lumpur City
Hall (DBKL) and the National Service Training Department (JLKN). Most of the contracts acquired are to
supply corporate uniforms and long term contracts.

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Specific target market

Based on the profile of the company, it stated that the company is focused on government contracts from
government and related agencies. This is also mentioned in the list of successful tenders received in 2010
where 98percent of the sales from government sectors.

Market presence
One of the strength of the company is in the market since 2003 and as a small companies it capable to
survive in the competitive market. To get contracts from the government sector the company requires
competing with competitors under the same contract.

Table 4: Internal and External Factors of ABC Sdn Bhd

Internal
Strengths Weaknesses
1 Contract in hand Dependency on foreign workers
2 Specific target market Centralised control
3 Market present Lack of Technology
4 Quick decision High operating cost
5 Financial soundness No ISO certification

External
Opportunity Threats
1 Government incentives Competition
2 Sub-contracting customer choice
3 Integrated supply chain management Low barriers of entry
4 Training Institution Increase of price of raw materials

Quick Decision
According to (Gupta, 2000), due to centralization of authority at the top management level, the decision
making capacity is fast. This is very important in the highly competitive market, where the opportunity
never knocks again. At ABC Sdn Bhd, the directors and shareholders are the same person, and then a
decision can be made immediately.

Financial soundness
Financial are the most widely used tools for evaluating financial performance as it’s provides clues and
symptoms of underlying conditions. All the information comes from Audited accounts from 2006 until
2010. No information data was obtained for 2011 because the account was not audited.

Profitability ratios
Table 5: Profitability ratio of the company

Profitability Ratios 2010 2009 2008 2007 2006

Gross profit margin 15.48 23.55 4.59 31.06 21.27
Operating profit margin 4.81 8.58 -27.79 7.03 -4.32
Net profit margin 3.99 7.57 -29.70 4.49 -6.48
Return on total assets 22.27 14.11 -42.30 10.94 -14.32
Return on shareholders 39.99 90.23 7577.73 32.58 -78.33
Return on common equity 0.40 0.90 75.78 0.33 -0.78
Source: Audited Accounts (2006 – 2010)
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Profitability ratio is a business's ability to generate earnings as compared to its expenses and other
relevant costs incurred during a specific period of time. For ABC Sdn Bhd, the company's gross profit
declined from 23.55percent (2009) to 15.48percent (2010) (see table 6). The decline in the gross profit
margin indicated the rise in the cost of production, which is not absorbed by the sales.
In 2008, net profit margin shows the negative which is in that year the company indicated losses.
The losses also rose on return on total asset which is (42.30) in 2008 (see table 6). This is due to lack of
tender obtained the effect of the economic crisis

Liquidity Ratios

Table 6: Liquidity ratios of the company

Liquidity Ratios 2010 2009 2008 2007 2006

Current ratio 2.22 1.18 0.98 1.27 1.09
Quick ratio (acid test ratio) 1.87 1.11 0.96 1.11 0.83
Stock to net working capital 0.29 0.36 -0.88 0.58 2.89

Source: Audited Accounts (2006 – 2010)

ABC Sdn Bhd has maintained a good current ratio. The lowest ratio was 0.98 during the year 2008
and reached 2.22, an all time high during the year 2010 as shown in Table 8. A higher current ratio is
perceived as a healthy financial sign but if too large current ratio indicates that the organization is not
making efficient use of its current assets. Based on Audited Accounts 2010, stated that cash in hand and
bank balance is the highest contributor in the company's current assets. Such a large ratio can also be due
to a larger inventory, which may consist of slow-moving or obsolescent inventories. The quick test ratio is
used to evaluate an enterprise's overall liquidity position. ABC Sdn Bhd has maintained a quick test ratio.
Since 2006 the ratio has been increasing year after year except year 2008, where it the quick ratio is (0.96)
as shown in the table 8 it was due to lower in inventories for year 2008.

Gearing Ratios

Table 7: Gearing ratios of the company

Gearing Ratios 2010 2009 2008 2007 2006

Debt to asset ratio 0.47 0.86 1.01 0.74 0.77
Debt to equity ratio 0.88 6.24 (168.66) 2.92 3.32
Long term debt to equity ratio 0.06 0.14 -8.27 0.13 0.32
Times interest earned 24.57 8.51 -14.58 4.99 -3.17
(interest coverage ratio)
Fixed charge coverage 24.57 8.51 -14.58 4.99 -3.17
Source: Audited Accounts (2006-2010)

Gearing is a measure of financial leverage, demonstrating the degree to which a company's activities
are funded by owner's funds versus creditor's funds. For ABC Sdn Bhd debt-to-asset ratio and debt to
equity ratio indicates low level of funding by debts. Debt to equity ratio always maintained a very low level
percentage of liability.

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Activity Ratios
Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage
or other such balance sheet items. These ratios are important in determining whether a company's
management is doing a good enough job of generating revenues, cash, etc. from its resources. For ABC Sdn
Bhd, the total asset turnover and fixed asset turnover during the last five years has always higher than
one.

Table 8: Activity ratios of the company

Activity Ratios 2010 2009 2008 2007 2006

Inventory turnover 34.30 30.22 84.29 16.57 15.77
Fixed asset turnover 212.11 216.05 23.84 19.29 11.48
Total assets turnover 5.32 1.64 1.52 1.85 2.80
Accounts receivable turnover 0.00 0.00 0.00 0.00 0.00
Average collection period 0.47 101.35 66.89 103.52 20.18
Source: Audited Accounts (2006 – 2010)

Weaknesses
Dependency on foreign workers
Currently, the company's operating with 20 employees depending on the foreign workers who have skills
in their respective fields. Employees of the company come from Nepal, Bangladesh and Pakistan. Even
though it benefits the company in term of relatively low wages, the fact that they are here for short term
does have an impact on company long term plan, thus is consider as a weaknesses.

Centralized control
Due to highly concentration of authority in the hands of fewer people, there is a heavy burden at the top
level management. This leads to less time for important matters because there is a lot of work to be
completed.

Lack of technology
The machines have been used for more than 5 years and the company does not use any latest technology
like ultrasonic sewing machine. This basically will limit their capability to compete for high volume order
as they are most likely to depend on basic apparel making technology.

High operating cost

The audited accounts show that the operating cost is high and has an effect on net income. There reason
being lies on the source of raw material which is sourced from distributors locally. ABC Sdn Bhd also
recorded a net profit of between 4-8percent per annum. Bruce (2004) agrees that apparel industry is a low
profit margin industry.

No ISO certification
ISO certification may not have significant monetary impact but to many it is a prerequisite requirement.
It signifies an implementation of total quality management whereby all activities are well recorded, all
processes is done in standard manner. The company does not possess ISO certification. ISO certification is
one of the ways to gain buyer’s confidence. ISO certification is a global recognition. The ISO certification
enhances the reputation of the firm. Kalpande, Gupta & Dandekar (2010), stated that only 16percent SME
companies got ISO Certification for Managing Quality in India.

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External factor of ABC Sdn Bhd

Opportunity
Government incentives
The Malaysian Government provided incentives in term of the implementation of special development
program to assist SME businesses. The program aimed to provide SMEs with necessary support in term of
infrastructure, capability and capacity, and financing. The incentives are given in the form of financing,
training, business matching, coaching, etc.

Subcontracting
Malaysian companies has excellent reputation in meeting high quality standard sets by international
brand such as Nike, Adidas, DKNY, Ann Taylor, Armani, Talbots and Tommy Hilfiger (MIDA).

Integrated supply chain

Supply chain activities starts from internal organization to external trading partner of suppliers, carriers,
third party companies and information system providers (Lam, 2006). Textile and apparel industry
operates at low profit margin and characterized by volatile market, short product life cycle and high
product variety (Bruce, 2004).

Training institution
There are training institution focuses on skills development such as Institut Kemahiran MARA (IKM),
Institut Latihan Perindustrian (ILI), Institut Latihan Baitulmal (ILB), etc. They provide assistance in
providing new trained manpower and help to upgrade skill of current work force.

Threat
Competition
Competition especially from large and multinational businesses is a major threat to SMEs (Kalpande,
Gupta & Dandekar, 2010).

Customer choice
SME companies in textile and apparel industry are producing similar products. The disadvantage of
producing similar and generic product or services is that it gives all the benefit to customer.

Low barriers of entry

SME business is labor intensive. They apply less technology and more manpower. Therefore, business
start up does not require much capital investment thus, limited the barrier to new entrance.

Increase of price of raw materials

Kalpande, Gupta and Dandekar suggested that increase in raw material price to be considered as one of
the threat to SME. The rationale is due to relationship between the material price and total cost and the
nature of the industry which operating in low profit margin. Taking into account high competition, SME
will either increase the unit price and loose its competitive advantage or reduce its margin and gain much
less profit per product sold.

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External Factor Evaluation Matrix (EFE) and Internal Factor Evaluation Matrix (IFE)

Table 9: External Factor Evaluation Matrix for ABC Sdn Bhd

Weight Rating Weighted

External Factor
Score
0 – 1.0 1-4
Opportunities
1 Government incentives 0.050 2 0.10
2 Sub-contracting 0.100 3 0.30
3 Integrated supply chain management 0.250 4 1.00
4 Training Institution 0.080 2 0.16
Total 0.480 1.56

Threats
1 Competition 0.20 3 0.60
2 customer choice 0.20 3 0.60
3 Low barriers of entry 0.02 1 0.02
4 Increase of price of raw materials 0.10 3 0.30
Total 0.52 1.52
Total Weighted Score 1.00 3.08

Table 10: Internal Factor Evaluation Matrix for ABC Sdn Bhd

Internal Factor Weight Rating Weighted Score

Strengths
1 Contract in hand 0.20 4 0.80
2 Specific target market 0.08 3 0.24
3 Market present 0.10 3 0.30
4 Quick decision 0.10 3 0.30
5 Financial soundness 0.10 2 0.20
Total 0.58 1.84

Weaknesses
1 Dependency on foreign workers 0.11 3 0.33
2 Centralized control 0.08 2 0.16
3 Lack of Technology 0.07 2 0.14
4 High operating cost 0.11 3 0.33
5 No ISO certification 0.05 1 0.05
Total 0.42 1.01
Total Weighted Score 1.00 2.85

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The scores for EFE and IFE Matrix in Table 14 and Table 15 above indicate that ABC Sdn Bhd is
strong internal and externally. The scores for both EFE and IFE Matrix are generated based on SWOT
analysis. The total weighted scores for both EFE and IFE will be later used in determining suitable
strategy to adopt during matching stage using Internal External (IE) Matrix.

The Internal External (IE) Matrix

Figure 2: IE Matrix
EFE

4.0

High I II III
3.0 – 4.0

3.0
Medium
2.0 – 3.0 IV V VI

2.0

Low
1.0 – 1.99 VII VIII IX

1.0 IFE
2.0 3.0 4.0

The score in EFE and IFE Matrix later plotted into graph as per Figure 8. EFE is plotted on Y-axis
and IFE is plotted on X-axis. The graph is divided into nine (9) cells which represent the strategic position
of ABC Sdn Bhd. Figure 2 above indicated that ABC Sdn Bhd possess strong external position but average
internal position which is falls under Cell II; grow and build strategy. Amongst the most appropriate
strategy for ABC Sdn Bhd are:

 Market penetration,
 Market development,
 Product development
 Backward integration,
 Forward integration, and
 Horizontal integration.

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The Strategic Position &ACtion Evaluation (SPACE) Matrix

Table 11: SPACE Matrix for ABC Sdn Bhd

FINANCIAL STRENGTH (+) ENVIRONMENTAL STABILITY (-)

1 Return on Asset (ROA) 4 1 Risk in Business (2)
2 Leverage 4 2 Technology Changes (4)
3 Net Income 2 3 Competitive Advantages (3)
4 Inventory Turnover 3 4 Demand Price (6)
Total 13 Total (15)
Average 3.25 Average (3.75)
COMPETITIVE ADVANTAGES (-) INDUSTRY STRENGTH (+)
1 Market Share (4) 1 Resources Utilization 4
2 Product Quality (2) 2 Growth Potential 5
3 Technology (3) 3 Profit Potential 3
4 Capacity Utilization (6) 4 Financing policy 4
Total (15) Total 16
Average (3.75) Average 4.00

SPACE Matrix is a strategic management tools that focus on competitive position of an organization
by analyzing the internal and the external strategic dimension.

Finally, the score will be plotted into graph as per following formula:
Conclusion: X-axis = (-3.75 ) + 4.0 = 0.25
Y-axis = 3.25 + (-3.75) = -0.5

Figure 3: SPACE Matrix for ABC Sdn Bhd

FS
6

Conservative Aggressive

C IS
A -6 (0.25,- 6
0.5)

Defensive Competitive

-6
E
S

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A SPACE analysis in figure 9 shows ABC Sdn Bhd in the competitive directional vector. This
quadrant suggests that ABC Sdn Bhd should take backward, forward, and horizontal integration; market
penetration; market development; product development; and joint venture

TOWS Analysis

Table 12: TOWS Analysis

Strengths Weaknesses

1. Contract in hand 1. Dependency on foreign workers

2. Specific target market 2. Centralised control

Internal
3. Market present 3. Lack of Technology

4. Quick decision 4. High Operating Cost

5. Financial soundness 5. No ISO certification

Opportunities SO Strategy OW Strategy

1. Government incentives S3, S4, O3 – Backward Integration O1, O4, W1- Employment & Skill
Strategies
2. Subcontracting S2, S4, O2 – Market Development
O1, W3 – Investment Strategy
3. Integrated supply chain management S4, O4 – Employment Strategy
O3,W4 – Backward Integration
4. Training Institution

Threats ST Strategy WT Strategy

1. Competition S4, T4 – Ability to respond in time Creative problem solving technique

2. Customer choice S5, T4 – Pricing strategy

3. Low barriers of entry S2, S3, T1,T2,T3 – Marketing Strategy

4. Increase of price of raw materials S5, T1,T2,T3 – Investment Strategy

The TOWS matrix has indicated several alternative strategies for ABC Sdn Bhd such as:-
a) Backward Integration Strategy
b) Market development
c) Marketing strategy
d) Pricing strategy
e) Investment strategy employment and skill strategies.

All these analysis will summarize in the following table which is table 13.

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The Matrix Analysis & TOWS Summary

Table13: The Matrix Analysis and TOWS Summary

No. Alternative Strategy IE SPACE TOWS COUNT

1. Backward integration X X X 3
2. Forward Integration X X 2
3. Horizontal Integration X X 2
4. Joint Venture X 1
5. Employment X 1
6. Market penetration X X 2
7. Market development X X X 3
8. Product development X X 2
9. Investment X 1
10. Marketing X 1
11. Pricing X 1

Based on the table 15, there are eleven (11) strategies that have been identified as a result of the
use of several methods such as Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix, Internal
External (IE) Matrix and Strategic Position and Action Evaluation (SPACE) Matrix and it was also used
by (Therit, 2010). There are two strategies that have been identified to get results with the highest score
which is 3 and the strategies are Backward Integration and Market development strategy. Both this
strategy will be analyzed by using the Quantitative Strategic Planning Matrix (QSPM).

The Decision Stage

To select the required strategy, analysis QSPM done to get the strategy and this is the final stage in the
analytical Formulation strategy.

Quantitative Strategic Planning Matrix

Table 14: The QSPM Matrix for ABC Key External Factors

Strategy Alternative
KEY EXTERNAL FACTORS
Weight Market Development
Opportunity Backward Integration
(0-1)
AS* TS AS* TS
1 Government incentives 0.05 - - - -
2 Sub-contracting 0.10 - - 2 0.20
3 Integrated supply chain management 0.25 4 1 3 0.75
4 Training Institution 0.08 - - - -
Total 1 0.95
Threats
1 Competition 0.20 1 0.20 3 0.60
2 customer choice 0.20 - - 2 0.40
3 Low barriers of entry 0.02 1 0.02 3 0.06
4 Increase of price of raw materials 0.10 3 0.30 2 0.20
Total 0.52 1.26
Sub total of Weights TAS 1.00 1.52 2.21

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Table 15: The QSPM Matrix for ABC Key Internal Factor

Strategy Alternative
KEY INTERNAL FACTORS
Weight Market Development
Strengths Backward Integration
(0-1)
AS* TS AS* TS
1 Contract in hand 0.20 1 0.20 - -
2 Specific target market 0.08 - - - -
3 Market present 0.10 2 0.20 3 0.30
4 Quick decision 0.10 3 0.30 3 0.30
5 Financial soundness 0.10 3 0.30 3 0.30
Total 0.86 0.69

Weaknesses

1 foreign workers 0.11 - - - -

2 Centralised control 0.08 2 0.16 2 0.16
3 Lack of Technology 0.07 2 0.17 2 0.14
4 High operating cost 0.11 2 0.22 1 0.11
5 No ISO certification 0.05 - - 3 0.15
Total 0.52 0.67
1.38 1.36
Grand Total 2.90 < 3.57
Note: AS= Attractiveness Score TAS= Total Attractiveness Score
 Attractiveness Score: 1 = not attractive; 2 = somewhat attractive; 3 = reasonable attractive; 4 = highly attractive.

The study was done by (Tabibi and Rohani, 2011, Therit, 2010), suggesting that they passionate
chooses the alternative that has a higher score to be analyzed by QSPM. While strategically analyzed
using QSPM showing high TAS was selected as the most attractive strategy compared to other strategies
(Therit, 2010) and is also being done in this study. Doing calculation in the QPSM, the grand total
Attractiveness Score is 2.90 (backward Integration) and 3.57 (market Development). The market
development strategy yields higher score than the backward integration strategy. This QSPM compares
two alternatives. Based on strategies in the stage 1: the input stage (EFE, CPM, IFE) and stage 2: the
matching stage (TOWS analysis, SPACE matrix, IE matrix, GSM), ABC Sdn Bhd needs to pursue on
development of new market. It means the possible strategies for ABC Sdn Bhd is to expand their market
rather than concentrating on one market only, i.e. government tenders and to get the contracts to the
private sector. This is a great opportunity for the company.

Analysis Summary
In Finding and analysis, there are several methods used and the results obtained will be forwarded to the
company and the method used has been done by previous research (Tabibi & Rohani, 2011, Therit, 2010).
The analysis based on the strategy Formulation, the data collected at input stage. There are three
methods of matrix IFE, EFE and CPM matrix and the score brought to the next level. In the second stage,
the score from input will be taken to the matching stage and it will analyze using three methods, namely
IE matrix, and TOWS Matrix SPACE Matrix. The strategy that will be proposed will be performed using
QSPM and the results will be obtained and selection strategy is based on the highest score.

CONCLUSION AND RECOMMENDATION

The study was conducted in two parts. Firstly is the business situation analysis and company situation
analysis which resulted in the development of problem statement using SWOT analysis and Porter’s Five
Factors Model similar to studies by Ghartinda and Aldianto (2012) and Gupta (2000). Part two of the
study was conducted as per study by Tabibi and Rohani (2011) using the Strategy-Formulation Analytical
Framework. The study divided into three (3) stages; input stage, matching stage and decision stage. As the

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result, finding from Chapter 4 shows that ABC Sdn Bhd has good foundation. They have strong internal
and external factors and reasonably competitive.

To identify strength and weaknesses of the company together with an opportunities and threat in
Malaysian apparel market
Strength, weaknesses, opportunity and threat has been identified in Chapter 4 with available government
contract in hand as its major strength. Meanwhile its high dependency on foreign worker and high
operating cost is identified as major weaknesses for ABC Sdn Bhd. Nevertheless, ABC Sdn Bhd has a
strong internal factor where its strength scores higher than weaknesses. ABC Sdn Bhd also indicate
strong external factors when its opportunity scores higher than threat with competition and customer
choice is identified as major threat while integrated supply chain management as major opportunity.

To match tools and the strategy.

TOWS Matrix, SPACE Matrix and IE Matrix is use to analyze the input identified earlier. As a result, list
of strategies is identified after the evaluation process take place. Amongst the strategies identified are:

 Backward integration,
 Forward integration,
 Horizontal integration,
 Joint venture,
 Human capital development,
 Market penetration,
 Market development,
 Product development,
 Investment,
 Marketing, and
 Pricing.

To proposed a suitable strategy for implementation

ABC Sdn Bhd as a small company is doing fine. They managed to maintain positive cash flows for many
years and able to survive economic recession in year 2007 and 2008. Based on the evaluation made on its
internal and external factors, ABC Sdn Bhd is the right track. They need to adopt suitable strategy in
order to take the company to the next level. Therefore, with the assistance of QSPM Matrix, we found that
the most appropriate strategy for implementation is Market Development Strategy. Market Development
strategy as defined by Kerin and Petersen (2010) dictates that an organization its existing products and
services to new market. In the case of ABC Sdn Bhd, among the Market Development Strategy to be
considering are to either focusing on private sector segment via contract manufacturing, develops its own
brand, or even looking into export market for its product and services.

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