Asian Review of Accounting

Emerald Article: The effects of changes in competition, technology and strategy on organizational performance in small and medium manufacturing companies Tuan Zainun Tuanmat, Malcolm Smith

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To cite this document: Tuan Zainun Tuanmat, Malcolm Smith, (2011),"The effects of changes in competition, technology and strategy on organizational performance in small and medium manufacturing companies", Asian Review of Accounting, Vol. 19 Iss: 3 pp. 208 - 220 Permanent link to this document: http://dx.doi.org/10.1108/13217341111185137 Downloaded on: 08-07-2012 References: This document contains references to 36 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 1498 times since 2011. *

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Tuan Zainun Tuanmat, Malcolm Smith, (2011),"Changes in management accounting practices in Malaysia", Asian Review of Accounting, Vol. 19 Iss: 3 pp. 221 - 242 http://dx.doi.org/10.1108/13217341111185146 Amizawati Mohd Amir, (2011),"The indirect effects of PMS design on Malaysian service firms' characteristics and performance", Asian Review of Accounting, Vol. 19 Iss: 1 pp. 31 - 49 http://dx.doi.org/10.1108/13217341111130542 Haitham Nobanee, Modar Abdullatif, Maryam AlHajjar, (2011),"Cash conversion cycle and firm's performance of Japanese firms", Asian Review of Accounting, Vol. 19 Iss: 2 pp. 147 - 156 http://dx.doi.org/10.1108/13217341111181078

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The effects of changes in competition, technology and strategy on organizational performance in small and medium manufacturing companies
Tuan Zainun Tuanmat
Faculty of Accountancy, University Teknologi MARA, Malaysia, and

Malcolm Smith
School of Accounting Finance & Economics, Edith Cowan University, Joondalup, Australia
Abstract
Purpose This study aims to examine how the relationship among competitive environment, manufacturing technology and organisational strategy affect organisational performance. Design/methodology/approach Using a contingency approach, this study investigates the changes in competitive environment, manufacturing technology and organisational strategy in small and medium Malaysian manufacturing companies. The data is collected using a mailed questionnaire survey of manufacturing companies in the Klang Valley. Findings Results of the study show that the majority of responding companies have recognised changes in their competitive business environment and advanced manufacturing technology, which have impacted on organisational strategic behaviour. Structural equation modelling shows positive relationships among competitive environment, manufacturing technology and organisational strategy, with a positive impact on performance. Research limitations/implications These outcomes provide useful insights into our knowledge of how organisational change has taken place in small and medium companies. Practical implications The study provides useful guidelines to small and medium sized companies facing changes to their business environment. Originality/value The study makes an incremental contribution to the existing organisational change literature for SMEs in developing countries. Keywords Small to medium-sized companies, Strategy, Competitive environment, Organizational performance, Malaysia Paper type Research paper

Asian Review of Accounting Vol. 19 No. 3, 2011 pp. 208-220 r Emerald Group Publishing Limited 1321-7348 DOI 10.1108/13217341111185137

1. Introduction Small and medium enterprises (SMEs) are the biggest industrial contributor to the Malaysian economy. They represent the largest proportion of the manufacturing sector in Malaysia (63 per cent of the total manufacturing companies in Malaysia[1]). For this reason, the Malaysian government has provided many support programmes, as well as technical and financial assistance, in order to offer a better business environment for these companies. Globalization has changed the business environment of manufacturing industry in Malaysia with an increase in competition and advanced manufacturing technology (AMT). According to Kassim et al. (2003) globalization brings in new technology and makes a developing country open to greater competition. These changes have forced SMEs, not only to compete among themselves, but also to compete with the larger manufacturing firms. Therefore, in order to sustain and

remain competitive, SMEs must rely not only on government incentives, but they also need to ensure that they adopt business strategies that are matched with the changes in business competition and AMT. As the firm strives to achieve a better fit with its environment, and to be more successful, sustaining and improving current performance will become critical. However, very limited research has taken place into how changes in technological and competitive business environments have caused strategic change in SMEs and how these changes affect performance. This study used a contingency theory perspective to explain the relationship among these variables. A contingency perspective suggests that a good match between internal and external organizational factors will result in performance improvement. The framework for this study is developed based on the structural contingency frameworks developed within organizational theory (Gordon and Miller, 1976; Simons, 1987; Waterhouse and Tiessen, 1978) (see Figure 1). Since the SMEs are important contributors to Malaysian manufacturing industry, and are privileged from the perspective of government business policy, it is important to ensure that these organizations can manage their businesses efficiently. This can be achieved if they adopt business strategies that are matched with the current changes in the manufacturing business environment. Therefore, in order to fully understand the business operation in SMEs, this study addresses the following research objectives: (1) (2) To examine the level of change in competition, AMT and strategy in Malaysian manufacturing SMEs. To examine the effects of alignment among competition, technology and strategies on SMEs performance.

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2. Literature review and hypotheses development 2.1 Changes in competitive environment and AMT Small-scale industries should develop their strategies effectively after analysing the business environment (Singh et al., 2010). In a changing environment, markets have become more competitive, mainly in respect of an increased level of quality and competitively priced products. Organizations may respond to these changes by reorganizing their work processes through the adoption of strategies that have a stronger customer orientation. In an uncertain environment, many organizations have made considerable investments in AMT such as computer-integrated manufacturing (Baines and Langfield-Smith, 2003), which in turn can increase quality, productivity and flexibility as well as reduce cost. As the AMT helps to speed up the manufacturing process, differentiation strategies are needed to provide on time, high-quality product. The institutional approach to organizational change suggests that organizational structures affect an organizations learning strategy and ability to adapt to changes in the external environment. It suggests that the organizations structural arrangements
Competition Strategy Manufacturing technology Performance

Figure 1. Research framework

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can successfully change if they implement either incremental or radical adaptive strategic change (Sisaye, 2003). Theorists of revolutionary change have suggested that all organizational elements such as strategy, structures, people, systems and culture, have to be changed simultaneously to achieve maximum organizational alignment and effectiveness (Huy, 2001). Thus, the following hypotheses are proposed: H1. Small and medium manufacturing companies in Malaysia have become more competitive. H2. Small and medium manufacturing companies in Malaysia have significantly adopted AMT. H3. Small and medium manufacturing companies in Malaysia have significantly changed their differentiation strategic emphasis. 2.2 Changes in strategy Hambrick (1980, p. 567) views strategy as a pattern of important decisions that guide the organization in its relationship with its environment. This study focuses on how firms use business strategy in a competitive market to improve performance. In order to understand the strategic choice process, it is important to add to our understanding of different strategy typologies. Miles and Snow (1978) developed four strategy typologies: prospector, defender, analyser and reactor, whereas, Porter (1980) proposed two different types of strategy, i.e. a low cost strategy and a product differentiation strategy. The typology developed by Miles and Snow (1978) is based on how companies respond to a changing environment and align that environment with their companies. Increasing globalization has resulted in intense and aggressive competition, increased customer demand and shorter product life cycles (Shields, 1997). A proper link between strategy and manufacturing operations is the key to developing sustainable competitive advantage (Porter, 1996). One way in which organizations can respond to increasing customer demands of quality, flexibility and dependability of supply is by responding to the current changes in advanced information and manufacturing technology. For example, Martin-Pena and Diaz-Garrido (2008) found that in a competitive environment, manufacturers are focused on quality and delivery The organization should change its strategy to accommodate the change in environmental factors. Several researchers have established that an organizations strategy is established in response to its competitive environment, and that the appropriate matching of strategy and the environment can enhance performance (Baines and Langfield-Smith, 2003; Chenhall and Langfield-Smith, 2003; Singh et al., 2010). For example Singh et al. (2010) suggest that small scale companies should seek to improve product quality and their ability to reduce delivery lead time, in order to improve their competitiveness at global level. According to Davenport (2000), organizations that do not have their information systems aligned with their strategic objectives are less successful than organizations that have aligned their information technology and strategy. A number of researchers have also studied the linkage between competitive environment, advanced technology and strategy. For example, Baines and LangfieldSmith (2003), Chenhall and Langfield-Smith (2003), Harris (1996) and DeLisi (1990) show that firms facing a more competitive environment, and technology advancement,

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will change towards a differentiation strategy. Fuschs et al. (2000) found that successful firms aligned key elements of strategy with the environment. On the other hand, Baines and Langfield-Smith (2003) confirmed that the relationship between changes leading to a more competitive environment and changes towards a differentiation strategy were particularly strong, reflecting environmental change as a driver of strategic change. Baines and Langfield-Smith (2003) also show a significant relationship between changes in AMT and changes in strategy. As the environment becomes dominated by increasingly more demanding customers, a firm may place emphasis on developing a differentiation strategy that emphasizes more customer-oriented aspects such as quality, flexibility, innovative products and dependability of supply (Perera et al., 1997). DeLisi (1990), suggests that, in order to enhance competitive advantage, strategy should be changed by employing advanced information technology. Schroeder and Congden (2000), in a study of small-to-medium-sized manufacturers, found the most financially successful firms were those which demonstrated a tight alignment between strategy and technology, while Kotha and Swamidass (2000) found that for firms competing on the basis of quality, customer service, delivery reliability, product features and flexibility, investment in AMT resulted in superior growth. This leads to the following hypotheses: H4. Increased changes in competitive environment caused a change in organizational strategies. H5. Increased changes in the use of AMT caused a change in organizational strategies. 2.3 Performance From the literature, it is suggested that organizational performance tends to be dependent on the positive relationship between the use of organizational systems and on situational factors (Baines and Langfield-Smith, 2003; Chenhall and Morris, 1986; Haldma and Laats, 2002; Hoque, 2004; Hyvonen, 2007). Langfield-Smith (1997) provides evidence that a good match among an organizations environment and strategy may result in high-organizational performance. A key component in understanding how operations support strategic priorities, and the interdependency of activities across the value chain, is the formulation of performance measures designed to coordinate manufacturing decisions and activities to achieve a balanced set of strategic priorities (Chenhall and Langfield-Smith, 1998). It has been argued that in order to support and evaluate the achievement of strategic advantages, reliance on financial performance measures alone will not necessarily improve financial results, as financial measures only indicate the outcome of past activities which may be no guide to improving future performance (Choe, 2004). Thus, strategy, actions and measures have to work consistently. To achieve this, integration of financial and non-financial performance measures is important. If quality and time become essential strategic criteria, financial performance measures alone are less effective for the long run management of the company (Chenhall and Langfield-Smith, 2003). Therefore, the following hypothesis is developed: H6. Changes in strategy, resulting from changes in competition and AMT, will positively affect organizational performance.

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3. Research method The sample in this study embraces small and medium manufacturing companies in Malaysia. The Small and Medium Enterprise Corporation Malaysia (SME Corp. Malaysia) defines small companies as those companies having 50 or fewer employees, whereas companies with between 51 and 150 employees are designated as medium sized. Following this definition, a sample of 500 small and medium manufacturing companies was randomly selected from Federation of Malaysian Manufacturer Directory. A questionnaire was mailed to these companies together with a covering letter and replied paid envelope. The covering letter explained the detail of the survey, contact information and also instructions for completion of the survey; respondents were also informed that all the information provided would be treated in the strictest confidence and that only aggregated findings would be reported. Two weeks after the initial mailing, a reminder letter was sent to respondents. Within one month of the questionnaires being mailed to respondents, 182 out of 500 companies had replied (a response rate of 36.4 per cent). This rate is considered sufficient for statistical analysis and inference. A comparative analysis between the early and late respondents was conducted to assess non-response bias. The test (mean score) indicated no significant differences between the two groups, a result which suggests no evidence of non-response bias in the data. The variables measured in this study cover the four areas in the research framework. A five-point Likert scale was applied to indicate changes in contextual variables in this study (namely competition, AMT, strategy and performance). Where relevant, respondents were given the opportunity to indicate if the various practices or items had never been used or adopted (indicated as N/A). Any item which was not applicable was treated as a missing value. In order to enhance the validity and reliability of the measures, the instruments used in this study are adopted from previous studies in this field (Askarany and Smith, 2008; Baines and Langfield-Smith, 2003; Hoque et al., 2001). In this case the measure of reliability for the overall items, i.e. Cronbachs a, is used to test the internal consistency reliability. Structural equation modelling (SEM) is used as the main statistical technique to test the hypothesized model developed in this study. Besides SEM, descriptive statistics are used to examine the level of changes in the studied variables. SEM is a statistical technique that allows the simultaneous analysis of a series of structural equations and is particularly useful when a dependent variable in one equation becomes an independent variable in another equation (Smith and Langfield-Smith, 2004). SEM requires a minimum sample size of 100 as a suggested rule of thumb. A sample size of 200 may be required to generate valid fit measures and to avoid drawing inaccurate inferences (Smith and Langfield-Smith, 2004). Thus, the sample size of 182 is considered sufficient for statistical analysis, and ultimately for accomplishing the objectives of this research. This study employs LISREL for Windows version 8.80 to analyse the data, an approach which enables researchers to construct unobservable latent variables, model errors in measurement, and statistically test a priori theoretical and measurement assumptions against empirical data. SEM provides a range of fit indices to assess the overall fit of the entire structural model. Goodness of Fit (GOF) indicates how well the specified model reproduces the covariance matrix among the indicator items. The basic and most commonly-used fit index reported is the chi-square (w2) statistic and the associated degree of freedom (df). According to Hair et al. (2006), multiple fit indices should be used to assess a models

GOF which include GFI, CFI, NFI, RMSEA and SRMR. The ultimate goal for any of these fit indices is to assist the researcher in discriminating between acceptably and unacceptably specified models. Academic journals are replete with SEM results citing a 0.90 value on key indices, as indicating an acceptable model. However, Hair et al. (2006) provides some guidelines for using fit indices in different situations, which suggest that simpler models and smaller samples should be subject to stricter evaluation, than are more complex models with larger samples. Since this study uses a simple model and a relatively small sample, a 0.97 value on key indices is used. 4. Results and discussion 4.1 Profile of responding companies As can be seen from Table I, the majority of the respondents are from the electrical and electronics industry (26.9 per cent); followed by base metal products (10.8 per cent), food processing (9.4 per cent), machinery and equipment (7.1 per cent), petrochemical and rubber products (both 6.6 per cent). Companies from other industries range between 1.4 and 4.2 per cent in terms of their level of responses. The sample in this study embraces both small and medium companies. The number of employees for these participating companies thus ranged from less than or equal to 50, for small companies, to 51-150 for medium companies. The majority (68 per cent) indicated that the total number of employees was in the range 50-150, and so designated as medium-sized organizations. The remaining 32 per cent of responding companies were designated as small companies (with 50 employees or fewer).

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Frequency Electrical and electronics Engineering supporting Food processing Life sciences Machinery and equipment Petrochemical and polymer Rubber products Transport equipment Base metal products Wood-based Publishing Shipping Information technology Automotive Paints and coatings Fertilizers Stationery Plastic Yachts builders Cosmetics and toiletries products Chemicals Total 49 3 17 3 13 12 12 3 19 1 3 3 6 8 5 5 3 5 3 5 4 182

(%) 26.89 1.42 9.43 1.42 7.08 6.6 6.6 1.42 10.85 0.94 1.42 1.42 3.77 4.25 2.83 2.83 1.42 2.83 1.42 2.83 2.36 100

Valid (%) 26.89 1.42 9.43 1.42 7.08 6.6 6.6 1.42 10.85 0.94 1.42 1.42 3.77 4.25 2.83 2.83 1.42 2.83 1.42 2.83 2.36 100

Cumulative (%) 26.89 28.3 37.74 39.15 46.23 52.83 59.43 60.85 71.7 72.64 74.06 75.47 79.25 83.49 86.32 89.15 90.57 93.4 94.81 97.64 100

Table I. Industry classification

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4.2 Descriptive statistics 4.2.1 Level of competition (H1). Details of the descriptive statistics for all of the variables in a competitive environment are presented in Table II. The results show high mean values for all variables (more than 4.0), which show that the competitive environment in Malaysian manufacturing industries has increased significantly over the past five years. The areas of greatest increase in competitiveness relate to competition for market/revenue share (mean 4.23), price competition (mean 4.23) and competitors action (mean 4.17). These results show that the level of competition in Malaysian manufacturing SMEs has increased (average mean 4.13). Therefore H1 is accepted. 4.2.2 Level of changes in the use of AMT (H2). Descriptive statistics for AMT in Table III below indicate a high mean value for each of the measures (43.3). It shows a significant increase in the use of AMT in Malaysian manufacturing industry in the period of study (average mean 3.48). The technologies that largely contribute to the increase in AMT are testing machines (mean 3.85) and JIT (mean 3.78). Therefore, it can be concluded that the Malaysian manufacturing SMEs have increasingly adopted the new manufacturing technology. Thus, H2 cannot be rejected. 4.2.3 Level of changes in strategy (H3). Table IV below summarizes the descriptive statistics for organizational strategy. The results indicate that each of the various aspects of differentiation strategy were considered to have changed significantly over

List of constructs and measures 1. 2. 3. 4. 5. 6. Competitors action Marketing/distribution channels competition Competition for markets/revenue share No. of competitors in market segments Price competition Competition for new product development Total

Mean 4.17 4.07 4.23 4.05 4.23 4.02 4.13

SD 1.49 1.48 1.24 1.70 1.68 1.84

Table II. Descriptive statistics for competition

Variables 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Computer-aided process planning (CAPP) Computer-aided engineering (CAE) Computer-aided design (CAD) Computer-aided manufacturing system (CAM) Computer-integrated manufacturing (CIM) Testing machines Numerical control Just-in-time Robotics Flexible manufacturing system (FMS) Direct numerical control Total

Mean 3.45 3.28 3.48 3.52 3.47 3.85 3.40 3.78 3.38 3.55 3.38 3.48

SD 2.03 1.20 2.18 1.95 1.83 1.97 1.92 1.73 1.81 1.55 1.57

Table III. Descriptive statistics for AMT

Note: AMT, advanced manufacturing technology

the past five years (average mean 4.12). In particular, high quality products, on time delivery, dependable delivery promise, after sales service and product customization strategy. H3 of this study is supported by the high mean values for all variables. 4.3 Structural equation model analysis In order to proceed with the analysis using SEM, the reliability and validity of all measurements in each of the latent variables (i.e. competition, AMT, strategy and performance) are tested using Cronbachs a and average variance extract (AVE) (Table V). The results show that both the Cronbachs a and AVE values are above the threshold value (see Table VI). Therefore, it can be concluded that all measures were statistically valid and reliable for further analysis. Results of correlation matrix analysis also show that none of the variables are so highly inter-correlated as to suggest a multicollinearity problem (see Table V).

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Variables 1. 2. 3. 4. 5. 6. 7. 8. Make changes in design and introduce quickly Customize products and services to customer need Product availability (broad distribution) Provide effective after sales service and support Make rapid volume/product mix changes Provide on time delivery Provide high-quality products Make dependable delivery promise Total

Mean 3.84 4.11 4.04 4.13 3.94 4.33 4.43 4.19 4.12

SD 1.78 1.47 1.52 1.70 1.49 1.47 1.43 1.49

Table IV. Descriptive statistics for organizational strategy

Variables Competition AMT Strategy Performance

Competition 1.00 0.22* 0.55* 0.30*

AMT

Strategy

Performance

1.00 0.26* 0.20*

1.00 0.56*

1.00

Notes: AMT, advanced manufacturing technology; *correlation is significant at the po0.01 (one-tailed)

Table V. Correlation matrix among the constructs

Variable Change in competitive environment Change in AMT Change in strategy performance Note: AVE, average variance extract

Theoretical range 1-5 1-5 1-5 1-5

Actual range (mean) Mean 2.87-5.00 1.70-4.53 2.67-5.00 2.73-4.95 4.13 3.48 4.12 3.07

SD 1.13 1.25 1.14 1.06

Cronbachs a AVE 0.81 0.93 0.90 0.93 0.45 0.66 0.58 0.70

Table VI. Descriptive statistics for final variables

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The high value of reliability measures indicated internal consistencies among the constructs and provide confidence that the items in each variable were measuring a single construct (Baines and Langfield-Smith, 2003). Factor analysis conducted prior to the SEM analysis show high factor loading for all variables (40.5). High AVE and loadings on the predicted factors indicated convergent validity, whereas low correlation between factors (o0.60), demonstrated discriminant validity. Large correlations between constructs (40.80 or 0.90) suggested a lack of discriminant validity. SEM output in Figure 2 shows the good fit model. The p-value of the w2 was more than the threshold value of 0.05 (p 0.57). Thus, it is concluded that there was o5 per cent likelihood that there is a difference between SEM estimated covariance matrix and observed sample covariance matrix. With such a small discrepancy between estimated and observed covariance matrix, it can be said that the specified model is a feasible representation of the data it purports to portray, which means the data were not significantly different from those expected on a given theory. All of the important fit indices were above the threshold value. RMSEA and RMR values were less than the threshold value of 0.08. These showed that the discrepancy per degree of freedom (df) was small (RMSEA 0.014) and also a smaller difference between estimated and observed covariance matrix per element (RMR 0.018). The value of GFI of 0.99 and AGFI of 0.97 provide more evidence for a well fitting model. AGFI is very similar to GFI except that an adjustment has been made to take into account the degree of freedom for the model. Incremental fit indices lie between zero and one, with a value of one indicating that the specified model is a perfect fit. It measures how much better is the model that assumes at least some relationships, as compared to a model with no relationship. The value of NFI and GFI were 0.99, which is more than the accepted value of 0.97 for the fit model. A value of CFI equal to 1.00 indicated a perfect model fit. The test of the hypothesized structural model includes estimating the path coefficients and t-values. In addition to t-values provided in SEM analysis, p-values for each of the parameters were also calculated using the Free Statistics Calculators web site developed by Soper (2009), to test the significant level of the hypotheses. The fit measures in the structural model indicate a good model fit with all of the parameters statistically significant. The results of the test are presented in Table VII.
Competition 0.51 Strategy Manufacturing Technology 0.18 0.56 Performance

Figure 2. Structural model

Notes:

2=

2.14; df = 2; P-value = 0.57; RMSEA = 0.014

Hypotheses H4: Competition-Strategy H5: AMT-Strategy H6: Strategy-Performance

Standardized value 0.51 0.18 0.56

t-value 8.78 3.11 9.73

p-value 0.006** 0.045* 0.005**

Table VII. Result of hypotheses testing

Notes: Significant level at **po0.01; *po0.05 (one-tailed)

H4 proposes that changes in competition will result in changes in organizational strategy, and is supported at a significance level of po0.01 (p 0.006). A strong positive relationship between changes in competition and strategy indicated that the organizations had changed their strategy in order to remain competitive. H5 is supported at a significance level of po0.05 (p 0.045). It shows that rapid manufacturing technology development also caused organizations to change their strategy. H6 examined the impact of changes in competitive environment and AMT with changes in strategy on performance. This hypothesis is supported at po0.01. The changes in organizational strategy had a positive impact on performance (p 0.005). Therefore, it can be concluded that organizational strategy reacted to changes in competitive environment and technological advancement in a positive direction, which in turn impacted on performance in a positive direction. 5. Discussion and conclusions The findings from this study confirm a significant increase in the competitive environment faced by Malaysian small and medium manufacturing companies. The use of AMT has also increased significantly. Results also show that these companies have placed more emphasis on their strategic behaviour, and that the business environment surrounding the small and medium manufacturing companies in Malaysia has become more competitive with the increased adoption of AMT. Increased competition and the use of AMT are both congruent with the increase in changes in organizational strategy, outcomes which are particularly important for SMEs wishing to compete in a globalized environment. The hypotheses propose that a change in competition and AMT will result in changes in companies strategic behaviour. Results show that both competition and AMT significantly impact on the changes in strategy. These hypotheses support those of other studies in this area (e.g. Baines and Langfield-Smith, 2003; Chenhall, 2003; DeLisi, 1990; Fuschs et al., 2000; Schroeder and Congden, 2000). Previous studies have also established that an appropriate matching among these variables can enhance performance (Baines and Langfield-Smith, 2003; Chenhall and Langfield-Smith, 2003; Davenport, 2000; Kotha and Swamidass, 2000; Schroeder and Congden, 2000). These findings imply that competitive environment and the application of effective manufacturing technology require organizations to formulate a clear business strategy, in order to differentiate themselves from their competitors, as well as to create value for their customers (Jermias and Gani, 2002; Simons, 1987). Hence, it appears that a proper match among these variables is essential regardless of how they are operated in small, medium or large organizations. This study has supported numerous conclusions from the existing literature regarding increases in competitive environment and AMT causing changes in organizations strategy. Organizations operating in a competitive environment will invest in manufacturing technology that could help them to reorganize the production process and increase the level of quality product. As firms persistently search for new market opportunities, they have to compete through new products and market development which subsequently impact the organizations learning strategy. Customer-oriented aspects such as quality, flexibility, innovative products and dependability of supply could be achieved through a greater emphasis on effective strategy. This part is vital for SMEs as they not only need to compete among themselves, but also with other larger manufacturing firms, with more resources and a

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larger market share. The structural model also shows that a significant link among competition, AMT and strategy leads to an increase in performance. Based on the findings from the study, it is concluded that the adopted research model is generally applicable to SMEs in Malaysian manufacturing industry, with significant increases in all change measures. Globalization has opened manufacturing industry in Malaysia to greater competition, and application of AMT has increased, with enormous consequences for both SMEs and large companies. With the challenge faced by SMEs, to ensure that they are not left behind by the giant companies, it is imperative for them to appropriately fit their strategy with the changes in the business environment. This conclusion is supported by Martin-Pena and Diaz-Garrido (2008) who suggest that the role of strategy formulation is not a static one, but that change occurs dynamically according to shifts in competitive paradigms. By having an appropriate alignment among these variables, improved performance will result. This study has added new knowledge to the organizational change literature for small and medium organizations, especially in the Malaysian manufacturing industry. Although other studies have been conducted in other countries, they do not specifically test using a structural model. Moreover, different economic and cultural characteristics between Malaysia and other countries mean the findings of this study provide a better understanding of how changes in SMEs take place in a different developing economic setting. The observed positive relationships among competitive environment, AMT and strategy are necessary, if they are to align with the changes in environment, to achieve superior performance for the organization. Therefore, results in this study provide helpful insights and useful guidelines to SMEs, especially those managers who are responsible for making sure that their companies move forward at an appropriate rate. As with any research, the current study is subject to a number of limitations that need to be highlighted. First, the sample may not be fully representative of the population of small and medium manufacturing companies in Malaysia. Due to the relatively small sample size, any generalization of the studys results to non-manufacturing organizations or beyond cannot be made without considerable caution. In addition, each of the variables examined in this study comprises several indicators which were reduced to constructs, and which limit the extent to which the constructs represent the variables measured. Finally, data were collected at one point in time rather than longitudinally. Thus, the research could not account for any time-lag effects of changes in organizational variables on performance, as the changes in these factors may not influence firm performance directly after the changes have taken place.
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