Chapter 5 Data Analysis
5.1 Inter-country Analysis
As we mentioned in the chapter of introduction, the main purpose of this study is to examine how the Malaysian Chinese’s economic behavior responds to the trust building process in inter-firm relationships and to explore how the sources and consequences of trust differ among international transacting parties of various nationalities and within-Malaysia ethnic groups. Does the trust building process differ significantly among the parties from various nationalities and ethnical groups, whether it is inter-country or inter-ethnic discrimination?
Hence, basically, both macro analysis and microanalysis were conducted through MANOVA analysis. The former is to see how trust differs at the inter-country level, however, the latter is to see how it differ at the inter-ethnic level within Malaysia itself. The simple descriptive statistics of the variables are shown in Table 3 as following:-
Table 3. Table of Descriptive Statistics (Note: N= 265)
Variables Minimum Maximum Mean Std.
Deviation Contract adherence 1.0000 7.0000 5.5340 1.3970 Flexibility beyond contract 1.0000 7.0000 5.1799 1.1374 Flexibility outside contract 1.0000 7.0000 4.6893 1.3002 Economic-based of trust 1.0000 7.0000 5.2943 1.1513 Process-based of trust 1.0000 7.0000 5.7075 1.1425 Characteristic-based of trust 1.0000 7.0000 4.8358 1.1394 Institutional-based of trust
42
Table 4. The MANOVA table of the inter-country analysis
Note:
a. BOLDED figures are the mean scores, figures in ( ) are the standard deviation.
b. N= 265
According to the result shown by table 4, basically, all the sources of trust differ significantly among three countries except for Characteristic-based of trust.
According to the Scheffe’s test that been used to determine the comparisons of all possible pairs of means, the score of Malaysian vs. Japan in the four sources and
Inter-country Western Japan Malaysian F value P Value Scheffe
Contract adherence 5.9906 6.1415 5.1792 14.2730 0.0000 1-3 2-3
(1.1158) (1.1239) (1.4542) Flexibility beyond contract 5.5094 5.5786 4.9371
9.7040 0.0000 1-3 2-3
(1.0533) (0.9678) (1.1572)
Flexibility outside contract 4.9623 5.1824 4.4340 8.5020 0.0000 1-3 2-3 (1.3199) (1.2736) (1.2431)
10.6070 0.0000
Economic-based of trust 5.6604 5.6981 5.0377 1-3 2-3
(0.9773) (0.9984) (1.1859)
Process-based of trust 6.0000 (0.9903)
Characteristic-based of trust 4.8726 (1.0926)
Institutional-based of trust 5.8365 (1.1687)
consequences of trust was the highest among the other 2 pairs, which is followed by Malaysian vs. Western and Malaysian vs. Malaysian.
Economic-based of trust
As for economic-based of trust, the pair of Malaysian vs. Japan has the highest score of mean (5.6981), follows by Malaysian vs. Western (5.6604) and Malaysian vs.
Malaysian (5.0377). According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs. Western are significantly different from Malaysian vs. Malaysian.
It is explainable that most of the Malaysian Chinese highly dependent on the technical resources or know-how knowledge of Japan. Japan is the primary provider of technology for Malaysia (Peng, 2002). Therefore, Japan and Malaysia have already cultivated positive and good partnership as well as strong bilateral trade and investment linkages for a long time.
Furthermore, the Look East Policy of Malaysia and direct investment of the Japanese firms in Malaysia contribute to the close relationship between the two countries.
For example, in order to attract higher foreign investment and to increase the skills of the industry workers to accommodate along with the needs of the era of high technology industries, positive strategies and ways have taken. One of those is the establishment of the higher technology training center which is the Japanese and Malaysian Technical Institute (JMTI).
In 1997, both governments have agreed to have a technical collaboration to establish it. The institute’s main objective is to generate quality skilled workers through the skilled training programme at the higher level as it will cater to the industries needs in
44
Malaysia and prepares the students to adapt and face the challenge of the technology’s rapid growth as well as the future globalization.
Hence, the level of dependency on Japan’s technology is high and the technical collaboration is always expected while having business contact with Japanese. The Japanese business sector introduced their efforts on the promotion of technology transfer in the electronics R&D field and activities for the development of medium and small enterprises’ ability conducted in collaboration between JACTIM (Japanese Chambers of Trade and Industry Malaysia) and SMIDEC (Small and Medium Industries Development Corporation) of Malaysia8.
Furthermore, Kojima (1978) argued that Japanese FDI is different from U.S. FDI because it is trade oriented. For example, Japan helps to enlarge harmonious trade between Japan and the host country such as Malaysia, whereas American FDI is oligopolistic which is started from industries in the U.S. that had the largest comparative advantages and it more toward the substitution of a trade.
Also, Aoki (1992) argued that the investment of Japanese firm into Malaysia and helped to form networks between free trade zones and local firms, in which the Japanese firms acting as hubs of production for local firms. In contrast, the U.S. firm actively concentrating on discrete processing or assembly of components for export. Hence, the input of the Japanese firm is highly expected and weighted. Therefore, Malaysian Chinese are more interested in forming long economic based of trust with Japanese than Western in all circumstances.
8 I obtained the relevant information through the website of JACTIM http://www.jactim.org.my/
Process-based trust
In the process-based of trust, pair of Malaysian vs. Japan has the highest score of mean (6.0189), follows by Malaysian vs. Western (6.0000) and Malaysian vs. Malaysian (5.5063). According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs.
Western are significantly different from Malaysian vs. Malaysian.
As we know, externally Japanese always intended to build stable, long-term reciprocal relationship; on the other hand, internally, the closed nature of the Japanese firms, for example, tendency to exclude outsiders and limit turnover rate of the working personnel.
Therefore, Malaysian Chinese acknowledge the importance of having a more reputable partner or satisfactory interaction experiences while establishing such a long-term inter-firm’s relationship.
Institutional-based trust
In the institutional-based of trust, pair of Malaysian vs. Japan has the highest score of mean(5.8679), follows by Malaysian vs. Western (5.8365) and Malaysian vs. Malaysian (5.3375). According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs.
Western are significantly different from Malaysian vs. Malaysian.
Formal mechanism has been playing a very important role and is realized by removing trade barriers between Malaysia and Japan through political means, typically an intergovernmental agreement. Most of the trade relationships were encouraged through the free trade area, economic union such as Japan-Malaysia Economic Partnership Agreement.
Japan had concluded the Economic Partnership Agreement (EPA) in 2006, which is
46
expected to not only reduce Customs tariffs within five to 10 years to zero but also provide for a wider scope of cooperation between Malaysia and Japan.
Furthermore, in 2007, as of October shown by figure 2, Japan’s investment in manufacturing sector, approved by MIDA (Malaysian Industrial Development Authority)9 has reached 1.75 billion in US dollar (6,129 billion Ringgit Malaysia), and at the same time, Japanese investment projects that have been approved by MIDA, consists 24% or one-fourth of total manufacturing investment into Malaysia (Figure 3). Hence, apparently, the approval from relevant authority is highly required.
Figure 2: Approved Investment in Malaysia (January-October 2007)
(Source: MIDA)
9 I obtained the statistic data from the MIDA-http://www.mida.gov.my/.
One of the key function of MIDA is to evaluate applications for manufacturing licences and expatriate posts;
tax incentives for manufacturing activities, tourism, R&D, training institutions and software development; and duty exemption on raw materials, components and machinery.
(Source:MIDA)
Figure 3: Share of Approved Manufacturing Investment in Malaysia (January- October 2007)
Now, the following section is to examine the differences of the consequences of the trust or the action resulted from the trust in the business context. As we mentioned in the earlier section, Malaysian-Japan has the maximum score out of all the pairs.
Contract Adherence
The pair of Malaysian vs. Japan has the highest score of mean (6.1415), follows by Malaysian vs. Western (5.9906) and Malaysian vs. Malaysia (5.1792). According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs. Western are significantly different from Malaysian vs. Malaysian.
In the real business world, even people’s motives are not self-centered;
collaboration may still encounter many obstacles. Therefore, basic levels of formal coordination and control, such as contract, generally form a precondition for people to
48
initiate a transaction with external partners (Bachmann, 2001). Support is also provided by Hoecht’s (2004) study of collaborative research projects, in which he found that legal instruments such as detailed contracts were considered normal rules of the game, which were not even relaxed if parties had long cooperative histories.
Therefore, the Malaysian Chinese acknowledge that the degrees the Japanese firm trust and distrust the partners during initial stages of cooperation leave strong imprints on the development of these relationships in later stages of collaboration. Hence, the Malaysian Chinese will strictly follow the formal contract as the Contract Adherence has scored 6.1415 the highest among all, follow by 5.9906 for Western and 5.1798 for own Malaysian. It could be explained by the fact Malaysia is so highly dependent on Japan’s technology as well as capital input and, in order to keep the inter-form relationship they have to be adhering to what have been agreed.
Flexibility beyond contract
The pair of Malaysian vs. Japan group has the highest score of mean (5.5786), follows by Malaysian vs. Western (5.5094) and Malaysian vs. Malaysian (4.9371).
According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs. Western are significantly different from Malaysian vs. Malaysian.
However, irrespectively to the contract adherence, Malaysian Chinese remains a big room of flexibility towards the cooperation with Japanese firms and a score of 5.5786;
the highest among all pairs. Perhaps, they understand that very high levels of formal coordination and control can be harmful to inter-firm’s performance and relationship.
It is because the overregulated, burdensome and unfriendly terms that partners are forced to adhere will not do any good to the relationship (Beck and Kieser, 2003) but leads to conflict and disagreement among parties (Ring and Van de Ven, 1994). It also has a negative effect on creativity and innovation, and inhibits the flexibility that is needed for coping with complex, task environments (Mintzberg, 1994; Nooteboom, 1999; Volberda, 1998). Therefore, the Malaysian Chinese are much willing to modify the contract based on contingency condition or the conventional rules to avoid too impersonal behavior.
Flexibility outside contract
As for the flexibility outside contract, Malaysian vs. Japan has the highest score of mean (5.1824), follows by Malaysian vs. Western (4.9623) and Malaysian vs. Malaysian (4.4340). According to Scheffe’s test, the pairs of Malaysian vs. Japan and Malaysian vs.
Western are significantly different from Malaysian vs. Malaysian.
The Malaysian Chinese show the propensity to establish relationship outside contract with Japanese partners, as shown by the score of 5.1824, the highest among all. It could be because both are so highly associated in technology transfer project, tangible asset investment. Therefore, the Chinese will choose to honor the verbal agreement aside from the formal contract as well as they value the long-term relationship rather than instant profit.
In addition, they are willing to share the information with the partners to earn credit. By doing so, the Japanese firm may perceive their partners as being more trustworthy than they originally thought them to be.
50 5.2 Inter-ethnic Analysis
Table 5. The MANOVA table of the Inter-ethnic analysis
Note:
a. BOLDED figures are the mean scores, figures in ( ) are standard deviation.
b. N= 265
Hereafter, the term of Chinese, is used to refer to the Malaysian Chinese community in the following sections. In this section, MANOVA was done particularly to see how both sources and consequences of trust differ among the ethnic groups within Malaysia based upon the same database. According to the Scheffe’s test, the three pairs (Chinese vs. Indian, Chinese vs. Chinese and Chinese vs. Malay) are not statistically different from each other.
Inter-ethnic Indian Chinese Native F value P Value Scheffe
Contract adherence Process-based of trust 5.3113 5.7264 5.4811
4.1600 0.0030
However, the overall score of mean for Chinese vs. Chinese was the highest in all categories of sources of trust, however, Chinese vs. Indian pair has the minimum score of all.
The country-specific factors may contribute to the result of Indian and native (Malay) are receiving less trust on overall. This could be explained by the country-specific factors in which each country is a unique environment (Woodall, 1998) depending on the evolutionary stage of the economy, political system, government influence, natural resources, work ethic, financial resources, and endowments in land and labor, each may play a different role.
This analysis shows that the Chinese vs. Malay partnership is receiving less trust than the pair of Chinese vs. Chinese and it is partly due to the socio economy policies that have been implemented by the local authority. For example, in 1971, the New Economic Policy of Malaysia (NEP) was introduced and considered as “a form of governance that helped to create a stable political culture and a thriving, open economy” (Emsley, 1996). It had the stated goal of poverty eradication and economic restructuring to eliminate the identification of ethnicity with economic function. By doing so, will reduce the socioeconomic disparity between the Chinese minority and native (Malay) majority.
Domestically, pressure was exerted to enable the native in Malaysia to acquire a greater share of national economic wealth. Although the policy ended officially in 1990, Malaysians often refer to the NEP in the present because many of the tangible economic benefits it offered the native group are ongoing.
52
For example, as we mentioned in the chapter two, the Malaysian Government has given protection to the native group by form of special loans, subsidies, market entry barriers for competitors, certain licenses, expanding state enterprises and offering better jobs or limiting the enterprises and job opportunities of ethnic outsiders. The purpose of these is to raise the competitiveness of the native group at the inter-ethnic level.
Furthermore, the implementation and enforcement of Industrial Coordination Act of 1975 required all manufacturing establishments above a certain registered capital to be licensed under the Ministry of Trade and Industry. The initial minimum entry for a shareholder’s fund was M$100,000, but this was raised to M$250,000 in 1977 in an amendment to the act, then recently increased further to M$2.5 million. It was hoped that by restricting both Chinese and foreign equity ownership, native ownership of the Malaysian corporate sector could eventually be increased from 2.6% in 1970 to 30% in 1990 (Jesudason, 1989 and Yeung, 1999).
In comparison to Malay and Chinese, the former is constantly protected under the NEP policy, where the latter is benefited from the strong and closed business network, Indian is considered the least powerful group and usually residue in the lower categories job field such as cheap construction labor. As a result, they are not really well receiving as a business collaborates as indicated by the minimum score of all categories, both in sources and consequences of trust. Perhaps, this is so-called economic discrimination by ethnicity.
Fortunately, Chinese business traditionally relies on business networks to facilitate transactions and get around host country discrimination and the historically so-called ‘spirit of Chinese capitalism’ rests with their ability to network together to form a relatively
coherent socio-economic group to survive discrimination in the host countries (Redding,1980).
Therefore, for Chinese business, to trade-off between political stability and economic constraints, they have to trust the own Chinese more than other ethnical groups through the establishment of guanxi in Chinese business and its related network known as
“Bamboo network” (Park & Luo, 2001). This could be explained by the result shown in table 5 that Chinese vs. Chinese transaction has been placing more trust than other 2 ethnic groups (Malay and India) due to the “collectivism” characteristic. Chinese is seeing each other “in groups”, hence, eventually willing to trust each other irrespectively to the trust building process.
In furtherance, this could be explained by the fact that ethnic Chinese communities have been so much impacted by the Confucian traditions such as respect for elders, the importance of family, and the primacy of relationships influence decision making in firms or while involving in trades (Backman,1995). They grouped these cultural characteristics under the term ‘Confucian dynamism’ and also argued that the “collectivism”
characteristics present in Overseas Chinese culture that help to differentiate them from firms in the West (Chen, 1995). These influences are heavily based on cultural traditions that influence Overseas Chinese irrespective of which nation they live, particularly East Asia (Malaysia) where the strength of Chinese culture is particularly clear (Backman, 1995).
Therefore, within the Chinese community, both trading partners will not merely dependent on the contract but show the propensity to establish flexibility beyond and outside contract to provide flexibility needed to cope with the changing environment and to create a long-term non-legal relationships. This could be justified from the analysis result
54
that the highest score for Contract Adherence was fall into the native group (5.3396) and follow by Chinese (5.1132). The Chinese, as a result from the economy discrimination, are not willing to help the Malay to leverage the competitiveness.
On the other hand, Chinese business firms are able to identify the initiatives of nation states or pool capital, for example, in the privatization of major public sector industries in Malaysia. To exploit the economic position of Malay and to secure privileges to those mega projects, many Chinese firms are engaged in government related opportunities with leading political, military leaders or native group. That could be explained by the result shown in table 5 that among three ethnic groups, native group has received relatively more trust than Indian has in order to share the “privileges”.
5.3 Regression Analysis
Table 6. The correlation matrices of the variables
Variables 1 2 3 4 5 6 7 8 9
5. Flexibility outside
contract -0.109 0.075 0.508
a. *** Correlation is significant at the 0.01 level (2-tailed).
b. ** Correlation is significant at the 0.05 level (2-tailed).
c. N = 265
56
Table 7. Regression analysis of consequences of trust
NOTE:
a. We measured most scales constructs (except “duration of relationship”) on 7-point Likert-type scales (strongly disagree/strongly agree).
b. Figures in ( ) are the standard error of mean.
c. Remark: ***represent P<0.01, ** represent P< 0.05
Based on the same set of data, multiple regression analysis was conducted to identify and quantify precisely which source of trust is influencing the consequences. The
Regression Model Model One Model Two Model Three
Contract Adherence Flexibility beyond
contract Flexibility outside contract
coefficient P-value coefficient P-value coefficient P-value
Constant 19.527 0.000*** 22.025 0.000*** 19.431 0.000***
Economic-based of
F value 31.258*** 10.344*** 11.010***
R-squared 0.325 0.137 0.145
Adjusted R-squared 0.314 0.124 0.132
Number of
observation 265 265 265
explanatory variables are the four sources of trust, which are economic-based of trust, process-based of trust, characteristic-based of trust as well as the institutional-based of trust.
On the other hand, the dependent variables are the three consequences of trust such as contract adherence, flexibility beyond contract as well as the flexibility outside contract.
Contract Adherence
From the results shown in table 7, economic (coefficient = 0.263), process (coefficient = 0.369) as well as characteristic-based (coefficient = -0.164) of trust have significant influences on the “Contract Adherence”; however, institutional-based of trust was statistically insignificant to it.
The negative relation shown by characteristic-based of trust (coefficient -0.164) could be explained on the ground that the closer relationship the lesser dependency on the formal contract. It is because, maybe, the both parties already have built the common goal and good transaction experiences through the long-term relationship as shown by the high the standardized coefficients of process-based trust, which is 0.369. The process-based trust will help promote more efficient and coordination and thus, reduce the suspicion, communication breakdown or strained relationships and leads to faster reduction of uncertainty. Therefore, both partners work best when a climate of trust is developed and
The negative relation shown by characteristic-based of trust (coefficient -0.164) could be explained on the ground that the closer relationship the lesser dependency on the formal contract. It is because, maybe, the both parties already have built the common goal and good transaction experiences through the long-term relationship as shown by the high the standardized coefficients of process-based trust, which is 0.369. The process-based trust will help promote more efficient and coordination and thus, reduce the suspicion, communication breakdown or strained relationships and leads to faster reduction of uncertainty. Therefore, both partners work best when a climate of trust is developed and