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1、ENTREPRISE STRATEGIES CONTRIBUTING TO THE SUCCESS OF MALAYSIAN BIOTECHNOLOGY SMEsSaridan Abu Bakar Author for CorrespondenceUniversiti Teknologi MARA. Phone: 603-5522 5461Mohamed SulaimanIntan OsmanUniversiti Sains Malaysia. Phone: 604-653 3355_ABSTRACTWhile numerous empirical studies have been cond
2、ucted in Western countries on biotechnology enterprises, little empirical research has been done in Malaysia especially in respect to the factors that contribute to the success of biotechnology small and medium enterprises (SMEs). In view of this, a study was undertaken recently in Malaysia to addre
3、ss this gap in the existing body of biotechnology knowledge. This study explicitly examines enterprise strategies contributing to the success of Malaysian biotechnology SMEs and investigates the effect of external environmental factor in moderating the relationship between enterprise strategies, and
4、 enterprise success. Using survey data obtained from 103 biotechnology SMEs in the country, this study found that enterprise linkages with other private enterprises, innovation activities and backward integration strategy have strongly influences enterprise success. However, enterprise linkages, ver
5、tical integration strategies and innovation activities are found to have no significant impact on enterprise success when the intensity of competition is high. Keyword(s): Biotechnology SMEs, Malaysia, Strategies, Success, Empirical Study_INTRODUCTIONBiotechnology may be defined in terms of the use
6、of biological organisms for the attainment of commercial ends (Fransman, 1991). Biotechnology business, refers to enterprises that use biological organisms, through various biotechnological techniques, to develop products for human and animal healthcare, agricultural productivity, food processing, r
7、enewable resources, industrial and environmental management (BIOTEK, 2001; National Pharmaceutical Control Bureau, 2005; Shahi, 2004). The Malaysian Government has identified biotechnology as the next engine of growth for the country. It has been touted as one of the five core technologies that will
8、 accelerate Malaysias transformation into a highly industrialized nation by 2020 (Malaysia, 2001). Accordingly, Malaysia has wisely invested in biotechnology to achieve a rapid advancement in agriculture, human health and other relevant industrial sectors (BIOTEK, 2001). The Malaysian biotechnology
9、sector is dominated by SMEs (Biotechnology Information Centre, Malaysia, 2001). Currently, biotech SMEs are not clustered in any specific geographical location. Most of the companies are concentrated in Kuala Lumpur and Selangor, while others are scattered across the country in places like Penang, M
10、elaka, Johor Bahru as well as East Malaysia, in Sabah and Sarawak. The importance of SMEs in the development of the biotechnology sector in Malaysia suggests that an understanding of the success factors of these SMEs is crucial to the stability and health of the technology, and eventually the nation
11、s economy. Despite their importance to the countrys economy and the heightened attention accorded to them of late, and notwithstanding the hefty allocation of the nations budget for biotechnology advancement, little empirical study has been done on biotechnology SMEs in Malaysia. In addition, no sub
12、stantial study has been conducted to explore entreprise strategies that contributed to the success of biotechnology SMEs in the country.LITERATURE REVIEWEnterprise SuccessFinancial profitability and growth are common success measures of biotechnology enterprises (e.g., Bollingtoft, Ulhoi, Madsen & N
13、eergaard, 2003; Lynskey, 2004a; Zahra, 1996). A recent study by Mohd. Osman (2002) on high technology-based SMEs, including biotechnology in Malaysia; employed turnover growth as a performance measure. Taking the longer haul view, Cooper and Artz (1995) suggested that SMEs success may not be restric
14、ted to the objective measures of performance only. Although objective performance measures are clearly important, they neglect other important goals of the enterprise (Venkatraman & Ramanujam, 1986). Among the subjective factors related to business success are the entrepreneurs personal assessment o
15、f having demonstrated appropriate personality characteristics and managerial skills (Ibrahim & Goodman, 1986); the internal focus and belief that one has important control over business results (Brockhaus, 1980); and the personal satisfaction an entrepreneur derives from the business (Solymossy, 199
16、8) irrespective of the financial returns involved (Cooper & Artz, 1995). Furthermore, subjective measures of success do not differ a great deal from objective measures (Venkatraman & Ramanujam, 1986). Subjective measures in fact may also help to supplement the objective criteria by gauging the satis
17、faction of the entrepreneur on dimensions not easily captured by financial ratios (Zahra, 1996). Therefore, the combination of both the objective and subjective indicators may well be required in order to ensure accuracy in interpreting performance (Tsai, MacMillan & Low, 1991). In general, most of
18、the previous studies involving biotechnology (e.g., Deeds & Rothaermel, 2003; Folta, Cooper & Baik, 2006; Hall & Bagchi-Sen, 2002), non-biotechnology (e.g., Crick, Chaudhry & Bradshaw, 2003; Ju, Chen, Li & Lee, 2005; Lindelf & Lfsten, 2004) and other SMEs (e.g., Harada, 2003; Hashim, Wafa & Sulaiman
19、, 2004; Huang & Liu, 2005) recognize the full range of financial profitability, enterprise growth and non financial indices for measuring enterprise success as a whole. Good performance measurement may have to recognize the multifaceted aspect of organizational activities for achieving its activitie
20、s (Galbraith & Shendel, 1983; Scherer, 1980).Consistent with the above mentioned literature, this study will adopt both the objective and subjective measures of success. Objective measures of success refer to financial profitability and enterprise growth over a three year period, while the subjectiv
21、e measure of success is the entrepreneurs satisfaction with the achievement of the enterprise.The profitability measures will be computed by averaging the financial profitability ratios of ROA, ROE and ROS in 2004. This study will adopt the business performance composite measure (BPCM) as the mean v
22、alues of ROA, ROE and ROS (Hashim et al., 2004; Lee, 1987). The BPCM is calculated as: 1/3 (ROE + ROS + ROA). The average sales growth rate will be computed by averaging the percentage change in actual sales volume for a three year period (2002-2004). The rate of change of sales growth will be compu
23、ted by taking the difference between two years and divided by the earlier year, resulting in each growth measure having two figures (i.e. 2002 and 2003; and 2003 and 2004). The average sales growth rate is derived by dividing the total sales growth rate for 2002 to 2004 by two. Satisfaction is measu
24、red based on the entrepreneurs satisfaction level on their overall business performances. Enterprise Linkages, Internal and External NetworkingSeveral studies have specifically addressed the use of linkages as an innovation strategy in biotechnology (Barley, Freeman & Hybels, 1992; Deeds & Hill, 199
25、6). Extant literature too acknowledges linkages as one of the major conduits of technology transfer within technology-based industries (e.g., Arora & Gambardella, 1994; Bruce, Leverick & Wilson, 1995). Large and integrated technology-based enterprises have the wherewithal to involve themselves in al
26、l aspects of the innovative process: from basic research to product development, to commercialization. For smaller and medium sized biotechnology enterprises that do not have such means, linkages with research universities and established industrial enterprises are vital. Most biotechnology enterpri
27、ses in the US are categorized as small and medium-sized enterprises (Lee & Burrill, 1996) and they often gain access to technological inputs through linkages with universities and pursue commercialization through their linkages with established pharmaceutical, agriculture or chemical companies (Oliv
28、er & Liebeskind, 1988).The development of linkages with other enterprises, institutions or individuals can compliment an enterprises resources as well as substitute for lacking resources. Collaboration can also reduce transaction costs, which are the costs of conducting economic exchanges between en
29、terprises and across markets, by allowing the enterprise concerned to conduct economic and non-economic transactions within the enterprise rather than between enterprises. Transaction costs require a disproportionate amount of SMEs resources (Britton, 1989) and as such, collaborations and linkages a
30、re often favored as a means of cutting down these costs (Scott, 1988). In order to acquire external technology, enterprises also need to strategically link themselves to universities or research institutions, other biotechnology enterprises, large industrial enterprises or other entities through col
31、laborative agreements or to contract services from outside the firm (Powell, White, Koput & Owen-Smith, 2005). Studies have shown that higher levels of R&D and technological sophistication are often positively related with higher levels of linkages (e.g., DeBresson & Amesse, 1991; Freeman, 1991). Li
32、nkages, as an innovation strategy, allow individual enterprises lacking the specific resources or expertise to advance scientific discoveries or respond to customer needs. However, internal capability and external linkages have been found to be complements rather than substitutes (Arora & Gambardell
33、a, 1994; Mowery, 1998; Mowery & Rosenberg, 1989). Lynskey (2004b), citing the study by Faulker and Senker (1995) of 60 research works involving 31 companies of three high technology areas, found that biotechnology was the only area which public sector research contributed the most significant scient
34、ific and technological inputs. In his study of 1,384 Japanese technology-based enterprises, including 49 related to biotechnology, Lynskey found that biotechnology SMEs conducted more collaborative formal research projects with academic research institutions than non-biotechnology SMEs (2004b). Univ
35、ersity and enterprise linkages may also transfer valuable knowledge and technologies that can generate innovative products (Burnham, 1997). These linkages may also increase an enterprises access to different knowledge bases that can add to the production of innovative products (Grant, 1998). As link
36、ages multiply, an enterprises absorptive capacity and competence also rise, allowing the enterprise to further exploit its knowledge by introducing new products, gain higher market share and achieve superior success (Zahra & George, 2000). Studies have also shown that inter-organizational collaborat
37、ion among enterprises will result in the discovery of new knowledge or the enhancement and complementing of existing knowledge (Kogut, 1988). SMEs that have tight linkages with external enterprises may gain know-how and capital as well as create an extensive network of customers and suppliers (Aldri
38、ch, 1990; Siegel, Westhead & Wright, 2003). Deeds and Hill (1996), who examined strategic alliances involving 132 US biotechnology enterprises in therapeutics and diagnostics, discovered that linkages provided the means for these enterprises to gain access to complementary assets. In his study of bi
39、otechnology enterprises in Japan, Lynskey concluded that biotechnology enterprises conduct more joint research projects with other private enterprises than do non-biotechnology enterprises (2004a). Liebeskind, Oliver, Zucker & Brewer (1996) found that biotechnology SMEs maintain more personal networ
40、ks with academic researchers than non-biotechnology SMEs. They argued that external sourcing through social networks provides biotechnology SMEs with access to unique resources, expert knowledge and critical technology. In an earlier study, Oliver and Liebeskind (1988) confirmed the importance of in
41、terpersonal and inter-organizational linkages in biotechnology to source knowledge that will eventually lead to SMEs success.Deeds and Hill (1996), however, cautioned that too many alliances will eventually result in negative returns. There is evidence from their study that at some point in time dim
42、inishing returns will set in. This can be partly explained by the fact that the effectiveness with which an enterprise can select and manage alliance partners is likely to take its toll once the number of alliances increases (Deeds & Hill, 1996; Powell & Owen-Smith, 1998). One of the major criteria
43、considered when addressing the success or failure of a collaborative venture is partner profit or revenue. For the biotechnology sector, profit is a long-term goal and often not realized until long after the research or product development collaborations are complete. Revenues generated from product
44、 sales may never be realized. To make matters worse, investors who seek shorter term returns will lose patience with the biotechnology enterprises long profitability cycles. This prompts the enterprises to seek alternative sources of funding (Lee & Burrill, 1996).Competition plays an important role
45、in determining strategic positions (Eisenhardt & Shoonhaven, 1996). When an enterprise faces many competitors, its strategic position becomes vulnerable. Resources are squeezed, profits are stressed and even survival is threatened (Klepper & Graddy, 1990). Moreover, because of the many similar enter
46、prises and products in the highly competitive markets, it is difficult to set themselves apart from the others. In contrast, markets with fewer competitors (Porter, 1980) result in higher profits and an enhancement of survival (Carroll & Hannan, 1989). Linkages improve the strategic position of ente
47、rprises in competitive markets by sharing costs and risks with other enterprises. The combined resources gained by an enterprise through linkages enable it to withstand business downturns and other setbacks, and ensure more steady and predictable resource flows (Baum & Oliver, 1991). This buffering
48、and cost sharing eases profit pressures, which are particularly daunting in highly competitive industries (Dunne, Roberts & Samuelson, 1988). Furthermore, linkages give the enterprise partners the slack they need to ride out difficult times and to learn better ways to compete.The resource-based view
49、 of the firms (RBV) suggests that the rationale for enterprise adoption of linkages is the value-creation potential of pooled firm resources. According to this theory, a firm is equivalent to a broad set of resources that it owes. Wernerfelt (1984, p. 172) defined resources as “those tangible and in
