Globelics 2010

8th International Conference

Making Innovation Work for Society:

Linking, Leveraging and Learning

1 - 3 November 2010
University of Malaya, Kuala Lumpur, Malaysia

Patterns of technological innovation in Malaysian small and medium

wooden furniture manufacturers: learning and linkages capabilities

Name of
Corresponding Boon-Kwee NG
Author

Title & Position PhD Candidate

Institution & Full Department of Science and Technology Studies, Faculty of Science, University
Postal Address of Malaya, 50603 Kuala Lumpur.

E-mail Address
bkng@um.edu.my

Globelics
The Global Network for Economics
of Learning, Innovation, and
Competence Building Systems

1
 Globelics 2010 International Conference

Patterns of technological innovation in Malaysian small and medium

wooden furniture manufacturers: learning and linkages capabilities

a b
Boon-Kwee NG and K. THIRUCHELVAM
Department of Science and Technology Studies, Faculty of Science,
University of Malaya, Kuala Lumpur,
MALAYSIA

Abstract:

Drawn upon the framework of Sectoral Innovation Systems, this study explores the
patterns of technological innovation among the small and medium-sized wooden
furniture manufacturers in Malaysia from two perspectives, namely its knowledge and
technology based and learning, and linkages capabilities. The empirical evidences for the
study are derived the 69 survey respondents. The wooden furniture industry in Malaysia
warrants an in-depth analysis as it is currently the only full-fledged home-grown industry
that has successfully penetrated into the global market. The unique of the Malaysia‟s
wooden furniture is its success depends heavily to the collective efforts by the industry
practitioners, particularly the small and medium-sized manufacturers without much
government interventions.

Keyword: technological innovation, sectoral innovation systems, furniture, SME,

Malaysia

a
Corresponding author. PhD candidate in the field of S&T Policy and Management in Department of S&T
Studies, Faculty of Science, University of Malaya. Email: bkng@um.edu.my
b
Associate Professor, Department of S&T Studies, Faculty of Science, University of Malaya. Email:
kthiru@um.edu.my

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1. Background

Technological innovation, either product or process oriented, are primer driver for firm‟s
competitiveness (OECD, 1997; Dodgson, 2000; Carlsson, 1997; Thamhain, 1997). Firms
those are able to leverage technological innovation to achieve performances, new features,
and lower cost will add the largest value to their products and eventually compete more
effectively in the market (Freemen, 1982). In developing this perspective, Ettlie (2000)
asserted that addressing the issues of technological change in the workplace is critical
because of three primary reasons, i.e. technological-driven change is everywhere and
always present, competitors use technology as part of major success strategies, and value-
capture from new technology is challenging and never guaranteed.

Complexity and cross-disciplinary are the key themes that underpinned the discourse of
technological innovation (Mowery, 1995; Janszen, 2000; Betz, 2003). Technology in this
context can be embodied in people, materials, cognitive and physical processes, plants,
equipments, and tools (Hall, 1994). As the process of technological innovation activities
is not an isolated single event, Dodgson (2000) strongly contended that its management
has to be encompassed both the specific and general areas. Management of research and
development (R&D), new product development, operations and product,
commercialisation processes, technological collaboration and technology strategy are
examples of specific area management; while management of complexity, risks,
knowledge, creativity and learning are examples of general areas management.
Somewhat similar consensuses were observed in works by Kline & Rosenberg (1986),
Petterson (1996), Janszen (2000) and Chiesa (2007).

The natures of technological innovation are well captured in the framework of innovation
systems. Innovation systems are systemic views of the innovation process that explicitly
recognises the potentially complex interdependencies and possibilities for multiple kinds
of interactions between the various elements of the innovation process (Edquist &
Hommen, 1999). The literatures on innovation systems are extensive; however, there is a

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trend where innovation systems have been defined at different levels for different
purposes of analysis.

One of them is Sectoral Innovation Systems (SIS). SIS is rooted on the hypothesis that
innovation is greatly differs across sectors in terms of characteristics, sources, actors
involved, the boundaries of the process, and the organisation of innovative activities (Lall,
1992; Malerba, 2002; 2004). Firms, together with other heterogeneous actors are linked
together by market and non-market relationships. All these actors, which are
characterised by specific beliefs, expectations, goals, competences, and organisation, are
the key players that continuously engaged in the process of generation, adoption, and use
of new technologies and knowledge (Nelson & Winter, 1982).

Innovation systems approaches have led to a more integrated approach to the delivery of
innovation-related policies (OECD, 1997). Along the same line, as technological
innovation and capabilities development are highly idiosyncratic at the sectoral-level,
there is a strong need for a study of sectoral-level innovation in order to provide
policymakers with the state-of-the-art, needs and challenges of a particular sector. Drawn
upon these viewpoints, by employing the SIS approach, this research is designed to
empirically explore the significant patterns and process of technological innovation
activities within at the sectoral-level. The fundamental standpoint throughout this study is
that a sound STI related policies should be sectoral-specific. Different sector has different
needs and requirements and their patterns and processes of innovation might also be
different. In this regards, STI related policies should be tailored-made and not on the
basis of “one-for-all” which treat all sectors as homogenous and one entity.

The empirical evidences of this study are derived from the wooden furniture industry in
Malaysia. In fact, the process of exploring the trends of technological innovation in
Malaysia‟s furniture industry is a task that stirs passion. This is because the success of the
industry is resulted by its own dynamic in integrating all the available resources and
relevant supporting industries into their business environment. Focal and tacit knowledge,
networking and cooperative spirit, trust and loyalty among the industry actors are the

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main success principles for the industry. All these features are alliance with the
framework of SIS.

The structure of Malaysian wooden furniture sector is highly fragmented, and the
predominance of the Small and Medium-sized Enterprises (SMEs) in the sector is very
significant. However, despite constituted almost 85 per cent of the total number of
furniture establishment in the country, performance statistics shows that SMEs only
contributed to 35 per cent of the total industrial output. The remaining 65 per cent is
contributed by the large manufacturers (Ratnasingam & Wagner, 2009). In this regards,
works by local scholars such as Ismail Muhd Salleh & Latifah Rahim (1992), Moha Asri
Abdullah (1999), and Mohd Ghazali Mohayidin & Shaari Abd Hamid (1988) are
shedding some light on the issues of underperformance of Malaysian SMEs. These works
revealed that, in general, the most cited problem of the issue is the lack of competitive
edge to face the challenges and opportunities in the global market, particularly their
deficiency in technology. A situation which complicates the position of the SMEs in their
quest for technological competitiveness is the fact that most of the local SMEs are not
generating their own technology internally. This arises from a few factors, namely the
difficulty of obtaining finance support, the lack of technological, technical and
managerial field assistance, the lack of knowledge regarding international quality
standards, and etc. However, it is important to take note that as these studies are not
carried out specifically on the wooden furniture industry in Malaysia; the validity of these
claims in the context of wooden furniture sector has to be scrutinised.

One of the striking facts about the wooden furniture industry in Malaysia is its relatively
low entry barriers compared to those medium or high-tech industries, such as
pharmaceutical, electronics and electrical, machinery and equipments, and etc. The low
entry barrier of the wooden furniture industry is beneficial to the local industry practices
as the participation in the industry does not exclusive to particular or limited group of
players. In fact, the whole value chain of wooden furniture industry in Malaysia is almost
fully owned by the local people. It is the only (or among the very few) industry in the
country that we are able to transform the raw material to final product, and penetrate it in

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the global market. In spite of the obvious important of wooden furniture industry, its
natures in terms of technological innovation is currently not fully addressed by the
existing works. Policymakers tend to assume that the STI policies for medium and high-
tech industries can be transplanted into the wooden furniture industry. One of the
examples is the action taken to reduce the industry dependency on foreign workers by
encouraging the fully automation and computerisation of the production. This act has
hampered the development of the industry as it overlooks the implications of technology
in degrading styles in wooden furniture industry.

Based on the above remarks, the two main objectives of this study is to explore the
patterns of technological innovation in the small and medium-sized wooden furniture
manufacturers in Malaysia, and propose feasible STI-related policies for the development
of the industry. The next section gives an overview of the natures of wooden furniture
industry and followed by the conceptual framework of this study. The methods used in
this study are described next. The last section deals with empirical analysis of the data
and is followed by discussions of the findings of the study.

2. Technological Innovation in Wooden Furniture Industry: An

International and Malaysian Perspectives

2.1 Global trades and market structure

Furniture is a huge global business and its global trade has grown rapidly in the past
decades. Kaplinsky et al. (2003) has demonstrated that between the year 1995 and 2000,
trade in furniture worldwide grew by 36 per cent, which was faster than world
merchandise trade as a whole (26.5 per cent), apparel (32 per cent) and footwear (1 per
cent). The study further shown that by year 2000, furniture industry was the largest low-
tech sector, exceeding apparel and footwear. In the same vein, Han, Wen & Kant (2009)
believe that the surge in global furniture trade is extensively due to the packing and
shipping innovation such as ready-to-assemble and knock-down furniture products, as

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well as the decreasing world trade barriers which has resulted the international trade of
furniture to grow greater than furniture.

Latest statistics from CSIL (2009) indicates that the world production of furniture was
worth about US$ 350 billion in year 2008. Of this, 61 per cent of the world total was
produced by developed countries while the remaining 39 per cent was by emerging
countries. The major furniture producers from the developed countries were United States,
Italy, Germany, Japan, Canada, the United Kingdom and France. On the other hand,
China, Poland and Vietnam were the main producers from emerging countries. The
statistic clearly exhibits that although furniture production is a resource and labour
intensive industry, it is striking that the major furniture producers are the industrially
advanced economies. In fact, the similar observation has been made in an earlier study by
Kaplinsky, Morris & Readman (2002:1160-1161) on the top 15 net exporting countries in
years 1994-98:

“…… of the 15 major exporters, only six (Brazil, China, Indonesia, Mexico,
Malaysia and Thailand) are in the developing world. Given that emerging and
developing countries tend to be small importers of furniture, their participation in
the group of the largest net exporters is much more significant, with only five
industrially advanced countries registering amongst the top 15 countries. Italy
remains by far and away the largest net exporter (with a growing surplus during
1998–94), with Canada, Denmark, Spain and Sweden filling the 3rd, 5th, 8th and
11th positions respectively.” 1

2.2 Sectoral patterns of furniture industry

Scott (2006) asserts that one of the noteworthy features of the modern economy is the
emergence of many different kinds of low-technology, and labour-intensive industries as

1
Further excellent explanation, please read: Kaplinsky, R., & Morris, M. (2002). The Globalization of
Product Market and Immiserizing Growth: Lessons From the South African Furniture Industry. World
Development, 30(7), 1159 - 1177.

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engines of growth. Among these sectors are furniture, clothing and footwear industries.
These industries are often marked by low wages, unskilled works, and sweatshop
conditions of employment. On the other hand, they provide many lucrative employment
opportunities and targeting fashion-oriented segments. For Malerba & Orsenigo (1997),
differences in the structure of innovative activities may be related to a fundamental
distinction between Schumpeter Mark I and Schumpeter Mark II technologies. The
pattern of innovation activity for Schumpeter Mark I is characterised by „creative
destruction‟ with technological ease of entry and a major role played by entrepreneurs
and new firms in innovative activities; whereas Schumpeter Mark II suggests that the
pattern of innovative activities is characterised by „creative accumulation‟ with the
prevalence of large established firms and the presence of relevant barriers to entry for
new innovators. In the case of furniture industry, a cross-country comparison of the
Schumpeterian patterns of innovation by Malerba & Orsenigo (1997) on Germany,
France, UK, Italy, Japan and USA shown that furniture industry is consistently in the
Schumpeter Mark I camp. In other words, the pattern of innovation activity in furniture
industry is mainly generated by the entrepreneurial activity and creativity of small and
new firms.

Besides, Pavitt (1984) pioneering works suggests that the taxonomy of sectoral patterns
of technical change can be addressed in three categories, namely supplier dominated,
production intensive (scale intensive and specialised suppliers), and science-based. These
different trajectories can in turn be explained by sectoral differences in three
characteristics, i.e. sources of technology, users‟ needs, and means of appropriating
benefits. Wood sector, together with textiles, lumbers, paper, mill products, printing and
publishing, and construction are classified as supplier dominated sectors. Most innovation
come from suppliers of equipment and materials, although in some cases large customers
and government-financed research and extension services also make a contribution. A
relatively high proportion of innovative activities in the sectors are directed to process
innovation. According to Vega-Jurado, Gutiérrez-Gracia & Fernández-de-Lucio (2009),
technological knowledge in supplier dominated sectors is mainly embodied in the
machinery, equipment, and capital assets produced by other sectors. Based on survey of

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1,234 small firms and micro firms in the Netherlands, Jong & Marsili (2006) proposes a
more diverse pattern of innovation of small firms than in Pavitt‟s taxonomy. Their results
indicate that innovativeness of all the supplier-dominated firms are low in all dimension,
i.e. in forms of input (financial, time and employment), in formal planning and
management attitude. Innovation mainly consists of process innovation, and essentially
responds to the proposals from suppliers.

On the other hand, OECD (2007) classification of manufacturing industries based on

technology into high-technology, medium-high-technology, medium low-technology and
low-technology groups, after ranking the industries according to their average 1991-99
against aggregate OECD R&D intensities, manufacture of furniture which is in the class
of 36-37 (Manufacturing, n.e.c.; Recycling) in the International Standard Industrial
Classification of All Economic Activities (ISIC) Rev. 3, is classified as low-technology
industries. The class of 36-37 is leading in terms of R&D intensities compared to other
industrial activities which are in the group of low-technologies, such as wood, pulp, paper,
paper products, printing and publishing (class 20-22); food products, beverages and
tobacco (class 15-16); and textiles, textile products, leather and footwear (class 17-19).

2.3 Technological innovation and design economic

Ratnasingam (2004) views the value in furniture as a matter of perception. Furniture is

sold based on perceived value, rather than actual value. This suggests that value-addition
in furniture is not about using high quality materials or state of the art technologies, but is
about expressing lifestyle in a creative and innovation manner. The artistic part of the
piece of furniture drives the value of the furniture, while the scientific part assists in the
consistent production of the piece. Indeed, similar though on the value of furniture has
been advanced by Ettema (1981), which argued that furniture is an important means of
self-presentation particularly sensitive to ostentation. He contends that technology had
directly caused elaborate and degraded styles. This is because machines had destroyed the
traditional bond between art and industry, eliminating skilled workmen and under-mining

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the small-shop system of manufacture. In general, machinery allowed an increase in
furniture production but failed to democratize style because machines could not produce
inexpensive copies of expensive-looking ornament. Proliferation, not elaboration, was the
legacy of technological innovation in the nineteenth-century furniture industry.

This is why Ratnasingam (2004) proposed that the concept of value-addition in the
furniture business is simply about creating a perception of reliability, dependability and
value for money among the customers. Hence, the highest value-addition is achieved in
the design and marketing stages of the business, rather than the manufacturing stage.
Furniture enterprises involved in product design and retailing activities are indeed very
profitable. Unfortunately, product design and marketing are not the strong point of
regional furniture industry. A somewhat similar view has been highlighted by Kaplinsky
& Morris (2000), in which design is seemed as one of the drivers in performing the
“functional upgrading” in the furniture industry.

2.4 Malaysian wooden furniture industry and its development policies

In 2008, wooden furniture accounted for about 79.4% of Malaysian furniture exports to
overseas markets in 2008 (MFPC, 2009). Major types of furniture exports are kitchen
furniture, bedroom sets, upholstered furniture and wooden office furniture (MITI, 2006).
Malaysian furniture intended for export is often made in Ready-to-Assemble (RTA) or
Knock-Down (KD) form (MTC, 1998a). Malaysian furniture export has reached RM 8.72
billion despite the weakening external demand in the later part of 2008. This makes
Malaysia ranked as the tenth largest exporter in the world, third in Asia and second in
ASEAN region. Currently, Malaysia furniture is exported to more than 160 countries
worldwide. The top five destinations for Malaysia furniture in 2008 were United States of
America, Japan, United Kingdom, Australia and the UAE (MFPC, 2009).

As there is no centrally monitored statistics, the precise number of establishments in the

industry is difficult to ascertain, let alone the number of innovating enterprises. One of
the more reliable references is the Census of Establishments and Enterprises 2005 by the

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Department of Statistics (DOS). The census (DOS, 2007) estimates that there are total of
2,361 SMEs2 in Malaysia furniture industry, in which 51.8 per cent of them are micro-
size, 43.6 per cent of them are small-size, and the remaining 4.7 per cent of them are
medium-size. As SMEs in other manufacturing sectors, SMEs subcontracting is a
bridgehead to competitiveness in Malaysia furniture industry. Many of the SMEs do not
manufacture complete products; they specialised in making certain components or just
complete certain processes (Tan, 2000; Ratnasingam & Thomas, 2008; MTQ, 1999).

Ratnasingam & Thomas (2008) contend that the level of technology employed within the
Malaysia furniture industry is on par with other furniture manufacturing countries, if not
higher. A somewhat similar point of view has been revealed by MTC (1998a) where most
of the Malaysian furniture manufacturers have invested considerable in machinery and
equipment. Such investment maybe not impressive by the standard of other high-tech
industries such as the electronic, but the amount invested nevertheless testifies that the
industry has gone beyond being the traditional sort of wood working mills and carpentry
shops. Meanwhile, Ratnasingam (2000) asserts that machining process is the most
important value addition operation in furniture production, as it converts the raw material
into a profiled component that is eventually assembled into the final finished product.
The effectiveness of the gluing and finishing operations is also dependent on the quality
of machining process. Furthermore, the machining processes also influence the structural
rigidity of the furniture, as poorly machined components cannot be jointed and fastened
tightly. It is for this reason that machining processes, especially through the use of
automated machinery, has often attracted a lot of research interest. However, most of the
machinery purchased is special function machinery with increase throughput levels. It
may therefore be inferred that much of these technologies are aimed at reducing the
labour content in the manufacturing outfit, with the ultimate aim of reducing

2
On 9 June 2005, the Malaysia‟s National SME Development Council had approved for adoption the following
definition of Malaysian SME in manufacturing sectors: (a) micro-enterprise: sales turnover of less than RM250,000, or
full time employees less than 5; (b) small-enterprise: sales turnover between RM250,000 and less than RM10 million,
or full time employees between 5 and 50; and (c) medium-enterprise: sales turnover between RM10 million and RM25
million, or full time employees between 51 and 150.

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manufacturing cost or unit cost. This is to be expected as the industry is labour intensive
in nature, and there is increasing reliance on foreign-contract workers within the industry
(Ratnasingam, 2005).

Since 1996, through strategies under the Second Industrial Master Plan (1996-2005), the
cluster-based approach has been introduced by the Malaysian government for the
development of furniture industry, together with other industrial clusters. The cluster-
based approach emphasised on the growth of the manufacturing sector, together with the
growth of supporting industries, which incorporated the services sector (MITI, 1996).
Figure 1 shows an example of furniture cluster in Malaysia. In conjunction with this
3
approach, the government has implemented the Industrial Linkages Programme to
integrate SMEs into the mainstream of manufacturing sector (Mohd Khairuddin Hashim,
2002). The cluster-based policy formulation places emphasis both on the strength of the
supporting industries and institutions and links between them and the leading industries.
The identified furniture cluster under this cluster-based policy is the wooden furniture
industries situated in Muar, a district in the state of Johor. These cluster-based efforts
have been extended to the Third Industrial Master Plan (2006-2020), where significant
emphasis will be placed on the integrated approach towards industrial development
(MITI, 2006). In line with this strategy, the establishment of Malaysian Rubberwood
Furniture Industrial Park has been proposed in the Eastern Corridor Economic Region
(MPIC, 2009)4.

3
ILP is aimed at developing Malaysian SMEs into competitive manufacturers and suppliers of parts and
components and related services to multinational corporations and large companies. To encourage
participation in the ILP, Pioneer Status with tax exemption of 100 per cent on statutory income for five
years, or Investment Tax Allowance of 60 per cent on qualifying capital expenditure incurred within a
period of five years are provided to eligible SMEs. For MNCs or large companies, expenses incurred in
developing SMEs such as training, factory auditing and technical assistance to ensure the quality of
vendors' products, will be allowed as deduction in the computation of income tax.

4
ECER covers 66,736 sq km of land (states of Kelantan, Terengganu, Pahang and the district of Mersing
in Johor), which representing 51 per cent of Peninsular Malaysia. The objective of this 12 years master plan
(until 2020) is to narrow the development disparities among states in Malaysia. Under this master plan,
rubber tree forest estate up to 100,000 ha to be grown and harvest for their timber. This will in turn enable
furniture factories to be set up in the region as rubber wood will be easily available.

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 Figure 1: Wooden-based furniture cluster in Malaysia

Supporting Industries:
Machinery Industry & Chemicals, adhesives &
Suppliers. glues, finishes, fabrics,
Log suppliers foams, etc.

Sawn Timber
WOODEN
Subsector Panel Products
FURNITURE
Subsector
SUBSECTOR

Paper & Paper College & Institutes

Product Subsector Mouldings, Joineries,
etc. Subsector Training in Wood,
Furniture, Design

Business,
Research Transport, Government
Design Houses Financial & ICT
Institutes Marketing Services
Services

Source: SMIDEC (2002)

Ismariah Ahmad, Norini Haron, & Kollert, W. (2003) profess that one of the key reason
for the impressive growth and development of the wooden furniture industry in Malaysia
is there have been heavily supports by the government through policies and programmes
as provided in the Industrial Master Plans. The industry is both heavily protected and
enjoying several investment incentives. Table 1 elaborates the key strategies employed by
Malaysia in developing a cluster based furniture industry.

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 Table 1: Malaysia‟s Industrial Master Plans and cluster-based furniture development strategies

Master Plan and Period Development Strategies

Medium and Long Term
Industrial Master Plan
(1986-1995)
Second Industrial Master Plan
(1996-2005)
Third Industrial Master Plan
(2006-2020)
Source: MIDA/UNIDO (1985); MITI (1996, 2006)
Establishment of furniture complex –
The idea of a furniture complex is to create a viable manufacturing activity
mass composed of multiple producing units in relatively close area with
common facilities utilised on a sharing basis. The furniture complex
should provide common service facilities such as kiln dry, treatment plant,
tools and parts maintenance workshop, training work shop, sales display
center, testing and quality control laboratory and duty free import raw
material bonded warehouse services.
Cluster approach towards industrial development –
The cluster-based industrial development approaches of IMP2 will not
only emphasis the growth of the manufacturing sector per se but, more
importantly, the concomitant growth of the supporting industries, which
incorporate the service sector. A cluster is an agglomeration of inter-
linked or related activities comprising industries, suppliers, critical
supporting business services, requisite infrastructure and institutions.
Establishment of furniture parks –
To promote the industry, facilities have been established in various states:
Five furniture parks, known as Furniture Industry Parks, have been
established by the Ministry of Plantation Industries and Commodities, in
collaboration with the State Governments of Terengganu, Pahang, Perak,
Selangor and Kedah, for the development of SMEs in the industry. Also,
one furniture finishing centre was established in an existing project in
Melaka. Measures will be introduced to encourage the industry shift from
the production of OEM furniture products to ODM and OBM furniture
products.

3. Conceptual framework

3.1 Types of technological innovation activities and its definitions

Technological innovation activities are generally being categorised into two types,
namely technological product innovation and technological process innovation 5 . The

5
Various types of innovation have been proposed by different scholars. For instances, Schumpeter suggests
that there are five types of innovation, namely introduction of a new product or a qualitative change in an
existing product; process innovation new to an industry; the opening of a new market; development of new
sources of supply for raw materials or other inputs; and changes in industrial organisation. For OCED
(2005), innovation can be categorised into four types, i.e. innovation in terms of product, process, market
and organisational.

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Oslo Manual, which is the guidelines for collecting and interpreting innovation data
established by the OECD, cites TPP innovation activities as:

“…… all those scientific, technological, organizational, financial and

commercial steps, including investment in new knowledge, which actually, or
are intended to, lead to the implementation of technologically new or improved
products or processes (OECD, 1997:10).”

The term “product” in this sense is use to cover both goods and services. As such, a
technological product innovation is the implementation or commercialisation of a product
with improved performance characteristics such as to deliver objectively new or
improved services to the consumer. A technological process innovation is the
implementation or adoption of new or significantly improved production or delivery
methods. It may involve changes in equipment, human resources, working methods or a
combination of these (OCED, 1997)6.

Gaining consensus on the degree of novelty is always an issue in technological

innovation research, especially for those empirical studies which engage with primary
data collection. This is because different people with different backgrounds and interest
might adapt different interpretation on the concept of “new or improved” in technological
innovation activities. In order to overcome this problem, the Oslo Manual (OECD, 1997;
2005) proposes that the minimum entry for all the technological innovation are that the
product or process should be new or significantly improved to the firm, but it does not
have to be new to the world. Hence, for the empirical data collection, the technological

6
According to Stoneman (1995), it is common to separate product innovation and process innovation and
the distinction of between product and process innovation is a useful one. However, evidence would tend to
suggest that product and process innovation in the real world go hand-in-hand. It should also be noted that
one firm‟s new product innovation may be another firm‟s new process innovation. Firms may acquire new
technology by purchasing that technology embodied in new capital equipment. Then the capital good that
embodies the technology is a product, but the buyer is acquiring a process innovation. Moreover, Chiesa
(2007) states that an innovation cannot be defined as a product or process in absolute terms. An innovation
is a product innovation when it concerns the output of a firm‟s activity, whereas it is a process innovation
when it concerns the production means used to produce the firm‟s product. Therefore, a product innovation
for a firm might be a process innovation for another one (Chiesa, 2007; OECD, 1997). One of the typical
examples is that of innovative industrial machinery, which is a product innovation for the machinery
manufacturer and a process innovation for the firm who buys the machinery and make use of it.

15
innovation innovating firm is one that has implemented technologically new or
significantly technologically improved products or processes during the period under
review.

3.3 Sectoral Innovation Systems and its building blocks

Grounded on the innovation systems tradition, SIS is based on the theoretical stand that
innovation and technology change show different rates, types and trajectories depending
on the sector in which they take place. The notion of SIS complements other concepts
within the innovation system literature (Edquist, 1997). For Malerba (2005), a sector is a
set of activities that are unified by some linked product groups for a given or emerging
demand and which share some common knowledge. Firms in a sector have some
commonalities and at the same time are heterogeneous.

Multidimensional, integrated and dynamics views are the main concepts of SIS. For
Malerba (2005), understanding the key driving sectors of an economy with their
specificities greatly helps in understanding national growth and national patterns of
innovative activities. He makes this point succinctly:

“A rich and heterogeneous tradition of sectoral studies has clearly shown both
that sectoral differ in terms of the knowledge base, the actors involved in
innovation, the links and relationships among actors, and the relevant
institutions, and that these dimensions clearly matter for understanding and
explaining innovation and its differences across sectors”; and

“Heterogeneous firms facing similar production activities, searching around

similar knowledge bases, undertaking similar production activities, and
„embedded‟ in the same institutional setting, share common behavioural and
organisational traits and develop a similar range of learning patterns,
behaviour, and organisation forms (Malerba, 2005:387).”

Figure 2 illustrates the three building block of SIS. A sectoral system framework focuses
on three main dimensions (or building blocks) of sectors, namely knowledge,
technological domain and sectoral boundaries, actors, relationships and networks, and

16
institutions. Provided below are brief descriptions on these three building blocks as
advanced by Malerba (2005):

a) Knowledge, technological domain and sectoral boundaries – Likes others

innovation systems approaches, the SIS put knowledge at the centre of analysis.
Knowledge plays a central role in innovation and is highly idiosyncratic at the
firm level. Knowledge does not diffuse automatically and freely among firms, and
has to be absorbed by firms through their differential abilities accumulated over
time. Knowledge differs across sector in terms of domain and may have different
degree of accessibility and the sources of technological opportunities differ
markedly among sectors. Both knowledge base and technologies are eventually
affected the sectoral systems boundaries. As knowledge and technologies
accumulation are dynamics social systems, the boundaries of sectoral systems are
not statics.

b) Actors, relationships and networks – A sector is composed of heterogeneous

agents that are organisations or individual (e.g. consumers, entrepreneurs,
scientists). Organisational may be firms (e.g. users, producers, input suppliers) or
non-firms (e.g. universities, financial institutions, government agencies, trade-
unions, or technical associations), and include subunits of larger organisations (e.g.
R&D or production departments) and groups of associations (e.g. industry
associations). Agents are characterised by specific learning processes,
competencies, beliefs, objectives, organisational structures, and behaviours, which
interact through processes of communication, exchange, cooperation, competition,
and command. Within sectoral systems, heterogeneous agents are connected in
various ways through market and non-market relationships.

c) Institutions – Agents‟ cognition, actions, and interactions are shaped by

institutions, which include norms, routines, common habits, established practices,
rules, laws, standards, and so on. Institutions may range from ones that blind or
impose enforcements on agents to ones that are created by interaction among

17
 agents (such as contracts); from more blinding to less blinding; from formal to
informal (such as patent laws or specific regulations vs. traditions and
conventions). A lot of institutions are national (such as the patent system), while
other are specific to sectors (such as sectoral labour markets or sector specific
financial institutions)7.

Figure 2: SIS and its building blocks

Knowledge bases and

technology domains

Process of learning, Institutions and

competition and routines
selection

Sectoral
boundaries
Actors and
networks

Source: adapted from Malerba (2005)

7
For Stroper (1998:24), institutions are persistent and connection set of rule, formal and informal, that
prescribe behavioural roles, constrain activity and shape expectation. It gives order to expectation and
allows actors to coordinate under conditions of uncertainty.

18
4. Data collection

This cross-sectional research attempts to explore the trends of technological innovation

activities among the technologically innovation active SMEs in Malaysian wooden
furniture manufacturing sector during the period of 2006-2008. Technological innovation
active SMEs in Malaysian wooden furniture manufacturing sector were served as
statistical unit.

The questionnaire can be generally divided into two parts and it consists of 18 questions.
The Oslo Manual and questionnaire samples used in the UK Innovation Survey and
Malaysian Innovation Survey have been referred and harmonised in the process of
questionnaire design. The first part consists of six open-ended questions. It attempts to
elicit demographic information pertaining to the respondents. The second part of the
questionnaire captures the technological innovative activities in the enterprise from the
perspectives of the involvement of product or/and process innovation, methods of protect
innovation, sources of innovation expenditures, partners for innovation co-operation,
objectives of innovation, sources of knowledge and technology, and hampering factors of
innovation. Types of measurement scales for the second part that will be employed here
is non-parametric, namely nominal and ordinal scale. 4 point likert scale was used
extensively to elicit respondents‟ technological innovation trends. Most, if not all, of the
proposed indicators here follow the Oslo Manuals as closely as possible in order to reach
the international comparability. Table 2 summaries variables used in the questionnaire
and its roles in capturing the SIS elements among the respondents.

19
 Table 2: Measurement of SIS elements

SIS
Indicators for measurement
Elements
What to measure? Variables

Knowledge Components and coverage of Type of innovation activities and expenditure

and innovation activities breakdown (e.g. R&D; acquisition of other external
technology knowledge; acquisition of machinery, equipment &
generation other capital goods; other preparations for product
and and process innovation; market preparations; &
development training)

Main developer of innovation Mainly by the enterprise itself; in co-operation with

other enterprises or institutions; or mainly by other
enterprises

Linkages and Sources for transfers of Internal (e.g. R&D, production); external (e.g.
networks knowledge and technology competitors, clients, consultants); public sector (e.g.
universities, government); or general information
(e.g. patent disclosures, exhibitions, trade unions)

Source of funds Own funds; related companies (e.g. subsidiary or

associated companies); other non-financial
enterprises; financial companies (e.g. bank loans,
venture capital); government (e.g. loans, grants);
international organizations; and other sources

Institutions Objectives, Obstacles and Competition, demand and markets (e.g. replace
and routines Outcomes products being phased out, increase range of goods
of Innovation and services, develop environment-friendly products,
enter new markets, etc); and product and delivery
(e.g. improve quality of goods and services, improve
flexibility of production or service provision, reduce
unit labour costs, reduce consumption of materials
and energy, reduce product design costs, etc)

Factors hampering innovation
activities
Cost factors (e.g. excessive perceived risks, cost too
high, lack of funds, etc); knowledge factors (e.g. lack
of qualified personnel, lack of information on
technology, etc); market factors (e.g. uncertain
demand for innovative goods or service, etc); and
institutional factors (e.g. lack of infrastructure,
weakness of property rights, legislation, regulations,
taxation, etc)

Methods to protect innovation Patents, registration of design, trademarks,

copyrights, confidential agreement and trade secrecy

Source: adapted from OCED (1997, 2005)

20
 5. Research findings

5.1 Profile of technological innovating active respondents

Responses were received from 97 wooden furniture manufacturers from a total of 300
firms contacted through questionnaire survey, giving a respectable response rate of 32.3%.
Of these, 70 firms were technologically innovation active during the period of 2006-2008
and fall into the SME category. This made them fit for the study criteria. Table 3 and
Table 4 provide the profiles of innovators and their size respectively.

Table 3: Profiles of innovators

Variables n Minimum Maximum Mean Std. Deviation

Statistic Statistic Statistic Statistic Statistic
Years of establishment 66 1 42 15.94 10.510
% of local ownership 67 0 100 87.69 27.652
Turnover in 2008 (RM million) 44 .20 42.00 12.6432 12.43010
% turnover derived from export 55 0 100 66.51 32.069
No. of fulltime employees 69 3 150 66.26 49.848
% employees to degree level in sc. & engin. 58 0 50 11.46 15.663
Valid N (listwise) 32

Note: n = the value various due to missing values for certain respondents.

Table 4: Size of innovators

Variable Size innovators %

Size of annual sales - micro ( less than RM 0.25 million) 2.8
turnover - small (between RM 0.25 million and < RM 10 million) 61.1
- medium ( between RM 10 million and RM 25 million) 36.1

Size of number of - micro ( less than 5) 2.9

fulltime employees - small (between 5 and 50) 49.3
- medium ( between 51 and 150) 47.8

21
5.2 Types of technological innovation activities

Table 5 provides an overview on the characteristics of technological innovation activities

among the responding innovating SMEs during the survey period of 2006-2008 in terms
of their: (a) involvement in technological innovation, (b) innovation developer, (c) status
of innovation, and (d) innovation activities.

a) Types of technological innovation - about two-thirds of the innovators (68.6%)

were active in both product innovation and process innovation. The numbers of
innovators which were active in only product innovation (22.9%) or only process
innovation (8.6%) were relatively small. On the whole, it was found that there
were more enterprises engaged with product innovation (91.4%) compared to
enterprises engaged with process innovation (77.1%).

b) Innovation developer – big majority of the innovators were the main developer for
their innovations, in which 89.1% of the product innovators and 81.5% of the
process innovators indicated respectively that they were the main developer of the
innovation.

c) Status of innovation project - 31.4% of the innovating enterprises indicated that

they have on-going project yet completed but on time. This is a good sign;
moreover, not many of the innovators were facing serious. For instances, only
17.1% of them have project yet completed but seriously delay, and project not
even started. Only 11.4% of them have project abandoned.

d) Types of innovation activities - the highest percentage (81.4%) of innovating

enterprises carried out carried in-house R&D activities. Of these, 82.5% of them
indicated that the in-house R&D activities were carried out continuously, and 17.5%
of them indicated that the activities were conducted occasionally. Marketing
preparation such as market research and launch advertising, and training for
personnel directly related to innovation activities were another two main activities

22
 among the innovators, which counted 61.4% and 51.4% enterprises‟ involvement
respectively. In contrast, there were only a little effort from innovators to acquire
external R&D (12.9%), and purchase or licensing of patents and non-patented
innovation, know-how and other types of external knowledge from other
companies or organisations (10.0%).

Table 6: Characteristics of technological innovation activities among innovators

Frequency Valid
Percent
a) Involvement in technological innovation (n=70)
- Both technological product & process innovation active 48 68.6
- Only technological product innovation active 16 22.9
- Only technological process innovation active 6 8.6
- Technological product innovation active 64 91.4
- Technological process innovation active 54 77.1

b) Innovation developer:
Product innovation (n=64):
- mainly by the enterprise 54 89.1
- in co-operation with other enterprise 4 6.2
- mainly by other enterprise 3 4.7

Process innovation (n=54):

- mainly by the enterprise 44 81.5
- in co-operation with other enterprise 7 13.0
- mainly by other enterprise 3 5.6

c) Status of innovation (n=70):

- Project yet completed but on time 22 31.4
- Project yet completed but seriously delay 12 17.1
- Project abandoned 8 11.4
- Project not even started 12 17.1

d) Innovation activities (n=70)

- In-house R&D 57 81.4
- continuously 47 82.5
- occasionally 10 17.5
- Acquisition of external R&D 7 10.0
- Purchase of external knowledge 9 12.9
- Acquisition of machinery, equipment & software 31 44.3
- All design functions 33 47.1
- Marketing preparation 43 61.4
- Training 36 51.4

Note: n= the values various due to missing values for certain respondents.

23
 5.3 Innovation co-operation

The partners for innovation co-operation were generally divided into three categories,
namely external market and commercial, internal, and public sectors. The results show
that the innovators considered client or customers as most important in generating
knowledge and technology for their innovation. Interaction with suppliers, consultants,
competitors, and other enterprises within the enterprise group were also nominated as
important sources of knowledge and technology. On the contrary, less emphasis has been
given by the innovators to universities and higher education institutes, government and
public research institutions (PRIs), and commercial laboratories and private R&D
institutes. As noted in Figure 3, the overall result shows that partnership arrangements
under the category external market and commercial were most preferable among the
innovators, and followed by internal sources. The role of public sectors as sources of
knowledge and technology was least significant in the perception of the innovators.

Figure 3: The relative significant of different types of partners in innovation co-operation

External market &

Public sectors Internal
commercial

• Clients or customers
Importance
Sources Importance

Greater

- Suppliers
- Consultants
- Competitors
• Other enterprises within
enterprise group
• Government or PRIs • Commercial laboratories &
Importance

private R&D institutes

Lesser

• Universities or higher
education institutes

Lesser Importance Greater Importance

Sources Category Importance

5.4 Sources of Innovation

This study examined the patterns for sources of innovation from two perspectives, i.e.
sources of funding, and sources of knowledge and technology. The result indicated that

24
most of the innovators (88.2%) relied heavily on their own internal fund. In terms of
external sources of funding, the most prevalent type of funding was funds from financial
companies (30.9%). Government funds (17.6%), related companies funds (16.2%),
supranational funds (5.9%), and other non-financial enterprises funds (4.4%) were
seemed not playing significant roles in assisting the innovators. Besides, another
important observation is that almost all the fund was secured from local resources.

Figure 4 provides a synthesis of the responses in terms of the relative significant of each
category of resources of knowledge, namely the internal, external market and commercial,
education and research institutions, and general information. The overall results of the
survey clearly exhibited that innovators working closely and intensively with their
immediate business environment such as clients and customers, suppliers and, to a
slightly lesser extent, with their competitors to obtain external knowledge and technology
for their innovation activities. Public sectors such as university, PRIs and government felt
well outside their focus of attention. Also, the preferred channels for knowledge transfer
for the innovating enterprises are fairs and exhibition, and informal contacts and networks,
rather than other formal sources such as patent disclosures and standards. This result is
similar to what has been observed in section 5.3 above on the innovation co-operation.

25
 Figure 4: The relative significant of different sources of knowledge & technology

External market
Education &
General information Internal &
research institutions
commercial

• Within the enterprise

• Client or customers
Greater Importance

• Fairs & exhibitions

• Suppliers
• Competitors
• Consultants
• Other enterprises in
the industry
• Informal contacts or
Sources Importance

networks
• Other enterprises
enterprise group
• Standards or
standardisation agencies
• Prof. conferences,
meetings or journals
• Public regulations
• Professional
association, trade
Lesser Importance

unions
• Commercial
laboratories
• Government or PRIs
• Uni. & other HEIs • Patent disclosures

• Private non-profit
research institutions

Lesser Importance Greater Importance

Sources Category Importance

5.5 Drivers of Innovation

In this survey, four broad sets of innovation drivers are considered, namely for the
purposes of competition, demand and market; product and delivery; and others. Figure 5
illustrates the relative significant of each category of innovation drivers. The result shows
that the objectives belong to the category of improve the product and delivery were the
main driver of innovation. The category of increase competition, demand and markets
was ranked second, and followed by other.

26
 Figure 5: The relative significant of different types of innovation drivers

Competition, demand &

Others Product & delivery
markets

• Improve quality of goods &

Greater Importance

services
• Increase range of goods &
services
• Enter new markets
• Improve working condition
• Increase & maintain market share
Sources Importance

• Improve flexibility of
production/services provision
• Increase efficiency of delivery
goods & services
• Develop environment-friendly
Lesser Importance

products
• Meet regulatory
requirements
• Achieve industry technical
standards
• Reduce costs (labour, operating,
design)
• Reduce environmental
impacts / improve safety
• Replace products being phase out

Lesser Importance Greater Importance

Sources Category Importance

5.6 Barriers to Innovation

In the survey, the responding innovating enterprises have been asked to indicate the
significance of various factors in hindering the realisation of technological innovation in
their business over the reference period of 2006-2008. These factors were categorised
into five main categories, namely factors of cost, knowledge, market, institutional, and
others. Figure 6 illustrates the relative significant of each category of innovation barriers.
The result shows that the barriers belong to the category of cost factors were the main
that were hindering the realisation of innovation amongst the innovators. Market factors
was ranked second, and followed by knowledge factors, institutional factors, and other
factors.

27
 Figure 6: The relative significant of different types of barriers to innovation

Institutional
Others factors Market factors Knowledge factors Cost factors
factors
• Cost too high
• Excessive
perceived economic
risks
Greater Importance

• Lack of qualified
personnel
• Uncertain
demand for
innovative goods /
services
• Lack of information
on technology
• Lack of funds
within the enterprise
• Lack of external
financial resources
• Staff were burdened
with production
requirement
• Lack of information
on markets
Sources Importance

• Difficulty in finding
co-operation partners
• Innovation potential
(R&D, design)
insufficient
• Market
dominated by
established
enterprises
• Inflexibility within
the enterprise
• No need because
of lack of demand
for innovation
Lesser Importance

• Weakness of
property rights
Legislation,
regulations,
standards,
taxation
• Lack of
infrastructure
• No need for
innovate due to
earlier innovation
Lesser Importance Greater Importance

Sources Category Importance

28
5.7 Intellectual Property Protection

Innovators were asked question regarding their current use of formal and strategic
methods of protecting their intellectual property. As shown in Figure 7, most of the
innovators felt that confidential agreement and trade secrecy were most relevant to them.
This is followed by trademarks, registration of design, patents, and copyright.

Figure 7: The Use of Formal and Strategic Methods of Protecting Intellectual Property

Patents 54.3

Registration of design 50.0

Trademarks 58.6

Copyrights 42.9

Confidential agreement & trade secrecy 62.9

0 20 40 60 80 100
Percentage

6. Discussions

6.1 Characteristics of innovators

Overall, the survey on technological innovation active SMEs in the wooden furniture
manufacturing sectors shows that majority of the innovative enterprises was in the
category of small-sized, either in terms of number of fulltime or amount of annual sales
turnover. This is followed by medium-sized. Only less than 3 percent of the innovative
enterprises were micro-sized. As the local market is limited and close to saturation,
exploring the global market has becoming an important business strategy for the
sustainability of the innovative enterprises. In fact, Malaysia has constantly been one of
the largest furniture exporters since last decade. This scenario is clearly observable in the

29
survey finding as most of the innovating enterprises were relied heavily on the export
market.

Most of the innovative enterprises were mainly home grown. In fact, about 80% of the
innovative were fully own by Malaysian. Having a full control of the industry might be
seemed as a great achievement for the local industry players; however, sustaining the
competency and development would be difficult if the sector was not able to attract
foreign direct investment (FDI) from the transnational corporation. FDI is important in
the sense that it facilitating the transfer of state-of-the-art technology, design and
management practices to the local recipients, that could eventually fostering the overall
competencies and development of the furniture industry in the country.

Another interesting characteristic of the innovating enterprises that derived from the
survey was the younger SMEs show a greater likelihood of innovation than the higher
age group. This might due to the fact that the younger SMEs compared to the elder group
of enterprises which was more conservative, were more open and really to face the
uncertainty and risks pertaining to innovation activities. Besides, the results indicate that
there was an extremely low percent of fulltime employee with science and engineering
degree amongst the innovative enterprises. The results were no inline with common
perceptions that an innovative enterprise requires a greater number of fulltime employees
with science and engineering degree. One possible explanation to results is that furniture
manufacturing is a labour intensive industry. It does not involve the using of
sophisticated high-tech equipments and scientific procedures likes other high-tech
industries such as biotechnology, electronics and electrical and etc. Hence, the
requirement for a huge number of highly qualified personnel in science and engineering
is relatively low in the wooden furniture industry.

6.2 Factors assisting and hampering innovation

Attempts to strengthen the product and redelivery process, such as improving the quality
of goods and services, and improving flexibility of product or services provision, were

30
the first concern of the innovating enterprises. Besides, other drivers which were for
competition, demand and market developed, such as enter new markets, and increase the
range of goods and services, were also significant in driving the innovation agendas of
the innovating enterprises. On the contrary, there was range of factors that hindered the
innovation efforts of the enterprises. The most cited factor was the high cost of
innovation, perceived economic risks, lack of information on markets, uncertain demand
for innovative goods or services, lack of information on technology, and etc. In general,
cost and market factors were two main key factors that hampering the innovation
activities among the responding innovating enterprise. This is followed by knowledge
factors, institutional factors and other factors.

6.3 Knowledge and Technology Development

About two-thirds of the innovating enterprises were active in both product and process
innovation. Future investigation shows that product innovation was more preferable than
process innovation among the innovating enterprises. This can be understood because the
life cycle of the style and design of furniture is pretty short. Moreover, the imitation of
other people design is quite easy to be done because there are numbers of international
furniture exhibition fairs. In the case of Malaysia itself, there are two international
furniture exhibitions which are held annually.

Big majority of the innovating enterprises indicated that they were the main developer of
innovation. There might have two different interpretations for this finding. From the
positive point of view, these innovating enterprises have sufficient innovation capabilities
in performing their innovation project. On the contrary, we can also interpret this finding
as the innovating enterprises were commonly worked individually because their linkages
capabilities with other enterprises, universities, government agencies and etc were weak.

Some of the encouraging findings from the survey are, firstly, one small amount of the
innovating enterprises were facing serious problems in pursing innovation, such as
serious delay of project, project not even started, or project been abandoned. Most of

31
them indicated that they are currently engaging with some on-going project and more
importantly, the progress of these on-going projects are seemed to be on time. Secondly,
an overwhelming majority of the innovating enterprises were continuously carrying out
in-house R&D, which is the core activity in an innovation system because it sustains the
learning process of the enterprises. Besides, market preparation, including market
research and launch advertising, and training for personnel directly related to innovation
activity were also the key activities in their process of pursuing innovation. The
involvement of firms in design function which including industrial, product, process and
service design and specifications for production or delivery is moderate. This indicates
that these innovating firms are still not the main players in terms of original design
manufacturer (ODM). On the other hand, there were less effort to acquire external R&D,
and purchase or licensing of patents and non-patented innovation, know-how and other
types of external knowledge from other companies or organisations. This is acceptable in
the case of wooden furniture SMEs because the cost involved is very high, and the nature
of knowledge that makes it difficult to be transferred to the firms.

6.4 Partnership for Co-operation and Linkages

The innovating firms most frequently co-operated with their clients or customers,
suppliers and consultants. In contrast, there were limited partnerships between the
technological innovating firms with government or PRIs, commercial laboratories and
private R&D institutes and universities or higher education institutes. These trends were
also reflected in terms of the degree of importance of each type of partnership, in which
partnership with clients or customers, suppliers and consultants were most important; and
universities or higher education institutes, and government and PRIs were least
significant.

In terms of sources of knowledge, most innovating enterprises relied on their internal

resources of knowledge and information. For external sources of knowledge and
information, the most important external source was clients or customers. Other
important sources of knowledge and information were trade fairs and exhibitions,

32
suppliers and informal contacts or networks. The less important sources of knowledge
and information were private non-profit research institutions, universities, patent
disclosures, government or public research institutions and commercial laboratories.

In sum, majority of the innovating enterprises have an active network with their clients or
customers, and it is also the most important network in developing their technological
capabilities. This is followed by suppliers, consultants and competitors. Generally,
respondents do not establish a close network with government and PRIs, commercial
laboratories, and universities. For them, the contributions of these actors were not
significant to the development of their competitiveness. Findings from this study
corroborates Woolgar et al.‟s (1998) so-called SME-centric universe as shown in Figure 8.

Figure 8: The SME-Centric Universe

Universities
Suppliers

Trade Associations
TECs Exhibitions & shows

Competitors
Consultants
SME Graduates

Trade press
Colleges &
schools
Government
Customers

Source: Woolgar et al. (1998)

33
The SME-centric universe suggests that SMEs relate most closely and intensively with
their immediate business environment such as customers and suppliers and, to a slightly
lesser extent, with their competitors. Universities, PRIs and government fall well outside
their focus of attention. Besides, all these networks are likely to be local. However, an
interesting observation here was, although the linkages with such formal organisations
and agencies are weak in Malaysia‟s wooden furniture industry, they have the ability to
go into global business and survive without support from formal institutions.

7. Conclusion

It is clear that the technological innovation performance of an enterprise is served by

various actors in the industry, and the ability to effectively engage and link these actors
will be a driver for the enterprise in gaining its competitive edge. For SMEs, which have
long been recognised as the backbone of sustainable economic development and
spawning ground for the birth of potential entrepreneurs, the linkages capabilities have
certainly need to be developed and sustained. Furthermore, for SMEs in the low-
technology sector, the ability to secure external sources of technical information is a key
strategy in generating technological leapfrogging. In this regard, SMEs in furniture
industry in Malaysia is an interesting case study. Very few Malaysian low-technology
indigenous industries have successfully continued to enhance their capabilities in
improving quality production and innovation design. Despite the growing and intense
competition regionally and internationally, Malaysian furniture industry is able to
position itself as one of the largest exporters of furniture in the world.

To conclude, the results of the study exhibit that the technological innovation trend among
the Malaysian small and medium-sized wooden furniture manufacturers are centred on the
business driven activities. The immediate business partners, such as clients, customers and
suppliers become the key partners for innovation co-operation as well as sources of
technology and knowledge. This in line with works by Pavitt (1984), and Malerba &

34
Orsenigo (1997) that the pattern of innovation activity in furniture industry is mainly
generated by the entrepreneurial activity and creativity of small and new firms. There
were only limited linkages between the industry with the government machinery, PRIs
and universities. The lacks of managerial and technical expertise of the SMEs have
directly discouraged their efforts in establishing closer linkages between the firms and
these public agencies. The development of such linkages with the government machinery
has not been helped by perceptions of unwieldy procedures and rules that characterise
such collaborations. Thus, the challenge for policymakers is to redefine the existing
industrial linkages programmes between the furniture SMEs and government machinery,
PRIs and universities by addressing the deficiencies as described in this study.

35
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