Innovation Capabilities and Performance of Malaysian Agricultural SMEs: The Moderating Role of Strategic Alliance

  • Nurul Izni Kamalrulzaman Universiti Malaysia Terengganu
  • Azlinzuraini Ahmad Universiti Malaysia Terengganu
  • Akmalia Mohamad Ariff Universiti Malaysia Terengganu
  • Mohd Shaladdin Muda Universiti Malaysia Terengganu
Keywords: Strategic Alliance, Innovation Capabilities, Firm Performance, Agricultural SMEs


Small and Medium Enterprises (SMEs) in the agriculture sector in Malaysia are still seen to contribute only a small portion towards Gross Domestic Product (GDP) and the total number of the national workforce. As for agricultural SMEs, innovation activities are needed to produce quality agricultural-based products to meet the increasing of Malaysia and world market demand. Nevertheless, innovation among agricultural SMEs is still less encouraging. Hence, this study aims to investigate the effect of innovation capabilities towards performance of agricultural SMEs in Malaysia and determine the role of strategic alliance as a moderator in influencing the performance of agricultural SMEs. The conceptual framework of innovation capabilities is based on Resource-Based View Theory and Schumpeter Innovation Theory that considers strategic alliance will positively affect the relationship between innovation capabilities and SME performance. A total of 136 respondents from Agricultural SMEs were used for data analysis process using SmartPLS 3.0 software. The results show that innovation capabilities have a positive impact on the performance of SMEs, while strategic alliance does not affect the relationship between innovation capabilities and agricultural SME performance. Although strategic alliance has insignificant effect, this might be resulted from the emphasis of this study as it defined strategic alliances as acquisitions of companies. For agricultural SMEs in Malaysia, entrepreneurs need to look at an alliance from a positive perspective by looking it as a joint venture process in resource sharing that will benefit the enterprises, thus it is not only meant acquisition. The implication of this study is expected to contribute and enhance the role of innovation capabilities among entrepreneurs and strategic alliances in the Malaysian agricultural SMEs.


Abd Aziz, N. N., & Samad, S. (2016). Innovation and competitive advantage: Moderating effects of firm age in foods manufacturing SMEs in Malaysia. Procedia Economics and Finance, 35, 256-266. Abdul Manaf, A., Omar, N. H., & Lee, K. Y. (2012). Faktor kritikal kejayaan usahawan dalam perniagaan. e-Bangi: Journal of Human Sciences and Humanities, 7(1), 34 - 45.

Abdul Razak, D., Abdullah, M. A., & Ersoy, A. (2018). Small medium enterprises (SMEs) in Turkey and Malaysia A comparative discussion on issues and challenges. International Journal of Business, Economics and Law, 10(49), 2-591.

Adnan, Z. S., & Ahmad, H. (2016). Inovasi dalam perusahaan kecil dan sederhana (PKS) pembuatan makananan dan minuman. Journal of Global Business and Social Entrepreneurship, 1(1), 79-88.

Ahmad, N. A., Ab Hamid, K., & Othman, Z. (2014). Potensi penerima guna inovasi pertanian di kalangan petani. Prosiding PERKEM, 9, 311 - 320.

Armbruster, H., Bikfalvi, A., Kinkel, S., & Lay, G. (2008). Organizational innovation: The challenge of measuring non-technical innovation in large-scale surveys. Technovation, 28(10), 644-657.

Asree, S., Zain, M., & Rizal Razalli, M. (2010). Influence of leadership competency and organizational culture on responsiveness and performance of firms. International Journal of Contemporary Hospitality Management, 22(4), 500-516.

Azar, G., & Ciabuschi, F. (2017). Organizational innovation, technological innovation, and export performance: The effects of innovation radicalness and extensiveness. International Business Review, 26(2), 324-336.

Buang, A., & Suryandari, R., Y. (2009). Pertanian kontrak sebagai satu kaedah memajukan petani kecil melayu: Tanggapan dan penilaian komuniti tani tempatan di Zon Utara, Semenanjung Malaysia terhadap prestasi program pertanian kontrak FAMA. Malaysian Journal of Society and Space, 5(1), 11-22.

Buang, A., Abdullah, M. A., & Mohd Zainol, R. (2010). Memajukan petani kecil melayu menerusi pertanian kontrak - Persepsi dan penilaian peserta projek dan komuniti tempatan. Malaysian Journal of Society and Space, 6(1), 68-80.

Chandran, V. G. R., Sundram, V. P. K., & Santhidran, S. (2014), Innovation systems in Malaysia: A perspective of university-industry R&D collaboration. AI and Society, 29(3), 435-444.

Che-Ha, N., & Mohd Said, S. (2012). Innovation practices by Malaysian SMEs. In Che-Ha, N., & Mahmood, A. (Eds.), Malaysian SMEs in The New Economy (pp. 39-58). Petaling Jaya: Cengage Learning Asia Pte Ltd.

Cho, H. J., & Pucik, V. (2005). Relationship between innovativeness, quality, growth, profitability, and market value. Strategic Management Journal, 26(6), 555-575.

Chow, Y. K. (2016). The moderating role of dynamic capability between strategic orientations and firm performance in Malaysia agro based SME (Doctoral dissertation, Universiti Utara Malaysia, Kedah, Malaysia).

Cohen, J. (1988). Statistical power analysis for the behavioural sciences (2nd ed.). Hillsdale, New Jersey: Erlbaum.

Community Innovation Survey. (2008). Government of Ireland.

Cruz-Cázares, C., Bayona-Sáez, C., & Garcia-Marco, T. (2010). R&D strategies and firm innovative performance: A panel data analysis. International Journal of Innovation Management, 14(6), 1013-1045.

Dsilva, J., Shaffril, H. A. M., Uli, J., & Samah, B. A. (2010). Socio-demography factors that influence youth attitude towards contract farming: A case from Peninsular Malaysia. American Journal of Applied Sciences, 7(4), 603 - 608.

Doh, S., & Kim, B. (2014). Government support for SME innovations in the regional industries: The case of government financial support program in South Korea. Research Policy, 43(9), 1557-1569.

Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39-50.

Gliem, J. A., & Gliem, R. R. (2003). Calculating, interpreting, and reporting cronbach's alpha reliability coefficient for likert-type scales. Midwest Research-To-Practice Conference in Adult, Continuing, and Community Education.

Gunday, G., Ulusoy, G., Kilic, K., & Alpkan, L. (2011). Effects of Innovation Types on Firm Performance. International Journal of Production Economics, 133(2), 662-676.

Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2014). A primer on partial least squares structural equation modelling (PLS - SEM). Thousand Oaks, CA: Sage Publication.

Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2016) A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). USA: Sage Publications.

Hassan, T. M., Yaacob, M. R., & Abdullatiff, N. K. (2014). Sustaining SMEs wood-based product manufacturing through best practices - The case of indigenous entrepreneurs in Kelantan. Procedia - Social and Behavioural Sciences, 115, 221-234.

Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. In New Challenges to International Marketing (pp.277-319). Emerald Group Publishing Limited.

Hilmi, M. F., Ramayah, T., Mustapha, Y., & Pawanchik, S. (2010). Product and process innovativeness: Evidence from Malaysian SMEs. European Journal of Social Sciences, 16(4), 556-564.

Ikhsan, H. M., Amran, S. N. M. E., & Abdul Rahman, N. (2019, September 10). Pesawah kecil perlu cantum tanah. BH Online.

Išoraite, M. (2009). Importance of strategic alliances in company's activity. Intellectual Economics, 1(5), 39-46.

Jabatan Perangkaan Malaysia. (2018). Statistik Ekonomi Tahunan 2018 Sektor Pertanian. Kuala Lumpur.

Jouanjean, M. (2019). Digital Opportunities for Trade in the Agriculture and Food Sectors. OECD Food, Agriculture and Fisheries Papers, 122. OECD Publishing, Paris.

Kadir, M. K. A. (2013, October 20-24). Development of Young Agropreneur in Malaysia. Paper submitted for the FFTC-RDA International Seminar on Enhanced Entry of Young Generation into Farming, Jeonju, Korea.

Kang, J., Gwon, S.-H., Kim, S., & Cho, K. (2013). Determinants of successful technology commercialization: implication for Korean government-sponsored SMEs. Asian Journal of Technology Innovation, 21(1), 72-85.

Karabulut, A. T. (2015). Effects of innovation types on performance of manufacturing firms in Turkey. Procedia-Social and Behavioral Sciences, 195, 1355-1364.

Kumlu, Ö. (2014). The effect of intangible resources and competitive strategies on the export performance of small and medium sized enterprises. Procedia-Social and Behavioural Sciences, 150, 24-34.

Kostopoulos, K. C., Spanos, Y. E., & Prastacos, G. P. (2002). The Resource-Based View of the Firm and Innovation: Identification of Critical Linkages.

Lammi, I. (2012). Strategic alliances and three perspectives: A review of literature on alliances. (Master Thesis, Mälardalen University, Sweden).

Maimunah, A. (2018). Human Resource Management: Principles and Practices (4th ed.). Shah Alam: Oxford Press.

Man, N., & Hamzah, A. (2007). Keperluan program pendidikan pertanian di kalangan beliatani di kawasan luar bandar. Serdang, Selangor: Universiti Putra Malaysia.

Mannan, S., & Nordin, S. M. (2014). The Influence of Innovation Attributes on New Technologies Adoption by Paddy Farmers. International Review of Management and Business Research, 3(3), 1379-1384.

Mohamad, M. R., & Sidek, S. (2013). The impact of innovation on the performance of small and medium manufacturing enterprises: Evidence from Malaysia. Journal of Innovation Management in Small & Medium Enterprise, 2013, 1-16.

Muhammad, M. Z., Char, A. K., Yasoa', M. R., & Hassan, Z. (2010). Small and medium enterprises (SMEs) competing in the global business environment: A case of Malaysia. International Business Research, 3(1), 66-75.

Mukherjee, D., Gaur, A. S., Gaur, S. S., & Schmid, F. (2013). External and internal influences on R&D alliance formation: Evidence from German SMEs. Journal of Business Research, 66(11), 2178-2185.

Ng, H. S., & Kee, D. M. (2013). SME innovation: Issues and effect on firm performance: A literature review. Proceedings of the 10th AAM International Conference 2013.

Nieto, M. J., & Santamaría, L. (2010). Technological collaboration: Bridging the innovation gap between small and large firms. Journal of Small Business Management, 48(1), 44-69.

OECD/FAO (2017). OECD-FAO agricultural outlook 2017-2026.

Omar, S. S., Arokiasamy, L., & Ismail, M. (2009). The background and challenges faced by the small medium enterprises. A human resource development perspective. International Journal of Business and Management, 4(10), 95-102.

Othman, J., & Jafari, Y. (2014). Selected research issues in the Malaysian agricultural sector. Jurnal Ekonomi Malaysia, 48(2), 127-136.

Peng, D. X., Schroeder, R. G., & Shah, R. (2008). Linking Routines to Operations Capabilities: A New Perspective. Journal of Operations Management, 26(6), 730-748.

Polder, M., Leeuwen, G. V., Mohnen, P., & Raymond, W. (2010). Product, process and organizational innovation: Drivers, complementarity and productivity effects. SSRN Electronic Journal.

Ramlan, R., & Abd Malek, M. (2011). Innovation Key to SMEs Success. University Kuala Lumpur-British Malaysian Institute.

Rezgui, Y., & Miles, J. (2010). Exploring the potential of SME alliances in the construction sector. Journal of Construction Engineering and Management, 136(5), 558-567.

Rhee, J., Park, T., & Lee, D. H. (2010). Drivers of innovativeness and performance for innovative SMEs in South Korea: Mediation of learning orientation. Technovation, 30(1), 65-75.

Ringle, C. M., Wende, S., & Becker, J-M. (2015). SmartPLS 3. SmartPLS GmbH, Boenningstedt.

Rosenbusch, N., Brinckmann, J., & Bausch, A. (2011). Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs. Journal of Business Venturing, 26(4), 441-457.

Said, F. M., Adham, A. K., Abdullah, A. N., Hannienen, S., & Walsh, T. S. (2012). Incubators and government policy for developing industry and region in emerging economies. Asian Academy of Management Journal, 17(1), 65-96.

Salim, I. M., & Sulaiman, M. (2011). Organizational learning, innovation and performance: A study of Malaysian small and medium sized enterprises. International Journal of Business and Management, 6(12), 118-126.

Samad, S. (2012). The influence of innovation and transformational leadership on organizational performance. Procedia - Social and Behavioural Sciences, 57, 486-493.

Sarkar, M. B., Echambadi, R., Cavusgil, S. T., & Aulakh, P. S. (2001). The influence of complementarity, compatibility, and relationship capital on alliance performance. Journal of the Academy of Marketing Science, 29(4), 358-373.

Saunila, M. (2014). Performance management through innovation capability in SMEs (Doctoral Dissertation, Lappeenranta University of Technology, Finland).

Shahadan, F., Berma, M., Ramlee, S., Idris, N. A., Azhar, Z., & Abdullah, Z. (2010). Status, performance and success factors affecting SMEs in agriculture and agro-based industries in Malaysia. In Small & medium enterprises in Malaysia: Potential and prospects (pp. 215-248). Ministry of Higher Education.

Škerlavaj, M., Song, J. H., & Lee, Y. (2010). Organizational learning culture, innovative culture and innovations in South Korean firms. Expert Systems with Application,37(2010), 6390-6403.

Śledzik, K. (2013). Schumpeter's view on innovation and entrepreneurship. management trends in theory and practice. SSRN Electronic Journal.

SME Corporation Malaysia. (2015). SME Annual Report 2015/2016.

SME Corporation Malaysia. (2016). SME Annual Report 2016/2017.

Sok, P., O'Cass, A., & Sok, K. M. (2013). Achieving Superior SME Performance: Overarching role of marketing, innovation, and learning capabilities. Australasian Marketing Journal (AMJ), 21(3), 161-167.

Stella, A. (2012). Organizational learning, innovation and small and medium enterprise (SME) performance in Uganda (Unpublished Master Dissertation). Makerere University, Uganda.

Thaker, M. T., Asmy, M., & Mohammed, M. O. (2013). The challenges of micro enterprises in Malaysia and the prospect for integrated cash waqf micro enterprise investment (ICWME-I) model. In Abdullah, M. A., & Owolabi Yusuf, M. -B. (eds), Small and medium enterprises (SMEs) in selected Muslim countries. Kuala Lumpur: IIUM Press.

Turner, J. A., Klerkx, L., Rijswijk, K., Williams, T., & Barnard, T. (2016). Systemic problems affecting co-innovation in the New Zealand Agricultural Innovation System: Identification of blocking mechanisms and underlying institutional logics. NJAS - Wageningen Journal of Life Sciences, 76, 99-112.

Walker, R. M. (2004). Innovation and organisational performance: Evidence and a research agenda. SSRN Electronic Journal.

Wonglimpiyat, J. (2011). Government programmes in financing innovations: Comparative innovation system cases of Malaysia and Thailand. Technology in Society, 33(2011), 156-164.

Yi, W. (2007). Factors influencing the success of virtual cooperation within Dutch - Chinese strategic alliances (Doctoral Dissertation, University of Twente, Netherlands).

Zainal Abidin, N., Mohd Anuar, M. A., & Abdullah, A. (2015). Penglibatan belia dalam pertanian komersial dan perkembangan industri pertanian di Malaysia. South-East Asian Journal for Youth, Sports & Health Education, 1(1), 99-108.

Zakaria, N., Abdullah, N. A. C., & Yusoff, R. Z. (2016). The innovation-performance linkage: Empirical evidence of Malaysian manufacturing SMEs. International Soft Science Conference. UK: Future Academy.

Zeng, S. X., Xie, X. M., & Tam, C. M. (2010). Relationship between cooperation networks and innovation performance of SMEs. Technovation, 30(3), 181-194.

Zhang, M., & Yin, X. (2012). The effect of R&D alliances on the speed of innovation: Evidence from Chinese SMEs. Physics Procedia, 25, 1155-1161.

How to Cite
Nurul Izni Kamalrulzaman, Azlinzuraini Ahmad, Akmalia Mohamad Ariff, & Mohd Shaladdin Muda. (2021). Innovation Capabilities and Performance of Malaysian Agricultural SMEs: The Moderating Role of Strategic Alliance. International Journal of Business and Society, 22(2), 675-695.