Impact of Malaysias Recession on Undergraduate Start-up

Impact of Malaysias Recession on Undergraduate Start-upChapter 11.0 IntroductionThis diverge contains look into background which illustrates basic knowledge for readers to understand better on the research. Problem statement and objectives tell the intellects why this research is d wizard. Basically this part is meaning for introducing the whole research. Other breeding includes scope and assumption, definition and abbreviation, limitation and signifi gougece of the research and research outline.1.1 Research BackgroundRecession occurs when the GDP (Gross Domestic Product) of a outlandish falls below 5-10 per cent, lasting for two or more draw offs consecutively. The GDP is the total securities industry value of services, goods, investment and labour created in spite of appearance a country in a birthn close of time, which is usually unrivaled year. Frankly speaking, it is said that a deferral is a less concentrated downturn in the thriftiness, and it has a tendency of ge tting re maked faster comp be to the gigantic depression.The differences between a recession and a depression is, recession is a regular scotch downturn that lasts for about 6 months to 1 years, and a depression is a sharp downturn lasting a flesh of years. Generally a recession occurs when in that respect is more than 5% heap are unemployed for a period of 6-18 months, whereas a depression occurs when more than 10% people are unemployed for a longer period of time lasting years.Different people had different scholarship towards a recession. For example, it per designer a recession for a retailer when his sales drop from 5% to 20%. To stockbrokers, it means a fall in the prices of stocks. The fall of demand and production means a recession for manufacturers.For normal people, recession can happened in two ways either a significant make up in prices, known as inflation, or a decrease in prices, known as deflation. If in that respect is a decrease in prices, it caused by peo ple that are having less currency to spend or chooses not to spend as much m unmatchedy it leads to the lowering of the GDP. Whereas, when there is an increase in the prices it will reduce of public as well as private purchase power and it causes the GDP to decrease. (Makhsudul Islam, n.d.)As a highly open economy, Malaysia has been affected by the deepening global sparingal recession. After growing by 7% in the first half of 2008, the Malayan economy recorded a result of 0.1% in the fourth quarter of 2008, and contracted by 6.2% in the first quarter of 2009, as a result of a sharp decline in exports. Given the expectation of a more pronounced global recession, the Malaysian economy is projected to contract by 4 5% in 2009. Conditions are expected to improve in the second half year particularly in the fourth quarter and going into 2010. Amidst the unfavourable external conditions, support to the economy will be from municipal demand, following the implementation of a signific ant fiscal stimulus, the cumulative accommodative mo winary form _or_ system of government actions and the continued access to financing. The Malaysian economy is expected to carry out the full impact of the global economic downturn in 2009. In response, several policy mea surelys feed been put in place with a special focus on supporting domestic demand as well as mitigating the impact of the global slowdown on the affected segments of the economyA great deal of emphasis has been placed on nurturing the next generation of Malaysian entrepreneurs with programmes and initiatives that expose youth to business culture and cultivate entrepreneurship. This was designed to prink youth to be independent and self employed later in life, if they choose this career path.In 2008, the Small and Medium Industries Development Corporation (SMIDEC) in collaboration with the Ministry of Higher Education (MOHE) introduced the SME University Internship Programme to train and develop budding entre preneurs among graduates. The programme links SMEs to universities, thus enhancing the synergy between industry and academia to get on the capacity and capability of SMEs. Under this Programme, nett-year students under the tutelage of their lecturers, SMIDECs SME Business Counsellors and the SME Expert Advisory Panel (SEAP) tender consultancy, advisory and mentoring services to SMEs with the aim to upgrade the companies operations in packaging, branding, marketing, accounts and technical areas. As for the graduates, the programme provided exposure to industry and real-life day-to-day issues faced by SMEs, enabling them to make practical applications of their studies and sharpen their interests to venture into business.Meanwhile, to comfort unemployed graduates and school runrs to venture into the retail sector, the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC) conducted the Train and Work Programme benefiting 1,000 individuals. The programme was aimed at prov iding training and career development in run hypermarkets, exposing participants to the retail sub-sector and inculcating entrepreneurial culture. To suffice start-up businesses, the Ministry of International Trade and Industry (MITI) continued to provide Matching Grant for Business Start-ups via its agency, SMIDEC which benefited 1,400 SMEs. (SME AR, 2008)In this paper, we are going to contend factors that affecting undergraduates start-up decision in entrepreneurship guide of view. During the recession, approximately of the start-up is a fate entrepreneurship. The 2004 Global Entrepreneurship Monitor (GEM) report shows that there is great variability in the sexual intercourse distribution of opportunity and extremity entrepreneurship across the 34 countries in the GEM sample. GRM 2004 had distinguished between necessity entrepreneurship, and opportunity entrepreneurship. According to GEM 2004, a necessity entrepreneurship is which has to become an entrepreneur because no b etter option and an opportunity entrepreneurship is an active choice to start a invigorated enterprise based on the perception that a unexploited, or underexploited business opportunity inhabits. The opportunity entrepreneurs are more prevalent in high-income countries (such as France, the United Kingdom and the United States), while necessity entrepreneurs are more common in the low-income countries (such as Hungary and Poland).Accordingly, it may be argued that in developed countries opportunity entrepreneurship is linked to economic development, while in al about developing countries necessity entrepreneurship exists because of low growth. It may be that because richer countries are characterized by a more developed labour market or access to stronger safety device nets (social welfare), there is a lower need for offset up a business and that therefore these countries exhibit lower necessity-based entrepreneurial activity rates.(Reynolds, Bygrave Autio, 2004)1.2 Problem af firmationThe factors that affecting undergraduates start-up decision was chosen to be area of study with due of the following reason Malaysia is having recession, various policies had been made to counter this crisis and we could see that governance is stressing on the role of entrepreneurs in helping Malaysia to come out from the recession. We need to identify undergraduates perception and their supportiveness to entrepreneurship as they maybe the pool of unemployment in this crisis. Graduates unemployment rate had keep change magnitude it is believe to r from each one a critical high rate in this long recession. Start-up can be a good ways for them in overcoming this problem. right off we need to recognize what are the forces that push undergraduates to start-up in patronage of recession. Basically the main problem statement and research direction is to answer this question1) What are the factors that influence undergraduates to start-up during recession?1.3 Research Objectives The objectives of this research are1) To understand how undergraduates perceive the role of entrepreneurship and start-up in stimulating Malaysia economic during recession.2) To identify factors that influence undergraduates to start-up in despite recession1.4 Significance of the ResearchThis research is significant because it distinguish undergraduates perception on entrepreneurship role in this economic crisis. Economists had clarified the importance of entrepreneurship in economic recovery, but many people didnt realise it. Most of the people are fear to start their business in the downturn even they are jobless. In their view, start-up during recession is too risky and couldnt create enough benefits for them to try it compare to the loss possibility. This perception is negative in helping Malaysia economic recovery and assuagement jobless people from the unemployment. In this paper, undergraduates are tested on their willingness to start-up and what are the causes that may infl uence them to make such decision. This is significance as undergraduates unemployment rate had world an issue in Malaysia for many years. A large number of undergraduates will jobless in the recession and this incident could be solve by start-up.1.5 boundary of the ResearchSome of the respondents may not aim sufficient background knowledge about this research so they may not understand or misunderstand the question asked. There are a lot of economics terms which maybe unfamiliar and create confuse for the respondents. It also cannot be discounted that the respondents superpower ready completed the questionnaire without giving serious review on the question in the survey as they could try to be compassionate and sympathetic to assist the undergraduate to complete the project.As this research is a non-sponsor research, the limited expense budget has significant influence on the population sample size. Therefore, there were well-nigh limitations with respect to the analysis and information that may affect the accuracy of the results.1.6 Outline of the ResearchThis study is divided into 5 chapters.Chapter 1 IntroductionIt introduces general information of this research, especially in the Malaysia context. It also briefly discussed the background of the study. This is followed by a brief on problem statement and objectives of the study, which is the most fundamental section of this chapter. In addition, the, limitations of the research, the significance of the study, the scope and assumption are described.Chapter 2 Literature ReviewLiterature review presents some basic knowledge and theories relating to the research variables. This chapter will provide the information needed to answer the research question. The review is the foundation for developing a conceptual framework in the next chapter.Chapter 3 MethodologyThis chapter is an important chapter of this study. It includes the research variables, conceptual framework, hypo thesis and the research methodo logy. This chapter describes the conceptual framework which is the basis for designing questionnaire. The possible action formed will be tested too by the result of the questionnaire.Chapter 4 Results and DiscussionsThis chapter presents and statistical analyses the raw data collected from the survey. The statistical likenessship of the data is logically interpreted, discussed and argued to make sense on the scramings. The results and findings will be discussed deeply on the consequences and erect for each variable.Chapter 5 Conclusions and RecommendationsThis section will precede an overall summary of the study and propose discussion after conducting the good research. Moreover, in this chapter it will also stated the limitation of the study and yet it will propose the suggestion for future research. A conclusion is made and which must(prenominal) answered the problem statement propose before.1.7 Definition and AbbreviationsDefinitions used by researchers are often not confo rm, so it is important to define the positions and views taken in this thesis in regards to some key concepts. Definitions of core constructs will also be dealt with in more depth when the various literatures are discussed. Providing an overview here will give readers a clearer understanding of important concepts.Recession A period of general economic decline typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market.Entrepreneurship The assumption of risk and responsibility in designing and implementing a business strategy or starting a business.Start-up A new business ventureSME Small Medium EnterpriseGEM Global Entrepreneurship MonitorFiscal Policy The use of government spending and revenue collection to influence the economyMonetary Policy The process by which the government, central bank, or monetary authority of a country control s (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economyMarket concentration Is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a marketFRB Federal Reserve Bank1.8 Scope and Key AssumptionsThe scope of the population sample covers undergraduates studying in Bachelor of Business Administration in Malaysia. The sample is selected from the final year student of a university. All of the respondents are assumed to have basic business knowledge and some acquiring knowledge on entrepreneurship, economic recession and government policy implemented in Malaysia. Most of the population samples are chosen from Malacca region.Assumptions on the respondents are as followsl Respondents have basic business knowledge and understand economic terms used in the questionnairel Respondents are familiar with current economic condition and policy implemented in Malaysial Respondents are honest in their responses to the survey and are not influenced by hearsays in completing the questionnaire.1.9 ConclusionsThis chapter has laid the foundation for this research. It introduced the research objectives and raise up the research question.. The research was justified, definitions were presented, the scope and assumption was briefly described, the report was outlined, and the limitations were given. On these foundations, this paper can proceed with a detailed exposition of the research.Chapter 22.0 Literature ReviewThis chapter gives an overview of literature that is related to the research problem presented in the previous chapter. This chapter will introduce the factors that affecting undergraduates start-up and how this factor influence their decisions. Besides, it lock up covers some definition and experts opinion about the variables in order to give a clear idea about the research area.2.1 Job OpportunityTay (2009) point out that in Malaysia, traditional medicine company Hai-O has successfully helped thousands of ordinary Malaysian bumiputeras becomes millionaires with its entrepreneurship development business model. In times of economic slowdown, Malaysian companies should emulate Hai-Os example to create opportunities and employment for the people. The government should also quickly initiate an entrepreneurial development campaign for all races based on merit, since this is one of the measures to create self-employment and counter the economic crisis.In the midst of record unemployment, a new Kauffman Foundation-funded U.S. Census Bureau study reports that startup companies are a major contributor to job creation. The Business Dynamics Statistics (BDS) also indicate that while business startups decline slightly in most of the cyclical downturns, startups remain burly even in the most severe recession over the sample period (in the untimely 1980s).Job growth is essential for our economy to rebound, and this study shows that new firms have historically been an important source of new jobs in the United States, said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, which funded the BDS. Our research into the early years of business formation consistently shows how vital new firms are to our economy, and this data should give policymakers and budding entrepreneurs alike great hope for how we can solve our current crisiscreate and grow jobs through entrepreneurship. (Ewing Marion Kauffman Foundation, 2009 Jan)The BDS data show that employment accounted for by U.S. private-sector business startups over the 1980-2005 period was about 3 percentage per year. plot still a pocket-sized fraction of overall employment, these jobs from startups reflect new jobs, which is a large percentage compared to the average annual net employment growth of the U.S. private sector for the same peri od (about 1.8 percent). This pattern implies that, if you exclude the jobs from new firms, the U.S. net employment growth rate is negative on average.Micro firms (firms with one to four employees) accounted for a large percentage of new jobs in any given yearabout 20 percent on average. Although substantially large startup firms (those with 250 to 499 employees) created a considerably miniatureer percentage of jobs in any given yearabout 1.3 percent of employment in this firm-size classtheir numbers game still are substantial relative to net growth. Although the overall business startup rate in the BDS does not exhibit much of a trend, the data do reveal a declining trend in the micro-firm business startup rate. This may reflect compositional changes in sectors such as retail trade, where there is ample evidence of substantial shifts away from small, unmarried-establishment firms to large, national firms. (Haltiwanger, Miranda, Jarmin, 2009)Entrepreneurs will be the foundation of our nations economic recovery because they start and grow businesses that create jobs. Research indicates that former employees are often receptive to starting a new business during a recession. A Kauffman Foundation-funded U.S. Census Bureau study released in January reports that startup companies are a major contributor to job creation. The Business Dynamics Statistics (BDS) also indicate that while business startups decline slightly in most of the cyclical downturns, startups remain robust even in the most severe recession over the sample period .( in the early 1980s) (Ewing Marion Kauffman Foundation,2009 Feb)The relationship between entrepreneurship and unemployment is analyze by Audretsch, Carree, Thurik (2001) in an econometric model covering 23 OECD countries between 1974-1998. They find a complex relationship between the two variables. Defining entrepreneurship as firm start-ups there is both a positive effect of unemployment on entrepreneurship (the shopkeeper or refug ee effect) as well as a negative relation (the Schumpeter effect).The GEM (2000) concludes that there is a strong relationship between entrepreneurial activities, defined as start-up activities, and economic growth. In the study, this definition of entrepreneurship is claimed to constitute the singularly most important factor for economic growth. In an econometric analysis of Sweden 1976-95, Flster (2000) finds significant support for the hypothesis that an increase in self-employment has a positive effect on overall employment.An other(a) study of Sweden by Davidsson, Lindmark, Olofsson (1994) finds that 70 % of the new net jobs are generated in the small business sector in the period 1985-89. A hike emphasis is that most of the new firms are not growth oriented, but are founded on a hobby or subsistence motive. Thus, small firms are important to the economy because of their large number but a vast majority of the upstarts will remain micro firms. Blanchflower (2000) does not sup port the hypothesis that increases in the level of self-employment increase the real growth rate. Furthermore, making a comparison of the level of self-employment in 23 OECD countries 1966, 1976, 1986 and 1996, Blanchflower finds that the level of non-agricultural self-employment has decreased in most of the countries.The relative importance of small firms is not undisputed as Davis, Haltiwanger, Schuh, (1996) and Bednarzik (2000) remark in their studies. Although important, entrepreneurship through start-ups is claimed to make a smaller contribution to job growth than expansion within existing firms in the U.S., Davis et al draw their conclusion from a study of data from the U.S. Census Bureau during 1972-1988, whereas Bednarzik has studied the mid-1990s. Although smaller firms have a higher gross job creation rate, large firms supply more in terms of net job creation.In a notice on Davis et al, Carree and Klomp (1996) contest its conclusion, arguing that small firms created more net jobs in the 1972-1988 periods relative to their employment share. Davidsson et al (1998) empirically test the regression fallacy, one reason for overestimating the importance of small firms according to Davis et al. The test by Davidsson et al covers Sweden 1989-96 and concludes that the bias does not imply a qualitative change on the overall result. Baldwin and Picot (1995) have studied the Canadian manufacturing sector 1970-90 and in order to avoid a regression-to-the-mean bias three different methods of estimation are used. A consistent finding is that small firms have a higher gross volatility in job growth and destruction but also a higher net employment growth than large firms. While an international comparison of the relative importance of small firms with respect to net job creation is interesting, the results are liable(predicate) to differ between countries due to institutional reasons. For example, Davis and Henrekson (1999) show that the Swedish institutional enviro nment prior to the economic crisis in the beginning of the 1990s significantly disfavored Swedish intensive-intensive, small, and/or managed-owned family businesses as well as entry of new firms compared to similar types of firms in the United States and other European countries.Using data from the U.S. manufacturing sector 1972-93 Haltiwanger and Krizan (1999) find that young firms exhibit high average net employment growth rate but also high volatility compared to mature establishments. Furthermore, among newly started firms there is no evidence of any systematic pattern by employer size of net employment growth. The conclusion is that in the context of employment growth, the age of firms appears to be more important than size, with the caveat that attributing a principal role to a single factor might be misleading.The survey, conducted by pollster Schoen, reveals that 63 percent to 23 percent, survey respondents prefer giving individuals the incentives they need to start their ow n businesses as opposed to allowing the government to create new jobs directly or through big corporations. Further, as a means of leading the country out of the economic crisis, 63 percent of respondents say the United States government needs to encourage the creation of new businesses, which will create sustainable, long-term employment opportunities and economic growth, while only 22 percent favor the government creating new jobs in the public and private sector. 79 percent of respondents say entrepreneurs are critically important to job creation, ranking higher than big business, scientists and government.Besides, Americans think the government does lower-ranking to encourage entrepreneurship, despite its importance 72 percent of respondents say the government should do more to encourage individuals to start businesses. Almost half of respondents think the laws in America make it more difficult to start a business.(Schoen,2009)2.2 InnovationTay (2009) study illustrate (cited fr om Professor Russell Sobel of West Virginia University), that infusions of venture capital funding do not necessarily foster entrepreneurship. Funding does not create new ideas it is people who create new ideas. Funding merely follows and flows to those with new ideas and helps to commercialise the venture. In Malaysia, the government encourages ideas and provides seed funding through Cradle Sdn Bhd for commercially viable ideas.FRB of Dallass publication Entrepreneurs and the Economics say that the market system rewards those who create opportunities for employment and further purpose. When new products, processes and services are introduced by the entrepreneur, and when customers vote favorably with their dollars, even more opportunities arise. New products or service lines develop to further enhance the late introduced products. The computer, for example, paved the way for the Internet, which, in turn, paved the way for search engines and software to explore the World Wide Web , which, in turn, created a new way for people to shop and obtain valuable information, and on and on. A wealthy economy is one teeming with superior contributions and the entrepreneurial opportunities created by them.The director of the U.S. Patent military post during 1899 was wrong when he said that everything that could be invented had already been invented. But the actual is most of the modern conveniences we take for granted today did not exist 100 years ago. According to FDB of Dallas in its publication Entrepreneurship and the Economics, the progress sparked by entrepreneurs ideas does not simply happen. A tremendous amount of work and a great deal of risk go into every new idea that eventually makes its way into the market. And even though entrepreneurs create wealth and opportunity with their ideas, they are not always appreciated for what they do in the economy. One reason for this is that entrepreneurs can be extremely disruptive. When entrepreneurs take bold leaps and break contact with the familiar, they often leave behind a clutter of obsolete products and processes. This force is called originative destruction. For example, manual typewriters used to be in great demand, because they served a useful function. Now, one would be hard-pressed to find a manual typewriter, or even an electric one, at work in a business. The same fate awaits countless other products, processes and services. New technologies replace old ones, and entrepreneurs spark the change. A healthy economy is one that allows creative destruction to occur because, overall, more people benefit than lose. severally act of creation brought about by entrepreneurs more than offsets the losses associated with products or processes becoming obsolete. (Federal Reserve Bank of Dallas, n.d.)Sobel stated that a vibrant, growing economy depends on the efficiency of the process by which new ideas are quickly discovered, acted on, and labeled as successes or failures. Just as important as i dentifying successes is making sure that failures are quickly extinguished, freeing poorly used resources to go elsewhere. This is the positive side of business failure. Successful entrepreneurs expand the size of the economic pie for everyone.Sam Walton, the get out of Wal-Mart, was an entrepreneur who touched millions of lives in a positive way. His innovations in distribution warehouse centers and inventory control allowed Wal-Mart to grow, in less than thirty years, from a single store in Arkansas to the nations largest retail chain. Shoppers benefit from the low prices and convenient locations that Waltons Wal-Marts provide. Along with other entrepreneurs such as Ted Turner (CNN), Henry Ford (Ford automobiles), dig Kroc (McDonalds franchising), and Fred Smith (FedEx), Walton significantly improved the everyday life of billions of people all over the world. Schumpeter stressed the role of the entrepreneur as an innovator who implements change in an economy by introducing new g oods or new methods of production. (Sobel, nd)In the Schumpeterian view, the entrepreneur is a disruptive force in an economy. Schumpeter emphasized the beneficial process of creative destruction, in which the introduction of new products results in the obsolescence or failure of others. The introduction of the compact disc and the corresponding disappearance of the vinyl record is just one of many examples of creative destruction cars, electricity, aircraft, and psycheal computers are others. (Schumpeterian, 1911)In contrast to Schumpeters view, Kirzner focused on entrepreneurship as a process of discovery. Kirzners entrepreneur is a person who discovers previously unnoticed profit opportunities. The entrepreneurs discovery initiates a process in which these newly discovered profit opportunities are then acted on in the marketplace until market competition eliminates the profit opportunity.Unlike Schumpeters disruptive force, Kirzners entrepreneur is an equilibrating force. An exa mple of such an entrepreneur would be someone in a college town who discovers that a recent increase in college enrollment has created a profit opportunity in renovating houses and turning them into rental apartments. Some empirical studies have attempted to destine the contribution of entrepreneurial activity to overall economic growth. The majority of the widely cited studies use international data, taking advantage of the index of entrepreneurial activity for each country published annually in the Global Entrepreneurship Monitor. These studies conclude that between one-third and one-half of the differences in economic growth rates across countries can be explained by differing rates of entrepreneurial activity. Similar strong results have been found at the state and local levels.(Kirzner, 1997)Entrepreneurship and competition fuel creative destruction. Schumpeter summed it up as followsThe fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers goods, the new methods of production or transportation, the new markets, the new forms of industrial transcription that capitalist enterprise creates. (Schumpeter, 1939)Entrepreneurs introduce new products and technologies with an eye toward making themselves better offthe profit motive. New goods and services, new firms, and new industries compete with existing ones in the marketplace, taking customers by offering lower prices, better performance, new features, catchier styling, faster service, more convenient locations, higher status, more aggressive marketing, or more entrancing packaging. In another seemingly contradictory aspect of creative destruction, the pursuit of self-interest ignites the progress that makes others better off.(Alm Cox, n.d.)Romer, a leading scholar of Economic Growth, has explained that innovation results from a combination of growth-fostering social institutions and new ideas. Because ideas, unlike objects, can be shared by many at the same time, they greatly increase the recreate of technological advancement. Capital, social institutions, and new technology, therefore, do not alone cause growth they must be combined with the ability and willingness to think and act creatively, which in turn means that innovation, has philosophical and psychological requirements. (Sandefur, n.d.)Novus ordo seclorum, characterized by greater uncertainty, asymmetry, and reliance on knowledge as a factor of production, has increased the importance of small entrepreneurial firms. Acs and Audretsch (2001) conclude that there are significant differences in the importance of small firms regarding innovative activity across sectors. Specifically, they mention computers and process control instruments as industries where new entrepreneurial firms are an important part of the innovation process. This adds to a list of Baldwin and Johnson (1999), who mention the importance of small firms regarding electronics, instruments, medical equipment, ste el, and biotechnology.Acs (1996) presents an innovation measure, defined as the total number of innovations per 1000 employees in differe