Technical Efficiency in Malay Manufacturing Firms

Abstract

ABSTRACT The emergence of Malay entrepreneurs is in tandem with government policy to create Bumiputera Commerce and Industrial Community (BCIC), as stated in the New Economic Policy (NEP), 1971-1990. The Malays form major composition of Bumiputera entrepreneurs. Despite of many privileges received by the Malay entrepreneurs, it is always a claim that their businesses are less efficient. The Malay firms are said to encounter many problems in doing business such as lack of fund, lack of skilled workers, using obsolete technology and limited marketing channel. This paper attempts to investigate this claim through measuring technical efficiency for 264 Malay manufacturing firms surveyed in 2001/2002 in Peninsular Malaysia. They are involved in several types of manufacturing industries. In measuring technical efficiency, Data Envelopment Analysis (DEA) will be adopted. Further, this paper looks at the determinant of efficiency using Tobit model. The results from this study show that the majority of Malay firms are operating inefficiently. More efficient firms are found in the metal and fabricated metal products. The important factors that determine positively level of efficiency are percentage of RD Malay entrepreneurs; Manufacturing firms; Data envelopment analysis; Tobit model. I. INTRODUCTION The importance of manufacturing sector in contributing Malaysian economic growdi is not deniable. This sector acts as growdi catalyst especially beginning of the 1980s as exhibited by its continual increasing in its percentage output and employment from the total national. Viewing from its capability to generate high output, hence higher income of the involving parties, the government has relied on this sector in achieving more equal income distribution amongst the ethnic groups in Malaysia. Racial tension that occurred on May 13, 1969 had rocked the Malaysian stability and as a response to this event the government aimed to increase the Malays participation in trade and business through promoting the Bumiputera Commerce and Business Community (BCIC). In tandem with this objective the Bumiputera entrepreneurs, where the Malays form the majority have been assisted in terms of financial incentives and infrastructures under the New Economic Policy (NEP), which is now replaced by the National Development Policy (NDP). There has been more than 30 years since the implementation of NEP, but we have yet to see satisfactory achievement of the majority of the Malay entrepreneurs. The majority of them are still facing old problems and unable to succeed as what have been achieved by the Chinese. Even diough the number of Malay enterprises is dramatically increased, their involvement is still limited to certain activities that associated with low productivity. Most of the Malay enterprises are small in size and dealing with light industry like food and beverage and using low initial capital and technology. As a result, they are less competitive and tiieir ability to penetrate the export market is very limited. Apart from the above, the Malay firms frequently face shortage of capital, lack of knowledge and skills and too dependent on the government contract (Salih and Hussein, 1992). A Study by Mat Zin and Ismail (1996) found that the majority of small-scale industries (SSIs), where most of them were Malays had less ability to penetrate the export market because of low quality products, lack of business context and too specific product design. Apart from this, SSIs also adapt low technology and the majority of workers are with low educational level (Abdullah, 1999; Ismail and Fung, 2002). …