Ijciet 10 02_016

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International Journal of Civil Engineering and Technology (IJCIET)
Volume 10, Issue 02, February 2019, pp. 135–143, Article ID: IJCIET_10_02_016
Available online at http://www.iaeme.com/ijciet/issues.asp?JType=IJCIET&VType=10&IType=2
ISSN Print: 0976-6308 and ISSN Online: 0976-6316
©IAEME Publication Scopus Indexed
EXAMINING THE EFFECTS OF
INTELLECTUAL CAPITAL ON THE
PERFORMANCE OF MALAYSIAN FOOD AND
BEVERAGE SMALL AND MEDIUM-SIZED
ENTERPRISES
Nabaz Nawzad Abdullah*
College of Administration and Economics,
Lebanese French University, Kurdistan Region
Masayu Binti Othman
Collage of Law Government and International Studies,
Universiti Utara Malaysia, Malaysia
*Corresponding Author E mail: nabaz@lfu.edu.krd
ABSTRACT
Intellectual capital is an important dimension of entrepreneurship orientation that
highly contributes in the performance of the small and medium-sized enterprises
(SMEs). The measurements of intellectual capital more concern about employees’
knowledge, trademarks, patents, compensation and rewards. This study aims to
examine the relationship between knowledge management and organizational
performance among Malaysian food and beverage SMEs. It also identifies whether or
not protecting patents and trademarks positively contributes in organizational
performance. The primary data was collected through quantitative method and 262
questionnaire administered within food and Beverage SMEs in the Malaysian State of
Selangor. The findings indicated a positive relationship between knowledge
management and organizational performances. A good management of employees’
knowledge adds value to the firms and make them competitive in the market economy.
Apart from knowledge, the study found that protecting patents and trademarks can
positively contribute in the performance of SMEs. Also, the study identified moderate
positive correlations between compensation and reward with organizational
performance. To improve the performance of the firms, SMEs has to adopt effective
techniques such as compensation and reward that encourage employees to sincerely
perform their tasks and utilize their knowledge and effort for the purpose of profit
maximization
Key words: Intellectual capital, SMEs, knowledge management, patents,
compensation and reward.

Examining the Effects of Intellectual Capital on the Performance of Malaysian Food and Beverage
Small and Medium-Sized Enterprises
Cite this Article: Nabaz Nawzad Abdullah and Masayu Binti Othman, Examining the
Effects of Intellectual Capital on the Performance of Malaysian Food and Beverage
Small and Medium-Sized Enterprises, International Journal of Civil Engineering and
Technology (IJCIET) 10(2), 2019, pp. 135–143.
http://www.iaeme.com/IJCIET/issues.asp?JType=IJCIET&VType=10&IType=2
1. INTRODUCTION
The number of Malaysian SMEs has importantly increased in the last decades due to the
facilities and supports by the government especially the firms operating in food and beverage
industry. The government introduced several programs to steer more SMEs activities such as
Soft Loan for SMEs, Young Entrepreneur, SME Emergency Fund, Bumiputera Enterprise
Enhancement Program, Rural Economy Funding Scheme and some others. The SME defined
by the SME Corp. Malaysia (2018) based on sales turnover and number of full time
employees. Thus, microenterprises accounts for 76.5% of the SMEs with frequency of
693.670 firms; the small sized enterprises constitute 21.2% of the SMEs with frequency of
192,783 SMEs, while the medium sized SMEs constitutes only 2.3% of the total registered
SMEs in Malaysia. Malaysia based on two criteria which relates to their sales turnover and
the number of full time employees as shown in Figure 1. Actually, most of these firms
operating in service sector with the percentage of 89.2% and manufacturing sector accounts
for 4.3%. Surprisingly, despite the fact that there is a high demand for food and beverages, but
this sector accounts for only 1% of the total SMEs operating in the country (Kusairi Mohd,
Mohd, & Saari, 2013). The small and medium sized enterprises have a great input in national
economic development. Thus, the government and financial institutions are also encouraged
to provide funds for SMEs and almost 97% of the supports comes from these financial
institutions (SME Corp. Malaysia, 2018).
Figure 1 SME Categories in Malaysia
Manufacturing Service and Other Sectors
Sales Turnover: Sales Turnover:
RM15 Mil < RM50 Mil RM3 Mil < RM20 Mil
Employees: 75 to < 200 Employees: 30 to < 75
RM300,000 Mil < RM15 Mil RM300,000 Mil < RM3 Mil
Employees: 5 to < 75 Employees: 5 to < 30
< RM 300,000 < RM 300,000
Employees: < 5 Employees: < 5
Source: SME Corp. Malaysia (2018)
Medium
Micro
Small

Nabaz Nawzad Abdullah and Masayu Binti Othman
As a matter of fact, the SMEs do not have major problem with the supports they receive
from government and financial institution, but they are lack of awareness of how to get the
funds, and where to utilize the funds which associates to the lack of knowledge and
intellectual capital by the firm owners and individuals working in SMEs firms. For instance,
RM 3.3 billion in funding which is equivalent to US$830 is still kept under the bank Negara
Malaysia Funds of SMEs to finance their projects and purchasing necessary machines.
Actually, the development process of SMEs can not be done without the employment of
entrepreneurship dimensions especially innovation, risk taking, and competitive
aggressiveness. The core of these elements of entrepreneurship is knowledge as it might be
impossible to set up a strategy of competitiveness without adequate knowledge in the market
place. Thus, intellectual capital could be equally important to maintain the performance of the
SMEs which seen to be an important generator of national economy and GDP growth. To
improve the growth of SMEs, several entrepreneurship dimensions previously used such as
autonomy, innovation, risk taking, competitive aggressiveness (Othman, 2018). However,
there is an important dimension of EO that’s lack of investigation which is intellectual capital.
The human asset of organization is really important to maintain the growth and
competitiveness of the firm (Abdulai, Kwon & Moon, 2012; Abdullah & Othman, 2016).
Intellectual capital refers to human capital, human resources, tacit knowledge, know-how and
intangible assets (eg. Intellectual property, copyright and trademarks) that embedded in
organizational. This study investigates on whether or not, intellectual capital impacts on
SMEs performances in Malaysia.
2. LITERATURE REVIEW
Intellectual capital was identified and accessible as unconditional factors in EO which
integrates the elements of human capital, structural capital and relational capital. The previous
studies arguing that intellectual capital can be explained as the EO construct model as a new
direction for research and management practice (Eren & Kocapinar, 2009; Jahangir, Arash &
Amer, 2013; Asiaei & Ruzita, 2014). The intellectual capitals studied were also disscussed by
other scholars such as Hayton (2005) Subramaniam & Youndt (2005). Fave (1998) portrayed
intellectual capital as the power of thinking by the individual workers to maintain the work
system by enriching individuals with relevant skills, knowledge and competency to survive in
a competitive market economy (Reed, Lubattkin & Srinvasan, 2006). According to Dave
(1998), intellectual capital is the obligation and the ability of employees on how they think
and organizes work and how they establish the system, or the organisational policies.
Intellectual capital refers to intangible assets like knowledge capital as a catalyst of value
in firm. Therefore, IC is more stress on collaboration of the company’s experience, sightings,
bonding, knowledge, procedure, connection and municipal inspiration (William, 1999). The
knowledge that each firm possesses supports the firms to alter respective human resources
into intellectual capital that will be an effective asset of each firm (Edvinsson & Sullivan,
1996). Thus, Youndt, Subramaniam, and Snell (2004) portrayed intellectual capital as the
quantity of all knowledge and the know-how capability that are giving the firms a competitive
advantage.
The role of intellectual capital (IC) in the enhancement of entrepreneurship has been the
substance of recent research. According to Grant (1996), the assimilating of expert and
detailed knowledge are the basis of organizational activities under the knowledge-based
economy which is refered to IC. Therefore, stressing on the imperative of organizational
knowledge, the role of organizations and individuals in the establishment as well as
application of intellectual capital is of course vital for firm’s enhancement performance.
Intellectual capital is realistic components to anticipate that organizational knowledge is

vigorous resource that reinforce a firm’s owner behavior. Thus, business owners need to
practice and adapt IC components at exclusive environment in this millennium era which
requires more knowledgeable assets.
The principal of IC also involves the formation and procurement of knowledge which
considers as assimilation of new as well as existing resources (Hayton, 2005) that is of
usefulness to an organization. Eren and Kocapinar (2009) concluded that IC has important
effects on the firm’s innovation and financial performance. In spite of that, IC also considered
as a source of entrepreneurial inventiveness that nourish the business owner development
knowledge which indirectly influence dissemination of knowledge within the firm’s
personnel.
Individuals possess different knowledge, and the companies should make use employees
knowledge for the innovation and development of the firms. The knowledge management is
one of the aspects of IC which assemble extraordinary approaches and processes conductively
to build up such segments in organization. Competition between ndividual employees
depends upon the level of acquired knowledge in order to help the organizations stimulate
aspects that affecting the employee’s enthusiasm such as accomplishing the innovation,
achieving private interest and execute the initiative at the high level (Sayadi, Saljughi &
Bahramineja, 2013). Here, the first hypothesis can be stated as follows:
H1: There is a positive relationship between knowledge management and SMEs
performance.
Other than knowledge which is an important component of intellectual capital, structural
capital is also studied by the scholars to accelerate organizational performances. Structural
capital refers to the competence of the firm to create knowledge over patent, copyright and
trademarks. Beside, organizational capital is comprised routines, processes, system and
databases. On the other hand, Buren & Mark (1999) avowed structural capital (one of the IC
component) involves the capability of a business to innovate and craft a new products and
services. The authors also indicated structural capital is treated a process capital, whereas
organization function on process, methods, systems, and tools. The highly structured human
capital creates a more productive external asset by producing and delivering better services to
the valued customers (Daniel, 1999). Human capital is the knowledge, expertise and know-
how of individual employees providing solutions to customers (Sherrill, 1998). The
improvement of human capital and structural capital in the sense of protecting patents and
trademarks is a persistent effort in creating productive external capital by delivering better
products and service to high-value customers (Knight, 1999). Thus, the following hypothesis
has been developed:
H2: Protecting patents and trademarks positively impacts on organizational performance
among Malaysian SMEs.
Despite the fact that financial figures determine the performance of the firm (Riahi, 2003;
Carmeli & Tishler, 2004), but the combination of task related aspects and employees’
behavior can be used as alternative measurement of organizational performance. Motowidlo
(2003), Njorge and Kwasira (2015) argue that the organizational performance is not usually
determined by the financial figures, but there are other measures that are important to be taken
into consideration such as task related aspects, copyrights and employees expected behavior.
The authors believe that employees skills, knowledge and employees motivation level are
important factors that impacts on the employees’ performances. Compensation and reward are
important aspects of HR practice and intellectual capital that can be utilized in this sense. The
managers with intellectual capital gives attention to the employees’ motivation through
compensation and reward system. Compensation is explained as the bonuses, profit sharing,

incentives and overtime payment that are given to employees for their performances and its
can be either financial or none financial compensation (Wright, Gardner, and Moynihan,
2003). This motivation strategy is used by many SMEs to perform their organizational tasks.
The same process is concerned with both financial and non-financial rewards. It embraces the
strategies, philosophies plan and processes employed by organizations to develop and
maintain reward systems. Based on that explanation, the following hypothesis has been
developed.
H3: Compensation and reward are positively correlates with organizational performances
among Malaysian food and beverage SMEs.
3. METHODOLOGY
The quantitative research method has been used in conducting this study. The items of this
study adopted from Subramaniam & Youndt, (2005). It also focuses on the enhancement of
employee’s rewards and employees’ performance, knowledge and skills, and capability to
share as well as disseminating knowledge among employees, customers, suppliers and
counterparts (Subramaniam & Youndt 2005). Further, the most important substances of
intellectual capital are patents, copyright, trademarks, brands, licenses, and trade secrets
(William, 1999). Therefore, all items used in this part of questionnaires had been adopted and
modified according to the Malaysia business atmosphere and previous literatures in order to
make it more relevant. These items were created and deemed vital to the context of this study
which consider as legal property for business’s operations. Stratified sampling was used in
this study and the data was taken from food and beverage SMEs in the state of Selangor. The
state of Selangor was chosen as it constitutes the largest number of SMEs in Malaysian
Peninsular. Almost third of the data was collected from CEOs (27%), managers (28%) and
directors (20.6%); Therefore, supervisors and senior vice presidents of the companies
included with smaller number of participants. Choosing participants from top and middle
management associates to their decision power. The study also categorized food and beverage
business as shown in Table 1, and the data was administered in 13 areas in Selangor state.
Table 1. Food & Bevarage Business Category
Food & Beverages
Categories
Frequency Percent Valid Percent
Cumulative
Percent
Fruit Based 22 8.4 8.4 8.4
Water Based 42 16.0 16.0 24.4
Vegetable Based 29 11.1 11.1 35.5
Primary Food based 81 30.9 30.9 66.4
Confectionary 43 16.4 16.4 82.8
Animal Based 25 9.5 9.5 92.4
Healthy Food 20 7.6 7.6 100.0
Total 262 100.0 100.0
4. RESULTS AND DISCUSSION
The result of the analysis demonstrates a positive correlation (r=.349**
, n=262, p< .01)
between intellectual capital and organizational performances at 0.01 level (2-tiled). Thus, H1:
“there is a positive relationship between knowledge management and SMEs performance” is
accepted. In this sense, the management should realize how to apply necessary knowledge in
their organization. In the context of this study, the entrepreneurs showed their awareness of
the important of intellectual capital for their business. Emphasizing on the development of
holistic intellectual capital like investing on employees’ knowledge; utilizing and managing

the unique knowledge each employees possess will be an added value for the company to
perform. It also helps the company to challenge its competitors in the market economy which
could be a concern without proper knowledge management.
Table 2. Correlations Between Knowledge Management And Organizational Performance
Knowledge Ma nagement
Organizational
Performances
Knowledge Ma
nagement
Pearson Correlation 1 .349**
Sig. (2-tailed) .000
N 262 262
Organizational
Performance
Pearson Correlation .349**
1
Sig. (2-tailed) .000
N 262 262
**. Correlation is significant at the 0.01 level (2-tailed).
Also, Table 2 reveals a moderate (Medium) correlation between knowledge management
and organizational performances as r=.349**
is 0.25<>0.5. According to Wiklund & Shepherd
(2003), the application of knowledge could maintain firm’s competitive advantage by
determining and exploit market opportunities. Employees knowledge play a role as one of the
dynamic elements in the entrepreneurial process through vibrant network, effective
knowledge management and proper intellectual asset. Apparently, higher level of
organizational performance among Malaysia’s SMEs is positively influenced by higher level
of knowledge. Malaysia SMEs engage in medium level of intellectual capital to increase a
competency of valued employees to the higher level, deliver a better products and services to
high-value customers, increased company profit and built more efficient and highly motivated
team works. This result in line with previous studies corroborates the conception that human
capital relates strongly to firm performance (Mahsud, Yukl & Prussia 2011; Sharabati, Jawad
& Bontis 2010, Othamn & Abdullah, 2016). This finding is also in parallel with Daud and
Yusoff (2011), who studied the connection between knowledge management, intellectual
capital and performance of Malaysian ICT SMEs indicating that intellectual capital positively
influences financial and non-financial performance.
To obtain the composite score, the respondent rating for each statement associated to
protecting patents and trademarks cumulated to establish relationships between independent
variable (patents and rewards) and dependent variable (SMEs performance) by computing the
total numbers through the use of Pearson’s Correlation Coefficient. The result of correlation
analysis is shown in Table 3.
Table 3. Correlations Between Patent And Trademark With Organizational Performance
Patent and
Trademark
Organizational
Performances
Patent & Trademark Pearson Correlation 1 0.312**
Sig. (2-tailed) 0.000
N 262 262
Organizational
Performance
Pearson Correlation 0.312**
1
N 262 262

The finding implies a moderate positive correlation between protecting patents and
trademarks with organizational performance among Malaysian SMEs as (r=0.312**
, n=262,
p< .01). This means, protecting patents and trademarks positively correlates with
organizational performances among Malaysian food and beverage SMEs. Thus, the H2
“protecting patents and trademarks positively impacts on organizational performance among
Malaysian SMEs” is approved.
The relationships between compensation and reward with organizational performance is
also measured through Correlation Coefficient. The findings as shown in Table 4. indicated a
moderate positive correlation between compensation and reward with organizational
performances among Malaysian SMEs ((r=0.395**
, n=262, p< .01)
Table 4. Correlations Between Compensation And Reward With Organizational Performance
Employees
Compensation
Organizational
Performance
Compensation & Reward Pearson Correlation 1 0.395**
N 262 262
Organizational
Performance
Pearson Correlation 0.395**
1
N 262 262
Table 4 verifies the acceptance of H3 which states “compensation and reward are
positively correlates with organizational performances among Malaysian food and beverage
SMEs.” This indication means the more compensation employees receive at their work place,
the better outcome could be obtained by the organization. More preciously, employees will be
encouraged through compensation and reward to fulfil their duties and maintain
organizational performances. On the similar topic, Njoroge and Kwasira (2015) found a
positive correlation between compensation and reward with employees’ performance in
Nakuru Country government (r=0.290). Therefore, the level of relationship is higher among
Malaysian food and beverage SMEs.
5. CONCLUSIONS
Intellectual could be used as important dimension of entrepreneurship orientation along other
dimension. As market economy become more competitive, intellectual capital and the value
of talented and knowledgeable employees increases. This study concluded that business
owners in Malaysian food and beverage industry are proficient to utilize latest knowledge,
skills, and capabilities in order to increase their companies’ performance. They need to take
the greatest and phenomenal human capital catalyze firms to accomplish great performance.
The business owners need to consistently enhancing employee’s performance, knowledge and
skills through in or off- house management training as knowledgeable and trained employees
stimulate customer experience with the firms thus maintaining firm’s brand image and high
reputation as they own valuable knowledge. More educated, knowledgeable and trained
employees that employed in company would also surge performance through reducing some
of operation cost such as production cost and service delivery cost. Therefore, firms should
acquire, invest and fully equip employees with knowledge as well as retain physical and
spiritual strength of employees. Hiring and developing talented employees are critical in order
to empower and motivate them to do their tasks so that firms will have an edge over
competing market. Actually, the key of company productivity relies on the effective networks

to handle any complexities. Reciprocity and trustworthiness among the networks spark to the
higher level when business owner pursuing the opportunity in business. Business
performances are increases because the human capital (employees) has been fully utilized as
the primary assets for company to fulfill their works via brainstorming, knowledge transfer
and the problem solving skills. The creativity, idea and knowledge of employees are
materializing for successful innovation via team performance and learning process. Firms can
achieve prosperity through investing and conduct knowledge-based assets consisted human
capital and social capital. It should implement with dedication, strength of mind, effort and a
lot of fortitude by entrepreneur. Also, the SMEs can better perform by protecting their
products from being copied by other firms. The firms through the establishment of their
patent or unique identity can compete better in the market economy and defeat their
competitors. The study also concluded that employees should be encouraged through reward
and compensation. Developing individual intellectual capital at the workplace requires some
techniques; reward and compensation is seen to be the most significant technique to achieve
employees and overall organization performance.
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