CHAPTER I Review of Related Literature and Studies

This chapter presents a brief discussion of the literature reviewed by the researchers which further

enriched the conceptualization of the study and helped in describing the cognitive design that guided the

conduct of the researcher. Foreign Literature

It is little wonder that business experts commonly cite inventory management as a vital element that

can spell the difference between success and failure in today's keenly

competitive business world. Writing in Production and Inventory Management Journal, Godwin Udodescri

bed telecommunications technology as a critical organizational asset that can help accompany realize

important competitive gains in the area of inventory management. According to-do, companies that make

good use of this technology are far better equipped to succeed than those who rely on outdated or

unwieldy methods of inventory control.

LITERATURE REVIEW

2.1 Introduction

The aim of this chapter is to develop the knowledge and understanding on the subject matter as well as
providing the theoretical background for the study. Therefore, it is essential that a desk review be made
on previous studies focusing on the topic of the risk taking propensity among entrepreneur. The literature
reviewed will include some relevant studies that were done in the past particularly those related to the
issue of study. In addition, studies related to the general issue of entrepreneurship will also be reviewed
to shed additional insight on the subject matter.

The chapter starts with the discussion on the concept of entrepreneurship with special reference to the
entrepreneurial process and how entrepreneurs play their role in the process. It is then followed by
discussion on the micro and small business sector in Malaysia in terms of the working definition and its
importance to the national economy. Next, the definition of risk and its variants are discussed in greater
detail. The chapter ends with the discussion of the literature related to risk taking propensity.

2.2 What is Entrepreneurship?

Entrepreneurship is a process universally connected with the founding of business ventures, acquiring or
expanding an existing business. Entrepreneurs have been considered as bearers for risks and
uncertainties in making business choices (Knight, 1921), and make innovations for new goods, new
methods of production, new markets, and new types of industrial organization (Schumpeter, 1934). Hull,
Bosley, and Udell (1980) concurred that entrepreneurs assumed risk with the intention to expand the
business. Meanwhile, Brockhaus (1980) recognized entrepreneur as a manager or owner of a business
who is not employed elsewhere. However, Cooper and Dundleberg (1987) defined entrepreneur as a
person who either own or manage a business. While McClelland (1961) described an entrepreneur as a
business manager who has the responsibility as a decision maker and takes responsibility for the decision
made. From the above definitions, it can be concluded that an entrepreneur as the owner/manager of an
MSME, in which he or she may not be a founder but not only has a responsibility to make decision and
but also takes the risk and responsibility for the decision made.

Entrepreneurship endeavours involve gathering of productive resources in an attempt to begin a business

enterprise with the expectation of providing a reasonable income to the entrepreneur or small business
operators. These resources include manpower, equipment and tools, money, time and basic raw
materials which may entail some risks in procuring it. For example, the risk of not getting basic raw
materials as needed to produce the product or damage to the equipment and tools means losses to the
entrepreneur. These resources, along with its associated risk, should be recognized and managed to
minimize losses and to increase profits. The entrepreneurial process remains the same and the roles and
nature of the entrepreneur are universal, regardless of industries. Hereditary risk exists in all the
processes starting from the ideation, conceptualization, enterprise creation, commercialization and ending
with the growth of the enterprise.

Moreover, all businesses in the world face risk regardless of its size, thus they have to identify, assess,
manage and monitor the organization's business opportunities and risks. The current business
disappointments are usually caused by entrepreneur's misjudgements, mismanagement of risk and
changes in corporate governance requirements. There are also increasing stakeholder expectations for
entrepreneurs to effectively manage all risks exist within an organization.

2.3 Micro, Small and Medium Enterprises (MSMEs)

Micro, small and medium enterprises (MSMEs) are and will continue to be the backbone of Malaysian
economic growth. Undoubtedly, MSMEs contributes greatly to the economic strength in Malaysia. With
the New Economic Policy introduced by government in 1971, Malaysian MSMEs were given the important
task of hoisting new breed of Bumiputra entrepreneurs who would eventually grow into large business
community in accordance with the social restructuring objectives of the policy. Definitely, the policy has
been able to create MSMEs whereby 30% of the businesses are owned by bumiputras. As of Mac 2005, a
total of 518,996 MSMEs were registered in Malaysia (Census of Establishments and Enterprises, 2005,
Department of Statistics Malaysia). Most of the MSMEs are found in the service sector, accounting for
86.5%. They contribute 27.3 percent of total manufacturing output, 25.8 percent to value-added
production, own 27.6 percent of fixed assets and employ 38.9 percent of the country workforce (SMIDEC,
2002). There are 192,527 establishments in the services sector and 186,728 (96.7%) of these are made
up of MSMEs in Malaysia. Yusoff (2004) noted higher consumer spending and a record level of tourist
arrival caused the services sector grew by 6.8% in 2004. Strong expansion in all sub-sectors with
transport and communication emanated the growth in the lead at 8.4% followed by wholesale and retail
trade, hotels and restaurants (7.1%) and finance, insurance, real estate and business services (6.5%).
MSMEs have become one of the main drivers of economic growth as the industries contribute 32% to
Malaysia's gross domestic product (GDP), account for 56% of total employment and 19% of total exports
of the nation in 2007 (SME Annual Report, 2007).

The definition of micro, small and medium-sized enterprises needs to be classified within the context of
the country in which they operate, as typically, the concept varies according to country (Gunasekaran,
Forker and Kobu, 2000). The criteria should include paid-up capital, shareholders' funds, turnover, and
number of employees or a combination of these. In Malaysia, National Small and Medium Enterprise
Development Council (NSDC), (2005), defined micro, small and medium enterprises as firms employing
150 full-time employees with sales turnover less than RM 25 million. This definition covers the
manufacturing including agro-based, services, primary agriculture and ICT.

In the past, there is no common definition of micro, small and medium enterprises (MSMEs) in Malaysia.
Many agencies defined MSMEs differently according to their own criteria based on annual sales turnover,
number of employees or shareholder. However, National Small and Medium Enterprise Development
Council (NSDC) 2005, defines MSMEs across economic sectors. Bank Negara Malaysia defined MSMEs as
enterprises with shareholders funds of less than RM10 million. Meanwhile, the Small and Medium
Industries Development Corporation (SMECorp) defined MSMEs as enterprises based on the annual sales
turnover not exceeding RM25 million and number of full-time employees not exceeding 150. The criteria
used in defining MSMEs are based on annual sales turnover and number of the MSMEs as postulated in
Table 2.1 below.