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Factors impacting international entrepreneurship in Malaysia

International entrepreneurship in Malaysia 229

Zafar U. Ahmed
College of Business Administration, University of Dammam, Dammam City, Kingdom of Saudia Arabia
Abstract
Purpose This article aims to analyze factors impacting international entrepreneurship in Malaysia. Design/methodology/approach Interviews were conducted with 71 rms, both in the manufacturing sector and the service sector, across the 12 states of Malaysia. Findings The interviews revealed the reasons these rms internationalised, key success factors, and the barriers to internationalisation including export market attractiveness, government policy, foreign practices being incompatible with domestic business and adapting to foreign market needs. Research limitations/implications Due to a lack of resources, rms from West Malaysia were not contacted. West Malaysian rms may well possess characteristics concerning the barriers to internationalisation that are unique to their region. Practical implications This article provides insight into the perceptions and decision-making processes of Malaysian entrepreneurs with regard to the barriers to internationalisation, thereby making a contribution to international business knowledge in a relatively unknown region of the world. Originality/value The study ndings and interviews showed that in order to encourage and to be successful in international business, government policy must play an active role in promoting, assisting and helping Malaysian rms in terms of nancing, training, technology and the offer of lucrative tax concessions so that the domestic rms would be encouraged to engage in international business. Keywords International entrepreneurship, Factors, Export barriers, Malaysia, Entrepreneurs, Exports, Business performance Paper type Research paper

Introduction Malaysia has mostly enjoyed a favourable trade balance in its balance of payments current account. More often than not, the surplus trade balance was large enough to nance the decit in the services account and also to produce a sizeable current account surplus. However, in the 1990s Malaysia posted serious trade decits. The large trade decits incurred in these years were due to the low export prices of primary commodities, high priced imports as a result of the rapid industrialisation in the country, and the appreciation of major currencies especially the Japanese Yen, the Deutsch mark, the Korean Won and the New Taiwan Dollar. Imports of capital goods associated with foreign investment activities in the country have contributed much to the growing trade decit. In other words, decits have been nanced largely by foreign capital inows (Central Bank of Malaysia, 1999).

Journal of Small Business and Enterprise Development Vol. 19 No. 2, 2012 pp. 229-245 q Emerald Group Publishing Limited 1462-6004 DOI 10.1108/14626001211223874

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Imports have exceeded exports, despite export-oriented industrialisation in these years, because foreign direct investment in manufacturing activities generated imports of capital goods immediately where export output would begin to ow after a certain period of time. The trade balance should reverse itself, with decit giving way to surplus once the export-oriented investment projects come on-stream. However, the evidence is inconclusive. The relationship between imports and exports in recent times has been problematic for Malaysia. Malaysias reliance on foreign direct investment to make up for the balance of trade decit shows how fragile this relationship can be. There is a need for an action plan to correct the situation, especially when there are no guarantees that foreign direct investment in a receding global economy will be able to cover the decit in the trade balance in the future. As such, the action plan needs to include what causes or prevents Malaysian rms from exporting i.e. the various barriers to internationalisation Malaysian rms confront when entering the export market. This knowledge becomes of critical importance if Malaysia is going to start correcting its trade decit and that is what has driven the need for this study. Literature review Much research has been conducted on the barriers to internationalisation, which are dened by Leonidou (1995) as the attitudinal, structural, operational, and other constraints that hinder the rms ability to initiate, develop, or sustain international operations (Leonidou, 1995, p. 31). Barriers to internationalisation have been suggested as factors that impact the behaviour of exporters at different stages of internationalisation, and exporters should consider their effect prior to, and after entry into new markets (Shoham and Albaum, 1995). Many barriers to internationalisation have been identied in the international marketing literature, however, the general consensus in the literature appears to be that the primary barriers include: export market attractiveness, government policy, foreign practises being incompatible with domestic business and adapting to foreign market needs ( Julian and Ahmed, 2005). Export market attractiveness as a barrier to internationalisation includes such issues as difculty in collecting payments from foreign customers, difculty providing after sales service, high costs associated with selling abroad, problem quoting prices with uctuating exchange rates and high transportation costs to ship products to foreign markets. With respect to the difculty of collecting payments from foreign customers, it is widely recognised as a barrier because it causes cash ow problems for exporters (Da Silva and Da Rocha, 2000). In relation to the difculty of providing after sales service, Asugman et al. (1997) reported that the level of internationalisation of the rm positively inuences the importance attributed to the after sales service provided in foreign markets. Firms in advanced stages of internationalisation treat after sales service as a strategic tool in export markets. For an established rm in an international market, after sales service can serve as an effective barrier to entry to other rms who want to enter the market later on. As far as the high costs of selling abroad are concerned, these costs include insurance costs, market research costs, distribution costs, etc. (Chung, 2003). Considering that most small rms have problems nancing their export activities

(Holmund and Kock, 1998), this cost factor could act as a serious export impediment for many rms (Chung, 2003). With respect to the high transportation costs to ship products to foreign markets, when going international rms tend to incur costs that would not normally be incurred in domestic settings and high transportation costs is one of them. High transportation costs result in higher product costs. The company has to increase the price of the product in order to absorb the extra cost associated with transportation, which can make the product less attractive in the foreign market, as such, acting as a barrier to export (Da Silva and Da Rocha, 2000). As far as the problem of quoting prices with uctuating exchange rates is concerned, the export marketing literature suggests that quoting prices with uctuating exchange rates could be a problem for an exporter and the way to overcome it is to engage in foreign exchange risk coverage and also to look at how competitors products are priced in order to determine what value the target market places on a similar product (Cavusgil, 1993). The number of studies reporting problems quoting prices with uctuating exchange rates as a signicant barrier is limited. However, Eshghi (1992) acknowledged uncertainty in currency uctuations and valuation as a signicant barrier to internationalisation. Government policy as a barrier to internationalisation involves the lack of government assistance in overcoming the different barriers to internationalisation and the lack of a tax incentive provided by the home country government for companies that engage in international business. In relation to the lack of government assistance, the international marketing literature suggests that exporters need government assistance when barriers are created by foreign governments, in order to reduce the barriers under their control (Shoham and Albaum, 1995). It has also been suggested that a rms export involvement occurs in stages and each stage presents different problems to exporters. Therefore, exporters need different types of export assistance at the different stages (Kotabe and Czinkota, 1992). At the same time, in a foreign market the exporter must build a reputation that is a costly and a lengthy process. However, most small exporters have limited funds (Kotabe and Czinkota, 1992). Government assistance in the form of subsidies can help companies break into foreign markets (Raff and Kim, 1998). Without this assistance some companies will nd it difcult to break into export markets, especially when host country governments protect local industries. Thus, government policy can act as a barrier to internationalisation (Lages, 2000). With respect to foreign practises being incompatible with domestic business this includes foreign business practises being difcult to understand, confusing import regulations and procedures and risks involved in selling abroad. As the international marketing literature suggests, culture not only establishes the criteria for the day-to-day business behaviour, but also forms general patterns for motivation and attitude. If managers are not culturally sensitive they could face difculties understanding the predominant business practises (Chung, 2003). Therefore, foreign business practises being difcult to understand could act as a barrier to export. Confusing foreign import regulations and procedures, import quotas and tariffs have long been sighted in the export marketing literature as a barrier to entry in international marketing (Chung, 2003). Studies by Eshghi (1992), Barker and Kaynak

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(1992), Julian and OCass (2004) and others have acknowledged bureaucratic requirements, regulations and trade barriers of the target market as a barrier to export. Furthermore, according to the international business literature rms nd international business opportunities more risky than domestic ones, because in going global rms often encounter new types of risks and by doing so they incur costs that normally would not occur in domestic settings. International risk also may affect performance through losses due to host country government actions, such as the enactment of legislature that restricts the actions of the rm like voluntary import quotas or other import restrictions. However, the most common risk rms face in their international business activities is the exchange rate risk, which can create losses in other wise protable operations when a currency is devalued (Karunaratna and Johnson, 1997). As far as the high value of foreign currency in export markets is concerned, macroeconomic theory suggests that a rise in foreign prices reduces imports. If the value of the domestic currency is very high in comparison with the foreign markets currency the prices of exports will rise in the target markets, and this will result in reduced demand (Dornbusch et al., 1998). Adapting to foreign market needs as a barrier to internationalisation relates to differences in product usage in foreign markets, the need to modify pricing and promotional policies according to the conditions of the foreign market and the need to adapt products to meet foreign customer preferences (see OCass and Julian, 2003). With regards to the differences in product usage in different foreign markets, in international marketing the product has to be adapted to a certain degree to accommodate certain target markets. Part of this adaptation process is nding out how the product is used in these target markets (Cateora and Graham, 1996). If the product is used differently and the company is unaware of it, the export venture could fail. Thus, differences in product usage could act as a barrier to internationalisation. As far as modifying pricing and promotional policies are concerned, according to the condition of the foreign market, managers judge international pricing to be among the most crucial decisions in their business practise (Stottinger, 2001). Export pricing includes additional costs that do not occur in domestic pricing. These include international freight and insurance charges, import duties, commissions for import agents and other environmental uncertainties (see Karunaratna and Johnson, 1997). Export price analyses must be conducted in order to nd out what value the target market segment places on the product and how do differences in the product add to or detract from its market value (Cavusgil, 1993). If the exporter does not modify its pricing strategy to accommodate market conditions the export venture could fail (OCass and Julian, 2003). Regarding promotional strategy, it is also desirable for this to be modied according to the requirements of the target market (Cavusgil, 1993; OCass and Julian, 2003). With respect to the need to adapt products to meet foreign customer preferences, it has been acknowledged that when a rm enters a foreign market, local competition will inspire the rm to adapt its strategies to accommodate the needs of the local market. The increased knowledge of local markets will stimulate the rm to develop products that better meet the local needs and tastes. However, whether to adapt and how much to adapt is a decision based on the costs of a localised strategy and the respective benets of better serving the local market (OCass and Julian, 2003). As a result of increased

costs it could be concluded that the need to adapt products to meet foreign customer preferences could be a barrier to internationalisation for some companies. Methodology The study to be undertaken is designed to be qualitative in nature. As was identied previously, the objective of the study is to investigate the barriers to internationalisation impacting Malaysian entrepreneurs. Qualitative research is considered to be more appropriate for this study because its objectives are to describe the barriers to internationalisation faced by Malaysian rms in exporting their products/services overseas and to discover those measures that should be undertaken to motivate Malaysian rms to become more involved in international business. The benets of using qualitative research in this research design can be summarised as enabling open-ended, dynamic and exible issues confronting Malaysian entrepreneurs to be explored, providing a greater depth of understanding of the issues confronting Malaysian entrepreneurs, enabling the study to tap the respondents creativity in the phenomena being studied, providing a broader and deeper database of issues confronting Malaysian entrepreneurs and enabling the probing of rationalised and supercial responses (Gordon and Langmaid, 1988). Qualitative research was used via in-depth interviews, expert opinions, and focus-group interviews. Qualitative research is regarded as a disciplined approach of collecting data and analysing information because it enables the researcher to use open-ended interviewing techniques and formal and informal analysis methods to uncover the issues impacting the different phenomena. It aims to provide insights into attitudes, perceptions and motivations. The main objective of the study was to probe rather than to count and that is why qualitative research was selected as the appropriate research design for this study (Chisnall, 1991). To summarise, qualitative research is extremely valuable for identifying patterns of associations between the different variables. It offers rich descriptive reports of individuals perceptions, attitudes, beliefs, views and feelings, and the meaning and interpretations given to events and things. Finally, it enables the investigator to feel so close to the phenomena under investigation that they have little difculty in identifying the key issues involved for future quantitative research. As such, the appropriate research design for this study was deemed to be qualitative in nature. The data analysis presents the ndings of personal interviews with Malaysian entrepreneurs examining the barriers to internationalisation confronting Malaysian entrepreneurs. From the interviews, the barriers confronting Malaysian rms engaged in domestic and international business are summarised. The analysis included an assimilation of information gathered from the managing directors and senior managers of export rms. All interviews were tape recorded, taking about two hours each. The interviews were conducted throughout the 12 states of Malaysia. The interviewers took three months to collect and collate the information regarding the barriers to internationalisation that confronted Malaysian rms in international business. A total of 71 rms, product-based and service-based, domestic and international, were interviewed. Among the product-based rms, in-depth interviews were conducted with 24 companies engaged in international business and 24 companies engaged in domestic business. Both international and domestic rms were large in size. There

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were 20 different types of products produced by the rms engaged in international and domestic business, namely: (1) automobiles; (2) beverages; (3) carbon; (4) cement; (5) chemical; (6) electronic; (7) fertiliser; (8) food; (9) leather; (10) marble; (11) machinery; (12) metal; (13) pharmaceutical; (14) plastics; (15) paper; (16) petroleum; (17) rubber; (18) steel; (19) textile; and (20) wood products. Among the service rms, in depth interviews were conducted with eight companies engaged in international business and 15 companies engaged in domestic business. The majority of the rms engaged in international business and domestic business were either large or medium size. There were six types of services provided by the sample rms including: (1) banking; (2) communication; (3) engineering; (4) freight forwarding; (5) shipping; and (6) travel. Data analysis Based on the in-depth interviews factors were examined in relation to the barriers of internationalisation confronting Malaysian entrepreneurs. These factors included export market attractiveness, government policy, foreign practises being incompatible with domestic business and adapting to foreign market needs (Julian and Ahmed, 2005).

Export market attractiveness According to the majority of the respondents engaged in export, in order to reduce the problems of pursuing international business opportunities, entrepreneurs of domestic rms who plan to venture into overseas markets must make a thorough study of the market potential of their products and the likely problems that will be encountered. For starters, the entrepreneur should investigate which countries offer the best opportunity for the types of products that will be exported. There are many issues that require consideration when researching potential foreign markets including, but not limited to, the competition which might be encountered, foreign market trends in design and packaging, available channels of distribution, current market prices, export costs, import restrictions, tariffs and exchange controls, and the countries economic and political stability (Cateora and Graham, 1996). The task of identifying potentially suitable markets is both difcult and time-consuming, but it is a worthwhile effort to undertake. It enables the exporter to narrow down the choice to one or two selected markets. In exercising the choice of country the exporter should choose a market, which has enough potential i.e. where the imports of products are growing at the rate of at least 5 per cent per annum. The exporter should also consider choosing new markets, which are less obvious and wherein the expected volume of business is initially low and which have not yet been tapped. Also, choose markets, wherein the exporter can sell products without too costly an adaptation. Furthermore, choose markets, which are nearer to home. The high costs of ocean/air freight and of regular visits to the markets must always be kept in mind. Finally, avoid markets, whose exchange control regulations and import restrictions hamper the scope. When the exporters have completed their preliminary investigations to the stage where it is considered that a demand exists for their products in an overseas market, it is time to take the next step. However, no matter how much assistance and guidance an exporter may get from others it is the exporter who must take the nal decision. The experience of many successful exporters has proved that a visit to the potential overseas markets is very rewarding. It helps not only in establishing contacts with the prospective customers abroad, but it also provides opportunities to study the point-of-sale presentation of goods, styling, packaging, promotion and numerous other aspects of marketing. From a rst-hand observation, the exporter can decide what modications to the product are required to suit local conditions and tastes. Even if an exporter has established agents or buyers abroad, there is no substitute for personal visits to foreign markets at regular intervals. Apart from the fact that such visits are highly informative and educational, they inspire condence and goodwill in the minds of the customers abroad. Another point that requires consideration is that, before going too far in search of an export market, an exporter should work out realistic export prices for their products. The exporter must bear in mind that the buyers abroad are very discriminating as they have a very wide assortment of products coming from different countries. Sellers compete with one another and offer very attractive terms. In such an intensely competitive environment, the exporter needs to be very price competitive otherwise they will be unsuccessful. This means that prots will be small or even negative in the early stages of foreign market entry.

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When sale of goods to an overseas buyer are being negotiated, the method by which payment is to be received must be decided. Generally speaking, terms of payment are inuenced by several considerations such as type of merchandise, the quantity involved, trade practices, country of destination, exchange restrictions in the importing country, credit standing of the importer, length and nature of the relationship between the exporter and the importer, terms offered by competitors, etc. It is, therefore, advisable for exporters to seek advice from their banks before negotiating sales. However, the exporter must be prepared to meet the selling terms extended by competitors otherwise there could be a resulting loss of business. Before entering into an export contract, the exporter should make sure that the buyer holds the necessary permits not only to import goods but also for them in the appropriate currency. The exporter should also ensure that the proposed arrangements for payment conform to the current regulations. Failure to do so can prove expensive to the exporter and in some cases the goods might be conscated and the importer asked to pay heavy penalties. The majority of the senior managers of the Malaysian rms, in both the manufacturing and service sectors, stated that the decision to enter international markets is only taken after a close and careful consideration of the opportunities available. This included a review of the advantages and disadvantages of export trading. Exporting was seen as a highly protable entry mode and could strengthen the basis of a rms overall business operations. It was concluded from the interviews that a company primarily decides to explore export opportunities in order to seek new markets for its products. Some senior managers of the manufacturing rms stated the reason why they engaged in international business was to hedge their bets in periods when the country was experiencing some economic downturn (Ahmed et al., 2006). Many of the rms that were interviewed saw the future prosperity of their rms and the country alike as depending very much upon economic recovery based on increased exports rather than merely relying upon the expansion of domestic demand ( Julian and OCass, 2004). The majority of Malaysian managers already engaged in international business also suggested that before extending operations to the export eld for the rst time, new exporters should fully evaluate the chances of success in potential markets. They must also make a realistic assessment of production capabilities and capacities and their ability to maintain regular and reliable supplies to prospective customers. In other words, any prospective exporter must be thoroughly and completely committed to foreign market operations before committing themselves to these activities (see Julian and Holtedahl, 2005). The fundamentals of selling abroad on a protable basis are little different from selling in Malaysia. However, the diversity and complexity of environmental factors in markets abroad do make international marketing different from domestic marketing in many respects. These differences are found mainly in the variety of approaches, tactics and strategies that are often necessary to cope with unfamiliar environmental conditions in markets abroad. According to the senior managers of the responding export rms, successful selling in international markets requires extensive know how, more specically, knowing where to sell, when to sell and how to sell. From the interviews there emerged nine

factors that should be very carefully considered before contemplating a move into the export market ( Julian, 2003; Lu and Julian, 2008). These factors included: (1) product quality; (2) product range; (3) price; (4) distribution; (5) technology; (6) credit; (7) service; (8) market knowledge; and (9) export production. Product quality was seen by respondents as the most important factor inuencing export performance, if a company intended to achieve a reasonable level of export performance, then product quality was essential and conformity to some international standard was an advantage, particularly when negotiating tenders. Having decided on the specic market they intend to sell to exporters must endeavour to provide a comprehensive range of products to service the market, since major users would prefer to award tenders to suppliers who can supply the majority of their requirements. For example, a tyre supplier who can also offer tubes and other related accessories would stand a better chance of being successful when negotiating a contract. Exporting is a highly competitive business. The export price has to be fully competitive before reasonable volumes can be obtained. In order to remain fully price competitive, it is essential to obtain regular feedback on competitors prices. It is also important to review ones own production costs at frequent intervals, for example, quarterly, so that any downturn in raw material costs or changes in productivity can immediately be reected in pricing, with a view to keeping export products competitively priced. With regards to distribution, there are many different methods of distribution in overseas markets. These can be through distributors, dealers, commission agents, or via direct sale to end-users, and there is no hard and fast rule to determine which of these methods of distribution is the best alternative. The type of product and the volume of business largely determine the choice and the degree of specialisation required in marketing the product. In order to maintain your rms position in export markets, it is necessary to keep up to date with trends and technological developments. In the words of one of the senior responding managers:
In the case of our products, it is essential to keep regular contact with vehicle manufacturers to keep abreast of development in the weight and speed capacity of vehicles, as these factors have a considerable bearing on the tyre size and design requirements of tyres.

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The availability and appropriate means of credit is indeed, an important key success factor in international business. One senior manager reported that:
As far as credit was concerned, I feel that I can do no better than repeat the old saying that a sale is not a sale until payment has been received. In the overseas market, there are many pit-falls and I would strongly suggest that initial transactions with overseas customers be

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negotiated on the basis of Irrevocable Letters of Credit. Other forms of payment can be considered, once you have built up a good relationship with your distributors, and when they have proved to be reliable.

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According to the majority of the senior responding managers of export-orientated service rms in the sample, success in exporting requires careful preparation. One senior manager suggested that before rms venture into foreign markets they must address a range of issues including but not limited to whether or not they are willing to take exporting seriously, whether or not they are willing to fully research the foreign market they intend entering, the level of product adaptation they are willing to undertake, the decision to produce or procure sufcient supplies to cater for overseas demand and whether or not they would be willing to regularly visit overseas markets and offer assistance and managerial resources wherever it was needed (Julian, 2003). Government policy The majority of the Malaysian senior managers that were interviewed in both the export and domestic rms in the sample were aware of the government assistance that was available. In order to sustain the growth of export-oriented industries, the responding senior managers believed that government agencies such as the Malaysian External Trade Development Corporation (MATRADE) should assist Malaysian rms in trade promotion via participation in international trade fairs to promote Malaysian brand names. MATRADE, the respondents suggested, should focus on how to increase the market share of Malaysian rms exports, particularly in markets that have expansion potential (see Julian and Ali, 2009). Respondents also suggested that assistance should be provided by MATRADE to domestic Malaysian rms to assist them in the overseas sourcing of raw materials and semi-processed products required as inputs in the manufacturing sector. The responding senior managers believed that by doing this it would reduce the costs of production and increase the capability of these rms to engage in international business. Effort was also needed by MATRADE to upgrade the marketing capabilities of Malaysian domestic rms in both the manufacturing and the service sectors through training and consultation on various aspects of marketing such as product design, packaging and labelling in order to be competitive in the global market place. It was suggested by a number of respondents that the Small and Medium Scale Industries Development Corporation (SMIDEC) and MATRADE might introduce an export development scheme to assist new export rms develop expertise in international marketing, promotion, distribution, pricing, packaging and transportation. SMIDEC and MATRADE could more actively help domestic rms efciently manage the transition from domestic to export markets. The government, many respondents suggested should assist small scale food processing rms by giving full exemption from import duties on machinery/equipment, double deduction on training, marketing assistance, soft loans, provision of cheaper factory sites, building and other infrastructure facilities, and product development through the Industrial Technical Assistance Fund (ITAF). In order to engage in international business, the food industry has to upgrade its products and to come out with new product lines. Research and development needs to be part and parcel of the industry for it to face the challenges of global markets. In order to be competitive in global markets, the Malaysian-owned rms in the Malaysian food

industry should try to attain quality standards that are acceptable internationally. Government agencies such as the Malaysian Agricultural Research Development Authority (MARDI) should, in these circumstances, give assistance to the food industry in terms of resources to conduct research and development to enhance the competitive advantage of the food industry. Only via these strategies will the food industry in Malaysia be competitive in global markets. According to a number of senior managers engaged in export, and in light of the present economic situation, vigorous and concerted measures should be undertaken by government agencies to assist Malaysian-owned manufacturing and service rms to improve Malaysian export performance. Some of the measures suggested by the responding senior managers to achieve this improved export performance (see Sullivan and Bauerschmidt, 1990) include, but are not limited to: . undertaking research to improve the quality of existing products and to develop new products; . develop existing markets and search for new markets; . adapt new technology and management techniques that will improve the efciency and effectiveness of business operations; . intensify promotion programs such as participation in trade fairs/trade missions, providing and reviewing export incentives, establishment of trade ofces abroad and improving the export services provided by the various government agencies; and . endeavour to overcome the growing protectionism in the industrialised nations. The majority of senior managers engaged in domestic business also suggested that the Central Bank of Malaysia should provide commercial banks with an incentive to lend the amount of capital that was needed by Malaysias domestic rms to enable them to expand into international business. This could be achieved via changes in interest rates, service charges, tax incentives or even subsidies. At the same time, the Central Bank of Malaysia should also encourage commercial banks to be more development-oriented, to give less emphasis to conventional collateral, and to give greater emphasis on meritorious international projects and potential future earnings. Commercial banks should be encouraged to ensure that enough credit is available to at least 20 per cent of all Malaysian entrepreneurs engaged in the foreign sector. Furthermore, in order to ensure equity, the quota should be distributed by the size of the rms engaged in international business. Otherwise, in the interest of cost and convenience, commercial banks may prefer to lend larger amounts to a smaller number of larger Malaysian enterprises. An alternative to this would be to encourage a small but selective number of nancial institutions to develop a long-term interest to nance Malaysian rms engaged in international business. The respondents stated that capital funds remain one of the most challenging problems facing Malaysian rms, especially small businesses. Malaysian rms have become accustomed to a chronic shortage of capital when considering expanding their business into international markets. More loans facilities are required to nance operating expenses, in particular, long-term investment loans. There should also be government reimbursement for costs arising from unusual loan processing, delinquency servicing, and matching of loan amortisation to business cash ows if

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necessary to encourage more loans to Malaysian business so that they have the nancial capabilities to engage in international business. The Malaysian government should seriously consider extending tax concessions towards capital formation by new Malaysian rms engaged in international business, especially within the manufacturing sector, to ease the special working capital difculties of rms engaged in infant industries. Foreign practices being incompatible with domestic business It is much easier to conduct business in your own country than engaging in international business because it is easier to collect payment from domestic customers than foreign customers. Exporting is a very good business but there might be problems in collecting payment from foreign customers. To minimise the risk, the domestic rms were more prone to conduct business in local markets than engaging in international business (Sullivan and Bauerschmidt, 1990). The governments of different countries also have different regulations and laws regarding imports and exports. It is sometimes difcult to understand the different business procedures in different countries (Chung, 2003). There is more risk in selling products abroad in terms of marketing, planning and controlling the sales of the products. Many problems can arise such as high export duties imposed by the foreign governments, different product specications, and as already mentioned payment difculties (Karunaratna and Johnson, 1997). In order for products to be accepted by customers, excellent after sales service should be provided, in case of any problems arising from product usage. However, to provide an efcient after sales service in foreign markets is very difcult and expensive adding to the nal selling price to consumers. It was also very difcult to modify the products price so that the product was cheap and competitive in the foreign markets. The costs incurred to export the product would not permit them to lower the products price and there was intense competition in many of the foreign markets they sought to enter. As such, it was not worth exporting the product because of the potential losses that could be incurred. Furthermore, the foreign exchange instability faced by many of the ASEAN countries makes engaging in international business a risky business. Due to the instability of the Malaysian currency it would be difcult for the rms to quote an export price for the rms products. Therefore, it was not the right time to engage in international business until the Malaysian currency was more stable and prone to less uctuation (Julian and Ahmed, 2009). There were also many differences of opinion amongst the senior managers of the domestic rms regarding the value of exporting. Some managers felt that if their rms engaged in international business, it could help the rm diversify their business into new markets, improve the growth potential of their product and increase the rms income. However, some managers in the rms were reluctant to engage in international business because it was very risky and the rm did not have the expertise and experience to conduct international business (Julian, 2003). Adapting to foreign market needs It is not reasonable to presume that what suits customers in the UK will necessarily suit customers in Germany. For example, it might be presumed that precisely the same washing machine would suit the US, UK and German markets, but that may not be the

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case. In the US market there is a need for a washing machine that will accommodate daily washing, whereas in Germany the washing of clothes tends to be at longer intervals. In the UK market, washing requirements fall somewhere between the two. Therefore, there are different requirements in each of the three markets (see OCass and Julian, 2003). Attention must also be paid to the design of adequate production facilities that are exible enough to cater for the varied requirements of different export markets in terms of product specications, product styling, product design and packaging; maintaining delivery schedules to overseas customers; foreign market conditions; and, export nance. In terms of international environments, customers and foreign market conditions, according to the senior managers of the export rms that were interviewed, the most important issue is product adaptation (see Cavusgil and Zou, 1994; Douglas and Craig, 1989). According to them, products sold abroad require more attention and foresight than locally-sold ones, because of the inherent differences brought about by a host of religious, cultural and other factors. Therefore, it is best to choose a product or a version of a product that is best suited to the special needs and requirements of customers in the target market. Initially, the product must be protably exported without incurring huge costs in product modications. The Malaysian domestic rms also stated that it was a risky business to export their products to foreign markets due to differences in product specications. Different customers would use different products differently (Cavusgil, 1993). For example, the Malaysian garment manufacturers stated that they would not export their products because their product would not be accepted by customers in western countries due to the dissimilarities between the markets in terms of the size of the shirt and trousers that were being exported. The Malaysian garment manufacturers believed their product would only be suitable for Asian customers and they had no intention of adapting their products to suit the size of western customers. Although any factor can be important in determining the success and/or failure of products in foreign markets, the main considerations include preferences, costs, laws and regulations and suitability. Customer preferences are usually culture bound and can vary from country to country, not to mention minor variations from state to state or district to district. Colour, taste and even appearance sometimes play a part in determining whether the product has overseas potential or not. For example, rarely can you nd a Chinese in possession of a black car or for that matter any material possession in black because black is closely associated with the power of darkness and thus to be avoided at all costs. Another example pertains to the successful penetration of Japanese cars in the world market and in the process changing traditional customer preferences to their favour. Honda cars, in particular, have really brought home the point by perfecting a new concept in automobiles, low priced quality compact cars. Last, the product must be suitable for use in the local environment. For example, electrical appliances need to be compatible to varying electrical standards throughout the world. Some Japanese appliance manufacturers have even altered their basic product design to include a multipurpose plug to comply with these standards. An often-overlooked factor is the local climate. The product should be suitable for use in the local climate. For example, cars produced in Malaysia are equipped with air

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conditioning due to the hot and humid climate but cars exported from Malaysia to the UK are equipped with a heater to suit the winter climate of that country. According to a senior manager in the automobile industry, the prospect of exporting the national car of Malaysia, the Proton Saga, to China has now been greatly diminished because the rst shipment of Sagas included air-conditioning but no heater, failing to take into account Beijings often frigid weather. According to the senior managers of the export rms, market development takes on an important dimension by creating entirely new markets for the product. Diversication is also important when the product cannot be sold, as it is requiring further product adaptation. In general, the main criteria for selecting products to be sold in foreign markets are, rst, the product is highly differentiated and therefore is less susceptible to price competition. Second, the product is quickly accepted in the market and requires little or no physical or marketing adaptation and should have a high prot potential. Finally, the product is currently doing well in the domestic market because of a high degree of differentiation, especially if it is on the basis of quality and technological superiority. Conclusion There are great opportunities for Malaysian rms engaged in domestic business to engage in international business. Given the right assistance in terms of product development and nancial assistance the majority of the Malaysian entrepreneurs that were interviewed that were engaged in domestic business stated that they would engage in international business because they cannot depend entirely on their domestic market for their rms future growth. In order to encourage and to be successful in international business, government policy must play an active role in promoting, assisting and helping Malaysian rms in terms of nancing, training, technology and the offer of lucrative tax concession so that the domestic rms would be motivated to engage in international business. We also highlight how the Malaysian rms could be successful in international business and articulated certain strategies to reduce the problems associated in pursuing international business. Given the right guidance and opportunities, the majority of the Malaysian rms would succeed in international business because the majority of the Malaysian rms engaged in domestic business wanted to engage in international business but did not have the knowledge and/or experience to do so. Limitations and directions for future research Whilst this study provided some interesting ndings and made a signicant contribution to the body of knowledge, some methodological limitations should be noted. Due to a lack of resources, rms from West Malaysia were not contacted. West Malaysian rms may well possess characteristics concerning the barriers to internationalisation that are unique to their region. As such, the study ndings can only be applied to rms from mainland Malaysia and future research should, therefore, investigate any unique features of Malaysian entrepreneurs engaging in international business in West Malaysia. This study was conned to those rms registered with the Malaysian Manufacturers and Exporters database. The study was not extended to other Malaysian entrepreneurs that were not registered with the Malaysian Manufacturers

and Exporters database due to difculties in obtaining their contact details. As such, rms not registered with the Malaysian Manufacturers and Exporters database may exhibit different characteristics than what has been described in this study. Finally, this study presented the results of a study of Malaysian entrepreneurial rms at a specic point-in-time. The study was designed to examine the current perceptions of Malaysian entrepreneurs engaging in domestic and international business. Since the individuals and the rms were not tracked over time, it wasnt possible to describe a sequence of changes in their attitudes and future plans for international business. As such, this would be an interesting direction for future research. That is, at some point in the future, to interview the same rms, to see if their attitudes had changed towards the barriers of internationalisation and examine what caused that change in attitude.
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Holmund, M. and Kock, S. (1998), Relationships and the internationalisation of Finnish small and medium-sized companies, International Small Business Journal, Vol. 16 No. 4, pp. 46-64. Julian, C.C. (2003), Export marketing performance: a study of Thailand rms, Journal of Small Business Management, Vol. 41 No. 2, pp. 213-21. Julian, C.C. and Ahmed, Z.U. (2005), The impact of barriers to export on export marketing performance, Journal of Global Marketing, Vol. 19 No. 1, pp. 71-94. Julian, C.C. and Ahmed, Z.U. (2009), Doing business in Malaysia, Thunderbird International Business Review, Vol. 51 No. 1, pp. 53-70. Julian, C.C. and Ali, M.Y. (2009), Incentives to export for Australian export market ventures, Journal of Small Business and Enterprise Development, Vol. 16 No. 3, pp. 418-31. Julian, C.C. and Holtedahl, R. (2005), The effect of the internet, rm-specic characteristics and market characteristics on export marketing performance: an empirical investigation, Journal of International Marketing and Exporting, Vol. 10 No. 1, pp. 3-15. Julian, C.C. and OCass, A. (2004), The antecedents of export marketing performance: an Australian perspective, Journal of Asia Pacic Marketing, Vol. 3 Nos 2/3, pp. 99-113. Karunaratna, A. and Johnson, L. (1997), Initiating and maintaining export channel intermediary relationships, Journal of International Marketing, Vol. 5 No. 2, pp. 11-32. Kotabe, M. and Czinkota, M. (1992), State government promotion of manufacturing exports: a gap analysis, Journal of International Business Studies, Vol. 23 No. 4, pp. 637-58. Lages, L. (2000), A conceptual framework of the determinants of export performance: reorganising key variables and shifting contingencies in export marketing, Journal of Global Marketing, Vol. 13 No. 3, pp. 29-51. Leonidou, L. (1995), Empirical research on export barriers: review, assessment and synthesis, Journal of International Marketing, Vol. 3 No. 1, pp. 29-43. Lu, N.V. and Julian, C. (2008), The internet, strategy and performance: a study of Australian export market ventures, Journal of Global Marketing, Vol. 21 No. 3, pp. 231-40. OCass, A. and Julian, C.C. (2003), Examining rm and environmental inuences on export marketing mix strategy and export performance of Australian exporters, European Journal of Marketing, Vol. 37 Nos 3/4, pp. 366-84. Raff, H. and Kim, Y. (1998), Optimal export policy in the presence of informational barriers to entry and imperfect competition, Journal of International Economics, Vol. 49 No. 1, pp. 99-123. Shoham, A. and Albaum, G. (1995), Reducing the impact of barriers to exporting: a managerial perspective, Journal of International Marketing, Vol. 3 No. 4, pp. 85-106. Stottinger, B. (2001), Strategic export pricing: a long and winding road, Journal of International Marketing, Vol. 9 No. 1, pp. 40-63. Sullivan, D. and Bauerschmidt, A. (1990), Incremental internationalization: a test of Johanson and Vahlnes thesis, Management International Review, Vol. 30 No. 1, pp. 9-30. About the authors Craig C. Julian, PhD, is a Senior Lecturer in Marketing in the Southern Cross Business School at Southern Cross University in Coolangatta, Queensland. He has won competitive research grants, including a prestigious large ARC Discovery Grant, and has over 100 publications to his name. His work has appeared in quality international journals such as the European Journal of Marketing, Journal of Small Business Management, Journal of Macromarketing, Journal of Business Research and many others. His primary research interests are aligned to the

international marketing discipline and include strategic alliances, international joint ventures and export marketing. Craig C. Julian is the corresponding author and can be contacted at: [email protected] Prof. Zafar U. Ahmed is currently serving as a Professor of Marketing and International Business at the University of Dammam in Saudia Arabia. He has well over 10 years industry experience earned across Africa as an exporter and global entrepreneur and 20 years academic experience to his credit accumulated at six different universities across the USA. He has more than 140 world-class scholarly publications to his credit, has organized and presided over more than 10 global conferences, serves on the editorial review board of more than 10 journals and serves as the Founding President/CEO of the Academy of Global Business Advancement.

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