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Contributing factors of Halal warehouse adoption

Chapter · March 2014

DOI: 10.1201/b16700-20

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 Management and Technology in Knowledge, Service,
Tourism & Hospitality – Lumban Gaol, Mars & Saragih (Eds)
© 2014 Taylor & Francis Group, London, ISBN 978-1-138-00133-6

Contributing factors of Halal warehouse adoption

Abdul Hafaz Ngah

Politeknik Sultan Haji Ahmad Shah, Kuantan, Pahang, Malaysia

Yuserrie Zainuddin
Universiti Malaysia Pahang, Gambang, Pahang, Malaysia

Ramayah Thurasamy
Universiti Sains Malaysia, Penang, Malaysia

ABSTRACT: Increasing demand for Halal products by Muslim consumers due to their religious obligation has
created new services known as Halal warehouse. These services are unique, which only could be applied by Halal
manufacturers to maintain the integrity of their Halal products. However, the adoption of Halal warehouse in
Malaysia is relatively low. By adopting the TOE framework, this study will try to identify what are the contributing
factors influencing Halal manufacturers to adopt Halal warehouse, either drivers or barriers. Understanding the
drivers and barriers to the adoption of Halal warehouse is essential for the government to promote Malaysia as a
Halal hub in this region. By adopting the systematic sampling method, data was gathered from 140 participants in
the Malaysian International Halal Showcase (MIHAS) 2013. Structural Equation Modelling (SEM) approach was
used to test the relationship between research model construct. The findings show that cost, customer pressure,
perceived benefits, and organizational readiness are significant predictor for adoption decision. The findings
beside presents the suitability of PLS in statistical analysis, has also provided useful information to a better
understanding regarding drivers and barriers to the adoption of Halal warehouse. Limitation and suggestion for
future research are discussed.

1 INTRODUCTION fundamental knowledge and understanding of Halal

In global business environment, increasing the demand
for Halal products due to the increasing of Muslim
population in the world are incrementally growing the
demand for Halal services especially in supply chain
activities. That is why it is undoubtedly the halal supply
chain sector will be one of the fastest changing areas to
watch out for in the region (Baharuddin et al., 2011).
Although Halal is booming and an upward trend, there
are very limited studies published on Halal logistics
and academic research in this area is highly needed
(Talib et al., 2013). Most of the studies that has been
conducted are regarding Halal consumer behaviours,
Halal orientation Halal logo, Halal meat and and
very limited studies has been done regarding adop-
tion of Halal supply chain especially in warehousing
activities.
According to the Halal supply chain service
providers, even the numbers of Halal certified manu-
facturers keep on increasing, but the adoption of Halal
warehouse is still relatively low, but at the same time
Halal manufacturers and consumers still believed that
the Halal products available in the market is Halal to be
consumed. This statement supported by Othman et al.
(2004) which they mentioned that Instead of having
concept, Malaysian manufacturers are not ready to
commit themselves to a higher level of Halal. Since
Halal supply chain services such as Halal warehous-
ing is design purely to meet the demand from Halal
manufacturers, therefore the low level of adoption
rate for the services among Halal manufacturers are
quite weird. Hence, there is a significant need to
identify the reason behind such slowness and lag-
gardness in adopting Halal warehousing. Since Halal
integrity of the products is comes from various activ-
ities in supply chain, It is the time now for Halal
certified companies it is important to look beyond
their production and ingredients, and extend Halal to
the entire supply chain in ensuring that their trans-
portation, storage and handling are in compliance
with Shariah and meet the requirements of their tar-
get Muslim market (Tieman, 2011). Tieman (2013)
also mentioned that academic research are highly
needed in this area, hence, this paper would try to
contribute something new in Halal study and it is
about Halal warehouse service adoption. Beside try-
ing to identify what are the barriers, this paper also
will try to identify what are the drivers that could lead
them to adopt Halal warehousing in their supply chain
activities.

89
 2 RESEARCH CONTEXT AND RESEARCH
MODEL
2.1 Halal warehouse
Halal warehouse is part of the activities in Halal supply
chain services. Since it is a new approach of conduct-
ing finished goods, there are still not many providers
applying the correct method (Talib et al., 2013) unless
the one who are certified by JAKIM or their affiliates.
Halal warehousing activities strictly stress on separat-
ing of Halal goods and non-Halal goods to avoid cross
contamination (Riaz & Chaudary, 2004), not only in
the rack, but also tools such as pallet or load carrier
used to handle them (Tieman, 2007, Talib et al., 2010).
Halal products are cannot be confirmed as Halal at
the point of consumption if it is not been handled
by Halal service providers along their chain, espe-
cially in warehousing activities. According to Tieman
(2007), the important arguments that Halal products
need Halal compliance for warehousing activities is
because there is evident showing that goods spent more
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time on warehousing compared to the transportation
and transformations processes.
2.2 Perceived benefit
According to Tornatzky and Klein, (1982), Premkumar
et al., (1997), Rogers, (2003), Brown & Russell,
(2007) perceived benefits of a technological inno-
vation encompass the expected advantages for the
organization and the extent to which it perceived as
better than the technology to be substituted. For this
study, perceived benefits refer to the extent of manage-
ment recognition that Halal warehousing can provide
more benefits to the Halal manufacturers. Tornatzky
and Klein (1992), Lacovou et al. (1995) and Rogers
(1995) are regarded perceived benefits as an impor-
tant factor in determining adoption of new innovations.
Literature in Information System suggests that the per-
ceived relative advantage is significant determinants
of E-Commerce adoption in an organization (Grandon
and Pearson, 2004). Lacovou et al. (1995) found that
perceived benefits have a positive effect on the likeli-
hood of EDI adoption. Ghobakhloo et al. 2011 and
Marimuthu et al. 2011 found that perceived bene-
fits have a positive relationship with the adoption of
E-commerce and E-Business. Since those consistent
findings in the relationship between perceived bene-
fits and adoption of new technology, researchers also
believe that:
H1: Perceived benefits positively related to the
adoption of Halal warehousing.
2.3 Cost
Organization would like the benefits of adopting new
innovation more than it cost. (Premkumar & Roberts,
1999). According to Irwin & Brown, (2007), the costs
associated with a new technology therefore have a
major bearing on the decision as the whether organiza-
tions choose to adopt it or not. New technology usually
90
to be too expensive to deploy over the subsequent
2–3 years. (Hoske, 2004). The literature in technol-
ogy innovation mentioning that costs as an inhibitor
of technology use (Tornatzky and Klein, 1982). In
Halal industry, from the insight of industry players, for
them Halal supply chain means adding extra cost and
it can be a problem to the company without knowing
underlying reason behind it. (Omar & Jaafar, 2011).
Therefore:
H2: Cost negatively related to the adoption of Halal
warehousing
2.4 Organizational readiness
Organizational readiness is important variable to
be considered in new technology adoption (Asif &
Mandivalla). Organizational readiness varies accord-
ing to the internal characteristics and property of a firm
to the type of new technology going to be adopted.
Even there are differences in organizational readiness,
it is still play on important role in the decision to adapt
an innovation (Wei & Ling, 2012). For this study, orga-
nizational readiness is defined here as capability of the
operation management to adopt Halal warehousing.
Brown and Russell (2007) found that organizational
readiness is a vital variable in RFID adoption. Previ-
ously, in 1995, Iacovou et al proved that the availability
of financial and technology resources (i.e., people,
technology, and expertise) is a major derived behind
the adoption of electronic data interchange.
H3: Organizational readiness positively related to
the adoption of Halal warehousing.
2.5 Customer pressure
‘Customer is always right’, the term used in the mar-
keting strategy to ensure customer will satisfy with our
services. Without customers, how good your services
or products are, it will not turn it to a profit. In relation
to customers, the firm must necessarily be sensitive
to clients’ needs and demands (Sandy Chong, 2008).
Several studies have demonstrated the association
between customer pressure and an adoption deci-
sion (Al-Qirim, 2005; Dholakia and Kshetri, 2004;
Grandon and Pearson, 2004; Lertwongsatien and
Wongpinunwatana, 2003; Premkumar and Roberts,
1999). Customer pressure has been ranked by
Kittipong Sophonthummapharn (2009), as a third
most important variable among 12 variables has been
studied regarding adoption of electronic customer
relationship management. Hence:
H4: Customer pressure positively related to the
adoption of Halal warehousing.
3 METHODOLOGY
The unit of analysis of this study is at organiza-
tional level. Respondents of this study are Halal
manufacturers are who attending the Malaysian
International Halal Showcase 2013 at Kuala Lumpur
 Table 1. Results of measurement model.

Model Measurement
constructs item Loading CRa AVEb

Cost cost1 0.863 0.948 0.822

cost2 0.940
cost3 0.907
Customer custx1 0.893 0.909 0.769
Pressure custx2 0.913
custx3 0.821
Perceived pb1 0.836 0.912 0.674
Benefits pb2 0.806
pb3 0.832
pb4 0.784
pb5 0.845
Readiness Ready1 0.899 0.895 0.682
Ready2 0.847
Figure 1. Reseach Model. Ready3 0.828
Ready4 0.719
Halal int_W1 0.944 0.962 0.895
Warehouse int_W2 0.942
Convention Centre (KLCC), Kuala Lumpur on 3rd– int_W3 0.952
6th April 2013. Focus of this study are on three indus-
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tries which is food, pharmaceuticals and cosmetic.
Since we could get a list of exhibitors, systematic
sampling method was used in this study
3.1 Data collection
The questionnaire was distributed among 200 Halal
manufacturers who joined the exhibition. The
exhibitors are come from all around the world and
also come from every state in Malaysia. Since this
study only focus on companies which are operat-
ing in Malaysia only, all international participants are
excluded from the survey. Out of 200 hundreds ques-
tionnaires, 189 of them were response, but due to poor
quality of data, only 140 of them can be used for data
analysis purpose. Another 11 respondents were reluc-
tant to response since the person who could answer the
questionnaires was too busy entertaining their clients
or not attending the event.
Note: a Composite reliability (CR) = (square of the summa-
tion of the factor loadings)/{(square of the summation of the
factor loadings) + (square of the summation of the error vari-
ances).
b
Average variance extracted (AVE) = (summation of the
square of the factor loadings)/{(summation of the square of
the factor loadings) + (summation of the error variances)}.
3.3 Construct validity
Construct validity can be done by looking at the respec-
tive loadings and cross loading to evaluate if there are
problems with any particular items. Hair et al. (2010)
suggested the cut off value for loading at minimum
0.5 as significant. The cross loading is a significant
problem if any items which has a loading of higher
than 0.5 on two or more factors. Analysis shown that
all the items measuring a particular construct loaded
highly on that construct and loaded lower on the other
constructs thus confirming construct validity.

3.2 Measures and assessment of goodness of

measure
Five point Likert scale was used to gather data
regarding independent variables, and seven-point Lik-
ert scale was used to measure item in dependant
variable. This is an approach in order to avoid
common method variance before data analysis sug-
gested by Podsakoff & Organ, (1986). Since lack
of literature in Halal supply chain adoption, all of
the instruments were adapted from other technology
adoption studies and were modified to fit with cur-
rent study. Items measuring the perceived benefits
were adapted from Sophonthummapharm (2009), Cost
and customer pressure from Premkumar & Roberts
(1998) and Sophonthummapharm (2009), organiza-
tional readiness from Khemtong & Roberts (2006) and
Sophonthummapharm (2009).
3.4 Convergent validity
Convergent validity is the test to measure the degree
to which multiple items to measure the same concepts
are in agreement. Hair et al. (2010) suggested that to
assess convergent validity, the cut off value for load-
ing is should exceed 0.5, and the CR is greater than
0.7. The cut off value for AVE is also 0.5 (Barclay
et al., 1995). As shown on the Table 1, the loadings
for all items, CR and the AVE value, all of them are
above the recommended value by Hair et al. (2010) and
(Barclay et al., 1995). Table 1 summarizes the results
of the measurement model. The results indicate that
all the constructs used are all valid measures of their
respective constructs according to their parameter esti-
mates and statistical significance (Chow and Chan,
2008).

91
 Table 2. Discriminant validity of the constructs.
Ware
Cost Customer PB Ready house
Cost 0.849
Customer −0.137 0.877
Perceived −0.124 0.487 0.841
Benefits −0.229 0.600 0.641 0.817
Readiness
Warehouse −0.415 0.657 0.604 0.709 0.912
Note: Diagonals (in bold) represent the square root of the ave
and the off diagonals represent the correlations.
3.5 Discriminant validity
The discriminant validity can be assessed by examin-
ing the correlations between the measures of potential
overlapping constructs. Items should load higher on
their own constructs in the model. The average vari-
ance shared between each construct and its measures
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should be greater than the variance shared between
the construct and other construct (Compeau et al.,
1999). As depict in the Table 2, the square correla-
tions for each construct are lower than the average
variance extracted (AVE) by the indicators measuring
construct indicating adequate discriminant validity.
As a whole, the measurement model demonstrated
adequate convergent validity and discriminant validity.
The results of the hypothesis testing are stated in
the Table 3. It is shown clearly that all the hypothesis
were supported. All the relationships were significant
at p < 0.01.
4 DISCUSSION AND CONCLUSION
Among those variables has been studied, cost is the
only variable that is significantly act as a barrier to the
adoption of Halal warehouse. This finding it is align
with the findings has been found by Premkumar et al.
(1997) regarding EDI adoption and also Ghobakhloo
et al. (2011) in E-commerce adoption study. It also
means that, the higher the cost to be bone, the lower the
intention for Halal manufacturers to adopt Halal ware-
housing. It is important for the government to know
what are the barriers impeding Halal manufacturers
to adopt Halal warehousing in Malaysia. Currently,
the government only provides incentives to the logis-
tics service providers to attract them become a Halal
service providers, but there is still a lack of incentive
provided by the government to encourage Halal manu-
facturers to adopt the services. Due to that matter, this
finding is very useful to the government for them to
take same actions to overcome it.
Customer pressure was found as a significant vari-
able in the adoption of Halal warehouse in this
study. This finding support the findings from other
areas of studies by Premkumar & Roberts (1999);
Lertwongsatien & Wongpinunwatana (2003), Kit-
tipong Sophonthummapharn, (2009). Customers now
92
Table 3. Path coefficient and hypothesis testing.
Hypothesis Relationship Beta SE t-value Decision
H1 Cost -> 0.272 0.061 4.453**

Warehouse
H2 Customer -> 0.328 0.085 3.878**

Warehouse
H3 Perceived 0.207 0.067 3.115**

Benefits ->
Warehouse
H4 Readiness -> 0.317 0.088 3.591**

Warehouse
**p < 0.01, * p < 0.05.
have not only request for Halal products but also in the
Halal process (Bonne & Verbeke, 2008). Furthermore,
according to Tieman (2007), for customers, the Halal
supply chain is a critical success factor in ensuring the
Halal integrity for Halal products. In the early phase,
Halal supply chain activities are based on trust among
Muslim companies, whereas the seller will be respon-
sible to Allah for ensuring the products are really Halal
to be consumed, but since the majority of the Halal
manufacturers in Malaysia nowadays is from the non-
Muslim, the application of Halal warehouse is a must
to reduce the doubts of Halal integrity for the Halal
products (Tieman, 2011).
Most of the studies found that perceived benefits
have a positive relationship with the intention to adopt
of new technology. This study also confirms the find-
ing from Low et al. (2011) and Ghobakhloo et al.
(2011).
It shows a strong indication that in order to increase
the adoption rate of new innovation, the non-adopter
must understand what are the benefits they could get
if they adopting Halal warehousing in their business
operation. In this case, government body such as Halal
Development Corporation (HDC) or JAKIM should
conduct more sessions or talks regarding the impor-
tance and the benefits of adopting Halal warehousing
services. During an event like MIHAS and Halal fes-
tival which are have been conducted annually, they
should take this opportunity to continue encourage and
convince Halal manufacturers to adopt Halal services.
If the government only relies on the providers them-
selves, may be the potential adopters think they are
promoting their services for their business survival.
But, if the effort comes from the government body,
the perspective should be different. The action taken
by the government usually will have a bigger impact
compare to action taken by service providers.
This study also found that the organizational readi-
ness has a positive relationship with the intention
to adopt Halal warehousing services. This also sup-
ported by Khemtong & Roberts (2006) and Brown &
Russell (2007). This finding is very interesting since
the majority of Halal manufacturers in Malaysia is
owned by the non-Muslim (Tieman, 2011). It shows
that, even though the owners are not Muslim, but the
 organizations are still ready to adopt Halal warehous-
ing services for their Halal products. This scenario
is aligned with the statement made by Othman et al,
2006 and Suhaiza et al., 2011. They mentioned that
compliance with the Halal requirements is not a threat
anymore, but now it is a business opportunity and even
as a sources of competitive advantage. Furthermore,
recently, Halal products also have extended not only
on consumer products, but also in a lifestyle and other
services (Alserhan, 2010).
Even the respondents who attended MIHAS 2013
exhibition is from all around Malaysia, the findings
cannot be reflect for the whole Halal manufacturers in
Malaysia since not all of the Halal manufacturers have
an equal chance to joint this exhibition. This study also
is not a complete study. Few potential variables such as
awareness and complexity were not being used for this
study and yet could provide extra information regard-
ing the study. Future studies should try to understand
the relationships between intention to the adoption
and the organizational characteristics such as location
Downloaded by [Hafaz Ngah] at 02:34 23 May 2014
of manufacturers and number of Halal products they
have.
The important of this study is beside identifying
the drivers to the adoption of Halal warehouse, results
also shown the barriers that impeding Halal manufac-
turers to adopt Halal warehouse. Information on both
the drivers and barrier to the adoption could be used
by practitioners and also from the government bodies.
Both parties should notice what to be done in order
to increase the adoption rates of Halal manufacturers
towards Halal warehousing services, for their business
survival and also to the best of Muslim in Malaysia.
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