Pertanika J. Soc. Sci. & Hum. 6(1): 31 - 42 (1998) ISSN: 0128-7702© Universiti Putra Malaysia Press

Sourcing Practices of Manufacturers in the Malaysian Electronics andElectrical Products Industry

SAMSINAR MD. SIDIN and G GEK CHENGDepartment of Management and Marketing

Faculty of Economics and ManagementUniversiti Putra Malaysia

43400 UPM Serdang, Selangor, Malaysia

Keywords: sourcing, vendor, electrical and electronics industry

ABSTRAK

Objektif utama kajian ini ialah untuk mengenalpasti amalan pembekalan dalam industri lektrik dan elektronikdi Malaysia. Hasil kajian mendapati pembuat bergantung kepada pembekal tempatan untuk bahan pembungkusan,bahan bercetak, alat logam, dan bahan kimia, tetapi tidak untuk 'chassis' televisyen dan alat perakam \ideo.Hasil k<uian juga mendapati harga, penghantaran keluaran dan kualiti adalah tiga faktor utama yangdipertimbangkan dalam pemilihan vendor. Pembuat pada keseluruhannya adalah lebih berpuashati dengan\'endor luar negara dan adalah agak berpuashati dengan vendor ternpatan untuk aspek syarat pembiayaan,penyelenggaraan dan perkhidmatan lepas jualan. Untuk lebih bersaing, adalah disarankan untuk pembekaltempatan mengutamakan penyelidikan dan pembangunan, kualiti keluaran dan perkhidmatan yang baik.

ABSTRACT

The main objective of this stud}' was to identifY the sourcing practices currently followed in the electrical andelectronics products industry in Malaysia. The findings show that the manufacturers rely on local vendors formaterial inputs for packaging printed material, metal pans and chemicals but not for TV and VCR chassis.The study also found that price, product delivery and quality are three major factors considered in theselection of vendors. The manufacturers are in general more satisfied with non-local vendors, and are quitesatisfied with the local vendors' financing terms, maintenance and after-sales service. To be more competitive,it is suggested that local \'endors emphasize research and development of their products. Local vendors alsoneed to focus on product quality and consistently maintain good service.

INTRODUCTION

The manufacturing industry of electrical andelectronics products forms the largest sector ofMalaysian exports (Ministry of Finance). In viewof this, the Malaysian government developed theIndustrial Master Plan 1986-1995 (IMP) to ensurethat the industry is able to produce a wide rangeof electrical products for both the export anddomestic markets. The government is alsoimplementing the Outline Perspective Plan 2(1991-2000) and Vision 2020 to maintain thecountry's high export growth rate while reducingimport dependency.

The electronics and electrical productsindustry are the leading industry in themanufacturing group; in 1994, it contributed26.6% to the total output. The electricalappliance sub-sector, which includes air-

conditioners, household refrigerators andwashing machines, contributed about 40% ofthe electrical products industry'S output andexports. The output of the electronics andelectrical products industries expanded by 19.4%during 1994 compared with 15.3% in 1993. Semi­conductors and other electronics componentsexpanded by 21.5%. In the electronics industry,semi-conductor devices accounted for 58% ofthe total output.

Electronics and elecu'ical products were stillMalaysia's single largest foreign exchange earnerin 1994, contributing 48.6% of the total Malaysianexports (Fig. 1). The export of these productsgl'ew by 39.4% in the first half year of 1994. Thisis an even more impressive export growth thanthe 32.2% growth registered at 1993, conu'ibuting62.7% of the total export value of manufactured

Samsinar MD. Sidin and Ng Gek Cheng

25%

•mo

•

Electrical and electronicproduct

Textiles, clothing andfootwear

Other lnanufacturedgoods

Crude oil

L~G

Tin

Timber

Palm oilRubber

Rubber

~ Other commodities

Fig 1. Malaysian export structure, 1994

(Source: Malaysia Economic Report 1994/95)

goods. There was a strong export growth in a lineof products ranging from telecommunications toelectronic household goods with exports oftelevision receivers and sound recorders increasingby 38.1 % and 61 % respectively. With the recoveryof the US economy and the continued su-onggrowth in other Asia Pacific countries, demandfor consumer electronics has risen.

Since the 1970s, the electronics industryhad been dominated by the electroniccomponents sector, accounting for 80-85% ofthe sectoral output. In view of this, the IndustrialMaster Plan (IMP) recommended itsrestructuring by giving emphasis to the consumerand industrial electronics sectors. Realizing thelimitations of the sector and the need tostrengthen its structure, the electronics industryshould diversif)' into the production of a widerrange of electronic products to create moreeffective forward and backward linkages. In linewith this, a number of strategies have beenadopted. One of these su-ategies is to foster thedevelopment of supplier and support industriesfor the electronics industry and thereby increaselinkages and local content.

In Malaysia, some of the material inputsused by the electronics and electrical products

industry were completely obtained from localsuppliers, Electronic components such asresistors, connectors, capacitors, diodes and ICswere obtained from both overseas as well as fromlocal sources. Those which were imported wereusually custom designed and manufactured for aparticular consumer electronics product.

Research on the performance of theelectronics and electrical products industry iscrucial to assess the competitiveness of localvendors compared with the non-local vendors.Currently, the competitiveness of local vendorsin this industry is still not satisfactory as most ofthe inputs are still imported from overseas.Further development is needed to increase thecompetitive advantage of the local vendors ofelectronics and electrical components in Malaysia.

INDUSTRY LINKAGES

According to Dicken (1992), a country's economycan be developed through the creation oflinkages between multinational corporations(MNCs) and the country's small and mediumsize indusu"ies (SMIs). In most countries thereare several advantages to be gained as a result of

32 PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998

Sourcing Practices of ~l'lanufacturers in the Malaysian Electronics and Electrical Products Industry

direct links between MNCs and indigenous firms.The advantages are: i) such links are the mostsignificant means by which technology istransferred, additional employment created andopportunities increased for the formation ofnew local industries; ii) the inter-firm linkagescan act as a very important channel throughwhich technological change is transmitted as aresult of the placement of orders with indigenoussuppliers for materials or components whichmust meet stringent specifications; iii) linkagescan also increase the competitiveness ofindigenous firms in broader markets as a result ofthe experience gained, provided, of course, thatthe indigenous firms are not tied exclusively to aspecific MNC customer; iv) a pool of local firmsmay be increased as the demand created will leadto the emergence of new domestic firms.Additional employment will also take place tomeet the demand of the firms acting as suppliersto the M Cs whose activities. have expandedbecause of the linkages; v) additional employmentmay also be created to meet the demands of firmsinvolved in providing ancillary services such astransport and distribution to the MNCs.

Linkage formation between MNCs and localfirms is, therefore, a key channel through whichhost countries can hope to gain meaningful andlasting benefits from the operations of MNCs.Ensuring the occurrence of beneficial linkages isa strategy that must be followed if the host countryhopes to establish independent indigenousmanufacturing enterprises that are able to competein the international market place.

Mohamad Nazari (1993) reported asignificant occurrence of linkages between theforeign electronics MNCs and local SMIs inMalaysia. These are in the forms of local sourcingof component parts, tools, equipment, generalservices and the awarding of sub-contract jobs.The factor encouraging the formation of linkagesis the capability of some local suppliers to satisfythe MNCs in terms of costs, quality and delivery.However the role of MNCs in helping to promoteeconomic development in the host countrythrough the local sourcing of components andother supplies is, on the whole, quitedisappointing. As such, it is important to

continuously conduct further studies in this areato enable a proper, up-to-date and accurateassessment to be made. Local vendors have toadopt new technologies, acquire new skills andgenerally upgrade their capabilities to encourage

MNCs to buy from them. In other words, thecrucial factor which is being considered by theMNCs is whether local sourcing will contributetowards their long term competitiveness andprofitability.

Strong and viable ancillary and supportingsectors are crucial for further development ofthe electrical and electronics products industryin Malaysia, especially when the industry isdisplaying impressive growth potentials. The highrate of growth will also offer tremendousopportunities for local SMIs, which must beaware that to be competitive and profitable inthe electronics industry, they may be forced toreduce their manufacturing costs and increaseefficiency. One of the most important ways forthem to achieve their goals is by increasing theamount of capital, equipment, spare parts aswell as component input sourced locally.

THE ELECTRICAL PRODUCTS INDUSTRY

In the 1960s, with the establish men t ofmanufacturing projects for the import substitutionof household appliances, electrical fittings, wiresand cables and automotive batteries, the electricalproducts industry was started in Malaysia. All theprojects were undertaken through joint ventureswith foreign partners. This industry has growndramatically over the years and now is supplyingthe domestic market with a wide range of products.Furthermore, many companies have ventured intothe export market and some projects have beenestablished primarily for exports.

The electrical products industry can bedivided into:• Electrical appliances• Wires and cables• Dry cells and batteries• Electric lamps and tubes, and• Other electrical apparatus and supplies.

In 1994, the electrical products industry'soutput was worth about RM6.7 billion. However,Malaysia is still a net importer of electrical goodsand the 1994 imports were valued at RJ\19.0billion. Currently, Malaysia's main import iselectrical industrial equipment. The exports ofelectrical products in the same period were worthRM6.1 billion. The growth of the electricalproducts industI), is forecasted to be mainly inthe industrial equipment sector in line with thecontinued progress in the industrialization ofthe Malaysian economy.

PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998 33

Samsinar MD. Sidin and Ng Gek Cheng

THE ELECTRONICS INDUSTRY

Malaysia's electronics industry started in the 1970swhen the government shifted its emphasis froman import-substitution to an export-orientedstrategy to promote ~IIalaysia's industrialdevelopment. At that time, Su"uctural changeswere taking place in the electronics productionsector in the USA, ''''estern Europe and Japan.The industries in those counuies needed to adjustvery quickly to the competitive internationalmarket and, inevitably, to locate some of theoperations to lower cost production centresoverseas. Malaysia was considered to be an ideallocation. In order to welcome this opportunity,Malaysian Government established an attractiveinvestment climate by establishing the special 10­year pioneer status for the electronics industry,offering a huge pool of low-cost trainable labour,the establishment of free u"ade zones (FIZs) andalso licensed manufacturing warehouse facilities.

The electronics industry can be divided intothree broad sub-sectors:• Electronics components• Consumer electronics• Industrial electronics.

The export-oriented elecu"onics indusuy hasdeveloped rapidly to become one of theMalaysia's major industrial sub-sectors withinthe manufacturing sector and a significantcontributor to the country's economy in termsof manufacturing, employment and exports.Malaysia has become one of the largestsemiconductor producers and exporters in theworld. Exports of electronic products were valuedat RJ\il66.4 billion in 1994 compared with RM13.1billion in 1988. In 1994, the electronics exportsconstituted 55.2% of total manufactured exports(RMJ20.2 billion). Malaysian electronics industryexports are expected to continue to contributesubstantially towards exports, employment andmanufacturing value-added in the future.

VENDOR DEVELOPMENT PROGRAMME

The vendor development programme (VDP) forthe electronics and elecu"ical products industrieswas established in 1992. By 1995, fourteen (14)companies were involved in this programme,with 34 multinational (mostly Japanese)companies acting as the anchor companies.

The VDP was established to help marketthe products produced by the SMIs in Malaysia.Also, with the establishment of this programme,

more SMIs will be involved as vendors to larger,multinational companies which act as the anchorcompanies to the SMIs, increasing industrylinkages. It is hoped that SMIs will be givenopportunities to be more competitive as a supplierof electronic and electrical components.Consequently, these companies will be thesupporting companies to the industry, leading to amore active involvement in local as well asinternational business.

Two issues in the programme faced by theMalaysian government are technical ability andtransfer of technologies. The SMIs are not readyto develop their own technologies and have todepend on the anchor companies for technicalcapabilities. The SMIs are, however, encouragedto get co-operation from relevant governmentagencies to enhance their technical capabilities.

In general, the VDP has been successful inpromoting local SMIs as vendors to MNCs in theelectrical and electronics products industries inMalaysia. With technical and financial assistancefrom the MNCs, relevant government agencies,and the banks, the local SMIs should gain theirconfidence and be better prepared to capturethe local and international markets.

RESEARCH OBJECTIVE

The study on the type of material inputs used bythese companies and the dependency on localvendors in sourcing material inputs for consumerelectronics manufacturers and componentsmanufacturers will help investigate currentsourcing practices in the electronics and electricalproducts industries in Malaysia. This is essential,particularly for the future development ofelectronics and electrical industry linkages inMalaysia. The findings of the study will presentone important aspect of the issue of linkages,namely, the sourcing or procurement practicesand the dependency on material inputs by theelectronics and electrical products industry inMalaysia. The study also aims to find out whichattributes are being used by the electronics andelecu"ical products industries in selecting theirsuppliers/vendors and also to evaluate theirperformance in the eye of the buying companies.

Specifically, the research objectives are:• to determine the sourcing of and dependency

on material inputs by the electronics andelectrical products indusuy in Malaysia,

• to evaluate the performance of local andnon-local vendors, and

34 PertanikaJ. Soc. Sci. & Hum. Vol. 6 No. I 1998

Sourcing Practices of Ivlanufacturers in the Ivlalaysian Electronics and Electrical Products Industry

FINDINGS

TABLE 1Characteristics of Respondents

The characteristics of respondents are shown inTable 1. A majority of the organizations are

Data Analysis

Collected data were checked for missing variables,and coded and analysed using the StatisticalPackage for Social Science (SPSS). Theresults were analysed and interpretedthrough descriptive statistics by using frequencycounts, percentage, means and standard de\~ation.

Frequency PercentageCharacteristic

Sources of Data

Primary data were used in this study. Data werecollected through mail questionnaire andpersonal interview with the purchasing and/orproduction manager of companies in theelectronics and electrical products industries inMalaysia. The mailing list was obtained from theDirectOlY of Electronics and Electrical Manufacturers(MIDA 1993) and also the DirectolJ ofManufacturers in Malaysia (Federation ofMalaysian Manufactureres 1994).

METHODOLOGY

• to find out the major factors used in theselection of local vendors in the electricaland electronics products industries.

PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998

Questionnai're Design

The questionnaire was designed to indicate thedifferent types of material inputs used by thesample. The respondents indicated theproportion used by using the following scale: 1= 0%, 2 = 1-20%, 3 = 21-40%, 4 = 41-60%, 5 =

61-80%, 6 = 81-99% and 7 = 100%. Thequestionnaire also measured the sample'sdependency on local vendors in sourcingmaterial inputs. The scale used was the five-pointLikert scale from "rely very much" to "do notrely at all". Finally, to find out the importance ofattributes and the attributes used to evaluate theperformance of local and non-local vendors, thescale used was a five-point Likert scale rangingfrom "very important" to "not important at all"for importance of attributes and "very good" to"very poor" for indication of performance.

Samf)ling

The sampling frame was all the electronics andelectrical products companies in Malaysia.However, most companies were from Selangor,Penang, Kedah, Perak and Malacca, as most ofthese companies are situated on the west coastof Peninsular Malaysia. All the samples wererandomly selected.

Data Collection

The survey questionnaires were mailed tocompanies identified earlier in the samplingprocess. Follow-up letters were sent twice toremind the organization to reply. As the responserate using the mail questionnaire was vel1' poor,data were also collected using structuredinterviews with the relevant managers.

LocationKedah 7Perak 1Penang 10Klang Valley 34Malacca 1

Total 53

Year of Establishment1990-1995 201985-1989 141980-1984 21975-1979 3Before 1975 8\!Iissing cases 6

Total 53

Number of EmployeesFewer Ihan 99 18100-199 4200-299 4300-499 7More than 500 16Missing cases 4

Total 53

Sales 1994 (RM million)Less than RiVIlO 15RiV1l0-49 17R.vI59-99 7RMI00-199 3More than RM200 3Missing cases 8

Total 53

Product TypesElectronics products 21Electronics components 10Electrical products 8Others 13~'Iissing cases 1

Total 53

13.21.9

18.964.2

1.9

100.0

37.326.4

3.85.7

15.111.3

100.0

34.07.57.5

13.230.2

7.5

100.0

28.332.113.2

5.75.7

15.1

100.0

39.618.915.124.5

1.9

100.0

35

Samsinar MD. Sidin and Ng Gek Cheng

located in the Klang Valley and were establishedabout 10 years ago. The structure of the sampleindicated that the majority of the organizationshad fewer than 99 employees (34%) or morethan 500 (30%). 10re than half the companieshad a sales turnover of less than RM49 million;39.6% produced electronics products, 18.9%produced electronics components and 15.1 %produced electrical products.

Table 2 indicates the sourcing pattern formaterial input in consumer electronics.Generally, packaging, mechanical componentsand electronics components are the three mostpopular types of material inputs used by thefirms. Almost all packaging material inputneeded is sourced locally. Approximately 41­60% of the input requirements for mechanicalcomponents are sourced locally. However, moreelectronics components were imported thanobtained locally.

Also, it can be seen that besides materialinputs, packaging, material inputs for printedmaterial, stamped metal parts, cable harnessesand finishing were also obtained locally. Almostall material inputs for VCR chassis were imported.

Table 3 shows the pattern of sources formaterial inputs by component manufacturers.Chemicals, packaging, copper wire and cablesand metal parts were the most frequently citedmaterial inputs used. For chemicals and copperwire and cables almost equal proportions wereobtained locally and imported. On the otherhand, almost all packaging material wasobtained locally. Relatively more metal partswere obtained locally, such as solderings, PCBs,insulators, plastic bobbins, DC cords, reflectorcaps and anode assembly. On the other hand,mould compounds, dies, ferrite core, leadframes, gold wire and silicon ingots wereimported.

TABLE 2Sourcing of material inputs by consumer electronics manufacturers

Type of Number Cost Proportion Proportion ProportionMaterial of Firms Contribution Obtained Imported Obtained In-House

Input (Mean)" Locally (Mean) (Mean) (Mean)

Packaging 29 2.71 6.00 2.06 1.38

Mechanical 25 3.60 4.17 3.67 1.15components

Electronics 23 3.83 3.53 4.80 1.40components

Printed 16 3.00 5.86 2.27 1.33materials

Mechanisms 15 2.57 2.93 1.93 1.00

Stamped metal 14 3.91 5.08 2.27 1.00parts

Cable harnesses 10 2.38 5.38 6.00 1.00

Other plastic parts 9 3.33 4.14 3.80 2.75

Speakers 6 2.25 3.00 3.18 1.00

Body parts 5 3.33 2.80 3.75 1.00

Finishing 4 4.00 6.25 1.00 3.50

TV chassis 3 N/A 1.00 3.50 2.67

Picture tubes 3 N/A 1.00 3.50 2.67

VCR chassis 2 N/A 1.00 6.00 3.50

Note: The percentages for cost contribution, proportion obtained locally, imported and obtained in-house arecategorized into seven categories. The scale used is as foll()ws: 1 = 0% 2 = 1-20% 3 = 21-40% 4 = 41-60%5 = 61-80% 6 = 81-99% 7 = 100%. The mean scores were calculated from this scale.NIA = Data not available

36 PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998

Sourcing Practices of Manufacturers in the Malaysian Electronics and Electrical Products Industry

TABLE 3Sourcing of material inputs by components manufacturers

Type of Number Cost Proportion Proportion ProportionMaterial of Firms Contribution Obtained Imported Obtained In-House

Input (Mean)* Locally (Mean) (i'vlean) (Mean)

Chemicals 19 2.71 4.50 4.15 1.00

Packaging 18 2.47 6.25 2.13 1.00

Copper wire 14 2.75 4.92 4.40 1.00and cables

Metal parts 14 3.45 5.78 4.00 2.60

Electronic 12 3.63 4.44 4.64 2.17componen ts

Mould 10 3.22 4.00 6.00 3.75compounds

Precision 9 2.70 4.29 4.50 2.50plastics

Mechanical 9 3.17 4.14 3.43 2.33componen ts

Soldering 9 2.00 6.38 2.00 1.00

PCBs 8 2.00 6.75 3.67 1.00

Dies 8 3.60 4.00 5.80 2.75

Plastic casings 7 3.20 4.50 3.33 1.00

Insulators 7 2.00 5.67 2.80 1.00

Plastic 6 2.00 5.00 2.75 1.50bobbins

Transformers 6 2.50 4.17 3.33 1.00

Ferrite cores 5 3.00 4.75 6.00 1.00

Lead frames 5 3.00 3.00 5.50 1.50

Gold wire 4 2.33 4.00 5.25 1.00

Silicon ingots 3 4.50 2.50 7.00 1.00

EI cores 2 3.00 5.00 3.00 2.50

DC cords 2 2.00 6.00 3.06 1.00

Reflector caps N/A 1.00 3.50 2.67

Anode N/A 7.00 1.00 1.00Assembly

Note; The percentages for cost contribution, proportion obtained locally, imported and obtained in-house arecategorized into seven categories. The scale used is as follows: 1 = 0% 2 = 1-20% 3 = 21-40% 4 = 41-60%5 = 61-80% 6 = 81-99% 7 = 100%. The mean scores were calculated from this scale.NIA = Data not ayailable

Table 4 shows that the consumer electronicsmanufacturers relied on local vendors forsupplies for the packaging of the products,followed by the supply of printed materials,mechanical components, other plastic parts, andstamped metal parts. The table also shows thatmanufacturers in' the consumer electronics

industry do not rely on local vendors at all forthe supply of picture tubes, TV chassis and VCRchassis.

The dependence on local vendors for thesupply of material inputs by the componentmanufacturers is shown in Table 5. As can beseen from this table, the sources of supply vary.

PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998 37

Samsinar MD. Sidin and Ng Gek Cheng

TABLE 4Consumer electronics manufacturers' dependency on local

vendors in sourcing material input

Type of Material Input Mean SD

1. Packaging 1.70 .912. Printed materials 2.38 1.473. Mechanical components 2.69 1.204. Other plastic parts 2.83 1.535. Stamped metal parts 2.84 1.616. Electronics components 3.11 1.25

7. Cable harness 3.12 1.588. Finishing 3.25 1.589. Mechanisms 3.32 1.46

10. Body parts 3.64 1.50II. Speaker 4.46 1.1312. Picture tube 4.86 .3813. TV chassis 5.00 .0014. VCR chassis 5.00 .00

Note: 1 = Rely very much SD = Standard deviation5 = Do not rely at all

TABLE 5Components manufacturers' dependency on local

vendors in sourcing material inputs

Rank

1

2

3

4

5

6

7

89

1011

121314

Type of Material Input Mean SD Rank

1. Metal parts 2.08 1.31 12. Chemicals 2.24 1.09 23. Packaging 2.55 1.41 34. Plastic casings 2.56 1.24 45. Mechanical components 2.70 1.06 56. Copper wire and cables 2.76 1.35 67. Mould compounds 2.80 1.48 78. Electronic components 2.88 1.36 89. Plastic bobbins 3.00 1.70 9

10. Dies 3.00 1.58 1011. lnsulators 3.20 1.55 1112. Ferrite cores 3.22 1.56 1213. PCBs 3.30 1.57 1314. Soldering 3.36 1.50 1415. Transformers 3.38 1.06 1516. Precision plastics 3.45 1.44 1617. Gold wire 3.50 1.64 1718. Lead frames 4.00 1.31 1819. EI cores 4.00 1.73 1920. DC cords 4.00 2.00 2021. Reflector caps 4.00 2.00 2122. Silicon ingots 4.20 1.30 2223. Anode assembly 4.50 1.00 23

Note: 1 = Rely very much SD = Standard deviation5 = Do not rely at all

38 Pertanika J. Soc. Sci. & Hum. Vol. 6 No.1 1998

Sourcing Practices of Manufacturers in the Malaysian Electronics and Electrical Products Industry

Local vendors were sought for the supply of metalparts, chemicals, packaging, plastic casings,mechanical components, copper wire and cables,mould compounds, elecu'onic components, plasticbobbins and dies. However, the manufacturers donot rely on local vendors for the supply of inputsfor silicon ingots and anode assembly.

An analysis was also conducted to determinethe importance of several key performance

attributes of local and non-local vendors andthe performance of local and non-local vendorsbased on several key attributes. As shown inTables 6 and 7, the manufacturers considerproduct quality the most important attribute.The manufacturers also consider delivery datesand product reliability. Looking at theperformance of local vendors in theseattributes, it can be said that the manufacturers

TABLE 6Differences between expectation and performance of local vendors

Attributes Importance l Performance2

1. Delivery dates 1.29 2.31

2. Product quality l.l6 2.38

3. Product reliability 1.41 2.31

4. Price 1.53 2.04

5. Financing terms 2.27 2.42

6. Experience 1.98 2.56

7. Service 1.60 2.11

8. Technical knowledge 1.86 2.50

9. Maintenance 2.14 2.30

10. Reputation 2.16 2.54

11. After-sales service 1.96 2.25

Differences'

-1.02

-1.22

-0.90-0.51

-0.15-0.58

-0.51-0.64

-0.16

-0.38-0.29

Notes:1: Importance of attributes in selection of vendors (l = very importan t, 5 not

important at all)2: Performance of local vendors (1 = vel)' good, 5 = very poor)3: Differences (positive = satisfaction, negative = dissatisfaction)

TABLE 7Differences between expectation and performance of non-local vendors

Attributes Importance l Performance2 Differences'

1. Delivery dates 1.29 2.44 -l.l5

2. Product quality l.l6 1.75 -0.59

3. Product reliability 1.41 1.85 0.44

4. Price 1.53 2.60 -1.07

5. Financing terms 2.27 2.38 -0.11

6. Experience 1.98 1.77 0.21

7. Service 1.60 2.41 -0.81

8. Technical knowledge 1.86 1.73 0.13

9. Maintenance 2.14 2.22 -0.08

10. Reputation 2.16 2.02 0.14

11. After-sales service 1.96 2.54 -0.58

Notes:1: Importance of attributes in selection of vendors (l = very important, 5 = not important at

all)2: Performance of non-local vendors (l = very good,S = vel)' poor)3: Differences (positive = satisfaction, negative = dissatisfaction)

PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998 39

Samsinar MD. Sidin and Ng Gek Cheng

TABLE 8Factors motivating organizations to use local vendors

Factors Considered

1. Costs2. Product delivery3. Product quality4. Inventory5. Foreign exchange6. Company policy7. Distance8. Requirements

Note: 1 = very important5 = not important at all

Mean

1.341.381.511.911.912.092.15

2.18

SD = standard deviation

SD

.52

.60

.74

.891.031.01.99.95

Rank

1

2

34

5

6

7

8

are, in general, not satisfied with their perfor­mance on product quality, delivery dates, andproduct reliability. However, the manufacturersare quite satisfied/happy with the local vendors'financing terms, maintenance, and after-salesservice. As for the non-local vendors, themanufacturers are quite satisfied with thevendors' technical knowledge, reputation,experience and product reliability. Overall, themanufacturers seem to be more satisfied withthe non-local vendors.

Table 8 indicates that cost is the mostimportant factor that motivates manufacturersin the electrical and electronics productsindustries to use local vendors. Almost equallyimportant is the delivery and quality of products.

CONCLUSION AND IMPLICATIONS

Fig. 2 shows the summary of findings from thisstudy. There are several conclusions that can bederived from the findings. First, manufacturersin the electronics and electrical products

B----··Local

1. Packaging2. Printed materials

ProductDelivery

jI SOU~CES I Product

Quality

Imported

1. TV chassis2. VCR chassis

Satisfied

1. Financing terms2. Maintenance3. After-sales service

INot Satisfied

1. Product quality2. Delivery dates3. Product reliability

ISatisfied

1. Technical knowledge2. Reputation3. Experience

INot Satisfied

1. Delivery dates2. Price3. Service

Fig 2. Sourcing of inputs and factors considered in the selection ofvendors in the electrical and elect-ronics industl)'

40 PertanikaJ. Soc. Sci. & Hum. Vol. 6 No.1 1998

Sourcing Practices of lvlanufacturers in the Malaysian Electronics and Electrical Products Industry

industry rely on different vendors for differentand specific types of inputs. The study foundthat manufacturers rely on local vendors formaterial inputs for packaging, printed material,metal parts and chemicals, but not technicalinputs such as TV and VCR chassis. Themanufacturers rely on non-local vendors forthe supply of materials such as silicon ingots.

The second conclusion is that themanufacturers are more satisfied with the non­local vendors than local vendors. For the localvendors, the manufacturers are satisfied with thefinancing terms, maintenance and after-salesservice, but not product quality, delivery datesand product reliability. As for the non-localvendors, the manufacturers are satisfied withtheir technical knowledge, reputation andexperience and are not satisfied with theirdelivery dates, price and service.

The third conclusion is that product price,delivery and quality are perceived to be themajor factors motivating the manufacturers touse local vendors.

From the findings of this study, it may beconcluded that Malaysian vendors have not metthe manufacturers' expectation standards,especially in terms of the factors they considerimportant. Consequently, the manufacturers areforced to rely on the non-local vendors who areperceived to be better, even though they are notsatisfied with the non-local vendors' delivery datesand price quotes.

One major implication of these findings isthat if the local vendors (SMIs) aspire to enjoythe competitive edge, they need to strive toimprove their performance. To ensure successin the long run, the local vendors must be ableto compete with the better-performing non­local vendors. Therefore, the local vendorsshould improve their performance in terms ofproduct quality and delivery dates in order toreach the expectation of the manufacturers. Toimprove the quality of their products, it issuggested that the local vendors emphasize theresearch and development of the products andbe actively involved in vendor developmentprogramme in order to gain technology transferfrom abroad or financing support from thegovernmen t.

One of the major attributes consideredunsatisfactory for the non-local vendors is the

delivery dates because shipment from abroadtakes time due to the long distance. Hence, thelocal vendors should try their best to supply theproducts as soon as possible as they already havethe advantage of distance. In addition, theproduct reliability of the local vendors also shouldbe further improved. In order to do that, againthey must enhance the product quality and alwayskeep in touch with the manufacturers, give adviceand help to the manufacturers when necessary.If they consistently maintain their good service,their reputation would surely improve in thelong run.

As for future policy formulation, it is impliedfrom the findings of the study that for localvendors to stay competitive in the future thereshould be more research and developmentprogrammes geared towards enhancing theproduction of good quality products by the localvendors. There should also be extensive technicaltraining programmes to ensure that the localvendors are aware of new ways and methods toproduce good quality and reliable products. Thelocal vendors should be exposed to newtechnology from the more developed nationsthat can be adapted for use in the electronicsand electrical products industry in Malaysia.

Another major implication of the findings isthat the local vendors should be globallyoriented, i.e. they should not only think of thedomestic market in their dealings. The vendorsshould start promoting their products outsidethe country in order to be more competitive inoutlook. The government can help encouragethis by inviting the local vendors to participatein trade missions and visits overseas. Locally,more trade shows should be conducted to exposeand educate the domestic customers of theproducts and services rendered by local vendorsin this industry.

REFERENCES

DICKE~, P. 1992. Global Shift: The Intemationalization ofEconomic Activity. London: Paul Chapman.

FEDERATIO,," of M.\LAYSIA~ MA"CFACTCRERS. 1994.Directol)' of Manufacturers in Malaysia. KualaLumpur.

MALWSL~'\ GOVE~'1YIE:'\T. 1985. Industlial !\!Iaster Plan.Kuala Lumpur: National Printing Department.

MAU\SI.\..,\ GO\'E~'\VIE:'\T. 1991. The Second OutlinePeTSpective Plan: 1991-2000. Kuala Lumpur:National Printing Department.

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MlD\. 1993. Directol)1 of Electronics and Elecl1icalManufactu'I"ers. Kuala Lumpur.

Ml:"ISTRY of FI:".-\.'CE. 1994. 1994/95 Malaysia EconomicReport. Kuala Lumpur: National PrintingDepartment.

MOHA~'IAD NAHRf lS'IAfL. 1993. Linkages in theMalaysian electronics industry: A survey ofsourcing practices among foreign electronicsTNCs. Malaysian Jou'rnal of Small and j'vIediwl!Enterplises 4: 72-90.

(Received 23 Mm'ch 98)

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