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Chapter 5 Export Readiness Among Small- and Medium-Sized Enterprises in Malaysia

Abstract Increasing the export has been an important agenda to many countries as it contributes to economic growth. Exporting is the most common way to expand business and penetrate international market. The role of SMEs in global market has increased which contribute to economic growth of a country. However, SMEs are facing challenges in entering export markets due to limited resources, competition with multinationals, and many other factors. Hence, SMEs must make sure that they are prepared to enter the export market as to minimize the risks of failure in international market. The objective of this paper is to examine export readiness among SMEs in Malaysia as studies have shown that export readiness influenced export performance. Interviews were conducted on eight manufacturing SMEs in Malaysia to examine their perception and level of export readiness. Among the important dimensions to export readiness are motivational factors, management commitment, product consideration, and financial resources. The findings showed that SMEs are motivated and have the intention to enter international market, but their motivations do not necessarily manifested into commitment to export. This study contributes significantly to the theory of export readiness and extends literature on export readiness among SMEs. Further researches are also suggested.

5.1 Introduction

Exporting is one of the foreign entry-mode strategies by firms of all sizes. In general, increased export is translated into economic benefits for a country. According to Tesform and Lutz [21], export earnings contribute to the development and economic growth of many developing countries. For a firm, exporting is seen as a strategy to increase revenue and profit of the company. Through the expansion of the size of the market, firms can achieve economies of scale thereby lowering its unit costs [14].

Although export is an attractive option of market expansion, success depends on the capabilities of firms to maneuver international market. Novice exporters have to ensure that they have all the resources and capabilities to penetrate into foreign market to minimize the risks of failure. Previous studies have linked readiness to export and export performance. For example, Dominguez and Sequeira [4] stated that firm has to establish its readiness before considering an investment in resources to access export market as export readiness explains export performance [6]. Hence, the study of export readiness is important as it ensures firms are prepared prior to entering international market in order to reduce the risks of failure.

Most of the time, export performance is associated with multinational companies which have the resources and capabilities to penetrate into foreign market. Smalland medium-sized enterprises (SMEs) are commonly associated with low level of export capabilities as they relatively have limited resources like low level of research and development and limited human skill development and are facing with high level of international competition. In Malaysia, it was estimated that SMEs' failure rate accounted for 60 % [9]. Hence, understanding export readiness would enable SMEs to identify whether they are ready to penetrate foreign market through exporting to avoid failure.

Exporting is especially challenging for smalland medium-sized firms as they are associated with lacking of resources and capabilities to export compared to large firms. Smaller firms are generally intimidated by the complexities of exporting as they have to deal with different business environment, namely, economic, culture, legal system, language, and many other different environments of doing business [3, 16]. Even in an advanced country like the USA, small firms with less than 500 employees account for only a small percentage of exporting firms as according to US Small Business Administration's report 2001 [17].

In recent years small firms play an important role for many economies. Based on 2011 data, SMEs in Malaysia represent 97.3 % of total business establishment. They contributed 32.5 % to Malaysian economy and recorded a strong GDP growth of 6.8 %. Furthermore, study on SMEs is important as its role to the economy has been increasing which contribute to the growth of a country [15, 22]. Examining export readiness is particularly important for small firms as it also explains preexport behavior of firms. Hence, this exploratory study is undertaken to examine export readiness among nonexporting SMEs in Malaysia.

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