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Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector

Aim/Purpose: The Malaysian government has given numerous incentives to small and medium enterprises (SMEs), including those in the food manufacturing sector, in an attempt to boost their performance. This study aims to assess the effects of these incentives, particularly financial and tax incentives...

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Main Authors: Sharifuddin, Juwaidah, Abdul Aziz, Norhasmat
Format: Article
Language:English
Published: Informing Science Institute 2019
Online Access:http://psasir.upm.edu.my/id/eprint/80733/1/SME.pdf
http://psasir.upm.edu.my/id/eprint/80733/
https://www.informingscience.org/Publications/4449
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id my.upm.eprints.80733
record_format eprints
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
description Aim/Purpose: The Malaysian government has given numerous incentives to small and medium enterprises (SMEs), including those in the food manufacturing sector, in an attempt to boost their performance. This study aims to assess the effects of these incentives, particularly financial and tax incentives, on the performance of SMEs in the Malaysian food manufacturing sector. Background: Millions of Ringgit has been allocated for the development of SMEs by the Malaysian government. The findings of this study aim to assist the policymakers in improving the current policies in incentive give outs to enhance the effectiveness and reduce the number of SMEs that were forced to close down in less than five years of operation. Methodology: The study was conducted using structure, conduct, and performance (SCP) paradigm on secondary data from 140 companies over a period of five years (2013 – 2017). Correlation analysis was done to explore the relationship between each explanatory market variables included in the SCP paradigm. Contribution: This study provides insights into the effect of different types of government incentives on the performance of SMEs in the Malaysian food manufacturing sector. Findings: The study found that financial and tax incentives gave different effects on the performance of SMEs in the Malaysian food manufacturing sector during the study period. Financial incentive shows a weak positive significant correlation with advertising-to-sales ratio (ASR), return on assets (ROA) and market share (MS) ratio while showing negative significant correlation towards capital intensity (CAP). On the other hand, tax incentive shows a strong significant positive correlation with MS and weak significant positive correlation with CAP, ROA and return on sales (ROS). This shows that financial incentive strongly correlates with SMEs’ performance, whereas tax incentive is associated with market structure and conduct of SMEs in the Malaysian food manufacturing sector. Recommendations for Practitioners: Firstly, the government should consider providing extra assistance to SMEs in entering the sector as entry barriers for the sector is relatively high. Focus can be given in increasing financial incentives at a more competitive rate as it can reduce debt or increase the firm’s equity or aid firms in acquiring assets, which are crucial for efficient and effective production of processed food. Allocation of tax incentives should be reviewed as it does not have a strong correlation with firms’ performance. Recommendation for Researchers: There are limitations to the number of SMEs included in this study. Hence, researchers are recommended to have direct contact with more firms to ensure more accurate data. Impact on Society: With more efficient and effective policies in the government’s financial and tax incentives, more allocation can be channeled to other areas that have direct implications to the citizen. Additionally, with better policies, more jobs will be created in the market, and a highly competitive market will lead to a production of higher quality products that can be enjoyed by the consumers. Future Research: This study has contributed to the SCP paradigm as it demonstrated the effects of government financial and tax incentives on the market structure, conduct, and performance of SMEs in the Malaysian food manufacturing sector. Future researches might focus on non-financial incentives given out by the government such as human resource development, training, industrial infrastructure and amenities, technology development and capabilities, technology transfer, and organizational innovation.
format Article
author Sharifuddin, Juwaidah
Abdul Aziz, Norhasmat
spellingShingle Sharifuddin, Juwaidah
Abdul Aziz, Norhasmat
Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
author_facet Sharifuddin, Juwaidah
Abdul Aziz, Norhasmat
author_sort Sharifuddin, Juwaidah
title Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
title_short Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
title_full Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
title_fullStr Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
title_full_unstemmed Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector
title_sort assessing the effects of government incentives on the performance of smes in food manufacturing sector
publisher Informing Science Institute
publishDate 2019
url http://psasir.upm.edu.my/id/eprint/80733/1/SME.pdf
http://psasir.upm.edu.my/id/eprint/80733/
https://www.informingscience.org/Publications/4449
_version_ 1683232242176884736
spelling my.upm.eprints.807332020-11-12T00:22:32Z http://psasir.upm.edu.my/id/eprint/80733/ Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector Sharifuddin, Juwaidah Abdul Aziz, Norhasmat Aim/Purpose: The Malaysian government has given numerous incentives to small and medium enterprises (SMEs), including those in the food manufacturing sector, in an attempt to boost their performance. This study aims to assess the effects of these incentives, particularly financial and tax incentives, on the performance of SMEs in the Malaysian food manufacturing sector. Background: Millions of Ringgit has been allocated for the development of SMEs by the Malaysian government. The findings of this study aim to assist the policymakers in improving the current policies in incentive give outs to enhance the effectiveness and reduce the number of SMEs that were forced to close down in less than five years of operation. Methodology: The study was conducted using structure, conduct, and performance (SCP) paradigm on secondary data from 140 companies over a period of five years (2013 – 2017). Correlation analysis was done to explore the relationship between each explanatory market variables included in the SCP paradigm. Contribution: This study provides insights into the effect of different types of government incentives on the performance of SMEs in the Malaysian food manufacturing sector. Findings: The study found that financial and tax incentives gave different effects on the performance of SMEs in the Malaysian food manufacturing sector during the study period. Financial incentive shows a weak positive significant correlation with advertising-to-sales ratio (ASR), return on assets (ROA) and market share (MS) ratio while showing negative significant correlation towards capital intensity (CAP). On the other hand, tax incentive shows a strong significant positive correlation with MS and weak significant positive correlation with CAP, ROA and return on sales (ROS). This shows that financial incentive strongly correlates with SMEs’ performance, whereas tax incentive is associated with market structure and conduct of SMEs in the Malaysian food manufacturing sector. Recommendations for Practitioners: Firstly, the government should consider providing extra assistance to SMEs in entering the sector as entry barriers for the sector is relatively high. Focus can be given in increasing financial incentives at a more competitive rate as it can reduce debt or increase the firm’s equity or aid firms in acquiring assets, which are crucial for efficient and effective production of processed food. Allocation of tax incentives should be reviewed as it does not have a strong correlation with firms’ performance. Recommendation for Researchers: There are limitations to the number of SMEs included in this study. Hence, researchers are recommended to have direct contact with more firms to ensure more accurate data. Impact on Society: With more efficient and effective policies in the government’s financial and tax incentives, more allocation can be channeled to other areas that have direct implications to the citizen. Additionally, with better policies, more jobs will be created in the market, and a highly competitive market will lead to a production of higher quality products that can be enjoyed by the consumers. Future Research: This study has contributed to the SCP paradigm as it demonstrated the effects of government financial and tax incentives on the market structure, conduct, and performance of SMEs in the Malaysian food manufacturing sector. Future researches might focus on non-financial incentives given out by the government such as human resource development, training, industrial infrastructure and amenities, technology development and capabilities, technology transfer, and organizational innovation. Informing Science Institute 2019 Article PeerReviewed text en http://psasir.upm.edu.my/id/eprint/80733/1/SME.pdf Sharifuddin, Juwaidah and Abdul Aziz, Norhasmat (2019) Assessing the effects of government incentives on the performance of SMEs in food manufacturing sector. International Journal of Community Development and Management Studies, 3. pp. 43-55. ISSN 2576-4306 https://www.informingscience.org/Publications/4449
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