A Literature Analysis on the Relationship between External Integration, Environmental Uncertainty and Firm Performance in Malaysian SMEs

AbstractThe effect of environmental uncertainty (EU) on the relationship between external integration and firm performance is examined for small- and medium-sized enterprises (SMEs) in Malaysia. Uncertainty is a changeability state of the environment including uncertain market, failure to forecast the impact of changes in environmental, and unable to expect the outcomes of a response choice. SMEs have scarcity resources in terms of financial, skills, knowledge and technology; therefore, the sustainable business successes of SMEs hinge more on suppliers’ capabilities and co-operative relationships as well as customer integration. Since SMEs operate under highly competitive environment, thus SMEs need to monitor their environment to identify potential collaborative opportunities with suppliers and customers. In addition, the close relationships with suppliers and customers allow SMEs to access to the latest process, technologies, materials and other methods of innovation. Particularly, there is a lack of studies that investigate the effect of EU on the external integration-firm performance relationship in Malaysian SMEs of manufacturing industry. As such, the implications of the three sources of uncertainty – demand uncertainty, technological uncertainty and competitive threats are discussed. Ultimately, this study could enrich the existing body of knowledge in supply chain integration, EU and performance of SMEs in the manufacturing industry