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Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

Information Technology, Logistics Performance and Moderating Effect of Firm Size: A Conceptual Model in Malaysian Perspective Nur Fadiah Mohd Zawawi1, Sazali Abd Wahab2 and Abdullah Al-Mamun3 Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, Malaysia. E-mail: [email protected]; [email protected]; [email protected] Abstract: Living in a world without borders, it can be seen that economy and logistics could not be separated. Logistics is like a backbone to the economic growth throughout the globe. When the economy expands dramatically, the more efficient logistics is needed to cater its expansion. Realizing this phenomenon, numbers of researchers all over the world developed variety of models to measure the performance of logistics in terms of its efficiency and effectiveness in delivering services. One of the significant determinants influencing the efficiency and effectiveness of logistics system is the implementation of information technology (IT) by the logistics service providers (LSPs). Hence, previous studies showed that IT gives significant effect on logistics performance, but even so many studies involve firm size as a moderator in business-related research model, there is no single research in logistics field ever studies the moderating effect of firm size on the attributes which influencing the effectiveness of LSPs’. Therefore, this study zooms into the lens of IT implementation in road logistics transportation, as the IT is agreed universally as an enabler for time and cost saver. More than IT, this study is focusing on the moderating effect of firm size in the relationship of IT implementation and road logistics transportation performance. Therefore, these findings are expected to benefit the logistics players inside and outside Malaysia in order to improve their services, as well as entrepreneurship knowledge up to the market demand level.

Keywords: Firm size, information technology, logistics service providers, Malaysia, performance.

1

Introduction

The logistics outsourcing theory was existed long time ago in the world history. It was started in 1950s’ and 1960s’ with transportation and warehousing services. It continued to expend until 1990s’, where several numbers of new expended services such as import/export management, freight forwarding, distribution, freight consolidation and reverse logistics were added to existing logistics services (Mitra, 2008). This phenomenon demonstrates that logistics market has to always being up to date with the current economic changing. This has been proved in the eyes of the world that recently the logistics market is once again evolving to cater the new styles of world trade. For instant, instead of China’s manipulation of manufacturers’ production, the geographic of logistics hubs spread, and new ones are developed nearer to larger customer’s concentrations like Brazil, South Africa, the Middle East and Russia (Intelligent, 2013). As such, logistics providers therefore are developing and expanding their services into these new geographic areas. Hence, it can be seen the pattern is like the bigger the areas of logistics hub, the greater the demand for logistics services. As 1

Nur Fadiah Mohd Zawawi, Master of Entrepreneurship candidate. Professor Dr. Sazali Abd Wahab, Dean of Malaysian Graduate School of Entrepreneurship & Business (main supervisor). 3 Dr. Abdullah Al-Mamun, Senior Lecturer (co-supervisor). 2

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Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

forecasted and analysed by Datamonitor (2010), the global logistics size will reach $4 trillion in 2013. This is for sure boosting up requests for logistics outsourcing services. This development of logistics industry in the world is parallel with its evolution in Malaysia. As reported by Bank Negara Malaysia (2003), the GDP in Malaysia’s manufacturing sector inclined up to 33.1% in 1995 and steadily arose and stabilized (Salina, 2004). The GDP is then reported to stabilize at 24% from 2009 to 2012 (Bank Negara, 2013). In the meanwhile, the total exports of manufactured goods increased by 11.6% and imports of manufactured goods increased up to 19.9% in 2009 (MITI, 2010). Therefore, due to the good growth of manufacturing industry in Malaysia, logistics sector becomes a key role in supporting the industry, until it is recognized as an engine for Third Industrial Master Plan (IMP3), with the target to increase the GDP from 50.5% in 2005 to 59.7% by 2020 (MITI, 2009). Recently, MITI (2013) updated that Services Sector has contributed 58% of the total GDP in 2011 and is aimed to hit 65% in 2020 and the logistics services eventually lies under this service sector. Hence, this phenomenon results in an increment of demand for more and more effective and efficient logistics services especially logistics transportation service in the external trade countries like Singapore, Thailand, Indonesia and Malaysia itself (Ali, 2008, Sum and Teo, 1999). This is crucial because the industry performance will give an impact to the progress of the nation’s industrialization and its competitiveness in international trade. Nevertheless, behind the hustle and bustle of economic expansion and good demand for logistics transportation services, there is a problem that spoiled the logistics transportation services to be efficient and effective as expected by customers; congestion. The congestion negatively affects businesses generally on deliveries, business schedule, workers, customers and meeting with clients (Hartgen, 2007). From the previous study, Hartgen (2007) found that 78% of businesses in Charlotte assume congestion is a greater problem for their business, as the congestion disturbs business performance through time delays that hard to manage and avoid. Other than Charlotte, this issue has been widely debated especially in big countries such as China (Gui-yan et al., 2007), Japan (Taniguchi et al., 1999) and UK (Trunick, 2004). Taniguchi et al. (1999) added, the congestion is pretty worse in urban areas, slightly due to the increment of truck, which then lead to increase in costs of transportation, spoil the efficiency and quality of logistics operations (McKinnon et al., 2009). In short, many studies claimed that the traffic congestion weakens business control and lengthen delivery time. It has been proven by Charlotte business community which lost about 20.3% of delivery time during delivering and receiving of goods and automatically increase the merchandise cost (Hartgen, 2007). Hence, congestion is always being a reagent of delays and rising costs, affecting business growth, increase service level and may damage the firm’s reputation as well (Sankaran et al., 2005, Systematics, 2008, Zhang and Figliozzi, 2010). To overcome this issue, many studies have shown that the implementation of IT is significantly positively related to firm performance; both efficiency and effectiveness in delivering the logistics services (Langley et al., 2007, Qiang Wang, 2008, Lai et al., 2008, Evangelista et al., 2012). Langley et al. (2007) also argued that the implementation of IT is a top three factor for logistics performance and simultaneously logistics users claimed that IT is among three main on-going challenges with the LSPs. For the beginning, this paper will discuss about the significant relationship between IT and firm performance and also to review the moderating effect of firm size on the relationship of IT implementation and firm performance, as this construct has been used by many field to observe its effect, but not yet in the field of logistics.

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Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

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The Resource-Based View Theory

A theory is a basic line for the researcher to execute a certain research. As for this study, Resource-Based View (RBV) theory is used as a guideline for a firm competitiveness. Based on RBV, firms can gain and sustain competitive advantages by constructing and employing valuable resources and capabilities (Wernerfelt, 1984). While Barney (1991) mentioned that, in the RBV theory, core capabilities might be identified from capabilities and resources of the firms, as they are the main elements which construct the theory and mainly contribute for the success of any organizations (Grant, 1991). What does it mean by resources and capabilities? According to Grant (1991), “resources are inputs into the production process. They include items of capital equipment, skills of individual employees, patents, brand names, finance, and so on. But, on their own, few resources are productive. Productive activity requires the cooperation and coordination of team of resources. A capability is the capacity for a team of resources to perform some task or activity”. Hence, the study is going to measure the efficiency and effectiveness of LSP firms based on the RBV theory, where the mixture of firms’ resources and capabilities is believed to catalyze the competitive advantage among competitors. According to the model of this study, IT implementation is considered as resouces, while firm size is assumed as the capabilities since Koufteros et al. (2007) mentioned that smaller size of firms have less skill employees. The combination of both contructs will be examined to observe the intended results.

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The Constructs

3.1

Implementation of IT Today, everyone who lives in the modern life knows the words IT and ICT. Academically, Oxford Dictionaries, Press (2013), defined IT as “the study or use of systems (especially computers and telecommunications) for storing, retrieving, and sending information”, while following Devenport (2001) in Zhou (2014), ICT is “a set of technologies that includes computing, telecommunications, multimedia and virtual reality”. Hence, in implementing IT in certain system, Li et al. (2009) defined IT adoption as “the extent to which a firm embeds a certain set of technologies in its processes and makes them fully operational for being used”. By implementing IT into a firm process, it is thus can be considered as a resource (Evangelista et al., 2012). IT systems also can be referred to any hardware or software which computerize the LSPs’ basic operations (Closs and Xu, 2000, Piplani et al., 2004). To make it clear about both terms IT and ICT, some journals use the term IT and some use the term ICT to present the systems which referred to computerized hardware and software. For example (Evangelista et al., 2012, Li et al., 2009, Chow et al., 2007) used the term IT in their studies, while (Kotnik et al., 2013, Perego et al., 2011, Zhou, 2014, Lucchetti and Sterlacchini, 2004) used ICT, but all of them are actually represents the same variables in their studies. In the meanwhile, Chadee and Pang (2008) use IT and ICT simultaneously in their study. Hence, it is agreed that both terms convey the same meanings in academic journals. Thus, the IT and ICT also will be used exchangeable in this study. Nowadays, the use of ICT in logistics field is growing fast throughout the world. Singapore’s 3PLs for example, they are happy with the benefits of IT and planning to adopt IT in their management system which automatically make the providers gain new technologies, knowledge and skills as well. As a result, IT is believed as a virtuous weapon for them to excellent in their business (Piplani et al., 2004). Not only in developed country like Singapore, ICT products has expended speedily in Asia’s less-develop countries too (Doren D. Chadee, 2008). It shows that by serving reliable, accurate and timely information, 3

Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

the growth of IT has greatly changed the means of doing business regardless of the geographic factor, thus improve the performance of supply chain directly (Li et al., 2009). The dissemination of IT in today’s world has contributed to the change of supply chain role for 3PLs firms and in this case, IT is seen as a vital element influencing the performance of modern logistics firms (Evangelista et al., 2012). Unfortunately, logistics firm in Malaysia’s Northern Region is limited in IT connection, thus unable them enter the international market (Thong, 2007). According to the literature, there are numerous types of IT systems used in logistics management including enterprise resource planning – ERP (Al-Mashari, 2002, Hsu and Chen, 2004, Kotnik et al., 2013); electronic data interchange – EDI (Angeles et al., 1998, Closs and Xu, 2000, Lucchetti and Sterlacchini, 2004), frequency identification – RFID (P. Helo and Szekely, 2005, Evangelista et al., 2012), global positioning system – GPS (Giaglis et al., 2004, Evangelista et al., 2012), transportation management systems – TMS (S.J. Mason et al., 2003, Perego et al., 2011), and bar code (Closs and Xu, 2000). As for this study, it will measure the implementation of IT in terms of two dimensions; basic technology (internet access and wide computer usage) (Li et al., 2009) and advanced technology (GPS, ERP, EDI and ERP) (Banomyong and Supatn, 2011, Evangelista et al., 2012). 3.2

Discussion IT or ICT is a good enabler for firms’ competitive advantage especially for LSPs which are directly involve with the usage of technology in their daily operations. Therefore, it is important for them to give a great concern regarding this matter in order to provide greater performance, and at the same time IT is also a key factor for the firms to enter international market and compete with foreign companies. Previous literatures also showed that all level of countries nowadays start to enjoy IT advantages, but somehow their implementations depend on how developed the countries are. 3.3

Size of Firm Size of firm is an important element influencing variety factors in a firm. According to SMECorp (2013), size of firm is determined by two means; annual sales turnover and number of full-time employees. These two categories are then differed by three sectors; manufacturing (including agro-based) and manufacturing-related services, primary agriculture, and services sector (including ICT). Therefore, this study used number of employees to measure the size of firm, while the number of employees are distinct based on the sectors mentioned before. Since it lies under the service sector, the size of firm is divided into four groups of size; micro (less than 5 employees), small (five to less than 20 employees), medium (20 to less than 50 employees) and big (more than 50 employees) firms. From the previous literature, it has been found that larger size of firms own extra resources (Boyer et al., 1996, Koufteros et al., 2007), more dynamic in devoting resources to supply chain activities and have higher influence in the supplier relationships, compared to smaller firms. In addition, larger firms also have formal visions, organizational procedures and measures (M.J. Chen and Hambrick, 1995), as well as they could invest in more financial and human resources (Koufteros et al., 2007). In contrast, smaller firms might account for little of supplier’s volume, therefore their integration is quite restricted and results in the inability to convince the suppliers to have further collaboration. Other than that, small firms may have less skills and resources, thus squeez the collaboration with other business. Their resources also may be deficient to have formal supplier evolution, as well as supplier monitoring and planning (M.J. Chen and Hambrick, 1995). However, the small firms still have a chance to gain business relationship 4

Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

with larger firms when the larger firms in significant with the specific assets from the prospective smaller firms. But this situation is very few to happen. In conclusion, it is quite troublesome for smaller firms to attract first-class business venture (Koufteros et al., 2007). Additionally, size of firm also generally influences the level of management technique and risk occurrence in doing the business (Zsidisin and Ellram, 2003). Jung et al. (2008) also confirmed that many empirical studies showed the distinctions between small and large logistics firms, but Jung et al. (2008) argued from customer perspective, they found that size has no significant effect on improving operational performance. Both large and small firms are in ability to serve the service to their customers without any distinction. Nevertheless, numbers of studies on firm size in logistics field were focusing on small firms, not really comparing between large and small firms (Evangelista and Sweeney, 2006, Gunasekaran and Ngai, 2003, Large, 2007, Murphy et al., 1999). 3.4

Discussion When discussing about firm size, the obvious emelent representing the firm size is the number of full-time employees hired. Based on the previous literature, larger firms have more advantages over the smaller firms including their resources and capabilities. This situation drags the disadvantages of smaller firms by influencing their relationships with suppliers and other clients as well. Most of smaller firms also fail to attract larger suppliers to tie business contracts, thus making them less competitive in larger business market. 3.5

Firm Performance The desired outcomes from logistics are numerous and range from customer satisfaction over issues such as environmental responsibility to overall cost-effectiveness. Other than Deepen, Dehler (2001, p.208) in Deepen (2007) argued that logistics performance should consists two measures; logistics costs and level of logistics services. Back to the issue of road transportation logistics performance, cost and service performance are crucial to the customers. Although low costs are important to attract customers, but the customers’ satisfaction over their services still lead their business process. Therefore, most customers select their LSPs in the highlight of operation performance such as speed and reliability, freight rates and rate of loss and damage (Menon et al., 1998). Specifically, delivery performance is measured by on-time delivery (Krauth et al., 2005), while Stewart (1995) measured delivery performance by “delivery-to-request rate, delivery-to-commit date, order fill lead-time and goods in transit”. Delivery performance also can be enhanced through the quality and means of information exchange, therefore the delivery system is much flexible and meet customers’ request accurately (Stewart, 1995). In the meanwhile, Krauth et al. (2005) addressed logistics firm performance through four dimension such as effectiveness, efficiency, satisfaction as well as IT and innovation. However, both terms effectiveness and efficiency always being confused by people. Theoretically, effectiveness means a measure of capability to produce intended results, while efficiency is a measure to produce results which resources used by the firms are taken into consideration. Since this study is going to measure the effectiveness and efficiency of logistics firm performance when applying IT systems in their services, there are six measures will present the performance. In terms of effectiveness, it will be measured by the increase of on-time delivery, number of delivery and total loading capacity. In contrast, the efficiency of the firms will be measured by the decrease of total distribution cost, total delivery cost and period of employees’ overtime (Krauth et al., 2005).

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Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

3.6

Discussion Performance is measured by variety of measurements such as financial and nonfinacial elements. Most customers valued both financial and non-financial performance in order to select their LSPs. In the case of logistics transportation for example, speedy delivery with less risk and low costs are two vital measures to determine their performance. It is considered as a good package offered by the firms to their customers. The combination of both criteria is called as effective and effectiveness service. However, there are a lot of other measures which determine the efficient and effective performance as mentioned by number of scholars. Hence, this study is aimed to measure the efficient and effectiveness of services provided by the LSPs as a result of IT implementation in their daily operations.

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How Does The Three Constructs Relate?

4.1

Implementation of IT and Firm Performance The implementation IT is considered as a key factor to achieve logistics excellence (Bowersox et al., 1999, Team and Management, 1995) and it enables firms to optimize the level of their service and costs (Bardi et al., 1994, Barbosa and Musetti, 2010). In Singapore for example, the logistics firms are enjoying the IT activities whilst obtaining new technologies with new knowledge and skills (Piplani et al., 2004). Not only developed country like Singapore, less developed countries in Asia are also started to adopt ICT systems in their business operations (Chadee and Pang, 2008). Hence, by providing the reliable, accurate and timely information, IT implementation is found changing the dynamism of doing business thus automatically improve the supply chain performance (Li et al., 2009) and give great influence to the performance of modern logistics firms simultaneously (Evangelista et al., 2012). Again, regarding to Evangelista et al. (2012), there is a significant positive relationship between EDI, RFID and barcode with the effectiveness and efficiency of operations and customer service of a firm. While in terms of road transportation, EDI and cargo tracing system are among important systems that lead to superior firm performance (Murphy et al., 2000, Lai et al., 2004). Other than EDI and cargo tracing, GPS is also installed to the road logistics transportations in order to ensure accurate position of desired destinations and traffic conditions, thus the delivery time could be saved and on-time (Poon et al., 2009). In contrast, a study on Italian’s logistics firms showed that basic technologies like the usage of phone/fax, internet and e-mail do not have any significant effect on their firms’ performance (Evangelista et al., 2012). Furthermore, the advanced IT adoption also improves quality of firm’s process, firm’s productivity, as well as enhancing customer service (Bowersox and Daugherty, 1995, Calder and Marr, 1998, James et al., 2004, Lau et al., 2006, Chow et al., 2007, Liu et al., 2010). Realizing this, Evangelista et al. (2012) concluded that the implementation of IT has a significant relationship with the firm performance. Thus, the first proposition is stated as follow: P1: The implementation of IT has positive significant effect on firm performance. 4.2

The Moderating Effect of Firm Size Since size of firm is a vital element influencing many factors in a firm, it is being a motivation to test the size of firm as a moderator in many fields. For instant, Jayaram et al. (2010) studied the moderating effect in the relationship of total quality management and effectiveness of a firm while Wahab et al. (2011a) used size as a moderator in the study of knowledge transfer. They also addressed that firm size has a significant moderating effect on 6

Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

know-how and collaborative relationship and knowledge tacitness and ambiguity (Simonin, 1997; Bresman et al., 1999; Dhanaraj et al., 2004; Simonin, 2004). Therefore, from the previous results, most studies mentioned that deeper roles of the tested relationships are more effective in smaller firms rather than larger firms, but some relationships are found vice versa (Jayaram et al., 2010). Similar to Wahab et al. (2011b), they found that the relationship between characteristics and degree of tacit knowledge is much stronger in smaller firms compared to larger firms. Since the firm size is very important, many studies in numerous disciplines have explored the moderating effect of size of firm on the firm performance. Unluckily, there is still no study in logistics field use size of firm as a moderator in any performance research. Thus, this study is going to examine the relationship of IT implementation and logistics firm performance to fill this gap. Then, the second proposition is stated as follow: P2: Size of firm moderates the relationship of IT implementation and firm performance. From the propositions above, a conceptual model can be formed as in Figure 1.

Figure 1: Conceptual model of road logistics transportation firm

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Conclusion

The growth of manufacturing industry in the whole world has increased the demand of logistics services especially for roads logistics transportation. These demands has created congestion, which then disturb the firm performance by delivery time delay and increasing in costs. Therefore, in order to overcome this situation and maintain the effectiveness and efficiency of road transportation logistics performance, implementation of IT in the firm’s operation system has been recognized can be a vital element to help them deliver goods smoothly. According to the literatures, among systems that can be applied are basic and advanced technologies such as internet, GPS, EDI, ERP and RFID. Abundant of firms in developed and less developed countries has implemented those technologies and found to have good influence on their firm performance. In addition to the IT implementation, this study is going to examine the moderating effect of firm size in the relationship of IT 7

Proceedings of the 3rd International Seminar on Entrepreneurship and Business (ISEB 2014) 14th December 2014, Hotel Perdana, Kota Bharu, Kelantan, Malaysia

implementation and firm performance since previous studies showed that smaller firm give more influence to the examined relationships of certain discipline of studies and some found vice versa. Since there is still no study testing the moderating effect of firm size in logistics discipline, this study is going to fill this gap, especially in the Malaysian context. Not only in the logistics field, can this conceptual model also be used in other sectors like manufacturing and agriculture in the future.

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Future Research

Since this is a conceptual paper, the future research should consider this model. This can be done by using primary data collected from the road transportation logistics firms in any desired area of study. Nevertheless, this developed conceptual model is not limited to logistics sector only, but it also can be applied to any field as IT nowadays is widely used as an enabler for many groups of performance. Besides that, for the future research, researcher can consider other additional construct in this model to see their relations on the firm performance. Also, next researcher is also welcomed to conduct more research in this scope in Malaysian perspective since there is only little studies done and therefore academic world hunger for the literatures in the context of our country, Malaysia.

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References

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