The role of national automotive policy in improving innovation and automotive vendor performance in Malaysia

Abstract

The National Automotive Policy (NAP) which was launched in 2006 and subsequently revised in 2009 and 2014 has been adopted as a development policy for the automotive industries in Malaysia. Automotive industries basically consist of two sectors which are the automotive manufacturing industry and the automotive components and parts industry. This research aims to study the role of NAP as a mediator in improving innovation and vendor performance in automotive components and parts industry in Malaysia. One of the NAP objectives is to develop globally competitive and sustainable automotive vendors by increasing the value added and export volumes of the components. However, after the policy has been implemented and running for more than thirteen years, the Malaysian automotive components and parts industry is still under performed and globally not as competitive as expected. It has been reported that parts and components produced locally are generally very much lower in quality. In addition, the quantity of imported parts is more than exported ones resulting in an economic deficit situation. The inferior quality products manufactured and lower production volumes have caused major difficulties to most of the automotive vendors in the sector. At present, most of the studies on this industry are focused mainly on the competitiveness of the national automobile manufacturer Proton with very limited attention and effort being paid to the automotive vendors. This study deployed Innovation Performance (IP) theory which has been widely applied in measuring the innovation that leads to the increased performance of manufacturing industries. In order to determine the effectiveness of NAP to the automotive vendors, the researcher had embedded National Innovation System (NIS) theory and NAP to act as a mediator in innovation and performance relationship. Ten hypotheses were developed to study the mediating effect of NAP to vendor’s innovation performance. In studying the complex relationship, the research had deployed SEM (Structural Equation Model) technique to justify the multivariate analysis. Four sub-constructs of innovation; product, price, marketing and organization were tested in the direct relationship path. Product and process innovation were found to be significant and this finding was confirmed by many previous studies on manufacturing industries. For the indirect relationship, innovation and performance were mediated by six sub-constructs in the NAP model. Based on the sample population size of 300 vendors, a mediation test was conducted on the model and the four strategies which are found to be significant and important to the automotive vendors are market expansion, supply chain, human capital development, and safety, security and environment strategy. The study concluded that most of the NAP strategies were found to be highly and critically important to the parts vendors and the effects were found to vary according to different categories of the vendors.