CHAPTER 1: RESEARCH OVERVIEW

1.0 Introduction
The main purpose of this study is to investigate the institutional factors of Malaysia and
their effect on SMEs’ Export Performance. There are three factors which are government
efficiency, political connection and legal environment will be involved to examine the
relationship between with institutional factors and SMEs’ export performance in Malaysia.
This chapter will illustrate and describe clear ideas for the whole study. There have seven
sections comprised in this chapter which are the background of research, problem statement,
the objective of the research, question of research, the significance of study, the layout of the
chapter and the chapter summary. These seven sections will explain in the details about the
research project.

1.1 Research Background

The institutional environment is concerned with the study of factors that will
affect the Small and Medium Enterprise’s (SMEs) export performance in Malaysia.
This research is conducted to figure out the institutional factors that affect the SMEs’
export performance in Malaysia based on some consideration institutional
environment of specificity, stability, and enforceability.
With the increasing development in international business, exporting has been
playing an increasingly important role in SMEs’ survival and growth. Over the past
year, there have several empirical studies have investigated the SMEs’ export
performance and indicated consistently increasing in this area. It also revealed the
achievement that how SMEs provide value to the owner, customer, and country (Paul,
Parthasarathy, and Gupta, 2017).
Because of the highly competitive pressure due to a more sophisticated market
and dynamic change in the customer preferences (Stouraitis, Mior Harum and
Kyristsis, 2017), the owner or manager of SMEs must develop strategies such as
exporting for company’s growth and survival. Hence, export performance is defined
as the outcome of a firm’s activities in the export market.
Furthermore, the report Globalisation, Growth, and Poverty: Building on
Inclusive World Economy (2001) that published by World Bank has shown that there
have 24 developing countries have increased their integration into the world economy
through exporting. Other than foreign direct investment, exporting is one of the
channels for the developing countries to link with the world economy. Thus, the
SMEs of Malaysia have potential opportunities in the area of export performance.
 According to the survey of International Finance Corporation 2010, the total
number of SMEs worldwide is between 420 & 510 million, and 360 to 440 million are
located countries. (North & Varvakis, 2016).The role of SMEs cannot be denied due
to the significant transformation of the business environment (Raju & Rajan., 2015).
Based on Soomro & Azizi, (2015), SMEs reflected the backbones of the country’s
economy and contributed to the country’s export. (Khaskheli & Jun, 2016; Soomro &
Aziz, 2015).
Base on the Department of Statics Malaysia (2018), it show that Malaysia has
98.5% of business establishments are SMEs in different sectors such as service,
manufacturing, construction, agriculture, mining, and quarrying. This shows that there
is a large opportunity for SMEs accelerated export in the near future in Malaysia.
However, limited studies have investigated the relationship between the
institutional factor and export performance, either theoretically and empirically.
Therefore, this study is to examine the relationship between institutional factors that
consideration specificity, stability and enforceability, and SMEs' export performance.
This is because institutional factors can be adequately used as an important tool as a
diver to accelerate the export performance of SMEs in Malaysia.

1.2 Problem Statement

This research is to investigate the institutional factors and their effects on
Malaysia SMEs' export performance. According to the Department of Statistics
Malaysia (2017), Malaysia as a developing country that has significant increases in
SMEs export. It shows that SMEs' exports have increased RM12.3 billion
(2017:7.9%) to RM167.4 billion in Service (2017:6.7%), manufacturing (2017:7.8%)
and agriculture (2017:48.1%).
Due to the significant transformation, the government of Malaysia has
changed the national economic development strategies over time to change the global
economy as well as the domestic economy. For instance, the government undertook
strong support in the development of resilient SMEs especially in the sector with high
growth and export potential during the Eight Malaysia Plan 2001-2005. Thus,
considerable attention to the export practices to all SMEs in Malaysia to facilitate the
expansion of exporting performance of SMEs is important.
However, theoretical knowledge about the role of institutional factors,
particularly government efficiency, political connection and legal environment of
home country institutions on firms’ early or speedy international entry strategy is
limited in the literature. Therefore, the trend as well as the institutional environment
factors to Malaysia SMEs' export performance is unclear define in these dimension.
Besides that, we are also wondering the dimension of institutional factors of Malaysia
SMEs will useful in boosting Malaysia’s SMEs' export performance or not.

1.3 Research Objective

The main objectives of this research are to identify the institutional factors and
their effect on Malaysia SMEs export performance are:-
 To examine the relationship between government efficiency and the effect on
export performance.
 To examine the relationship between political connection and the effect on
export performance.
 To examine the relationship between legal environment and the effect on
export performance.

1.4 Research Questions

The focus of the question is to find out the effect of the institutional factors
that affect the SMEs’ export performance at Malaysia.
The research questions are:
 What important institutional factors that affect the SMEs export performance?
 Does any significant relationships between the government efficiency and the
effect on export performance?
 Does any significant relationships between the political connection and the
effect on export performance?
 Does any significant relationships between the legal environment and the
effect on export performance?

1.5 Significance of Study

The rapidity growths of the international business have driven the SMEs in
Malaysia growing interest in their exporting practice in order to increases in the global
marketplace. This raise an important to research issue that focus on factors that drive
the international business and what institutional factor determine on export
performance.
 Exporting will become one of the entry mode that SMEs that put more effort to
increase their global market. It pursuit an opportunities that providing employment and
strengthening future prospects in many developing countries linked to world
economics.
This research is to investigate and understand how the institutional factors
affect the Malaysia’s SMEs export performance. The findings of this research will
become the supportive data to identify the institutional factors that consideration on
specify, stability and enforceability, so the marketers and the SMEs can have suitable
strategies and better understanding to promote export practices.

1.6 Chapter Layout

In this research, there are few more chapters such as literature review, research
methodology, research results, discussion and conclusion. The details for each of
following chapters will be listed clearly as per below:-
1.6.1 Chapter 2 : Literature Review
The schematic diagram developed in Chapter 2 is to identify the
independent and dependent variables. The literature reviews were explained
the variables that affect SMEs’ export performance such as specificity,
stability and enforceability.
1.6.2 Chapter 3 : Research Methodology
Research methodology part will includes the design of research, data
collection methods, design of sampling, instrument of research, construct
measurement, data process and data analysis was conducted in Chapter 3. It
describes the techniques used to collect data and the methods of data
collection that used in the research.
1.6.3 Chapter 4 : Research Results
In this chapter, it shows that data analysis from the questionnaire.
1.6.5 Chapter 5 : Discussion and Conclusion
Chapter 5 shows the summary of the research finding, statistical
analysis and discussions of main findings, and implications of research.
Moreover, it discussed the limitation, delimitation and recommendations for
the future research.

1.7 Chapter Summary

 In the conclusion, there is a brief for introduction, background of the research
and the problem statement had been clearly explained, illustrate and describe at those
section. Besides that, the objective for this research project had been clearly noted in
the research objective part which to investigate about the institutional factors that will
affect the export performance of SMEs at Malaysia. There is the questionnaire
prepare to test the relationship between the one and other.