The business environment in a developing country differs from that within a developed country with regards to market size, access to manufactured inputs, human capital, infrastructure, volatility and governance. According to Tybout (2000), although some developing economies are quite large, most are not; the menu of domestically produced intermediate inputs and capital equipment is often limited; a scarcity of technicians and scientists also affects flexibility in the production process and the ability to absorb new technologies; infrastructure is relatively limited;
macroeconomic and relative price volatility is typically more extreme; legal systems and crime prevention are also relatively poor; and corruption is often a serious problem.
Malaysia is categorised as the developing country, however it has more advanced infrastructure and technology compared to most other developing countries.
Malaysian manufacturing industries are also more concentrated than those of most developed countries (Bhattacharya, 2002). With globalization, the application of technology in Malaysia has increased, especially through foreign investment (Kassim et al., 2003). Changes in business environment in Malaysia arising from a market- oriented economy and government policies that provide businesses with the opportunity for growth and profits, have made Malaysia a highly competitive manufacturing and export base.
On the whole, manufacturing industries are the most active and important contributors to the Malaysian economy after the services sector. In 2006 the manufacturing sector contributed 31.1% of the total GDP, and 29.1% of total employment1. In addition, Malaysia’s rapid move from a production-based economy (p-economy) towards a knowledge-based economy (k-economy) allows companies to do business in an environment that is geared towards information technology2. The advance of technology through ICT and computerization has also made management accounting information flow within organizations in this country more useful, timely, accurate, and relevant (Omar, Abd-Rahman, & Sulaiman, 2004).
1 Source: FMM directory 2008 Malaysian Industries.
2 Source: Malaysia Industrial Development Authority (MIDA), http://www.mida.gov.my.
In developing countries, the manufacturing sector often receives preferential treatment from policy makers. According to Tybout (2000), most developing countries’ government promote manufacturing with special tax concessions and relatively low tariff rates for importers of manufacturing machinery and equipment.
It is also argued that government policies often favour large firms; even when policies do not explicitly favour large firms, these firms may enjoy de facto advantages, because sectors with large capital-intensive firms lobby the government more effectively (Tybout, 2000). Malaysia has industrialized rapidly in the last 20 years, and the confidence gained from this experience has led its leader to formulate Vision 2020 and k-economy. However, Malaysia’s path to being an industrialized country has not been based on strong domestic producers but has instead relied on foreign multinationals to produce for export (Rasiah, 1995).
Based on the distinctive features of market size, access to manufactured inputs, human capital, infrastructure, volatility and governance, as discussed above, it can be concluded that the business environment in Malaysia is quite volatile from both regulatory and macroeconomic perspectives as compared to developed countries, especially Western countries like U.K., U.S. and Australia. Moreover, as organizations grow through expanding their range of products or services in response to more mature and saturated markets, they inevitably confront an increasingly hostile environment (Moores & Yuen, 2001). But, if there is substantial uncertainty about future demand conditions for these products, it often makes sense to choose production techniques that do not lock one into a specific technology; that is, to rely more heavily on labour (Tybout, 2000). This is because investment in fixed capital involves long-term commitments to particular products and production volume.
Therefore, manufacturing firms in Malaysia may respond to the changes in environment in different ways than firms in those countries. Even though much research on management accounting and organizational change has been carried out in Western countries like U.K, U.S and Australia, because of these differences, empirical evidence obtained from research in these countries cannot necessarily be generalized to the Malaysian environment.
Moreover, the introduction of fast information technology within which firms in manufacturing industries in Malaysia operate has greatly affected the technological
environment. Much literature has identified technological advancement, active competitors and demanding customers as potential predictors of organizational and management accounting change (Baines & Langfield-Smith, 2003; Dibrell & Miller, 2002; Innes & Mitchell, 1990; Kaplan & Norton, 1996; Shields, 1997; Waweru, Hoque, & Uliana, 2004). This aspect is important because the management accounting system (MAS) requirement can vary significantly depending on how well known the causes of change in the external environment and their indicators are to the organization. This argument is supported by Waweru et al. (2004), who found that an increase in global competition and changes in technology were the two main contingent factors affecting management accounting change in South Africa. Apart from these external organizational factors, previous studies also found that contextual variable factors inside the organizations also have a connection to management accounting change. As suggested by Moores and Yuen (2001), support from strategies and structures are important to ensure a consistency in an organization.
Strategy and structure have also been identified in the previous literature as the most important factors in management accounting change process. Thus, this study is conducted to further investigate these relationships.
Unlike developed countries, MAP in developing countries may be gained through
“importing” management accounting systems in the manner adopted by foreign companies establishing operations in developing countries (Abdul-Rahman, Omar, &
Taylor, 2002; Chow, Shields, & Wu, 1999). For example in Malaysia, local manufacturing companies are still using traditional methods compared to multinational corporations such as Japanese-owned companies, which mainly use new management accounting techniques (Abdul-Rahman et al., 2002). Furthermore, little research has been done in developing countries (see for example, Hoque &
Hopper, 1994; Waweru et al., 2004) and even fewer studies in Asian countries like Malaysia (e.g., Abdul-Rahman, 1993; Nor-Aziah & Scapens, 2007). These factors provide further motivation to carry out this research in Malaysia so that it can contribute to a better understanding of the adoption of changes in organizational and MAS in a developing country context.
Further, this study attempts to provide incremental contributions to the management accounting change literature by explaining how organizations implement
management accounting innovations, or how redesign of their existing MAS can improve organizational performance3 (Baines & Langfield-Smith, 2003; Chenhall, 2003; Hyvửnen, 2007; Libby & Waterhouse, 1996; Mia & Clarke, 1999; Otley, 1980). Therefore, by looking into the performance implications of the possible alignment between change in MAS and organizational factors within environmental uncertainty, the findings of this study will make a significant contribution to management accounting theory and literature as well as providing guidance for decision makers, professionals and practitioners.