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ABSTARCTING AND INDEXING SERVICES

EBSCO (Business Source Complete)
ii
July 2011. VOLUME 2. NUMBER 2
CONTENTS
0009 (332) Page 124-145

OWNERSHIP STRUCTURE AND INTERACTION EFFECTS OF FIRM PERFORMANCE ON MANAGEMENT
COMMENTARY DISCLOSURES
Roshayani Arshad, Rohaya Md Nor, Nur Adura Ahmad Noruddin (Accounting Research Institute, Faculty
of Accountancy, Universiti Teknologi MARA, Malaysia)
0010 (384) Page 146-162

CONSUMER’S RIGHT TO REDRESS AGAINST TRADERS UNDER THE LAW OF SUPPLY OF GOODS: A
COMPARATIVE STUDY OF SELECTED JURISDICTIONS
Sakina Shaik Ahmad Yusoff (PhD), Shamsuddin Suhor, Rahmah Ismail, Azimon Abdul Aziz, Muhammad
Rizal Razman and Kartini Aboo Talib@Khalid (Faculty of Law, Universiti Kebangsaan Malaysia)
0011 (430) Page 163-177

PORT DEVELOPMENT: COMPETITIVE FACTOR IN VALUE CHAIN
Nik Muhammad Aslaam Mohamed Abdul Ghani, Jagan Jeevan, Kasypi Mokhtar and Saharuddin Abdul
Hamid (Faculty of Maritime Studies and Marine Science, Universiti Malaysia Terengganu, Malaysia)
0012 (495) Page 178-183

A CRITICAL ANALYSIS OF TOURIST SATISFACTION AND DESTINATION LOYALTY
Ahmad Puad Mat Som, Seyedeh Fatemeh Mostafavi Shirazi, Azizan Marzuki and Jamil Jusoh (School of
Housing, Building and Planing, Universiti Sains Malaysia)
0013 (510) Page 184-203

THE DETERMINANTS OF INDIVIDUAL UNEMPLOYMENT DURATION: THE CASE OF MALAYSIAN
GRADUATES
Hock-Eam Lim (Economics Building, Universiti Utara Malaysia)
0014 (511) Page 204-215

CONSUMER DISPUTE RESOLUTION: THE WAY FORWARD
Fahimeh Abedi and Sakina Shaik Ahmad Yusoff-PhD (Faculty of Law, The National University of Malaysia-
Universiti Kebangsaan Malaysia)
iii
0015 (610) Page 216-226
THE WORKPLACE SPIRITUALITY AND AFFECTIVE COMMITMENT AMONG AUDITORS IN BIG FOUR
PUBLIC ACCOUNTING FIRMS: DOES IT MATTER?
Mat Desa, Nasina-PhD and Koh Pin Pin, Doris (School of Distance Learning (Management), Universiti
Sains Malaysia)
0016 (383) Page 227-252

SUSTAINABLE COMPETITIVE ADVANTAGE FOR MARKET LEADERSHIP AMONGST THE PRIVATE HIGHER
EDUCATION INSTITUTES IN MALAYSIA
Loh Teck Hua (KDU University College, Business School)
iv
124
JULY 2011. VOLUME 2. NUMBER 2
OWNERSHIP STRUCTURE AND INTERACTION EFFECTS OF FIRM PERFORMANCE

ON MANAGEMENT COMMENTARY DISCLOSURES
Roshayani Arshad*, Rohaya Md Nor, Nur Adura Ahmad Noruddin
Accounting Research Institute, Faculty of Accountancy,
Universiti Teknologi MARA, Malaysia
roshayani@salam.uitm.edu.my
ABSTRACT
A rich empirical research suggests that corporate disclosures are important means for management to
communicate firm performance and governance to outside investors. (e.g. Chau & Gray, 2002; Mohd
Ghazali & Weetman, 2006). In the last few years, there is an increasing attention regarding non-financial
information disclosure in companies' annual reports. An important development in relation to this is the
discussion paper and subsequently statement practice on Management Commentary (MC) issued by the
International Accounting Standard Board (IASB). However, differences in institutional characteristics
affecting financial reporting incentives across countries adopting various pronouncements issued by IASB
are expected to have an effect on the extent of non financial disclosure in MC (Soderstrom & Sun, 2007).
Using the annual reports of 210 Malaysian listed companies, this study aims to investigate the effects of
ownership structure on the extent of management commentary information in two disclosure periods
(2006 and 2008). The two-year window period enables an examination of MC disclosure practices in the
year before and after the revision of Malaysian Code on Corporate Governance in 2007. Results of this
study provide evidence that family owned companies are associated with lower incentives to disclose
more comprehensive MC disclosures. This result contradicts the relationships revealed by goverment
owned companies. The interaction effects of firm performance on the relationships between ownership
structure and the extent of MC disclosures only provide significant relationships for government owned
companies. The insignificant effect on family owned companies suggest that managers in these
companies avoid detailed disclosure of MC information in order to evade close monitoring by outside
investors (Shleifer & Vishny, 1997). In addition, the results also indicate that the corporate governance
revision has not resulted in the desired level of monitoring in influencing managers to disclose more
comprehensive voluntary information. Alternatively, these results provide support to the view that
mandatory requirements provide a vehicle through which countries characterized with concentrated
ownership structure can enhance their financial reporting infrastructure and improve investor protection
(Hope et al., 2006). Overall, the findings provide useful information to IASB, standard setters and other
regulatory bodies in promoting transparency and convergence of corporate disclosures.
Keywords: Management Commentary Disclosure, Ownership Structure, Firm Performance,

Voluntary Disclosure
----------------------------------------------------------------------------------------------------------------------------------
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1.0 INTRODUCTION
International Financial Reporting Standards (IFRS) are currently being adopted in many jurisdictions
around the world. The widespread calls for corporate transparency by International Accounting
Standards Board (IASB) and the adoption of International Financial Reporting Standards (IFRS) are
expected to result in the provision of more comparable and comprehensive financial information to
users of financial statements. The recent Practice Statement on Management Commentary (MC) issued
by IASB in 2010 is expected to affect managers’ disclosure incentives of non financial information in
companies’ annual reports. The IASB project on management commentary started since 2002 and after
several discussion papers, the IASB issued an exposure draft on Management Commentary in 2009.
The IASB believes that the practice statement provides useful guidance for entities to communicate
information, from management perspectives, for users to interpret the financial position, financial
performance and cash flows of an entity. The flexible application of the practice statement, as it is non-
binding, is expected to benefit entities in jurisdictions that have local requirements or regulations. In
addition, the practice statement can also encourage entities that are not accustomed to presenting
management commentary to provide such disclosures in their annual reports. Overall, the provision of
management commentary in companies’ annual reports is expected to make comparisons of financial
reports more meaningful across borders. However, differences in financial reporting incentives across
countries adopting IFRS and other pronouncements issued by IASB are expected to have an effect on the
extent of non financial disclosure in MC (Soderstrom & Sun, 2007). For example, several empirical
studies provide evidence that companies in countries characterized by concentrated ownership
structure have lower incentives for financial reporting (e.g. Chau & Gray, 2002; Fan & Wong, 2002;
Gabrielsen et al., 2002; Ho & Wong, 2001). The potential entrenchment problem associated with high
ownership could lead the controlling owners to put pressure on managers to avoid detailed disclosure in
order to evade close monitoring by outside investors (Shleifer & Vishny, 1997). Lack of regulatory
enforcement on managers’ disclosure decisions could further exacerbate the transparency issue in these
companies. Alternatively, companies operating in countries with diffused ownership structure are
expected to have higher incentives for financial reporting. As such, while a uniform accounting standard
facilitates investors to compare financial reports for each company and country, it may not improve the
extent of disclosure uniformly due to varying incentives of financial reporting. An examination of the
determinants of non financial disclosure in MC by companies operating in different institutional
environment will be sought by outside investors (and possibly other stakeholders) and policy makers.
The theoretical perspective taken in this study under the agency theory is that management have
incentives to disclose higher level of voluntary information because it signals that they are acting in the
interests of the investors. But this benefit could be outweighed by certain elements of ownership
structure that potentially limit more transparent disclosure of voluntary information to outside
investors. Hence, the aim of this study is to examine the effects of ownership structure on the extent of
MC disclosures. In addition, this study also examines the effects of firm performance on this
relationship.
2.0 MOTIVATION FOR THE STUDY
There is a paucity of empirical evidence on issues related to voluntary disclosure of MC, in particular
regarding the impacts of ownership in the East Asian countries following the convergence efforts by
IASB. Therefore, this study aims to provide new evidence on how ownership structure of Malaysian
126
companies influences voluntary reporting practices of MC. Such an understanding is useful to standard
setters, regulators, policy makers, the professional bodies and to other users of financial information.
The context chosen for the study is the disclosure environment in Malaysia during 2006 and 2008. The
earlier year reflects corporate disclosure environment when public listed companies are required to
comply with IFRS. The more comprehensive mandatory reporting requirements under the IFRS are
expected to have some influence on managers’ voluntary disclosure decisions. The emphasis on
mandatory requirements may override managers’ incentives to disclose voluntary information. In
contrast, the revision of the Malaysian Code on Corporate Governance (MCCG) in 2007 may induce
managers to increase their voluntary disclosure in 2008. The revision in the MCCG is a result of ongoing
regulatory efforts undergone in the review of financial reporting and corporate governance in Malaysia
following the Asian financial crisis in 1997. The implication of this revision is that it establishes an
expectation of accountability through greater transparency. Hence, the setting is conducive to the study
of voluntary reporting practices on MC over time and incentives for management to disclose such
information in two different disclosure regimes.
3.0 BACKGROUND AND HYPOTHESES GENERATION
3.1. BACKGROUND ON STATEMENT PRACTICE MANAGEMENT COMMENTARY
IFRS Practice Statement Management Commentary was issued by the IASB in December 2010.
Management commentary provides management with an opportunity to explain its objectives and its
strategies for achieving those objectives. Such information is expected to facilitate users of financial
statements in evaluating an entity’s prospects, its general risks, as well as the success of management’s
strategies for achieving its stated objectives.
While the elements of MC depend on the facts and circumstances of the entity, the statement practice
highlights that MC should include information that is essential to an understanding of: the nature of the
business; management’s objectives and its strategies for meeting those objectives; the entity’s most
significant resources, risks and relationships; the results of operations and prospects; and the critical
performance measures and indicators that management uses to evaluate the entity’s performance
against stated objectives. The information provided in these elements to users of financial statement is
shown in Table 1 below.
127
Table 1: The Elements of MC and the Needs of Users of Financial Statements
(Extracts from Statement Practice Management Commentary, IASB)
3.2. GOVERNMENT OWNERSHIP AND MANAGEMENT COMMENTARY DISCLOSURES
Government ownership in Malaysia is mainly through the government investment’s company, Khazanah
Holdings Bhd. Given the government’s initiatives in promoting corporate transparency through the
implementation of MCCG in Malaysia, it is important to examine the disclosure tendencies of managers
in government owned companies.
In line with the government efforts, it is expected that managers in these companies have higher
incentives to disclose voluntary information to reduce agency conflicts. Prior literature on corporate
disclosure orientation in government owned companies suggest that agency conflicts in these
128
companies are relatively higher than private owned companies (Eng & Mak, 2003; Luo, Courtenay, &
Hossain, 2006). These studies argue that while government owned companies are run similar to other
private commercial enterprises, their main objectives differ. The primary objectives of enhancing the
national welfare and other non-profit considerations may not be consistent with value maximization
objective of other private commercial enterprises, thus contributing to the high agency costs. In such
situation, managers in these companies have higher incentives to disclose more detailed information to
signal the state’s commitment in achieving the various objectives to outside investors and other
stakeholders (Eng & Mak, 2003). Following these arguments, higher disclosure of voluntary information
is expected among government owned companies.
In contrast, where government ownership is substantial, managers can have lower incentives to disclose
more detailed information to outside investors, and other stakeholders (Nazli & Weetman, 2006). As
substantial state ownership suggests availability of high government funds and increased monitoring by
the government, managers are required to disclose more detailed disclosures to the government.
Consequently, this can lower managers’ incentives to disclose more detailed information to outside
investors and other stakeholders. However, it is contented in this study that the state’s commitment to
improve transparency will lead to some increase in managers’ incentives to disclose voluntary
information. Based on this reasoning, the following hypothesis is formulated:
H1: The percentage of government ownership is significantly positively related to the extent of MC.
3.3 FAMILY OWNERSHIP AND MANAGEMENT COMMENTARY DISCLOSURE
Several studies focus on family owned companies in examining the impact of controlling owners on
corporate disclosures (Chau & Gray, 2002; Chen & Jaggi, 2000; Haniffa & Cooke, 2002; Ho & Wong,
2001; Nazli & Weetman, 2006; Wang, 2006). These literatures suggest that gaining control of the
company is possible because family members usually hold important positions on both the management
team and the board of directors. Further, this can also suggests the existence of dominant group of
shareholders or a substantial shareholder with strong influence who can nominate family members
representations on the board. Either argument implies that the company is being managed by family
owners and less diffused in terms of ownership structure. As owner managers have greater access to
internal information, they have less incentive to disclose detailed information to outside investors and
other stakeholders (Ali, Chen, & Radhakrishnan, 2007).
Gaining control of the company also enable the owners to influence the appointments of independent
non-executive directors (Chen & Jaggi, 2000; Ho & Wong, 2001; Wang, 2006). Such influence could
impair the directors’ independence and could lead to higher risk of collusion between independent non-
executive directors and family owners (Patelli & Prencipe, 2007). Prior empirical evidence suggests that
independent non-executive directors appointed through the influence of family owners support major
decisions in favour of family owners rather than outside investors (Chen & Jaggi, 2000; Leung & Horwitz,
2004). Consequently, family firms have incentive to reduce the comprehensiveness of MC information
disclosed in annual reports. Following this argument, this study formulates the following hypothesis:
H2: The percentage of family members on the board is significantly negatively related to the extent
of MC.
129
3.4. MANAGEMENT COMMENTARY DISCLOSURE AND FIRM PERFORMANCE
The agency literature suggests that agency conflicts arise because managers’ have superior information
regarding the present and likely future performance of the company relative to outside investors. The
information asymmetry creates uncertainty among outside investors as to whether managers are acting
in their interests as owners. One important mechanism suggested by corporate governance and
reporting literatures to increase the likelihood that managers act in the interests of the investors is to
monitor the actions of managers (Fama & Jensen, 1983; Forker, 1992; Healy & Palepu, 2001; Shleifer &
Vishny, 1997). In order to monitor managers, investors need information because information
asymmetry exists between managers, who have access to management information and investors who
are external to the company (Whittington, 1993). Whittington (1993) suggests that supply of
information through companies’ annual reports is a means of relieving the information asymmetry and
enable investors to monitor the actions of managers.
The voluntary information disclosed in MC provides opportunities for managers to communicate

information beyond mandatory disclosure requirements. This can potentially facilitate a company to
develop its’ reputation for providing more comprehensive information to outside investors. Developing
such reputation can eventually strengthen investors’ relationship and correct investors’ perceptions. At
the same time, such disclosures allow managers to reduce uncertainty regarding the company’s current
and future performance (Graham et al., 2005). This in turn has to potential to correct an under-valued
stock price, increase stock liquidity, attract future shareholders and subsquently improve firm
performance. Alternatively, it also reflects manager’s capabilities in maximising profits on behalf of the
investors. Based on this reasoning, it is expected that firm performance will strengthen manager’s
incentives to disclose more comprehensive MC information. This leads to the following hypotheses:
H3a: Firm performance will strengthen the positive relationship between government ownership and
the extent of MC.
H3b: Firm performance will weaken the negative relationship between percentage of family members
on the board and the extent of MC.
4.0 METHODOLOGY
4.1 SAMPLE AND DATA COLLECTION
The selection of sample companies starts with a list of companies listed on the main board of Bursa
Malaysia ranked according to their market capitalisation as at 31 December 2006. This selection process
allows companies to be selected across a range of sizes based on market capitalisation, thus reducing
the bias of selecting only large companies. The finance companies were excluded due to different
regulatory requirements and also material difference in their types of operations (e.g. Ahmed & Courtis,
1999; Cheng & Courtenay, 2006; Gray et al., 1995). In addition, companies were also dropped from the
sample due to missing data related to the variables of interests in this study. Finally, the selected sample
of companies for 2006 is then selected for 2008. The summary of sample selection is as shown below.
Summary of Sample Selection
Random selection of companies listed on the

130
The research approach involves the content analysis of listed companies’ published annual reports.
Content analysis has been widely employed in prior studies to measure the extent of corporate
disclosure (e.g. Chen & Jaggi, 2000; Cooke, 1989; Gul & Leung, 2004).
4.2 EMPIRICAL SCHEMA
The relationships developed in the three hypotheses are depicted in an empirical schema as given in
Figure 1. This study focuses on the extent of MC, where the dependent variable MC is based on the
aggregate number of words related to MC disclosure in annual reports. Various recording units have
been used by content analysis researchers to measure the extent of corporate disclosures. According to
Gray et al. (1995), there is some uncertainty as to the optimal measure of the extent of disclosure, with
words, sentences and pages being the preferred units of analysis for written communication. Unerman
(1999)’s finding indicates that testing content analysis of using words, sentences and pages has no
significance different among those methods. In addition to the identified independent variables, this
study also includes two firm characteristics identified in prior research as determinants of management
disclosure decisions (e.g. Botosan, 1997; Chau & Gray, 2002; Haniffa & Cooke, 2002) as control variables.
These variables are leverage and size. The definition and measurement of variables used in this study
are listed in Table 1.
The relationships developed in the hypotheses can be depicted in an empirical schema as given in Figure
1. The definition and measurement of variables used in this study are listed in Table 1.
131
Figure 1: Empirical Schema of Proxies for Agency Theory on Management Commentary Disclosure
132
Table 1: Definition and Measurement of Variables
5.0 ANALYSIS AND RESULTS
5. 1 DESCRIPTIVE STATISTICS
Table 2 provides descriptive statistics of the MC and the independent variables.

133
Table 2: Descriptive statistics for the dependent and continuous independent variables
The extent of MC in words ranges from 0 to 113,193 in 2006 and 0 to 31,681 words in 2008 respectively.
While the mean values show significant difference, the trends of MC disclosures for the samples
companies are almost similar for both years. This is reflected in Table 3 below.
Table 3: Trend of Management Commentary Disclosure

134
With regards to ownership structure, the percentage of family owned companies are significantly higher
relative to government ownership. Percentage of government ownership ranges from 0% to 66.07% in
2006 and 0% to 65.48% in 2008, while family ownership ranges from 0% to 71.43% in both years. Firm
performance as measured by EBIT and ROA are almost similar for both years. This is reflected in the
mean values of these variables. With regards to leverage (LEV), it ranges from a minimum of 0 million to
a maximum of 0.76 million and 0.79 million in 2006 and 2008 respectively. Finally, the mean values of
size of the companies in the sample are almost similar.
Normality analysis based on the correlations results among the independent variables and control
variables are reported in Table 4 and Table 5 respectively. In particular, the results show that most of
the variables relating to ownership structures are significantly correlated to each other.
Table 4: Pearson Correlation among Dependent Variable, Continuous Independent Variables and
Control Variables (2006)
135
Table 5: Pearson Correlation among Dependent Variable, Continuous Independent Variables and
Control Variables (2008)
The relatively high number of correlations reported in Table 4 and Table 5 also suggests that
multicollinearity could be a problem. When multicollinearity exists, the impact is that the predictive
power of a particular independent variable is reduced by the extent to which it is associated with the
other independent variables. To assess for the presence of multicollinearity, tolerance value and the
variance inflation factor (VIF) are examined. Table 6 presents the tolerance and the variance inflation
factor (VIF) values when all the independent variables are entered into the regression analysis.
136
Table 6: Tolerance and Variance Inflation Factor (VIF) Values
The maximum VIF value presented in the Table 6 is 3.268 for EBIT. According to Hair et al., (1998), VIF
values greater than 10 indicate a multicollinearity problem. As VIF values for all the variables in Table 6
did not exceed 3.268, this suggests that there is no multicollinearity problem among the independent
variables.
Based on the above correlation results, the data used in this study does not meet the normality
assumptions of the multiple regression analysis. As such, the data has to be transformed. This study
adopts the normal scores transformation approach for all the variables. Transformation of all the
variables is justified because changing one variable implies changing the relationship between MC and
all the other variables (Cooke, 1998). Under the normal scores approach, the actual observations are
transformed into a normal distribution by dividing the distribution into the number of observations plus
one region on the basis that each region has equal probability. This method is also referred to as the van
der Waerden approach. All multivariate analyses discuss in the following section are based on normal
scores data.
5.2 Multivariate Analysis
In this study linear multiple regression is used as the basis of analysis for testing H1 to H3b. The
hypothesized relationships are modeled as follows.
MC = β0 + β1 GOV + β2 FAM + β3 GOVPERF + β4 FAMPERF + β5 LEV + β8 SIZE + εt
where MC represents the extent of MC disclosure while definitions for independent variables are given
in Table 1. PERF represents firm performance as measured by EBIT and ROA.
137
In the above regression model, multicollinearity was tested using the variance inflation factor and
tolerance levels, and found to be well within the satisfactory range. The results of the regression analysis
are presented in Table 7, 8 and 9. These results are now discussed in terms of tests of each of the
hypotheses established in this study.
Results of the multiple regression analysis report that the adjusted R2 is 0.234 in 2006 and 0.311 in
2008. The significant increase in the adjusted R2 value in 2008 suggests the potential effect of the
revision of corporate governance on the extent of MC.
Hypothesis 1 expects a positive relationship between government ownership and the extent of MC.
However, results in Table 7 and 8 reveal insignificant relationship between GOV and MC in 2006 and
2008. Hence, H1 is rejected for both years.
With regards to family ownership, hypothesis 2 expects a negative relationship between FAM and MC.
Results in Table 7 and Table 8 reveal negative relationships between FAM and the extent of MC. The
significant effect reported for FAM on MC is consistent with many previous studies (e.g. Ho & Wong
2001; Haniffa & Cooke 2002; Nazli & Weetman, 2006). These studies argue that due to the strong
influence of family owners on both the management and board decisions, these companies tend to limit
information flows to outside investors and other stakeholders. Further, it also infers that the regulatory
effort on corporate governance in 2007 has not resulted in improvement on the monitoring
effectiveness of managers’ disclosure decisions. The dominating influence of family owners on the board
provide opportunities to the owners to influence the appointments of independent non-executive
directors. Such influence could impair the directors’ independence and could lead to higher risk of
collusion between independent non-executive directors and family owners (Patelli & Prencipe, 2007).
Subsequently, this could impair the monitoring effectiveness of corporate governance mechanism.
Based on the results in this study, H2 is accepted for both years.
Table 7: Multiple Regression Results for Factors Affecting the Extent of MC Disclosure (2002)
138
* Significant at 10% level (1-tailed test); * * Significant at 5% level (1-tailed test); * * * Significant at
1% level (1-tailed test)
Table 8: Multiple Regression Results for Factors Affecting the Extent of MC Disclosure (2008)
* Significant at 10% level (1-tailed test); * * Significant at 5% level (1-tailed test); * * * Significant at 1%
level (1-tailed test)
Table 9 presents the interaction effects of firm performance on the relationships between ownership
structure and the extent of MC. Results in Table 9 reveals interesting results in relation to the effects of
family ownership on the extent of MC. The results reveal insignificant relationship between family
owners and the extent of MC in 2006. Based on this result, H2 is only accepted for 2008.
H3a expects that firm performance will strengthened the relationship between government ownership
and the extent of MC. Based on firm performance as measured by EBIT, H3a is only accepted for 2006.
However, when firm performance is measured based on ROA, H3a is accepted for 2008. The
inconsistent results may be due to the measurement used for firm performance. Nevertheless, the
results provide an inference that disclosures of more comprehensive information on MC has the
potential to impact on firm performance and increases managers incentives to increase voluntary
information to outside investors.
In relation to H3b, it is hypothesised that firm performance will weaken the relationship between family
ownership and the extent of MC. However, the results in Table 9 reveal insignificant relationships
(FAMEBIT and FAMROA) for both years. Hence, H3b is rejected for both years. These results further
corroborate the lower disclosure incentives by managers in family owned companies as discussed in H2
above.
139
Table 9: Multiple Regression Results for Interaction Effects of Firm Performance for 2006 and 2008
* Significant at 10% level (1-tailed test); * * Significant at 5% level (1-tailed test); * * * Significant at 1%
level (1-tailed test)
6.0 CONCLUSION AND LIMITATIONS
This study has examined whether the extent of MC in companies annual reports in Malaysia changes
between two different disclosure regimes and whether there is an association with ownership structure.
In addition, this study also examine the interaction effects of firm performance on these relationships.
The regression findings revealed that family owned companies are associated with lower incentives to
disclose more comprehensive MC disclosures. This result contradicts the relationships revealed by
goverment owned companies. The interaction effects of firm performance on the relationships between
ownership structure and the extent of MC disclosures only provide significant relationships for
government owned companies. The insignificant effect on family owned companies infers that
managers in these companies avoid detailed disclosure of MC information in order to evade close
monitoring by outside investors (Shleifer & Vishny, 1997). In addition, the results also indicate that the
corporate governance revision has not resulted in the desired level of monitoring in influencing
managers to disclose more comprehensive voluntary information. Additionally, the voluntary nature of
MC does not provide sufficient incentives for managers to provide more comprehensive information to
investors that can subsequently improve investors relation. Alternatively, these results provide support
to the view that mandatory requirements provide a vehicle through which countries characterized with
concentrated ownership structure can enhance their financial reporting infrastructure and improve
investor protection (Hope et al., 2006). Overall, the findings provide useful information to IASB, standard
setters and other regulatory bodies in promoting transparency and convergence of corporate
disclosures.
140
This study has some limitations in its empirical modeling. First, only two measures of firm performance
have been used in this study. This could reduce the robustness of the results revealed in the study.
Second, this study focused only on selected category of voluntary disclosure in corporate annual
reports. information related to the elements identified in the statement practice of MC may be disclosed
in other parts of the annual reports. Finally, the empirical model can suffer from omitted variables. In
particular, theoretical and empirical research suggests that corporate disclosures are affected by various
corporate governance mechanisms. Hence, future research can be extended to integrate other forms of
corporate governance mechanisms as well as voluntary corporate disclosures included in other parts of
the annual reports.
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CONSUMER’S RIGHT TO REDRESS AGAINST TRADERS UNDER THE LAW OF

SUPPLY OF GOODS: A COMPARATIVE STUDY OF SELECTED JURISDICTIONS
Sakina Shaik Ahmad Yusoff (PhD)*, Shamsuddin Suhor, Rahmah Ismail, Azimon Abdul Aziz,
Muhammad Rizal Razman and Kartini Aboo Talib@Khalid
*Faculty of Law, Universiti Kebangsaan Malaysia
kinasay@ukm.my
ABSTRACT
The modern era is a harbinger of ultra-modern, highly complicated and sophisticated technology, trade
and industry. The 21st century saw great economic change in market place. In the realm of supply of
goods, globalisation and the advancement of technology have a tremendous impact on the production,
distribution and consumption of goods. This new phenomenon has led to a major concern on the market
place as the guarantor of the best interest of consumers. The disparity in the consumers’ bargaining
power, resources and knowledge vis-à-vis traders in market place has led to a need for a better legal
protection in the realm of supply of goods. However, achieving a fair balance between the needs of
market providers and the consumers is indeed a major challenge to law makers. Applying the content
analysis method, this paper aims at exploring the provisions on trader’s contractual liabilities and
remedies under the consumer contract for the supply of goods in Malaysia, United Kingdom, European
Union and based on the provisions of the United Nations Convention on Contracts for the International
Sale of Goods. The paper will first discuss provisions in the Sale of Goods Act 1957 and the Consumer
Protection Act 1999 of Malaysia. The paper will then analyse the EC Directive on Certain Aspects of the
Sale of Consumer Goods and Associated Guarantees and the United Nations Convention on Contracts for
the International Sale of Goods on aspects of trader’s liabilities and remedies and the United Kingdom
provisions on exclusion of trader’s liability.
Field of Research: The Supply of Goods Law, Consumer Law, Contract Law
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1.0 INTRODUCTION
Consumer protection enters the new millennium with a more vigorous role in ensuring a fair
marketplace and a just and equitable society. The aim of consumerism is to regulate and intervene in
the market in their noble cause of upholding and empowering consumers in trade. Consumerism with its
interventionist approach is indeed a great consumer synergy; ensuring equity and social justice thus
contributes towards achieving equality in market and the improvement of economic efficiency by
remedying market failures. Achieving a fair balance between the needs of market providers and the
consumers is indeed a major challenge to law makers. Traders have created an absolutely free market
for the smooth flow of their products and at the same time ways and means to discharge their liabilities
and increase their rights at their own whim, often at the disadvantage of their unequal partner, the
consumers. In the course of remedying market failure, thus ensuring fair trading environment, one of
the most important tools in ensuring ethical trading environment is the use of consumer protection
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legislations. Indeed, market requires a tool through which fair and just exchanges can be effectively
regulated, thus balancing the inequality that exists between market players. Indeed consumerism
loaded with paternalistic ideals of protecting consumers is a paradigm shift to be welcome in this era.
In Malaysia, the new market ideology, consumer welfarism, has permeated through its consumer
protection laws. Nevertheless in the area of supply of goods, freedom of contract and caveat emptor
still remain predominantly the underlying concepts in consumer contracts in Malaysia. Thus, there is a
cause for concern in this area of law in the light of liberalisation of trade. The relevant legislations
governing supply of goods in Malaysia are the Contracts Act 1950, the Sale of Goods Act 1957 and the
Consumer Protection Act 1999. The Contracts Act 1950 being the parent law governing contractual
relationships is not an exhaustive legislation. The Sale of Goods Act 1957 on the other hand is not a
consumer protection oriented piece of legislation. Many of its principles are based on the common law
principles during the 18th and 19th centuries during which freedom of contract and laissez faire were
widely practiced. Therefore it is no surprise that this Act contains provisions which defeat consumer
expectations and interests. With the coming into force of the Consumer Protection Act 1999, it has given
hope to consumers but the nature of the Act being supplemental and without prejudice to any other law
regulating contractual relations has indeed reduces the effectiveness of this long awaited legislation.
2.0 THE STATUTORY CONTROL OF SUPPLY OF GOODS IN MALAYSIA: THE HISTORICAL BACKGROUND
AND APPLICATION
Consumer contracts in Malaysia are governed mainly by the Contracts Act 1950, the Sale of Goods Act
1957 and the Consumer Protection Act 1999. The Contracts Act 1950 (CA) being the parent law
governing contractual relationships has its origin in the Indian Contract Act 1872. In 1899, the Indian Act
was extended with minor modifications to the Federated Malay States as the Contracts Enactment 1899.
In 1950, the Enactment became the Contracts (Malay States) Ordinance 1950. In 1974, the Ordinance
was revised and extended throughout Malaysia and by virtue of the Revision of Laws Act 1968, the
Ordinance became the Contracts Act 1950. CA governs three important phases of contract law, namely,
formation of contract, discharges of contracts and damages. CA is however silent on the content of a
contract and thus recourse to common law on this part of the law of contract is required (Sakina and
Azimon 2010).
One of the legislations in Malaysia affecting content of a contract for the supply of goods is the Sale of
Goods Act 1957 (SOGA). Modeled upon the Indian Sale of Goods Act 1930 which has its origin in the
English Sale of Goods Act 1893, SOGA 1957 is a revision of the 1957 Sale of Goods (Malay States)
Ordinance. The 1957 Act only applies to West Malaysia. By virtue of section 5(2) of the Civil Law Act
1956, the law applicable to the states of Sabah and Sarawak must be “the same as would be
administered in England in the like case at the corresponding period.” In the case of Heng Leong Motor
Trading Co. v Osman bin Abdullah [1994] 2 MLJ 456, Chong Siew Fai J in the High Court of Kuching held
that the UK Sale of Goods Act 1979 was applicable in Sarawak by virtue of the 1956 Act. As pointed out
by Wu Min Aun (1994), this dualism of law in Malaysia has the potential of creating a number of legal
problems.
The difference between the law as applied in Peninsular Malaysia and the two States of
Sabah and Sarawak has the potential to cause complex legal problems. In the absence of
cogent reasons for its continuation, the attainment of complete uniformity should be
targeted for immediate attention. A quick solution, which was used in the past, would be to
extend the Sale of Goods Act to Sabah and Sarawak. This technique was adopted when the
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Contracts Act was made applicable nationwide. Until full uniformity is achieved, differences
in aspects of law will continue as a backdrop that nags legal practitioners.
SOGA 1957 applies to contract for the ‘sale of goods’ as defined in section 4 of the Act. Under the Act, a
‘contract of sale of goods’ has been defined as “a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.” The Act incorporates into statutory form
important principles established in case law. As the 1957 Act is not a consumer oriented piece of
legislation, it thus governs dealings between business and business (B2B) as well as business and
consumers (B2C). SOGA applies to all types of goods and makes no difference between commercial and
private sales or between wholesale and retail (Wu Min Aun 1994). SOGA does not provide a
comprehensive law for the sale of goods and as such it operates against the background of the law of
contract. By virtue of section 3 of SOGA however, “the Contracts Act 1950, in so far as they are not
inconsistent with the express provisions of this Act shall continue to apply to contracts for the sale of
goods.”
In the realm of supply of goods, another legislation which is a source of law in Malaysia is the Consumer
Protection Act 1999 (CPA). The Act which comprises of 14 parts and a total of 150 sections, represents
the single most important piece of legislation in the history of consumer protection in Malaysia.
Speaking at a conference a few months before the passing of the Act, Halimah Ahmad (1999) has this to
say;
For the first time in forty-two years there is a basic law, or an irreducible minimum of
consumer protection legislation that will be direct protection for consumers … instead of
‘indirect protection’ that is found scattered throughout civil, criminal and commercial
legislations covering diverse areas of health, agriculture and transport where the
responsibility for implementation lies with different Ministries. Under the CPA,
implementation of consumer protection measures will be directly under the Ministry of
Domestic Trade and Consumer Affairs.
The 1999 Act came into force on 15 November 1999. The Act goes some way towards remedying the
forces of inequality. As Wu Min Aun (1999) pointed out, it restores some equilibrium between suppliers
and consumers. CPA was enacted to provide a comprehensive protection to consumers. The Act came
into effect on 15th November 1999. Before the enactment of CPA, there was no single act which gives a
comprehensive protection to consumers in trade. The Act provides for misleading and deceptive
conduct, false representation and unfair practice; safety of goods and services; guarantees in respect of
supply of goods and supply of services; rights against suppliers and manufacturers in respect of
guarantees in the supply of goods and services; product liability; National Consumer Advisory Council
and Tribunal for Consumer Claims.
Despite the introduction of CPA, it nevertheless transpires that the Act contains several major flaws.
Although the Act is very much welcome by consumers and consumer movement groups with a hope
that the Act would be able to give a comprehensive protection to consumers, this hope has been set
back by the nature of the Act itself. CPA is very limited in its application. By virtue of section 2(4):
The application of this Act shall be supplemental in nature and without prejudice to any
other law regulating contractual relations.
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Section 2(4) has made the application of CPA subject to the Contracts Act 1950, Sale of Goods Act 1967
and Hire Purchase Act 1967. Many comments have been made to have this provision deleted. CPA
applies “in respect of all goods and services that are offered or supplied to one or more consumers in
trade.” The Act defines ‘consumer’ as a person who “(a) acquires or uses goods or services of a kind
ordinarily acquired for personal, domestic or household purpose, use or consumption; and (b) does not
acquire or use the goods or services, or hold himself out as acquiring or using the goods or services,
primarily for the purpose of resupplying them in trade; consuming them in the course of a
manufacturing process; or in the case of goods, repairing or treating, in trade, other goods or fixtures on
land.” By this definition, it would mean that to be a ‘consumer’ under the Act and thus entitled to its
protection, a person must be able to satisfy two stages:
i. He must acquire goods or services for personal, domestic or household purpose, use or
consumption; and
ii. The goods or services that he acquires must be of a kind ordinarily acquired for personal,
domestic or household purpose, use or consumption.
The definition thus limits the application of CPA. If a person acquires goods which are not ordinarily
acquired for personal, domestic or household purpose, he is not a consumer under CPA even though he
acquires the goods for personal, domestic or household purpose. ‘Goods’ is defined under section 3 as
“goods which are primarily purchased, used or consumed for personal, domestic or household purposes,
and includes goods attached to, or incorporated in, any real or personal property; animals, including
fish; vessels and vehicles; utilities; and trees, plants and crops whether on, under or attached to land or
not, but does not include choses in action, including negotiable instruments, shares, debentures and
money.” The definition only covers goods which are primarily purchased, used or consumed for
personal, domestic or household purpose. If the purpose of acquiring of the goods is only ancillary to the
personal, domestic or household purpose, the goods are not within the meaning of ‘goods’ under the
Act.
3.0 TRADER’S LIABILITY UNDER A CONTRACT FOR THE SUPPLY OF GOODS: CONSUMER’S REDRESS
Trader’s liability under the law of supply of goods in Malaysia is governed by two statutes of a different
nature, namely the Sale of Goods Act 1957 and the Consumer Protection Act 1999. Upholding the
doctrine of freedom of contract and privity of contract, SOGA provides for both the obligations of the
seller and buyer. CPA being a consumer oriented piece of legislation, upholds the consumer welfarism
ideology and thus provides for the protection of consumers in trade.
3.1 SALE OF GOODS ACT 1957
The Malaysian Sale of Goods Act 1957 contains several provisions on the obligations of traders under a
contract for the sale of goods. The terms implied in sections 12 – 17 in the Act are designed to ensure
that buyers receive certain basic benefits from the sale transaction.
i. Section 14 – Implied undertaking as to title
The section deals with three implied terms, namely, an implied condition that the seller has the right to
sell, an implied warranty that the buyer shall have and enjoy quiet possession of the goods and an
implied warranty that the goods shall be free from any charge or encumbrance. Under this section, the
most important provision is that the seller has to have the right to sell. The phrase ‘right to sell’ was
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defined by Scrutton LJ in Niblett Ltd. v Confectioners’ Materials Co. [1921] 3 KB 387 to mean “If a vendor
can be stopped by process of law from selling, he has no right to sell.” The pharse was also defines by
Atkin LJ as “…the existence of a title superior to that of the vendor, so that possession of the vendee
may be disturbed…”
ii. Section 15 – Sale by description
Under the section, where there is a contract for the sale of goods by description, there is an implied
condition that the goods shall correspond with the description; and is the sale is also by sample, goods
must correspond both with description and sample.
iii. Section 16 – Implied condition as to quality and fitness
The section provides for two implied conditions, namely, that the goods must be reasonably fit for the
purpose and that the goods must be of merchantable quality. The Act however fails to define the phrase
‘merchantable quality’. In the case of Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44, Lord
Denning pointed out that among factors to be taken into account in assessing ‘merchantable quality’
includes the purpose for which goods of that nature are commonly bought, the description applied, the
price and any other relevant circumstances.
iv. Section 17 – Sale by sample
The section provides that in the case of a contract of sale by sample, there is an implied condition that
the bulk shall correspond with the sample in quality; the buyer shall have a reasonable opportunity of
comparing the bulk with the sample; and the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the sample.
Under section 12 of SOGA, where there is a breach of an implied condition, the breach gives rise to a
right to treat the contract as repudiated. As such the buyer may exercise his right to reject the goods.
Nevertheless, where the term breached is only a warranty, the buyer is only entitled to a claim for
damages. Where the seller is in breach of the implied terms under SOGA, a number of remedies are
available to the buyer, namely, damages for non delivery of the goods under section 57, damages for
breach of warranty under section 59, or specific performance.
3.2 CONSUMER PROTECTION ACT 1999
Part V, VI and VIII of the Malaysian Consumer Protection Act 1999 provides for additional consumer
protection in respect of supply of goods. The Act produces significantly Parts I, II and III of the New
Zealand Guarantees Act 1993. CPA 1999 has an impact on both suppliers and manufacturers. Part V and
VI create new rights against suppliers, whilst Part VII creates new rights against manufacturers. In
relation to goods, section 2 of CPA defines a ‘supplier’ as “a person who, in trade – (a) supplies goods to
a consumer by transferring the ownership or the possession of the goods under a contract of sale,
exchange, lease, hire or hire-purchase to which that person is not a party.” Under section 2, a
‘manufacturer’ has been defined as “ a person who carries on a business of assembling, producing or
processing goods, and includes – (a) any person who holds himself out to the public as a manufacturer
of the goods; (b) any person who affixes his brand or mark, or causes or permits his brand or mark to be
affixed, to the goods; and (c) where goods are manufactured outside Malaysia and the foreign
manufacturer of the goods does not have an ordinary place of business in Malaysia, a person who
imports or distributes those goods.”
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3.2.1 CONSUMER’S RIGHTS AGAINST SUPPLIERS
Part V provides seven implied guarantees in the supply of goods to consumers as against a supplier of
goods. The guarantees are as follows:
i. Section 31: Implied guarantee as to title
Where goods are supplied to a consumer, there is an implied guarantee that-
(a) The supplier has a right to sell the goods;
(b) The goods are free from any undisclosed security; and
(c) The consumer has a right to quiet possession of the goods.
The phrase ‘right to sell’ means “a right to dispose of ownership of the goods to the consumer at the
time when that ownership is to pass”. ‘Undisclosed security’ refers to “any security that is – (a) not
disclosed to the consumer in writing before he agrees to the supply; and (b) not created by or with his
express consent.” The expression ‘quiet possession’ refers to the right of possession of the goods free
from any interference.
ii. Section 32: Implied guarantee as to acceptable quality
Section 32 introduces a new standard of quality in supply of goods. The concept of ‘acceptable quality’
incorporates the factors relevant in considering ‘merchantable quality’ in the Sale of Goods Act 1957.
Under section 32(2), goods shall be deemed to be acceptable quality “(a) if they are- (i) fit for all the
purposes for which of that type are commonly supplied; (ii) acceptable in appearance and finish; (iii)
free from minor defects; (iv) safe; and (v) durable.” In assessing acceptable quality regard should be had
to the nature of the goods, the price, any statements made about the goods on any packaging or label
on the goods, any representation made about the goods by the supplier or manufacturer, and all other
relevant circumstances of the supply of goods. However section 40 of CPA creates an exception in
respect of the implied guarantee as to acceptable quality. Under this section there shall be no right of
redress against the supplier of goods where, “(a) the manufacturer makes a representation in respect of
the goods otherwise than by a statement on any packaging or label; and (b) the goods would have
complied with the implied guarantee as to acceptable quality if that representation had not been
made.”
iii. Section 33: Implied guarantee as to fitness for the particular purpose
Section 33 reproduces a substantial part of section 16 of the Sale of Goods Act 1957. Where goods are
supplied to a consumer, there shall be an implied guarantee “(a) that the goods are reasonably fit for
any particular purpose that the consumer makes known, expressly or by implication, to the supplier as
the purpose for which the goods are being acquired by the consumer; and (b) that the goods are
reasonably fit for any particular purpose for which the supplier represents that they are or will be fit.”
This provision does not however apply where circumstances show that the consumer does not rely on
the supplier’s skill or judgment; or it is unreasonable for the consumer to rely on the supplier’s skill or
judgment.
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iv. Section 34: Implied guarantee that goods comply with description
Under this section, “where goods are supplied by description, there shall be an implied guarantee that
goods shall correspond with description” and if goods are supplied by reference to sample or
demonstration model as well as by description, there shall be an implied guarantee that the goods shall
correspond with sample as well as description. Descriptions are mostly found on the packaging or labels
attached to the goods. Goods are supplied by description in cases where a consumer has not seen the
goods but is relying on the description alone. If a consumer has seen and examined the goods, the
supply shall be by description if there is some description applying to them.
v. Section 35: Implied guarantee that goods comply with sample
Where goods are supplied to a consumer by reference to a sample or demonstration model, there is be
an implied guarantee “(a) that the goods shall correspond to the sample or demonstration model in
quality; and (b) that the consumer will have a reasonable opportunity to compare the goods with the
sample or demonstration model.”
iv. Section 36: Implied guarantee as to price
Where price for the goods is not determined by the contract or to be determined in a manner agreed by
the contract or left to be determined by the course of dealing between the parties, there shall be
implied a guarantee that the consumer shall not be liable to pay to the supplier more than the
reasonable price of the goods. Under section 36(4), ‘reasonable price’ shall be “a question of fact
depending on the circumstances of each particular case.” Where there is a failure to comply with this
implied guarantee, the consumer’s right of redress shall be to refuse to pay more than the reasonable
price.
v. Section 37: Implied guarantee as to repairs and spare parts
Section 37 imposes on the supplier as well as the manufacturers an obligation that reasonable actions
have been taken to ensure that facilities for the repair of goods and the supply of spare parts are
reasonably available for a reasonable period after the goods are so supplied. This section applies equally
to imported goods as well as locally manufactured goods. The provision however shall not apply where
reasonable action has been taken to notify consumers, at or before the time the imported or locally
manufactured goods are supplied, that the manufacturer or the supplier or both do not undertake that
repair facilities and spare parts will be available for those goods.
Failure in respect of the guarantees provided for in Part V, except for the implied guarantee as to price,
gives rise to a right of redress against the supplier in Part VI. The remedial scheme contained in Part VI is
significantly different from the remedies contained in other laws governing contractual relations in
Malaysia. This part provides for the right of redress against suppliers where goods fail to comply with
any of the implied guarantees under sections 31 – 37. Under section 41, where a consumer has a right of
redress against a supplier, the consumer may exercise the following remedies depending on the extent
of the failure:
(a) If the failure is one that can be remedied, the consumer may require the supplier to remedy the
failure within a reasonable time; and
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(b) Where the failure is one that cannot be remedied or is of a substantial character, the consumer
may reject the goods or obtain from the supplier damages in compensation for any reduction in
the value of the goods below the price paid or payable by the consumer for the goods.
Where the supplier refuses or neglects to remedy the failure as required within a reasonable time, the
consumer may have the failure remedied elsewhere and obtain from the supplier all reasonable costs
incurred in having the failure remedied; or reject the goods. In remedying the defects, the supplier may
repair the goods; if the failure relates to title, curing any defect in the title; replacing the goods with
goods of identical type; or providing a refund of any money paid or other consideration provided by the
consumer in respect of the goods where the supplier cannot reasonably be expected to repair or replace
the goods or cure any defect in title. Under section 44, a failure is regarded of a substantial nature
where goods would not have been acquired by a reasonable consumer fully acquainted with the nature
and extent of the failure; goods depart with one or more significant respects from the description;
substantially unfit for the particular purpose for which goods of that type are commonly supplied; goods
are not of acceptable quality because they are unsafe (Rahmah and Sakina 2010).
3.2.2 CONSUMER’S RIGHTS AGAINST MANUFACTURERS
The uniqueness of CPA 1999 lies in the right given to consumers in Part VII against manufacturers in
respect of guarantees in the supply of goods. In this respect, CPA abolishes to a certain extent the
antiquated or unjust doctrine of privity of contract (Sakina 2000). The United Kingdom Law Commission
defines ‘privity of contract’ as:
…the doctrine of privity means that, as a general rule, a contract cannot confer rights or
impose obligations arising under it on any person except the parties to it. The are several
aspects of the doctrine: (i) a person cannot enforce rights under a contract to which he is
not a party; (ii) a person who is not a party to a contract cannot have contractual liabilities
imposed on him; (iii) contractual remedies are designed to compensate parties to the
contract, not third parties.
The doctrine of privity of contract in the context of the chain of distribution of goods is illustrated in
Diagram 1 below:
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Diagram 1: Chain of distribution

Source: JK Macleod (1989)
In explaining the doctrine of privity in the context of the chain of distribution of goods, PN Legh-Jones
(1969) pointed out that:
…the manufactured product descends down the chain of distribution from the maker
through various middlemen (wholesalers, distributors, etc) to the retailer who sells to the
public; ‘vertical privity’ is the privity which each of these persons has with his predecessor
and successor in the chain. ‘Horizontal privity’ is the ensuing privity of contract between the
retailer and the first domestic consumer who buys from him, and then between that
consumer and any sub-consumer, if such there be.
With the coming into force of the 1999 Act, a consumer now has a right of redress against a
manufacturer in the supply of goods where goods fail to comply with certain implied guarantees
irrespective of the existence of a contract between the consumer and the manufacturer. Section 50 of
CPA gives a consumer the right of redress against a manufacturer of goods where goods fail to comply
with the implied guarantee as to acceptable quality, description, repairs and spare parts and the express
guarantee of a manufacturer provided for under section 38. However, section 51 creates exceptions to
this right of redress against manufacturers. Under this section, there shall be no right of redress against
the manufacturer where failure is due to “(a) an act, default or omission of, or any representation made
by, a person other than the manufacturer; or (b) a cause independent of human control, occurring after
the goods have left the control of the manufacturer.”
Under section 52 of CPA, a consumer may obtain damages from the manufacturer for the reduction in
the value of goods resulting from the manufacturer’s failure namely, the reduction below the price paid
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or payable by the consumer for the goods; or the reduction below the average retail price of the goods
at the time of supply; which ever is lower. The consumer may also obtain for any loss or damage to him
resulting from the manufacturer’s failure, other than loss or damage through the reduction in the value
of the goods, which is proved to be a result or consequences of the failure. Any breach of a
manufacturer’s express guarantee entitles the consumer to repairs of the goods or replacement of the
goods with goods of identical type.
A comparative analysis of the two sources of the law of supply of goods in Malaysia can be seen in Table
1 below:
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Table 1 SOGA and CPA: Comparative analysis
3.3 TRADER’S OBLIGATIONS UNDER A CONTRACT FOR THE SUPPLY OF GOODS: A COMPARATIVE
STUDY
A different standard of trader’s obligations under the contract for the supply of goods is contained in the
Directive 99/44/EC of the European Parliament and of the Council of 25 May 1999 on Certain Aspects of
the Sale of Consumer Goods and Associated Guarantees. The rules framing the sale of consumer goods
in the European Union (EU) guarantee a uniform minimum level of consumer protection. In particular,
the rules ensure that consumers are protected in the event of goods not conforming to contract. Under
Article 2 of the Directive, consumer goods must be in conformity with the contract of sale. Consumer
goods are deemed to be in conformity with the contract if they:
(a) comply with the description given by the seller and possess the qualities of the goods
which the seller has held out to the consumer as a sample or model;
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(b) are fit for any particular purpose for which the consumer requires them and which he
made known to the seller at the time of conclusion of the contract and which the seller
has accepted;
(c) are fit for the purposes for which goods of the same type are normally used;
(d) show the quality and performance which are normal in goods of the same type and
which the consumer can reasonably expect, given the nature of the goods and taking
into account any public statements on the specific characteristics of the goods made
about them by the seller, the producer or his representative, particularly in advertising
or on labeling.
The seller is liable to the consumer for any lack of conformity which exists when the goods are delivered
to the consumer and which arises within a period of two years from delivery. However, the lack of
conformity cannot be accepted if, at the moment of conclusion of the contract of sale, the consumer
knew or could not reasonably have been unaware of the lack of conformity.
Under Article 3, when a lack of conformity is notified to the seller, the consumer will be entitled to ask:
i. for the goods to be repaired or replaced free of charge within a reasonable period
and without major inconvenience to the consumer;
ii. for an appropriate reduction to be made to the price, or for the contract to be
rescinded, if repair or replacement is impossible or disproportionate, or if the seller
has not remedied the shortcoming within a reasonable period or without major
inconvenience to the consumer.
The contract cannot be rescinded if the lack of conformity is minor.
The United Nations Convention on Contracts for the International Sale of Goods, known as CISG, is a
convention offering a uniform international sales law. The CISG was developed by the United Nations
Commission on International Trade Law (UNCITRAL) and was signed in Vienna in 1980. Part III of CISG
provides for the law of sale of goods. Article 35 provides that the seller must deliver goods which are of
the quantity, quality and description required by the contract and which are contained or packaged in
the manner required by the contract. Goods are regarded as conforming to the contract if they “(a) are
fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any
particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the
contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable
for him to rely, on the seller’s skill and judgment; (c) possess the qualities of goods which the seller has
held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such
goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.”
Article 45 of CISG provides for the remedies for breach of contract by the seller. Article 46 further
provides that:
(1) The buyer may require performance by the seller of his obligations unless the buyer has
resorted to a remedy which is inconsistent with this requirement.
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(2) If the goods do not conform with the contract, the buyer may require delivery of
substitute goods only if the lack of conformity constitutes a fundamental breach of
contract and a request for substitute goods is made either in conjunction with notice
given under article 39 or within a reasonable time thereafter.
(3) If the goods do not conform with the contract, the buyer may require the seller to
remedy the lack of conformity by repair, unless this is unreasonable having regard to all
the circumstances. A request for repair must be made either in conjunction with notice
given under article 39 or within a reasonable time thereafter.
Remedies of the buyer and seller depend upon the character of a breach of the contract. If the breach is
fundamental then the other party is substantially deprived of what it expected to receive under the
contract. Provided that an objective test shows that the breach could not have been foreseen, then the
contract may be avoided and the aggrieved party may claim damages. Where part performance of a
contract has occurred then the performing party may recover any payment made or good supplied; this
contrasts with the common law where there is generally no right to recover a good supplied unless title
has been retained or damages are inadequate, only a right to claim the value of the good. If the breach
is not fundamental then the contract is not avoided and remedies may be sought including claiming
damages, specific performance and adjustment of price. Damages that may be awarded conform to the
common law rules in Hadley v Baxendale (1854) 9 Exch 341. Article 79 of CISG however excuses a party
from liability to a claim of damages where a failure to perform is attributable to an impediment beyond
the party’s, or a third party sub-contractor’s, control that could not have been reasonably expected.
Such an extraneous event might elsewhere be referred to as force majeure, and frustration of the
contract (Wikipedia CISG).
4.0 AVOIDANCE OF CONTRACTUAL LIABILITY: THE TRADER’S DEFENCE
An area of much concern in consumer contract law is the situation where traders attempts to exclude or
limit their liability for breach of contract by including exemption or exclusion clauses in consumer
contracts. Several cases have demonstrated the court’s increasing concern, in particular, on the use of
standard form exclusion clauses in consumer contracts (Sakina et al. 2010). The essence of this concern
was captured in Lord Reid’s judgment in Suisse Atlantique Societe d’ Armament Maritime SA v NV
Rotterdamsche Kolen Centrale [1967] 1 AC 361;
Exclusion clauses differ greatly in many respects. Probably the most objectionable are
found in the complex standard conditions which are now so common. In the ordinary way
the customer has no time to read them, and if he read them he would probably not
understand them. And if did understand or object to any of them, he would generally be
told he could take it or leave it. And if he went to another supplier the result would be the
same.
Yates (1978) pointed out that a standard form contract containing an exclusion clause acts as a tool of
oppression of the consumers as the terms are not subject to negotiation by both parties to the contract.
The reality perhaps, as the Law Commission (1975) puts it; “All too often they are introduced in ways
which results in the party affected by them remaining ignorant of their presence or import until it is too
late so that the other party even if he knows of the exemption clause will often be unable to appreciate
what he may lose by accepting it.” It is because of this ignorance that the consumers do not “bargain for
better terms in individual cases or do not place suppliers under sufficient market pressure to compete
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over these terms. Once these factors are put together a picture begins to emerge of consumers being in
a weak bargaining position to even begin to make choices or force changes in terms.” (Willett 1994)
Prior to 2010, the Malaysian legislative development on the use of exclusion clauses has been very
minimal (Azimon and Sakina 2010). The Contracts Act 1950 is silent on prohibition against unfair terms.
The Sale of Goods Act 1957 which governs the seller’s obligations in a contract for the sale of goods
accords no protection to consumers as far as unfair terms are concerned. Instead of regulating the use
of unfair terms in sale, the 1957 Act by virtue of section 62 allows exclusion of the implied terms and
conditions by ‘express agreement’.
Section 6 of the Consumer Protection Act 1999 prohibits contracting out of the provisions of the Act.
The section further provides that every supplier or manufacturer who purports to contract out of any
provision of this Act commits an offence and under section 145 those persons are liable to a fine not
exceeding fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both. The
introduction of Part IIIA of the Consumer Protection (Amendment) Act 2010 has to some extent resolved
the problems associated with the use of exclusion clauses in consumer contracts in Malaysia. Under this
part, where a court or the Tribunal comes to the conclusion that a contract or term is procedurally or
substantively unfair or both, the court or Tribunal may declare the contract or the term as
unenforceable or void. Under section 24C, “A contract or a term of a contract is procedurally unfair if it
has resulted in an unjust advantage to the supplier or unjust disadvantage to the consumer on account
of the conduct of the supplier or the manner in which or circumstances under which the contract or the
term of the contract has been entered into or has been arrived at by the consumer and the supplier.” A
contract or a term of a contract is substantively unfair, under section 24D, “if the contract or the term of
the contract – (a) is in itself harsh; (b) is oppressive; (c) is unconscionable; (d) excludes or restricts
liability for negligence; or (e) excludes or restricts liability for breach of express or implied terms of the
contract without adequate justification.” In addition to the contract or the term being held
unenforceable or void, Part IIIA provides for a criminal penalty for contravention of its provisions. Under
section 24I, if a body corporate contravenes any of the provisions in Part IIIA, the corporate body shall
be liable to a fine not exceeding RM250,000; and if such person is not a body corporate, to a fine not
exceeding RM100,000 or to imprisonment for a term not exceeding three years or both.
Comparatively, in England, the most important limitations on the efficacy of exclusion clauses are now
statutory. The Unfair Contract Terms Act 1977 (UCTA) now works together with the Unfair Terms In
Consumer Contracts Regulations 1999 (UTCCR) serving as double barriers to scrutinize the validity of
certain contractual terms, in particular the use of exclusion clauses. UCTA is national in origin. It renders
some exclusion clauses absolutely ineffective and subjects others to a test of unreasonableness. It
applies to consumer contracts (whether standard form or not) and to many business-to-business
contracts (particularly those on standard form) (Mindy Chen-Wishart 2005). UCTA has three broad areas
of control. First, exclusion of liability for negligence, secondly, general control of exclusion clauses which
seek to exclude or restrict one party’s liability for breach of contract, and thirdly, control over certain
specific contract terms which exclude or restrict liability for breach of certain terms implied by statute in
the sale of goods, hire purchase and supply of goods. If the Act applies to the clause in question, control
may take one of two forms; the clause may be rendered absolutely void and ineffective or it may be
effective only to the extent that it satisfies the test of reasonableness (Sakina and Azimon 2010).
UTCCR resulted from the national implementation of the European Directive on Unfair Terms in
Consumer Contracts. These Regulations apply in relation to unfair terms in contracts concluded between
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a seller or a supplier and a consumer. UTCCR only gives consumers added protection over those
conferred by common law and UCTA in respect of terms which have not been ‘individually negotiated’.
According to Regulation 5(2), “A term shall always be regarded as not having been individually
negotiated where it has been drafted in advance and the consumer has therefore not been able to
influence the substance of the term.” The Regulations define a ‘consumer’ to mean “any natural person
who, in contracts covered by these Regulations, is acting for purposes which are outside his trade,
business or profession.” According to Regulation 5(1):
A contractual term which has not been individually negotiated shall be regarded as unfair if,
contrary to the requirement of good faith, it causes a significant imbalance in the parties'
rights and obligations arising under the contract, to the detriment of the consumer.
Regulation 6(1) of UTCCR provides that the assessment of whether a term is unfair must take into
account “the nature of the goods or services for which the contract was concluded and by referring, at
the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract
and to all the other terms of the contract or of another contract on which it is dependent.” Schedule 2
to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded
as unfair.
An analysis of UCTA and UTCCR can be seen in Table 2 below:
Table 2: an analysis of UCTA and UTCCR

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5.0 CONCLUSION
To ensure Malaysia’s success within the increasingly competitive global marketplace, the government
must not only ensure economic growth, but the rights of market players particularly the consumer, a
significant contributor to economic growth, must also be at the heart of the social, economic, political
and legal development. To strike at the heart of inequality, efforts must be made to minimise the
disparities between consumers and traders. With the rise of consumerism in many countries, the 20th
century has seen paternalistic approach in consumer protection. Caveat emptor no longer applies to
consumer transactions as courts and the legislature gradually began to turn to creative means to protect
the weaker party in the bargain. In many countries both the legislature and the judiciary have adopted a
new attitude in promoting the consumer welfare. The same is true in Malaysia. The legislative
development in the area of supply of goods in Malaysia illustrates the paternalistic role of the
government in ensuring ethical and just trading environment. The enactment of the Consumer
Protection Act 1999 and the introduction of Part IIIA of the Consumer Protection (Amendment) Act 2010
evinced the government’s commitment in protecting the weaker party, namely, the consumer, in
marketplace. In light of the current development in marketplace, it is thus significant to ensure that the
development of future consumer protection laws be focused on, among others, ensuring fair and
balanced consumer legislation which protects both consumers and ethical businesses from exploitation
of unscrupulous persons.
ACKNOWLEDGEMENT
This paper is part of a research conducted under the UKM Arus Perdana 2010 project (Research Code:
UKM-AP-CMNB-02-2010).
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Legh-Jones, P.N. (1969). Product liability: Consumer protection in America. Cambridge Law Journal. 54.
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PORT DEVELOPMENT: COMPETITIVE FACTOR IN VALUE CHAIN

Nik Muhammad Aslaam Mohamed Abdul Ghani*, Jagan Jeevan,
Kasypi Mokhtar and Saharuddin Abdul Hamid
Faculty of Maritime Studies and Marine Science
Universiti Malaysia Terengganu, Malaysia
nickaslaam@gmail.com
ABSTRACT
The importance of competition factor in all areas of business has lead to the development of a country.
This study is focusing on the competition factor in value chains where the case studies in choose is
Kuantan Port Consortium in Pahang. This study also takes into account Kemaman Supply Base in
Terengganu as a competitor in petrochemical industry, oil and gas. There are several factors where both
port elected in this study. Kuantan Port Consortium and Kemaman Supply Base port are within east coast
economic region or better-know as ECER. Apart from that, both ports also have similarity in manning
petrochemical industry, oil and gas because petrochemical industry is one of the potential field to be
developed. One of the most interesting possibility with petrochemical, oil and gas development in our
country was the development will create a great opportunity in Malaysia’s port industry. With this
development, petrochemical industry can move forward to ensure that national economy can face
change and state fall up which often occurs in material and product demand. As such, role of each port is
necessary to improve and expand our economy as well as ensuring great competition in value chain
especially in petrochemical industry.
Keywords: Competitive factor, Port, Value chain
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1.0 INTRODUCTION
Competitors is another instance where diligent analysis, just as they probe more deeply to ensure they
understand the precise nature and purpose. Nowadays, government and private sectors are increasingly
concerned about the national competitiveness in value chain. This concern has evolved about the
economic competitiveness in a more general sense especially to developing of port industrialized with
liberalization and adjustment. Improving competitiveness is central to raising the underlying rate of
growth the economy and enhancing living standards. The intensity of rivalry between competitors in an
industry will depend on the structure of competition, the structure of industry costs, degree of
differentiation, switching costs and strategic objectives.
Based on the Porter's Five Forces Model, Porter has identified explains that there are five competitive
forces. These five "competitive forces" are the threat of entry of new competitors (new entrants), the
threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the degree
of rivalry between existing competitors.
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These forces also determine that a corporate strategy should meet the opportunities and threats in the
port development organizations and external environment especially competitive strategy within the
industry. This force describes the intensity of competition between existing companies such as Kuantan
Port Consortium (KPC) and Kemaman Supply Base (KSB) in petrochemical and oil and gas industry.
Competition between these existing companies is likely to be high in pressures on market growth rates,
price, profitability, margins, facilities, services and strategies for every company in the industry.
Empirical observation confirms that resources (capital, labour, technology) and talent tend to
concentrate geographically (Easterly and Levine 2002). This result reflects the fact that firms are
embedded in inter-firm relationships with networks of suppliers, buyers and even competitors that help
them to gain competitive advantages in the sale of its products and services. While arms-length market
relationships do provide these benefits, at times there are externalities that arise from linkages among
firms in a geographic area or in a specific industry (textiles, leather goods, silicon chips) that cannot be
captured or fostered by markets alone. The process of “clusterization,” the creation of “value chains,” or
“industrial districts” is models that highlight the advantages of networks. Competitiveness captures the
awareness of both the limitations and challenges posed by global competition, at a time when effective
government action is constrained by budgetary constraints and the private sector faces significant
barriers to competing in domestic and international markets. Kuantan Port Consortium Sdn Bhd (KPC)
operates as a port in Malaysia. The company offers various port services, including handling break bulk
cargo, such as steel pipes, round logs, sawn timber, and plywood; dry bulk cargo, including fertilizers,
wheat, flour, iron ore, and coal; and liquid bulk cargo traffic, such as palm oil, other vegetable oil,
mineral oil, and petrochemical products. Its facilities include multipurpose berths, liquid chemical
berths, palm oil berths, mineral oil berths, and container terminals; container storage, conventional
storage, storage for dangerous cargo, and tank storage; and various cranes and equipment.
The company was founded in 1974 and is based in Kuantan, Malaysia. Kuantan Port Consortium Sdn Bhd
is a subsidiary of Road Builder Malaysia Holdings Bhd. KUANTAN PORT is situated at Tanjung Gelang o-n
the eastern seaboard of Peninsular Malaysia between latitude 03 58' N , longitude 103 26.4' E , some 25
kilometres north of Kuantan, the state capital of Pahang. Strategically located in the state of Pahang on
the eastern seaboard of Peninsular Malaysia, Kuantan Port is developing into a major international port
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in tandem with the rapid expansion of the industrial and manufacturing activities of the East Coast
Corridor. Supported with excellent port facilities and services, a vast market outreach and a strong
network of global shipping connections have strengthen the position of Kuantan Port as a petrochemical
hub port and a major container terminal of the East Coast region. Throughout the years, Kuantan Port
has developed progressively towards becoming one of the busiest ports in Malaysia. Due to its top
notch, state of the art facilities, KPC is able to cater to the ever-demanding requirements of the
escalating petrochemical industries, spawned by the gas and petroleum industries of the East Coast. In
addition, the mushrooming of newer industries related to petrochemical manufacturing and other
service-oriented sectors has made Kuantan Port the undisputed petrochemical hub of Malaysia.
Today, governments are increasingly concerned about competitiveness rivalry that concern to
developing countries exposing sheltered economies to global market forces. This has evolved over time
to concerns about economic competitiveness in a more general sense; with liberalization and
adjustment has spread to developing the countries. Improving competitiveness is central to raising the
underlying rate of growth of the economy and enhancing living standards. The need to improve
competitiveness is not imposed by government, but by changes in the world economy.
This paper aimed to show the strength, weakness, opportunities and threats in the services that offered
by Kuantan Port Consortium (KPC) and also identify products and services offered by Kuantan Port
Consortium (KPC) in comparison to Kemaman Supply Base (KSB). This paper also identified what is the
main factor in development of a port.
2.0 METHODOLOGY
The paper is based on data collected by questionnaires. The questionnaire form is divided in 4 sections.
The score of certain question is measured by Likert’s 5 scale of rank. Section 1; lists possible about the
respondent background and must be filled by the persons being surveyed. Section 2; organization
strategy such as characteristic of the competition including internal and external factor. Section 3; skills
(human resources) including employees, leadership, safety and health, planning, scheduling and
organization. Section 4; technological including services and efficiency of handling facilities, total
number of berth, and draft of harbor. Interviews also have been done with the staff of Kuantan Port
Consortium (KPC) and Kemaman Supply Base (KSB). Using SWOT analysis, it was possible to determine
the main trends in the environment. The analysis suggested the threats and opportunities for the port
and also indicated the need to apply competition oriented management methods. Reliability test
analysis was used to determine the contribution to the dependent competitive performance variable of
each independent variable.
3.0 RESULT AND DISCUSSION
Competitiveness as the degree to which a country can, under free and fair market conditions, produce
goods and services which meet the test of international markets, while simultaneously maintaining and
expanding the real incomes of its people over the long term. Port competition is not a matter of just
being cheap or just providing enough capacity. Ports need to offer their customers an attractive as
possible package. Maritime accessibility; capacity; cost; flexibility; reliability; congestion-free hinterland
connections amongst others are all part of this package where for instance high labour cost or less
favourable maritime accessibility can be compensated with competitive port dues or high labour
productivity. This port competition should be seen as a perpetual area of tension between ports and
carriers where the former are being pushed by the latter to offer a competitive set of conditions.
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3.1 Kuantan Port Consortium Sdn Bhd
Kuantan Port Consortium Sdn Bhd (KPC) operates as a port in Malaysia. The company offers various port
services, including handling break bulk cargo, such as steel pipes, round logs, sawn timber, and plywood;
dry bulk cargo, including fertilizers, wheat, flour, iron ore, and coal; and liquid bulk cargo traffic, such as
palm oil, other vegetable oil, mineral oil, and petrochemical products. Its facilities include multipurpose
berths, liquid chemical berths, palm oil berths, mineral oil berths, and container terminals; container
storage, conventional storage, storage for dangerous cargo, and tank storage; and various cranes and
equipment. The company was founded in 1974 and is based in Kuantan, Malaysia. Kuantan Port
Consortium Sdn Bhd is a subsidiary of Road Builder Malaysia Holdings Bhd. Kuantan Port Consortium
Sdn Bhd is currently operating Kemaman Port's 510 metre long West Wharf in Teluk Kalung,
Kemaman.In addition to the West Wharf, we have taken interest in the privatisation of Kemaman Port
to manage and operate the East Wharf and Liquid Chemical Berth under Konsortium Pelabuhan
Kemaman Sdn Bhd. Besides the Kemaman Port operations, we have 800 acre of industrial land at the
adjacent Teluk Kalung Industrial Area in Kemaman. The area provides a cost effective solution for heavy,
chemical and petrochemical industries.
3.2 Kemaman Supply Base (KSB)
Kemaman Supply Base, better known as KSB in Terengganu, Malaysia, began its operation in 1982 as
onshore support base dedicated solely to service and supplies the offshore petroleum operations. It was
specially designed and developed as a comprehensive logistic supply base for Peninsular Malaysia's
offshore petroleum exploration and production industries. KSB is an all weather port due to the natural
shelter and the 850-meter breakwater built as a protection from the seasonal north-easterly and south
easterly winds. Its 360-meter quay with a depth of 8.0 meters enables it to receive 5-6 supply vessels at
any given time. All these berthing facilities are dedicated for the specialized use of the supply vessels
and the oil and gas related cargo traffic. KSB is fully supported by a pool of dedicated, well-trained and
experienced stevedores to handle a wide range of cargoes and to ensure quick turnaround of ship. Its
management team is committed to upkeep the facilities and service to the Malaysian offshore industry.
In recognizing its commitment towards satisfying customer’s needs and expectations, KSB has been
awarded with the prestigious MS ISO 9002: 1994 Quality Systems - Model for Quality Assurance in
Production, Installation and Servicing in 1999. KSB also has recently being accredited with MS ISO 14001
in August 2003 for its concern over environmental management. The prospect of KSB remains
promising. The rapid growth of the petroleum upstream and downstream sectors will augur well for KSB
which is developing to become the leading Managed Logistic Service (MLS) provider for the oil and gas
industry in this region. Being a subsidiary of Eastern Pacific Industrial Corporation (EPIC) - an investment
holding company listed on the main board of the KLSE together with strong support from PETRONAS and
its Production Sharing Contractors, KSB is all geared to take on the oil and gas industry with an
integrated set up dedicated to - both locally and regionally.
3.3 Petrochemical, Oil and Gas Industry
The petroleum and petrochemical industry is one of the leading industrial sectors. This industry covers
natural gas, petroleum products and petrochemicals. In Malaysia, the development of these sub-sectors
is targeted at adding value to the petroleum crude oil and natural gas available, as well as to substitute
imports. Malaysia is currently the second largest producer of liquefied natural gas (LNG) in the world
after Qatar. It is indeed heartening to note that the petrochemical industry in Malaysia has seen
tremendous development over the past 10 years, with the implementation of numerous large-
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scale projects, many of which have commenced operation. These projects have contributed towards
adding value to the nation's gas resources as well as transferring state-of-the-art technologies and
technical skills to the local companies and workforce. This augurs well for the realisation of our
aspiration to become a developed nation by the year 2020. We have to sustain economic growth as
well as to maintain Malaysia's competitiveness in the increasingly challenging and tough global
environment of this 21st Century if we want to do so. Such a goal can only be achieved through
technology acquisition and by increasing, strengthening and broadening the country's economic base.
The cargo throughput via Kuantan Port Consortium has received a major boost with the higher volume
of liquid traffic generated by the petrochemical industries following the commissioning of the two
Integrated Petrochemicals Complexes in Kertih and Gebeng. In additional to the existing traffic from the
committed petrochemical in the Eastern Corridor KPC will be attracting new petrochemicals
manufacturing company to further expand throughput base through KPC.
3.4 Port Facilities
3.4.1 Kuantan Port Consortium facilities
Kuantan Port Consortium prides itself in providing a variety of excellent facilities to cater to the various
cargo compositions handled by the port. These facilities include berth facilities, storage, equipment and
third party storage.
3.4.2 Kemaman Supply Base facilities
Beginning its operations in 1982, the company's main business is the provision of warehouses, office
space, open yard storage, vessel berthing and cargo handling facilities for the major oil companies, its
contractors, suppliers and other support service providers. KSB currently offers the following facilities to
its users and customers based on rental basis such as berthing facilities, warehouses, rental facilities and
others facilities including bunkering facilities, silos, supply of portable and drilling water.
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3.4.3 Berth Facilities
Table 1: Berthing facilities of Kuantan Port Consortium and Kemaman Supply Base
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3.4.4 Warehousing and Storage
Table 2: Warehousing and Storage Kuantan Port Consortium and Kemaman Supply Base
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3.4.5 Equipment
Table 3: Equipment Kuantan Port Consortium and Kemaman Supply Base
3.4.6 Cargo Throughput
Figure 2: Kuantan Port Consortium Cargo Throughput (2004-2008)

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Figure 3: Kemaman Supply Base Cargo Throughput (2004-2008)
3.5 Port Services
3.5.1 Kuantan Port Consortium Services
Marine Services. Piloting in and out of the harbour is compulsory under Kuantan Port Consortium
operating regulations. The Marine Services Department of KPC operates 24 hours a day, 365 days a year
to handle the continuous movement f vessels within the port’s water limits. To provide faster vessels
turnaround time in addition to safe and efficient movement, the port has a team of highly-trained and
experienced pilots who are supported by reliable tugs, and mooring boats.
Port-Related Logistic Services. In line with its status as an international port and to maintain its spirit of
competitiveness, Kuantan Port Consortium offers a complete range of value-added port-related logistics
services such as container maintenance and repair works, container depot and reefer facilities, mobile
crane and forklift rental services; and nitrogen for purging/pigging.
Security. Kuantan Port Consortium Security Departments was established under the Port Authority Act
1963. It is manned entirely by port personnel having auxiliary police power to ensure law enforcement
within the port’s premises, manning entry and exit gates, crime prevention, cooperating with the police
and marine departments, traffic and crowd control, port pass processing and security vetting.
Fire and Safety. Kuantan Port Consortium Fire and Safety Department was established under the
Kuantan Port Authority Act 1980. Aimed at providing a safe working environment for its staff and clients,
the department is manned by highly-trained fire and safety officers who ensure that the port is
accident-free. This department’s is to strive towards a safer working environment. The department’s
activities include patrolling the port premises for safety infections, supervising dangerous cargo
movement and storage, tackling oil spills, and providing ambulance services.
International Ship and Port Facility Security Code (ISPS). Due to tragedy 11 September 2001, IMO
(International maritime organization) have stated the revolution act A.924 (22) ‘Review of measures and
procedure to prevent acts of terrorism which threatened the security of passengers and crew and the
safety of ships’. This research has been done to improve international law and safety measures to
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protect from terrorism at world port. Diplomatic Conference in London state that for international ship
safety measure must practice and follow ISPS Code during SOLAS Convention (The International
Convention for the Safety of Life At Sea). Concentrate on port facility to exercise good safety measures
at port based on ISPS Code (section 16.9 part b) consist of In and out port, prohibited area at port
facility, cargo handling, shunting and storage movement and handling unaccompanied baggage.
3.5.2 Kemaman Supply Base services
Services that provided by Kemaman Supply Base such as Marine Services including Pilotage & Towage-
Efficient Pilotage services within the Pilotage District of the approaches to Kemaman Port and when
necessary, in emergency situations outside the Port. Mooring Services-Mooring and unmooring services
for the berthing and unberthing of vessels at the various wharves at the Port. Port and Navigational
Control-Efficient port and navigational control within the Kemaman Port Limit. Maintenance Dredging
and Hydrographical Survey-Continuous maintenance dredging, works and hydrographical survey within
the harbour basin and channel. Port Safety-Port safety services including fire fighting (from Tug services
as and when required). Manning, Operating and Maintaining of Tug, Pilot and Mooring Boats. To
provide manning, operating and maintaining of Tug, Pilot and Mooring Boat services.
Stevedoring services and supplying of equipment to enable the handling of cargoes and other port
activities run smoothly are also provided by Kemaman Supply Base. Other than that, there are also
efficient handling and supplying of Dry Bulk Handling Equipment for vessels, reliable security services,
fire fighting, rescue and anti pollution services facilities within Kemaman Port for Port users, and aids to
navigation, telephone/electronic, fresh water supply, bunkering, diving, garbage collection ex-vessels,
prevention of pollution, radar and vessel traffic management system.
3.6 Swot Analysis of Kuantan Port Consortium (KPC)
Kuantan Port Consortium (KPC) has plenty of strengths which can be exploited further to attract more
investors and government agencies such as Pahang State Economic Development Corporation and
Malaysian Industrial Development Authority to enter this port. However, KPC must be diligent in
addressing its weakness and mitigate the threats to enhance its competitiveness to become a major
player in the international shipping industry.
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Table 4: Swot Analysis of Kuantan Port Consortium (KPC)
Kuantan Port Consortium (KPC) vital strength is the availability of an abundance of space which gives it a
distinct advantage for future expansion. Opportunity-wise, KPC has the infrastructure and attractions to
potentially pull more shipping lines as well as to increase its throughput. However, the over-
dependence on niche cargo i.e. chemical and petrochemical as well as steel pipe is a worrying threat
which it should seriously address by diversifying its services to other sectors. It is proposed that Kuantan
Port Consortium undertakes some actions to enhance its competitiveness such as review incentive and
investment to attract more MLOs for Far East market, establish a free zone (industrial plus commercial)
to promote the port further which will subsequently increase its throughput and diversify services to
other industrial sectors.
3.7 Swot Analysis of Kemaman Supply Base KSB
Kemaman Supply Base has created a niche in catering to the oil and gas sector and steel products, and
the port has done well to focus on optimizing its unique advantages and strengths on servicing these
sectors. The port’s strategic location, deep water and short waiting time are attractive features that
could be further promoted for larger vessels to call at the port. The new East Coast Highway could
enhance the accessibility of the port to other states – a kind of initial threat that could well be turned
into an opportunity instead.
Table 5: Swot Analysis of Kemaman Supply Base KSB
Rather than spreading its resources thin to compete on untested turfs, Kemaman Port would do well to
continue to focus on its core competencies in the sectors it is servicing and capitalize on existing
strengths. Some undertakings would help enhance its competitiveness such as diversify into dry / liquid
bulk cargo, namely chemical products and enhance the infrastructure for dry / liquid bulk cargo to
support the petrochemical industry.
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Table 6: Competitiveness variables (technology) descriptive statistics
The mean score and standard deviation of each influential factor are calculated on the basis of the 60
valid samples, and the order of importance for those influential factors is primarily ranked by the mean
scores. The differences in average score of many factors are so high, which means these factors are
equally important in the choice of port competitiveness in Kuantan Port Consortium. Reliability test and
multiple regression analysis were used to determine the contribution of the dependent competitive
performance variable of each independent variable. The results support previous empirical evidence
indicating a strong positive association about the technology such as services, facilities and equipment
are related with shipping lines. Besides that, it has been found to have beneficial performance effects in
the competitiveness development.
Figure 4: Competitiveness variables (technology)

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Figure 5: Competitive Factor in Kuantan Port Consortium
Table 7: Completive Factors Analysis of Kuantan Port Consortium
From the analysis, it shows that technology is the main contribution factor in the development of
Kuantan Port with the percentage of 53.34%. From the SWOT analysis, Kuantan Port have a strength in
term of facilities for petrochemical with feedstock and also well-trained staff especially for critical areas
such as crane operation. Now, we have identified the strength, weakness, opportunities and threats in
the services that offered by Kuantan Port Consortium (KPC) and also identify products and services
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offered by Kuantan Port Consortium (KPC) in comparison to Kemaman Supply Base (KSB). The results
also have demonstrated that technology and human skills is the main factor in development of a port.
4.0 CONCLUSION
Products and services offered by Kuantan Port Consortium (KPC) have been discussed in this paper and
factors that bring the development of KPC has been identified. KPC can increase its competitiveness by
taking the following actions such as identify niche market to attract more MLOs, upgrade facility,
infrastructure and road links, promote closer co-operation between mainliner and feeder services,
provide efficient, reliable, comprehensive and cost effective services and increase efficiency on human
resource management. From the above analysis, it can be said that KPC are generally competitive and
have in place the basic infrastructure to become competitive. Given the intensity of the competition
amongst the petrochemical and oil and gas industry, KPC ports are growing and enhance the
competitive power of certain seaports.
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Barton, H., & Turnbull, P. (2002). Labour regulation and competitive performance in the port transport
industry: The changing fortunes of three major European seaports. European Journal of
Industrial Relations, 8(2), 133.
Christopher Murphy. (2005). Competitive Intelligence: Gathering, Analysing and Putting it to Work.
Burlington, USA: Gower Publishing Company.
Connections, H. (2008). Port competition and hinterland connections. Round Table, 10, 11.
Ganeshan Wignaraja. (2003). Competitiveness Strategy in Developing Countries. New York: Routledge
Taylor & Group.
Heaver, T., Meersman, H., & Van De Voorde, E. (2001). Co-operation and competition in international
container transport: Strategies for ports. Maritime Policy & Management, 28(3), 293-305.
Huybrechts, M. (2002). Port competitiveness: An economic and legal analysis of the factors determining
the competitiveness of seaports Uitgeverij De Boeck.
Kuantan Port Cosortium Sdn. Bhd. (2009). Retrieved July 22, 2009, from
http://ijm.com/infrastructure/port/KuantanPort
Kemaman Supply Base (2009). Retrieved July 17, 2009, from www.epicgroup.com.my
Sanjaya Lall (2001). Competitiveness, Technology and Skills. Cheltenham, UK: Eward Elgar.
Strategy - Analysing Competitive Industry Structure (Porter's Five Forces Model). Retrieved March 25,
2009 from http://www.themanager.org/Models/p5f.htm
Tongzon, J. L. (1995). Determinants of port performance and efficiency. Transportation Research Part A,
29(3), 245-252.
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United Nations Conference on Trade and Development. (1978). Port Development: A Handbook for
Planners in Developing Countries. New York: United Nations Publications
178
A CRITICAL ANALYSIS OF TOURIST SATISFACTION AND DESTINATION LOYALTY

Ahmad Puad Mat Som, Seyedeh Fatemeh Mostafavi Shirazi,
Azizan Marzuki and Jamil Jusoh
School of Housing, Building and Planing, Universiti Sains Malaysia
ABSTRACT
Revisit intention and positive word of mouth recommendation have been regarded as indicators of
destination loyalty. This study considers antecedents of loyalty based on literature review and examines
the significance of image, as one of the basic elements in tourist destination. The objective of this study
was to assess destination loyalty by examining the influence of satisfaction and image factors on
international tourists who had visited Penang. Research findings indicated that there was a strong
relationship between satisfaction, image and destination loyalty. In this study, it was found that
‘friendliness of people’ was significant for foreigners while ‘cleanliness of environment’ was not
significant. It was also found that foreigners who were satisfied with image factor were willing to
recommend Penang to others.
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1.0 INTRODUCTION
Destination loyalty has been highlighted as one of the most important subjects in tourism researches. In
many studies, revisit intention and positive word of mouth recommendation are noted as indicators of
loyalty (e.g. Yoon & Uysal 2005; Chi and Qu, 2008). Several studies have attempted to identify major
antecedents of revisit intention including satisfaction (Petrick et al., 2001; Kozak 2001), novelty seeking
(Jang & Feng, 2007), image (Chi & QU, 2008), motivation and satisfaction (Yoon & Usal, 2005), safety
(Chen & Gursoy, 2001), overall satisfaction (Campo- Martinez et al. 2010), cultural difference ( Chen &
Gursoy, 2001), perceived value ( Petrick et al.,2001), past vacation experience( Kozak ,2001), and the
like. In this regard, notably, Jang and Feng (2007, p.581) assert that “even though the extent of research
finding is well focused on determinants of repeat visit intention, it can be contested that understanding
tourists’ revisit intention and their behavior remains limited.”
Revisit intention has also been focused as an important issue from economic perspective in tourism
studies (e.g. Darnell & Johnson, 2001). One of the latest research studies underlines that “a 2% increase
in customer retention has the same effect on profits in terms of cost cutting by 10%” (Customer
retention, 2010). In the words of Hsu et al. (2008), preserving loyalty of established customer has been
regarded as a crucial contributor to the achievement and profitability of business. Accordingly, the main
reason why researchers should consider revisit intention is the fact that “globalization of markets,
competitive pressure, brand multiplication and, above all, the ever-changing lifestyles and consumer
behavior have forced companies to develop strategies to keep their clients and create consumer loyalty
programs” (Flambard-Ruaud, 2005, p.55), particularly in tourism industry.
Tourist destination consists of a number of different attributes such as attraction, image etc. Within
each of these elements, there are a number of items that provide tourism products and services at a
destination. The main purpose of this paper is to examine the level of international tourists’ satisfaction
179
on Penang’s image as one of the attributes of tourist destination. This article considers satisfaction as
the major antecedent of revisit intention. First, the paper presents a brief review of literature
concerning tourist satisfaction and repeat visitation. Second, it outlines the research method, findings
and conclusion at the end of this article.
2.0 SATISFACTION AND REVISIT INTENTION
Oliver (1981) claims that tourist satisfaction can be seen as a tourist’s post-purchase evaluation of the
destination. In many studies, satisfaction is distinguished as an antecedent of loyalty ( Kozak, 2001; Jang
& Feng,2006). Although Oppermann (2000) states that studies on tourist satisfaction and destination
loyalty have not been thoroughly investigated, Chi and Qu (2008, p. 624) claim that “customer
satisfaction has always been considered an essential business goal because it was assumed that satisfied
customer would buy more.” Although measuring tourist satisfaction is not simple, several studies have
been conducted to examine the influence of customer satisfaction on loyalty (Gummesson, 1993;
Anderson and Fornell, 1994; Um et al., 2006; Hui et al., 2007). Gotlieb et al. (1994) assert that positive
satisfaction has positive influence on tourists’ repurchase intention. Similarly, Baker & Crompton
(2000); Petrick et al. (2001), and Jang & Feng (2006) have highlighted that satisfaction is the primary
antecedent of revisit intention.
Importantly, there is an agreement among several scholars that satisfaction provide a ground for revisit
and positive word of mouth recommendations which are the indicators of loyalty (e.g. Kozak &
Rimmington, 2000; Yoon & Uysal 2005; Chi and Qu, 2008). In another view, Um et al. (2006, p. 1141)
state that “revisit intention has been regarded as an extension of satisfaction rather than an initiator of
revisit decision making process.” Kozak (2001) pointed that level of satisfaction as one of the most
dominant variables in explaining revisit intention. Accordingly, in tourism destination’s researches, it
has been widely underlined that tourist satisfaction, loyalty and revisit intention have strong
relationship (eg. Yoon & Usal, 2005; Awadzi & Panda, 2007), while a few studies disapproved the
positive relationship between tourist satisfaction and revisit intention ( e.g. Um et al., 2006).
In tourist destination researches (e.g. Oliver, 1997; Yoon & Uysal 2005), tourist satisfaction has been
measured by different items such as overall satisfaction, performance, expectation, and positive
recommendation. Notably, Chi and Qu (2008, p.624) maintain that “satisfaction measurement has
recently been displaced by the concept of customer loyalty, primarily because loyalty is seen as better
predictor of actual behavior.” In this respect, Chen and Tsai (2007) conclude that a key effect of tourist
satisfaction that influences tourism intentions for revisit both in short and long term is loyalty to the
destination. Taking into account the importance of satisfaction in revisit intention, this preliminary study
focuses on satisfaction of image that influences international tourists’ decision of whether or not to
revisit Penang.
3.0 RESEARCH METHODOLOGY
The preliminary research for this study was conducted in the island of Penang (Malaysia). Information
was collected using a questionnaire with closed questions for the reasons of measuring the level of
international tourists’ satisfaction with Penang’s image. A 5 –point Likert scale with 1 being strongly
dissatisfied and with 5 being strongly satisfied was applied. The questionnaire was administered
personally to the respondents in June and July 2010. One hundred fifty questionnaires were obtained
from international tourists at Departure Hall of Penang International Airport. Twenty- seven of
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responses were found unusable. The remaining 123 responses were analyzed. Data analysis was done
using SPSS Version 17.
4.0 RESULTS
The socio-demographic characteristics of international tourists showed that majority of them came from
Europe (56.1%) followed by Australia & New Zealand (21.1%), Asia (17.9%) and North America (2.4%).
Most of the foreigners’ educational background was at least Degree & Master (52.8%). 53% respondents
were married and 35% of them were single. More females (54.5%) than males (43.9%) were
represented in the sample. Table 1 illustrates the frequency and mean for image factor. “Friendliness of
people” was perceived as the important factor for international tourists who visited Penang which
yielded mean value of 4.28. The results showed that “friendliness of people” recorded the highest
mean value, whereas “cleanliness of environment” obtained the lowest mean value, as perceived by the
international respondents on image factor.
Table 1 Frequency of Image items
In order to identify the statistically significant between image of destination and recommendation to
revisit Penang (p < 0.005), analysis of variance (ANOVA) was selected. The results of one way ANOVA are
shown in Table 2. There is statistically significant between three image factors and recommendation to
revisit. These factors were “Distinctiveness of sight or scenes”, “Safety and security”, and “Friendliness
of people”. This was significant because the result of P value was less than 0.05, and there was no
statistically significant between other image factors, due to P value greater than 0.05.
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Table 2 One way ANOVA Analysis
5.0 CONCLUSION
The results of this study underline that tourism destinations must take particular consideration of the
image factor as this will affect international tourists’ satisfaction and their recommendation to revisit to
potential tourists. Positive relationship between satisfaction of image and recommendation was
highlighted. It is assumed that if foreigners are satisfied with image factor, they are more willing to
spread positive recommendations as well as to undertake repeat visitations in future. Accordingly,
tourist satisfaction of image plays an important role in destination loyalty. This finding proposes that it
182
would be important for destination mangers to establish positive perceived images that can satisfy
tourists in order to achieve destination loyalty.
ACKNOWLEDGEMENT
This research was partially funded by Research University’s grant of Universiti Sains Malaysia.
REFERENCES
Anderson, E. W., & Fornell, C., (1994). A customer satisfaction research prospectus. In R. T. Rust, Oliver,
R. (Ed.), Service quality: New directions in theory and practice (pp. 241-268). CA: Sage
Publications, Thousands Oaks.
Awadzi, W., & Panda, D. (2007). Relationship Marketing in the tourism Industry:towards an integrated
modle for research. Cosortium Journal of Hospitality and Tourism, 12(1), 47-56.
Campo-Martinez, S., VGarau-Vadell, J, & Martinez-Ruiz, M.P. (2010). Factors influencing repeat visits to a
destination: The influence of group composition. Tourism Management, 31, 862-870.
Chen, C., &Tsai, D. (2007). How do destination image and evaluative factors affect behavioural
intentions? Tourism Management, 28, 1115-1122.
Chi, C. G.-Q., & Qu, H. (2008). Examining the structural relationships of destination image, tourist
satisfaction and destination loyalty: An integrated approach. Tourism Management, 29, 624-
636.
Gotlieb, J. B., Grewal, D., & Brown, S. W. (1994). Consumer satisfaction and percived qualitty :
complementry or divergent constructs? Journal of Applied Psychology., 79(6), 875-885.
Gummesson, E. (1993). Quality Management in service organizations: An interpretation of the service

quality phenomenon and a synthesis of international research. Karlstad, : International Service
Quality Association, Sweden.
Hui, T. K., Wan D., & Ho Alvin (2007). Tourists' satisfaction, recommendation and revisiting Singapor.
Tourism Management, 28, 965-975.
Jang, S., & Feng, R. (2007). Temporal destination revisit intention: The effects of Novelty seeking and
satisfaction. Tourism Management, 28, 580-590.
Kozak, M., & Rimmington, M. (2000). Tourist satisfaction with Mallorca, Spain, as an Off-season holiday
destination. Journal of Travel Research, 38, 260-269.
Kozak, M. (2001). Repeaters' behavior at two distinict destinations. Annals of Tourism Research, 28(3),
784-807.
Oliver, R. L. (1981). Measurment and evaluation of satisfaction process in retail setting. Jounal of
Retailing, 57(3), 25-48.
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Oliver, R. L. (1997). Satisfaction: A behavioral persption on the customer. New York: McGraw-Hill.
Oppermann, M. (2000). Tourism destination loyalty. Journal of Travel Research, 39 (August), 78-84.
Petrick, J., Morais, D., & Norman, W. (2001). An examination of determinants of entertainment
vacationer's intention to revisit. Jounal of Travel Research, 40(1), 41-48.
Um, S., Chon, K., & Ro, Y. (2006). Antecedents of revisit intention. Annals of Tourism Research, 33(4),
1141-1158.
Um, S., Chon, K., & Ro, Y. (2006). Antecedents of revisit intention. Annals of Tourism Research, 33(4),
1141-1158.
Yoon, Y., & Uysal, M. (2005). An examination of the effects of motivation and satisfaction on destination
loyalty: a structural model. Tourism Management, 26(1), 45-56.
184
THE DETERMINANTS OF INDIVIDUAL UNEMPLOYMENT DURATION: THE CASE OF

MALAYSIAN GRADUATES
Hock-Eam Lim
Economics Building
Universiti Utara Malaysia
lheam@uum.edu.my
ABSTRACT
This paper estimates determinants of individual unemployment duration of Malaysian graduates.

Estimation result suggests that lack of proficiency in English, a mismatch between the type of graduation
degree and the requirements for the available jobs in the labor market, family background, state of
happiness in overall life, self-expectation on one’s employability and some socio-demographic
characteristics (such as ethnicity) are significant determinants of graduate unemployment duration in
Malaysia. Specifically, the ‘hypothesis of selection’ in literature of happiness studies is supported; non-
English languages proficiency (including Chinese) has no significant impact; and it is imperative to have a
realistic self-expectation on one’s employability.
Field of Research: Unemployment duration; Malaysian graduates; proportional hazard model;

hypothesis of selection
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1.0 INTRODUCTION
Higher education has been widely recognised as one of the major forces to achieve sustainable
economic growth. For example, the higher education sector produces skilled labour which is needed to
initiate research and development activities and thus provide a base for sustainable growth (Romer,
1990; Stokey, 1995). In Malaysia, the government has announced a target that at least 40% of the
Malaysian population should receive a university education by the year 2010, as compared to only 28%
in 2005 (“Sasaran 40% ke”, 2005). To achieve this objective the Malaysian university education sector
has been expanded rapidly both in terms of number of universities and student enrolment.
In the midst of this rapid growth, the concern of unemployed graduates is gaining momentum in
Malaysia (Bagayah and Smith, 2005; Lim, 2005). Unlike the graduate unemployment problem in the mid-
1980s, the current graduate unemployment has been a persistent issue since the financial crisis of 1997
(Lim, 2005). Unemployed graduates pose a serious problem to the country because it reflects a waste of
the nation’s valuable resources and also implies a poor return on huge investment incurred by the
government on public universities. Furthermore, fresh graduates are new to the labour market and thus
the erosion of skills due to prolonged unemployment could be substantial. Hence, it is imperative to
understand the nature of graduate unemployment and the underlying determinants which have an
impact on unemployment duration.
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The objective of this paper is to estimate the determinants of Malaysian graduate unemployment
durations using individual-level data on recent graduates. In the approach taken here, the available exit
states from unemployment are: full-time employment commensurate with qualification (FT1); full-time
employment not commensurate with qualification (FT2); and self-employment and part-time
employment (SEPT). Graduates can exit from the state of unemployment through these different exits. It
is likely that the effect of a covariate on unemployment duration is different across the different exit
states because different processes govern them. Thus, the aggregation of these exit states into one as
suggested by a single risk framework might lead to state aggregation bias (Edin, 1989).
Indeed, Edin (1989) suggested the use of a competing risk framework to separate and control the effects
of these different exit states. Since the exit state of FT1 is the best-expected outcome of the recent
graduates, the present paper focuses its attention on estimating the determinants of FT1, using a
duration model within a competing risk framework to control for the effects of other exit states.
The rest of this paper proceeds as follows. A literature review on individual unemployment duration is
presented in the following section. The third section comprises the data and methodology. Data analysis
and the results are sequentially discussed in the fourth and fifth sections. The final section presents
conclusion of this paper.
2.0 LITERATURE REVIEW
During the past two decades, the literature on individual unemployment duration has grown rapidly. In
analysing the determinants of individual unemployment durations, most studies used the reduced form
hazard function to estimate the probability of leaving unemployment. This is due to the two unique
features of unemployment duration data, namely censoring and time-varying explanatory variables
(Allison, 1984).
Generally, studies on unemployment duration have mainly focused on the impact of personal
characteristics, unemployment insurance (UI) and local labour market characteristics on the probability
of leaving unemployment (Lancaster, 1979; Nickell, 1979; Atkinson, Gomulka, Micklewright, and Rau,
1984; Edin, 1989; Holmlund, 1998; Roed and Zhang, 2003, 2005; Pellizzari, 2006). In particular, the effect
of UI has been the centre-piece of unemployment duration analysis for many developed countries.
Theoretically, unemployment insurance (UI) benefit increases the value of continuous job search and
reservation wages. Hence, it is expected that the level of any UI benefit decreases the probability of
leaving unemployment. Empirically, this negative impact of UI benefit has been clearly established. It is
also found that the probability of leaving unemployment rises sharply before the exhaustion of UI
benefit (Holmlund, 1998; Roed and Zhang, 2003, 2005).
UI is unavailable in most developing countries, including Malaysia. However, the findings of significant UI
effects suggest that unearned income, financial support received, and financial constraints faced during
the job search period are all possible determinants of individual unemployment duration.
In addition to supply side factors, demand side factors such as local unemployment rates,
unemployment-vacancy ratios and place of residence are all typically found to be significant
determinants of individual unemployment duration (Arulampalam and Stewart, 1995; Grogan and Berg,
2001; Tansel and Tasci, 2003; Kupets, 2006; Serneels, 2007). For instance, Grogan and Berg (2001)
observed that those living in Moscow or St Petersburg have higher exit rates than those living in other
regions in Russia.
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Theory of informal job search suggests that another potential significant determinant of an individual’s
employability is family background. Other demographic characteristics such as age, health conditions,
own-and parental education levels, previous working experiences and spouse employment status, are
found to be significantly associated with exit rates (Edin, 1989; Narendranathan and Stewart, 1993;
Chuang, 1999; Lazaro, Molto and Sanchez, 2000; Grogan and Berg, 2001; Tansel and Tasci, 2003; Kupets,
2006; Serneels, 2007).
In developed countries, it is recognised that minority ethnic groups are more vulnerable to prolonged
unemployment spells. According to the Current Population Survey of the United States in 2003, the
median unemployment duration of African American workers is 9.4 weeks longer than that of the white
workers (Dawkins, Shen and Sanchez, 2005).
In Malaysia, ethnicity also has been consistently found to be a significant determinant of graduate
employability. Specifically, the Malay graduates are found to have significantly lower exit rate,
compared to non-Malay (Lim and Normizan, 2004). While Malay graduates are found to have
significantly lower exit rate, this finding is typically obtained without controlling for other factors (such
as Chinese language proficiency), which are believed to be less favourable to Malay graduates. For
instance, generally, non-Malay graduates can speak more languages than Malay graduates. Thus, the
significant influence of ethnicity might just be picking-up the influence of other omitted variables.
In the global setting, a crucial determinant of unemployment duration is the level of English language
proficiency. In Australia, Carroll (2006) observed that the exit rate of those born in non-English speaking
countries is lower than that of those born in an English speaking country. Nevertheless, as the length of
their stay in Australia increases, this negative effect on exit rate tends to diminish. In countries using
English as second or third language such as Malaysia, the proficiency of English language is also an
important determinant in one’s employability. Lim and Normizan (2004) found that there is a positive
impact of English language proficiency on exit rates; however, it is limited only to pre-university
proficiency. Given the wide use of English language among private sector companies in Malaysia, English
language proficiency gives an added advantage to job applicants.
Types of degree obtained also have a significant influence on one’s employment duration. Using a
sample of Universiti Utara Malaysia graduates, Lim (2007) found that accounting graduates have the
highest probability of leaving unemployment compared to other business-related degree graduates. This
highlights the possible mismatch between the types of degree graduates produced and industries’
demand.
In short, previous studies have suggested that the determinants of individual unemployment duration
are the (proxies for) demand constraints and the socio-demographic variables related to the supply side.
Nevertheless, the effects of some of these variables, including language proficiency, are yet to be
examined in the Malaysian graduate unemployment duration context1. In addition, the impact of
graduates’ self-expectation on their employability and overall life happiness are largely ignored in the
literature on Malaysian graduate unemployment.
________________
1
Studies by Lim and Normizan (2004) and Lim (2007) appeared to be the only studies conducted on Malaysian graduate
unemployment duration. But these studies use cross-section data with retrospective information about the date of starting job
search and obtaining job. There is no time varying variable.
187
According to Job Search theory, self-expectations on employability influence job search intensity and
reservation wages. Hence, this self-expectation should have a significant influence on graduate
unemployment duration. Whereas, for overall life happiness, in the related literature, the ‘hypothesis of
selection’ suggests that graduates who are happy with their life would have shorter unemployment
spells. The ‘hypothesis of selection’ states that an individual’s happiness (well-being) influences his or
her employment outcomes. The assertion is that those with certain low employability characteristics
(such as always thinking negatively) could lead to low level of happiness, and hence they are more likely
to be unemployed.
Thus, the present study contributes significantly to the current literature by filling the existing gaps by
incorporating these variables (language proficiency, overall life happiness and graduate self-expected
employability) into a duration model using a sample of the Malaysian graduates to examine the issue of
graduate unemployment in Malaysia.
3.0 DATA AND METHODOLOGY
3.1 DATA
This paper uses data from Lim (2008). The data were obtained from two surveys soliciting 240
respondents. The first survey’s data collection was implemented between July 2005 and March 2006,
using self-administered questionnaires. The targeted population was the final year students of Universiti
Utara Malaysia (UUM, a public university in Malaysia), and Universiti Tunku Abdul Rahman (UTAR, a
private university in Malaysia). The first survey successfully collected a total of 430 useable responses
(304 from UUM and 126 from UTAR). This represents a response rate of 14.41% (UUM: 11.83%; UTAR:
30.36%).
Due to this low response rate, it is imperative to evaluate the sample representativeness. The
population frame (list of all final year undergraduate students in UUM and UTAR) was not available due
to administrative bureaucracy on the grounds of confidentiality. However, using the published statistics
(aggregated by types of degree) released during the convocation of September 2006 (UUM) and March
2006 (UTAR), the sample representativeness could be evaluated.
The χ 2 goodness of fit test (between population and sample distribution by types of degree for UUM
graduates) concluded that there is evidence that the sample and population distribution fit with a p-
value of 0.3371, except BIT (which is over-represented). For UTAR graduates, the χ 2 goodness of fit test
concludes that there is good fit between sample and population distribution (p-value=0.3107).
In addition, it was found that the first survey’s sample characteristics of gender (dominated by female),
ethnicity (UUM is dominated by Malay and UTAR consists of almost all Chinese), marital status (almost
all are single) and age (mean age 23), are reflecting the well-known UUM and UTAR undergraduate
population characteristics (and also the Malaysia public and private university undergraduate
population). Thus, it is concluded that the sample (first survey) has at least an acceptable level of
representativeness.
The second survey was implemented between November 2006 and February 2007, targeting the 430
graduates who had responded during the first survey, using mailed questionnaire. A total of 240
questionnaires were successfully obtained, a responses rate of 55.81% (of the 430).
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3.2 METHODOLOGY
The Cox Proportional Hazard model is used to estimate the determinants of graduate unemployment
duration. The Cox Proportional Hazard model with time-varying and time-constant covariates can be
specified as follows:
hi (t ) = h0 (t ) exp[ xi ' β + zi (t )α ] i = 1, 2,..., n (1)
where xi = vector of explanatory variables (time-constant)

β = vector of coefficient of explanatory variables (time-constant)
zi (t ) = vector of explanatory variables (time-varying)
α = vector of coefficient of explanatory variables (time-varying)
h0 (t ) = baseline hazard.
The partial maximum likelihood function can be specified as:

k exp( xi ' β + zi (t ) 'α )
L( β ) = ∏ (2)
j =1
∑ exp( xi ' β + zi (t ) 'α )
i∈R j
where R j = risk set at time j ( j = 1, 2, ..., k )

k = number of distinct observed failure times.
The β s and α are estimated by maximising the log of this partial maximum likelihood function. This Cox
Proportional Hazard Model is estimated within an independent competing risks framework. The focus of
the analysis is on exit from unemployment through obtaining full-time employment commensurate with
qualification (FT1), whereas the other exit states are used as controls to avoid state aggregation bias
(Allison, 1984).
During the second survey, the dates of: starting a job search; obtaining a job; and job termination (if
any) were asked retrospectively. Fewer than 8 respondents were identified as having multiple
unemployment spells. Thus, this study was confined to the first unemployment spell of the graduates.
The explanatory variables were measured at first survey (time-invariant variables) except the following
ten variables: number of job applications submitted; expected wage; the lowest wage for which
graduates are willing to work; job search/interview training; sharing of job market information among
friends; unearned income received while unemployed; financial support received while unemployed;
financial difficulties faced while unemployed; ratio of job seekers over job vacancies; and age.
Retrospective information was also asked for each month of unemployment for the following time-
varying variables: number of job application submitted; expected wage; lowest wage for which willing to
work; receipt of unearned income while unemployed; obtaining financial support while unemployed;
and financial difficulties faced while unemployed.
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The ratio of job seekers to job vacancies was collected from various issues of Monthly Statistical Bulletin
published by the Central Bank of Malaysia. Appendix 1 presents the definition and measurement of the
explanatory variables.
4.0 ANALYSIS AND RESULTS I: DESCRIPTIVE STATISTICS
4.1 EXIT STATES
Data in Table 1 reveal that the largest proportion of unemployment spells (37.92%) ended with the exit
state of full-time employment commensurate with qualification (FT1). Then, it is followed by the exit
state of full-time employment not commensurate with qualification (FT2, 26.25%); then to self-
employment (SE, 1.67%); and finally to part-time employment (PT, 4.17%).
Over a fifth (23.33%) of spells are incomplete (i.e., still enduring in state of unemployment). Some of the
graduates have extended, or furthered, their studies (6.66%) and no unemployment spells are reported.
Hence, they are omitted from the analysis.
Table 1: Exit states and mean of unemployment duration
With regard to the mean of unemployment duration, Table 1 shows that exit state FT1 has the lowest
mean unemployment duration (49.5 days), whereas SE has the highest (131.25 days). This implies the
control of the exit state of self-employment (as implemented in this paper using a competing risk
framework) is crucial to avoid potential state aggregation bias.
4.2 JOB SEARCH START DATE
Table 2 presents the graduates’ date of starting their job search. The earliest job search started on
August 2005 whereas the latest is on January 2007. In terms of time available to the graduates for
conducting their job search (before close of second survey on February 2007), only a small percentage
(3.52%) had less than 3 months to search for jobs. In other words, almost all graduates (96.46%) had
more than 3 months to conduct their job search. Thus, it can be concluded that time available for job
search is sufficient.
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Table 2: Start date of job search
Note: Closing date of second (final) survey - 15 February 2007.
4.3 CHARACTERISTICS OF RESPONDENTS AND UNEMPLOYMENT DURATION: CATEGORICAL VARIABLES
The data in Table 3 refer to the mean of unemployment durations by observed characteristics
(categorical). There are noticeable mean differences among the various types of degree programmes. It
ranges from the lowest of 23.92 days (UTAR Information Technology/Computer Science) to the highest
of 70.61 days (UUM International Business/Issues Management). By ethnicity, Chinese graduates have
the lowest mean unemployment duration (38.31 days) compared to Malay graduates (67.31 days) and
other ethnic groups (53.72 days). The other respondent characteristics and unemployment duration are
shown in Table 3.
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Table 3: Respondents’ characteristics and unemployment duration: categorical variables
Note:
1. See Appendix A1 for definition and measurement of variables.
2. Unemployment duration is a completed spell for those who are employed. It is an on-going spell for those who are
unemployed
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4.6 CHARACTERISTICS OF RESPONDENTS AND UNEMPLOYMENT DURATION: CONTINUOUS VARIABLES
The data in Table 4 relate to correlations between unemployment duration and observed characteristics
(continuous or discrete). It is observed that six variables have correlations of more than 0.10 with
unemployment duration. These variables are the number of job applications submitted (0.38), Chinese
language proficiency (-0.30), financial difficulties while unemployed (0.28), Bahasa Melayu (Malay
language) proficiency (0.21), family size (0.14), and mother’s education level (0.13). These descriptive
statistics results show that the burden of unemployment duration varies quite dramatically across
different socio-demographic groups.
Table 4: Respondents’ characteristics and unemployment duration: continuous/discrete variables
Note: See Appendix A1 for definition and measurement of variables
5.0 ANALYSIS AND RESULTS II: COX PROPORTIONAL HAZARD MODEL
The Cox Proportional Hazard Model’s regression results are presented in Table 6. The estimated model
is acceptable with regard to goodness of fit tests. Table 5 shows the results of these goodness of fit
tests.
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Table 5 Goodness of fit tests: FT1
For the overall goodness-of-fit, the likelihood ratio (LR) test is found to be significant, with p-value of
almost zero. Thus, the estimated model fits well statistically. The other tests results (restriction test on
all insignificant variables; Schoenfeld residual test on proportional hazard assumption; link test on model
specification; shared frailty test and duration dependency on unobserved heterogeneity; and Martingale
residual plot to test on functional form) also suggest that statistically, the estimated Cox Proportional
Hazard model has high goodness of fit.
Table 6 presents the results of the Cox Proportional Hazard Model on exit state FT1, full-time
employment commensurate with qualification: the focus of this paper.
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Table 6: Estimated Cox Proportional Hazard model: FT11

195
Note:
1. FT1: Full-time employment commensurate with qualification.
2. *, **, and ***, significant at 10%, 5% and 1% levels, respectively.
3. See Appendix 1 for explanation and measurement of variables.
4. Comparison group for dummy variable of:
a. Types of degree: UTAR Accounting; b. University entry qualification: STPM; c. Types of university: Universiti Utara
Malaysia (UUM); d. Ethnicity: ethnic group of Chinese.
5. Some variables are time-varying such as ratio of job seekers to job vacancies (see Appendix 1)
Effects of types of degree and family background variables
Job mismatch theory suggests that a mismatch of skills (as reflected by types of degree obtained)
between supply and demand in the labour market causes unemployment. Quality of human capital
invested (also can be reflected by types of degree obtained) is also likely to have significant influence on
a graduate’s unemployment duration. Types of degree is thus expected to be a significant determinant
of graduate unemployment duration. Indeed, our results show that types of degree has a significant
influence: in line with previous studies on Malaysian graduate unemployment.
It is expected that the family background variables would be significantly related to the graduate’s
unemployment duration. Results in Table 6 support this expectation: a graduate with an economically
inactive father has a significantly lower exit rate compared to one whose father is economically active. In
addition, family members who are working help in significantly improving the graduate’s exit rate.
Ceteris paribus, an increase of one working family member will increase the exit rate by more than fifty
per cent (57.26%). In contrast, increasing family size will reduce exit rates. Thus, the important
determinant that helps to improve exit rates is not the family size, but the number of family members
who are working.
Effects of language proficiency and self-expected unemployment duration
Consistent with the findings from previous studies, the present study finds that English language
proficiency has a positive and significant influence. In the ordinal scale of 0 being ‘non-user’ to 12 being
‘expert-user’, an increase of one unit in the scale (English language proficiency) will increase the exit rate
by more than fifty per cent (54.69%), ceteris paribus. In contrast, the impact of proficiency in other
languages, namely Malay, Chinese and Tamil, is found to be insignificant. This insignificant result might
reflect that since English is widely used in the Malaysian private sector, the mastery of English is
sufficient, at least in the labour market, for fresh graduates.
One might anticipate that graduates who expect themselves to experience long unemployment spells
might intensify their job search efforts, lower their reservation wage and thus increase their probability
of leaving unemployment. After statistically control the influence of reservation wage and job search
efforts (number of job application submitted), we still found that a significant positive association
between self-expected unemployment duration and probability of leaving unemployment status.
This suggests the positive impact of self-expected unemployment duration might reflect access to labour
market information to form a realistic self-expected unemployment duration. Graduates with low self-
expected unemployment duration (which is unrealistic and too optimistic) migth reflect their poor
access to labour market information or poor social capital (which help to obtain a good quality job). This
thus leads to the positive and significant impact of self-expected unemployment duration.
196
Effects of job search/interview training and work experience
Training for job search and interview helps graduates to search for a job and ‘sell’ themselves efficiently;
whereas the work experience obtained during university vacations helps to equip them with the
employability skills such as communication skills and familiarity with the working environment. Thus, it
is not surprising that the estimation results revealed that work experience gained during university
vacations and training in job search/interview techniques are significant determinants of the graduate’s
exit rate.
Effects of financial difficulties and financial support received
In the case of the variables pertaining to financial difficulties while unemployed, the estimated hazard
ratio shows that there is a highly significant quadratic effect with a minimum point of 3.6268. Given the
7-point ordinal scale of 0 being ‘no financial difficulties’ to 6 being ‘high financial difficulties’, the
increase in financial difficulties from the range of 0 to 3.6268 (in the range of ‘no’ to ‘moderate’ financial
difficulties), reduces the exit rate. However, from the point of 3.6268 onwards, increase in financial
difficulties will increase the exit rate. Apparently, in the range of moderate to high level of financial
difficulties, the increase of financial difficulties has a positive impact on the exit rate.
This impact is significant and substantial because one unit increase in financial difficulties will more than
double the exit rate. That means that only the high level financial difficulties will force the graduates to
intensify their job search effort. This finding is consistent with previous findings that on approaching the
exhaustion of unemployment insurance, the probability of exit from unemployment will increase
sharply.
It is surprising that financial support received while unemployed has a significant positive impact on the
exit rate. This appears to contradict previous findings on a negative effect of Unemployment Insurance
(UI) on one’s unemployment duration. However, it is important to note that the financial support is from
graduates’ family members, relatives or friends. In receiving this support, the graduates might get close
monitoring from the supporter on their job search behaviour. This financial support also can be
terminated at any time. Hence, given the previous finding on a sharp increase in the exit rate upon
approaching the termination of UI, this positive impact of financial support is not a contrary finding.
Effects of overall life happiness and ethnicity
In estimating the effect of overall life happiness on unemployment duration, exogeneity was ensured
because happiness was measured while the graduates were in their final year of studies before
occurrence of unemployment duration.
The theoretical prediction of ‘hypothesis of selection’ (positive relationship between happiness and
probability of leaving unemployment) is supported by the present paper. The results revealed that
graduates who are happier in their overall life have a higher probability of leaving unemployment
through obtaining FT1 (exit rate). In the 7-point ordinal scale of happiness measurement, with 1 being
‘very unhappy’ to 7 being ‘very happy’, an increase of one unit in the scale will increase the exit rate by
more than seventy per cent (70.09%).
Consistent with previous findings, the empirical result in Table 6 shows that ethnicity is significantly
associated with unemployment duration, so that compared to Chinese graduates, Malay graduates have
a substantially lower probability of leaving unemployment through obtaining FT1 (exit rate). The Malay
197
graduates are estimated to have only less than three per cent (2.08%) of exit rate of the Chinese
graduates.
It is important to note that compared to the previous studies, in the present one, the significant impact
of ethnicity is found after the effects of other language proficiency including English and Chinese, and
also other variables such as academic attainment and family backgrounds (which are believed to be less
favourable to the Malay graduates) are statistically controlled for.
This finding might reflect discrimination against the Malay graduates in the labour market or just pick up
some underlying low employability characteristics of the Malay graduates. However, it highlights that
the Malay graduates are most vulnerable to prolonged unemployment.
6.0 CONCLUSION
This paper estimates the determinants of Malaysian graduate unemployment duration by incorporating
the effects of language proficiencies, overall life happiness, and self-expected employability on the
graduate’s unemployment duration. The findings of present study support the ‘hypothesis of selection’.
It has been observed that graduates who are happy in their overall life have significantly shorter
unemployment duration.
Results of the present study also substantiate the argument that poor English language proficiency is the
main cause of graduate unemployment duration in Malaysia. On this ground, the Malaysian
government’s policy to use English language as medium of instruction for mathematical and science
subjects in its education system, is heavily supported. Thus, it is recommended that this policy should be
maintained in order to enhance graduate employability, although the Malaysian public in some quarters
are against such policy.
However, other language proficiencies (including Chinese) were found to have no significant influence
on graduate unemployment duration. This finding refutes the claims that mastery of other languages, in
particular Chinese, would enhance graduate employability in Malaysia. Despite the claim that good
Chinese language proficiency would be an added advantage for job applicants, the present paper found
that it does not enhance graduate employability significantly. Therefore, it is suggested that English
language proficiency courses should be the main focus under the government’s Graduate Training
Scheme to help unemployed graduates.
Results of the present paper also clearly illustrate the importance of having a realistic self-expectation
on one’s employability. Thus, it is suggested that the authorities should publish graduate labour market
information such as the results of trace studies (on the employment outcomes of graduates) conducted
by the public universities. This labour market information could help students to have a realistic
expectation on their employability before they enter the labour market. This is of particular importance
because the university education sector in Malaysia has grown rapidly since 1996. University education
is moving away from its previous elite status to making tertiary education available to all (thus implying
‘mass production’ of university graduates). Thus, the graduate’s expectation on his/her employability
needs to be adjusted appropriately.
It is found that types of degree is one of the significant determinants. This finding is attributed partly to
the different admission requirements for the different types of degree. For instance, the degree in
accounting, demanding high scores as an admission requirement, attracts high calibre and high ability
students. Thus, selection bias might not be ruled out. Nevertheless, it is also observed that the IT
198
graduates who once claimed high marketability in the early 1990s, have lesser marketability now,
although the admission requirements among universities in Malaysia remain relatively unchanged for
various degree programmes. Thus, to some extent, these findings support the argument that the
problem of graduate unemployment arises because of a mismatch between the graduate qualification
obtained and the job opportunities in the market.
The present paper also pinpoints that ethnic discrimination might exist in the graduate labour market in
Malaysia. After statistically controlling for the influence of numerous variables (such as Chinese
language proficiency), which are believed to be unfavourable to the Malay graduates, these Malay
graduates are still found to be most vulnerable to prolonged unemployment. Future studies are
suggested to undertake extensive investigation in this regard. However, this finding clearly suggests that
the Malay graduates should be the target group to participate in the programmes aimed at reducing the
duration of graduate unemployment in the country. Other significant determinants of graduate
unemployment duration are job search/interview training, work experience, financial difficulties faced
while unemployed, financial support received and family background.
Finally, our results reveal that there is a substantial number of unemployed graduates but with mean of
unemployment duration that less than 3 months. This implies that although government statistics have
consistently reported a high percentage of unemployed graduates, they might not be reflecting the true
gravity of the graduate unemployment problem. It is suggested that in future graduate unemployment
statistics should be complemented by the duration of unemployment to provide a comprehensive
picture of graduate unemployment in Malaysia.
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Appendix 1
Definition and measurement of variables (unemployment duration)
Variable Measurement
Types of degree
UUM Economics Dummy variable for UUM Bachelor of Economics (comparison group: UTAR
Bachelor of Accounting)
UUM Public/
Development Dummy variable for UUM Bachelor of Public Mgt and Development Mgt
Management (comparison group: UTAR Bachelor of Accounting)
UUM Business Admin Dummy variable for UUM Bachelor of Business Admin (comparison group:
UTAR Bachelor of Accounting)
UUM Accounting Dummy variable for UUM Bachelor of Accounting (comparison group: UTAR
Bachelor of Accounting)
UUM IT Dummy variable for UUM Bachelor of IT(comparison group: UTAR Bachelor
of Accounting)
UUM Other degrees
Dummy variable for UUM Others degree: Tourism/Education/Technology
Mgt/Decision Sciences (comparison group: UTAR Bachelor of Accounting)
UUM Human Resources/
Social Work Dummy variable for UUM Bachelor of Human Resources Mgt/ Social Work
Mgt (comparison group: UTAR Bachelor of Accounting)
UUM International Bus/ Dummy variable for UUM Bachelor of International Business/ Issues Mgt
Issues Mgt (comparison group: UTAR Bachelor of Accounting)
UUM Finance Dummy variable for UUM Bachelor of Banking/Finance (comparison group:
UUM Communication Dummy variable for UUM Bachelor of Communication (comparison group:
UTAR Business Admin Dummy variable for UTAR Bachelor of Business Admin (comparison group:
UTAR IT/ Computer Dummy variable for UTAR Bachelor of Info Sys/Info Sys
Sciences Engineering/Computer Sciences (comparison group: UTAR Bachelor of
Accounting)
UTAR Other degrees
Dummy variable for UTAR Bachelor of Chinese Studies/Journalism /Public
Relations (comparison group: UTAR Bachelor of Accounting)
Family background
Father economically Dummy variable father's employment status economically inactive
inactive
Father’s education level Father's education level:
1=no formal schooling; 2=primary not completed; 3=primary completed;
4=secondary not completed; 5=secondary completed; 6=O level or
equivalent; 7=A level & above
Mother economically Dummy variable mother's employment status economically inactive
inactive
Mother's education level:
Mother’s education level 1=no formal schooling; 2=primary not completed; 3=primary completed;
4=secondary not completed; 5=secondary completed; 6=O level or
equivalent; 7=A level & above
Family size Family size
Family working member
Family working member
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Language proficiency
English as main Dummy variable for use of English as main communication language among
communication language friends (informal usage)
(informal)
English language Self-perceived (Ordinal scale: 0 ‘non-user’ to 12 ‘expert-user’)
proficiency
Bahasa Melayu (Malay Self-perceived (Ordinal scale: 0 ‘non-user’ to 12 ‘expert-user’)
language) proficiency
Chinese language Self-perceived (Ordinal scale: 0 ‘non-user’ to 12 ‘expert-user’)
proficiency
Tamil language Self-perceived (Ordinal scale: 0 ‘non-user’ to 12 ‘expert-user’)
proficiency
Academic-related
Academic attainment Cumulative Grade Point Average (Continuous scale: 2 to 4)
3
Matriculation for univ. Dummy variable for university entry qualification Matriculation
2
entry qual (comparison group of STPM )
4
Certificate/Diploma for Dummy variable for university entry qualification Diploma or Certificate
2
univ. entry qual (comparison group of STPM )
Dummy variable for university entry qualification Unified Examination
5 2
UEC for univ. entry qual Certificate (UEC) (comparison group of STPM )
6
Other univ. entry qual Dummy variable for university entry qualification A-level/Pre-U/others
2
(comparison group of STPM )
Universiti Tunku Abdul Dummy variable for types of university being UTAR (1 if UTAR and 0 if
Rahman UUM)
Job search/work-related
Ratio of job seekers to job Number of job seekers / number of job vacancies
vacancies (In non-negative continuous number)
Job applications submitted Number of job applications submitted (In non-negative discrete number)
Expected wage Self-expected wage (RM per month)
Lowest wage willing to Lowest wage willing to work for (RM per month)
work for
Self-expected Self-perceived unemployment duration before graduation (months)
unemployment duration
Training on job Dummy variable for attending training/course/seminar on job
search/interview search/interview techniques
Sharing job market info Dummy variable for sharing job market info among friends
Work during university Dummy variable for work during university vacations
vacations
Practicum/industrial Dummy variable for having practicum /industrial training
training
Self-reported Self-perceived marketability of degree studied (Ordinal scale: 1 ‘low
Marketability of degree marketability’ to 7 ‘high marketability’)
studies
Financial-related
Unearned income Dummy variable for receipt of unearned income while unemployed
Financial support Dummy variable for receipt of financial support while unemployed
Financial difficulties Financial difficulties faced while unemployed (Ordinal scale: 0 ‘no fin
difficulties’ to 6 ‘high fin difficulties’)
Financial difficulties2 Squared financial difficulties
Happiness-related
Overall life happiness Self-reported happiness in overall life during final year studies (Ordinal
scale: 1 ‘very unhappy’ to 7 ‘very happy’)
Self-reported happiness in university life during final year studies (Ordinal
University life happiness scale: 1 ‘very unhappy’ to 7 ‘very happy’)
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Socio-demographic
Age Age in years
Male Dummy variable for being male
Malay
Dummy variable for ethnic group Malay (comparison group: Chinese)
Other ethnic groups Dummy variable for ethnic group Indian or others (comparison group:
Chinese)
Self-reported health Self-reported health condition (Ordinal scale: 0 ‘poor health condition’ to 6
condition ‘excellent health condition’)
Home town in rural Dummy variable for home town other than big city or state capital
Car driving license Dummy variable for having car driving license
Note:
Variables in italics: time-varying.
STPM: pre-university qualification equivalent to standard of UK A-level. Open examination and STPM normally takes 1 ½ years to complete.
Matriculation similar to foundation studies of university. Normally takes 2 semesters to complete.
Certificate and diploma awarded by polytechnics, colleges and other institution of higher learning.
UEC (Unified Examination Certificate) offered by United Chinese School Committees’ Association of Malaysia. Accepted as university entry
qualification by private higher education sector in Malaysia. Nevertheless, not recognized by Malaysia government and, thus, public university
does not accept UEC as entry qualification.
Others, including A-level, foundation studies, and other pre-university equivalent studies.
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CONSUMER DISPUTE RESOLUTION: THE WAY FORWARD

Fahimeh Abedi and Sakina Shaik Ahmad Yusoff (PhD)
Faculty of Law, The National University of Malaysia
(Universiti Kebangsaan Malaysia)
fabedi87@yahoo.com
ABSTRACT
With the innovation of cyberspace Business and individuals use computer network to sell products, share
information, converse and develop communities across borders of space and time on virtually every
subject. The emergence of the internet as a tool in the ecommerce for the transactions between
businesses to consumer (B2C) has far outcomes. The dominant advantage is that created an opportunity
for business to have a direct contact with consumers and make electronic markets. The widely increasing
of these activities in cyberspace and virtual communities on the internet, offline and online disputes are
rising. The cost of litigation for resolving these disputes is prohibitive, the fighting and acrimony inherent
in the process destroys relationships that otherwise could be preserved, and the inadequacy of current
private international law, the lack of specialization, the complexity of litigation causes major delays. ADR
(alternative dispute resolution) is a better way for the resolution of e-commerce disputes. ADR is a
settling dispute outside of the courtroom and trained, impartial persons decide disputes or help parties
decide disputes themselves. You often have more time and flexibility to fully explain your side of the case
using ADR than you would in court. Moreover, the two factors of dispute resolution and information
technology have combined into a new system, which is more effective, more flexible and less costly
compare to traditional approaches. The tool is called online dispute resolution (ODR). The study analysis
ADR and ODR mechanisms for conflict resolution of ecommerce especially in B2C disputes.
Field of Research: e-commerce; alternative dispute resolution, online dispute resolution, B2C; e-
disputes, principles of ODR
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1.0 INTRODUCTION
These days, cyberspace activity has turned into an everyday activity for people around the world. Its
growth has created an ideal platform for business transactions, between parties far away from each
other. Electronic commerce or e-commerce enables consumers and business to do online transactions
without boundaries of time and space. Although business to consumer (B2C) e-commerce has had a
positive impact, yet every online transaction might give rise to transaction disputes, as their offline
versions have done (Kao, 2009). Cyberspace being unique, it becomes important for legal experts and
policy makers to formulate guidelines on how to regulate it and resolve online disputes. To create
confidence and trust in cyberspace for consumers, there must be a system to make sure they are
protected while they are doing online business especially when online disputes occur (Bordone, 1998).
This study is, by nature, a doctrinal research and it employs the content analysis method focusing on the
historical and jurisprudential aspects of ODR. The paper aims at exposing the history, structure and legal
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aspects of e-commerce. This paper also looks into internet growth and online shopping, investigate the
types of business involved in online transactions, analyze the nature of e-disputes, explaining the ODR
technology and analyzing its essential principles in B2C online dispute resolution by using sources such
as books, journals, case studies, relevant documents and internet websites.
2.0 E-COMMERCE DEFINITION
Electronic commerce (E-commerce) began in the 1970s, with corporations creating Private Networks so
as to share data with business partners and suppliers. E-commerce these days is mainly transacted
through the internet by a process called Electronic Data Interchange (EDI); this is very efficient and
greatly reduces costs for companies, by replacing the old, expensive Private Networks, and involving
more businesses in the supply chain. The EDI is the main part of the e-commerce (Matthewson, 2002).
The term e-commerce has been in use, since1994, for everything, ranging from the volume of online
book sales to global fluctuations (Basu, 2007). Among its different definitions, there is one that
electronic commerce could be said to comprise commercial transactions, whether between private
individuals or commercial entities, which take place in or over electronic networks. The matter dealt
with in the transactions could be intangibles, data products, or tangible goods. The only important factor
is that the communication transactions take place over an electronic medium (Rowland & Macdonald,
2005).
Zwass defines e-commerce as ‘the sharing of business information, maintaining business relationships
and conducting business transactions by means of telecommunication networks’. This includes
Electronic Contracts. A workable general definition is ‘e-commerce as a seamless application of
information and communication technology from its point of origin to its end-point along the entire
value chain of business processes, conducted electronically and designed to enable the accomplishment
of a business goal. The process may be partial or complete and may encompass business to business as
well as business to consumer and consumer to business transactions’ (Zwass, 1996). In other words, e-
commerce exists between manufacturer and retailer and/or between retailer/service supplier and
consumer. The term e-commerce describes the act of buying and selling products and services by two or
more people through the internet (Carey, 2001).
There are different kinds of transactions involved:
1. Buying a book personally, from a commercial website like Amazon.com
2. Ordering a book from a company’s website through another company
3. Exchanging emails to the effect that A promises to do B a service for a fee (Carey, 2001).
In fact, this modern commercial tool offers lots of opportunities to consumers and businesses, not least
that of worldwide access, with no specific boundaries, these having been transcended by global data
communication networks, such as the Internet and the World Wide Web, reducing the cost of
communication to business and allowing smaller companies to communicate worldwide. Consumers
also benefit when purchasing products, being offered lots of choices around the globe (Alboukrek,
2003).
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3.0 B2C ONLINE TRANSACTION
There are four main types of relationship between seller and buyer in e-commerce:
1. Business to Business (B2B): This contains inter organizational information systems and electronic
transactions between organizations. An example of B2B is General Electronics’ Trading Process
Network (TPN) (www.tpn.geis.com).
2. Consumer to Consumer (C2C): This involves consumers selling directly to other consumers. This
type of application includes auction sites and advertising personal services on the internet. It can
also include intranet and other organizational networks to advertise items and services. An
example of C2C is eBay (eBay.com).
3. Consumer to Business (C2B): Here, one may find consumers who sell to organizations, including
individuals seeking sellers with whom to interact in order to conclude a transaction. An example
of C2B is Priceline (www.priceline.com).
4. B2C E-commerce (Business to Consumer) refers to the buying and selling of goods and services
via the web from web retailers to web consumers (Singh, 2005).
B2B transactions are of generally higher value than those under B2C but also more complex because
huge numbers of buyers may be involved daily, compared to a relatively small number of sellers (Rainer
& Cegielsk, 2010).
B2C E-commerce is shown in figure 1.
Figure 1: A Model of B2C E-Commerce
B2C E-commerce is mainly concerned with sales of Intangible products, such as software, financial
services, travel and entertainment. In such matters there is no need for physical inspection, given that
the seller is expected to have advanced delivery capabilities, that are usually absent in the sale of
tangible products. As the internet decreases the costs of delivery and completion, it is a superior sales
channel for intangibles, coupled with extensive information on financial services, travel, and so on), the
internet achieves convenience because saves transaction time (Harper, 2002). The most common
example of B2C transactions services and products to be directly purchased by the consumer is a retail
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website such as Amazon.com (www.amazon.com), an internet book seller established by Jeff Bezos in
1995. This is a clear example of B2C e-commerce, with the customer purchasing readymade items, such
as books, from the seller directly online. Customers can easily search for the intended book because
they are listed under different sections.
5.0 E-COMMERCE DISPUTES
Today’s Electronic Commerce provides unprecedented opportunities for businesses to expand their
markets and offer services to ever larger groups of e-consumers, which will sometimes lead to ‘E-
disputes’. It is mentionable that where off-line transactions cause problems and disputes, the same is
true for online transactions. The task is to ensure that all parties concerned can safely participate in e-
commerce transactions and that e-disputes will be resolved adequately and also prevent uncertainty
over the electronic legal framework from keeping consumers from purchasing products or services on,
and companies from entering, the electronic marketplace, even more compellingly so since the number
of ‘cross-border e-disputes’, in particular, across Europe, the US, and Asia shows signs of increasing
(Katsh, 2002).
The ECC-Net is a network of twenty-nine European Consumer Centers (twenty-seven EU Member States,
Iceland and Norway), collaborating in assisting consumers with information on ‘cross-border shopping’
and with complaint and dispute resolution. In 2009 alone, ECC-Net dealt with over 60,000 consumers,
having turned to them for advice on their rights concerning cross-border shopping. It seems that
internet purchases are the main source of consumer’s cross-border complaints. More than half of all
complaints (55.9%) in 2009 concerned online transactions and e-commerce being the prime source, at
almost 56% Faced with poor contract-related information, consumers may worry about enforceability.
Examples of ‘unfair’ contracts being those whose terms and conditions limit the consumer’s right to
seek redress for defective merchandise, especially so since the average consumer may not understand
the ramifications of having his redress limited (European Communities, 2010). An example of unfair
contract terms is Shrink-Wrap, meant to protect software owners’ rights. Shrink-wrap agreements are
either printed on the back of, or included inside, a box containing commercial computer software and
the contract having been attached to its packaging. The consumer has first to buy the software to even
access it, once the package has been torn, the consumer is bound by its terms regardless of whether he
was able to read them or not. As a consequence, courts have had to ascertain the intentions of the
parties involved and whether proper procedures were followed, to decide on the enforceability of any
contract between them. In Step Saver Systems Inc v Wyse Technology case, the court ruled the
agreement unenforceable because users had not been informed about licencing terms and procedures
until after payment (939 F.2d 9 670, 1991).
The European Consumer Centers Networks (ECC-Net) have carried out joint projects analysing consumer
complaints and concerns on key issues such as e-commerce. In the year 2009, ECC-Net handled over
60,000 contacts with consumers. Consumers turned to them for advice on their rights for help with
problems concerning cross-border shopping. It seems that internet purchases are the main source of
consumer’s cross-border complaints. For example, more than half of all transaction complaints (55.9%)
were complaints regarding online transactions in the year 2009. With regard to the types of
transactions, e-commerce was the first source of complaints in 2009 with almost 56%. Failure to deliver
is, at 78%, at the core of some 655 delivery-related complaints, representing 21% of their total, with
consumers not receiving the ordered product or service at all, delayed deliveries amounting to 11 % and
partial deliveries to 7%, respectively. Most consumer complaints in e-commerce are related to non-
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performance or defective performance by the seller (European Communities, 2010). As far as a typical
online sale of goods is concerned, consumers may be faced with any of the following problems:
1. The consumer places an order but nothing is delivered;
2. The consumer places an order, the supplier collects payment (normally from the consumer’s
credit card) without delivering anything;
3. The wrong goods are delivered;
4. The ordered goods are delivered but when the consumer exercises his right of withdrawal, the
supplier refuses to provide a refund;
5. The right goods are delivered but found defective in some ways after the ‘cooling off’ period has
elapsed (Hill, 2009).
Moreover, research studies do confirm that website information on consumers’ rights is generally poor
on a significant number of sites and that there is widespread flouting of the laws providing for
consumers protection. The number of websites that comply with laws on the provision of legally
required information and respect consumers’ rights, such as the return of goods in the ‘cooling-off’
period, against full refund, is probably less than fifty percent. Communication Integrity is yet another
concern in e-commerce, as is the fear of inadvertently being held to an online contract, having clicked
the wrong ‘button’ by mistake. Such anxieties decrease consumer confidence in the electronic
marketplace, with consumers also worried about their right to cancel electronic transactions. It is, in the
absence of such controls, relatively easy to change an electronic record with a signature attached, or to
forge the signature itself (Rosenoer, 1996). Anyone suing because of deliberate electronic
misrepresentation will usually find it risky to allege, and difficult to prove, seller fraud, any failure being
costly (Harvey & Parry, 2001).
E-commerce is fraught with contentious issues and the potential for disputes. There is a need for cyber
consumer protection because business is being conducting in a global sphere. Governments have taken
some action to protect e-commerce consumers. Assfa states that, ‘the legal protection of consumers is
something that is taken for granted in all major industrial countries where mass production and
distribution of goods as well as the supply of services have long become facts of life. Such countries have
already put in place an array of laws and institutions that work towards the protection of consumers’
(Endeshaw, 2001).
Ian Ramsay asks: ‘should consumers rely on the protection offered by the consumer law of the 1960s or
rather should they wait for a newly- fashioned legal framework before contracting online?’ (Ramsay,
2007). The Electronic Commerce Act of Malaysia which came into force on 30th August 2006 is to align
electronic contract formulation to that of ordinary contracts and giving legal recognition to e-contracts
including those involving Cyberspace. The United Nation Commission on International Trade Law
(UNCITRAL) Model Law was taken as a basis for the respective Electronic Commerce Acts in most
countries (Jayabalan, 2010).
The United Nations Commission on International Trade Law, created by the UN General Assembly in
1996 as its main legal body on International Commercial Law, tasked with its harmonizing and
standardising, noted an increasing number of international trade transactions being carried out by
means of electronic data interchange and other such means of communication, i.e., Electronic
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Commerce (United Nation, 1996). The Model Law, drafted by UNCITRAL aims at facilitating e-commerce
by recognizing and validating Electronic Contracts. Among the countries to have enacted laws on e-
commerce, based on this Model Law are, Australia, with its Electronic Transaction Bill of 1999, Singapore
and its Electronic Transaction Act of 1998, United Kingdom and its Electronic Communication Act of
2000, Malaysia, with the enactment of its Electronic Commerce, Act of 2006, also implementing the
UNCTRAL Model Law (Jayabalan, 2010).
6.0 EMERGENCE OF ADR AND ODR
The e-commerce and cross-border transactions rapidly increased, besides norms, rules and customs in
the real world are different from virtual communities, which must be considered in order to create an
effective model of dispute resolution and rule enforcement in cyberspace. Business has long since
recognized the advantages of Alternative Dispute Resolution (ADR) in dispute resolution, having
observed its impact on international commerce. Governments around the world have also come to
appreciate it as an effective commercial dispute resolution tool(Rao, 1996). Although a universally
accepted concept of ADR has yet to emerge, Brown & Marriott render ADR philosophy comprehensively
as follows:
‘ADR complements litigation and other adjudicatory forms, providing process which can
either stand in their own right or be used as an adjunct to adjudication. This enables
practitioners to select procedures (adjudicatory or consensual) appropriate to individual
disputes.ADR gives more parties more power and greater control over resolving the issues
between them, encourages problem-solving approaches, and provides for more effective
settlement covering ( both )substance and nuance’ (Brown & Marriott).
Beside the growth of alternative dispute resolution, the business world is speedily integrating
information technology into its ways. The two factors, dispute resolution and information technology
have coalesced into a more effective, more flexible and less costly way for solving disputes, compared to
traditional approaches. Online Dispute Resolution (ODR) combines the efficiencies of Alternative
Dispute resolution with existence of the internet to save time and reduce costs (Rule, 2002). Resolution
techniques range from methods where the parties have full control over the process to the ones where
a third party controls both process and outcomes. In the last few years, ADR has gained great
acceptance by the public and legal profession. So for some courts they first require parties to bring their
case to ADR before allowing them to engage in litigation. The rising popularity of ADR versus litigation is
due to cost benefits and assured confidentiality. ODR is a synergy between ADR and ICT (Institutional
Control Technology) to deal with online disputes (Cortes, 2011). According to the American Bar
Association Task Force on E-commerce and ADR (the ABA Task Force) ODR has been defined as:
‘ODR is a broad term that encompasses many forms of alternative dispute resolution (ADR)
that incorporate that use of the Internet, websites, email communications, streaming
media and other information technology as part of the dispute resolution process. Parties
may never meet face to face when practicing in ODR. Rather, they might communicate
solely online.’ (ABA Task, 2010).
ODR may supplement ADR which takes place in the more conventional physical world. Parties may
choose to post materials for arbitration on websites or to interview witnesses online. ODR is information
technology via the internet, together referred to as online technology applied to alternative dispute
resolution (Hornle, 2003). Another definition maintains that using the internet to provide ADR is called
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‘online dispute resolution’, whether as an adjunct to face to face services or in substitution of them
(Marie, 2003). Online dispute resolution resolves online disputes which include online commerce
transactions and offline disputes. By the presence and role of the neutral third party ODR may be
categorized as procedures where there is no third party (negotiation) or there is a neutral third party but
cannot make a decision (mediation) or the neutral is a person who can make a decision arbitration or
litigation (Kolher & Schultz, 2004). Online dispute resolution mechanisms, as compared to ‘earth bound’
litigation and other formal processes, may be done entirely on the internet online by using
communication methods, such as email, video conferencing or both, as well as a combination of offline
and online methods.
Figure 2 shows Appropriate Dispute Resolution processes within a continuum, the difference being the
degree to which parties have control of the process and outcomes, with litigation being distinct from
alternative processes, the top of the figure showing different methods of resolving online disputes,
other than by litigation, whereas the two sides of the arrow indicate differences between methods.
Whereas arbitration is more aligned with litigation and more formal than other methods of ODR,
negotiation is its most informal and least complicated process (United Nations , 2003).
Figure 2: The Dispute Resolution Continuum
7.0 FUNDEMENTAL PRINCIPLES OF ONLINE DISPUTE RESOLUTION IN BUSINESS TO CONSUMER

TRANSACTION (B2C)
There are some fundamental principles to be followed for online dispute resolution to work and be fair
to parties in B2C disputes. Several studies were conducted by governments, consumer institutions and
business organisations on dispute resolution to determine what these should be, yet their
recommendations vary. Governments are interested in ODR which provides a form of justice that courts
are not yet ready for, reduces court congestion and furthers the ‘electronic economy’. Business
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organisations such as ODR are confidential, speedy, inexpensive way of resolving disputes and providing
consumer trust. The Alliance for Global Business (AGB) is a worldwide e-commerce network of six
organisations, namely, Business and Industry Advisory Committee (BIAC), Organisation for Economic
Corporation and Development (OECD), the Global Information Infrastructure Commission (GIIC), the
International Chamber of Commerce (ICC), the International Telecommunications Users Group (INTUG),
the World Information Technology and Services Alliance (WITSA) and the Global Coalition of Services
Industries (Alliance for Global Business , 2011).
Online B2C transactions encounter problems of jurisdiction and thus of determining whose laws apply
whenever disputes arise, so that AGB advocates self regulation and recommends certain ODR
mechanisms. Governments are contemplating legislation to reduce the potential for conflict, while the
private sector is developing and implementing effective self-regulation; all stakeholders agree that
effective ADR is an efficient and cost saving way to resolve consumer disputes. The Alliance for Global
Business (AGB) has issued policies, such as ‘A Global Plan for Electronic Commerce’ which are set out to
promote e-commerce by increasing trust between consumers and business. Business and other
organisations have to develop and perform effective B2C ADR mechanisms, certain minimum standards,
such as accessibility, attentiveness, global flexibility, compliance, and the nature of decision.
Governments have to create legislative framework for jurisdiction and applicable lawin e-commerce
which recognize. The importance of B2C systems for business to consumer transactions. Governments
should promote .development of globally applicable B2C ADR systems. Also they should have workable
internal dispute systems which meet certain minimum standards in order to reduce the chance of
disputes requiring B2C ADR. These should be transparent and fast (A Global Action Plan for Electronic
Business , 2002).
Consumer organisations see ODR as a mechanism to enforce consumer rights, whereas dispute
resolution professionals look at ODR as a new service, in addition to traditional mediation and
arbitration, which may enhance their position in the competition for the dispute resolution market
(Kolher& Schultz, 2004). Consumer International (CI) carried out a complete survey about disputes in
cyberspace in 2000 which involved analysing and making recommendations on online dispute
resolutions for B2C disputes. CI globally supports ODR and recognizes several ODR providers for B2C
cross-border disputes, such as 1-2-3Settle, AllSettle, BBBOnline, clickNsettle, Cybersettle e-Mediator. CI
stated that, whereas ODR had many advantages as compared to traditional litigation, a poorly design
ODR system might impede access to justice; they recommended, in order to enhance ODR services for
consumers in cross border disputes that independence/impartiality, transparency, speed/time lines,
availability, affordability, effectiveness, accessibility/ ease of use, visibility, be ensured or improved upon
(Lawson, 2002). They also suggest self-enforcement mechanisms, money back guarantees, Trustmark
programmes and compensation funds. CI is, after all, an international neutral body, being, for example,
the trust marker and standards forms owner for ODR (Kolher & Schultz, 2004).
Governmental efforts on general principles remain in the abstract, as many governments have yet to
make decision on the appropriate extent of any intervention; whether ODR is to be publicly regulated,
co regulated or self regulated. The Working Group on Electronic Commerce and Consumers convened by
the Office of Consumer Affairs of Industry, in Canada, in August 1999, with business, consumer and
government representatives, released a document Consumer Protection for Electronic Commerce with
the aim of guiding Canadian consumers, business and governments. Their frame work includes eight
principles: Disclosure, Contract Formation, privacy, liability, redress, unsolicited email, security, and
consumer awareness. For business was to provide in-house mechanisms for resolving B2C disputes
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along these principles: fair, timely, effective and affordable; also if parties were unable to solve their
disputes, there was to be an impartial third party empowered to do so, also that such principles ought to
be developed in consultation with consumers, business and governments (Winer, 2002). Governments,
business industry and consumer groups appear to have generally agreed on the following elements of
ODR:
Transparency: Consumers are to have access to information about all aspects of online dispute
resolution services, the online form of ADR, and that ‘ADR systems should function according to
published rules of procedure that explain unambiguously all relevant elements necessary to help
consumers in seeking redress, to take decision whether they want to use ADR offered or take their case
to a court of law’ (Winer, 2002). Consumers are to have the opportunity to evaluate the independence
and effectiveness of an ODR process. For this purpose, “an ODR service provider should, at least,
disclose, on a regular basis, general statistics on ODR activities including its procedural and substantive
rules, costs, the manner of settlement or decision-making, the numbers of submitted, settled or decided
disputes, and the percentage of results in favor of the consumer or business, (categorised) by the nature
of the disputes and the ODR model employed” (Kao, 2009).
Independence and Impartiality: These concepts are the key to civil justice. Both the ODR service
provider and any third party, whether mediator or arbitrator, must independent and impartial,
unbeholden to any ‘vested interest’. Third parties are to observe a code of professional ethics, obliging
them to disclose any personal interests and to avoid any conflict of interest (Hornle, 2002). Since most
ODR providers have difficulties in financing the system, with still low numbers of online disputes, ODR
fees remain necessarily modest, not enough for these institutions to keep going. So, apart from
automated methods used on a large scale, ODR services provision may prove to be non self financing, let
alone profitable, outside funding may be required, to be publicly or privately provided, not least to
ensure their independence and impartiality (Kohler & Schultz, 2004).
Effectiveness: For the effectiveness of ODR process two elements should be considered. Firstly,
regarding time consumption, as a rule, parties welcome swift dispute resolutions preferring to settle
these in a timely manner, as they do not opt to engage in a prolonged ODR process over an, often,
relatively small amount at issue. Decisions made under ODR by neutrals are binding, so how is the losing
party to be made to implement them; for, under binding online arbitration, no final decision may be
challenged, except under very limited conditions. While some argue that binding arbitration confronts
consumers with its finality, certainty and efficiency others believe binding arbitration to be an obstacle
for the right of consumers to commence lawsuits in their own national courts. They, therefore, suggest
that arbitration ought to be binding only on business and that consumers still ought to have the right to
take issues to their national courts of law, such an imbalance being justified as it tended to increase
consumer trust and confidence in e-commerce (Kao, 2009).
Fairness: This is an ODR principle agreed upon by all actors involved in ODR regulation, while their
interpretations and recommendations differ widely. Fairness extends to all forms of dispute resolution,
whether the third party is facilitative, evaluative or adjudicative, or whether there is no third party, such
as in Automated Negotiation, the need for it varying with the chosen method, example binding
Arbitration requiring it more than Automated Negotiation. The Adjudicative process should enable
either party to comment on the case of its disputant adversary, so that an arbitrator was not to have a
private meeting with one party, without the other present. Such fairness, however, might appear to
compromise impartiality, the right and opportunity to be heard in adversarial proceedings, the right to
refuse to participate or to withdraw from proceedings at any time and access the legal system, instead,
213
or seek other, out of court redress mechanisms at any stage of the procedure, and also internal
confidentiality and the need to give each party enough time (Kohler & Schultz, 2004).
Affordability: ODR services should, ideally, be free to consumers; for if they were to be charged, whether
prepaid or pay if you lose, it might discourage consumers from employing ODR. Nevertheless, if
consumers are to be charged for ODR, costs ought to be relatively low, compared to the value of
disputes, otherwise, ODR would lose its advantage over more costly litigation, with cost affecting
affordability, which in turn determines access to redress. If ODR were to impose unreasonable costs, it
would be unaffordable and consumers could not approach it (Kao, 2009).
Accessibility: Easy access is an important advantage of ODR. For ‘long-‘distance cases’ people living in
remote areas and ‘petty claims’, ODR often provides the only reasonable access to justice; thus,
accessibility is a key factor in its development. Generally, these recommendations only address the
consumer’s ability to easily access the process. ODR services should be available, easy to find and easy
to use, using tools such as ‘trust marks’, ‘seals’ or references on commercial websites. Ease of Use
includes six components: Low cost of the ODR process for the consumers, Technical barriers should not
exist and technical skills required for ODR systems should be at a level appropriate even for low tech
users, ODR procedures must be structured in such a way that there is no need for legal counsel, even in
participatory online arbitration, ODR providers should avoid geographical access restrictions, with ODR
systems available everywhere, except that this might be costly, because it requires supplying service in
different languages (Kohler & Schultz, 2004).
8.0 CONCLUSION AND FUTURE RECOMMENDATION
The Internet has created a global consumer, able to purchase goods and services worldwide,
significantly contributing to e-commerce, removing boundaries in terms of time, space and distance but
also leading to some comtemtious issues in online transactions. Language barriers and cultural
differences, delivery and payment problems, fraud, have contributed to E-disputes between consumers
and businesses. The Internet itself has proved entirely different from other mass media and
communication technologies, not least, because it has enabled trading to be carried out globally, as e-
commerce. It has also shaped relationships, attitudes, responsibilities and expectations.
Buying online is fraught with greater risks compared to buying from an offline store. For consumers to
be protected when shopping online as they are when buying offline, there must be a legal framework in
place, as specific as it is to be effective, to ensure such protection, yet not tailored to a particular
environment or a specific jurisdiction but more suitable for the new Global Consumer. It is to facilitate
online transactions and trust and confidence, by bringing justice to cyber space, especially by protecting
e-consumers. This is best achieved when business and consumer organizations develop a unified
approach to consumer protection and problem solving. Mechanisms such as Online Dispute Resolution
will become a necessity. Methods of ODR include Negotiation, Arbitration, Mediation and Med-arb. ODR
for small and medium sized disputes, such as those involving B2C is seen to be more effective than
courts. Governments, business and consumers all over the world benefit from effective global ODR
systems. To have such effective and fair systems there are some principles which governments,
consumer institution and business organizations have agreed on them: transparency, independence and
impartiality, effectiveness, fairness, affordability and accessibility. Adherence to these will help the
growth of ODR and e-commerce and also encourage consumers.
214
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THE WORKPLACE SPIRITUALITY AND AFFECTIVE COMMITMENT AMONG

AUDITORS IN BIG FOUR PUBLIC ACCOUNTING FIRMS: DOES IT MATTER?
Mat Desa, Nasina (PhD) and Koh Pin Pin, Doris
School of Distance Learning (Management)
Universiti Sains Malaysia
nasina@usm.com & doriskpp@gmail.com
ABSTRACT
The paper aims to study the impact of four dimensions of workplace spirituality (the team’s sense of
community, alignment between organizational and individual values, sense of contribution to the society
and enjoyment at work) on affective commitment. Specifically, we predicted the positive contribution of
workplace spirituality to affective commitment. A sample of 153 auditors was drawn from big four public
accounting firms in the northern region of Malaysia. Simple random sampling was used in this study. A
multiple regression analysis had been carried out and the result had shown that the team’s sense of
community, sense of contribution to the society and enjoyment at work have had the major influences to
the organizational affective commitment. The findings help the employers to realize the importance of
the three aspects of workplace spirituality and consequently, have encouraged the employers to instill
this sense of workplace spirituality in order to enhance their employees’ affective commitment. This, in
turn will ultimately increase the positive outcomes such as honesty, creativity, trust and commitment and
further improve the organizational performance and long term organizational success.
Field of Research: workplace spirituality, organizational commitment, auditors, Malaysia
----------------------------------------------------------------------------------------------------------------------------------
1.0 INTRODUCTION
Do workplace spirituality aspects really matter to an organization? Should an employer focus only on the
extrinsic rewards such as compensation and benefit to boost organizational commitment? Over the past
few years, spirituality has been recognized as a fundamental area of research in the academic world to
add more meaning to one’s workplace (Ashmos & Duchon, 2000; Giacalone & Jurkiewicz, 2003; Garcia-
Zamor, 2003; Gotsis & Kortezi, 2007; Petchsawang & Duchon, 2009 and Daniel, 2010). Managers in
United States have silently acknowledged the influence of spirituality on their employees. Lloyd (1990)
discovers that an organization with highly influenced workplace spirituality is able to outperform other
organizations with either little or no workplace spirituality by 86 percent. Furthermore, Turner (1999)
has highlighted that the workplace spirituality has a huge impact on an organization since the
organization is able to gain advantages by developing a humanistic environment in which workers can
achieve their full capacity. Many corporations also encourage the development of this new trend
because they believe a humanistic work environment can create a win-win situation for employees, for
employee’s co-workers, and that it is good for the organization (Garcia-Zamor, 2003 and Wiersma, Dean
& Fornaciari, 2009). If the employees are at liberty to bring their physical, intellectual, emotional and
spiritual attributes to the workplace, they will become more productive, creative and fulfilled. On the
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contrary, if the employees work in a dispirited workplace, they will manifest themselves in various work
troubles- low morale, rising absenteeism, high turnover, burnout, frequent stress-related illness and the
adoption of non committed attitude to the organization. Hence, the purpose of this study is to
investigate the association between workplace spirituality (team’s sense of community, alignment
between organizational and individual values, sense of contribution to the society and enjoyment at
work) and affective commitment among auditors who are working in the big four accounting firms in
Malaysia.
Committed employees can be described as those who have high involvement such as always being
supportive of the organization’s proposal, plans and any activities carried out by the organization. Highly
committed employees will generally express a strong desire to remain in the organization (Mathieu &
Zajac, 1990). Furthermore, they are proud to be in the organization and very much like to remain in the
organization. If the organization has many committed employees, it is essential for the organization to
gain competitive advantage, successfully implement business strategies, achieve their goals and
optimize human capital. Besides, committed employees are less likely to resign or absent. They are more
willing, instead, to share and make sacrifices, project higher loyalty, possess lower work stress and
produce higher performance towards their organization.
Research by Nijhof, De Jong & Beukhof (1998), has ascertained that “a successful organization does not
only depend on how to make the most of human competencies and how to utilize their employees, but
more important is how the organization stimulates the commitment among their employees”. This
study focuses on the workplace spirituality rather than the extrinsic factors such as remuneration and
benefits and the findings would benefit the Malaysian accounting organizations in promoting and
instilling the right sense of spirituality within the organization. By acknowledging the spiritual factors
that strengthen the affective commitment of employees, it will help the organizations to retain the
highly committed auditors, as substantial turnover rate in the public accounting environment in
Malaysia is translated into undesirable higher costs and efficiency losses such as the cost of training and
development of personnel and cost of recruitment and training for new hires (Mingle, 1994; Hook, 1996
& Stallworth H. L., 2003).
Thus, the main objective of this study is to investigate the relationship between workplace spirituality
and affective commitment among auditors who are working in the Big Four accounting firms located in
the northern region of Malaysia.
2.0 WORKPLACE SPIRITUALITY
According to Krishnakumar & Neck (2002), there are three main viewpoints of the workplace spirituality
perspective which are intrinsic-origin view, religious view and the existentialist perspective. This present
study focuses on the intrinsic-origin view rather than the other two perspectives. The intrinsic-origin
view put forth by Krishnakumar & Neck (2002) is a concept or a principle that originates from the inside
of an individual. This view is also supported by Graber (2001, p.40): “ spirituality avoids the formal and
ceremonial connotations of religion; It implies an inner search for meaning or fullfilment that may be
undertaken by anyone regardless of religion”; and by Mitroff & Denton (1999), who believe that
spirituality is not in actuality, associated with religion, God or higher powers. In other words, the
concept of spirituality is not associated with religion and belief. In view of the fact that there is no clear
and widely accepted definition of workplace spirituality (Tischler et al., 2002); however, this study have
been guided by the following definitions. Mahoney & Graci (1999) have proposed that spirituality
involves a sense of giving and service, a sense of connection (community), compassion and forgiveness,
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meaning and morality. Ashmos & Duchon (2000) have defined workplace spirituality as “a recognition
that employees have an inner life which nourishes and is nourished by meaningful work, taking place in
the context of a community (p.137)”. Giacalone and Jurkiewicz (2003) have brought to us the definition
of workplace spirituality as “a framework of organizational values evidenced in the culture that
promotes employees’ experience of transcendence through the work process, facilitating their sense of
being connected to others in a way that provides feelings of completeness and joy (p.13)”. Kinjerski &
Skrypnek (2004) define the workplace spirituality as “the experience of employees who are passionate
about and energized by their own work, find meaning and purpose in their work, feel they can express
their complete selves at work, and feel connected to those with whom they work (p.27)”.
3.0 AFFECTIVE COMMITMENT
The very early definition of organizational commitment given by Mowday et al. (1979) is “a condition in
which an individual feels a bond with their organization and wishes to maintain membership in the
organization”. However, in the present study we utilize the definition of Allen & Meyer (1996) that sees
organizational commitment as “generally a psychological link between the employee and his or her
organization that makes it less likely that the employee will voluntarily leave the organization”. In
addition, there are conceptual and measurement work which have resulted in three components of
views of commitment (Allen & Meyer, 1990; Meyer & Allen, 1991 and Allen & Meyer, 1996). The three
commitments were categorized under affective commitment (involvement in and emotional attachment
to the organization), continuance commitment (employees’ recognition of the costs associated with
their leaving the organization) and normative commitment (sense of obligation to the organization). In
summary, the three components’ model tries to explain the cumulative strength of individuals
connected to an organization because they want to (affective), they need to (continuance) and they
ought to (normative) remain in the organization. However, the focus of this study is the affective
organizational commitment.
McGee & Ford (1987) define affective or attitudinal commitment as an individual’s identification with an
organization and his/ her commitment to maintain his or her membership to pursue the organizational
goals. In addition, Mowday, Steers & Porter, (1979) see affective organizational commitment as “the
relative strength of an individual’s identification with, and involvement in, a particular organization
(p.226)”. According to Riketta (2002), affective commitment is assumed to influence almost all the
behaviors that are beneficial to the organization. This can be proven by the many research done recently
(Mathieu & Zajac, 1990 and Riketta, 2002).
4.0 WORKPLACE SPIRITUALITY AND AFFECTIVE COMMITMET
There are plenty of studies which have proceeded to examine the relationship between workplace
spirituality and organizational commitment (Rego & Cunha, 2008; Duchon & Plowman, 2005; Jurkiewics
& Giacalone, 2004; Garcia-Zamor, 2003). They have found that when people find meaning in their
activities and feel involved in heavily spiritual organizational climates, they become healthier and
happier, where they act in a more committed manner, become more engaged and are able to apply
their full potential to work. As gathered from Neck & Milliman (1994), workplace spirituality at least
brings up four benefits to a firm:
1) Lead employees to experience consciousness at a deeper level, hence enhancing their intuitive
abilities.
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2) Spiritual-based intuition helps employees to develop more purposeful organization vision which
will increase innovation when they perform their job.
3) Organizations with spirituality provide opportunities for employees to experience greater

personal growth and development.
4) Spirituality can increase teamwork and employees’ commitment.
The four benefits are very significant and useful to each of the public accounting firms in the market
because the employees are the goodwill of the public accounting firms. The job of auditors, in particular
is not an easy task. They need to be very creative to handle the different types of clients and able to
apply different auditing skills with their intuitive abilities. Moreover, auditors have to be committed and
passionate about their tasks as the tasks require undivided attention and concentration. Therefore, the
findings would be an eye-opener to the accounting firms to emphasize the right aspects of work place
behaviours in the work place.
Past studies have been conducted in the Western and South American countries such as in the USA
(Milliman, Czaplewski & Ferguson, 2003 and Daniel, 2010), Portugal (Rego & Cunha, 2008), Brazil (Rego ,
Cunha & Souto, 2008) and recently in the South East Asian region, in Thailand (Petchsawang & Duchon,
2009). Thus, with this little evidence found in other parts of the world, we seek to understand the
relationship between workplace spirituality and affective commitment in Big four public accounting
firms in the northern region of Malaysia.
Figure 1: The Theoretical Framework Of The Study
From Figure 1, we derive four hypotheses as outlined below to test the relationship of the four
dimensions of workplace spirituality towards affective commitment.
H1: The sense of community is positively related to affective commitment.
H2: The alignment between organizational and individual values is positively related to affective
commitment.
H3: The sense of contribution to the community is positively related to affective commitment.
H4: The sense of enjoyment at work is positively related to affective commitment.

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5.0 RESEARCH METHODOLOGY
This research examines the relationship between the workplace spirituality and affective commitment
among the auditors who are working in Big four public accounting firms in the Northern region of
Malaysia. The data was collected from a sample of 300 auditors from the Big four public accounting
firms. Simple random sampling was used in this study. Any auditor who is working in these four firms in
the Northern region of Malaysia has an equal chance of being selected as the sample for this study.
Every respondent is required to respond to a set of questionnaire which is administered into Part A and
Part B. Part A is a series of single statement items to assess the respondents’ demographic backgrounds
such as: gender, age, ethic group, marital status, level of qualification, salary, position level, organization
tenure and position tenure. Part B includes the questions from the four dimensions of workplace
spirituality and affective commitment. The questionnaire is also accompanied by a personally signed
letter stating the purpose of the study and a declaration of complete obscurity of the individual’s
responses. After two months’ allocation of the response period, a total of 153 questionnaires were
voluntarily returned and this automatically contributes to 51 percent return rates.
According to Table 1, data from Part A shows that the majority of respondents are males who contribute
to approximately 55% of the total respondents. From the data, it is also learned that the respondents
are still at young age. 93% of them are under the category of 21-30 years old and the majority of them
are from the associate level (60%). As professionals, their starting salary is at the level of RM2000-
RM3000 where 44% of respondents come from this level. The data further shows that 58% of the
respondents hold a degree. The data also highlights that 96% of the respondents are Chinese, and 90%
of the respondents are single. The minimum and maximum statistics of tenure in the current
organization of the respondents are 1 year and 11years respectively. The mean of tenure in the current
organization is 2.55 years. The minimum and maximum statistics of tenure in the current position of the
respondents are 1month and 7 years respectively. The mean of tenure in the current organization is 1.32
years.
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Table 1: Demographic Characteristics Of The Respondents
Part B includes 4 dimensions of the workplace spirituality and the affective commitment’s
questionnaire. All the measures are based on a five-point scale from 1 (“strongly disagree”) to 5
(“strongly agree”). The brief list of the source and coefficient alpha for each scale used are outlined
below.
1) Team’s sense of community. We have adopted a five-item scale from Rego & Cunha (2008). The
scale mainly refers to the interactions within their teams, including support, genuine caring
attitude and freedom of expression among the colleagues, sense of community and sense of
common purpose. The coefficient alpha in this study is 0.76.
2) Alignment between organizational and individual values. We employ the five-item scale from
Rego & Cunha (2008) to assess the degree of employees’ experiences in forming a strong sense
between their inner lives and their organization’s mission and purposes. Besides, this dimension
also focuses on the feeling of employees when they notice that the leaders in their organizations
are not only highlighting the interest of shareholders but also the interest of the working
community at large. The coefficient alpha in this study is 0.78.
3) Sense of contribution to the community. We have also employed a three-item scale to assess
whether employees have a deep sense of meaning and purpose in their work which harmonizes
222
with their lives’ ideal values and which contributes to the community (Rego & Cunha, 2008). The
coefficient alpha in this study is 0.71.
4) Sense of enjoyment at work. It comprises items related to another way to attain meaning at
work. It aggregates items related to the satisfaction and the sense of pleasure at work. The scale
is adopted from Rego & Cunha (2008). The coefficient alpha in this study is 0.76.
5) Affective Commitment. The instrument used is adopted from Allen & Meyer (1996). This is the
improved version, originating from 8 item scales to 6 item scales. The coefficient alpha in this
study is 0.75.
Table 2 as below shows the correlation among variables. According to Cohen (1988), the strength of the
relationship is manifested in the following ranges; if r = 0.10 to 0.29, it means the correlation is weak, if r
= 0.30 to 0.49, it portrays a medium correlation and if r = 0.50 to 1.0, it translates as a strong correlation.
As seen in Table 2, the majority of the correlation among variables falls into the medium correlation
range. A weak correlation is found between the sense of community and enjoyment at work (r=0.29).
On the other hand, the relationship between the alignment with the organizational values and among
enjoyment at work (r=0.50) has shown a strong correlation and its relationship with the affective
commitment (r=0.51) also has shown a strong correlation. In summary, all of the correlations are
statistically significant at the 0.01 level.
Table 2: Descriptions Of The Variables
6.0 ANALYSIS AND FINDINGS
The results are tested by means of a multiple regression analysis using the Predictive Analytics SoftWare
(PASW) version 17.0. As shown in Table 3, the multiple regression results indicate that the team’s sense
of community (beta = 0.160, p<0.05), sense of contribution to society (beta = 0.058, p<0.05) and
enjoyment at work (beta = 0.242, p<0.05) have a significance and are positively related to affective
organizational commitment. Thus, we have supported H1: A team’s sense of community is positively
related to affective commitment, H3: The sense of contribution to society is positively related to
affective commitment and H4: The sense of enjoyment at work is positively related to affective
commitment.
Furthermore, from the standardized coefficients, we can conclude that the enjoyment at work has a
stronger positive relationship towards affective organizational commitment as compared to team’s
sense of community and sense of contribution to the society.
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On the other hand, as for the alignment between organizational and individual values, we have found
that the relationship with the affective organizational commitment (p>0.10) is not significant. Therefore,
the hypothesis 2 is not supported which means, the alignment between organizational and individual
values with affective organizational commitment is not significant
Overall, as shown in Table 3, the test results for team’s sense of community, sense of contribution to
society and enjoyment at work as beta = 0.160, beta = 0.058 and beta =0.242 are found to be significant
(p<0.05).
Table 3: Multiple Regression Result for Affective Commitment
7.0 DISCUSSION AND CONCLUSION
Little evidence has been found to describe the relationship between workplace spirituality and affective
commitment especially in the Big four public accounting firms. In this empirical evidence, we have
managed to reaffirm the relationship between the three dimensions of workplace spirituality (team’s
sense of community, sense of contribution to society and enjoyment at work) and affective
commitment. However, the alignment between organizational and individual values has not been
supported due to their insignificance towards affective commitment.
Our findings are consistent with the studies conducted in many countries, such as the USA (Milliman,
Czaplewski & Ferguson, 2003 and Daniel, 2010), Portugal (Rego & Cunha, 2008), Brazil (Rego , Cunha &
Souto, 2008) and recently in the South East Asian region, specifically in Thailand (Petchsawang &
Duchon, 2009). Our results suggest that the team’s sense of community, sense of contribution to society
and enjoyment at work are positively associated to affective commitment. However, the enjoyment at
work (β=24.2%) is seen to promote more affective commitment than the team’s sense of community
(β=16%) and sense of contribution to society (β=5.8%). Clearly, the auditors working in big four public
accounting firm whom possess the sense of enjoyment at work will naturally be affectively committed to
the organizations. Among them are the experiences of joy when they come to work and the feeling of
contentment when working in the organization. This conclusion is upheld by previous research (Rego &
Cunha, 2008) that enjoyment at work correlates positively with affective commitment.
From the findings it is rather substantial that employers pay extra attention to their employees’ spiritual
feelings. They should encourage the employees to engage in the organization’s activities that will
enhance their ‘inner’ lives such as engaging themselves in the CSR (Corporate Social Responsibilities)
activities such as community projects, green projects and etc. If the employees have more positive
perceptions on their employers, they will achieve better adjustment into their job satisfaction and
subsequently increase the sense of affective commitment. In addition, the employers must also work to
instill the values and concepts of caring and loving the society within the subordinates.
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Future research could benefit from identifying the major potential limitations of the present research.
First, our data are correlational in nature. Hence, we cannot make a finalized claim about causality. A
second limitation is suggested by our cross –sectional data. Since the workplace spirituality is
developmental in nature, only future longitudinal investigations can uncover the stage at which the
employees feel affectively committed. Finally, the limitations lie in the fact that the sample is derived
only from one sector, which is the accounting sector. Future research therefore, should extend to other
research sites with a larger sample size.
Despite these limitations, the study contributes towards filling a gap in the management literature. It
suggests that every organization must play its roles in promoting the sense of joy, in being fair and
trustful, and in building a sense of community. Human beings are rational, but also by nature, emotional
and spiritual. Therefore, we should include spirituality in management agendas as spirituality is
embodied in every employee. If organizations are able to satisfy their employees’ “spiritual needs”, it is
likely that their affective commitment will result in long term benefits, both for the employee and the
employer and also to the organization as a whole.
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SUSTAINABLE COMPETITIVE ADVANTAGE FOR MARKET LEADERSHIP AMONGST

THE PRIVATE HIGHER EDUCATION INSTITUTES IN MALAYSIA
Loh Teck Hua
KDU University College, Business School
Section 13 Campus, 76, Jalan Universiti,
46200, Petaling Jaya, Selangor
ABSTRACT
One of Malaysia’s economic goals is to become an education hub for the region. To achieve this, the
Malaysian government had liberalised government policies resulting in the proliferation of Private Higher
Education Institutions (PHEIs) including private Universities and University Colleges. As competition
intensifies it becomes increasingly pertinent to ask “What sustainable competitive advantage should the
Private Higher Education Institutions (PHEIs) have to achieve market leadership in the Malaysian
education industry?” For the smaller PHEIs, it is a question of survival itself. This paper aims to provide a
theoretical study of some of the key strategic activities of the leading PHEIs to answer this question.
The literature review covering both foreign and local sources indicates three key factors of sustainable
competitive advantage, i.e. branding and image, the physical aspects of higher education including
location and facilities, and the mode of delivery. The paper will seek to identify these factors amongst the
market leaders to ascertain the validity of the secondary data via critical analysis of their activities.
The theoretical framework employed for the analysis will be Michael Porter’s Three Generic Strategies
and Five Competitive Forces. The PHEIs have largely evolved into business entities and this development
makes the framework appropriate for the study.
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1.0 INTRODUCTION
Archer and Hutchins (2000) indicated that the reasons for undertaking a degree program were largely
personal and economic: to earn more money and to avoid hard, dirty or dangerous jobs. Higher
education allows personal development and facilitates social-class mobility by helping one move up in
the socio-economic ladder.
Prior to 1996 only the public higher educational institutions had the rights to confer degrees. The Private
Higher Educational Institutions (PHEIs) could only confer certificates and diplomas. Since 1996, the
Ministry of Education Malaysia (MOE) had introduced legislations that have revolutionalized the higher
education system bringing about educational reforms and the democratization of secondary education,
increased student enrolment at PHEIs, new public policies and the privatization of higher education in
Malaysia.
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While this development had generally benefited the industry, it had created a challenging, fluid
environment where Government interference and legislative changes demand great flexibility and an
even greater entrepreneurial mind set from PHEIs. With the creation of the Malaysia Qualifications
Agency (MQA), a single quality assurance agency is created in the country whose scope covers both the
public and private higher education providers using the Malaysian Qualification Framework (MQF) as a
basis.While the MQA has added value and has contributed to the growth of the PHEIs in recent years
because it has bolstered confidence in the quality of education, the MQA has also raised the bar for the
PHEIs and the PHEIs had to readapt to the new legislation to remain valid (Syed Ahmad Hussein, 2009).
Even more challenging than the quality assurance standards set by the MQA is the proposed index-
rating system for private varsities in 2011.According to the Higher Education Minister Datuk Seri
Mohamad Khaled Nordin, it would be compulsory for all institutions of higher education to participate in
the Rating System for Malaysian Higher Education Institutions (Setara) programme in 2010. By the year
2011, prospective students can check on the standing of private universities and university colleges
before enrolling. Poor ratings would guarantee the eventual demise of sub-standard institutions.
According to the minister, all this stringent controls are necessary. Quote:
“We’ve no choice but to concentrate on quality. We want Malaysia to be a hub of higher

education. We want first-class mentality students” (The Star, 2009)
The PHEIs as an industry has been growing at an average annual rate of 5.5% from 2000 to 2005 and the
growth rate projected from 2006 to 2010 is expected to be 6.7% (The Ninth Malaysian Plan 2006 p. 245).
There are many factors driving the industry’s growth. The democratisation of secondary education by
simplifying the grading process thereby making it easier for students to reach the SPM (Sijil Pelajaran
Malaysia)level, which is the minimum requirement for furthering studies at the higher education level,
has increased the number of secondary students eligible for higher education.
MAPCU (Malaysian Association of Private Colleges and Universities) estimated the industry to have
generated a total fee income of RM1.5 billion in 2008 (Oh, 2009), a sizeable business to attract intense
competition.
According to Tan and Raman (2009), the intense competition has led to PHEIs lacking the competitive
edge to close down. They further add that the former director of the Department of Private Education,
Datuk Hassan Hashim revealed that 200 private institutions of higher learning had been closed down in
2002.
The PHEIs can be categorised into three types: universities, university colleges and non-university status
PHEIs. This study will focus mainly on the university status and university college PHEIs with significant
investments in activities and within the Klang Valley region.
The university status and university college PHEIs tended to focus on science and technology while the
non- university status PHEIs offered Arts programmes. Further, the university status and university
college PHEIs operates off purpose-built campuses with full facilities while non-university status PHEIs
lack proper facilities and normally offer programmes that are easier to deliver and do not require high
financial resources. Funding, hence, appears to be a key factor for survival in the industry. Funding,
particularly for the non-university PHEIs, comes mainly from student fees and sustained enrolment
numbers become the key determinant of survival and market dominance. Indeed many PHEIs had gone
for public listing for funding: Systematic Education Group (now known as SEGi University College) in
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November 1994, Stamford College Berhad in May 2005, Inti Universal Holdings Bhd in June 1996 and
HELP International Corp Bhd in May 2007.Furthermore, funding also comes in the form of corporate
investments.The corporate sector, with vast resources and management experience, is in a much better
position to invest, build up and develop the private sector education industry and to achieve the
standard and quality required. They are also better equipped to provide the industrial link and
experience for both the staff and students of these institutions, helping in the overall development of
the student learning experience (Oh, 2009).
Some of these corporate-linked university status and university college PHEIs include Sunway University,
Taylor’s University and KDU University College, not to mention SEGi University College. The university-
status and university college PHEIs are expected to be the drivers of growth amongst the PHEIs: the
university-status and university college PHEIs benefiting from their significant financial resources and
aggressive activities and the university colleges from their upgrade that allows them to offer 3+0
programmes. Hence, these two categories of PHEIs, i.e. the university status and university colleges will
be the focus of this study.
In recent years was a clear warning that significant funding was no guarantee of success. Kemayan ATC
was delisted in May 2006, the Workers Institute of Technology and Goon Institute owned by Sateras
Resources Berhad in October 2007 while Stamford College became a PN17 company in May 2009 from
the second board of the KLSE (The Star,2009). This is a clear warning that not all is well despite the
industry’s growth as only the well managed PHEIs will survive.
Strategic developments like the public listing of HELP University College in the KL Stock Exchange
(Education Guide 2003), Laureate, USA’s purchase of INTI University and Limkokwing University’s
initiative in exporting education overseas are some examples of the level of competition in the industry.
‘Market leadership’ amongst the PHEIs is defined by the researcher not just in terms of outstanding
revenue sales or student enrolment but includes their image and branding as perceived by their
markets. The question then remains which of these PHEIs would survive the competition in the long
run? Put simply:
What sustainable competitive advantage do the PHEIs have to achieve market leadership in the
Malaysian education industry?”
The researcher would delve into the key areas in the activities of the selected leading university status
and university college PHEIs to uncover sustainable competitive advantages using the five competitive
forces structure developed by Porter (1985).
Theories and propositions
The founding theories selected for the research is Porter’s competitive strategy and the five competitive
forces (Porter 1985). Porter’s theories were selected because they have “shaped a generation of
academic research and business practice” (Harvard Business Review, 2008). The theories are widely
accepted by both academia and by industry leaders worldwide. In the words of the editor of Harvard
Business Review, Peter Crowther p6. “It started a revolution in the strategy field”.
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Justification for the research
Based on the existing literature, Porter’s theories of competitive advantage and the five competitive
forces have never been applied to an education industry. Moreover, the three factors of competitive
advantage, branding, physical aspects and mode of delivery are areas not well covered vis-à-vis the
university status and university colleges PHEIs. This view is supported by Kim, Kim, Holdsworth and Chai
(2006), when they remarked in their research that “despite the numerous literatures on choice in
international education, little has been written about the influence of brand message on student’s
choice of education in Asia”(p2).
This research is also underlined by the fact that no research has as yet been carried out to assess the
strengths of the industry players and, by inference, the industry itself.
2.0 LITERATURE REVIEW
Founding theories for the research
According to Porter (1985), the sustainability of a firm’s competitive advantage is, firstly, dependent on
the ability of a firm’s strategies to resist erosion by competitive activities and, secondly, the firm’s ability
to anticipate the evolution within the industry which it competes in. By strategies, Porter refers
specifically to the three generic strategies of low cost, differentiation and focus which Porter posits
could be a source of competitive advantage for the firm. However, for the strategy to succeed the firm
must possess some barriers that make imitation of the strategy by competitors difficult. The evolution
within the industry refers to changes or challenges within the industry structure that could render the
abovementioned competitive advantage ineffective. In addition, having a competitive strategy per se is
insufficient. It must be translated into an above-average performance in the long run – a sustainable
competitive advantage.
Porter’s three generic strategies.
To quote Porter (1985, p.3):
“Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that
exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems
from offering lower prices than competitors for equivalent benefits or providing unique benefits that
more than offset a higher price”.
Although a firm can have many strengths and weaknesses compared to its competitors, there are
basically two types of competitive advantage that a firm can possess: low cost or differentiation. Derived
from these is a third variation, the focus advantage which has two variants, cost focus and
differentiation focus. (Porter,1985).
Cost leadership.
To pursue a low cost strategy usually requires the firm to seek economy of scale to bring down costs or
through proprietary technology or preferential access to raw materials. In the services sector, it would
mean low-cost labor and efficient training procedures because of high turnover. Low-cost firms usually
sell a standard, no-frills product or service. (Porter,1985). The cost leadership strategy is deemed
inappropriate for the education industry as highly qualified educationists, up-to-date modern facilities,
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technology and attractive premises are the standard hallmarks of a quality institution and these make
low cost unachievable at best. To provide a standard, no-frills education will be at the expense of
marketability. Rather than target low cost which, in this case, could mean a low cost education, the
antithesis of ‘quality education’, Porter’s model includes a differentiation strategy.
Differentiation.
In the differentiation strategy, a firm seeks to be unique along some dimensions that are valued by its
customers and the attributes chosen must be different from that of rivals. Differentiation can be
achieved through the firm’s product, the delivery system, the marketing approach as well as a range of
other factors. (Porter,1985).
Differentiation by adding value to products and services can provide a more sustainable competitive
advantage compared to the cost leadership strategy provided, that is, that competitive advantage is not
easily copied by the firm’s competitors.One of the key methods for achieving differentiation is through
brand loyalty. Dibb and Lowe contend that in the growth stage of a product’s life cycle the typical
marketing strategy adopted would be to encourage strong loyalty and this is supported up by Mohd.
Nazari Ismail and Mulkit ’s (2003) study of Porter’s generic strategies as adopted by selected
multinational companies in Malaysia. Their study included Nestle, Phillip Morris and Ajinomoto. In their
study Mohd. Nazarin Ismail et al summarize that these multinational firms are not willing to dent their
image, i.e. branding, if the process ( low cost operations) cannot be controlled because of competitive
cost activities. This suggests the greater importance multinational firms give to the differentiation
strategy as opposed to the low cost strategy.
Mazzarol and Hosie (1996) too take the differentiation view when they quote Hill (1988) and Murray
(1988) in saying that for successful long-term competitiveness customers attach weight to product
attributes other than price and that a differentiation strategy is generally essential.
McGee, Thomas and Wilson’s (2005) differentiation strategy grid in fig.2 underscores specific factors
which are pertinent to the discussion:
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Strong brand names, innovative features, strong marketing skills, strong coordination of business
functions are closely related to Porter’s “firm’s product, the delivery system, the marketing approach”.
In these respects, Limkokwing Creative Technology University, Inti-Laureate University, UCSI University,
Taylor’s University and SEGi University College are in active competition.
Focus.
The cost leadership and differentiation strategies seek competitive advantage in a broad range of
industry segments, while focus strategies aim at cost advantage (cost focus) or differentiation
(differentiation focus) in a narrow segment. Both variants of the focus strategy depend on segments
with buyers/customers with unusual needs or the production and delivery system required to serve
these buyers/customers differ from those in the other industry segments. Limkokwing Creative
Technology University appears to pursue the differentiation focus although market pressures have
dictated that it adds courses that are not focussed strictly on ‘creativity’.
Porter’s five competitive forces
Porter further adds that cost advantage and differentiation in turn stem from industry structure. They
result from a firm’s ability to cope with the five competitive forces better than its rivals. These five
forces are: 1)The entry of new competitors, 2)The threat of substitutes, 3)The bargaining power of
buyers, 4)The bargaining power of suppliers and 5) The rivalry amongst existing competitor
Based upon the above arguments, it is the present researcher’s view that key to the research is an
analysis of the perceived competitive advantages of the PHEIs, the intention of which is to evaluate
them within the framework of the three generic strategies, i.e., which of the three strategies were
adopted, if at all. These competitive advantages will then be assessed against the backdrop of the five
competitive forces of industry structure to gauge their sustainability.
Opposing views to Porter’s theories
Notwithstanding the above, it must be noted that Porter’s theories have met with naysayers. The
strongest of them being Hamel and Prahalad (1994) who posit that to build leadership, a company must
be capable of reinventing its industry and to rebuild leadership, a company must be capable of
regenerating its core strategies and that it must have the capacity to become different. They further add
that there is a need not only to keep score of existing advantages – what they are and who has them –
but to discover the ‘engine’ that propels the process of advantage creation. The tools of industry and
competitor analysis, i.e. as suggested by Porter, are much better suited to the first task than the second
task (Hamel and Prahalad, 1994).
The arguments of both Porter and Hamel and Prahalad have been succinctly summarized by Doole and
Lowe (2005) as the ‘two principle views as to how competitive advantage can be achieved – ‘the
resource view’ by Hamel and Prahalad and the ‘competitive forces view’ by Porter.
Doole and Lowe’s view the two conflicting theories, i.e., Porter’s and Hamel and Prahalad’s, as being
compatible when Doole and Lowe concede that while organizational learning or ‘the collective learning
organization’ are commendable theories, market intelligence, an analysis of how the market is affected
by the SLEPTC factors (social/cultural, legal, economic, political, technological, and competitive) and
knowledge of other environmental and industry factors remain the basis for developing competitive
advantage.
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Quoting Khairuddin’ study, Mohd.Nazari Ismail and Mulkit Singh(2003) noted that 30 percent of the
small and medium enterprises (SMEs) in Malaysia followed Porter’s differentiation strategy while 26
percent adopted the cost leadership strategy. The relatively widespread use of Porter’s generic
strategies in the Malaysian context appears to further justify this researcher’s use of these parent
theories to study the PHEIs competitive advantage in the education industry.
Sources of sustainable competitive advantage
Various researchers have proposed their respective interpretations of what signifies sustainable
competitive advantage in the education industry. The following are examples:
1) The competitive forces view (Porter, 1985) believes the success of an organization’s competitive
strategy depends on the positioning of the organization within its environment, particularly its
industry and its ability to defend itself against competitive forces, or influence them in its favour.
2) The resource based view (Hamel and Prahalad, 1994) believes that the firm will perform well if it is
able to develop distinctive competencies which allow it to outperform its competitors.
3) By identifying specific ways in which an organization can differentiate its products or services and
promoting those differences that will appeal mostly to its target market (Baharun, 2002).
4) Organizations should be driven by market focus and innovation, are flexible and responsive to
changing markets/circumstances and international in perspective (Baharun, 2002).
5) Courses, career information, physical aspects and facilities are critical issues that must be kept in
mind when educational institutes are trying to create sustainable competitive advantages in
marketing strategies (Joseph & Joseph, 2000)
6) Davidson (1987) identified eight sources of competitive advantage and for a winning strategy at least
one competitive advantage is needed. For above average growth and profits, however, more are
usually needed:i) A superior product benefit, ii) A perceived advantage perhaps created through
imagery and effective communication, iii) Low cost operations, iv) Legal advantage, because of
patents, copyrights or a protected position, v) Superior contacts, vi) Superior knowledge of
customers, markets, science or technology, vii) Scale advantages, viii) Offensive attitudes,
competitive toughness and a determination to win.
Summary of expert views on competitive advantages amongst Malaysian university status and
University College PHEIs.
Table 1. A summary of expert views on sustainable competitive advantage

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Application of the five competitive forces model to the Malaysian education industry.
An adaptation of Porter’s five competitive forces framework (Elements of industry structure, Porter,
1985, fig. 1.2, p.6) to the education industry in Malaysia is presented in figure 4. The elements indicated
have been selected from Porter’s extensive listing on the basis of relevance to Malaysia and the PHEIs
under study.
Potential entrants and entry barriers.
Proprietary product differences.
A university status or university college PHEI has the privilege of developing their own syllabus and
awarding their own degrees over and above the foreign degree programmes which they are currently
offering. This development allows these PHEIs to create proprietary product differences while non
university status PHEIs make do with foreign partner degree programmes which are, by and large,
‘generic’ and are ‘shopped’ off the market. Examples of such proprietary product differences include
SEGi University College’s degree programmes in environmental technology, construction management
and optometry; Nilai University College’s Bachelor in Automotive Engineering and UCSI University’s
degree in Traditional Chinese Medicine amongst others. However, these proprietary product or service
differences cannot be patented and can be easily duplicated. In short, there is no real proprietary
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product or service differences to prevent entry by new or existing university status or university college
PHEIs
Brand identity.
Heavy brand building activities by well funded university status and university colleges PHEIs like Inti-
Laureate, UCSI, Taylor’s and Limkokwing Creative Technology University have raised the entry barriers to
new entrants. Buyers/consumers choose ‘reputable’ institutions and reputation is closely associated
with brand identity. The unknown, new entrants will be at a major disadvantage.
Capital requirements.
Unlike the education industry of the 1970s and 1980s, shop house and shopping complex colleges are no
longer encouraged by the government. The top PHEIs today, whether university status or otherwise, are
housed in stand- alone building complexes or located in their own purpose built campuses complete
with modern, up-to-date facilities. Massive capital investments in building fixtures and facilities are a
pre-requisite for success in the industry.
Government policy.
Ong (2008) noted that as part of the Government’s effort to stem the outflow of foreign exchange to the
Organisation for Economic Cooperation and Development Countries (OECD), the Government has
liberalising education. Further, since the economic downturn in 1997, 26 colleges have been granted the
approval to conduct 3+1 degree programmes with selected foreign universities and this added to the
plethora of options available to students (Tan, 2002).The competitors are varied representing
government-linked, financially robust organizations, prestigious off-campus universities with global
resources to newly awarded university status private colleges which are often backed by major
corporations. Amongst the PHEIs alone there is a proliferation of options for the students.
The government’s policies are generally pro-PHEIs and represent no real barriers to entry despite the
setting up of the MQA (Malaysian Quality Assurance) to monitor the quality and development of the
PHEIs.
Threat of substitutes and determinants of substitution threats.
Relative price performance of substitutes.
Pricing is an important factor for the PHEIs as fees are significantly higher compared to public higher
education institutes although much lower than a foreign education in the UK, USA, Australia or New
Zealand. Obviously those who stayed home have pricing as a key consideration. This is also evident in
the increasing number and value of scholarships, loans, grants given out year on year to attract
enrolment. Limkokwing Creative Technology University is by far the most aggressive, advertising RM34
million in scholarships in 2010 followed by UCSI University at RM5 million. SEGi University College
offered RM500 off enrolment fees as an incentive to potential students.Despite this, however, buyers
will make their buying decisions based on customer value, i.e., the price will be weighed against the
bundle of benefits offered. Price ultimately will not determine market leadership.
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Buyer/customer propensity to substitute.
University-status and university college status PHEIs must create a point of differentiation in order to
successfully compete in this crowded market place.Specialization of their individual curricula is one
option but with educational institutions pursuing their own financial interest and catering to popular
needs a “dynamic of convergence and not divergence” is the contrary result. All universities will attempt
to cover the complete spectrum of higher education instead of specialising. (King, R. 1995). With PHEIs
offering largely generic programmes, similarly prestigious foreign degrees and similarly competitive
facilities, differentiation becomes blurred. There are many choices in PHEIs, programmes and fee range.
Buyer substitution is indeed a real threat and only the PHEI with the competitive advantage most valued
by the buyers can succeed.
Bargaining power of buyers/customers and the determinants of buyer/customer power
Buyer/customer information
Advertising spend by the PHEIs to promote their programmes is estimated at RM560 million in 2009 and
with the many education fairs, point-of-sale materials and other recruitment drives factored in,
significant monies have been invested to keep buyers/customers informed. This flood of information
increases ‘noise’ and ‘clutter’ and makes buyers/customers’ purchasing decision difficult and
competition even more intense. Ultimately advertising cut through’ is critical for a share of buyers’
mind. This is only possible with a strong, distinctive advertising or promotional campaign. Limkokwing
Creative Technology University’s marketing communications with their highly original and distinctive
‘creative’ ads and communication materials represent an excellent example of buyer awareness ‘cut
through’. Sunway University College’s Tan Sri Jeffrey Cheah distinguished speakers series advertising
campaign is another attempt at advertising cut-through while at the same time building brand image for
the institution.
Institutional websites are common to all the PHEIs and these represent important sources of
information, direct marketing and interactive activities between the buyer/customer and the PHEIs. The
Internet technology similarly allows potential buyers and customers to shop around and compare
between PHEIs giving them the advantage of choice.
Substitute products
The options available to students are many: excluding public universities there are 559 PHEIs (2000 –
2005 projected) including private universities, branch campuses of foreign universities, university
colleges and other private colleges. (Adapted from Department of Private Education, Ministry Of
Education Malaysia, 2003, p. 3).
As the university status PHEIs proliferate, choice will continue to increase. It becomes, in short, the
buyers’ market. The PHEI with the distinctive competitive advantage most valued by buyers will stand a
better chance of being chosen. The question remains: what are the competitive advantages that drive
buyers’ choice?
Product differences (Service product)
Despite the many similarities amongst the PHEIs’ offerings there are sufficient product differences to
command the buyer’s interest, not just in terms of courses available but also other factors such as
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reputation and affiliations. Inti-Laureate University brings global reputation and an international
network of affiliations to the local education industry which the organization claims 300 just in the USA
alone. UCSI provides an enviable range of science and arts programmes covering medicine to Traditional
Chinese Medicine; Limkokwing University of Creative Technology specialises in creative arts and sciences
including architecture and movie production; and Taylor’s University boasts the highest student success
rate and the highest number of award winners.
Brand identity
A PHEI with a strong brand identity can limit the power of buyers. Brand identity is closely associated
with reputation and that, in turn, with quality education. Brand identity and reputation can be created
via strategic and effective marketing communications. Short of a firsthand experience of a PHEI’s
education services, branding serves as a proxy for decision making by buyers. Amongst the PHEIs
Limkokwing Creative Technology University,Taylor’s University, Sunway University, HELP University
College, SEGi University College and KDU University College appear to stand out in terms of branding.
These institutions were winners in the 2010 Putra Brand Awards, awards which are measured based on
consumer preferences and a robust and unbiased consumer research polling system developed by a
profession research organization called the Pulse Group. Touted as the largest consumer research
sampling of its kind in Malaysia involving a total of 6000 consumers, the awards were stewarded by the
MMVB (Malaysia’s Most Valuable Brands) board of governors and endorsed by the Malaysia External
Trade Development Corporation (MATRADE). (Pulse group.2011)
Furthermore in the government’s SETARA ’09 rating of Malaysian Universities and University Colleges,
Sunway University and Taylor’s University were the only two PHEIs in the research to be awarded the
tier 5 excellent rating followed by HELP University College, Inti-Laureate University, Limkokwing Creative
Technology University and UCSI university in the tier 4 very good rating. (MQA 2011) Such recognition
would have afforded these institutions with substantial competitive advantage and makes them the
PHEIs of choice amongst buyers/customers.
Bargaining power of suppliers and determinants of supplier power
Importance of volume to suppliers
The export of education is a major source of income for the UK, USA and Australia and to a lesser
degree, New Zealand. Like any business, volume counts. If enrolment falls and the foreign partner does
not achieve their business objectives the programmes may be withdrawn and transferred to PHEIs with
better profit potential or, more often than not, offered to multiple PHEIs without exclusivity to any
institution. A Herriot-Watt, UK, a Northumbria University or a University of Curtin, Australia, twinning
degree is available to multiple PHEIs.
In short, size matters. Needless to say, the leaders in the industry would be in a better position to
negotiate and be able to obtain the most prestigious foreign degrees at a better cost and offered to
buyers/customers at a higher price hence achieving cost advantage and better profit margins.
Cost relative to purchases in the industry
The accreditation fees have increased over the years eating into the PHEIs’ profit margins and
necessitating fees increases making them increasing less attractive as a source of alternate education. It
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has been reported that the British government is proposing a drastic cut in subsidies to the public and
private universities in the UK in the near future (The Star, p56). This development may result in new
increases in accreditation fees and may make the popular 3+0 UK degrees even more expensive for the
PHEIs to offer. The PHEI solution appears to be in their own local degrees which are permissible upon
achieving university or university college status. The cost can be more affordable and the profits greater
but the prestige of a foreign degree is irreplaceable.
Threat of forward integration
To date, there had been no forward integration amongst the major PHEIs. In the education industry
where activities are self-contained the issue does not arise. Student recruitment agencies are more
common for overseas markets and foreign students are not part of the current research.
Industry competitors and rivalry amongst existing firms
Industry growth
As mentioned in the introduction, the private higher education industry has been growing at an average
annual rate of 5.5% from 2000 to 2005 and the growth rate projected from 2006 to 2010 is expected to
be 6.7% (Adapted From The Ninth Malaysian Plan 2006 p. 245). MAPCU (Malaysian Association of
Private Colleges and Universities) estimated the industry to have generated a total fee income of RM1.5
billion in 2008 (Oh, 2009), not including other related incomes. The size and growth of the industry will
stimulate intense rivalry not to mention attracting new entrants.
Brand identity
Brand identity is often a result of positioning, advertising and promotional activities. The bigger
university and university college PHEIs with more financial resources to carry out such activities usually
command greater buyer identification. Nevertheless, there are only a handful of university and
university college PHEIs that have strong brand presence based on advertising. They are Limkokwing
Creative Technology University,Taylor’s University, Sunway University, HELP University College, SEGi
University College and KDU University College as attested by their Putra Brand Awards 2010
selection.(Pulse group.2011).
Diversity of competitors
While there is a general lack of diversity and specialization in programmes except for Limkokwing
Creative Technology University, UCSI University and technology-focused UCTI-APIIT University College,
there is, however, diversity in the PHEIs’ differing corporate visions and marketing strategies. Laureate,
USA’s purchase of INTI University has added new dimensions to the competition bringing new, advanced
management and marketing skills to the organization.
Limkokwing Creative Technology University with its many off-campus branches in the UK, amongst other
foreign countries, has not only taken on the new role of exporter of higher education in line with the
Ninth Malaysia Plan, 2006, but has also added prestige and marketing value to that institution.
Corporate stakes
Capital investment being a key success factor in the education industry it is then not surprising that
corporate funding and ownership is common amongst the PHEIs. Corporate involvement also has the
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added advantage of industrial links that provide the necessary internship training to enhance the
marketability of the graduates and increase their job placement opportunities. These are major
considerations when choosing a PHEI to further one’s studies. Sunway University, KDU University
College and SEGI University College are owned by renown and successful property magnates with the
resources to develop and promote their PHEIs. They would be formidable competitors in the provision
of the physical aspects of education such as premises, excellent location and facilities to compete with
the other PHEIs.
Exit barriers
Exit barriers are high for those PHEIs that have invested significant sums of money into purpose-built
campuses and first class facilities. The competition to survive will be intense. The stronger PHEI may
absorb the weaker ones to form an oligopoly where the scenario could be one of a battle amongst
titans. Inti-Laureate appear to have taken this route by absorbing Metropolitan University College and
UCTI’s merger with APIIT.
Summary analysis of the five competitive forces in the Malaysian context
According to Porter an assessment of a firm’s competitive advantage must take the industry’s structure
into account. The analysis indicates that the only true barriers to new entrants are a strong brand
identity and capital investments. Sufficient capital investments is required to build branding through
heavy advertising and promotional activities although such activities can only be successful if they are
backed by a differentiated brand positioning and an effective advertising and promotional campaign.
Such activities can provide a strong communication and information platform for buyers/customers and
hence influence their decision making. This will reduce the threat of substitutes; offset the lack of
product and service differences and diversity; and reduce the power of the buyers/customers. As a
consequence of this, a strong PHEI with the financial and enrolment clout would have a strong
negotiation power over suppliers.Despite the intense competition and rivalry, the PHEI would have
achieved a significant competitive advantage over its competitors.To reconcile the discussion thus far:
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The table above appears to indicate that the competitive advantages that satisfy the five forces of
competition analysis are courses, career information, physical aspects and facilities, positioning of the
organization within its environment to defend itself, distinctive competencies of the firm, imagery and
effective communication and scale advantages. However, “positioning of the organization within its
environment to defend itself” is generic and encompasses elements of “physical aspects and facilities,
distinctive competencies of the firm, imagery and effective communication and scale advantages”.
Hence, the following convergence of views is perceivable:
• Brand identity and image.
• Capital investments to support the physical aspects of education and the facilities; and the
brand communications.
• Core competencies of the firm be it in an organization’s collective learning or its superior

knowledge of its business.
• Scale advantages.
Buyers’ purchasing behaviour
Available consumer research findings regarding the buyers’ purchasing behaviour appear to support
these conclusions. Research findings collected from 616 business students in New Zealand by Joseph
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and Joseph (1997) indicated that amongst the top three factor criteria considered the most important
attributes looked for in institutes of higher education are academic reputation and physical aspects.
Joseph and Joseph (1997) in the same research noted that physical aspects are the tangible aspects of
the education service.Webb, Coccari, Lado, Allen and Reichert’s study (1998) indicated that of the ten
criteria used by students when selecting a college the top three included academic reputation of
institution and marketability of the degree conferred; and reputation and branding are closely
related.Wagner and Fard (2009), in their separate research also found that physical aspects and facilities
as well as institutional information (advertising, websites, fairs, etc) have significant relationships with
the students’ intention to study at a PHEI.
Similarly, in Baharun’s research “A study of market segmentation in tertiary education for local public
higher education institutes” (2002) the two specific university selection attributes identified were
‘quality’ and ‘brand image’. In that study, Baharun noted that:
“The image represents the Local Higher Learning Institutes (LHLI) in the customer’s mind
and gives him or her a pre-taste of the university.”. (2002 p40)
Reiterating the importance of image, Baharun’s research paper “Identifying Needs and Wants of
University Students in Malaysia” highlighted several aspects relating to student’s choice of tertiary
education institutions in Malaysia, one of which is image.It is noteworthy that in all the previous
researches (Joseph and Joseph and Webb et al), academic reputation was highlighted. Reputation is
closely related to image and in this sense all the researchers agree with the importance of image as a
factor in college selection.
Further Baharun also identified “conducive facilities and resources” as amongst the attributes
considered important by students and explains that a failure to react to these attributes or issues will
result in losing sustainable competitive advantage. Ancheh, Krishnan and Nurtjahja’s findings (2007)
based on 17 universities and 64 colleges list the “recognition and reputation of the institutions” and
“campus environment, atmosphere and facilties” as important criteria for the selection of private
universities and colleges in Malaysia. Ancheh et al’s comments on “lower costs” are pertinent to the
study. Nooraini Sheriff’s (2007) research on information sources influencing students’ choice of private
colleges in Malaysia, on the other hand, drew the following findings: 1) Influence from friends and
family, 2) The NAB (National Accreditation Board or LAN) today upgraded to MQA (Malaysian Quality
Assurance) and the Ministry of Education, 3)Course counsellors and advertisements, 4) Personal
inspection of the PHEI, i.e. experiential sources such as college facilities, design, façade and layout.
“Influence from friends and family” a function of WOM (word of mouth) is usually related to reputation
and, hence, branding and image as is quality as measured through MQA recognition. “Personal
inspection” points to the importance of the physical aspects of education.
Summary analysis of buyers/customers’ purchasing behaviour findings
It is noteworthy that all the researchers above have “academic reputation”, “physical aspects”,
“institutional information and advertisements” and “brand image” as common higher education
selection criteria. These factors can be grouped into the same two broad categories of “branding
identity” and “capital requirements”.
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Competitive advantages: a convergence of views
Table 3 below sums up the areas of convergence based on comparing the discussions above.
Table 3. Competitive advantage: A convergence of views
The areas of obvious commonality are the importance given to brand identity and image which is a
function of brand communications. The second significant area of convergence is capital requirements
which is necessary to acquire the physical aspects and facilities provided by the institutions of higher
learning as well as the investments on communications and information provision. Capital is also
important in obtaining scale advantages by building more branch campuses in and outside the country.
“Product-service differences” while dismissed earlier as fairly generic, should not be discounted
altogether as it is the core of the education service product – the programmes and the quality of
delivery. It represents the core competencies of the organization.
Having analyzed the competitive advantages of the education institution in isolation it is now pertinent
to discuss them with direct reference to the university status and university college PHEIs. To better
understand their existing competitive advantages Kotler and Fox’s (1995) three levels of the service-
product offering model (education offering) will be used for the purpose.
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The competitive advantage of the PHEIs: an analysis of the education offering:
Core offer
The core offer represents the program’s benefits from the student’s perspective or an institution’s
marketability upon graduation. This varies from institution to institution: a foreign degree program
would doubtless be seen as better in terms of quality, prestige and marketability when compared with
local degrees which are also offered by university status PHEIs like UCSI University and Taylor’s
University. The country of origin of the foreign degree is also a key factor for student consideration be
they British, American, Australian, New Zealand or Canadian. However, almost all the PHEIs discussed
offer the complete gamut of countries and these do not constitute any significant or sustainable
competitive advantage. Dual degree programs, i.e. two degrees awarded for the same course, one from
the foreign university partner and the other from the local university, as offered by Limkokwing
University of Creative Technology, Taylor’s University and Nilai University College would, by the same
logic, double the graduates’ marketability and may constitute a product service difference although this
will proliferate over time.
Tangible offer
Branding
The brand is a name, term, symbol, or design, or some combination, that identifies them with the
institution and differentiates them from competitors’ offerings. Brand names simplify the search for
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goods and services, guarantee a specific level of quality and if the firm succeeds in fostering a degree of
customer loyalty to the brand, it can charge a premium price for the product or service (Dibb and Lowe,
1997).
Branding helps in the reduction of uncertainty in consumer purchases, the reduction of social and
psychological risks associated with use or ownership of the wrong product (Berthon, Hulbert and Pitt,
1997). And, according to Aaker and Biel (1993) advertising is the main marketing activity that implants
ideas about a brand’s uniqueness or positioning in consumers’ minds. Tucciarone (2008)’s research
found that one of the influencers of student preferences was the advertisements of the institution. The
advertisement influences from the component of liking an ad and can create a positive feeling for a
brand.According to Goi and Goi (2009), branding is powerful in providing competitive advantages and
quoting Stensaker (2005) they posit that one of the benefits of branding for higher education institutes
is providing information and image. Koku (1997) too states that the phenomenon of rebranding often
occurs in the service industry, and is specifically crucial for universities and colleges.According to Dibb et
al, a brand helps buyers evaluate the quality of a product or service, especially when they are unable to
judge its characteristics. It helps makes repeat purchase easier. Branding also helps foster brand loyalty
and leads to referrals. (Dibb et al, 1997) Branding helps students choose a specific university or college
despite the many competitive options available, often even at a higher cost and at times disregarding
the shortcomings of facilities or services.
Branding can add value to the institution’s offer and more satisfaction for the consumer (Kotler et al,
1995). Students take pride in noting that they are graduates from well-known and established
institutions and this represents a key selling point in a job interview. The ‘INTI- Laureate’ brand name
brings the full force of the global education network of Laureate, USA, to support INTI University’s
advertising campaigns. Limkokwing University of Creative Technology rides on the renown and highly
recognisable personality of the founder and owner of Tan Sri Professor Emeritus Lim Kok Wing as its
brand ambassador.
Academic reputation is an aspect of the brand name as it represents the institution’s ‘identity’ on the
same footing as its name. It is an attribute of branding just as ‘Oxford University’ and ‘Harvard’ are
names that spell academic reputation. Branding is often achieved through imagery and effective
communication, a competitive advantage singled out by Davidson (1987).
Limkokwing University of Creative Technology’s marketing communications stand out not only in terms
of their highly creative content that utilises futuristic graphics, distinctive advertising layouts and the
‘iconization’ of its brand ‘ambassador’ and spokesperson Tan Sri Professor Emeritus Lim Kok Wing but
also their “offensive attitudes, competitive toughness and a determination to win”, another source of
competitive advantage according to Davidson (1987, p.56). Limkokwing University of Creative
Technology employs person marketing and brand endorsement ideas using the high profile personality
of its owner Tan Sri Professor Emeritus Lim Kok Wing as the vehicle to promote and ‘brand’ the
institution. His many philanthropic campaigns for the Palestinians, the peace awards he received and his
strong link to the government were prominently advertised. Accolades from the government that
Limkokwing Creative Technology University encapsulates the meaning of ‘innovation’ in line with the
government’s 2010 economic theme “growth through innovation” were featured full page across all the
major dailies in the country. This strong branding strategy is consistent with the institutes’ academic
specialization and positioning and is expected to strengthen the brand equity of the institute. Their
winning of the gold prize, the highest award in the Putra Brand Awards 2010 education and learning
category attests to their success in this area .(Pulse group 2010)
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Inti-Laureate University benefits from the marketing expertise of Laureate, USA. Their increasing efforts
in advertising and branding activities challenge those of Limkokwing University of Creative Technology.
From press advertising, billboards to all promotional materials, the distinctive Laureate ‘star’ was used
as a mnemonic device to establish brand recognition and association with Laureate, the American owner
of the institute, and by implication the American quality and resources available to their students.
In terms of branding and image Taylor’s University, Sunway University, KDU University College, HELP
University College and SEGi University College too stood out from the rest. Taylor’s University, Sunway
University both received gold awards in the Putra Brand Awards 2010 as well while KDU University
College, HELP University College received silvers. Distinct positioning and brand imagery aside, the
important role played by heavy advertising expenditure to establish consumer recall cannot be ignored.
In this context, SEGi University College would achieve ‘branding and image’ simply through frequency of
their advertisements. They won the bronze award in the same award ceremony.
Nevertheless, it must be noted that the branding and imagery presented by Limkokwing Creative
Technology University and Inti-Laureate are sources of sustainable competitive advantage as they are
not easily duplicated by competitors. The first is backed by a strong and reputable personality in the
creative field and the other by association with an iconic American institution. Taylor’s University
emphasises their many record academic successes and by inference, their quality teaching, and while
this offers strong branding it does not constitute a sustainable competitive advantage if it rests on
service quality which is variable and not its organizational competencies and culture.
The quality
Quality represents the perceived level of performance of a service. Berry and Parasuraman (1992) argue
that the strategic success of a service organization depends on the ability of service providers to
enhance their images by consistently meeting or exceeding customers’ service expectations. Where the
students have not yet enrolled into an institution and have no direct experience of the ‘quality’ as
defined above, ‘tangible’ quality would mean the awards won, academic performance, MQA
recognition, affiliations to reputable foreign universities, a strong R&D culture and the physical aspects
such as campus buildings and facilities. In this context, Taylor’s University’s frequently advertised
academic achievements through its multiple award winning students over the years including awards for
being voted ‘Most popular private college/university in 2009’, the 2010 Putra Awards gold for the
education and learning category which was voted online by 6000 consumers nationwide, would be good
examples. Or Limkokwing University of Creative Technology’s high profile export of education to over 10
countries in the world including London would qualify as symbols of quality education. The Inti-Laureate
American education association and its global networks with a choice of 300 universities in USA and
Canada alone would also translate into quality in the minds of consumers.
While ‘quality’ can be subject to multiple interpretations and may not constitute a clear competitive
advantage, international and global networks, i.e., a basis for “collective organizational learning”, such
as those offered by Limkokwing University of Creative Technology and Inti-Laureate can be sources of
sustainable competitive advantage as they represent core competencies within their organizations that
are hard to duplicate. Quality has always been cited as an important competitive advantage in the
education industry. However, quality means different things to different people and according to the
context (Lovelock and Wirtz, 2007).
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In view of the above, quality as a determinant of competitive advantage is a rather abstract concept and
opens itself to broad interpretations. Hence, the exclusion of quality from the research forms part of the
delimitations for the study.
The packaging
According to Kotler et al,(1995) the college campus’s environment serves as the packaging of the
academic product. The architecture, topography, and landscaping of the campus should support the
educational function of the university. This ‘packaging’ represents the most obviously tangible aspect of
the education service. Students in large part choose their institutions of learning based to a great extent
on appearances – the size and impression of the physical environment of learning. This statement is
supported by Hawkins and Frohoff (2008) when they quoted Hayes (2008) in describing how physical
facilities can translate into perceptions of quality and that the appearance of the lab sporting the latest
technological advances may make a statement that’s hard to counter through other facts even when an
older lab may boast a Nobel laureate on the faculty (p3).
With the upgrade to university and university colleges, the PHEIs had invested significant monies to
create an impressive exterior to attract students. SEGi University College’s RM150 million purpose-built
main campus in Kota Damansara has more affinity to the architecture of Europe than Malaysia, the
purpose of which is, no doubt, to create the appearance of a foreign university and by extension
symbolize the “quality” it represents. Nilai University College’s 105-acre award winning campus
recreates a self-contained township surrounded by rolling hills and pleasant greenery far away from the
distractions of the city.
Quoting Architect Bruce Carmichael, Kotler (1995) indicated that physical resources play a far more
important role in recruiting students, and especially retaining students, than is generally recognized.
‘Atmospherics’ are also consciously and skilfully built in the design of buildings to create or reinforce
specific effects on students such as feelings of well-being, safety, intimacy, or awe. The Limkokwing
University of Creative Technology is one good example where the façade of the main campus resembles
a gigantic and colourful work of art.
Taylor’s University’s new imposing RM450 million 27-acre purpose built lakeside campus captures a
relaxed, peaceful atmosphere that is highly conducive to the pursuit of higher education.
UCSI University frequently advertises its grandiose KL campus with its North Wing and South Wing
campus which would soon include a proposed UCSI sky scraping tower and hotel block which is aimed at
creating awe amongst potential students. The hotel is an obvious boost to its Faculty of Hotel and
Management division. UCSI University also boasts real operating theatre and hospital facilities in their
campus to promote their medical courses.
HELP University College’s new campus in Subang Jaya will be a self-contained monolith compared to the
current premises and KDU University College’s new campus in Glenmarie is planned on a scale
resembling a mini township.
All the university status and university college PHEIs under study have their own purpose-built campus
as part of the MQA requirement. However, in the packaging competition size and appearance seems to
matter and the PHEIs with the financial resources have significant advantage over those that do not
have the resources to dazzle their consumers. Packaging, because of the enormous capital investments
247
required, could represent a sustainable competitive advantage that could raise entry barriers to smaller
institutions and reduce the power of suppliers and buyers/consumers.
The features
Features are individual components of the offer which could be easily added or subtracted without
changing the service’s style or quality (Kotler et al). E.g. Range of courses, specialized courses and
extracurricular activities. The use of features has many advantages. The institution can create specific
features to target specific segments. However, range and variety of courses offered are not by
themselves sustainable competitive advantages as they can be duplicated, bettered and improved
without much effort and constraints.
The styling
Styling is interpreted by the researcher as the mode of delivery be it in instructional form or technology.
In the competition for student enrollment, the PHEIs had adopted various program ‘styling’ to appeal to
their audience. HELP University College promoted their Active Learning teaching format, Limkokwing
University of Creative Technology their skills-driven programs, SEGi University College their experiential
education program, Nilai University College their ‘real world curriculum’ and INTI University their career-
focused programs tailored to industry needs. While styling can be a source of sustainable competitive
advantage as it can represent distinctive competencies linked to the organizations’ distinct culture that
cannot be easily duplicated and which allow a PHEI to outperform its competitors, they are seen to be
generic claims across the PHEIs. Every PHEI under the study claims some sort of active learning, skills-
driven, experiential or industry based methodology for teaching. A co-learning curriculum with an IBM
or a GE can make the difference. However, these companies only account for a minor portion of the
entire syllabus. Nevertheless, having the most number of top students and award winners in both
national and international competitions can be proof of the success of an organization’s mode of
delivery. This can constitute a competitive advantage if based on core competencies which is intrinsic to
the organization and is hard to duplicate. Taylor’s University is one such organization.
The augmented offer
The augmented offer is the additional services and benefits that go beyond the core offer and the
tangible offer. It adds value thereby enhancing the total package to the consumers. Often, the
augmented offer, if differentiated, becomes a source of competitive advantage for the organization that
has it. In an education institution, the augmented offer includes financial terms, accessibility, guarantees
and follow-up services. However, like features, these are not sustainable as they can be modified and
improved as the competition requires.
Summary analysis of the education offerings’ sustainable competitive advantage.
Differentiation through branding, the physical aspects and the mode of delivery appears to provide a
more sustainable competitive advantage for university status and university college PHEIs competing for
market leadership in the education industry. In these respects, Limkokwing University of Creative
Technology, Taylor’s University, SEGi University College, Inti-Laureate University, Sunway University and
UCSI University are the front runners in the competition. While only Limkokwing University of Creative
Technology, Taylor’s University, SEGi University College, and Sunway University were awarded by the
Putra Brands Awards for excellence in branding, all except Limkokwing University of Creative Technology
registered significant enrolment numbers for 2009: Taylor’s University (7480), SEGi University College
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(4814), Inti-Laureate University(7054), Sunway University(8959), and UCSI University(7925). (2009

Perangkaan Pengajian Tinggi Malaysia).
3.0 CONCLUSION
Faced with the many challenges of governmental control and interference, intense industry
competition, commoditizing of education, rising costs, and more demanding customers, the survival of
the PHEIs depends greatly upon the development of sustainable competitive strategies to remain viable,
if not achieve market leadership.
The literature review assisted by a Porter’s theories of competitive advantage and the five competitive
forces have uncovered the three factors of sustainable competitive advantage relevant to the PHEIs
under study: Branding, physical aspects and mode of delivery.
These findings were applied to the university status and university college PHEIs under study using
Kotler’s education offering model as a framework. Based on the arguments set forth the analysis
indicates that of the university status and university college PHEIs in discussion, the institutions with
clear sustainable competitive advantage are Limkokwing University of Creative Technology, Taylor’s
University, SEGi University College, Sunway University, Inti-Laureate University and UCSI University.
These institutions exhibit strong branding (although of the six only Limkokwing University of Creative
Technology and Taylor’s University SEGi University College, Sunway University were officially recognized
by the Putra Brand Awards), outstanding presence in terms of physical aspects and distinctiveness in
mode of delivery. However, while these factors are singled out for analysis they still constitute only a
part of the whole albeit a major part. Competitive advantage should also be seen holistically with the
minor parts such as course structure and flexibility, customer services, job placements amongst others
having their place in the entire machinery of growth.
These institutions being leaders in the industry would serve as role models for their competitors and as
copycats proliferate the bar would be raised further. Ultimately, the only sustainable competitive
advantage, in the words of Shell Petroleum CEO De Geus (1998):
“The ability to learn faster than competitors may be the only source of sustainable
competitive advantage”
ACKNOWLEDGEMENT
I wish to thank KDU University College, especially Dr Todd Nelson from the Business School, for
encouraging me to participate in this international conference and their sponsorship of the entire
expenses incurred by this endeavour. I hope that this would be just the first of many such contributions
on my part to KDU University College’s objective of reaching greater heights in academic excellence.
My special thanks also go to Dr Ong Seng Fook for his encouragement and guidance in this conference
paper, which is adapted from my Doctor of Philosophy dissertation on a related subject.
249
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JOURNAL OF GLOBAL MANAGEMENT

Prof. Dr. Zulganef Assoc. Prof. Dr. Hossein Ali Momeni

Assoc. Prof. Dr. Hassan Ali Dr. Haslindar Ibrahim

Assoc. Prof. Dr. Dina Rady Dr. Abdussalam Ismail Onagun

Assoc. Prof. Dr. Roderick Bugador Dr. Clare D’Souza

Dr. Daisy Kee Mui Hung Dr. Zulnaidi Yaacob

Dr. Zarina Md Nor Dr. Nek Kamal Yeop Yunus

Dr. Abdul Raheem Mohamad Yusof

ABSTARCTING AND INDEXING SERVICES

0009 (332) Page 124-145

0010 (384) Page 146-162

0011 (430) Page 163-177

0012 (495) Page 178-183

0013 (510) Page 184-203

0014 (511) Page 204-215

0016 (383) Page 227-252

OWNERSHIP STRUCTURE AND INTERACTION EFFECTS OF FIRM PERFORMANCE

Keywords: Management Commentary Disclosure, Ownership Structure, Firm Performance,

2.0 MOTIVATION FOR THE STUDY

3.0 BACKGROUND AND HYPOTHESES GENERATION

3.1. BACKGROUND ON STATEMENT PRACTICE MANAGEMENT COMMENTARY

Table 1: The Elements of MC and the Needs of Users of Financial Statements

(Extracts from Statement Practice Management Commentary, IASB)

3.2. GOVERNMENT OWNERSHIP AND MANAGEMENT COMMENTARY DISCLOSURES

3.3 FAMILY OWNERSHIP AND MANAGEMENT COMMENTARY DISCLOSURE

3.4. MANAGEMENT COMMENTARY DISCLOSURE AND FIRM PERFORMANCE

The voluntary information disclosed in MC provides opportunities for managers to communicate

4.1 SAMPLE AND DATA COLLECTION

Summary of Sample Selection

Random selection of companies listed on the

4.2 EMPIRICAL SCHEMA

Table 1: Definition and Measurement of Variables

5.0 ANALYSIS AND RESULTS

Table 2 provides descriptive statistics of the MC and the independent variables.

Table 3: Trend of Management Commentary Disclosure

Table 6: Tolerance and Variance Inflation Factor (VIF) Values

5.2 Multivariate Analysis

MC = β0 + β1 GOV + β2 FAM + β3 GOVPERF + β4 FAMPERF + β5 LEV + β8 SIZE + εt

6.0 CONCLUSION AND LIMITATIONS

CONSUMER’S RIGHT TO REDRESS AGAINST TRADERS UNDER THE LAW OF

3.1 SALE OF GOODS ACT 1957

i. Section 14 – Implied undertaking as to title

ii. Section 15 – Sale by description

iii. Section 16 – Implied condition as to quality and fitness

iv. Section 17 – Sale by sample

3.2 CONSUMER PROTECTION ACT 1999

3.2.1 CONSUMER’S RIGHTS AGAINST SUPPLIERS

i. Section 31: Implied guarantee as to title

Where goods are supplied to a consumer, there is an implied guarantee that-

(a) The supplier has a right to sell the goods;

(c) The consumer has a right to quiet possession of the goods.

ii. Section 32: Implied guarantee as to acceptable quality

v. Section 35: Implied guarantee that goods comply with sample

iv. Section 36: Implied guarantee as to price

v. Section 37: Implied guarantee as to repairs and spare parts

3.2.2 CONSUMER’S RIGHTS AGAINST MANUFACTURERS

Diagram 1: Chain of distribution

Table 1 SOGA and CPA: Comparative analysis

The contract cannot be rescinded if the lack of conformity is minor.

4.0 AVOIDANCE OF CONTRACTUAL LIABILITY: THE TRADER’S DEFENCE

An analysis of UCTA and UTCCR can be seen in Table 2 below:

Table 2: an analysis of UCTA and UTCCR

Chen-Wishart, M. (2005). Contract law. Oxford University Press.

Macleod, J.K. (1989). Consumer sales law. Butterworths.