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Progress in Business Innovation & Technology Management

Volume 1 3 – 22, May 2011

13

External Environment Factors Influencing the Technology Adoption-Diffusion

Decision in Malaysian Manufacturing Small Medium Enterprises (SMEs)

Murzidah Ahmad Murad*

Graduate School of Business and Law

RMIT University, Melbourne, Australia

E-mail: [email protected]

John Douglas Thomson

Graduate School of Business and Law

RMIT University, Melbourne, Australia

Abstract

This paper is based upon an initial study that researches the external environment factors

that may influence technology adoption decision processes in Malaysian manufacturing Small

and Medium Enterprises(SMEs). The preliminary semi structured interviews were conducted

with four managers of Malaysian manufacturing companies to obtain their insights of topic. Their

experiences and opinions of the external environment factors that influence their decisions to

adopt new technology into their business operations have been gained for further research

purposes.

Keywords: technology adoption, Malaysian manufacturing Small and Medium Enterprises

(SMEs), external environment factors

* Corresponding author

mailto:[email protected]


Volume 1 Page 13 – 22, May 2011

14

External Environment Factors Influencing the Technology Adoption-Diffusion

Decision in Malaysian Manufacturing Small Medium Enterprises (SMEs)

1. Introduction

The epistemology of technology diffusion and adoption is survival (Okada 2006; Bennet &

Bennet, 2004). Competition and adaptation have been issues for any business entity to survive in

the business world. To understand the competitive environment of technology adoption decisions

by a business entity, it is necessary to look into the external factors that may influence the

technology adoption decision.

Abdullah (2002) stated that one of the important issues in Malaysia‟s economic growth is

technology adoption among Malaysian Small and Medium Enterprises (SMEs) to enable them to

be more competitive and survive in the global business environment. Kuan & Chau (2001)

agreed that on SMEs‟ abilities to utilize technology can render it competitive and sustainable.

Realizing the importance of technology diffusion, the Malaysian Government has attempted to

ensure the adoption of technologies which will contribute efficiently and effectively towards the

development of competitive Malaysian industries (The Ninth Malaysian Plan, 2006).

However, Malaysian Government technology policy continues to focus mainly on

encouraging innovation and not on the diffusion of technology. Such policy leads to too little

adoption of technology (Rosnah, Lo & Hashmi, 2005). Malaysian manufacturing SMEs are

aware of the potential benefits of manufacturing technologies. Unfortunately, these

manufacturing companies lack of understanding of specific ways in which technology can help

their businesses (Rosnah, Megat & Osman, 2004).

Moreover, Zaya (2005) found that although manufacturing companies are aware of a wide

range of technologies, they only make use of a few of them. The argument is strengthened by

Asgari & Wong (2007) who identified that one of the barriers to industrialization is the lack of

technology adoption by industry.

This research is concerned with industrial manufacturing technology used by Malaysian

manufacturing companies. In particular, industrial manufacturing technologies which includes

machinery and equipment in production operations. Industrial manufacturing technology can be

the catalyst for Malaysia to become a high-tech nation (The Ninth Malaysian Plan, 2006).

This research aims to provide an initial understanding of factors that may influence

Malaysian manufacturing companies‟ technology decision process. For this paper‟s purposes, the

researcher is examining the organization‟s external environment factors that influence technology

adoption decisions in four Malaysian manufacturing companies. Further research will be necessary

to obtain thorough data coverage of the issue.

2. Literature review

2.1 The innovation (technology)-decision process

According to Rogers (2003), the technology-decision process is the process through which

an individual (or other decision-making unit) passes from first knowledge of a technology, to

forming an attitude toward the technology, to a decision to adopt or reject or to implement the

new idea, and to confirm this decision. Rogers (2003) diffusion of innovation theory consists of

five stages in the innovation-decision process (Figure 1):



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Figure 1. Model of stages in the innovation-decision process (Rogers, 2003; Damounpor, 1991)

From Figure 1, it can be seen that (Rogers, 2003, pp. 169):

1. „Knowledge occurs when an individual (or other decision-making unit) is exposed to

the innovation‟s existence and gains some understanding of how it functions;

2. Persuasion (attitude formation) occurs when an individual (or other decision-making

unit) forms a favorable or unfavorable attitude toward the innovation;

3. Decision occurs when an individual (or other decision-making unit) engages in

activities that lead to a choice to adopt or reject the innovation;

4. Implementation occurs when an individual (or other decision-making unit) puts an

innovation to use; and

5. Confirmation occurs when an individual (or other decision-making unit) seeks

reinforcement of an innovation-decision already made, but he or she may reverse this

previous decision if exposed to conflicting messages about the innovation.‟

These stages were summarized into two phases by Damanpour (1991):

1. Initiation; and

2. Implementation.

In the first phase, initiation, the firm considers the need to introduce the innovation, it

researches for information, training is carried out, resources are proposed, the process is

evaluated and finally the decision to adopt the innovation is made. In the second phase,

implementation, first use of the innovation is made, and subsequently organizational routines are

modified appropriately.

Premkumar and Roberts (1999) consider five phases in the adoption process, which are

similar to Roger‟s technology-decision process. There consist of:

1. Awareness;

2. Persuasion;

3. Decision;

4. Implementation; and

5. Confirmation.

Coombs, Saviotti & Walsh (1987) suggest that the term „diffusion‟ relates to the level of

adoption of innovation. Adoption has also been considered as part of the diffusion process and a

measure of its success (Albors, Hervas & Hidalgo, 2006).

According to Ayres (1969), diffusion of a new technology is the evolutionary process of

replacement of an old technology by a newer one. Organizations that do not accept new

technologies and do not alter themselves to accept the new technologies will fall behind (Davidoff

& Kleiner, 1991).

Rogers‟ (1962) diffusion of innovation theory provides the initial foundation for this

research.



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2.2 External environment factors

The fundamental approach to study the adoption and diffusion of new technologies is the

diffusion of innovations theory (Rogers, 2003). The literature on adoption and diffusion of

innovations has mostly focused on the factors affecting adoption and diffusion. One of the factors

that affect technology adoption and diffusion includes the environment context (Scupola, 2003;

Tonartzky and Fleischer, 1990). The environment context includes the external actors and factors

that affect a company‟s decision to adopt a technology, either directly or indirectly. These may

include customers, competitors, market, government or economy. The external environment

comprises the industry (suppliers and customers), the competitors, and dealing with regulatory

bodies such as the government (Tonartzky and Fleischer, 1990). Scupola (2003) stressed that the

competitors, the suppliers and the customers can exert direct or indirect pressures on SMEs to

adopt new technology.

A summary of the external factors mentioned in the literature that affect technology adoption

in companies is shown in Table 1.

Among the external factors relating to technology adoption, the researcher has found the

following are common:

customer demand;

competitors;

supplier perspective;

dynamic market;

government support; and

Government regulation.

Table 1. External factors affect technology adoption

External factors

Bu‟rca, Fyner and Marshall (2005) Customer demand

Supplier perspective

Kim and Galliers (2004)

Santarelly and D‟altri (2003)

Business environment

Global markets

Dynamic market

Scupola (2003) Competitors

Suppliers

Customers

Sadowski, Maitland, Van Dongen (2002) Competitive pressure

External support

Incentives

Chengalur-Smith, Duchessi (1999) Market condition

Competitors



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3. Methodology

The data for this study was collected through semi-structured interviews to facilitate

participants‟ ability to express their viewpoints more openly than may be the case with more

structured interview situations (Flick, 1998).

The participants were first approached by email to get their permission to interview them and

set the interview date. The participants who agreed to participate in the interview were contacted

via telephone to confirm their participation. The researcher visited the selected companies in

Malaysia and interviewed the decision maker of each company to get an initial idea and data for

further research. The interviews were conducted face to face and digitally recorded. Prior to the

interview session, the study was outlined more formally, confidentially, anonymity confirmed and

gave participants freedom to choose not to answer any question. The participants then signed a

consent form and gave permission for the interview to be digitally recorded. Each interview lasted

approximately 40 minutes.

From the interview data, the researcher transcribed the digitally recorded interviews. In order

to facilitate a data analysis, the researcher used the following process: reading through the

transcription and examining all data (review data); coding the data; looking for themes and

sub-themes (search and extraction); interrelating themes and description; and interpreting the

meaning of the themes and descriptions (summarization).

4. Results

4.1 Interviewee position and role on technology decision

The interviewees were asked about their position in the company (Table 2). They also were

asked about their role regarding making technology decisions in their company. It is important to

ensure their knowledge of technology and their authority in technology decision making.

4.2 Companies profile

Company one (C1) is a medium sized electronics based manufacturing company. C1 is a

well established supplier of security and convenience products to some of the world‟s major retail

and wholesale companies. C1 offers specialized design, manufacturing, marketing, logistics and

customer service.

Table 2. The role of the interviewee in the company regarding technology decision making

People Position Responsibility regarding technology

Mr. A Project Manager decides on certain company project and

technology to use for the project

Mr. B Operations Director decides what technology to be adopt for

company‟s operations

Mrs. C Managing Director makes decisions on technology after

discussions with the Executive Vice

President of the company

Mr. D Manager decides what technology or equipment is to

be used in the company



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Company two (C2) is a Malaysian-based medium sized electronic manufacturing company.

C2 operations include grinding, slicing, lapping and polishing processes. C2 also offers value

added contract manufacturing and engineering services to clients across multiple industries.

Company three (C3) is a small sized oil and gas equipment manufacturing company. C3

specializes in alternative technology solutions for its clients, leveraging on their network of

business alliances to achieve maximum exposure to a technology and integrating the available

products, services and resources to optimize the solution to its client‟s requirements.

Company four (C4) is small sized food based manufacturing company. C4 manufactures ice

products (ice block and ice cube) for both business and household purposes. C4 prides itself in its

technological competence in manufacturing ice products.

4.3 External factors that influence technology adoption and diffusion

A number of themes emerged consistently. The data has been organized into these themes.

The themes are discussed in an order suggested by the intensity with which participants explored

them.

4.3.1 Customer

All the participants in the interview perceived that competitors influence their decision when

adopting technology into their company. Demand from customers influenced them to look into

new product development and operations which influenced them to adopt a new technology into

their operations. One of the participants (C4) stated that, “I always look into the pattern of our

customer. If the customer needs a new product from us, I will consider investing into new

operations and new technology.”

Other participants (C1 and C3) agreed that customers influenced their technology decisions,

“We have to consider the demand of the customer as well. If customer demand is less, then there’s

no point in adopting new technology into our operations…..We have to consider customer

expectations and customer demand.” Demand from the customer gives effect for company (C3)

to make a decision to develop a new product and eventually to adopt a new technology into their

operations, “So, I would say the requirement has to be there, the demand has got to be there.

Creating the demand has to be there too.”

4.3.2 Competitors

Malaysian manufacturing SMEs would like to be both different and competitive in the global

marketplace. In order to be successful in their marketplace, Malaysian manufacturing SMEs should

give some attention to their competitors. C2 mentioned that “There is also the concern of the

competitors. We have concern of competitors especially the Chinese manufacturers.” One of the

ways to be different is to strengthen operations and „catch up‟ with new technology. “We always

make sure that we are competitive in the market by making sure our technology produces products

that competitive in the market,” C4. Companies always strive hard to raise their competitive

advantages by adopting new technology.

4.3.3 Malaysian Government regulation

All four companies agree that Malaysian Government regulation does not affect their

decision to adopt a new technology into their operations. “Malaysian government regulation on

technology does not give much impact on our company.”

C1 mentioned that, “So far we don’t face any problems with regulation because we don’t

have a direct relation with the Malaysian Government since we are a private institution. We are



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100% privately owned. So, there is no direct link to the government fund.” This is agreed by C3

who pointed out that “Malaysian regulation regarding technology is actually no hamper to any

technology transfer or adopting decision.”

4.3.4 Economy

From the findings, there are similar perspectives from the participants about the influence of

the economy on their technology decision adoption. One of the participants said:

C1: “Economy, yes it will affect our production as well. From this Global Financial Crisis

downturn over the last one or two years, our production is down. So, we definitely don’t want to

spend on adopting new technology into our operation during that period.”

This is also agreed by C2, “So, I guess external factors - for sure economy would be one

thing”. C4 confirmed that “Economy crisis does impact our operation.” This shows that

Malaysian manufacturing SMEs see that the ups and downs in national economy will bring

pressure onto their technology adoption decision processes.

However, only one participant mentioned that the economy did not really affect their

business operation and did not influence their decision to adopt new technology into their company.

He said that:

C3: “The recent economic crisis, we are not badly affected. Our operation is still operating

as usual.”

5. Discussion

Malaysian manufacturing SMEs always strive hard to be competitive and survive in the

business world. In order to survive in the business world, Malaysian manufacturing SMEs have to

adapt to the rapid changes in the business environment including adopting new technology to

improve their operations. Previous study suggests external environment factors could influence the

technology adoption decision process (Bu‟rca, Fyner and Marshall, 2005; Sadowski, Maitland,

Van Dongen, 2002; Scupola, 2003; Tonartzky and Fleischer, 1990).

The initial interviews with four Malaysian manufacturing SMEs attempted to find the

external factors that may influence adoption of industrial manufacturing technology in Malaysian

manufacturing companies. The information obtained from this research found that external

environment factors influence Malaysian manufacturing SMEs technology adoption and

diffusion.

The results of this study show that Malaysian manufacturing SMEs find there are four

principal external environment factors that may influence their decisions to adopt a new

technology into their business operations. The four external environment factors relating to

technology adoption are:

customers;

competitors,

Malaysian Government regulations; and

economy.

The results of this research indicated that all factors in the external environment factors are

important to take into account. These factors have a noticeable impact on the decision to adopt

new technology in the manufacturing SMEs in Malaysia. They also show that external

environment factors are important and may influence Malaysian manufacturing SMEs decisions

to adopt new technology into their companies.



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From this analysis and based on the literature study, the conceptual framework of external

environment factors that may influence the technology adoption process in Malaysian

manufacturing technologies is shown in Figure 2. The initial findings of these factors are

expected to assist the researchers in the next phase.

Figure 2. Conceptual framework (Authors, 2010)

Consequently, the conceptual framework in this paper provides one of the elements for the

model of industrial manufacturing technology adoption-diffusion in Malaysian manufacturing

SMEs. It is expected to facilitate Malaysian manufacturing decision makers to consider and plan

potential adoption of industrial manufacturing technologies. This research is anticipated to

provide further support for the innovation decision process model developed by Rogers (2003).

6. Conclusion

In conclusion, the research found that while diffusion of innovation research is supported in

Malaysia, external factors should be included as principal determinants of technology adoption.

Malaysian manufacturing companies should comprehensively understand external environment

factors before making decisions on technology adoption. Furthermore, the Malaysian

Government should consider these factors when giving assistance to Malaysian manufacturing

companies regarding technology adoption.

7. Directions for future study

Future research and discussion will be conducted to explore thoroughly the factors that

facilitate or hinder technology adoption and diffusion. The researcher may also look into other

innovation diffusion and adoption models such as Technology Adoption Model (Davis, 1989),

EXTERNAL

FACTORS

Customer

Competitors

Economy

Malaysian

Government

regulation

Innovation (Technology)

decision process in

Malaysian manufacturing

companies



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“Interessement” (Akrich, Callon& Latour, 2002) and others. Further research will expand upon

this study, investigating the related internal and external factors, additional organizations across a

range of industry sector categories and use quantitative techniques to validate all factors.

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