Innovation Culture as a Mediator Between Specific Human Capital and Innovation Performance Among Bumiputera SMEs in Malaysia

Innovation Culture as a Mediator Between Specific Human Capital and Innovation Performance Among Bumiputera SMEs in Malaysia

Haniruzila Hanifah (Universiti Sains Malaysia, Malaysia), Hasliza Abdul Halim (Universiti Sains Malaysia, Malaysia), Noor Hazlina Ahmad (Universiti Sains Malaysia, Malaysia) and Ali Vafaei-Zadeh (Universiti Sains Malaysia, Malaysia)
DOI: 10.4018/978-1-5225-2165-5.ch012
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SMEs in Malaysia are dominated by Bumiputera that represent more than 50% of the Malaysian SME's population. However, there are many challenges faced by Bumiputera SMEs such as limited skilled workers, lack of creativity and knowledge. In this point of view, considering the specific human capital approach, the value, uniqueness, creativity, innovativeness and proactiveness are the most relevant features for innovation performance. To have an excellent innovation performance is to have an innovative culture where entrepreneurs needs to have creative employees which simultaneously improve the innovation performance in Bumiputera SMEs. This study focuses mainly on owner-manager of Bumiputera SMEs. It provides useful pointers to entrepreneurs and policy makers on the importance of specific human capital, innovative culture and enhancing innovation performance in Bumiputera SMEs.
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Small and medium enterprise (SME) plays an important role in Malaysia economic development. The government of Malaysia has constantly recognized that SMEs is a major factor in injecting investment and transforming Malaysia into a developed nation by 2020. According to Small and Medium Industries Development Corporation, the sectors in SME is based on the annual sales turnover or number of full time employees. There are two sectors which divided into; manufacturing, manufacturing related services and agriculture industries; and services (including ICT) and primary agriculture (SMECorp., 2015).

According to SMECorp, 98.1% (591,883 of total business establishments) of the SMEs are in the services sector, 95.4% in the manufacturing sector and only 76% is in the agricultural sector (SMECorp., 2015). The SME provides 59.5% of the nation’s employment and despite having 99.2 percent of the total number of business establishments in Malaysia it contributes to merely 1/3 or 32% of the nation’s GDP (National SME Development Council, 2012). In year 2010, according to National SME Development Council (2012), SMEs performance showed many positive indicators such as increase in sales, increase in new orders, introduction of new products, business expansions within the country and even expansion to other countries. Based on technical analysis by Malaysia data from SME Masterplan 2012-2020, six key areas influence the SMEs performance. These six performance keys are:

  • 1.

    Innovation and technology adoption.

  • 2.

    Human capital development.

  • 3.

    Access to financing.

  • 4.

    Market access.

  • 5.

    Legal and regulatory environment.

  • 6.


These keys serve as the benchmark that would encourage SMEs to enhance their productivity and performance (Masterplan S.M.E, 2013). However, SMEs in Malaysia dominant by Bumiputera where represented more than 50% of the Malaysian SME’s population because Bumiputera is known as a son of the soil in Malaysia as compared to Chinese, India and other races (Awang et al, 2009). According to 11th Malaysia Plan, only 37.4% or 241,281 of the total 645,136 SMEs were owned by Bumiputera and 90.7% or 218,930 of Bumiputera SMEs are micro enterprises (11MP). Unfortunately, Bumiputera SMEs continually fail to secure larger share and they only can manage to share less than 20% of the Malaysian economy as well as the GDP of Bumiputera SMEs in 2015 was only about 16% (ETP Annual Report, 2014). Based on EPU (2015), There is a need to grow Bumiputera SMEs to match non-Bumiputera SME contribution to the GDP by year 2020 to at least a 50:50 ratio.

Key Terms in this Chapter

Small Medium Enterprises (SME): An enterprise is classifies as micro, small or medium which will depends on the two criteria, i.e. full-time employees and annual sales turnover as per the definition by the National SME Development Council.

Bumiputera SMEs: The firm is owned by the Bumiputera entrepreneurs.

Innovation Performance: The use of an ideas or creativity to improve the products, processes, procedures that increase the significance, usefulness and performance of the products and services.

Innovation: An idea that is new to the organization. It can be a new product, a new service or a new technology.

Innovation Culture: The behaviour to shared creativity or ideas within groups, or adoption of innovativeness significantly benefit the individual, the group, organization, or wider society.

Bumiputera: In Malaysia, by convention, it is generally considered that all Malays are Bumiputeras. This official definition which is widely used in Malaysia whereby it taking up ethnic Malays and other indigenous ethnic groups such as the Orang Asli in Peninsular Malaysia and the tribal people in Sabah and Sarawak.

Specific Human Capital: It is specific individual abilities, specific knowledge, talent, skills and experience of the employees in organization in order to enhance the organization performance.

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