British Food JournalDrivers of halal orientation strategy among halal food firmsMohammad Iranmanesh Suhaiza Zailani Kanagi Kanapathy Marco Tieman

Article information:To cite this document:Mohammad Iranmanesh Suhaiza Zailani Kanagi Kanapathy Marco Tieman , (2015),"Drivers of halal orientation strategyamong halal food firms", British Food Journal, Vol. 117 Iss 8 pp. -Permanent link to this document:http://dx.doi.org/10.1108/BFJ-01-2015-0027

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Drivers of Halal Orientation Strategy among Halal Food Firms

Keywords: halal orientation strategy, halal food, Malaysia

Introduction

The Muslim population comprised 1.7 billion people in 2014 and is expected to rise to 2.2

billion by 2030. The total Muslim population continues to grow at 1.5% annually, which is

approximately twice the growth rate of non-Muslim populations (Thomson Reuters, 2014).

Food and drink consumption of Muslims must conform to Islamic dietary laws. The Qur’an

has numerous injunctions that instruct Muslims to consume only halal food. The word “halal”

literally means permissible and is translated as lawful (Al-Qaradawi, 2007). In terms of food,

halal food is important to satisfy Islamic principles on food and maintain the quality of halal

food. The quality of halal food covers cleanliness or hygiene, safety, preparation, storage, and

purification aspects, which are called “tayyib,” meaning wholesome or purity, nutritious, and

safe (Kamaruddin and Jusoff, 2009). The presence of halal and tayyib ensures that halal food

is secure and healthy (Muhammad, 2007; Hassan, 2011).

The growing demand for halal food in the international market is an opportunity for countries

to compete and participate in the lucrative global halal market (Zakaria and Abul–Talib,

2010). The size of the global halal food industry is estimated to be worth USD 1.292 billion

in 2013 and is expected to become as high as USD 2.537 billion by 2019 (Thomson Reuters,

2014). To ensure that Malaysia remains competitive in the global arena for halal food

products, a strategic operation strategy, namely, halal orientation strategy (HOS), must be

devised and implemented for Malaysian halal food business firms. This strategy will enable

the firms to focus on the important resources and capabilities by looking at the present

environment. In addition, HOS is one of the plausible strategies that may help the halal firm

to comply genuinely with the requirements for halal.

Despite the vast halal market and the importance of HOS in preserving the halalness

of food products, available evidence indicates that HOS is not widespread among halal food

firms. Therefore, a question arises on the extent of the practice of HOS. Specifically, what are

the drivers that motivate firms to adopt HOS? To the best of our knowledge, the available

information is insufficient to answer these questions. This study is designed to investigate the

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drivers of HOS. The findings of this study are expected to contribute to the diffusion of HOS

among food firms.

Literature Review and Model Conceptualization

Halal Industry in Malaysia

Islam asks Muslims to consume halal foods and avoid haram ones (Al-Qaradawi, 2007).

However, most parts of the food supply chain, including farming, food manufacturing,

restaurant logistics, and retail chains are dominated by non-Muslim countries and businesses

(Tieman, 2015). Therefore, to guarantee the halalness of food products, a halal certification

body is needed to examine food processes, from preparation, slaughtering, ingredients used,

cleaning, handling, and processing, down to transportation and distribution, before finally

certifying that a food product is based on halal standards (Latif et al., 2014).

With the increase in the Muslim consumers’ knowledge of their religion, they have

become more particular of the type of product and services that they consume or use.

Manufacturers and marketers use halal certification, signified by a halal logo, as a way to

inform and reassure their target consumers that their products are halal and sharia-compliant

(Shafie and Othman, 2006). In Malaysia, halal requirements are under the authority and

jurisdiction of the Department of Islamic Development Malaysia (JAKIM), a government

agency. In addition to having been entrusted to implement the relevant acts, laws, and

regulations pertaining to halal requirements in Malaysia, this certification body also plays a

leading role in the international scene through its halal standards such as MS 1500:2009

(Tieman and van Nistelrooy, 2014).

With the increasing extent of the halal industry and its supply chain around the world, the

need for designing a specific place to serve as the world halal hub is progressively felt. A

halal hub would enable the groups that are directly involved in the halal industry, including

halal manufacturers, halal traders, halal suppliers, halal logistics service provider, halal

certification bodies, and halal buyers, to trade and collaborate more effectively. As of now,

no specific place has been designed to serve as the world halal hub. In order for a country to

be established as the world halal hub, that specific country must ensure that it can provide a

suitable place for connecting the global halal supply chain and the certification bodies for

halal assurance (Abdul Rahman et al., 2013). Malaysia is such a country because: 1)

Malaysia has a strategic location; 2) Malaysia has improved infrastructure compared with

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other Islamic countries (Abdul Rahman et al., 2013); 3) Malaysia is one of the few countries

today that are in the third phase of the halal evolution, the “halal supply chain” (Tieman,

2011); and 4) Halal certification issued by JAKIM is well-recognized worldwide (Latif et al.,

2014).

Halal Orientation Strategy

Quinn (1988) defined strategy as the pattern or plan that integrates organizational goals,

policies, and action sequences into a cohesive whole in which a well-formed strategy helps to

marshal and allocate organizational resources into a unique and viable posture. This position

is based on internal competencies and shortcomings, anticipated changes in the environment,

and contingent moves by intelligent opponents. Strategic decisions are aimed at

differentiating an organization from its competitors in a way that is sustainable in the future

(Porter, 1996).

Operation management refers to the direction and control of processes or activities

that transform input into finished goods or services (Slack et al., 2010; Heizer and Render,

2013). An effective operation management effort must have a mission to become

economically successful, which occurs when the operation management activities are guided

by operation strategy (Heizer and Render, 2013). Today’s highly competitive markets require

business organizations to generate competitive advantage. From an operation standpoint of

the halal industry, this goal can be achieved by establishing a competitive business strategy.

HOS is an operational strategy for implementing the halal concept among food producers,

which means consideration for long-term decisions that lead to long-term operational

performance. HOS is not only a position point in the formulation of firm strategy, but an

important precondition for a new direction that is value-centered for halal food business.

HOS provides a potential in the implementation of firm direction as a source to shift later for

sustainable competitive advantage.

MS 1500:2004 (Malaysian Standard, 2004) prescribes the general guidelines in the

production, preparation, handling, and storage of halal food. Basing on these guidelines,

Slack et al. (2010) categorized halal operation strategy into four categories, namely staffing,

materials, production process, as well as storage and transportation. Staffing refers to the

human resources who operate, maintain, plan, and manage the operation (Slack et al., 2010)

of halal food firms. The firms have to ensure that the staff is aware and that they understand

the halal requirements to ensure the halal processing of the products. In addition, the firms

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have to provide training activities to satisfy halal requirements (HDC, 2010). The materials

are the gist of the concept of halalness food production. To ensure end products are halal, raw

materials or ingredients must be halal and must not contain non-halal ingredients in large or

small quantity (HDC, 2010). Food products should be prepared, processed, or manufactured

using equipment and facilities that are free from contamination with non-halal elements.

Equipment, piping, production lines, conveyors, and all other equipment that are used for

halal production must be cleaned and free from non-halal materials (HDC, 2010). A complete

and thorough cleaning in halal production must be done before commencement of storage

and transportation. Halal and non-halal food products must be kept separately in storage

during transportation and distribution to prevent contamination (Tieman, 2011; Ab Talib et

al., 2015). Implementing HOS assures control of staffing, materials, production process, and

storage and transportation in halal food firms.

Drivers of HOS

Drivers are the motivators or inducements that urge business organizations to adopt certain

concepts, approaches, or strategies to fulfill the aim of the organization (Hoffman, 2001).

Based on the literature review, the present study categorized the drivers of HOS into internal

and external factors (Forman and Hunt, 2005). External drivers are environment-specific

factors and internal factors are the organizational capabilities of halal food manufacturers or

procedures. A body of research has studied the drivers of halal food industry (e.g. Tieman,

2007; Rajagopal et al., 2011; Rezai et al., 2010). The summaries of 17 studies that

researchers have studied on the drivers of the halal food industry are provided in the

Appendix. The review of the literature revealed three types of external factors for halal food

industry, namely halal market demand (Zakaria, 2008; Rezai et al., 2010), government

support (Ahmed, 2008; Guntalee and Unahannda, 2005), and competitive intensity (Tieman,

2007; Zakaria and Abdul-Talib, 2010). The four types of internal factors are social

responsibility (Bonne et al., 2007; Zakaria and Abdul-Talib, 2010), expected business

benefits (Mohiyaddin and Ijaz, 2006; Tieman, 2007), entrepreneurial intensity (Ahmed, 2008;

Abdullah and Ahmad, 2010), and integrity (Zakaria, 2008; Rajagopal et al., 2011). The

effects of these internal and external factors on practicing HOS were investigated in the

present study (Figure 1).

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Insert Figure 1 Approximately here

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Hypothesis Development

Halal Market Demand

Halal market demand refers to the needs and wants resulting from customer and community

pressures in the halal industry (Tieman, 2007; Kamaruddin and Jusoff, 2009). Consumer

pressure for halal products is increased when consumers become more informed (Tieman,

2007; Kamaruddin and Jusoff, 2009). To achieve consumer trust, firms must ensure that they

follow the requirements of halal, which can be achieved through HOS. Therefore the

following hypothesis is developed:

H1: Halal market demand positively affects the extent of HOS.

Government Support

Government support refers to the government policies; regulations; agencies introduced by

the government; and incentives, such as grants, finance, training, and consultation (David,

2003; Tieman, 2007). When adopting HOS, organizations expect to receive support from the

government with respect to policies, incentives, and subsidies to accelerate the rate of

adoption. Government support is an important factor in the external competitive environment

(Tieman, 2007; David, 2003). Government support is essential in Malaysia because of the

intense competitiveness among halal food producers of other countries, such as Indonesia.

Therefore, government support is expected to boost halal manufacturers to adhere to halal

requirements. As such, the following hypothesis is developed:

H2: Government support positively affects the extent of HOS.

Competitive Intensity

Competitive intensity refers to the pressure created by competitors competing with other

firms in term of price, technological availability, and innovations (David, 2003). The degree

of competition in an industry has a direct bearing on the development of new strategy by a

firm (Menon and Menon, 1997). Markets with intense competitive pressures require

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marketers to look for ways to differentiate their product offerings (Day and Nedungadi,

1994). Jenning and Zandbergen (1995) stated that in competitive environments, strategies and

tactics that appear to have market value are quickly imitated or adopted. Halal food becomes

important among food manufacturers in Malaysia as the majority of Malaysian consumers are

Muslim and many tourists come from the Middle East. Consequently, more manufactures

produce halal products to take the advantage of this market. In such situation, consumers will

not place orders for halal food from manufacturers unless a certain level of performance is

shown (Krajewski and Riztman, 2002). Therefore, the implementation of HOS in producing

food according to halal requirements becomes an important factor for firms or organizations

to gain competitive advantage. As such, the following hypothesis is developed:

H3: Competitive intensity positively affects the extent of HOS.

Social Responsibility

Social responsibility refers to the objective and intelligent voluntary sense of responsibility

held by the organization and its contribution to ensure that it is compliant to the standards of

society and to work towards the well being of the society and restraining from negative

impact (Florida and Davidson, 2001; Peterson and Herman, 2004). Christensen (1995) argued

that normative mechanism prioritizes moral beliefs and internalized obligations as the basis

for social meaning and social order. In this manner, organizational behavior is guided not

only by self-interest and expedience but also by awareness of one’s role in a social situation

and a desire to behave appropriately in accordance with expectations and internalized

standards of conduct (Christensen, 1995). Interest for HOS implementation is not expected to

emanate only from external impositions and inducements. Interest is expected to come from

an internal sense of responsibility of a firm toward the society regarding consumption of food

that complies with halal requirements. Accordingly, this study hypothesizes the following:

H4: Social responsibility positively affects the extent of the HOS.

Expected Business Benefits

Expected business benefits refer to anticipation in financial gains and operational benefits

from strategic positioning in practice (Krajewski and Ritzman, 2002; Mohiyaddin and Ijaz,

2006). Making profit and financial returns is the most important objective of business

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organizations. In this sense, every decision is evaluated based on cost-benefit criteria. HOS

implementation is expected to conform to this general rule; that is, a food firm needs to

expect business benefits from HOS implementation before it engages in implementing this

strategy. Therefore, this study assumes that if a food firm acquires, mainly from external

sources, information that there are significant business benefits from producing halal

products, this knowledge will strongly motivate the firm to implement HOS. Accordingly,

this study hypothesizes the following:

H5: Expected business benefits positively affect the extent of the HOS.

Entrepreneurial Intensity

Entrepreneurial intensity refers to the degree of entrepreneurship or level of commitment to

the entrepreneurial endeavors demonstrated by a firm (Selz, 1992; Morris and Sexton, 1996;

Liao and Welsch, 2004). In the current volatile economy, firms must possess staff memebers

or management teams with high entrepreneurial intensity to insure that they can become

competitive in global business (Gartner et al., 2004; Liao and Welsch, 2004). Therefore, the

entrepreneurial intensity in halal food firms is expected to ensure that HOS can be

implemented. As such, the following hypothesis is developed:

H6: Entrepreneurial Intensity positively affects the extent of the HOS.

Halal Integrity

Halal integrity refers to the trustworthiness of the halal concept, especially on accuracy,

consistency, and reliability of the halal content, process, and system (Nayar, 2004; Solomon

and Hanson, 1983). Firms need to have an integrated system that is halal-oriented. Halal

integrity cannot be compromised at any stage, and consumers are highly demanding in terms

of quality and assurance when it comes to halal products (Jaafar et al., 2011). Halal integrity

in every aspect of staffing, product materials, manufacturing processes, transportation, and

storage is an important issue to ensure that the production of goods comply with halal

requirements (Tieman, 2007). Therefore, the following hypothesis is developed:

H7: Halal integrity positively affects the extent of the HOS.

Research Methodology

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Measure of Constructs

This study employed a quantitative survey with a structured questionnaire. The questionnaire

had four sections, namely, respondents’ personal and company basic information, external

factors, internal factors, and HOS. Except for basic company information and personal

information of the respondents, items were measured by using a five-point Likert scale. The

items were adapted from previous studies to ensure content validity. The scales for halal

market demand and competitive intensity were adapted from Mohiyaddin and Ijaz (2006),

government support from Zailani et al. (2010) and Tieman (2007), social responsibility from

Carter (2013), expected business benefits from Mohiyaddin and Ijaz (2006) , entrepreneurial

intensity from Morrison (1998), integrity from Solomon and Hanson (1983), and items for

HOS were from Zailani et al. (2010) and developed based on MS 1500:2004.

Data Collection and Sample

The sampling frame consisted of all halal food and beverage firms in the Malaysia. The

sampling list was obtained from the food and beverage firms listed as manufacturing firms of

halal food in the Federation of Malaysian Manufacturers directory 2014. The total number of

halal firms on the list was 612. Given our small sampling frame and low response rate from

the mail survey (Sekaran and Bougie, 2009), the survey questionnaire was sent to all firms.

This study targeted the personnel holding managerial posts in operation, production, or

quality control of the firms. For small firms, the respondents were mostly the owners of the

firms. The reason for this choice of respondents is that they have full knowledge of firm

operations, as well as decisive and influential power to determine the operations in line with

halal requirements. The survey was conducted by using a structured mail questionnaire

directed to the corresponding respondent in each firm. Out of the 612 distributed

questionnaires, 137 usable responses were received, resulting in an effective response rate of

22.3%.

Analysis

Casual relationships between constructs were analyzed through structural equation modeling

(SEM). SEM analysis was chosen over regression analysis because SEM can analyze all

paths in a single analysis (Gefen et al., 2000; Hair et al., 2013). Partial least squares (PLS)

approach was selected because of its small size requirements and the exploratory nature of

the research (Hair et al., 2011). SmartPLS Version 3.0 was used for the analysis. The sample

size of 137 exceeded the minimum sample requirement recommended by Chin (2010).

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According to the procedure of Hulland (1999), PLS is analyzed and interpreted in two stages.

In the first stage, the measurement model has to be tested by performing validity and

reliability analyses on each measure to ensure that only reliable and valid construct measures

are used prior to making conclusions about the nature of construct relationships (Hulland,

1999). In the second stage, the structural model is tested by estimating the paths between

model constructs to determine their significance and the predictive ability of the model.

Results

Sample

The discriminant analysis showed 78.9% of the respondents who participated in the survey

were from firms with 150 or less number of employees, while 20.1% were from the large

firms. Out of the total responding food firms, Muslims owned 46.7%, while non-Muslims

owned 53.3%. Furthermore, the age of most of the firms (67.2%) were more than 10,

followed by 5 to 10 years (16.8%), and less than 5 years (16.1%). In addition, half of the

firms belonged to processed (32.1%) and ready-to-eat food (24.1%). The others were

confectioneries (16.8%), beverage (13.9%), and frozen food (13.1%).

Measurement Model Results

The PLS test of the measurement model had three primary aspects, which are (a) individual

item reliability, (b) internal consistency of the entire scale, and (c) discriminant validity.

Individual item reliability was assessed by examining the factor loadings of each measure on

its corresponding construct. Hair et al. (2010) suggested accepting items with loadings of at

least 0.6. Since the loadings associated with each of the scales were all greater than 0.6

(Table 1), individual item reliability was acceptable.

Construct internal consistency was assessed by using composite internal scale

reliability, which is similar to Cronbach’s alpha. All 11 latent variables satisfied Hair et al.

(2010) guidelines of at least 0.7 for internal consistency (Table 1). Internal consistency can

also be evaluated using the average variance extracted (AVE), which is a measure of variance

accounted for by the underlying variable. The present study had an AVE of above 0.5 for all

variables, satisfying the criterion of Fornell and Larcker (1981) and providing further support

of the internal consistency (Table 1).

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We used two approaches to assess the discriminant validity of the constructs. First, we

examined the cross-loading of the indicators, which revealed that no indicator loads were

higher on an opposing construct (Hair et al., 2012). Second, we applied the criterion of

Fornell and Larcker (1981) and tested whether each construct’s AVE was greater than its

squared correlation with the remaining constructs (Table 2). Both analyses confirmed the

discriminant validity of all constructs.

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Insert Table 2 Approximately here

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The reflective-reflective second-order construct of HOS were characterized by staffing,

materials, production process, transportation, and storage. To establish the second-order

constructs, we assigned all the indicators from the first-order constructs to second-order

constructs in the form of repeated indicator approach. The same measurement model

evaluation criteria applied to HOS construct and validity and reliability were well established

(Table 3).

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Insert Table 3 Approximately here

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Assessment of the Structural Model

With the satisfactory results in the measurement model, the structural model was evaluated

subsequently. The predictive accuracy of the model was evaluated in terms of the portion of

variance explained. The results suggested that the model can explain 53.1% of the variance in

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HOS. Besides estimating the magnitude of R2, researchers included predictive relevance

developed by Stone (1974) and Geisser (1975) as additional model fit assessment. This

technique represents the model adequacy to predict the manifest indicators of each latent

construct. Stone-Geisser Q2

(cross-validated redundancy) was computed to examine the

predictive relevance using a blindfolding procedure in PLS. Following the guidelines

suggested by Chin (2010), a Q2 value of greater than zero implies that the model has

predictive relevance. In the present study, a value of 0.347 was obtained as cross-validated

redundancy, which was greater than zero. In sum, the model exhibited acceptable fit and high

predictive relevance.

Nonparametric bootstrapping was applied (Wetzels et al., 2009) with 2000

replications to test the structural model. The results revealed that halal market demand

(β=0.367, p<0.001), government support (β=0.160, p<0.05), expected business benefit

(β=0.272, p<0.01), and halal integrity (β=0.438, p<0.001) had significant effects on

practicing HOS. As such, H1, H2, H5, and H7 were supported, whereas H3, H4, and H6 were

not supported.

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Insert Table 4 Approximately here

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Discussion and Implications

The purpose of the present study was to investigate the level of HOS among Malaysian food

firms and determine internal and external drivers of HOS. The findings showed that the level

of adoption of the HOS among halal food firms in Malaysia was above average. The

empirical results testing the relationships between the drivers and HOS demonstrated that

halal market demand, government support, expected business benefits, and halal integrity

have positive effects on HOS adoption among halal food firms in Malaysia.

According to the findings of the present study, the level of adoption all four factors of

HOS namely staffing, materials, production process, and storage and transportation, by the

Malaysian halal food firms were above average. Among the four factors, the most adopted

was material and the lowest adopted was staffing. Although the halal food firms in Malaysia

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have a commitment to adopt HOS in the production of halal food products, the mean value

indicated they were not fully following the guidelines of halal requirements. Therefore, the

findings of this study regarding the drivers of HOS would be useful to extend the adoption of

HOS to halal food firms.

The study results revealed that among the three proposed external drivers of HOS,

halal market demand and government support positively affected the extent of HOS among

halal food firms. Halal market demand refers to the needs and wants of customers that have

eventually created the local and global customer and the community pressure for halal

products (Kamaruddin and Jusoff, 2009; Tieman, 2007). Thus to maintain customer trust,

halal food firms have to ensure that they follow the requirements of standards in producing

halal food products. The government can extend the adoption of HOS among halal food firms

by helping them obtain the halal logo and certification, provide financial assistance, tax

reduction, and infrastructure. Although the involvement of the government in supporting the

halal food firms in Malaysia has clearly been stated in the new Malaysian plan, the mean

value of government support in the present study showed that the current support programs

are not within the satisfactory level from the point of view of halal firms. The results

indicated the effect of competitive intensity on HOS was not significant. The food firms

adopted HOS to differentiate their products from the competitors and gain profit. In addition,

meeting halal requirements had additional costs for food firms. Therefore, if the competition

in halal market is intensive, investing in this market and adopting HOS will not be attractive

for food firms. As such, there was no significant relationship between competitive intensity

and the extent of HOS.

Among four proposed internal drivers of HOS, expected business benefits and halal

integrity had significant effect on HOS. This finding is consistent with Anbumozhi and

Kanda (2005) who stated that firms in Malaysia need to see the business value to justify the

cost associated with practicing a strategy. Besides expected business benefits, halal integrity

proved to be an important internal driver of HOS implementation. The finding concurred with

Geijn (2005) who stressed that integrity plays the most important significant aspect to

acknowledge the credential of halal operation strategy in halal food firms. The significant

effect of expected business benefits and insignificant effects of social responsibility on HOS

implementation in halal food firms suggested that a food firm might choose an expensive

HOS option only if expected profitability will result. This finding is in line with Bhushanam

(2012) who proposed that business firms should exist purely for the sake of economic self-

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interest rather than for the fulfillment of a set of social or ethical values. The plausible reason

for insignificant effects of social responsibility and entrepreneurial intensity is the ownership

status and size of the firms.

The results showed that only 46.7% of the responding firms were genuinely owned by

Muslims, which implied that non-Muslims owned majority of the halal food firms in

Malaysia. In addition, all Muslim owners genuinely ran the halal food business just for the

sake of voluntary sense of responsibility. Furthermore, most of the halal food firms in

Malaysia are SME firms. According to literature, SMEs are constrained by their low

resources, lack of management skills, and deficient strategy implementation for achieving

long-term benefits compared with larger firms. Therefore, the social responsibility and

entrepreneurial intensity play fewer roles in motivating firms to implement HOS, and

consequently, the effects of social responsibility and entrepreneurial intensity on HOS

implementation are insignificant.

Talib et al. (2013) found that halal firms stated that regulations and requirements for

applying the halal logo are too difficult to accomplish. This claim shows that following the

Syar’ah or Islamic law with full commitment is not a major concern of halal food firms.

When social responsibility and entrepreneurial intensity are not significant drivers of HOS

implementation, there will be misrepresentation of the rules. Possibly, firms might become

irresponsible in the production of halal food in Malaysia. To become competitive in this

global trend, halal food firms must have their own niche in halal food production. Therefore,

Malaysian halal food firms should not only claim or declare that they have halal certification

because having the certification is not enough to make them become competitive.

In terms of theoretical contribution, this study is the first to investigate the extent level

and the drivers of HOS in halal food industry. This sector is particularly important because it

is a fast-growing industry. The conceptual framework of the present study provides a basis

for future studies in the halal operation management cluster. This study presents several

implications for policymakers and managers in the halal food industry. Recognizing the

external drivers of HOS will help policymakers to understand the factors that lead to HOS

implementation in the halal food industry. Consequently, they could adjust their strategies

and policies to motivate the implementation of HOS among halal food firms. Moreover,

understanding the internal driver of HOS can help managers successfully implement HOS in

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their companies, which may lead to competitive advantage of firm over national and

international rivals.

Limitations and Future Studies

Certain limitations need to be considered for generalizing the results of this study. One

limitation is that the study tested and verified the hypotheses with questionnaire survey and

provided a cross-section of the study in nature. Therefore, the method limited the ability to

imply causality in the relationships among the variables. Thus, the survey results are affected

by the fact that this study cannot observe the dynamic changes of HOS in the development

process of the halal industry in Malaysia. A longitudinal study that examines the relationships

for an extended period should be performed to provide precise results. In addition, this study

used a survey sample that was limited to Malaysian halal firms. However, maturity of internal

and external drivers of HOS might be different in other countries, especially non-Muslims

countries. Thus, future research could test the research model of this study in other countries.

Acknowledgements

The authors acknowledge the financial support of University of Malaya under the grant

number of RP016B-13SBS, which have made the presentation of this paper possible.

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Figure 1: Proposed Theoretical Model

Internal Factors

External Factors

Halal Market

Demand

Government

Support

Competitive

Intensity

Halal Integrity

Entrepreneurial

Intensity

Social

Responsibility

Expected Business

Benefits

Halal Orientation

Strategy

-Staffing

-Materials

-Production

Process

-Storage &

Transportation

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Table 1: Measurement Model Evaluation

Constructs Items Factor

Loadings

CR AVE

Halal Market

Demand (HMD)

High demand of halal food. .89 .89 .67

The Muslim community requested halal food to be certified with halal. .83

Growing customer demand. .79

Customers require us to operate based on halal requirement. .77

Government

Support (GS)

Offers tax reduction. .87 .93 .71

Offered financial assistance. .87

Provides enough available infrastructures. .86

Help expanding the halal business. .84

Encourage halal certification. .77

Competitive

Intensity (CI)

Competition from import halal food products. .81 .82 .61

Price competition with competitors. .77

Competition from local halal food products. .76

Social

Responsibility

(SI)

The right thing to do to promote social welfare of the Muslim consumers. .92 .93 .77

A major concern for the society. .91

A major concern in food safety by complying Syri’ah requirements. .81

Pay attention to the reaction of the society toward halal requirements. .87

Expected

Business

Benefits (EBB)

Sustain in business for long run. .88 .90 .69

More new customers. .83

Respectable image. .82

More sales. .80

Entrepreneurial

Intensity (EI)

Giving maximum effort which is not limit of time. .86 .89 .68

Do “whatever it takes” to a success. .85

Having a philosophy to do “whatever it takes”. .80

Willing to make significant sacrifies in order to stay in halal business. .79

Halal Integrity

(HI)

Having systematic facilities to lodge complaints. .82

Carry out internal audit to ensure the production fulfils the halal

requirements.

.78 .80 .50

Consistency producing halal products according to halal requirements. .71

Seriously taking corrective actions after received complaints. .68

Apply halal requirements at every aspect in the production. .66

Staffing (SF) Employees in halal food production ……. .84 .57

Adequate training given in handling halal food. .84

Understand he procedures of handling halal food. .76

Understand he Islamic requirements in halal food. .73

Competent in carrying out the responsible duty. .68

Materials (MT) All raw halal materials, including ingredients must be… .84 .52

Ensured genuine purity. .80

Halal. .77

Ensured clean based on halal concept. .69

Ensured have quality based on halal concept. .68

From suppliers which have a valid halal certification. .64

Production

Process (PP)

My company ensures … .84 .57

Processing Equipments and machines provided are hygienic approved by

Jakim.

.80

Sanitation and cleanliness of production area are maintained in compliant

to Syari’ah requirements approved by JAKIM.

.81

Serious attention to the utensils and gadgets used in order to the

contamination issue n halal and non-halal products.

.76

The standard procedures in food operation fulfil he halal concept. .67

Storage and

Transportation

(ST)

My company ensures….. .85 53

Dedicated transportation for halal food products. .83

Dedicated infrastructure or halal food products. .75

Dedicated storage for halal products. .72

Clean and hygienic storage facilities that fulfil Syari’ah law JAKIM

requirements.

.66

Clean and hygienic transportation that fulfil Syari’ah law JAKIM

requirements.

.66

Note: CR= Composite Reliability; AVE= Average Variance Extracted

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Table 2: Discriminant Validity Coefficients

Mean SD HMD GS CI SI EBB EI HI SF MT PP ST

HMD 4.07 .46 .82

GS 3.41 .86 .38 .85

CI 3.14 .66 .21 .34 .78

SI 4.03 .58 .40 .27 .23 .88

EBB 3.88 .54 .64 .46 .20 .38 .83

EI 3.72 .64 .23 .29 .23 .32 .51 .83

HI 3.69 .58 .34 .39 .18 .39 .59 .44 .71

SF 3.56 .63 .33 .25 .05 .22 .47 .36 .48 .76

MT 4.01 .54 .37 .31 .15 .19 .46 .24 .57 .63 .72 .

PP 3.73 .68 .32 .21 -.04 .22 .39 .12 .49 .44 .59 .76

ST 3.86 .66 .35 .25 .12 .18 .36 .21 .50 .47 .64 .73 .73

Table 3: Second-order Construct Evaluation.

First-order constructs Factor Loadings CR AVE

Staffing .78 .87 .62

Materials .81

Production Process .83

Storage and Transportation .74

Table 4: Path coefficient and hypothesis testing.

Hypothesis Relationships Path Coefficient Decision

H1 HMD -> HOS .367*** Supported

H2 GS -> HOS .160* Supported

H3 CI -> HOS -.025 Not Supported

H4 SI -> HOS -.053 Not Supported

H5 EBB -> HOS .272** Supported

H6 EI -> HOS -.070 Not Supported

H7 HI -> HOS .438*** Supported t values are computed through bootstrapping procedure with 137 cases and 2000 samples

*p<0.05, **p<0.01, ***p<0.001 (one tail)

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Appendix: Summaries of Studies on Drivers of Halal Food Industry

No.

Authors

Drivers of Halal

External Factors Internal factors

HMD GS CI SR EBB EI IG

1 Othman et al. (2004) √ √

2 Guntalee and Unahannda

(2005)

√ √ √

3 Mohiyaddin and Ijaz (2006) √ √ √

4 Bonne and Verbeke (2006) √ √ √

5 Tieman (2007) √ √ √ √ √

6 Bonne et al. (2007) √ √

7 Zakaria (2008) √ √ √ √

8 Ahmed (2008) √ √ √ √

9 Kamaruddin and Jusoff (2009) √ √ √

10 Muhammad et al. (2009) √ √ √

11 Othman et al. (2009) √ √ √

12 Talib et al. (2010) √ √ √

13 Abdullah and Ahmad (2010) √ √ √ √ 14 Zakaria and Abdul-Talib

(2010)

√ √ √

15 Hassan (2011) √ √

16 Rajagopal et al. (2011) √ √ 17 Rezai et al. (2010) √ √

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