Ownership structure a major inhibiting factor to firm growth and ICT diffusion

While providing some protection for SMEs, government regulations stipulate that once classified as a large firm, family ownership rights are lost and majority holdings go to the government. Consequently, owners of SMEs prefer to establish a new unit rather than expand the existing one. In the process, they are not only deprived of benefits of economies of scale but cannot adopt more advanced technologies. In this context it is noteworthy that about 90% of Malaysian SMEs are managed by members of one ethnic group.

These findings are in line with recent studies at UNU-INTECH that have identified project ownership structure as being the most important factor in the adoption of new technologies. As the Indian IT case has demonstrated, it is much easier to adopt new technologies in professionally managed SMEs, some of which manage to expand their operations quite significantly and graduate to large firms. On the other hand family-owned businesses often remain small (partly as a strategy to benefit from government incentives) unless there are competitive pressures to adopt new technologies.

Read related UNU-INTECH discussion paper on the significance of the knowledge base of Managing Directors in ICT diffusion.

For more information on UNU-INTECH work on ICT diffusion in developing countries please contact Dr. Kaushalesh Lal.