Reference no: EM133186834

Small and medium enterprises (SMEs) in the manufacturing and services sectors play an important role in the economy and are acknowledged to be the backbone of economic development. This is because the main importance of entrepreneurship is to create job opportunities, enhance innovation, and improve the economy [1-3]. Emerging trends have seen a surge in the number of SMEs in Malaysia, which recorded an increase from 1,113,157 SMEs in 2016 to 1,151,339 SMEs in 2021 [4]. In line with this, SMEs in Malaysia contributed 38.2 percent of Gross Domestic Product (GDP) in 2021 [5], and accounted for 97.2 percent of total business growth in 2020, regardless of sector or size [4]. This sector provided employment opportunities for more than 48.0 percent of the total workforce in Malaysia in 2020 [5]. Meanwhile, the export contribution of SMEs in Malaysia to total exports in 2020 was 13.5 percent, of which 9.4 percent was from the manufacturing sector, 3.9 percent from the services sector, and 0.3 percent from the agriculture sector [5]. Currently, the agriculture sector has recorded growth due to the increase in SMEs exports of vegetables, fisheries, poultry, bananas, and durian. Malaysia is targeting China, Singapore, and Hong Kong as the main destinations for exports Despite the tremendous growth in terms of the numbers and contributions of SMEs to the Malaysian economy, recent issues such as the health crisis caused by the COVID-19 pandemic in 2020 [5] have impacted SMEs. More specifically, the performance of all sectors of the economy has declined with the implementation of the Movement Control Order (MCO) across the country, which includes numerous measures to combat the spread of COVID-19. This is reflected in the 7.3 percent reduction in SMEs GDP in 2020, which is larger than the 5.6 percent and 4.6 percent declines in Malaysia's GDP and Non-SMEs GDP, respectively [5]. Furthermore, Malaysian SMEs lack focus on innovation, and this has caused SMEs innovation success rates to fall short of the desired rate [6]. This is evidenced by the Global Innovation Index (GII) 2019, where Malaysia's position remains at the same level, ranked 35th in 2019, 32nd in 2015, and 33rd in 2014 [7]. This index clearly shows that the growth of innovation performance in Malaysia is very slow compared to Singapore (8th), South Korea (11th), Hong Kong (13th), and Japan (15th) in 2019.

It clearly shows a prevalent issue in innovation and the lack of innovative acumen and capability among SMEs has mitigated the potential of SMEs in improving firm performance. One of the reasons why most firms are unable to drive innovation is the difficulty of leaders adopting thoughtful ideas from others [8], whereas firm leaders must develop a longterm culture of innovation to succeed. Leaders need to develop sustainable innovation culture that supports cooperation and provides autonomy, support for research initiatives, trust, thoughtfulness, and acknowledgment to employees [9]. The innovation culture approach in addition to the combination of advanced technology utilized by organizations can have a higher impact on firm performance [10]. Clearly, having an innovation culture in place that is effectively supported by top management encourages new product development or more innovative services that will have a long-term positive impact on the firm performance. Although innovation is acknowledged for long-term success, many managers of SMEs fail to bring new products or services to the market [11,12]. According to Lee, et al. [13], this problem stems from a lack of understanding related to management practices to lead innovation. Essentially, innovation culture encourages employees to be equally creative, risk-taking, and able to develop ideas and create new opportunities in organizations [14]. In fact, these features require both the implementation of exploration and exploitation because improvement activities, modification of existing systems, and current processes require new ideas to be more creative and innovative [15]. More clearly, contextual ambidexterity is an organizational learning activity that can help firms find solutions to the challenges they face while implementing an innovation culture [16]. This suggests that effective organizational learning is able to further maximize creativity and innovation through an innovation culture within their firms [17]. In addition, most of the studies that have been conducted related to innovation culture are more focused on large-sized firms and in developed countries [8]. Therefore, in the current situation, the culture of innovation is important to SMEs and developing countries in order to ensure the sustainability of this sector.

Questions:

(a) identify the broad problem area,

(b) define the problem, and

(c) develop research objective(s) and research question(s)