Chapter 1
INTRODUCTION
Objectives of the Study
The primary objective of this study is directed towards the determination of the role of management in the challenges and opportunities posed for small and medium industries after the ASEAN Free Trade Area. Specifically, this study examines the Malaysian metal fabrication industry and how the application of managerial economics affects the success of the industry. To address this objective, the researcher examines in the literature review the benefits of AFTA to the industries of ASEAN countries, especially Malaysia. Literature shows that Malaysia is fully committed towards the implementation of AFTA.
Moreover this study also presents the challenges and opportunities brought about by the AFTA. In this light, the researcher finds it necessary to study the practices in managerial economics and its application to the industry. Management gives life to the business so this study focuses on its role as main determinant for survival.
Finally, and importantly, this research will provide recommendations on how to implement managerial economics effectively.
Research Problems
This researcher finds the necessity for a study that specifically tackles how managerial economics addresses the challenges and opportunities to small and medium industries brought about by the ASEAN Free Trade Area. Specifically, this study intends to explore the significant use of its application to the Malaysian metal fabrication industry in providing quality product and service. This study presents the present business scenario under AFTA and the future of the Malaysian metal fabrication industry. Moreover, this study will try to answer the following queries:
1. What is the nature of managerial economics that makes it applicable to Malaysian small and medium metal fabrication industry?
2. What are the factors that affect the application of managerial economics in an Asian setting?
3. How do the managers respond to the challenges and opportunities posed by the AFTA?
4. What are the factors to be considered in implementing an effective managerial economics?
Scope and Limitation
As previously stated, this research study only covers the application of managerial economics to Malaysian small and medium metal fabrication industries. Managerial economics is a broad field so this study only emphasizes the significance of management in terms of managing product and service quality within the metal fabrication industry.
In addition, the outcome of this study is limited only to the data gathered from books and journals about managerial economics and from the primary data gathered from the result of the participant observation and the interview that will be conducted by the researcher.
Significance of the Study
In general, this research will be useful for managers and other business practitioners in adapting an effective management strategy through the managerial economics. AFTA is seen as an opportunity for the ASEAN industries to flourish; but it also poses challenges that must be responded to for the survival. Therefore, this study is significant in providing suggestions and guidelines on the right management. Specifically, by proposing means to boost the Malaysian metal fabrication industry, this research study will help the industry owners to design management strategies that are definitely beneficial to them.
Methodology of the Study
For this study, primary research and secondary research will be used. Primary research will be conducted by interviewing selected managers of Malaysian metal fabrication industry. This interview will be used to provide qualitative insights into the data collected.
This study will employ qualitative research method because it intends to find and build theories that would explain the relationship of one variable with another variable through qualitative elements in research. Through this method, qualitative elements that do not have standard measures such as behavior, attitudes, opinions, and beliefs within the metal fabrication industry will be analyzed.
The researcher considered using the quantitative research method because of its flexible and iterative approach. However, due to time constraints the researcher decide to drop this method.
Chapter 2
LITERATURE REVIEW
This Chapter provides a brief review of literature concerning the role of management in addressing the challenges and opportunities brought about by the ASEAN Free Trade Area (AFTA) to industries. The overview of the continuously growing Malaysian economy shall be presented followed by a brief insight on the AFTA and its benefits to the ASEAN countries. Finally, managerial economics and its application to the industry shall be discussed.
Overview of the Malaysian Economy
Statistics shows that Malaysia has raced ahead of its neighbor countries into the 21st century and its economic structural transformation over the last 30 years has been spectacular. Malaysia is often dubbed as the ‘lucky country’ because of its wealth of mineral resources and fertile soils, the nation has not rested on its laurels but had taken decisive steps in progressing from a dependence on agriculture and primary commodities to an export-driven economy spurred on by high technology, knowledge-based and capital-intensive industries (ASEAN-China Business Council, 2001).
Malaysia’s rapid industrialization was the result of the country opening itself early to foreign direct investments (FDI). As Prime Minister Dr. Mahathir Mohamad stated, the policy of encouraging FDI has helped Malaysia prosper; a market-oriented economy, combined with social and political stability, an educated workforce, and an infrastructure which provides easy access to the rest of the world, has encouraged the private sector in Malaysia to not only flourish but to become partners with the public sector in the nation’s development (ASBC, 2001).
Malaysia’s policy strategies during the last decade have deepened and widened the country’s industrial base as well as enhanced the development of its services sector. As such, a strong foundation has been laid for the economy to move forward into the new globalized environment.
The manufacturing sector has continued to be the primary engine of growth of the Malaysian economy, helped by a steady growth of new investments and re-investments by multinational corporations (MNC) as well as local companies. The manufacturing sector grew by 21% in 2000 and now accounts for 33.4% of Malaysia’s GDP, while exports of manufactured goods make up 85.2% of the country’s total exports (ASBC, 2001).
Existing companies have continued to expand, diversify and upgrade their operations towards higher value-added and high technology products. An increasing number of companies have also expanded their operations to include R&D, marketing, distribution and logistics. Proposed FDI in manufacturing projects approved over the last five years from 1996 to 2000 totaled RM73.7 billion (US.4 billion) or 53.8% of total proposed investments (ASBC, 2001).
Malaysia’s manufacturing sector has developed world-class capabilities and capacities in a wide range of products. Today, Malaysia is among the world’s leading exporters not only of products manufactured from its natural resources of rubber, palm oil and timber, but also those in the metal and electrical and electronics sector (ASBC, 2001). Another spin-off following the success of MNCs in the country is the growth of ancillary and supporting industries such as precision machining and the production of electronic assemblies and sub-assemblies, components, moulds, tools and dies, metals and plastics, and automated machinery and equipment (ACBC, 2001).
The ASEAN Free Trade Area (AFTA)
The establishment of the ASEAN Free Trade Area In 1992 by the ASEAN Heads of State and has helped the Malaysian economy to flourish. Because of this, the country is fully committed to its implementation (ASEAN, 1999). AFTA’s primary objective is to increase the ASEAN region’s competitive advantage as a production base geared for the world market (ASEAN, 1999). A vital step in this direction is the liberalization of trade through the elimination of tariffs and non-tariff barriers among the ASEAN members. This activity has begun to serve as a catalyst for greater efficiency in production and long-term competitiveness. Moreover, the expansion of intra-regional trade is giving the ASEAN consumers wider choice and better quality consumer products (ASEAN, 1999)
The Common Effective Preferential Tariff (CEPT) Agreement for AFTA requires that tariff rates levied on a wide range of products traded within the region are reduced to 0-5% (ASEAN, 1999). Quantitative restrictions and other non-tariff barriers are to be eliminated. Although originally scheduled to be realized by 2008, the target of a free trade area in ASEAN was continuously moved forward. In principle, the free trade area covers all manufactured and agricultural products, although there are differences in timetables for reducing tariffs and removing quantitative restrictions and other non-tariff barriers.
Products in the Inclusion List are those that have to undergo immediate liberalization through reduction in intra-regional (CEPT) tariff rates, removal of quantitative restrictions and other non-tariff barriers. On the other hand, products in the Temporary Exclusion List can be shielded from trade liberalization only for a temporary period of time. The Sensitive List contains unprocessed agricultural products, which are given a longer time frame before being integrated with the free trade area. Finally, the products under the General Exception (GE) List are permanently excluded from the free trade area for reasons of protection of national security, public morals, human, animal or plant life and health and articles of artistic, historic and archaeological value (ASEAN, 1999).
Efforts are being made to strengthen the rules and disciplines of the CEPT Agreement. In November 1996, ASEAN adopted a dispute settlement mechanism, which was largely patterned after the WTO mechanism, covering all economic agreements. The provision on emergency measures under the CEPT Agreement has also been strengthened to make it consistent with the WTO Agreement on Safeguard Measures. A Protocol on Notification Procedures has been established to provide advance warning of actions or measures that can have an adverse effect on concessions granted under an existing ASEAN agreement. These protocols represent the evolution of ASEAN economic cooperation towards a more rule-based system (ASEAN, 1999)
According to the ASEAN Secretariat, trade among ASEAN countries has grown from US $ 44.2 billion in 1993 to US $ 73.4 billion in 1998, representing an average increase of 13.2%, and Before the financial and economic crisis struck in mid 1997, intra-ASEAN exports had been increasing by 29.6%; This is significantly higher than the rate of increase of total ASEAN exports at 18.8% (ASEAN, 1999). But the advent of the financial and economic crisis has adversely affected intra-regional trade more than trade with the rest of the world. Intra-ASEAN trade contracted by 15.9% in 1998 compared to the 5.8% reduction in total ASEAN exports (ASEAN, 1999).
In a seminar “Malaysia-Philippines Business Opportunities” (2001), it was stated that there were many opportunities for Malaysian industries, as well as other ASEAN countries’. True enough, Malaysian businessmen are already tapping the advantages offered under AFTA in terms of intensifying the sourcing of products at competitive prices from one another, including raw materials for the export oriented industries (Seminar on Malaysia-Philippines Business Opportunities, 2001). Moreover, many of the products are already competing in a tariff free market, with imported products, very successfully. AFTA also offers a potential for local industries to collaborate and cooperate to rationalize their businesses, both in terms of production and location, in their effort to minimize competition among themselves and to assist one another to become big global players (Seminar on Malaysia-Philippines Business Opportunities, 2001).
In addition, the seminar stated that AFTA’s offers industries in the region was meant to strengthen their competitiveness through collaboration to overcome the competition posed by countries like China in their major export markets (Seminar on Malaysia-Philippines Business Opportunities, 2001). ASEAN countries could work closely to cut costs and offer competitive products to the major markets and withstand any competition posed by other cost effective manufacturers. Finally, AFTA offers opportunities for the private sector of both countries to jointly explore opportunities in other ASEAN markets.
Managerial Economics
When the AFTA ends in 2008, it is likely that the industries in ASEAN countries face challenges. These challenges are the result of the seemingly successful business agreement among ASEAN countries. After the AFTA, the most affected by the responsibility to continue to survive are the managers.
The managers are the dynamic and life-giving element in every business because, without them, the resources of production remain resources and never become production (Drucker, 1954). In a competitive economy, the quality and performance of the managers determine the success and failure of a business. According to Drucker (1954), the quality and performance of its managers is the only effective advantage an enterprise in a competitive economy can have. Management is also a distinct and a leading group in industrial society. The emergence of management as an essential, a distinct and a leading institution is a pivotal event in social history (Drucker, 1954).
In modern society, industrialism is an almost universal goal toward which all nations are marching (Harbison & Myers, 1959). The underdeveloped countries are striving to industrialize as a means of accelerating economic progress; the advanced countries seek to broaden and to extend industrialization in order to achieve ever-higher standards of living and greater economic power. In the march toward industrialism, capital, technology, and natural resources are but passive agents. According to Harbison and Myers (1959), the active forces are human agents or the managers who create and control the organizations and institutions which modern industrialism requires–they are the ones who build and manage the enterprises which combine natural resources, technology, and human effort for productive purposes; they shape the organizations which link men together with new chains of authority and subordination, which spawn the new centers of power and thus accomplish the transformation from preindustrial to industrial society.
Harbison and Myers (1959) state that all organizations must be managed, and the role of management is naturally related to the objectives of the organization. In the simplest terms, management is the hierarchy of individuals who perform specified critical functions in the organization.
The above literature is just a brief overview of this research study. Having been considered the state of the Malaysian economy and its continuous growth as a result of its full commitment to the agreements under the AFTA; and the significance of managerial economics, especially how managers handle the organization and business as a whole, this study shall then use these secondary data in exploring the small and medium metal fabrication industries in Malaysia.
Chapter 3
METHOD AND PROCEDURES
This chapter shall discuss the research methods available for the study and what is applicable for it to use. Likewise, the chapter shall present how the research will be implemented and how to come up with pertinent findings.
Method of Research to be Used
As stated in Chapter 1, the research described in this document is fundamentally based on qualitative research method. The primary source of data will come from interviews conducted by the researcher to managers of metal fabrication industries. The interviewees of the study will come from the management team. This research is also based on the methodologies of participant observation and. Participant observation has been a traditional tool of social sciences. Often called field research, it continues to be widely used in social anthropology and ethnographic studies (Sunstein, & Chiseri-Strater, 2000).
However, in most of these cases the social scientist is an observer and cannot actually become a member of the group. Summaries of research methodologies in public administration and political science usually mention participant observation (Gabrielian 1999). Other scholars in the field have specifically examined the value of participant observation to the study of government (Brown 1986).
In using participant observation in the study, the author is able to obtain a practical advantage in costs. Specifically, using the said tool for data gathering is relatively cheap. More importantly, one could get into closed groups in order to gain access to relatively classified information. Moreover, in using the said method, one is able to obtain an insider’s perspective of the Malaysian metal fabrication industry.
The secondary sources of data will come from published articles from Business journals, books and related studies on Managerial Economics, and Business Management. For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from business journals; and make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion and provide insightful recommendations on the implementation of an effective management.
Respondents of the Study The general population for this study will be composed of selected managers in the metal industry sector. The focus group will consist of six managers. The researcher will select managers for the focus group whose function is directly related to the organisation and implementation of the managerial economics employed by the company.
To determine the effects of the managerial economics to the metal fabrication sector, the researcher will allow the members of the group to express additional views and insights aside from the answers given to questions that will be asked by the researcher. Thus this discussion is not structured.
Chapter 4
FINDINGS
This chapter discusses the findings of the study by presenting the outcome of the result of the conducted observation on the Malaysian small and medium metal fabrication industry and the focus group with the managers. At the end of this chapter, the researcher makes recommendations on how to improve the management within the industry in coping up with the competitive globalized environment and the challenges and opportunities it poses.
Participant Observation and Findings
The method followed is the direct observation technique. Within the direct observation technique, there are further two classifications:
a) Participative observation
b) Non-Participative observation
In case of the participative observation, the observer analyzes a situation, which they intend to study, and relatively record what they see and observe like various interactions among people, the communication process, gaps etc. However, researchers warn that this technique is highly vulnerable to personal bias and prejudice that is the bias and prejudice that the observer perceive or feel.
There are various methods to record what is being observed, like recording the observation using a paper and pencil. While this method is very cheap, it is very difficult to record all the observations, as there may be limitations due to the writing speed, knowledge of using coded language.
Sample size: 1
The researcher finds that the vitality of small and medium metal fabrication industry is vital to Malaysia’s economic growth. The participation of Malaysia to the AFTA has been helping the country’s industries, specifically the SMIs. Moreover, the researcher finds that Malaysia is committed to the implementation of AFTA. The country has been very supportive of the agreement under the CEPT scheme. With this Malaysian SMIs are now ready to face the challenges and opportunities when AFTA comes to an end.
As individual small and medium industries become larger and as the number of them increase, several issues become important. The researcher observes that issues such as the determination of measures on how to further boost sales and on how to effectively manage the growing demands for quality products and services are prevalent. These issues are deemed significant for the survival of the business.
The researcher finds that higher-level management in Malaysian metal fabrication industries is addressing these important issues. Management teams are more and more becoming well aware of their managerial roles. They do not only stay inside their office and sit comfortably on their soft seats; they do reach to their employees and customers as well. These managers believe that their roles are not confined inside their office. Moreover, they believe that reaching out is vital to the growth of their business.
Furthermore, the researcher finds that the metal industry is capitalizing and investing on the training of employees. Companies believe that providing training to their employees enhances their workforce’s skills and productivity, thereby producing quality products. Consequently, this also results to better customer satisfaction. The researcher observes that customers of metal fabrication industry are affected by the quality of the products they get.
The researcher also finds that higher-level management values practices in corporate governance, in environmental protection, and in utilizing the capability of Information Technology.
Results of Focus Group Interviews
Sample size: 6
This focus group consists of six representatives of managers whose function is directly related to the organisation and implementation of the managerial economics employed by the company.
The participants are asked if their respective companies are gaining benefits from the agreement under the AFTA. One says that the company where he belongs has been very critical about the possible outcome of the implementation of AFTA. He says their company has been so far benefited by the AFTA and states that it enables their company to be prepared in competing within the globalized economy. Similarly, another participant adds that AFTA has been very advantageous to their company. He says that AFTA reduces the competition among local small and medium industries. A participant adds that because of this, local industries assist one another to become one big global player. All of the six participants agree that an important opportunity under AFTA is the emergence of world-class ASEAN corporations and conglomerates.
Moreover, a participant notes that AFTA helps small and medium metal fabrication industry by supporting and providing synergistic approach to their Research and Development projects, to the development of their products and processes, to the market development and to the HRD. He says that the implementation of AFTA strengthens the competitiveness of companies in the region. This participant believes that through collaboration of ASEAN companies, they would overcome the competition posed by countries like China in their major export markets. Overall, all participants agree that AFTA is beneficial to their respective companies and to the ASEAN economy in general.
When asked about their readiness in facing the challenges and opportunities when AFTA comes to an end, a participant confidently says that their company is more than ready. He believes that their company has all what it takes for a company to become competitive within a globalized economy. He adds that they have a strong workforce that produces quality products. This participant also believes that this is the key to their success. Another participant recognizes the importance of the employees. However, he emphasizes that proper training and management are required to have a successful business. He adds that managers are the fundamental agents of a business. He goes on to explain that managerial competencies determine if a business is to fall or to succeed. In summary, a participant states that nowadays, more attention is given to the roles of managing a business for survival. He says that a manager is the primary responsible for the becoming of a business in terms of employees’ skills and productivity, of the quality of its products and services, and of sales.
Sample size: 6
This focus group consists of six employees from different small and medium metal fabrication industry. The participants are asked if they are satisfied with the training their respective companies are providing them. A participant replies that their company is concerned with their growth as a productive workforce. He adds that their company is implementing a structured on-the-job-training which results to the employees’ high learning success. Another participant say that they have a very experienced training staff thereby creating a positive and comfortable working environment. This is agreed by a participant who adds that in their company, the training staff and supervisors motivate and empower them.
On the contrary, a participant laments that his and others’ health and safety are being taken for granted by their company. He says that the company does not allow them to work at their own pace; they are forced to work beyond their limits. As a result, he says, he always comes home very tired. Another participant argues that any management should address this problem. He says that employees in an industry produce the product the company sells so it is only necessary to have a proper employee management.
Sample size: 6 This focus group consists of six customers who are regular buyers of metal products. When asked if they are satisfied with the quality of t both the products and services provided by small and medium metal fabrication companies, a participant says that in terms of the quality of the product, he is satisfied. But in terms of services, he gives a rating of 4 out of ten. He says that the ordered products are not usually delivered on time. He adds that customer service representatives are not properly trained. He oftentimes argues with them. Another participant also expresses her disappointment with the services provided in the industry. She says that her dissatisfaction causes her to buy to different companies. Meaning, she is still searching for the company that would satisfy her needs as a consumer.
A participant says that if the management of companies does not respond to this problem, then the customers would stop patronizing their products. All participants agree that they are very particular about the quality of services they get as well as the quality of the products they purchase. They point out that it is the responsibility of the manager to design measures to provide quality service. They stress that they are not only paying for the product but also for the services. With this, they demand that industries, especially the metal industry to study and understand what the customers really need.
Recommendation
The findings depict that the human factors are very significant in applying managerial economics to small and medium metal fabrication industries. In implementing managerial economics, SMIs must consider these factors in order for their businesses to survive challenges and to use opportunities effectively. The author makes the following recommendations in this respect.
It is recommended that:
1. The Malaysian small and medium metal fabrications industry should continue their support to the agreements after the AFTA.
2. The Malaysian small and medium metal fabrication industry should properly exploit the benefits of AFTA for them to be prepared when AFTA comes to an end.
3. The Malaysian small and medium metal fabrications industry should apply the knowledge and strategies posed by AFTA in terms of facing challenges and opportunities in a globalized economy.
4. Moreover, the Malaysian small and medium metal fabrications industry should conduct extensive researchers and studies regarding the application of managerial economics.
5. The Malaysian small and medium metals fabrication industry should empower and enhance the skills and productivity of its employees through a proper management.
6. The researcher believes that this management should include designing an effective and structured training.
7. The building of an atmosphere of partnership between the employees and the management team (Directors, Chiefs and Heads).
8. In addition, the Malaysian small and medium metal fabrication industry should provide quality services to its customers.
9. This should be done by carefully understanding the needs of their customers.
10. Finally, the managers should not limit their roles inside their office. They should reach out to the employees and customers.
Chapter 5
CONCLUSION
This research conducts a sociological evaluation to examine the state of the Malaysian small and medium industries, especially the metal fabrications industry. These industries are under the AFTA. So when the agreement expires, the industries involved are likely to face challenges and opportunities. This study recognizes the role of managerial economics in helping these industries survive the very competitive and globalized economy. Particularly, the researcher intended to determine what factors are to be considered in implementing managerial economics.
The study has established that the Malaysian industries, the metal fabrication industry in particular, are gaining benefits from the AFTA. Considering the statistics illustrating the continuous growth of the Malaysian economy, it is not surprising that the country is gearing towards globalization. Part of this growth is due to its commitment to AFTA. Because of this, the competition among local Malaysian metal fabrication industries has been minimized. Similarly, the competition among ASEAN countries has been also minimized. As a result ASEAN countries are overcoming the competition by countries like China and Japan.
For this study, the researcher employed participant observation, focus group interviews and previous studies to obtain data. This study explores the role of the management on the survival of any business. Moreover, human factors such as employees and customers are discussed.
This research does not discuss the application of managerial economics to the entire Malaysian economy. Moreover, this research discusses only the human factors that affect the type of management to be employed in metal industry.
In analyzing the roles of managers, it is obvious that they are the ones responsible for the becoming of any business. The findings in this study point out that managers have multi-tasks. Their roles are not limited by heading the organization. Managers should have communications with the employees and the customers.
This study argues that proper management of employees increases their skills and productivity, resulting to increased quality of product. Proper management includes providing effective training programs and building a healthy working environment.
Likewise, in implementing managerial economics, the Malaysian small and medium metal fabrication industry must have an extensive understanding of its customers. The focus group interview involving customers shows that customers demand a quality service. Unfortunately, the participants are disappointed by the services. They emphasize that they are not only after the quality of the product but also to the quality of the services provided.
Finally, from the result of the participant observation method employed for this study, the researcher finds that the Malaysian small and medium industries are prepared to face the challenges when AFTA ends. Moreover, the participants show positive outlooks to their business after AFTA. These positive outlooks are brought about by the type of management that puts all the responsibilities to the manager. This type of management will enable Malaysian SMIs to continue gearing towards global competitiveness.
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