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Linking Marketing Resources, Procurement

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Thesis November 2011

DOI: 10.13140/RG.2.1.3529.7362

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 UNIVERSITI TEKNOLOGI MARA

MODELLING MARKETING RESOURCES,

PROCUREMENT PROCESS COORDINATION AND
FIRM PERFORMANCE IN THE
BUILDING CONSTRUCTION INDUSTRY: THE
INTEGRATION OF RESOURCE BASED VIEW AND
COORDINATION THEORIES

AKMAL AINI OTHMAN

Thesis submitted in fulfilment of the requirements for the degree of

Doctor of Philosophy

Faculty of Business Management

November 2011

i
 Candidates Declaration

I declare that the work in this thesis was carried out in accordance with the regulations of
Universiti Teknologi MARA. It is original and is the result of my own work, unless
otherwise indicated or acknowledged as referenced work. This thesis has not been
submitted to any other academic institution or non-academic institution for any other
degree or qualification.

In the event that my thesis is found to violate the conditions mentioned above, I
voluntarily waive the right of conferment of my degree and agree to be subjected to the
disciplinary rules and regulations of Universiti Teknologi MARA.

Name of Candidate: Akmal Aini Othman

Candidates ID No.: 2007254302
Programme: Doctor of Philosophy
Faculty: Business Management
Thesis Title: Modelling Marketing Resources, Procurement Process
Coordination and Firm Performance in the Building Construction Industry: The
Integration of Resource Based View and Coordination Theories

Signature of Candidate:
Date:

ii.
 Abstract
The construction industry is a complex and the most people-intensive sector in the
national economy. While it forms a major pillar to a nations socio-economic
development, past studies have found that this industry, with particular reference to the
building materials resources, were not sufficiently managed, leading to a waste of bad
material management with time and cost overrun. Problems in the inaccuracy of data,
unplanned deliveries, wrong and defective deliveries for instance, require the supply
chain members to be coordinated. In view of this, there is a need to investigate the
procurement process coordination (PPC) between the contractor and his building
materials suppliers, focusing on the opportunities of the improvement in operational and
customer performance. Thus, the present study looked into the coordination between the
construction firm and its main building materials suppliers to allow for greater
understanding in the field of supply chain management (SCM). Drawing upon two
theories namely Resource Based View (RBV) and Coordination Theory (CT), it also
analysed the relationship of the three critical constructs; marketing resources, PPC and
firm performance. This study intended to shed light into the potential implication of the
link in a more coherent and integrated approach particularly from the lens of construction
supply chain. With this backdrop, the objective of the study was formulated to establish a
link between these constructs (marketing resources, PPC and firm performance) and their
dimensions as well as to examine the mediating role of PPC on this link. This study
contributes to the new knowledge by detailing the activities involved in PPC instead of
testing it in a general setting.

Data for this study was gathered through a survey questionnaire. The analysis was
conducted using Structural Equation Modelling (SEM) technique by examining two
competing models that represent full and partial mediation. The findings revealed that
marketing resources have positive and significant effects on PPC dimensions. It was also
found that PPC fully mediates the relationship between marketing resources and firm
performance. Result from the Sobel test provides evidence that joint operational planning
and supplier relationship development appeared to confirm their role as mediating factor
in the relationship between marketing resources and firm performance. In other words
these two dimensions of PPC facilitate the conversion of marketing resources into firm
performance. This finding was consistent with the movement of the industry players
towards best practices which emphasised on SCM, client orientation and
innovativeness. Following these findings, a number of implications are offered for the
construction industry. First, construction industry players should adopt and emphasis on
such orientations in order to enhance their performance particularly with the operational
and customer performance. Second, PPC, in particular join decision planning and
supplier relationship development provided greater room for understanding on the impact
of marketing resources on the effectiveness and efficiency of the construction supply
chain. Finally, the industry players must act upon the importance of marketing resources
in order to optimise their supply chain coordination capability.

iii
 Acknowledgement

It is my name that appears on the front page of this dissertation, but behind every scene
has been a group of people who have unstintingly contributed of their time and talents,
support and friendship.

I am heartily thankful to:

My supervisor, Dr. Sofiah Abd Rahman for her patience and knowledge whilst allowing
me room to work in my own way.

Dr. Arshinder Kaur, Dr. Rohana Ngah, Dr. Rosmimah Mohd Roslin, Dr. Fadzil Hassan
and Dr. Damien Power for rooting me while I was in the trenches and for insightful
criticism.

My dad for standing by me at all time and my siblings who bring joyous serenity to my
life and a new meaning to the word understanding.
My mirror image, Akmal Aida, for her encouragement and support.

To those special people who offered friendship, assistance and advice, even though their
names are not cited here, they deserve my greatest gratitude. I could not have done this
without all of you. Many thanks.

Lastly, this dissertation is dedicated to my beloved mum. Im sorry for taking some time
to complete this. Miss you.

iv
 Table of Contents
Title Page i
Candidates Declaration ii
Abstract iii
Acknowledgement iv
Table of Contents v
List of Tables viii
List of Figures x
CHAPTER ONE : INTRODUCTION 1
1.1 Introduction 1
1.2 Background of the Study 1
1.2.1 Theoretical Perspective 1
1.2.2 Industrial Perspective 3
1.3 Problem Statement 6
1.4 Research Objectives 11
1.5 Research Questions 12
1.6 Scope of Study 12
1.7 Significance of the Study 13
1.8 Organisation of the Thesis 14
CHAPTER TWO : OVERVIEW OF THE CONSTRUCTION INDUSTRY 17
2.1 Introduction 17
2.1 The Contribution of the Construction Industry Worldwide 17
2.2 Problems in the Construction Industry Worldwide 21
2.3 The Nature of Construction Industry Worldwide 24
2.4 Building Materials in the Construction Industry 29
2.5 Construction Supply Chain Participants 33
2.6 The Construction Industry in Malaysia 39
2.6.1 The Malaysian Construction Industry Performance 46
2.6.2 Challenges and Problem in the Malaysian Construction Industry 51
2.6.3 Best Practices in the Malaysian Construction Industry 54
2.7 Chapter Summary 57
CHAPTER THREE : LITERATURE REVIEW 59
3.1 Introduction 59
3.2 Underlying Theories 60
3.2.1 Resource Based View (RBV) 60
3.2.2 Coordination Theory 65
3.3 Supply Chain Management and Procurement Process Coordination 66
3.3.1 Defining Supply Chain Management (SCM) 67
3.3.2 Understanding Supply Chain Coordination 73
3.3.3 Process View of Supply Chain Coordination 82
3.3.4 Procurement Process Coordination 87
3.4 Marketing Resources 96
3.4.1 Defining Marketing Resources 97
3.4.2 Identifying the Components of Marketing Resources 97
3.4.3 Itemising Marketing Support and Market-Based Resources 102
3.5 Firm Performance 105

v
 3.6 Development of Research Framework and Formulation of Hypotheses 108
3.6.1 Introduction 108
3.6.2 Relationship between Marketing Support Resources and Market-Based
Resources 113
3.6.3 Relationship between Marketing Resources (Market-Based Resources) and
Firm Performance 114
3.6.4 Relationship between Marketing Resources (Market-Based Resources) and
Procurement Process Coordination 115
3.6.5 Relationship between Procurement Process Coordination and Firm
Performance 117
3.6.6 The Mediating Effect of Procurement Process Coordination 120
3.7 Chapter Summary 122
CHAPTER FOUR : RESEARCH METHODOLOGY 124
4.1 Introduction 124
4.2 Research Process 124
4.3 Research Framework and Hypotheses 126
4.4 Preliminary Field Research 129
4.5 Sampling Design 130
4.5 Data Collection Method 133
4.5.1 Data Collection Administration 133
4.5.2 Survey Instrument 135
4.5.3. Description of Measurement Instruments 136
4.5.4 Pilot Test 144
4.5.5 Conducting the Survey 145
4.6 Data Analysis Procedure/Process 146
4.6.1 Descriptive Analysis 148
4.6.2 Test of Response Bias 148
4.6.3 Test of the Goodness of Data 149
4.6.4 Factor Analysis 151
4.6.5 Construct Validity Assessment 155
4.6.6 Test of the Mediation Effects 162
4.7 Chapter Summary 167
CHAPTER FIVE : FINDINGS & DISCUSSION 168
5.1 Introduction 168
5.2 Descriptive Analysis 168
5.2.1 Respondent Profiles 168
5.2.2 Descriptive Statistics of the Constructs Examined in the Study 171
5.3 Test of the Goodness of Data 177
5.3.1 Correlations and Linearity 177
5.3.2 Normality Test 182
5.4 Factor Analysis 182
5.4.1 Exploratory Factor Analysis (EFA) 183
5.4.2 Confirmatory Factor Analysis (CFA) 188
5.5 Assessment of the Construct Validity 201
5.5.1 Content Validity 201
5.5.2 Unidimensionality and Reliability 201

vi
 5.5.3 Convergent Validity 203
5.5.4 Discriminant Validity 205
5.6 Analysis of the Structural Model and Testing of Hypotheses 209
5.6.1 Specifying the Structural Model 212
5.6.2 Analysing Competing Models Full and Partial Mediation 213
5.6.3 Hypotheses Testing (Path Analysis) 217
5.6.4 Hypotheses Testing - The Effect-Size of the Mediation 226
5.8 Chapter Summary 233
CHAPTER SIX : IMPLICATIONS AND CONCLUSION 234
6.1 Introduction 234
6.2 Implications of the Study 234
6.2.1 The Influence of Marketing Resources on PPC in the Building Construction
Industry 236
6.2.2 The Influence of PPC on Firm Performance in the Building Construction
Industry 237
6.2.3 PPC as a Mediator between Marketing Resources and Firm Performance 238
6.3 Contribution of the Study to the Advancing of the Knowledge 240
6.4 Limitations and Suggestions for Future Research 243
6.5 Conclusion 245
REFERENCES 250
APPENDICES 281
Appendix 4.1: Sample of Questionnaire 281
Appendix 4.2: List of Questions used in the Preliminary Study 290
Appendix 5.2: Reliability Test Result 292
Appendix 5.4: Table of Chi-Square Statistics 294

vii
 List of Tables

Table 2. 1: Construction Contribution to the GDP - by Country 19

Table 2. 2: Manufacturing Contribution to the GDP - by Country 20
Table 2. 3: Ordering Systems and Application of the Materials and Components 33
Table 2. 4: Types of Construction and Typical Clients 37
Table 2. 5: Construction Contract/Expenditure (RM billion) 40
Table 2. 6: Classes of Contractors CIDB 42
Table 2. 7: Classes of Contractors PKK 42
Table 2. 8: Number of Contractors by Grade, 2001 - June 2007 44
Table 2. 9: Malaysian Construction Sector and the GDP 46
Table 2. 10: Industries Contribution to the GDP of Malaysia 49
Table 2. 11: The Growth of Malaysian GDP by Type of Economic Activity 49
Table 2. 12: Construction Contribution to the GDP - by Country (in percentage) 50
Table 2. 13: Key Areas of Concerns 52
Table 2. 14: Strategic Thrusts 53
Table 2. 15: Critical Success Factors 54
Table 3. 1: Classifications of Resources 63
Table 3. 2: The Taxonomy of the Focus Areas of Supply Chain Management 69
Table 3. 3: Definitions of Supply Chain Management 72
Table 3. 4: Various Definitions on Coordination 75
Table 3. 5: Coordination Mechanism, Structure of Supply Chain and Performance
Measure 79
Table 3. 6: Description on Selected Supply Chain Coordination Mechanisms for the
Present Study 81
Table 3. 7: Supply Chain Management Processes 85
Table 4. 1: Total Number of Population, Sample Size and Response of the Study 132
Table 4. 2: Main Constructs and their Conceptual Definitions 135
Table 4. 3: Measurement Items for Marketing Resources 138
Table 4. 4: Measurement Items for Procurement Process Coordination 141
Table 4. 5: Measurement Items for Firm Performance 144
Table 4. 6: Data Analysis Procedure/Process 147
Table 4. 7: EFA Requirements on Data Set 152
Table 4. 8: Model Diagnostics in CFA 153
Table 4. 9: Model Fit Indices 155
Table 5. 1: Respondent Profiles 170
Table 5. 2: Mean Score and Standard Deviation by Items Marketing Resources 173
Table 5. 3: Mean Score and Standard Deviation by Items Procurement Process
Coordination 175
Table 5. 4: Mean Score and Standard Deviation by Items Firm Performance 177
Table 5. 5: Correlations Between Dimensions 179
Table 5. 6: Multicollinearity Test Results 180
Table 5. 7: Skewness and Kurtosis of the Variables 182
Table 5. 8: Results of Examination of Constructs for Exploratory Factor Analysis
Suitability 183

viii
Table 5. 9: Factor Retention Results from Exploratory Factor Analysis 185
Table 5. 10: Summary of Items Dropped in Exploratory Factor Analysis 186
Table 5. 11: Exploratory Factor Analysis for Independent Variables Items Retained in
Marketing Resources 187
Table 5. 12: Exploratory Factor Analysis for Dependent Variables Items Retained in
Firm Performance 187
Table 5. 13: Exploratory Factor Analysis for Mediating Variables Items Retained in
Procurement Process Coordination 188
Table 5. 14: Summary of Items Dropped in Confirmatory Factor Analysis 190
Table 5. 15: Fit Results for the Three Measurement Models after Items Purification 195
Table 5. 16: Final Items Used in Measurement Model 200
Table 5. 17: Result of EFA Factor Loading and Coefficient Alpha Index 202
Table 5. 18: Result of CFA for Measurement Model Factor Loading, Composite
Reliability and Average Variance Extracted 204
Table 5. 19: Test of Discriminant Validity of the Models 206
Table 5. 20: Correlation Matrix Discriminant Validity of Dimensions 207
Table 5. 21: Assessment of Discriminant Validity (Chi-square Difference Test between
Two Dimensions) 209
Table 5. 22: The Overall Fit of Full Mediation and Partial Mediation Model 216
Table 5. 23: Structural Model Results Results of Hypotheses Testing 219
Table 5. 24: Sobel Test - Effect Size Measures for Mediation Analysis 228
Table 5. 25: Research Objectives, Research Questions, Hypotheses and Findings 231
Table 6. 1: Research Questions, Findings and Implications 235

ix
 List of Figures
Figure 2.1: The Construction Industry as a Loosely Coupled System 26
Figure 2. 2: Diffrent Types of Logistics Chains of Materials in the 31
Figure 2. 3: The Organisation and Information Flows in a Typical Construction Project 35
Figure 2. 4: Main Agents Relationships and User as Final Client in the Construction
Supply Chain 36
Figure 2. 5: Construction as an Enabler of Government's Socio-Economic Policies 45
Figure 3. 1: The Recursive Interplay Between an Integrated Supply Chain and the Four
Coordination Mechanisms 77
Figure 3. 2: Supply Chain Management Framework: Key Elements and Decisions 84
Figure 3. 3: Definition of Concepts - Purchasing and Procurement 90
Figure 3. 4: Typical Material Purchasing Sequence 91
Figure 3. 5: Performance Impact of Marketing Resources 99
Figure 3. 6: Marketing Resources Contribute to Company Performance 101
Figure 3. 7: A Model of Marketing Resources, Globalisation and Firm Performance 101
Figure 3. 8: Measurements at Basic Links in a Supply Chain 108
Figure 3. 9: Framework for Analysis of Market-Based Resources 109
Figure 3. 10: Proposed Framework - Linking Marketing Resources, Procurement Process
Coordination and 112
Figure 4. 1: Flow Chart of Research Process 125
Figure 4. 2: Proposed Framework Linking Marketing Resources, Procurement Process
Coordination and Firm Performance 127
Figure 4. 3: Construct Validity Process 161
Figure 4. 4: Illustration on Mediation Effect 164
Figure 5. 1: Normal P-P Plots of Regression Standardised Residuals 181
Figure 5. 2: Output Path Diagram for Measurement Model Marketing Resources 192
Figure 5. 3: Output Path Diagram for Measurement Model Procurement Process
Coordination 193
Figure 5. 4: Output Path Diagram for Measurement Model Firm Performance 194
Figure 5. 5: Measurement Model for All Dimensions 197
Figure 5. 6: Final Measurement Model for All Dimensions 199
Figure 5. 7: Proposed Structural Model of the Study 211
Figure 5. 8: Full Mediation Model 214
Figure 5. 9: Partial Mediation Model (Competing Model) 215
Figure 5. 10: Result of Structural Model Path Analysis 220

x
 CHAPTER ONE
INTRODUCTION

1.1 Introduction
This opening chapter seeks to bring to the light on the subject and the purpose of this
thesis. In particular, it aims to introduce, justify and position the research effort. It
embarks by providing an overview of the research topic, to be followed by the research
problem, objectives of the study, research questions, scope of study, as well as potential
contributions of the research towards the existing body of knowledge and to the
practitioners. At the end of this chapter, the organisation of the entire thesis is presented.

1.2 Background of the Study

1.2.1 Theoretical Perspective
Supply chain (SC) can be viewed as a network of firms engaged in complex activities
and multi processes (Arshinder, Kanda, & Deshmukh, 2006). With such complexities,
this management of interdependencies requires coordination to improve the performance
of SC, which is on the flow of information, services, activities, money and materials
(Arshinder, Kanda, & Deshmukh, 2008). As stated by Zimmer (2002), the coordination
between producer and supplier is one of the key issues in supply chain management
(SCM). Apart from that, pressures from the external environment such as intense
competition, ever increasing customer demands, and technology enabling, have forced
many firms turning to SCM as a central part of strategic competence (Sheth & Sharma,
1997). On the same line of thought, firms are increasingly exploring ways to leverage
their supply chain and systematically evaluating the role of suppliers in their activities.
As reported by Kannan & Tan (2006), leveraging supply chain allows the firms to
exploit the capabilities, expertise, technologies and efficiencies of their suppliers. This is
enhanced by the claim made by Cousins, Lawson, & Squire (2008) that close links

1
between buyers and suppliers are increasingly cited as a decisive differentiation of high
and low performers in global supply chains.

Wisner (2003), in his study on structural equation model of SCM strategies and firm
performance, comprehensively described SCM as the integration of key business
processes among a network of interdependent suppliers, manufacturers, distribution
centres and retailers in order to improve the flow of goods, services, and information
from original suppliers to final customers with the aims of reducing system-wide costs
while maintaining required service level. Based on the above description, several
important characteristics of SCM can be explored further. Along with are: (1) SCM
itself involves integration of business processes and activities; (2) the coverage is from
the initial supplier to the end user; (3) it constitutes of several interdependent players and
(4) the objectives are to improve the firms performance and customer satisfaction. Due
to that, from the theoretical point of view, the supply chain, which comprises network of
firms that engaged in complex activities and multi processes is seen to be too complex
(Arshinder et al., 2006) to attain a full integration of all business performance within it
(Tan, 2001). Consequently, this leads to a narrower perspective of SCM, limiting it to
the integration of various functional areas within an organisation in enhancing the flow
of goods from immediate strategic suppliers through manufacturing and distribution
chain to the end user (Houlihan, 1987). With such point of view on SCM, it is not
surprising that diverse related areas of studies have been investigated by the researchers
in SCM. Among those progressively studied are: managing supplier, managing process
and activities in the SC, integration and coordination of key actors and processes,
coverage in form of end-user to initial supplier and value creation (Harland, 1996; Tan,
2001)

The above statement by Harland (1996) and Tan (2001) underlined coordination as one
of the critical elements in the study of SCM. Supply chain coordination (SCC) has
become a critical success factor for the supply chain management (SCM) with the
movement from the independent operations strategies to integrated supply chain

2
strategies (da Silveira & Arkader, 2007). This integrated approach is in line with the call
made by Dyer & Singh (1998) where a firm needs to develop effective coordination
within and beyond its boundaries in order to exploit the potential for converting
competitive advantage into profitability. Moreover, as highlighted by Simatupang,
Wright & Sridharan (2002), coordination among independent firms, such as raw
materials suppliers, manufacturers, distributors and other related parties, is the key to
attaining the flexibility necessary to enable them to gradually improve SC processes in
response to the rapidly changing market conditions. Additionally, as mentioned by
Arshinder, Kanda, & Deshmukh (2006), such coordination may help to improve
performance of various supply chain processes and one of the critical processes in the
SC is procurement.

The above arguments demonstrate the essentiality of coordination in the SC processes.

With such claims, it draws attention to the need for further diagnosis in this area. Issues
on: (1) key supply chain members with whom to link processes; (2) processes that
should be linked with each of these key SC members; and (3) level of coordination that
should be applied for each process link, are among essential areas to be explored
(Lambert & Cooper, 2000).

1.2.2 Industrial Perspective

One could argue that the application of SCM concept to sectors such as retailing and
manufacturing is no longer novel, where previous studies in these areas have shown that
SCM leads to improving a firms competitiveness and profitability (Mentzer, 2001;
Stank, Scott, & Patricia, 2001; Wisner, 2003). On the other hand, adopting this concept
into the construction industry is seen to be fresh and challenging due to the nature of the
industry which is widely known as fragmented and highly specialised. As usual, there
are debates on these unique characteristics of the construction industry. Some claimed
that such characteristics serve as barriers and restrict the industry players and activities
to be coordinated (Cox & Thompson, 1997; Dubois & Gadde, 2002). Conversely, there

3
are arguments on the necessity of having good coordination due to the complexity of the
industry and the interdependencies among channel members (Davis, 2008; Errasti,
Beach, Oyarbide, & Santos, 2007). The latter perspective is highly supported by the
issues raised by previous reports in construction (Egan Report and Latham Report)
which called for industry improvement via Rethinking Construction (Egan, 1998;
Latham, 1994). Both reports stressed on innovation in various areas such as procurement
and construction management projects in which partnering and SCM are seen as critical
issues in the industry reformation (Pryke, 1999). Additionally, in the context of
Malaysian construction industry, it has been highlighted by the Construction Industry
Development Board (CIDB) Malaysia that best practices such as SCM and market
orientation work as key elements for success, whereby cooperation and coordination
play a critical role particularly in enhancing construction productivity (Construction
Industry Master Plan Malaysia 2006-2015, 2007). Such arguments underline the
relevancy of SCM concept to the construction industry notably with the issue of
coordination in key business processes such as procurement.

In comparing with other industries, the construction industry has been known to be a
leader in outsourcing particularly in materials and services (Dubois & Gadde, 2000).
The essential of materials procurement mainly stems from the fact that the cost of
materials forms a significant part of project costs (Manavazhi & Adhikari, 2002; O'Brien
& Zilly, 1991). Technically, it accounts for more than 50% of the total costs (Dubois &
Gadde, 2000). In more specific, the cost of building materials account for 50% - 60% of
the total building costs while costs such as labour contribute 30%, heavy equipment
5% and construction management and supervision - 15% (Bertelsen & Nielsen, 1997).
However, some studies in the construction industry explained that these resources
(building materials) are not sufficiently managed as compared to what have been
practiced in the manufacturing sector (Bertelsen & Nielsen, 1997; Bertelsen, 1993). This
insufficiency leads to a waste of bad material management with time and cost overrun.

4
Figure 1.1 for instance, highlights the importance of building and construction materials
as supportive factors in the construction value chain. In particular, it draws attention to
the different stages of value chain and key sectors including building and construction
materials which could be leveraged in the construction industry. This is paralleled with
what had been mentioned by Dubois & Gadde (2000) on the huge interdependency of
contractors on subcontractors and suppliers of building materials in accomplishing their
tasks. As stated by Arshinder, Kanda, & Deshmukh (2008), supply chain members, such
as the suppliers of materials, if managed effectively, can offer benefits such as reduced
cost, accelerating flexibility, lower inventory level, reduced order fulfilment cycle time
and reduced delivery time of finished goods to the customers. This phenomenon
demonstrates the importance of suppliers and subcontractors as catalysts in influencing a
firms (contractors) capabilities and efficiencies.

PRIMARY Inception Design Tender Construct Manage

Facilities
Building & Construction Materials

CLIENTS
Tooling, Heavy Equipment & Machinery
Finance & Insurance
SUPPORT
Utilities & Transport
Human Resources
Information, Communication & Technology
Regulation & Enforcement
R&D

Figure 1. 1: Construction Industry Value Chain

Source: Construction Research Institute of Malaysia (2008 ) pp. 13

Having the facts that procuring building materials is critical, particularly in the building
construction industry, effort should be made to apply best practices such as the concept
of supply chain coordination in the procurement process to this industry. Although not
all coordination efforts are successful, the possible benefit is considerable (Stank, Crum,

5
& Arango, 1999) and thus it has encouraged a number of researchers from various fields
to explore this topic (Agan, 2005; Arshinder et al, 2008; Cachon & Lariviere, 2005;
Chen, 2007; Hossain, 2009; Malone & Crowston 1994; Stank et al., 1999; Xue, Li,
Shen, & Wang, 2005). Among the intriguing questions to the researchers as well as the
practitioners are: Does supply chain coordination process or specifically procurement
process coordination really affect the firm performance in the construction industry?
Which activities in the procurement process coordination are most important and
relevant? What are the enablers to the successful procurement process coordination?

The present study, which is built upon the theoretical foundation of Resource Based
View (RBV) and Coordination Theory (CT), attempts to answer the above three crucial
questions apart from other questions and relates them to the building construction
industry. The focus is given to the procurement process of building materials between
the contractors and their main suppliers. Although the term procurement encompasses a
wide range of activities, which comprises procuring of equipment, materials, labour and
services required for construction and implementation of a project, the present study
applies the term in the limited context of building materials. The following sub-topics
will justify and position this research effort in accordance to the needs of a scientific
research.

1.3 Problem Statement

While several empirical studies in other industries such as manufacturing and retailing
have shown that there is a positive relationship between procurement collaboration and
coordination with performance (Agan, 2005; Arshinder, Kanda, & Deshmukh, 2006;
Power, 2008), research into this body of knowledge in the construction industry is found
to be dearth and inconclusive (Fisher, 2009). As mentioned by Fisher (2009), there is a
wide agreement over the benefits of partnering, collaboration and coordination as a
useful construction project procurement strategy, but this perspective is somewhat
weakened by a lack of rigorous, verifiable evidence to support the claims that are made.

6
Thus it is essential to carry out studies in this area of procurement coordination mainly
in the context of construction industry.

In addition to the above claims, studies by Vrijhoef, Koskela, & Howell (2001) and
Vrijhoef & Lauri (1999) draw attention to the waste and problems in the construction
supply chain due to the interdependency largely interrelated with causes in other stages
of supply chain. Such problems normally lead to construction delays that eventually
incur additional cost (Sambasivan & Soon 2007; Vrijhoef et al., 2001). This scenario is
depicted in Figure 1.2. It can be seen that problems in the construction supply chain take
place in various stages of the construction processes, which involves various participants
of channel members particularly the contractor and the suppliers. Problems 5, 6 & 8 for
instance, warrant an effective procurement process coordination approach between the
materials suppliers and the contractors in order to cope with inaccurate and insufficient
inputs needed in the procuring process of building materials. Hence, there is a need to
look into how the PPC could be utilised in influencing the performance of the firm
particularly with regards to the operational aspect in the context of construction supply
chain.

7
 1 2 3
Purchasing &
Client Design Engineering
Preparation 5
8 4
Suppliers

6
11 10
9
Occupation Completion of Site Subcontractors
Building
7

Problem 1: Difficulties finding out clients wishes; Changes of client wishes; Long procedure to discuss changes
Problem 2: Incorrect documents; Design changes; Extended wait for architects approval of design changes
Problem 3: Inaccurate data; Engineering drawings not fit for use
Problem 4 & 5: Inaccurate data; Information needs are not met; Adversarial bargaining; Order changes
Problem 6 & 7: Deliveries not according to planning; Wrong and defective deliveries; long storage period; Awkward
packing; Large shipments
Problem 8: Inaccurate data; Information needs are not met; Unrealistic planning
Problem 9: Subcontracted work not delivered to main design, contract & planning
Problem 10: Problematic completion due to quality problems
Problem 11: Unresolved quality problems; Delayed occupation due to late completion

Figure 1. 2: Generic Problems in the Construction Process

Source: Vrijhoef et al. (2003) pp. 3

As discussed in the background of the study, previous efforts have been made to further
explore on the area of supply chain coordination (SCC). One of the issues which require
attention is regarding the enablers of SCC. As pointed out by Chen (2007) and Pagell
(2004), despite many studies that have addressed the topic of SCC, the studies of the
enablers of coordination are still missing. From the theoretical aspect, it demonstrates
that most studies related to SCC adopt information technology (IT) approach as the
enabler to SCC (Hossain, 2009; Li & Wang, 2007; Vickery, Jayaram, Droge, &
Calantone, 2003; Rai, Patnayakuni, & Seth, 2006; Zhao, Xie, & Zhang, 2002). In many
cases, SCC is perceived as a technological challenge rather than managerial challenge
(Arshinder, Kanda, & Deshmukh, 2008). Consequently this limits the understanding on
the concept of SCC and ultimately would restrict the link between SCC and potential

8
enablers such as marketing resources. As pointed out by Power (2008), knowledge
transfer between firms in the supply chain is mainly effective when enabled by
collaboration practice rather than just technological capability.

The above limitation however, does not include the study carried out by Agan (2005)
who employed a combination of IT and marketing resources constructs as the enablers in
his study of supply chain process integration. Unfortunately, his study has considered
marketing resources to market orientation alone. A similar case applies to a study by
Chen (2007) in which customer orientation was the only enabler employed for supply
chain process integration. Thus, such action curbs the true picture of marketing
resources as prescribed by Hooley, Greenley, Cadogan, & Fahy (2005); Srivastava &
Fahey (1999) and Srivastava, Fahey, & Christnsen (2001). To fill the gap, the present
study extended the model used by Hooley et al. (2005) in portraying the concept and
component of marketing resources, which is perceived to be more holistic and
pragmatic. Hence, better result to the enhancement of body of knowledge is expected.

Previous literatures revealed that there is lack of studies on marketing resources that
strived to link this construct to SCC process particularly in relation to procurement
process coordination. As proposed by Srivastava & Fahey (1999) and Srivastava, Fahey
& Christnsen (2001), resources such as marketing assets and capabilities must be
absorbed, transformed and leveraged as part of the organisational process in order to be
converted to solution that customers want and eventually generate value for the
organisation. Most studies used direct approach by linking these resources with firm
performance (Hooley et al., 2005; Milfelner, Gabrijan, & Snoj, 2008) and neglecting the
potential mediating impact of PPC. A review of related empirical studies shows that
there is a need to examine the factors that potentially could mediate the link between
marketing resources and performance. This will provide some explanations regarding
the mixed results of the correlation between performance and key resources variables.
For example, in the case of market orientation, most often the associations between
market orientation and performance were found to be mixed. It was found to be positive

9
in Deshpande, Farley, & Webster (2000) and Lin & Germain (2003), negative result in
other studies (Narver & Slater, 1990; Voss & Voss, 2000) and no significant result in a
few additional studies (Han, Kim, & Srivastava, 1998; Kohli & Jaworski, 1990; Matear,
Garrett, & Gray, 2004). As for other variables of marketing resources such as
entrepreneurial orientation, innovative capability and market sensing capabilities, they
appear inconclusive and show mixed results of their impact on the performance (Dess,
Lumpkin, & Covin, 1997; Li & Atuahene-Gima, 2001; Luo, Sivakumar, & Liu, 2005;
Murray, Kotabe, & Wildt, 1995). Hence, the overall mixed results of the influence of
individual variables in marketing resources on firm performance propose the need for a
contingency perspective to advance the marketing resources framework and Resource
Based View (RBV) (Luo et al., 2005). In other words, this suggests that the individual
effect of marketing resources variables on firm performance might not be direct and
universal. Rather, it might depend on the way in which business processes are conducted
such as the procurement process. Moreover, this present study argued that superior firm
performance is likely to be attained through the capability of procurement process
coordination. In this sense, procurement process coordination plays the role as a
mediating factor in the link between marketing resources and firm performance.

Though there are attempts to look into the area of supply chain process, specifically
procurement process coordination (Agan, 2007; Arshinder et al., 2006; Chen, 2007),
very limited studies have taken the initiative to specifically list down the activities
involved in the process. Without further specifying the activities involved in a supply
chain process such as PPC, this limits the understanding on the effect of each activity.
Moreover, from the perspective of the management, it is important to understand on
each activity that contributes more to the performance, in which this finding could be
used as a guideline in the allocation of the firms resources.

This study offers a fresh insight on this problem by looking at the multiple mediation
effects of procurement process coordination (PPC) in marketing resources firm
performance link. It contributes to the development of knowledge by detailing the

10
activities involved in the procurement process instead of to test it in general setting.
Questions whether procurement process coordination (PPC) mediates the relationship
between marketing resources and firm performance, which part of PPC affects
performance, which is more important in the building construction industry are among
crucial questions attempted in this present study. Hence, this will help to bridge the
knowledge gap. On top of that, from the perspective of construction scholars,
interdisciplinary research agenda and the adoption of multiple theoretical approaches for
integration effort such as the RBV and Coordination Theory could offer comprehensive
understanding of the construction industry supply chain (Vrijhoef, Koskela, & Voordijk,
2003; O' Brien, London, & Vrijhoef, 2002). Therefore, the current study that stresses on
organisational relation approach is carried out in order to address the gap.

1.4 Research Objectives

The research aims to develop and test a model that will confirm the link between
marketing resources, procurement process coordination (PPC) and firm performance
dimensions in the context of the building construction industry based on the integration
of Resource Based View and Coordination Theories.

Aligned with the general aim of the research, the following objectives of the research are
formulated:

1.4.1 To examine the relationship between marketing resources and procurement

process coordination in the building construction industry.

1.4.2 To ascertain the relationship between procurement process coordination and firm
performance in the building construction industry.

11
1.4.3 To investigate the extent to which procurement process coordination dimensions
mediate the relationship between marketing resources dimensions and firm
performance in the building construction industry.

1.5 Research Questions

1.5.1 Do marketing resources influence procurement process coordination in the

building construction industry?

1.5.2 Does procurement process coordination influence firm performance in the

building construction industry?

1.5.3 What are the extent of the mediation effect of procurement process coordination
dimensions in the relationship between marketing resources dimensions and firm
performance in the building construction industry?

1.6 Scope of Study

The purpose of this study is to ascertain the link between marketing resources,
procurement process coordination (PPC) and firm performance in the building
construction industry.

Although the scope of supply chain management (SCM) process is considered wide as it
encompasses the entire process of supply chain (SC) such as distribution, production and
procurement, this study will only concentrate on the procurement process alone. Even
so, this approach is taken because it consists of several activities that require in-depth
treatment. Thus, emphasising on a particular process of SCM would help to generate
better understanding on an important area and serve to the development of the entire
SCM process.

12
Apart from that, this particular study will only take into account the relationship between
two main players in the construction supply chain, which is the contractor and his
building materials suppliers. Further, the research will only look from the perspective of
the contractor from the G7 group with value of project worth RM10 million and above
(CIDB-Local Contractors, 2009). As of the conceptual point of view, there are debates
on data collection about buyer-seller relationship from the standpoint of supplier, buyer
or both. Nevertheless, it is usually the customer or buyer (contractor) that eventually
makes the choice of whether to purchase from the suppliers. Hence, even if the suppliers
and buyer have different views regarding their relationships, it is the customers view
that is likely to be the determinant (Cannon & Perreault JR, 1999).

With regards to the industry coverage, this particular study focuses on a specific
industry, which is construction. This industry is crucial as it plays a significant role in
generating wealth and improving the quality of life for the nation through its largest
multiplier effects (1.62) to the economy and provides room for other industries
(Construction Industry Master Plan Malaysia 2006-2015, 2007). Furthermore, with a
lion of share going to this industry through the injection of RM7 billion and RM16
billion first and second stimulus rescue packages, by the government in resuscitating
the recent economic turmoil, this signifies the noteworthiness of this industry to the
development of gross domestic product (GDP) for the nation (Malaysian Economic
Stimulus Package 2009-2010). Therefore, it warrants for further treatment.

1.7 Significance of the Study

1.7.1 The conceptualisation of a new construct (procurement process coordination)
that leads to an empirical study.

1.7.2 As mentioned in the problem statement (1.3), most studies that focus on supply
chain coordination mainly relate this construct to the information technology
approach in addressing the link. This study contributes to the new body of

13
 knowledge by linking marketing resources to a new construct namely
procurement process coordination (PPC) with firm performance.

1.7.3 The current study contributes to the new knowledge by detailing the activities
involved in the procurement process of building construction industry instead of
testing it in a general setting. Thus, it allows greater understanding of the effect
of each activity in the PPC particularly in building construction industry.

1.7.4 This study moves into a new direction rather than applying the SCC to the
conventional setting such as in the manufacturing context. The application of
SCC in the construction industry serves another input for greater generalization
of the concept. Apart from that, the result from the study would provide some
responses to the challenges faced by the construction industry supply chain.

1.7.5 From the theoretical perspective, this study lends a hand to the integration of two
theories, specifically the Resource Based View Theory and Coordination Theory
in the area of supplier relationship management.

1.7.6 The proposed model from this study which has been tested and validated will
yield significant implications for business practitioners, mainly the contractors.
It helps the practitioners to identify several capabilities that could be adopted and
invested more through PPC and marketing resources variables in enhancing a
firms operational and customer performance.

1.8 Organisation of the Thesis

This thesis is organised into six chapters. It starts with the introductory chapter, followed
by the chapter of construction industry, literature review, and subsequently a chapter on
research methodology. The next chapter is on data analysis and discussion of research

14
result, and last but not least, the chapter on implications and conclusion. Below are the
brief discussions of each chapter.

Chapter One introduces this thesis by first highlighting the background of the study.
Apart from that, it provides input on the problem of research motivation, research
objectives, research questions, scope of the study as well as significance of the study.

Chapter Two highlights the background of the industry. The discussion on this topic
begins with a general approach by looking into the worldwide construction industry
performance and problems. From here, the discussion narrows into the Malaysian
construction scenario. Further discussion is on the nature of the construction industry,
followed by the sub-topic on construction supply chain that apparently leads to the
central issue in this study.

The third chapter examines past studies in several pertinent areas. These include the
discussion on related theories and constructs used in this study: Resources Based View
and Coordination Theory, marketing resources, procurement process coordination and
firm performance. Additionally, it sheds light on the relationships among these
constructs which eventually lead to the generation of the research framework and
propositions of the study.

Chapter Four lays down the research design and methodology used in this study. It
includes topics such as: the research process, sampling design and data collection
method as well as data analysis procedure/process. Apart from that, the hypotheses of
the study are presented in this chapter in addition to the research framework which was
extracted from Chapter Three.

Chapter Five presents the analysis and interpretation of data. This chapter is segregated
into several essential sub-topics, which initially looks into the goodness fit of the data
and eventually interpreting the results. Along with are: the respondent profiles, test of

15
the goodness fit of data, factor analysis, reliability and validity test, the analysis of the
structural model and hypotheses testing. Moreover, this particular chapter covers a sub-
topic on the discussion of the findings and presents it according to the hypotheses of the
study.

Finally, as mentioned before, the last chapter closes the discussion with conclusion and
implications from the research that has been carried out.

16
 CHAPTER TWO
OVERVIEW OF THE CONSTRUCTION INDUSTRY

2.1 Introduction
This chapter presents the review of the literature of the construction industry worldwide
in particularly Malaysia. It aims to point out the need to study procurement process
coordination (PPC) from the standpoint of the building construction industry. The
review kicks off with a broad discussion on the construction industry worldwide namely
its contribution, problems as well as the nature of the industry. From here, this chapter
moves into the discussion on building materials and construction supply chain
participants. This chapter ends with specific discussion on the construction industry in
Malaysia which brings to light to the importance further investigation on PPC from the
context of building construction industry in Malaysia.

2.1 The Contribution of the Construction Industry Worldwide

Undoubtedly, the importance of the construction industry in any national economy is
well documented (Abd. Shukor, Mohammad, Mahbub, & Muhamad Halil, 2009;
Construction Industry Master Plan Malaysia 2006-2015, 2007; Marosszeky, 2005;
Maznah, Hamimah, Rohani, & Norliza, 2006; Sambasivan & Soon, 2007; Siong, 2008).
This industry is a large, complex, mature business, most people-intensive sector and is
one of the major pillars in the national economy that generates impact to the socio-
economic development of a nation (Abd. Shukor et al., 2009; Dainty, Green, &
Bagilhole, 2007). It plays various roles, ranging from providing infrastructure support, to
factors of production for other sectors in the countrys economic status (Maznah et al.,
2006). For instance, investment in plant and facilities offers the basis for the production
of products and services delivery. This industry also has a broad social responsibility, to
produce safe buildings and structures which have minimal impact on the natural
environment (Gann, 1994; Khalfan, McDermott, & Swan, 2007).

17
With regards to its economic contribution, it has been noted in the World Investment
Report (2006) that the stock of outward foreign direct investment, for construction
industry worldwide alone, from transition to developing economies in 2005, has reached
US$1.4 trillion, escalating from US$335 billion as compared to year 1995 (Siong, 2008).
This impressive performance is also supported by other economic indicators such as its
contribution to the employment and Gross Domestic Product (GDP) of the nation. As
reported by Fernandez-Solis (2006), the U.S. Bureau of Labour Statistics has forecasted
that the total employment in the construction industry will achieve 7.8 million by 2012,
making this sector as one of the economys top largest sources of job growth (was
reported before the global financial crisis). This observable fact does not only apply to
the developed countries like the U.S but developing countries such as Malaysia. It does
reflect almost the same manner by providing job opportunities to basically 1 million
people in the year 2008 which contribute 9.3% of the total workforce in Malaysia
(Construction Industry Master Plan Malaysia 2006-2015, 2007). In short, the preceding
discussion gives support to the importance of construction industry to the socio-
economic development of the nations.

In addition to that, Table 2.1 provides a snapshot on the contribution of the construction
sector to the GDP of four selected countries. It is depicted in terms of percentage to the
GDP as well as value of construction activity (at current prices US Dollars). The
figures make clear that this sector helped to promote the impact to the national growth of
the nations. In fact, majority of the selected nations show considerable figures and in
term of percentage, this sector demonstrates performance with at least 3% contribution
to the GDP.

18
 Table 2. 1: Construction Contribution to the GDP - by Country
(at Current Prices US Dollar & Percentage)

2004 2005 2006 2007 2008

Malaysia 4,067,894737 4,140,380,371 4,345,755,448 5,115,242,209 5,869,897,577
(3%) (3%) (3%) (3%) (3%)
USA 539,200,000,000 605,400,000,000 646,000,000,000 610,800,000,000 670,365,878,698
(5%) (5%) (5%) (4%) (5%)
Singapore 4,061,877,241 4,341,871,458 4,780,439,708 6,132,897,471 9,368,977,985
(4%) (4%) (3%) (4%) (5%)
China 105,044,209,412 123,668,640,257 148,632,240,002 184,213,475,263 234,142,510,899
(5%) (6%) (6%) (6%) (6%)

Source: United Nations Statistics Division National Accounts (2010)

Even though the earlier discussion highlighted the importance of this sector to the
economic development, such argument is perceived to be weak when construction is
compared to other prominent sectors such as manufacturing. As depicted in Table 2.2,
manufacturing demonstrates a remarkable contribution with most selected countries
perform well at an average of more than 20% contribution to the GDP. This is in line
with what has been reported by Construction Industry Master Plan Malaysia 2006-2015
(2007) and Ekanayake & Ofori (2000) on the low productivity performance of
Singapore and Malaysian construction industry as compared to other sectors of
economy, such as manufacturing. While the US is normally seen to be superior to other
countries, Table 2.2 however shows a conflicting report. This scenario is the result of the
transition of the US main sector, which is presently going towards the services with less
relying on the manufacturing sector.

The above information also indicates that there is some consistency between the
previous reports on the advancement of manufacturing sector in adopting successful
organisational and management practices and their contribution to the GDP. At the same
time, this is reflected in past studies on the construction sector which was noted to be
lagging in adopting business process re-engineering such as supply chain management

19
(Childerhouse, Lewis, Naim, & Towill, 2003; Egan, 1998; Latham, 1994). As mentioned
by Dulaimi, Ling & Ofori (2001), the accelerated change in almost every aspect of
economy, driven by technology developments in the manufacturing and service
industries has enhanced several paradigms shifts in business management.
Unfortunately, construction is perceived as one that is still dominated by attitudes,
technologies, processes and a culture that lagged behind to other industries such as
manufacturing (Dulaimi, et al., 2001).

Table 2. 2: Manufacturing Contribution to the GDP - by Country

(at Current Prices US Dollar & Percentage)

2004 2005 2006 2007 2008

Malaysia 37,896,578,947 40,837,934,123 46,279,392169 52,223,527,742 58,187,259,555
(30%) (29%) (29%) (27%) (26%)
USA 1,558,700,000,000 1,623,900,000,000 1,711,700,000,00 1,755,600,000,000 1,830,682,964,800
(13%) (13%) (13%) (13%) (13%)
Singapore 28,391,726,167 30,715,859,643 35,589,473,022 38,858,891,404 35,533,671,451
(26%) (26%) (26%) (24%) (19%)
China 787,865,581,188 942,492,255,811 1,145,188,514,449 1,411,327,523,083 1,794,138,325,722
(41%) (42%) (43%) (43%) (43%)

Source: United Nations Statistics Division National Accounts (2010)

The discussion thus far has pointed out that there is a wide gap between both industries
(construction and manufacturing) in terms of their GDP contribution. Further, such
discrepancy is seen to be paralleled with the industrys adoption level of successful
organisational and management practices. However, it is without doubt that managerial
efficiency is not the only reason to be considered behind this discrepancy. There are
many other reasons which could be speculated as the contributing factors. Obviously,
factors such as aggregate demand can be the greatest influence to the contribution of a
sector to the GDP. Nonetheless, based on previous literature and support from
governmental reports, successful organisational and management practices are seen to be

20
apparent in influencing the performance of a sector (Childerhouse et al., 2003;
Construction Industry Master Plan Malaysia 2006-2015, 2007; Egan, 1998; Latham,
1994). As such, it will be crucial to explore further on this issue further by taking into
account previous literature on the problems faced by the construction industry that may
have hampered the construction industry from performing as good as other industries
like manufacturing.

2.2 Problems in the Construction Industry Worldwide

There are numerous studies reporting on the weaknesses and problems in this
construction industry (Fernie, Roine, & Thorpe, 2006; Palaneeswaran, Kumaraswamy,
& Ng, 2003; Bourdeau, 1999; Ofori, 1993). The issue on the problems facing
construction industry has been discussed for quite some time and yet it is still debatable.
In many developed nations, construction is seen to be the most highly criticised sector
(Dainty, Green, & Bagilhole, 2007). As reported by Ofori (1993), the construction
industry of all nations faces tremendous problems and has been continuously addressed
in a number of researches. Based on the explanation by Bourdeau, 1999; Cox &
Thompson (1997); Dubois & Gadde (2002); Fernie, Roine & Thorpe, 2006; Gann,
(1996); Palaneeswaran et al., (2003); Welling & Kamann (2001), here are some of the
critical problems faced by the construction industry:-
Adversarial relationships between channel members
Lack of recognition in rewards and risks sharing
Fragmentation of the industry
Narrow minded with win-lose attitudes
Short term focus
Price-based selection
Ineffective use of technology
Less transparency and inadequate information exchanges as well as limited
communications
Inadequate and inefficient methods of practices

21
 Power domination with more frequent contractual non-commitments

It was reported that the above inadequate and inefficient management practices have
contributed to unnecessary costs, time waste, increase errors, and misunderstanding
(Love, Irani, & Edwards, 2004). In addition to this, there is concern on the traditional
approach in managing construction project which is seen to be inadequate with the
extensive type of the supply chains (Palaneeswaran et al., 2003). As a result, this
inadequacy leads to several weak links in the construction supply chain which was
apparently left unmanaged or insufficiently managed. These weak links of construction
supply chain eventually lead to underperforming, unproductive, inefficient and wasteful
(London & Kenley, 2001; Palaneeswaran et al., 2003). It appears that several writers
have proposed SCM as solution to these problems (Eagan, 1998; Latham, 1994; Vrijhoef
& Koskela, 2000). For instance, the adversarial relationship and fragmentation of the
industry have weakened the construction supply chains and thus negatively affected the
outputs and performance levels (Palanesswaran et al., 2003). These negative effects will
eventually create a weakness to businesses particularly when competing in a complex
and challenging environment. Such phenomenon is consistent with the claim made by
Brown, Ashleigh, Riley, & Shaw (2001) that the highly fragmented nature of
construction has caused the industry to be blighted by the problems of cost escalations,
poor quality, adversity and schedule overruns. Apparently, those problems are seen to be
directly attributed to the deficiency in cooperation between parties in the supply chain
(Brown, Riley, & Killander, 1999).

With diverse problems faced by this industry, it is not surprising that these issues are
frequently raised in meetings, conferences, workshops and seminars by clients and
stakeholders (Construction Industry Master Plan Malaysia 2006-2015, 2007). In
response to this, several writers have taken the initiative to review the state of the
construction industry. Some of them did come out with suggestions which require
further investigation. Among the well known and widely cited reports in the construction
industry are: Constructing the Team Latham Report (Latham, 1994), Rethinking

22
Construction Egan Report (Egan, 1998); Construction Best Practice Programme
(CBPP, 2003) and Movement for Innovation (M41, 2003).

In general, most reports have highlighted the need to broaden best practices such as
channel cooperation within the sector and from others (Construction Industry Master
Plan Malaysia 2006-2015, 2007; Childerhouse et al.,2003; Egan, 1998; Latham, 1994;
George, 1996). For example, Rethinking Construction has emphasised the importance
of partnering and collaborative approach in order to improve performance. Among areas
that have been stressed are procurement and construction management project. It also
suggested to integrate design and construction processes. It urged the construction
industry to grasp knowledge about strategies, methods and necessary approaches that
have successful in particular companies or industries and to be applied into construction
(Childerhouse et al., 2003; Egan, 1998). Besides Rethinking Construction, the
Movement for Innovation called attention to the importance of innovation and
encouraged construction industry to come up with innovative ways of procurement
within the industry (Khalfan & McDermott, 2006; M4I, 2003). In a nutshell, calls for
improved collaboration, integration, communication and coordination between channels
members throughout the project supply chain have become the main concern in those
published reports (Love, Irani, & Edwards, 2004). It also has been concluded that the
new principles and methods of modern SCM lead to improved understanding of the
nature of construction supply chain problems, and provide direction for action (Vrijhoef
& Koskela, 2000).

To this end, the discussion provides a signal that the construction industry obliges for
some reformation. A paradigm shift is required in order for this industry to be more
competitive (Dulaimi et al., 2001). Several successful managerial approaches from other
industries such as Supply Chain Management (SCM), Just in Time (JIT) and market
orientation need to be applied into this industry as an initiative to solve the problem
(Kanji & Wong, 1998; Marosszeky, 2005).

23
The next sub-topic will look into the nature and characteristics of this industry and from
there it will lead the discussion on area and approach to be taken in facing the above
problems.

2.3 The Nature of Construction Industry Worldwide

As mentioned in the above sub-topic (2.2), contrary to other sectors, the construction
sector presents an intricate and problematic context within which to explore (Dainty,
Green, & Bagilhole, 2007). It has been discussed in many literatures that this industry is
very unique in its nature and such characteristics in one way or another influence its
ways of conduct particularly in the area of supply chain (Dubois & Gadde, 2000; Dubois
& Gadde, 2002; Vrijhoef & Koskela, 2000; Vrijhoef, Koskela & Howell, 2001; Welling
& Kamann, 2001). Based on that notion, it is crucial to draw attention to the nature and
characteristics of this industry as this may lead to other related issues to be investigated.
On top of that, it is also believed that this may enhance the understanding on how these
characteristics shape the industry and provide room for further improvement.

According to Hossain (2009), construction can be described as a process of putting

together all the materials in an orderly and timely manner by employing relevant
resources to complete a structure as per designed specifications and quality standards.
This sector is generally being further classified into building and civil construction. In
his discussion, Hossain (2009) did distinguish between these two types of construction.
In his view, building construction is perceived as the process of adding structures to real
properties such as residential, commercial, educational institutions, hospitals and
sporting arena. On the other hand, civil construction is viewed as adding infrastructure,
for instance roads, railways, airports, harbours, dams, mines, and industrial construction
deals with large projects such as petroleum and power generations.

While the earlier discussion highlighted quite simplistic classification of this industry, in
reality it is basically considered as a large and diverse sector of industrial activities

24
where traditionally there is a division between those organisations engaged in the design
stage and the construction stage (Welling & Kamann, 2001). This division of
organisations lead to a highly fragmented approach industry. As mentioned in the earlier
sub-topic (2.2), such segregation of design and construction activities will considerably
lead to inefficiency in the operations and eventually create negative effect to the firm
performance.

Besides fragmentation, construction industry is also known as site-specific project-

based industry (Cox & Thompson, 1997). This site-specific project-based industry
can be explained by using the approach used by Dubois & Gadde (2002) and Weick
(1976). They classified the nature of the two systems involved in the manufacturing and
construction industries as the loosely coupled system and tightly coupled system. In
this respect, the construction industry is featured as a loosely coupled while in contrast,
manufacturing is referred as a tightly coupled system. Loose couplings can be defined as
coupled events that are responsive but each event also perceive its own identity and
some evidence of its physical or logical separateness (Dubois & Gadde, 2002; Weick,
1976).

Further, as compared to manufacturing, construction is seen to be involved in both

specific temporary network as well as permanent network. This specific temporary
network is referred to a specific project or operation site while the permanent
network is referred to network with other projects. Moreover, the pattern of couplings
in construction can be classified by: (1) tight couplings in its individual projects and (2)
loose couplings is based on collective adaptations in the permanent network (Dubois &
Gadde, 2002).

Figure 2.1 helps to illustrate this phenomenon. As compared to firms D and E, firms A,
B and C for instance are engaged in operations at a construction site. Their input in the
project encompasses a mixture of resources (A1, B1 and C1). These resources include
building materials, labours as well as equipments. From here it can be seen that there is a

25
need for a firm, like for instance firm C to consider four different types of coordination:
(1) within the individual project (C1 with A1 and B1); (2) among firms involved in
supply chains (D and E); (3) among different construction projects (C1 and C2); and (4)
inter-firm coordination beyond the scope of the individual project (A and B) (Dubois &
Gadde, 2002). Based on this explanation, Figure 2.1 clearly demonstrates the complexity
of the construction industry that comprises with specific temporary network as well
permanent network. The need for coordination is noticeable but the nature of couplings
limit the industry to completely adopt the approach used in manufacturing. In this sense,
the loose couplings among firms make it difficult for the construction industry to apply
the coordination mechanisms for handling complexity that are used in other business
contexts such as in the manufacturing industry. In the same vein, with a combination
feature of tightly and loosely couples, it implies that there are some difficulties to
directly apply successful managerial approaches used in the manufacturing sector such
as SCM into this construction sector.

Figure 2.1: The Construction Industry as a Loosely Coupled System

Source: Dubois & Gadde (2002) pp. 625

26
Apart from fragmented approach and site-specific project-based industry, the
construction industry is also known with its lack of factory controlled environment as
compared with its counterparts. The product in the construction (which is having both
characteristics of tangible products and services), are assembled at the point of
consumption. In this context the nature of product produced by this sector is complex,
bulky, heavy and expensive (Hillebrandt, 1988) which is difficult to transport. Certainly
with such kind of characteristics, this industry by nature lacks a permanent factory. Once
the project is completed, the built product tends to be fixed in its location. A new
product will be established which most likely comprises new group of channel
participants at a new point of consumption. Each project brings together a range of
dissimilar cultural recipes and employment regimes (Dainty, Green, & Bagilhole, 2007).
This as a result will restrict the possibility of continuous working relationship among the
channel participants.

Additionally, construction industry is also reported as ahead of other industries in term

of outsourcing where high level of specialisation involved in this industry with
significant number of players participate in the supply chain (Dubois & Gadde, 2000).
However, compared with other industries like manufacturing, construction is perceived
as lag behind in taking the opportunities in leveraging capability through this
outsourcing activity. In order words, this industry is unable to utilise the external
resources through cooperation effectively (Dubois & Gadde, 2002; Welling & Kamann,
2001).

Wrapping up to the above discussion (on the characteristics of construction industry),

the nature of the construction industry is seen to be very complex with high degree of
specialisation, fragmentation, adversarial behaviour and short term project oriented
vision (Cox & Thompson, 1997; Dubois & Gadde, 2002; Gan, 1996; Welling &
Kamann, 2001). Due to this, it is predicted that such characteristics will create barriers to
the industry and might hinder the industry to adopt successful managerial methods
effectively.

27
Throughout this sub-topic, much has been discussed on the characteristics of the
construction industry. With such characteristics of the construction industry, these help
to answer to the question of why this industry has failed to adopt successful methods
from other industries. To support this, Dubois & Gadde (2002) had inventoried a range
of research findings from various scholars regarding the adoption of successful
techniques used in other industries into the construction sector. Among those techniques
are: Just in Time (Low & Mok, 1999); Total Quality Management (Shammas-Toma,
Seymour, & Clerk, 1998); Partnering with Suppliers (Cox, 1996); Supply Chain
Management (Vrijhoef & Koskela, 2000); and Industrialization of Manufacturing
Process (Gann, 1996). Sadly, from their observation, Dubois & Gadde (2002) discovered
that construction has failed to adopt methods that have improved performance in other
industries. This is paralleled to what had been pointed out by Cox & Townsend (1998)
that there is a need to be cautious in comparing construction with other industries.
Though conceptually it sounds simple, the realisation of the concept is perceived to be
complicated (Fernie, Roine, & Thorpe, 2006). The nature and characteristics of
construction industry are perceived to have influenced on this matter. Nevertheless this
shouldnt be the absolute reason for the construction industry to discontinue adopting
successful methods used by other industries particularly in dealing with the issue of
interdependencies where a high degree of coordination is critically needed.

As highlighted in the recent discussion of the earlier sub-topic (2.2), there are
suggestions on the relevancy of SCM and related concepts as solutions to the
construction problems (Eagan, 1998; Latham, 1994; Vrijhoef & Koskela, 2000).
However, it is just a matter of selecting the right and relevant managerial approaches
(such as SCM) which are compatible with the nature and characteristics of the
construction industry. As reported by Bankvall, Bygballe, Dubois, & Jahre (2010),
despite of the immense focus on SCM, little attention has been paid to relationships
upstream from the construction site such as between the contractors and their materials
suppliers as well as the sub-contractors. In this sense, there are indications that some
activities in this industry echoed those in the manufacturing industry. As what had noted

28
by Dubois & Gadde (2002), for the most part of the input resources employed in
buildings are standardised. The fact that construction is a project-based industry is often
over stated where it is frequently forgotten that many of the industry activities are
routine (Dainty, Green, & Bagilhole, 2007) and these include the procurement process of
building materials. On top of that, the chain of activities, together with transportation
and storages, from the production of building materials to the site appear to be based on
standardised rules. This claim is enhanced by Wegelius-Lehtonen & Pahkala (1998) that
even though products are different from project to project, information and material
delivery processes are almost the same in every construction project. In other words,
there is a sign that the building materials procurement in the construction industry
reflects the same attributes as those in manufacturing field.

This signal helps to answer the question on the relevancy of SCM particularly in the
relationship and coordination between key participants (such as contractor and the
building materials supplier) in addressing the perceived ills of the industry which is
underperforming, inefficient, unproductive and wasteful (London & Kenley, 2001). It
provides direction on how SCM can be materialised in this sector by looking into
specific area which is on the procurement of building materials. Therefore, the current
study that looks into the relationship between contractors and their building materials
suppliers is carried in order to investigate further the interrelationship between
marketing resources and supply chain coordination (specifically known as procurement
process coordination) and firm performance.

2.4 Building Materials in the Construction Industry

Construction and the necessity for materials will never go away (Rowse, 2009). This
statement presents a strong argument on the requirement of materials in the construction
industry. In fact, several reports indicated that building materials have a gigantic effect
on the overall cost of the project (Agapiou, Flanagan, Norman, & Notman, 1998;
Bertelsen & Nielsen, 1997; Dubois & Gadde, 2002; Kong, Li, & Love, 2001; Rowse,

29
2009). Generally, most writers reported that building materials represent more than 30%
of the total costs of the construction. With reference to the earlier discussion in the
background of the study section (1.2), specifically the cost of building materials could
reach to 50% - 60% of the total building costs while other costs such as labour accounts
for 30%, heavy equipment 5% and construction management and supervision
contribute for 15% (Bertelsen & Nielsen; 1997). Such figures in some ways signify the
importance of building materials in the construction industry in which it appears to have
significant cost cutting opportunities. As mentioned by Wegelius-Lehtonen & Pahkala
(1998), purchases and material deliveries play a crucial role in construction process and
cooperation with suppliers seen to be a source of huge cost saving potential.

To complement the above description, a comparative study with other industries

conducted by Daneshgari & Harbin (2003) revealed that advances in non-construction
industries in the area of procurement and business management have improved the
national productivity by 3.9% per year from 1996 2000. Adversely, the construction
industry indicates a negative sign of 1% and this scenario takes place arguably due to
inefficient practices in the procurement chain management system. In line with this, a
study carried out by Dainty & Brooke (2004) had shown that the most effective
measures for minimising waste in the construction sector are those which seek to
develop alliances with suppliers. These arguments reveal some indications that those
players in this industry, such as the contractor and the building materials supplier
particularly, require a collective know-how of coordination efforts in synchronising the
independence processes which may lead to organisational learning.

For the present study, building materials is referred as any material which is used for a
construction purpose, to create buildings and structures. In general, it consists of a wide
variety of categories such as bricks, cement, concrete, doors, electrical systems,
plumbing as well as glass architecture. Further, as described by Wegelius-Lehtonen &
Pahkala (1998), these materials can be classified into three broad categories based on
types of logistics chains in the construction industry. The three types are: Customised

30
materials, Standard materials and Small purchases. In this context, customised materials
refer to design-to-order materials such as panels, doors as well as fabricated steel work.
On the other hand, standard materials and small purchases normally refer to make-to-
order or make-to-stock materials (Wegelius-Lehtonen & Pahkala, 1998). Examples of
standard materials are cement, timber, mortar and plasterboard while small purchases
normally involve limited volume of materials. In addition, it has been observed that
standard materials normally had higher costs of material flow than customised materials
(Wegelius-Lehtonen & Pahkala, 1998). The three different types of logistics chains of
materials in the construction are shown in Figure 2.2.

Customised Standard Materials Small Purchases

Materials

Architect Design
Material Producers

Designer Designer

Designer

Wholesaler Hardware Stores

Material Producers

Building Wholesaler
Subassembly
Supplier

Construction Site

Main Contractor Subcontractors

Construction Office

Figure 2. 2: Diffrent Types of Logistics Chains of Materials in the

Construction Industry
Source: Wegelius-Lehtonen & Pahkala (1998) pp. 691

31
Wegelius-Lehtonen & Pahkala (1998) further highlighted the critical problems in these
three materials delivery processes. This include: design changes, timing, shortages,
handling and storing, damages, waste and packaging. With its characteristics, bulky and
heavy, standard materials normally face problem with the material flows where it is
difficult to handle and store at the site. Conversely, problems in information flow are
typically related to customised materials that require continuous information updating
from various parties particularly between the contractor, designer and the materials
suppliers (Wegelius-Lehtonen & Pahkala, 1998). Nevertheless, regardless of the types of
logistics involved in this materials handling, coordination between channel members is
crucial. Bottom line, there is a need to be certain on the materials to reach its right
destination and at the right time as well as with reasonable cost.

Besides the above classifications, Akintoye (1995) and Hiraki, Takahashi, & Watanabe
(1994) classified materials and components into ordering systems where they are based
on the massiveness and criticality to construction programme and quality control. They
are: Synchronised system, Pre-schedule ordering system, Periodic ordering system and
Non-periodic ordering system. Table 2.3 depicts the four types of ordering system and
their application to the materials and components of building construction.

Although earlier discussion highlighted two different approaches in classifying building

materials, both approaches are basically emphasised on the nature and characteristics of
materials involved. There is a consistency between the two classifications. For instance,
customised materials which are tailored accordingly to the requirement of specific order
are consistent with synchronised and prescheduled ordering system. On the other hand,
periodic ordering system is more relevant for standardised materials which are needed at
various stages during construction. Since different classifications of materials call for
different systems, there is a need to look at these two separately. Therefore, in order to
gain a better understanding on this matter, the present study will give greater attention
on a specific type of material that is standard materials rather than to study it in
general. Furthermore, as mentioned earlier, this particular study will only look into the

32
relationship between the main contractor and the building materials supplier. As such,
with reference to Figure 2.2, standard materials which mainly pay close attention
between the materials suppliers and contractor are seen to be more appropriate for the
present study.

Although the concentration of the present study is given to the two main players
(material supplier and main contractor), there is a need to further at other channel
participants who are involved in the construction supply chain. This may allow greater
insight into how various parties participate in this industry chain and how it reacts to the
two selected main players. Hence, the following sub-topic will continue to debate on
related issues and emphasis will be given on construction supply chain participants.

Table 2. 3: Ordering Systems and Application of the Materials and Components

Ordering Systems Application

Large volume components

Synchronised e.g. conditioning units and fabricated steel work
Big volume components but not as big as Synchronised system
Pre-schedule e.g. panels and doors
Materials which are required at various stages during construction
Periodic e.g. cement, gravel, paint and sand
Small volume and large quantity materials (obtained as occasion
Non-periodic arises)
e.g. nails, bolts

Note: Adapted from Akintoye (1995)

2.5 Construction Supply Chain Participants

As been explained in the previous sub-topic on the nature of the construction industry
(2.3), it seems to be generally agreed that the construction industry has been viewed as

33
an industry that involved a massively number of players. These players or participants in
one way or another have influenced over the project. They include: an architect,
designers, engineer, surveyor, main contractor, subcontractors and dozens of suppliers
(such as the building materials and heavy machinery). Apparently, with vast number of
participants that involved in complex activities, this management of interdependencies
requires to be coordinated. In line with this, as defined by Harland (1996), supply chain
management (SCM) can be explained as the management of a network of organisations
that involved in carrying out the business process. For the construction sector, this
network can often be extremely complex notably when dealing with giant projects in
which tremendous number of suppliers may come into the picture. These include
material suppliers, machinery, other related services and expertise. Figure 2.3 draws
attention to several participants that normally involve in the construction supply chain.
Besides the industry participants, this illustration does provide input on information
flows in a typical construction project.

In general, there are two main groups in construction: (1) design (2) build (construction).
It is basically about the translation of designs (by the design team such as the architect,
surveyors and engineers) into reality by these groups of people. The design team and the
build team (contractor) are normally different agents except for Design and Build
contracts where a single agent undertakes both parts of the project (Errasti, Beach,
Oyarbide, & Santos, 2007). Furthermore, with limited capacity in terms of expertise,
resources and capital, this group of people work as separate agents. In this context, the
issue of outsourcing is seen to be a critical strategic decision for firms in this industry
(Errasti et al., 2007). As can be seen in Figure 2.3, main contractor not only needs to
work closely with the design team but other firms such as sub-contractors and materials
suppliers in outsourcing parts of product or process. Therefore, the issue of procurement
coordination is apparent in dealing with this complex construction supply chain.

34
 Customer

Architect
Engineers

Sub-contractors Main Contractor

Construction
Material Site
Suppliers

Figure 2. 3: The Organisation and Information Flows in a Typical Construction

Project
Source: Wegelius-Lehtonen & Pahkala (1998) pp. 690

In order to gain further clarification on the interaction between channel members in the
construction supply chain, Figure 2.4 is used as a reference. Besides channel participants
it provides comparison between two types of market, the institutional and development
market. Generally, in both markets, channel participants will deal with various clients, as
either directly or indirectly. Nonetheless, ultimately, all the participants serve the same
final client which is the user.

35
 INSTITUTIONAL MARKET DEVELOPMENT MARKET

Institutional Owner Developer User

Financial Agent

User
Real Estate Co.
Architect
Architect
Main Contractor
Main Contractor

Suppliers

Sub-contractors
Sub-contractors Suppliers

Figure 2. 4: Main Agents Relationships and User as Final Client in the

Construction Supply Chain
Source: Picchi (2000) pp.3

In the institutional market for example, the institutional owner such as a government
ministry and a company are those who normally recognise the need for the building and
they are also the clients to the contractor. Alternatively, in the development market, the
developer plays the role as the client to the main contractor while the user is normally
the client to the developer. Most of the time, the institutional market which involves a
government project is referred to as a public project and this project is basically involved
buildings and infrastructures for socio-economic purposes. Table 2.4 gives some ideas
on the classification of construction projects and examples of types of construction as
well as their typical client. This typical client comprises of several types of client which
principally represents by the private and the government market. Companies, developers
and family for instance belong to the private market while government and social
housing agencies basically fit in to the government market.

36
 Table 2. 4: Types of Construction and Typical Clients
(General Contractor as a Supplier)

Classification Type of Construction Typical Client

Factories Companies
Office Buildings Companies
Developers
Government
Apartments Developers
Building Social Housing Agencies
Houses Families
Developers
Social Housing Agencies
Special Buildings (Hospitals, Schools, Companies
Hotels, Shops, Malls, Theatre etc. Government
Renovation and Maintenance Government
Companies
Families
Roads
Bridges Government
Infrastructure Public Sanitary Services
Dams
Maintenance
Others

Source: Picchi (2000) pp. 4

With reference to Figure 2.3, both markets show that each firm has its direct client but
all channel participants have a final client as the user (Picchi, 2000). Each channel
participant is required to interact and work closely with each other in order to serve
clients at their best. The main contractor is seen as a catalyst that plays a vital role in
orchestrating the network. Once again, the need for coordination is apparent and this is
parallel with what has been noted by Picchi (2000) that any attempt toward lean
transformation must consider improving the collaboration among participants of the
construction supply chain.

37
The above discussion underlines the essential of coordination when dealing with these
many actors especially when involving an intricate project. As a contractor for instance,
it requires to be coordinated within and between the firms in order to allow greater flow
of information which eventually preventing from the bottleneck. This situation is
illustrated in Figure 1.1, in the introduction chapter, on problem statement (1.3). Such
illustration provides an idea on several problems that may incur in the construction
supply chain due to the lack of coordination between channel participants. With
inadequate information between the contractor and its building material suppliers for
example, this may lead to wrong and defective deliveries, long storage period as well
unrealistic planning. Eventually such situation may affect the performance of the firms
notably in terms of the operational aspect.

It is without doubt that coordination is crucial regardless of the industry. However, it is

perceived to be more prominent in the construction industry due to the industry
uniqueness like what has been explained in the previous sub-topic, the nature of the
construction industry (2.3). Apart from having both characteristics of tangible product
and services, the product in the construction industry requires to be assembled at the
point of consumption. Various participants in the construction supply chain come into
the picture in order to produce the product (building). Development of the product
requires it to be carried out in teams which involved different kinds of expertise from the
construction company and from the supplier (Wegelius-Lehtonen & Pahkala, 1998).
Therefore, with this kind of complexity, it is vital to have a good coordination effort that
could help to synchronise the project flow within and between the parties involved.
Once again, such coordination is expected to affect the performance of the firm
particularly with regards to the operational efficiency. Cost and quality savings are
expected from the coordination practices (Errasti et al., 2007).

The earlier discussion in this chapter has focused on the general aspect of the
construction industry by taking into account its contribution, problems, participants as
well as the nature of the industry. However, narrowing the discussion into a specific area

38
such as Malaysian construction is considered vital since the current study will
specifically relate to the building construction industry with this particular country. As
such, the following sub-topic will touch on the construction industry in Malaysia.

2.6 The Construction Industry in Malaysia

While the construction industry in Malaysia has traditionally been very conservative
(compared to other industries such as manufacturing and services), it has experienced
many changes in the last few decades (Construction Industry Master Plan Malaysia
2006-2015, 2007). These changes are forced by various uncontrollable factors,
especially the economic and political forces. These factors that shape the industry are
known to be very dynamic and the outcome is somehow unpredictable. Such situation
has reinforced greater challenges to the industry stakeholders to be more competitive
and proactive in meeting the demand from the market (Construction Industry Master
Plan Malaysia 2006-2015, 2007).

According to the Malaysian Statistics Department (DOS), the term construction can be
referred as new construction, alteration, repairs and demolition. Further it can be
classified into: (a) Residential Construction, (b) Non-residential Construction, (c) Civil
Engineering Construction and (d) Special Related Construction (Department of Statistics
Malaysia, 2006). Normally, a contractor will focus on a certain type of construction
project though there are cases of construction firms who involve with multi-type of
projects. Table 2.5 exhibits the value of contract/expenditure of construction projects in
Malaysia. It is presented based on several categories: residential, non-residential,
infrastructure, mechanical and electrical works as well as repairs and maintenance. The
non-residential projects include those building projects other than residential such as
commercial building (i.e. retail shops, offices) as well as public utilities building (i.e.
schools, hospitals). Conversely, infrastructure project includes those civil engineering
works (i.e. roads, bridges). Additionally, this information is segregated into private and
public projects.

39
From Table 2.5, it indicates that considerable portion of the construction
contract/expenditure came from the first three categories of projects (residential, non-
residential and infrastructure) rather than mechanical and electrical works as well as
repair and maintenance. This happened to both private and public sector. In this context,
quite a significant amount of private projects came from the residential and non-
residential projects. On the other hand, public projects were largely concentrated to the
infrastructure projects. Looking at the significant contribution of residential and non-
residential projects to the total value of construction project in Malaysia, it is crucial to
study them in a deeper approach. Such effort could provide better input and
understanding which eventually could help for the development of the area. Based on
the classification used by the CIDB Malaysia, the present study which focused on
building construction is basically involved with the study on these two types of
construction projects (residential and non-residential).

Table 2. 5: Construction Contract/Expenditure (RM billion)

2009
Type of Projects 2004 2005 2006 2007 2008 (June)
Private Projects
Residential 14.69 15.46 14.53 14.81 13.69 2.29
Non-residential 11.25 14.96 16.02 19.60 21.83 5.04
Infrastructure 12.62 7.02 7.92 9.26 9.26 0.73
Total 38.56 37.44 38.47 43.67 44.78 8.06
Mechanical and Electrical Works 6.47 2.41 2.31 3.33 3.82 0.32
Repair and Maintenance 0.42 0.67 0.60 0.64 0.59 0.09
Public Projects
Residential 0.57 1.18 2.02 1.96 1.84 0.64
Non-residential 3.79 6.45 6.73 17.54 20.72 6.58
Infrastructure 9.77 9.20 13.71 28.33 11.21 3.71
Total 14.13 16.83 22.46 47.81 33.77 10.93
Mechanical and Electrical Works 0.27 0.22 1.20 0.86 1.12 0.13
Repair and Maintenance 0.96 1.62 1.59 1.75 1.70 0.56

Source: CIDB, Construction Economy Publications (2010) pp.12

40
All contractors in Malaysia are required to register with CIDB Malaysia and optionally
with the Pusat Khidmat Kontraktor (PKK) in order for them to be involved in the
construction projects in Malaysia. In other words, it is a mandatory for all contractors to
register with CIDB before any construction work in Malaysia can be executed. Indeed,
action will be taken to the contractors who involved with any unregistered construction
works. They shall be guilty of an offence under the CIDB Malaysia Act 1994 (Act 520)
(CIDB, 2008).

CIDB and PKK are the two major registration centres for the contractors. As noted
above, it is a compulsory for a contractor to be registered with the CIDB in order for him
to be awarded on any construction project listed in Malaysia. To be regarded into the list
of contractors who wish to tender for public sector projects, it is a must for the
contractor to register with PKK. As always, there are terms and conditions that have
been set and one of the requisites set by PKK is the status of Bumiputera which is to be
adhered with the Surat Perkeliling Perbendaharaan Bil. 7, 1974 (Contractor Services
Centre - PKK, 2008).

Since there are two registration centres in Malaysia, different approaches have been used
to group these contractors. Even so, both registration centres, CIDB and PKK, have used
tendering capacity as the yardstick to classify the contractors. In other words, the
grading used by CIDB and PKK is generally represented by the tendering capacity that
defines the value of projects that can be undertaken except for G7 and foreign
contractors which has no limit. For instance, the lowest grade, G1 or Grade F are those
contractors who are eligible for tendering capacity at less than RM200,000 while the G2
or Grade E are those group of contractors who are entitled for tendering ranging from
RM200,001-RM500,000. In such cases, G7 and foreign contractors have more chances
of anticipating with higher value projects. Table 2.6 and Table 2.7 depict the classes of
contractors based on CIDB and PKK reports.

41
 Table 2. 6: Classes of Contractors CIDB

Class Tendering Capacity

G1 Not exceeding RM200,000,000
G2 RM200,000 and less than RM500,000
G3 RM500,000 and less than RM1 million
G4 RM1 million and less than RM3 million
G5 RM3 million and less than RM5 million
G6 RM5 million and less than RM10 million
G7 RM10 million and above

Source: CIDB (2009)

Table 2. 7: Classes of Contractors PKK

Class Tendering Capacity

A More than RM10,000,000
B RM5,000,001 - RM10,000,000
C RM2,000,001 - RM5,000,000
D RM500,001 - RM2,000,000
E RM200,001 - RM500,00
F Maximum of RM200,000

Source: Contractor Services Centre - PKK (2008)

According to CIDB Malaysia, there are about 60,000 registered contractors in Malaysia
where approximately more than half are categorised as G1 (CIDB-Malaysia, 2008). This
scenario is presented in Table 2.8. The G1 group basically comprises of those small
scale companies where a considerable number of them are identified by CIDB Malaysia
to be dormant. This fact, once again brings to light the issue of inefficiency in this
industry. Generally, those small scale companies with limited resources and capabilities
have shown to be less competitive against the giant players. In this situation, the
existence of small firms is normally meant for a short run, to accomplish certain
projects. As mentioned by Dainty, Green, & Bagilhole (2007) the dominance of small

42
firms in the construction sector cant be denied. In fact, clichs about fragmentation
barely do justice to the myriad of small firms that is most of the time moving from
project to project (Dainty et al., 2007).

There is a huge difference in terms of the number between the G7 group and this group
of small firms. Based on the same source, it shows that G7 group consists of about 4000
contractors. On the other hand, the former (G7) is seen to outshine the smaller groups
especially the G1. Perhaps with more resources and the enforcement for ISO 9001:2000
accreditation, this group (G7) demonstrates to be more competitive than others. Thus the
decision to select G7 construction group as the population to this present study is seen to
be appropriate with the area of study that focuses organisational relationships and firm
capabilities. Furthermore, having the opportunity to be involved in giant projects has
forced this G7 group to be more competitive and efficient in its managerial conduct.
Additionally, ISO certification does seem to play crucial role in influencing the G7
group, moving towards a more systematic and efficient approach in running the
organisation. Moreover, the establishment of Specific Interest Group (SIG) on Best
Practices among selected G4 G7 contractors is expected to act as enablers in
enhancing and transferring the knowledge on current best practices among contractors
and cascading them to the entire construction supply chain (Construction Industry
Master Plan Malaysia 2006-2015, 2007).

43
 Table 2. 8: Number of Contractors by Grade, 2001 - June 2007

Grade 2001 2002 2003 2004 2005 2006 Jun2007

G1 21,104 27,085 35,230 39,847 41,340 36,141 35,709
G2 5,841 6,535 7,687 7,916 8,022 6,937 7,119
G3 7,394 8,673 9,784 10,434 10,930 10,043 10,294
G4 1,619 1,808 1,931 2,105 2,197 2,140 2,215
G5 2,115 2,485 2,802 3,039 3,116 2,816 2,887
G6 850 957 1,024 1,132 1,156 1,003 1,043
G7 3,242 3,536 3,486 3,713 3,730 3,736 3,937
Foreign 99 130 135 149 159 48 N/A
Total 42,264 51,209 62,079 68,335 70,650 62,864 63,204

Source: CIDB (2009)

Despite being viewed as a traditionalist in its conduct, there is no doubt that the
construction industry persists to be a critical component of the Malaysian economy as
well as social development. This can be seen through the provision of basic
infrastructures which ultimately lending strength and capability to a host of economic
sectors and supporting the social development of the nation (Construction Industry
Master Plan Malaysia 2006-2015, 2007). Such claim is enhanced by the fact that this
industry is also known as the industry with the largest output multipliers effect of 1.62.
Figure 2.5 portrays the role of construction as an enabler of governments socio-
economic policies. It helps to illustrate the contribution of the construction sector which
ultimately helps to promote the growth of other sectors. The 9th Malaysian Economic
Plan (MEP) for instance can be used as an example to explain this scenario. In the 9 th
MEP, a total of RM220 million budget was allocated. It is an increase of 17.6% or more
than RM30 million over that 8th Malaysian Economic Plan (Bank Negara Malaysia
Annual Report, 2009). These significant figures signify greater opportunities for all
industries particularly the construction which play the role as an enabler to other sectors.
In this sense, the distribution of budget went to various sectors such as the economic
social and safety. Further, this budget was spread to various sub-sectors like the

44
education, transportation as well as trade and industrial. Construction plays a crucial role
in the realisation of the projects. These include the building of schools, factories,
hospitals, highways and other related projects. These investments to build and maintain
high quality infrastructure in order to improve quality of life and to support continued
growth of the economy and for socio-economic well-being of the people will certainly
bring prosperity to the industry (Construction Industry Master Plan Malaysia 2006-2015,
2007)

CONSTRUCTION
INDUSTRY

*Office building
PRIVATE *Factories
SECTOR *Manufacturing plants
*Housing

*Housing
GOVERNMENT *Hospitals
SOCIAL *Mosques
INFRASTUCTURE *School
*Public space
Socio-economic *Other social amenities
Elects policies

ECONOMIC
*Highways
INFRASTRUCTURE *Dams
SOCIETY *Airports
*Ports
*Technology parks
*Commercial centres
ENVIRONMENT
*Power generators

Standard of Environmental-
living and quality friendly processes
of life & materials

Figure 2. 5: Construction as an Enabler of Government's Socio-Economic Policies

Source: Construction Industry Master Plan Malaysia 2006-2015 (2007) pp. 20

45
2.6.1 The Malaysian Construction Industry Performance
Table 2.9 provides a snapshot on the contribution of construction to the Malaysian
economy for the past seven years. Although there is an indication of consistent trends for
both GDP and the construction industry, the level of growth for these two varies. The
Malaysian economy continued its strong momentum, expanding by 6.3% in year 2007.
However, it registered a lower growth of 4.5% (declined by 1.8%) in 2008, amidst the
international financial turmoil and sharp deterioration in global economic environment
(Bank Negara Malaysia Annual Report 2008, 2009). Further, in the recent report, it
shows that the Malaysian economy contracted by 1.7% in 2009, a year when worldwide
economy experienced its deepest slump in modern history (Bank Negara Malaysia
Annual Report, 2009).

Table 2. 9: Malaysian Construction Sector and the GDP

GDP Construction Sector GDP Growth Construction

Year (at current price-USD) Output (%) Sector
(at current price-USD) Growth
000,000 000,000 (%)
2004 124,749 4,067 6.8 -0.9
2005 137,954 4,140 5.3 -1.5
2006 156,409 4,345 5.8 -0.3
2007 186,720 5,115 6.3 7.3
2008 221,437 5,869 4.5 4.2
2009 n/a n/a -1.7 5.8
*2010 n/a n/a 8.1 5.2
* Average score for the first three quarter of the year n/a not available
Source: (United Nations Statistics Division - National Accounts, 2010); (BNM, 2011)

Interestingly, the construction sector shows contradictory report as opposed to the GDP
growth particularly from the year 2004 to 2006. An acute depressing trend was depicted
by this sector with three consecutive years contracted by an average of 0.9%. However,
this negative performance was shadowed by an outstanding score in the year 2007 with
the growth rate of 7.3%. As reported by Bank Negara Malaysia (Bank Negara Malaysia
Annual Report 2008, 2009), the construction sector recorded positive growth rate for the

46
year 2007 and 2008 following the implementation of projects under the Ninth Malaysian
Plan in which there was an increased in the Federal Government development
expenditure by 23.5%, mainly to finance construction of new projects and upgrading of
existing infrastructure facilities. Additionally, the latest report for the year 2009 by Bank
Negara Malaysia does reflect the same result. It was reported that the growth in the
construction sector strengthened to 5.8% in 2009 due to the implementation of projects
under the fiscal stimulus packages such as construction of schools and hospitals as well
as purpose-built office space (Bank Negara Malaysia Annual Report, 2009).

The above report provides support on the importance of construction sector to the
national economy particularly during the hard time. This can be seen through the lions
share of the investment of government project through the fiscal stimulus packages
(RM7 billion and RM16 billion first and second stimulus rescue package). This sector
is basically used in resuscitating the economy. Although 2009 was a tough year for most
economic sectors in the Malaysian economy, the construction sector recorded a stronger
growth (5.8%). This provides support to the role played by construction as the enabler to
the government socio-economic policies. As mentioned in the previous sub-topic, the
construction industry in Malaysia (2.6), construction helps to create room for
improvement to other sectors through its multiplier effects particularly during the hard
time.

Much has been discussed in the earlier paragraphs on the link between Malaysian
economy and construction. In fact, the recent paragraph did highlight the importance of
the multiplier effect of this sector to the growth of other sectors and the wealth of the
nation. Nonetheless, it would be worthwhile to compare this industry performance with
other major pillars in the national economy. Table 2.10 explicates industries contribution
to the GDP of Malaysia while Table 2.11 provides ideas on the growth of the Malaysian
GDP and its key economic activity. Overall, in terms of the contribution of the industries
to the GDP, construction depicts as the least contributor, contributing on the average of
only 3%. It makes obvious particularly when comparing with other prominent sectors

47
such as manufacturing that contributes generally more than 25% to the GDP. However,
it will be unfair and technically misleading to use industries contribution to GDP figures
as the indicator to the performance or productivity of a sector. It will be more realistic to
look at the growth of the sectors as presented in Table 2.10. Though construction falls
short in term of its GDP contribution, with only small slice of the pie, its spill-over
effect generated by construction activities cannot be undermined. With its multiplier
effect, construction industry contributes to the growth of other sectors in its role as a
heavy user of manufactured goods (e.g. building materials), specialised tooling and
heavy machinery (e.g. cranes) and financial services (Construction Industry Master Plan
Malaysia 2006-2015, 2007).
This issue has been raised in the above discussion, in the Malaysian construction
industry performance. In particular, construction shows remarkable performance as
compared to other sectors in the year 2008 and 2009.

In other issue, the above report indicates the vulnerability of this sector where its
performance is largely been influenced by the demand factor. Being domestically
derived demand oriented, the demand for construction projects can be generally derived
from several sources such as the government operating expenditure, Malaysian
development plan as well as the private expenditure (CIDB, 2008). Thus the argument is
on the lack of control of this derived demand which eventually influence its contribution
to the GDP. As proposed by CIDB Malaysia, there are two essential dimensions which
must be developed for this sector to enhance its role and stay relevancy to the economy.
They are:
1. Increase contribution by increasing market size in new and unexplored
developing foreign market
2. Improve productivity, efficiency and cost-effectiveness of the domestic
construction in order to provide comparative advantage to the economy
(Construction Industry Master Plan Malaysia 2006-2015, 2007)
Thus, with such proposition it underlines the need to concentrate on the issue of
productivity, efficiency and cost effectiveness particularly in the management process of

48
construction production. As what have been discussed in the earlier sub-topic, problems
in the construction industry (2.2), the practicing of good organisational and management
approach such as SCM and market orientation in the construction production process
could help to overcome these problems. Therefore, the present study is conducted in an
attempt to justify this proposition.

Table 2. 10: Industries Contribution to the GDP of Malaysia

Agriculture, Mining, Manufacturing Construction Wholesale, Transport, Other Activities
Year Hunting, Manufacturing, (ISIC D) (ISIC F) Retail Trade, Storage and (ISIC J-P)
Forestry, Utilities Restaurants Communication
Fishing (ISIC C-E) and Hotels (ISIC I)
(ISIC A-B) (ISIC G-H)

2004 11,565 56,473 37,896 4,067 15,631 8,768 31,173

(9%) (44%) (30%) (3%) (12%) (7%) (24%)
2005 11,579 64,441 40,837 4,140 17,568 9,500 33,613
(8%) (46%) (29) (3%) (12%) (7%) (24%)
2006 13,770 73,338 46,837 4,345 19,846 10,519 37,971
(9%) (46%) (29) (3%) (12%) (7%) (24%)
2007 19,112 83,981 52,223 5,115 24,312 12,313 45,630
(10%) (44%) (27) (3%) (13%) (6%) (24%)
2008 22,680 101,391 58,187 5,869 29,260 13,723 52,264
(10%) (45%) (26) (3%) (13%) (6%) (23%)
Note: at current price USD * 000,000
Source: United Nations Statistics Division - National Accounts (2010)

Table 2. 11: The Growth of Malaysian GDP by Type of Economic Activity

Agriculture Mining Manufacturing Construction Services GDP

Year
2004 4.7 4.1 9.6 -0.9 6.4 6.8
2005 2.6 -0.4 5.2 -1.5 7.2 5.3
2006 5.2 -1.0 6.7 -0.3 7.4 5.8
2007 1.3 2.0 2.8 7.3 10.2 6.5
2008 4.3 -2.4 1.3 4.2 7.4 4.7
2009 0.4 -3.8 -9.4 5.8 2.6 -1.7
*2010 4.0 0.73 13.5 5.2 7.1 8.1
*Average score for the first three quarter of the year

Note: at constant price (Annual Change)

Source: BNM (2011)

49
Another area that requires attention is by comparing this sector with other countries.
Table 2.12 presents the construction contribution to GDP by country from the year 2002
to 2008. A glimpse of the statistics indicates that Malaysian construction is slightly
behind that of other countries. In comparing with few neighbouring countries such as
Singapore, Indonesia and India, Malaysian construction reflects a distressing
performance. With an average of 3%, Malaysian construction is considered as the least
productive among all. Nonetheless, as mentioned in the earlier discussion, there are
many factors that might influence this scenario (industry contribution to GDP) which
include the demand factor as well as the efficiency of the business in the industry.
Having the fact that this sector (construction) is crucial to the development of socio-
economic of a country as well as the significance of its derived demand effect, efforts
should be made to further understand this problem. Such effort may encourage further
growth in this sector which eventually spurs the prosperous effect to other sectors and
the country as a whole. For that reason, there is an urge to rectify the problem in order
for this industry to be more productive in the future.

Table 2. 12: Construction Contribution to the GDP - by Country (in percentage)

Country 2002 2003 2004 2005 2006 2007 2008

Malaysia 4 4 3 3 3 3 3
Singapore 5 4 4 4 3 4 5
Indonesia 6 6 7 7 8 8 7
China 5 6 5 6 6 6 6
Japan 7 6 6 6 6 6 6
India 6 6 7 8 8 9 8
Australia 6 7 7 7 8 8 7
New 5 5 5 5 5 5 5
Zealand
United 6 6 6 6 6 6 6
Kingdom
France 5 5 5 6 6 6 7
US n/a n/a 5 5 5 4 5
Note: n/a not available
Source: United Nations Statistics Division - National Accounts (2010)

50
2.6.2 Challenges and Problem in the Malaysian Construction Industry
The initial part of this chapter (2.2) has generally thrown several inputs on the problems
faced by this industry worldwide. Nevertheless, this particular section will deliberately
discuss such topics in a deeper perspective by closely link with the Malaysian
construction scenario. This is seen to be essential since the present study concentrates on
specific industry and country that is construction industry in Malaysia.

Through comprehensive analysis, CIDB Malaysia in their Construction Industry Master

Plan Malaysia, 2006-2015 has listed down several core problems and challenges faced
by the Malaysian construction sector. It is perceived that these problems and challenges
need to be given special attention in order for this sector to construct a sustainable local
construction industry and ultimately flourish as a global player in the near future
(Construction Industry Master Plan Malaysia 2006-2015).

Table 2.13 confers some insight on the problems faced by the construction industry in
Malaysia. This key area of concerns was presented by CIDB Malaysia resulted from in-
depth understanding of the Malaysian construction industry. Several areas of concerns
were identified as the grassroots to the problem faced by this industry. Looking at the
list, it is clear that such areas of concerns mirrored those problems faced by the industry
worldwide. This has been discussed in the earlier subtopic (2.2). Apparently, issues on
organisational and managerial practices seem to dominate such key concerns. As
highlighted in the first row of the table (Table 2.13), issues such as inefficient and
ineffective methods and procedures in the areas of procurement and construction, are
among key areas which require further action. Moreover, it also shows that those listed
problems are taken place along the construction supply chain. As pointed out by Abd.
Shukor et al. (2009), despite the fact that the construction industry has been contributing
considerable impact to the development of Malaysian economy, it faces a difficult task
to establish the integration and coordination between parties in the supply chain which
eventually lead to a sluggish and inefficient performance when comparing with other
industries.

51
 Table 2. 13: Key Areas of Concerns

Inefficient and ineffective methods of practices in contractors registration and

administration procedures, procurement methods and practices, contracting approaches,
construction method, planning submission and building plan approval procedures.

Inability to attract and develop local workforce for the industry mainly due to the Dirty,
Dangerous, Difficult image of the industry

Difficulty in securing timely and adequate financing at the various stages of construction,
and difficulty in repatriating profits/dividends

Inability to provide total integrated solutions in foreign projects, unlike Japanese, Korean
and German construction companies which could provide total solutions that include
financing package and equipment

Source: c.f. Malaysian Construction Research Institute of Malaysia, 2008; Construction

Industry Master Plan Malaysia 2006-2015 (2007)

The above situation signifies the requirement of best practices within the sector
particularly along the construction supply chain. With the collaboration of the industry
stakeholders, CIDB Malaysia has taken the initiative to implement the Construction
Industry Master Plan (CIMP 2006-2015) which among others is to steer the Malaysian
construction industry further up the value chain through the execution of SCM (Abd.
Shukor et al, 2009; Construction Industry Master Plan Malaysia 2006-2015, 2007). As
listed in Table 2.14, this plan proposed seven strategic thrust that need to be adhered.
There is an urgent call for integration and coordination effort among the stakeholders
(e.g. the contractors, suppliers, designer, etc) in the construction supply chain in order to
enhance productivity and efficiency. In this respect, area such as procurement process
coordination is considered crucial in the study of supply chain management and warrants
for further investigation. Besides Table 2.14, Table 2.15 underlines several critical
success factors which was extracted from Table 2.14. Factors such as productivity,
quality, innovation and sustainability are considered critical to the success of the
industry. There is an urge to improve the value chain as well as the emphasis on the
quality methods and processes used in the construction production. These include the

52
adoption of best practices in managing the process (such as SCM and market
orientation) and the inputs (for example the materials, manpower and equipment). With
such innovative and creative approach in managing the construction supply chain,
greater opportunity is expected not only from the domestic market but from the
international market as well. Thus, this may help the industry to stay competitive and to
construct a sustainable local construction industry and ultimately to be prosperous as a
global player in the near future (Construction Industry Master Plan Malaysia 2006-2015,
2007).

Table 2. 14: Strategic Thrusts

Integrate the construction industry value chain to enhance productivity and efficiency

Strengthen the image of the construction industry

Strive for the highest standard of quality, occupational safety and health and environmental
practices

Develop human resources capabilities and capacities in the construction industry

Innovate through R&D and adopt new construction methods

Leverage on ICT in the construction industry

Benefit from globalisation including the export of construction products and services

Source: Malaysian Construction Research Institute of Malaysia, 2008; Construction

Industry Master Plan Malaysia 2006-2015 (2007)

53
 Table 2. 15: Critical Success Factors

Productivity
Continuous improvement throughout the value chain from inception to facility management

Quality
Emphasis on quality in the use of manpower, material, equipment and methods adopted

Human Resources
Creation of competent construction workforce through skill upgrading and knowledge
enhancement

Knowledge
Sharing of best practices to upgrade the level of knowledge of the construction community

Innovation
Continuous R&D is vital to introduce new and creative methods, materials and tooling and
equipment

Environment-Friendly Practices
Sustainable practices are critical for the well-being of future generations

Sustainability
Generating new opportunities both in the domestic and overseas markets

Professionalism
Enhancement of professionalism is vital to the improvement of the industry image

Source: Malaysian Construction Research Institute of Malaysia, 2008; Construction

Industry Master Plan Malaysia 2006-2015 (2007)

2.6.3 Best Practices in the Malaysian Construction Industry

In the preceding sub-section, much has been discussed on the need and the relevancy of
best practices particularly in dealing with the problems faced in the construction supply
chain. In fact, these best practices are not only been highlighted in the Malaysian
construction context but construction worldwide. In this present study, the term best
practices is referring to the exercise of successful organisational and managerial
approaches for the purpose of enhancing the organisational performance. Indeed, when it
comes to organisational and managerial approaches, there are tremendous successful
methods and approaches that were introduced and available to be practiced. Nonetheless,
from the perspective of the current study, these organisational and managerial

54
approaches are referred to those effective and efficient practices in the construction
supply chain which could lead to better performance to the firm. These include the
practicing of SCM concept and strategic orientation such market orientation and
entrepreneurial orientation.

Taking the Malaysian construction as a reference, there are indications that these best
practices are being practiced especially among the giant players such as the G7
contractor group. Recent sub-topic (2.6.2) brings to light the effort made by CIDB
Malaysia in improving the industry performance. From the strategic thrust presented by
CIDB Malaysia, it makes clear that emphasise is given to the improvement of the
construction supply chain by taking into account the productivity and quality aspects of
several critical areas. Areas such as procurement process and quality materials are
among important elements that have been stressed in the Construction Industry Master
Plan, 2006-2015.

Several actions have been taken to promote the realisation of the above mentioned
strategic thrust. Among them are the establishment of Special Interest Group (SIG) and
the enforcement of ISO certification among G7 contractors. SIG was established in an
effort to create values to the construction players, enabling them to be competitive
locally as well as globally. As stated in the Construction Industry Master Plan, 2006-
2015, the key argument in SIG is to confine the best practices and how these practices
could be transferred and applied (Construction Industry Master Plan Malaysia 2006-
2015, 2007). For the record, the SIG is basically applied to selected contractors of G4
G7 be established.

Besides SIG, ISO 9001:2000 among G7 contractors is seen to play a critical role in
promoting this best practices such as SCM and market orientation (Construction
Industry Master Plan Malaysia 2006-2015, 2007). Certified ISO 9001:2000 firms are
expected to demonstrate to be more efficient and effective in running the business.
Further, this ISO enforcement on certain established system may indirectly encourage

55
the contractors to be more responsive to the requirement of the market (Akmal Aini &
Sofiah, 2010). In a nutshell, it is consistent with those best practices such as SCM and
market orientation.

A pilot case study was carried out prior to this survey, which has been conducted in the
context of Malaysian construction industry. The result from this pilot study revealed that
there is willingness and effort moving towards meaningful business relationships with
the supplier in this industry. This business relationship is seen to emphasise on trust,
commitment and long term relationship. Further, finding from this pilot study illustrates
the existence of collaboration activities in the procuring process. It highlighted the
relevancy on the proposed procurement process concept in managing building materials
(Akmal Aini & Sofiah, 2010).

The above discussion draws attention to the need for depth understanding on the issue of
best practices. It is seen to be fruitful to study the effect of this best practices on
performance since it is not only expected to contribute significant effect to the firm but
indirectly to the construction industry as a whole. In particular, the study of the
relationship between critical areas such as procurement process coordination, market
orientation and firm performance is seen to require greater attention. The result from the
study is expected to help the practitioners especially, on why and where to place the
effort and to invest resources. On top of that, this helps to demonstrate the importance of
best practices such as SCM from the context of construction industry in particular.

If all the while, the SCM discipline has been dominated in the mainstream research by
industries like manufacturing and transportation, it is critical for the construction
industry to acquire this knowledge from such industries and to place it accordingly with
the needs of the industry. As highlighted by Chynoweth (2009), built environment field
is not a discipline in the strict sense but constitutes an inter-discipline. Moreover,
interdisciplinary research agenda and espousal of multi theoretical approaches for inter-
organisational integration effort is perceived could offer better understanding for the

56
construction industry supply chains (Vrijhoef, Koskela, & Voordijk, 2003; O' Brien,
London, & Vrijhoef, 2002). Further, this argument is also supported by Morledge,
Smith, & Kashiwagi (2006) which mainly concentrate their study in the area of
construction procurement. They highlighted that procurement process is basically about
human being and the way they interact with each other and the environment. Thus, there
is a strong argument that major improvement to the existing construction procurement
will be derived from theoretical construct taken from the softer discipline such as
communication and social behavioural science (Morledge, Smith, & Kashiwagi, 2006).
Such claim in some way has positioned managerial approach and organisational
behaviour theories comfortably in the construction research agenda in which previously
was dominated by the technical research. Consistent to the above discussion, the present
study will deliberately adopt a softer discipline in highlighting the issue in this
construction industry. Elements such as procurement process coordination, marketing
resources are seen to be essential in responding to the present standing of building
construction industry in Malaysia.

2.7 Chapter Summary

Overall discussion in this chapter denotes the importance of the construction industry to
the socio-economic development of the nation and the intricacy of the construction
supply chain. It provides room for discussion on the importance of procurement process
coordination to the construction industry. Further, the discussion in this chapter
highlighted certain areas of concerns and the nature of the construction supply chain as
the barriers for the construction sector to be effectively and efficiently performed in the
domestic as well as international market. Best practices such as SCM were identified to
be the critical success to this problem. Though the initial part of this chapter addressed
the obstacles for best practices, towards the end of the discussion it becomes clear that
there is room for these best practices to be materialised particularly in the procurement
process of construction building materials.

57
The following chapter will continue the debate by stressing on major constructs in this
study, which are the procurement process coordination, its potential enabler (marketing
resources) and the firms performance.

58
 CHAPTER THREE
LITERATURE REVIEW

3.1 Introduction
The preceding chapter emphasised on the challenges and problems faced by the
construction industry as well as the need for procurement process coordination. SCM
has been argued as the essential ingredient in the formulation of best practices agenda
for this industry. Specifically, the procurement process is noted to be among the areas
that warrants for further investigation. On top of that, the element of soft discipline is
perceived to provide greater help in the adoption of successful concepts from other
industries (such as manufacturing) to the construction. Therefore, in relation to the
above arguments, this chapter continues by discussing on the main constructs used in
this research, namely: procurement process coordination, marketing resources and firm
performance which eventually lead to the formulation of research framework of the
present study.

In order to gain a better understanding and establish priorities, it is crucial to look back
to the previous related studies and the foundation theories. This chapter begins with the
theoretical aspect of the study by exploring the Resource Based View (RBV) theory and
the Coordination Theory (CT). The second component of the review of the literature
examines the area of supply chain management (SCM) and how it relates with
procurement process coordination. Going further, the concept of marketing resources is
discussed by looking at their relevant dimensions that make-up this construct. Previous
models on related studies are discussed in order to give a better picture towards the
conceptualisation of marketing resources. Besides these components, this chapter also
touches on the dependent variable of the present study that is the firm performance.

Finally, the last component of the literature review examines the relationship between
the constructs which ultimately make up the framework and hypotheses of this study.

59
3.2 Underlying Theories
In any field of study, theories provide clarification of how things work, guide the
research and inform practice (Culver, 2010). It helps to define what is accurate and it
guides and gives meaning to what we see (Costley, 2010). In line with the relevancy of
the organisational theory into the current needs of construction research, this section will
look into two organisational theories that are consistent with the present study in
explaining the concept of the construction supply chain. Generally, organisational theory
can be used to explain on how could be done in order to achieve organisational goals
such as to improve the performance (Culver, 2010). As noted by Costley (2010), when it
comes to theories, there appears to be no inclusively right theory. In other words no
single theory could be used to explain the entire phenomenon. This present study is
grounded in two widely applied theoretical frameworks which are the Resource Based
View (RBV) and Coordination Theory (CT). Though there are many theories that could
offer help in explaining the relationships between the constructs that were used in this
current study, RBV and CT were seen to be more relevant and adequate. Thus the
following discussion will concentrate on these two underlying theories and will relate
them with the three main constructs which are: marketing resources, procurement
process coordination and firm performance.

3.2.1 Resource Based View (RBV)

Developed from the economics and strategic literature of the 1950s, the RBV has
emerged as a prominent theory of competitive advantage. As mentioned in their
literature (Luo, Sivakumar & Liu, 2005) the concept of RBV was originated by Penrose
in 1959 and has been outstanding in comparison to other theories of firms, such as
Neoclassical theory, Brian-type, Schumpeterian, the Chicago school of thought and
Transaction Cost Theory (TCA).Through idiosyncratic resources and capabilities that
are heterogeneous and imperfectly mobile, the economists proposed that above normal
profits are possible (Barney, 1986). From the perspective of the strategic management,
the above normal profits are closely linked with the concept of competitive advantage.

60
As mentioned in the earlier point, above normal profits are possible through
idiosyncratic resources and capabilities that are heterogeneous and imperfectly mobile.
These mentioned resources are seen to generate differences, in turn it should lead to
different products and/or service attributes that eventually account for the firms
competitive position (Rungtusanatham, Salvador, Forza, & Choi, 2003). Such position
could be in the form of either cost leadership, differentiation advantage or successful
product strategy (Porter, 1997) which has the possibility to influence the revenues and
the costs of a firm. In this case, the above normal profits will take place when the
revenues are greater than the cost, mainly in the imperfect market. In short, the RBV
attempts to explain and predict how firms can obtain a competitive advantage through
acquisition of and control over resources which ultimately generate wealth to the firm
(Rungtusanatham et al., 2003). As compared to Porters 5 Forces Model (Porter, 1980),
the RBV stresses on organisation specific resources rather than the industry forces. In
other words, the competitive advantage of a firm depends on its resources and its ability
to exploit them, rather than on exogenous situations (Wernerfelt, 1984).

Earlier discussion on RBV has drawn attention to the essentiality of the resources to
have important characteristics that would allow a firm to attain competitive advantage.
Barney (1991), identified five important characteristics of resources which are: (1)
Valuable improves firm efficiency and/or effectiveness; (2) Rare can exploit it to the
disadvantage of its competitors; (3) Difficult to imitate to prevent competitors from
being able to easily copy the resource; (4) Non-substitutable - difficult for replacement;
(5) Imperfectly mobile specialised to the firm (Barney, 1991; Peteraf, 1993;
Rungtusanatham et al., 2003).

There is no doubt on the importance of resources in the RBV, this is the point that has
been stressed in the above discussion. Due to this fact, it is critical to understand the
concept of resources which lead to the generation of competitive advantage to the firm.
Broadly speaking organisational resources can be explained as a bundle of assets,
capabilities, organisational processes, firm attributes, information and knowledge. With

61
different classifications of assets being used (e.g tangible, intangible and personal based
resources), the boundaries between these classifications can easily blur (Agan, 2005).
Arguably, explanations on what compose the firms resources base are almost always
open-ended (Fahy, Hooley, Greenley & Cadogan, 2005). Nevertheless, with reference to
Fahy (2000) and Hooley, Broderick & Moller (1998) resources can be classified into:
(1) Assets (a) tangible (land, plant and machines, people, etc.), (b) intangible
(procedures and systems, knowledge, brands and reputations, etc);
(2) Capabilities (a) individual (customer care, individual learning, coordination skill,
etc), (b) group (customer orientation, group learning, interpersoanl skills, etc), (c)
corporate (market orientation, organizational learning, portfolio management,
innovation, planning processes, etc).

Looking at the classification of resources used by Hooley et al., 1998 in Table 3.1, it is
clear that the classical economic factors of production such as land, labour and capital
are not the only factors that should be paid attention in managing resources in the
organisation. Intangible resources as well as the capabilities are seen to be crucial and
have the tendency to create competitive advantage to the firm. Moreover, this kind of
resources is seen to be in line with the above mentioned resources characteristics
(valuable, rare, imperfectly imitable, immobile and non-substitutable) which permit
firms to gain a competitive advantage. Resources such as brand reputation, procedures
and systems as well as strategic orientation are observed to be critical and getting more
attention among scholars in the strategic and management studies (Chen 2007;
Deshpande & Farley, 2004; Keskin, 2006; Ordanini & Rubera, 2008). Detailed
classification of resources is depicted in Table 3.1.

62
 Table 3. 1: Classifications of Resources

Assets

Tangible Intangible
Physical Land
Financial Cash in hand Credit worthiness
Operations Plants & machines Procedures & systems
Human The people Their abilities
Marketing Customer database Brands & reputation
Legal Copyrights & Patents Reputation in litigation
Systems Databases & MIS Knowledge & DSS
Capabilities

Individual Group Corporate

Orientation Dominant Customer care Customer orientation Market
Logic orientation
Strategic Learning Individual learning Group learning Organisational
learning
Organising / Self management Interpersonal skills Portfolio
Managing management
Outside-In External focus Marketing Market sensing
Inside-Out Internal-focus Operations Resource
Functional utilisation
Spanning Coordination skills New product Innovation
development
Task Skills Individual tasks Group tasks Planning
Operational processes

Source: Hooley, Broderick & Moller (1998) pp. 101

To complement the above discussion on the concept of resources, Day (1994) in his
literature referred assets as resource endowments the business has accumulated while
capabilities were the glue that brings these assets as a whole and make it possible for
them to be deployed advantageously. Further, he made clear that capabilities as a
complex bundle of skills and accumulated knowledge, exercised through organisational
processes, which enable firms to coordinate activities and utilise their assets (Day,

63
1994). Such argument is consistent with the claim made by Ray, Barney, & Muhanna
(2004) that resources are greatly embedded in a firms business processes rather than
exist in a vacuum. Examples of business processes are: the process for acquiring
supplies and other raw materials, the process of delivering products or services to
customers, and the process of providing after sales service (Porter, 1991). In addition,
they (Ray et al. 2004) argued that those resources are not worth in and of themselves.
But, these resources are valuable as they allow firms to perform activities and it has been
linked that business processes are the source of competitive advantage (Porter, 1991;
Ray et al., 2004). In this setting, the procurement process coordination is seen as a
critical business process which derives from the supply chain management processes.
The process for acquiring supplies and other raw materials in this procurement process is
perceived as critical and effectively managed could lead to competitive advantage and
better firm performance (Arshinder et al., 2006; Porter, 1991).

The above discussion pointed out procurement process coordination as source of

competitive advantage which could influence the performance of a firm, particularly
with regards to the operational and customer performance. It provides support to the
suggestion of best practices in the construction industry which has been discussed in
the previous chapter (Chapter Two). As noted in the chapter summary (2.7), best
practices such as SCM were identified to be the critical success factors to the problem
faced by the construction industry. Procurement process was highlighted as one of the
areas to be focused on. By looking into the cause and effect of the procurement process
coordination on firm performance, this will provide support to the proposition on the
importance of managing process in the construction production. Such result will allow
greater understanding on the right capabilities and approaches to be emphasised in
creating competitive advantage to the firm particularly in the procurement process of
building materials of the construction industry.

64
3.2.2 Coordination Theory
The previous discussion on RBV has drawn attention on the critical role of business
processes such as procurement process in generating competitive advantage and
improving firm performance. Hence, this subsection starts the discussion by looking into
the concept of business process as it forms the central component to the theory of
coordination.

Process itself can be defined as any activity or group of activities that acquires an input,
adds value to it, and offers an output to an internal or external customer (Harringron,
1991). It can also be interpreted as logically related tasks carried out to attain a defined
outcome (Davenport & Short, 1990). Further, from the context of business processes,
Crowston & Osborn (1998) defined it as sequences of goal-oriented actions undertaken
by work units or business firms that repeat over time and which are measured in
performance terms, such as time, resources expanded or costs. From these definitions,
several crucial elements can be identified: (1) activities; (2) actors; (3) resources (4)
dependencies; (5) goal (Crowston & Osborn, 1998; Hayashi & Herman, 2002). On top
of that, such processes or activities involve repetition which is certainly required to be
coordinated.

According to Hayashi & Herman (2002), activities are themselves processes and most of
the time are used interchangeably. Business process such as procurement process, for
instance, entails several important activities which help to deliver value to the customer.
Apart from that, there are a number of actors such as the suppliers and the producers
who perform interdependent activities to attain goals. There is also a requirement for
inputs such as raw materials to these activities. When various actors pursue goals
collectively, they have to do things to organise themselves that a single actor pursuing
the same goals would not have to do (Malone, 1988; Crowston, 1997). Thus, these extra
organising activities are known as coordination. In short, coordination is about
managing dependencies between activities (Malone & Crowston, 1994).

65
Based on the definition given by Malone (1988) (pp.6), Coordination Theory can be
described as a body of principles about how the activities of separate actors can be
coordinated. It explains on how people and software agents coordinate their activities.
Since this theory is noted as a generic theory, it can both draw upon and contribute to
various diverse kinds of fields. This includes: computer science, economics, linguistics,
organisation theory as well as social and psychology (Malone, 1988). As for the present
study, this Coordination Theory is applied to the organisational behaviour context.
Specifically in the construction supply chain, various actors (such as contractor,
materials supplier, designer) work together in several activities. Such complex activities
with high degree of interdependencies require coordination in order for various actors to
pursue the ultimate goals. The Coordination Theory is seen to be appropriate in
explaining this phenomenon. Concentration is given to the coordination between the
contractors and their building materials supplier.

The subsequence sub-topic will discuss further on the main constructs utilised in this
study and at the same time try to relate them with these two theories.

3.3 Supply Chain Management and Procurement Process Coordination

The earlier subtopic (3.1) underlined the three main constructs used in this study. One of
the construct is procurement process coordination (PPC). Since there is a strong
connection between SCM and PPC, the discussion for this construct (PPC) begins by
looking at the general concept of supply chain management (SCM). Later, it presents the
association of SCM with the concept of supply chain coordination (SCC) as well as
procurement process which eventually leads to the concept of PPC.

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3.3.1 Defining Supply Chain Management (SCM)
While SCM has widely been established in the manufacturing research, the term SCM is
still considered fresh when it comes to construction. Nonetheless, regardless of the
industry, the precise meaning of the SCM is seen to be vague. In most cases, previous
authors used varying definitions to the term SCM. This could be due to the coverage of
this field that constitutes a very broad area, from the process of the origin of the raw
materials to the point of consumption. Thus, it is vital to have a clear understanding of
the key concept of SCM used in this present study.

The movement towards SCM has been discussed for many years, since the early 1900s
(Wisner, Tan, & Leong, 2008). However, it was only in the early 1980s that SCM
gained tremendous attention among the scholars in various related studies (Lambert &
Cooper, 2000; Wisner et al., 2008). As any other concept, SCM under a variety of
different names (such as pipeline management, network sourcing, demand management
and value stream management) has evolved in accordance to the requirement of the
market and the field of study (Cousins, Lawson, & Squire, 2006). As such, for most
studies, SCM is not portrayed as a free-standing functional area but rather for cross-
disciplinary integration by acknowledging the work within, and integrating efforts across
traditional business functions (Frankel, Bolumole, Eltantawy, Paulraj, & Gundlach,
2008). This business functions include the operations management, logistics, purchasing
and marketing channel. Unfortunately, until recently, most people still confused SCM
with logistics (Cousins et al., 2006; Davis, 1993; Lambert & Cooper, 2000; Wisner et
al., 2008). Many of them perceived that there is no considerable difference between the
two. As noted by Lambert and Cooper (2000), this phenomenon is comparable with the
confusion over marketing as a concept and marketing as a functional area. To support
this, the Council of Logistics Management (CLM) has made it clear with such definition
of logistics:

67
Logistics is that part of the supply chain process that plans, implements, and controls
the efficient, effective flow and storage of goods, services, and related information from
the point of origin to the point of consumption in order to meet customers requirement
(Lambert and Cooper, 2000).

The definition of logistics by the CLM makes clear that SCM, in term of its coverage, is
broader than logistics. In other words, logistics is just a subset to SCM.

Further, as mentioned by Mentzer, Stank, & Esper (2008), SCM is not owned by any
one discipline or department, but rather is a phenomenon that touches almost all parts of
businesses. With numerous researchers from different fields adopting this concept,
corresponding with the needs of their area, it is not surprised when this concept is still
lack of consensus as to its definition and consistency in its boundaries. Different authors
give diverse definitions of SCM which basically lead to different scopes of coverage or
focus. Table 3.2 shines a spotlight on different areas of focus in SCM which was
extracted based on definitions given by several authors. The six main areas of focus in
SCM are: (1) management philosophy, flows and activities in the supply chain, (2)
integration/coordination of key processes, (3) coverage from end user to initial
supplier, (4) provision of products and/or services, (5) value addition/creation/delivery,
(6) collaboration.

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 Table 3. 2: The Taxonomy of the Focus Areas of Supply Chain Management

Focus of the Definition

Authors 1 2 3 4 5 6
1 Council of SCM Professionals, 2009
2 Wisner, Tan & Leong, 2008
3 Wisner & Stanley, 2008
4 Fawcett et al., 2007
5 Power, 2005
6 Ohdar & Ray, 2004
7 Ellram, 2004
8 Heredia et al., 2004
9 Trent, 2004
10 Wisner, 2003
11 Chopra & Meindl, 2003
12 Chan et al., 2003
13 Larson & Halldorsson, 2002
14 Stadtler & Kilger, 2002
15 Spekman et al., 2002
16 Vakharia, 2002
17 Mentzer, 2001
18 Nunlee et al., 2000
19 Global Supply Chain Forum (GSCF), 2000
20 Council of Logistics Management (CLM), 2000
21 Christopher, 2000
22 Tan et al., 1999
23 Chandrashekar & Schary, 1999
24 Lummus & Vokurka, 1999
25 Van Hoek, 1998
26 Monezka et al., 1998
27 Lambert et al., 1998
28 Morgan, 1997
Note:
1-Management philosophy/managing process, flow and activities in the supply chain
2-Integration/Coordination of key processes
3-Coverage - from end user to initial supplier
4-Provision of products and/or services
5-Value creation (value addition)
6-Collaboration
Adapted from Elisha Mkumbo (2008)

As highlighted in Table 3.2, one of the main areas of focus in SCM is

integration/coordination. This concentration of integration/coordination of key processes
in the study of SCM reflects the nature and characteristic of SCM itself. With its wide
area of coverage which constitutes several processes and activities, this has encouraged
the scholars to explore on some of these critical processes in more depth. As mentioned

69
in the earlier sub-topic (3.2.1 and 3.2.2), leveraging processes in business is crucial.
Thus it is worthwhile to pay attention to how these processes in SCM work and how the
coordination of the processes and activities could enhance the performance of a firm.

However, there is a need to have a crystal clear understanding on the concept of

coordination used in the study of SCM. Although, the terms management and
coordination are technically perceived to be highly correlated, many authors viewed
these two as separate entities (Arshinder, Kanda, & Deshmukh, 2008; Council of Supply
Chain Management Professionals, 2009; Frankel et al., 2008; Fugate, Sahin, & Mentzer,
2006; Mentzer, Stank, & Esper, 2008). Rather than looking at coordination as a subset to
management (as one of the management functions), most authors look at coordination as
a unique element in SCM. This is again, partly due to the nature and complexities of the
network in a supply chain. Apart from planning, organising and controlling,
coordinating and integrating are seen to be apparent. The need to coordinate and
integrate numerous parties involved is considered crucial in order to improve the
performance of SC i.e. on the flow of information, services, money and materials.
Hence, for these reasons, coordination is viewed as distinct area of focus in the study of
SCM.

In relation to the above discussion, the present study which mainly concentrates on the
construction supply chain views this issue of coordination as critical. As been discussed
in the earlier chapter (Chapter Two overview of the construction industry), there is a
need for coordination in this construction industry. With the complexity of the network
in the construction supply chain and the interdependencies between participants in this
industry, it makes clear that coordination in the construction supply chain is more
critical that other industries such as manufacturing. Furthermore this issue of
coordination is consistent with the current study that looks into the area of business
process, particularly on the procurement process. As highlighted in the initial part of this
chapter (3.2) several activities and actors in business process oblige for coordination in

70
order for the firms to achieve their desired goals. Thus looking into specific area in the
SCM which is strongly related to the need of the industry is considered crucial.
In general, the above table (Table 3.2) shows that most authors take a broader view of
supply chain management. In other words, majority of the researchers perceived SCM
entails more than just one stream of study. In fact, there are cases where certain areas are
seen to have strong correlation with other areas. This correlation indicates the strong
connectivity of that area of study with other areas. For instance, there is a tendency for a
scholar who focuses on the area of coordination to consider areas such as collaboration
and value addition into his discussion. In other words such areas are interrelated and
require support from other areas in order to sound substantive and constructive. In line
with this observation, there is also a trend of looking at this concept in a more holistic
perspective. This can be seen from the definition given by the recent scholars that
incorporates all the six areas of focus in interpreting the term SCM. For instance, The
Council of Supply Chain Management Professionals has defined SCM as:
SCM encompasses the planning and management of all activities involved in sourcing
and procurement, conversion, and all logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers and customers. In essence, SCM
integrates supply and demand management within and across firms (Mentzer, Stank, &
Esper, 2008; Wisner, Tan, & Leong, 2008)

However, there is also an indication that prominent streams in SCM exist. Among those
six areas of focus (Table 3.2), integration/coordination of key process, value
addition/creation and collaboration between firms and their upstream and downstream
channel members are seen to be explicit. As cited by Xu & Beamon (2006), SCM is
usually being interpreted as coordination or integration. This is made clear by Fugate,
Sahin, & Mentzer (2006) in their discussion on various definitions of SCM that link with
coordination. These definitions of SCM from various authors as described in Table 3.3,
by some means provide substantiation to the importance of coordination as an element
of SCM. In addition to this, Sahin & Robinson (2002) in their study have claimed that

71
the primary drivers of supply chain performance are information sharing and
coordination among supply chain members. Their study is enhanced by the findings of
potential saving of up to 35% of total system costs through the enhancement of
information sharing and decision coordination. Although this findings sound imposing,
the establishment of organisational relationships between members in a supply chain to
gain system coordination, especially from the context of the construction industry is
considered a challenging task. Therefore, realising the fact that coordination is the
essence of SCM (Fugate et al., 2006), the present study will endeavour into this area and
to relate it with the building construction industry. The choice is perceived to be
appropriate especially with the issues and problems in the construction industry that
have been discussed in the earlier chapter (Chapter Two) which views best practices
such as SCM as key successful factor to the industry.

In order to have further understanding on the concept of supply chain coordination in

SCM, the following sub-topic will continue to define and debate on this area.

Table 3. 3: Definitions of Supply Chain Management

Author Definition of SCM as.

includes coordination and collaboration with channel

Council of SCM Professionals (2009)
Vakharia (2002)
Mentzer (2001)
Lummus & Vokurka (1999)
Chandrashekar & Schary (1999)
Monezka, Trent & Handfield (1998)
Langley & Holcomb (1992)
Stevens (1989)
Source: Fugate, Sahin, & Mentzer (2006) pp. 131
partners, ..it drives coordination of processes and
activities
.simultaneous coordination of the supply chain is
critical.
the systematic, strategic coordination of business
functions...across business within the supply chain...
coordinates.all these activities into a seamless process
coordination of business activities across organisational
boundaries
.to coordinate and manage the sourcing, flow, and
control of materials.
coordination of all channel activities.
to coordinate the requirements.

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3.3.2 Understanding Supply Chain Coordination
As mentioned in the earlier sub-topic (3.3.1), coordination has been recognized as a
crucial element in the SCM concept. This is supported by Ballou, Gilbert & Mukherjee
(2000) that coordination is perceived as a central lever of SCM. Parallel with such
recognition of coordination to the concept of SCM, this particular subtopic continues to
discuss on this respective area. To gain further understanding on this concept (supply
chain coordination), this subtopic begins the discussion with the general concept of
coordination. From here, it moves to a more comprehensive concept which is the supply
chain coordination.

Despite the fact that coordination has been recognised as a crucial element in the SCM,
it is seen to be difficult to come out with a precise meaning of coordination since there is
no distinct perspective on this term. Most studies looked at coordination from a different
perspective which leads to a lack of clearly defined concept of coordination. Though
many researchers are familiar with the term and basic concept of coordination, the actual
conceptualisations and operationalisations of the construct vary (Chen, 2007; Pagell,
2004). Such issue leads to a broad definition to the term coordination. This claim is
consistent to what have been stated by Arshinder, Kanda, & Deshmukh (2006) that
terms such as integration, cooperation, collaboration and coordination is perceived as
complementary to each other and is easily be considered as part of coordination when
used in the context of supply chain. In other words all are considered as elements of
coordination in which integration is referred as combining to an integral whole,
collaboration (working jointly) while cooperation is viewed as joint operation
(Arshinder, Kanda, & Deshmukh, 2008).

Besides this view (Arshinder et al., 2008), the definition given by Malone & Crowston
(1994) did shed some light to the term coordination. According to Malone & Crowston
(1994), the term coordination can be expressed as the act of managing interdependencies
between activities performed, to attain an objective. Apart from this definition, Table 3.4
for instance, provides more input on various definitions and perspectives of the study on

73
coordination. There are three critical issues that can be extracted from the definitions
given in Table 3.4:
1. Coordination is a key issue in various fields
2. It can be an inter-organisational as well as intra-organisational (vertical or
horizontal)
3. It requires mechanisms

Regardless of the areas of study, coordination is applicable and considered crucial. Table
3.4 provides support that coordination can take place in an organisation as well as in
other different contexts such as a computer system and an informal setting between the
individuals. In an organisation, it can be applied to various functions such as
procurement, distribution, production and sales. Besides this observation, coordination
can be practised not only among the members in an organisation but it can take place
between organisations. In short, it happens vertically and horizontally. The above
explanation also clearly underlines the strong connection between supply chain and
coordination.

Supply chain itself can be referred as a network of firms involves in different processes
and activities through upstream and downstream linkages which is either directly or
indirectly involved in fulfilling a customers request (Arshinder, Kanda, & Deshmukh;
2006; Elisha Mkumbo, 2008). Indeed, with such complexity, supply chain requires to be
coordinated in order to achieve the companys goals. Further, a crucial question that
urge for an answer is how this coordination can be used to manage the dependencies in
the supply chain. The answer to this question is the coordination mechanisms. In other
words, a good coordination mechanism must be put in place in order to manage these
dependencies well. Coordination problems are managed by activities or processes that
put into practice coordination methods (Malone, 1988; Malone & Crowston, 1994).

74
 Table 3. 4: Various Definitions on Coordination

Author
Perspective (year) Definition Remarks
Joint decision Larsen et al Where two or more parties in the supply chain jointly Coordination
making (2003) plan a number of promotional activities and work out by pure
synchronised forecasts, on the basis of which the collaboration
production and replenishment processes are determined
Sharing data Ramdas and The suppliers ability to work in a close partnership with Coordination
and Spekman (2000) headquarters organisation and its willingness to share a with
behavioural range of data from cost structures to scheduling and collaboration
aspect logistics. It manifests itself in attitudes that relate to a and
suppliers integrity, trustworthiness, helpfulness in information
reducing costs, synergy with headquarters and support sharing
of customer service
Sharing risks Lambert, It is a particular degree of relationship among chain Coordination
and rewards Emmelhainz, & members as a means to share risks and rewards that with joint
Gardner (1999) results in higher business performance than would be operation
achieved individually by the firms planning
Sharing Narus and Cooperation among independent but related firms to Coordination
resources and Anderson (1996) share resources and capabilities to meet their with
rewards customers most extraordinary needs cooperation
Dependency Malone and Managing dependencies among members Coordination
Crowston (1994) theory
Logistics Bowersox Logistics alliances, which offer opportunities to Coordination in
alliances (1990) dramatically improve customer service and at the same logistics
time lower distribution and storage operating costs operation
Goal sharing NSF-IRIS (1989) Joint efforts of the members towards mutually defined Coordination
goals

Note: Adapted from Arshinder et al (2006)

As mentioned in the earlier discussion, supply chain requires coordination and this
coordination must have the coordination mechanisms to manage the interdependencies
in the supply chain. Thus, the following discussion will touch on the concept of supply
chain coordination (SCC) and the mechanisms used in this concept.

75
According to Lee (2000), SCC can be interpreted as a mean for redesigning decision
rights, workflows, and resources between chain members to leverage better
performance. Besides this definition, Simatupang, Wright, & Sridharan (2002)
comprehend the term SCC as an act of properly mixing together various objects for the
attainment of the chains goal. In addition to the above definitions (Lee, 2000;
Simatupang et al., 2002), SCC can also be referred as a web of supply chain nodes
linking each other within the same level or different levels of the supply chain
(Arshinder et al., 2006).

Generally, there are commonalities from the above definitions of SCC. In a nutshell, the
definitions given convey almost the same connotation where SCC refers to making
different parties or things work together for a goal. In this context the challenge from the
coordination perspective is not only within the firm but between the various firms that
involve numerous complex activities. Thus, for the purpose of this study, SCC is defined
as the ability to synchronize the interdependencies between activities or different
organisations in supply chain process in order to attain better performance. This present
study will look into the link between the contractors and their building materials
suppliers and how such coordination achieved through this link could lead to better
performance.

As highlighted in the earlier discussion, coordination mechanism is used to manage the

dependencies between the actors in the supply chain. Due to its critical contribution,
several scholars have appeared to develop the concept of coordination in the SC. Stank,
Crum, & Arango (1999) for instance, looked into the inter-firm coordination process by
focusing on several mechanisms such as effective communication, information
exchange, partnering and performance monitoring. Their study was carried out in the
food industry SC. In addition to their study (Stank et al., 1999), Lee (2000) shared the
concept of supply chain integration by highlighting three important mechanisms:
information sharing, logistics coordination and organisational relationship linkage.

76
Another related study was by Simatupang et al. (2002), who identified four different
modes or mechanisms of SCC that include: logistics synchronisation, information
sharing, incentive alignment and collective learning. Apart from identifying these four
modes of coordination, they also provide informative discussion by developing a
framework of the knowledge of coordination used to analyse the contribution of each
coordination mechanism in order to attain an integrated SC. This framework is
illustrated in Figure 3.1. It can be seen that several advantages (such as increased
visibility, collective capability as well as learning enhances capability) can be grasped
through these coordination mechanisms. It works in two-way directions. These
coordination mechanisms provide support to the coordination effort and in return, better
performance is expected through this coordination.

Better performance raises the

Logistics further level of collaboration Information
Synchronisation Sharing
Increased visibility generates necessity
to share private information
Ongoing initiative offer the
focus of performance Information provides visibility to
improvement An Integrated optimise supply chain
Supply Chain performance

Higher gains maintain high level Collective capability offers

of motivation new perspectives
Learning enhances
capability
Incentive Collective
Alignment Incentive scheme motivates different
Learning
players to concert efforts

Figure 3. 1: The Recursive Interplay Between an Integrated Supply Chain and the
Four Coordination Mechanisms
Source: Simatupang, Wright, & Sridharan (2002) pp. 301

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Meanwhile, a recent study that was based on the Coordination Theory by Arshinder,
Kanda, & Deshmukh (2008) proposed a model of supply chain coordination index in
which it consists of a few selected coordination mechanisms: (1) Supply chain contract,
(2) Information technology, (3) Information sharing, (4) Joint decision making, (5)
Collaboration (Arshinder et al., 2008). This study by Arshinder et al. (2008) provides a
more comprehensive and robust approach in the study of SCC which is seen to be of
great help in the understanding and defining the concept of supply chain coordination
(SCC).

In support to the above discussion on the issue of SCC, Table 3.5 points out a
comparison of various researches on this area. It highlights the coordination mechanisms
used in different structures of supply chain as well as how they relate to several
performance measured. It can be seen that this SCC concept is not only applicable
within the organisation (inter-functional/department) but between the firms. In addition
to that, Table 3.5 also shows the implication of SCC on performance which is generally
concentrated on the operational performance of the firms. Cost minimisation, scheduling
and service improvement are among those expected results from this supply chain
coordination.

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Table 3. 5: Coordination Mechanism, Structure of Supply Chain and Performance
Measure

Author Coordination Structure of Supply Performance Measure

Mechanism Chain
Barron (2007) Joint decision making Serial supply chain Minimise costs
(multi echelon) (ordering + holding)
Haq & Kannan Joint consideration of costs Multi-echelon Minimise cost (inventory carrying +
(2006) at each level production + transportation)
Arshinder et al. Information sharing, IT, Procurement Minimise costs & improve
(2006) contracts & collaboration scheduling
Xue et al. IT, information sharing Multi-echelon Minimise costs & improve
(2005) scheduling
Hwang et al. Synchronising production Multi-echelon (5 levels) Average stock level, average
(2005) cycles & risk pooling effects backlog & average total cost
Chen and Chen Joint consideration of cost, Manufacturer - retailer Minimise costs (holding + shortage)
(2005) savings sharing, quantity Pareto improvement
discounts
Zou et al. Information sharing & Multi-supplier single- Maximise profit
(2004) revenue sharing contracts assembler
Zhao et al. Order coordination & Single-manufacturer Minimise cost & improve service
(2002) information sharing multi-retailer level
Huiskonen & Information sharing, IT & Logistics provider & Good relationship
Pirttila (2002) integrating role manufacturer
Yang & Wee Joint decision making & Single-supplier multi- Minimise costs (holding + ordering)
(2002) quantity discounts buyer
Jayaraman & Joint production distribution Multi-echelon Minimise costs
Pirkul (2001) cost minimisation (purchasing+production+distribution)
Aviv (2001) Joint decision making & Manufacturer-retailer Minimise cost
demand information sharing
Stank & Information sharing, aligning Logistics provider & Channel cycle time & inventory level
Goldsby (2000) goals, EDI, contracts clients
Stank et al. Information sharing & IT Logistics provider & Inventory level, transportation costs,
(1999) clients warehousing costs, ordering costs,
order cycle variance, on time
deliveries & unacceptable deliveries

Note: Adapted from Arshinder et al. (2008)

The above literature demonstrates that the tendency of previous research on SCC was to
focus on two to five key mechanisms of coordination (i.e. information sharing, joint

79
decision making, IT, contracts and quantity discounts). Along with those mechanisms,
information sharing seems visible. Hence, it would be safe to claim that the basic
dimension of coordination is the sharing of information between functions or firms.
Indeed, information sharing provides visibility into supply chain process used to
coordinate the flow of product (Simatupang, Sandroto, & Lubis, 2004). Aside from
information sharing, there are also other mechanisms of coordination that are considered
crucial. Based on the summary of previous studies in Table 3.5, there is also a trend
moving towards joint decision apart from information sharing. This joint decision can be
in the form of joint decision making, joint production as well as joint consideration of
cost, savings and risk sharing. As for the present study, a few mechanisms of
coordination which are seen to be consistent with the nature of the industry
(construction) have been chosen in conceptualising the SCC. Those mechanisms are:
information sharing, collaboration (joint decision making) and supply chain contracts.

Although quite a number of studies on SCC emphasised on information technology (IT)

as one of the essential mechanisms of coordination, the present study is kind of reserved
towards this. There is no doubt that IT has been acknowledged as a factor that
contributes to performance (Arshinder et al., 2006; Huiskonen & Pirttila, 2002; Stank &
Goldsby, 2000; Xue et al., 2005), nonetheless the social and soft aspects do play a role
too. Furthermore, looking at the nature of the industry for the present study, building
construction is seen to be deficient in terms of IT adoption as compared to other
industries. This is enhanced by the result from a pilot case study which revealed the
limited adoption of IT in this industry. It was observed that IT adoption is relatively
restricted, particularly when dealing with inter firm connection between contractors and
the suppliers (Akmal Aini & Sofiah, 2010). Thus this mode of coordination was given
less weight in the development of questionnaire for the measurement of this study. The
description of selected mechanisms of coordination which were used for the present
study is shown in Table 3.6.

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Table 3. 6: Description on Selected Supply Chain Coordination Mechanisms for the
Present Study

Coordination
Mechanisms Description
The information regarding supply chain operations are shared among supply chain

Information sharing members (contractors and material suppliers) to plan timely schedule various
activities of supply chain

Example of types of information sharing:

Advanced order information, inventory level, order status, production schedule,
capacity and lead time.

Advantages expected:
-Substitute information with inventory and lead time
-Reduces the supply chain costs
-Reduces the demand variability
-Improves the service level
-Enhances responsiveness
The supply chain member (contractors and material suppliers) involve in joint

Collaboration decision making in order to face any future exception and to attain a coherent supply
chain. Cooperation, commitment, willingness to coordinate, sharing goals and trust
(Joint decision
are considered crucial in joint decision.
making)

Examples of types of joint decision making:

Joint forecasting, joint replenishment, joint ordering, joint scheduling

Advantages expected:
-Improves accuracy of forecasting
-Reduces information asymmetries
-Improves replenishment process
-Reduce inventory level
-Improves customer service
The contracts may specify the parameters (e.g. quantity, price, time and quality) with

Supply chain flexibility and no power domination

contracts
Examples of types of contracts:
Quantity flexibility, buyback, revenue sharing, quantity and quantity discounts. Types
of information required are stated in the contract.

Advantages expected:
-Reduces of overstock/under stock costs
-Enhances flexibility in price and quantity
-Improves customer service level
-Provides incentives to supply chain members

Note: Adapted from Arshinder, Kanda, & Deshmukh (2007)

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As noted in the above paragraph, three coordination mechanisms have been chosen in
the development of the concept of SCC for the present study. These mechanisms (Table
3.6) were selected in consistent with the nature of the construction industry which was
addressed in Chapter Two. As highlighted in the earlier discussion, the essentiality of
information in the SCC cannot be denied. With its function to provide visibility into
supply chain process, information is considered the essence to coordination. In this
present study, suppliers are expected to be more transparent in dealing with SC activities
such as in the ordering process and operation planning. Appropriate information requires
to be disseminated and shared among the contractors and the building materials
suppliers so that this could help to achieve the smooth flow of the materials which
ultimately prevent waste to the organisation. In relation to this, collaboration effort
between contractors and suppliers in various activities in the SC is seen to enhance the
mutual understanding between parties. Joint operating forecasting of the building
materials and their scheduling delivery activities are perceived to be crucial especially in
dealing with the bottleneck problems. Apparently, such mechanisms (collaboration and
information sharing) require high degree of trust, cooperation and commitment. Since
contracts are widely practiced among the contractors and suppliers in the construction
supply chain (Akmal Aini & Sofiah, 2010; CIDB, 2008), this mechanism is hardly to be
left behind in this present study.

3.3.3 Process View of Supply Chain Coordination

As discussed in the preceding sub-topic (3.3.2), SC is a network of firms involved in
complex activities and multi processes while SCM is increasingly being acknowledged
as the integration and coordination of key business process across SC (Frankel et al.,
2008; Mentzer et al., 2008; Wisner et al., 2008). Based on this perspective, several
critical elements can be highlighted in the supply chain management framework. Figure
3.2 simplified the understanding of SCM by focusing on three main elements. In brief, it
highlighted: (1) supply chain network structure that comprises of member firms and the
links between firms, (2) the management components that represented by management

82
variables such as coordination by which the business processes are integrated and
coordinated across supply chain, and (3) business process which entails the activities
that produce a specific output of value to customer (Lambert & Cooper, 2000).

Along with these three key elements, Figure 3.2 also draws attention to three crucial
questions. The first question, as highlighted in the previous chapter (Chapter Two)
touched on the construction supply chain network structure. Since SC represents a
network of firms, it is essential to have a clear idea of those members involved in the
supply chain and who are required to be linked to the SC processes. Construction firm
and its building materials suppliers have been chosen in this present study as those
members in the supply chain which are required to be linked. The sub-topic on
construction SC participants (2.5) provides further understanding to this element.

Besides this element (supply chain network structure), the recent discussion on SC
coordination (3.3.2) somehow shed some light on the second question as highlighted in
Figure 3.2. As mentioned earlier (3.3.1), even though the term management is
technically represented by a few functions, the present study has placed greater attention
to the coordination aspect.

Finally, the third element in SCM in Figure 3.2 draws attention to the issue of SC
business processes. The question on what business processes should be linked to will be
discussed further in this sub-topic. The term business process will once again be laid
down in the initial discussion in order to provide clear understanding and eventually to
guide the subsequent discussion.

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 1.Who are the key
supply chain
Supply Chain members with whom
Supply Chain
Management to link processes?
Network
Components
Structure

2.What level of Supply Chain 3.What processes should be

integration and Business linked with each of these key
management Process supply chain members?
should be
applied for each
process link?

Figure 3. 2: Supply Chain Management Framework: Key Elements and Decisions

Source: Lambert and Cooper ( 2000) pp. 70

Business process can be defined as a structured and measured set of activities such as
manufacturing, procurement, marketing and other major activities of a companys
operation with specified business outcomes for customers (Davenport & Beers, 1995).
According to Cooper, Lambert, & Pagh (1997), the main differences between the
conventional functions and the process approach are: (1) the focus of every process is to
meet customers requirement and (2) the firm is organised around process. These
processes demand an integration of a sequence of related work tasks to achieve
organisational objectives (Srivastava & Fahey, 1999). SCC can be practiced to improve
performance of various supply chain processes (Arshinder et al., 2006). However, the
number of business processes that is critical and/or beneficial to integrate and coordinate
between firms is varied in which for certain cases, it is adequate to just link one key
process and vice versa (Lambert & Cooper, 2000). Thus, recognising which business
processes should be jointly managed along the SC is a critical issue (Wisner & Stanley,
2008). Further, as explained by Wisner & Stanley (2008), integrating and coordinating
these key business processes within a network of SC members entails a great deal of

84
trust and cooperation. Comparison between SCM processes by various authors is
depicted in Table 3.7.

Table 3. 7: Supply Chain Management Processes

Lambert Cooper & Agan, 2005 Xue et al., 2005 Wisner & Stanley,
Pagh, 1998 2008
Customer Relationship Customer Relationship
Management Demand Management Project Management Management
Customer Service Client Service Customer Service
Management Order Fulfilment Management Management
Supplier Relationship
Demand Management Customer Service Management Demand Management

Order Fulfilment Procurement Demand Management Order Fulfilment

Manufacturing Flow New Product Development Environment Manufacturing Flow
Management Management Management
Manufacturing Flow Order Fulfilment Supplier Relationship
Procurement Management Management
Product Development & Construction Flow Product Development &
Commercialisation Returns Management Management Commercialisation
Research &
Returns Management Development Returns Management

Table 3.7 provides some ideas on key processes of supply chain from various
perspectives and industries. As pointed by Thomas & Griffin (1996) and reaffirmed by
Wisner, Tan & Leong (2008), traditionally, there are three fundamental key processes in
the supply chain: procurement, production and distribution or also known as inbound,
process and outbound. However, the scope of supply chain management expands as
more key processes are taken into consideration in their studies by various scholars. This
can be seen in Table 3.7.

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Lambert, Cooper, & Pagh (1998) in their most highly referred study of SCM process
have identified eight key processes: (1) Customer relationship management, (2)
Customer service management, (3) Demand management, (4) Order fulfilment, (5)
Manufacturing flow management, (6) Procurement, (7) Product development &
commercialisation, and (8) Returns management. Originated from their work, it leads to
few other proposed SC key processes that come with slight modification. These include
the studies conducted by Agan (2005) as well as Wisner & Stanley (2008).

Apart from these three studies which were not specified on a particular industry, Xue,
Li, Shen, & Wang (2005) came out with eight key construction business processes that
were implemented within the construction supply chain across organisational
boundaries. These include: (1) Project management, (2) Client service management, (3)
Supplier relationship management, (4) Demand management, (5) Environment
management, (6) Order fulfilment, (7) Construction flow management and, (8) Research
& development. These processes were used in their study to develop an agent-based
framework for SCC in construction. In this particular study, Xue et al. (2005) viewed
construction supply chain as comprised of all construction processes from the initial
demand by the client/owner, through design and construction, to maintenance,
replacement and eventually demolition of the projects. Several number of organisations
involved in this construction process such as client/owner, supplier, designer, contractor
and sub-contractor.

A brief discussion on the previous literature confirms that supply chain management
process does not only involve a particular function or a one-off activity, but it is a
complex process that consists of various activities which are interrelated to each other.
Taking into account the whole process of SCM in the study would be an ideal choice in
order to portray the true picture of the phenomenon. However, due to the constraint, this
study will only focus on the procurement or supplier relationship management process.
Such decision to go into specific activity like procurement process is supported by some
studies. As cited by Lambert & Cooper (2000), integrating and coordinating all business

86
process links throughout the entire SC, in most cases, is counterproductive, if not
impossible. In other words, not all links throughout the SC should be closely coordinated
and integrated (Cooper & Gardner, 1993; Lambert & Cooper, 2000). Managerial
attention should be allocated to critical links and processes that best fits to the firms
whereby it is consistent with the firm capabilities and the importance to the firm
(Lambert & Cooper, 2000). As for this study that concentrate on building construction
industry, selecting procurement as a focal area of study is considered critical.

3.3.4 Procurement Process Coordination

Understanding Procurement Process
The above sub-topic draws attention to the complexities of SC which encompasses
several actors and critical business processes. Integrating and coordinating the entire
business processes is likely to be seen as too much and not practical (Lambert & Cooper,
2000). Thus, concentrating on a particular process would be the choice to this present
study.

Procurement is one of the processes in SCM in which it is considered as an initiator to

other processes (Arshinder, Kanda, & Deshmukh, 2006). To support this, Arshinder et
al. (2006) in their study underlined the importance of a procurement process: (1) the
process shows to have significant cost cutting opportunities (60% - 80% of product
cost); (2) the process drives to other processes of production and distribution of supply
chain; (3) it involves repetitive, costly and time-consuming activities which certainly
requires to be coordinated.

Because of this, it is also has been recognised as one of the supply chain processes that
has the most positive impact on corporate performance (Lambert, Cooper, & Pagh,
1998). Efficiently managed procurement process will lead to better performance. Such
performance can be in the form of inventory level optimisation, purchasing cost

87
reduction, contribution to the quality of final products and shrinking time to market
(Christopher 1992; Ordanini & Rubera, 2008).

In terms of definition, the term procurement is seen to be used interchangeably with

other related words such as supplier relationship, buyer-supplier relationship,
purchasing, logistics management as well as supplier relationship management (SRM).
For instance, as noted by (Kumar, Ozdamar & Ng, 2005; Lysons, 1996), purchasing and
procurement are different, but they have something in common. According to Kumar et
al. (2005), procurement consists of all activities needed in order to get the product from
the supplier to its final destination, while purchasing covers all activities for which the
firm receives an invoice from outside parties. To have a clear idea on this, Van Weele
(2005) used a diagram to illustrate the differences which ultimately sorted out the
confusion. Figure 3.3 offers the definition of concepts for both purchasing and
procurement. From the diagram it denotes that the scope of procurement is wider than
purchasing. Like what have been cited by Van Weele (2005), the procurement process
consumes the available resources in the purchasing department (input) in order to
produce a product or service (output) which seeks to satisfy the customers needs.

Besides the above confusion (between procurement and purchasing), other related issue
which is often debated is on the distinction between supplier relationship management
(SRM) and procurement. These two terms are sometimes used interchangeably. Table
3.7 provides some ideas on the trend of the usage of these two terms. There is a trend
towards adopting the term SRM in the context of SCM process. Earlier study by
Lambert et al., (1998) for example adopted the term procurement while later study by
Xue et al., (2005) and Wisner & Stanley, (2008) used the term SRM to represent
procurement.

Wisner, Tan & Leong (2008), in their discussion argued that SRM is an umbrella term
that includes extended procurement process, such as sourcing analytics, sourcing
execution, procurement execution, payment and settlement as well as supplier score

88
carding and performance monitoring. On the same line of thought, SRM is viewed as
the systematic management of supplier relationship to optimise the value delivered
through the relationship over their life cycles (Croxton, Garcia-Dastugue, Lambert, &
Rogers, 2001). In short, SRM is mirrored to customer relationship management (CRM)
(Wisner, Tan & Leong, 2008). This brief discussion demonstrates that SRM is basically
a comprehensive approach in managing supplier while procurement is perceived to be a
subset to SRM. However, in this current study, procurement is positioned to be more
than just a traditional procurement process. In a traditional setting, procurement works in
an uncoordinated chain where supply chain members work independently and
optimising their local objectives, resulting in higher cost (Arshinder et al., 2006). On the
other hand, coordinated procurement process or procurement process coordination
(PPC), which has been conceptualised in this study achieved coordination by utilising
various coordination mechanisms. These mechanisms which have been discussed in
earlier sub-topic (3.3.3), helped to manage the problem of interdependencies. In this
sense, by conceptualising procurement as procurement process coordination (PPC),
procurement has evolved into a more systematic and holistic approach of management in
the supply chain. Thus, it is safe for this study to view procurement process coordination
as SRM. Further discussion will touch in more detail on the activities that make up PPC.

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 Purchasing Function

Tactical Purchasing Order Function

Internal Determine Select Contract Order Expand & Follow up & Supplier
Customer Specification Supplier Evaluation Evaluation

Sourcing Supply

Buying

Procurement

Figure 3. 3: Definition of Concepts - Purchasing and Procurement

Source: Van Weele (2005) pp. 13

Coordination in all Sub-processes in Procurement

The above discussion revealed that procurement process is an essential process in the
SCM processes. Porter (1985) in his discussion of value chain recognised the essential
of procurement as support activity in facilitating the completion of primary activities. He
highlighted a few main activities in procurement process such as: qualifying new
suppliers, procuring different types of input and monitoring supplier performance
(Porter, 1985).

With reference to Figure 3.3, Van Weele (2005), provides some ideas on the activities
involved in the procurement process. Activities such as selecting supplier, contracting,
ordering, and evaluating supplier are among those components that are normally
involved in a procurement process. In addition to this, Kong, Li, & Love (2001) in their
study on construction material procurement have listed down several activities involved
in a typical material purchasing process. The sequence of these activities is listed in

90
Figure 3.4. Though both studies (Kong et al., 2001; Van Weele, 2005) work in different
industries, both industries basically deal with almost the same procurement activities.
Activities such as supplier selection, contract and order are among essential activities in
the procurement process.

Tender Stage Post Contract Stage

Tender received Contract awarded

Estimating Re-enquiring and negotiation

Look for suitable materials Supplier selection

Send out enquiries to suppliers Order placed

Quotes received Progress measured

Analyses Records kept

Selection of best quotes

Tender prepared and submitted

Figure 3. 4: Typical Material Purchasing Sequence

Source: Kong et al. (2001) pp. 44

The above discussion makes clear that procurement process involves several activities
which require a high degree of interaction between the producer and the supplier. Thus,
there is a requirement for coordination among activities involved in order to achieve
better performance. Further, there is also a need to identify those sub-processes that are
considered critical in a procurement process which could be used as competitive
advantage to the firm in creating customer value (Srivastava, Fahey, & Christnsen,

91
2001). As noted by Srivastava & Fahey (1999), these micro level processes are
consistent with the core operating processes (such as new product development,
customer relationship management and supply chain management) which focus on the
development and delivery of products or solutions. From the perspective of RBV theory,
procurement process coordination is seen as business processes that exploit valuable,
rare, and costly-to-imitate resources which in turn lead to a source of sustained
competitive advantage (Barney, 1991; Ray, Barney & Muhanna, 2004). Thus, there is a
need to mould these sub-processes effectively in order to create advantage to the firm
which eventually lead to greater performance.

Based on Arshinder et al. (2006) work, five sub-processes in the procurement process
have been identified. These sub-processes were recognised to be those processes that
require a high degree of coordination between the contractor and materials suppliers in
the construction supply chain. They are also considered critical and if right decision is
taken to each five activities, continuous improvement in performance is expected. The
five sub-processes are: (1) Supplier Selection; (2) Supply Contracts; (3) Order
Management; (4) Joint Operations Planning; (5) Relationship Development.

i-Supplier Selection
Earlier discussion in Chapter Two (2.3) reported that construction industry is ahead of
others in terms of outsourcing (Dubois & Gadde, 2000). The nature of the industry
which is very specialised and fragmented has forced the channel participants to
outsource products, process and services to other members in the supply chain. Due to
this scenario, outsourcing and managing suppliers becomes critical in this industry. As
mentioned by Arshinder et al. (2008), supplier if managed effectively can offer benefits
to the firms. Benefits such as reduced cost, accelerating flexibility, lower inventory level
and reduced cycle time can be expected from this supplier management activity.

In todays competitive environment, effective selection of suppliers is considered crucial

to the success of the firm (Weber, Current, & Desai, 2000). Effectively selecting

92
suppliers may lead to cost saving as well as better product offer to the customers (Tracey
& Tan, 2001). Firms are striving for high quality, low cost with flexible and quick
response through this effective selection. Yet, to achieve effective selection approach, it
requires cooperation in sharing costs, benefits, expertise which eventually leads to long
term relationships (Bhutta & Huq, 2002; Garfamy, 2004)

Even though selection criteria used in supplier evaluation and selection vary across
products and purchase situations, past research indicates similarities in purchase decision
(Garfamy, 2004). There are several criteria that are normally used in the selection
approach of suppliers. Garfamy (2004), in his study has grouped these criteria into six
broad categories. These categories of criteria are: (1) Cost; (2) Quality; (3) Cycle Time;
(4) Service; (5) Relationship; (6) Organisation. Traditionally, elements such as cost and
quality were among the top of the list and at a certain point were the only criteria that
there were considered in the selection of supplier. Nonetheless, all of these criteria are
interrelated. As mentioned above, a few criteria are conventional dimensions utilised in
previous studies, but others are longer term and are more subjective in nature (Garfamy,
2004). Thus, firms (contractors) should not restrict themselves to certain traditional
approach alone in their selection process of suppliers. They should also pay attention to
those suppliers that have good coordination capability such as information sharing
capability, flexible contracts, willingness to share information and readiness for joint
decision making. Suppliers that have good coordination capability are expected to
deliver better performance as compare to those who could not offer such criteria
(Arshinder et al., 2006).

ii-Supply Contracts
Contracts allow parties involved to specify parameters such as quality, price, and
quantity according to their requirements. It is widely used in the building construction
industry mainly to safeguard the parties involved (Bajari & Tadelis, 2001).
Unfortunately, not many contracts that were adopted in this industry offer a win-win
situation to the members. Parties with greater power would normally rule the game.

93
Though power helps in managing the supply chain, this approach might only work for
short period of time. The relationship is perceived to be weak and vulnerable. On the
other hand, a good contract should balance between the interests of the parties involved.
In this case, a contract may help the firms and their suppliers achieve coordination when
they are planned jointly with no power domination of one partner (Giannoccaro &
Pontrandolfo, 2004). Further, the contracts should also specify coordination methods
that should be adopted in the procuring process. Contract with a high degree of
coordination was reported to contribute to better performance (Arshinder et al., 2006).

iii-Order Management
Ordering could be very complex especially when it involves several numbers of players
with wide range of products. New technology such as computer and tracking systems are
seen to create huge impact on the ordering management activities (Presutti Jr., 2003).
The adoption of IT is said to assist in the coordination effort among the members
involved (Arshinder et al., 2006). There is a need for the contractor to make their
ordering system visible not only within the firm but with other supply chain members
such as raw material suppliers. By doing so it may allow for greater information
exchange and apparently encourage better management of the inventory. This is
essential since information sharing and ordering coordination is perceived to influence
the performance in term of cost improvement and efficiency (Zhao, Xie, & Zhang,
2002). In this context, the cost improvement in the form of ordering cost of building
materials as well as efficiency in delivery process can be expected through this
coordinated ordering approach.

iv-Joint Operation Planning

It has been observed that collaboration among channel members has been beneficially
applied in other industries such as retailing and automobile (Akintoye, McIntosh, &
Fitzgerald, 2000). According to Larsen, Thernoe, & Anderson (2003), collaboration can
be referred as the situation in which two or more parties in the supply chain jointly plan
a number of activities and work out synchronised forecast, where the production and

94
replenishment processes are determined. In addition to this, Arshinder et al. (2006)
distinguished between collaboration and coordination in which in collaboration,
resources are pooled or jointly secured and the product are shared. In this way
collaboration through joint operation planning creates an effective approach to achieve
coordination.

With the contractor and building material suppliers jointly making their forecast on the
requirement of building materials, this may allow for better planning and most timely
prediction of demand. As such through this joint operation planning, it helps both parties
to communicate directly on the operation activities such as inventory levels, production
requirements, latest market trends as well as customer service level. Procuring materials
at the right price, quality and time are essential and cooperation with suppliers offer a
large cost saving potential which ultimately leads to a better firm performance
(Wegelius-Lehtonen & Pahkala, 1998).

v-Supplier Relationship Development

Besides the four activities that have been discussed earlier, supplier relationship
development has also been regarded as a critical factor for the functioning of firms. The
underlying reasons include: cost efficiency, increased effectiveness and increased
competitiveness (Sheth & Sharma, 1997). Several important parameters were
highlighted in this relationship development. It takes into account the elements such as
cooperation, commitment, willingness to coordinate, sharing goals and trust (Arshinder
et al., 2006).

Trust and commitment for instance are perceived by several authors as vital in this
relationship building (Ganesan, 1994; Morgan & Hunt, 1994). As mentioned by
Ganesan (1994), a high degree of trust in relational exchange enables firms to focus on
long term benefits of the relationship. These trustworthy partners reliability and
integrity are supported by elements like honesty, benevolence, fairness, helpfulness,
responsibility and competence (Mayer, Davis, & Schoorman, 1995; Moorman,

95
Deshpande, & Zahman, 1993). A high degree of trustworthiness may induce the
contractor and suppliers to work closely with greater information flow and eventually
allow for better coordination. No power issues should come into the picture while a high
degree of joint decision is taking place (Arshinder et al, 2006).

The above discussion provides some ideas on the concept of procurement process
coordination used in this present study. Hence, to guide this study, a conceptual
definition was given. This present study views procurement process coordination as the
ability to harmonise actors and activities in procurement process that aims at linking
relevant sub-processes and reducing redundant or unnecessary processes within and
across the firms. In other words, procurement process coordination can conceptually be
defined as the degree to which a focal firm (contractor) coordinate its procurement
processes with its supply chain partner (supplier).
The following subtopic will touch on marketing resources.

3.4 Marketing Resources

Lately, there has been a lot of interest in the role of marketing resources in contributing
to the creation of competitive advantage and consequently firm performance (Hooley et
al., 2005; Luo et al., 2005; Milfelner et al., 2008). This interest is partly due to the
response from the industry which is looking for sustainable competitive advantage that
may allow them to stay comfortable in a particular market. As pointed out in the earlier
sub-topic (3.2.1), from the perspective of RBV, resources are not worth in and of
themselves, there should be a link between these resources and competitive advantage
(Porter, 1991). Apparently, the business process is seen to be that source of competitive
advantage (Porter, 1991). As an attempt to respond to such proposition, the present study
tried to bridge this gap by linking marketing resources, procurement process
coordination and performance. Previous discussion (3.3) has explored on the
procurement process coordination. This particular sub-topic will continue to debate on
the enabler to this business process which is marketing resources.

96
3.4.1 Defining Marketing Resources
With reference to Hooley et al. (2005), the term marketing resources was used to
epitomise those resources that creates value in the market place. Additionally, in line
with the definition of the term resources by Barney (1991), the term marketing resources
was defined by Srivastava et al. (1998) as any attribute, tangible or intangible, physical
or human, intellectual or relational, that can be deployed by the firm to attain a
competitive advantage in its market. Indeed, with such definition, it may lead to various
interpretations to the term marketing resources. The definitions given by Hooley et al.
(2005) and Srivastava et al. (1998) were perceived to be broad with the indication that
all resources were capable to be identified as marketing resources. Further, these
resources were assumed to have the same impact on performance.

Yet, guided by the approach used by Hooley et al. (2005), marketing resources were
classified into market-based resources and marketing support resources. Market-based
resources were defined as those resources that can be immediately deployed in the
market place to directly generate or maintain competitive advantage while on the other
hand marketing support resources serve primarily to support marketing resources
(Hooley et al., 2005). What is apparent from this categorisation is that it gives a better
understanding on the different levels of effect of marketing resources on performance.

3.4.2 Identifying the Components of Marketing Resources

The above explanation shows that marketing resources can be grouped into two broad
categories based on their level of contribution to competitive advantage. Figure 3.5
illustrates the approach used by Hooley et al. (2005) in classifying marketing resources,
which has been adopted in their study on the performance impact of marketing
resources. As a new approach, there are always criticisms. It happened to Hooleys work
particularly on the nature and impact of marketing resources.

This criticism appeared to be a typical question that has often been raised in the context
of RBV. It is on the disagreement or confusion on whether competitive advantage

97
suggests winning the game or having enough distinctive resources to maintain a
position in a game (Rumelt, Kunin, & Kunin, 2003). Basically, it is an argument on the
approach used by Hooley in mapping their firms marketing resources. Gibbert,
Golfetto, & Zerbini (2005) argued that the competence-based marketing or the ability to
market marketing resources were supposed to be treated as a new category of marketing
resources (Gibbert et al (2005). In short, Gibbert et al. (2005) suggested the possibilities
that resources to be treated as marketable outputs rather than inputs to competitive
advantage (Fahy, Hooley, Greenley, & Cadogan, 2005). This argument provides an
interesting point on the impact of marketing resources which seem to lack stature among
the scholars and requires further clarification. Such discussion allows further
understanding on the concept of resources in particular marketing resources from the
standpoint of RBV. In this sense, the present study tend to agree with Hooley et al.,
(2005) that view marketing resources as the input in generating competitive advantage.
Furthermore, this view is seen to be consistent with the principal theory of RBV which
proposed that the firms build its strategy around its distinctive resources (Barney, 1991;
Hooley et al., 2005).

Despite its criticism, Hooleys framework provides directions to the study of RBV from
the context of marketing. In particular, it presents the ideas on the development of the
marketing resources construct. As mentioned by Theoharakis & Sajtos (2006), in spite
of a few comments on the credibility of Hooleys marketing resources framework, the
two resources exercised in the framework are able to simplify and integrate previous
definition of: marketing culture (market orientation), assets (tangible, tangible and
visible), capabilities (outside-in, inside-in and spanning), and competencies (core and
otherwise).

98
 Customer
Linking
Market Oriented Customer
Capabilities
Culture Performance

Market Financial
Innovation Performance
Capabilities

Market
Managerial Human Performance
Capabilities Resources

Reputation
Performance
Marketing
Support
Resources
Market-Based
Resources

Figure 3. 5: Performance Impact of Marketing Resources

Source: Hooley, Greenley, Cadogan, & Fahy (2005) pp. 21

Besides Hooleys work, there are also other researchers that have adopted marketing
resources as their construct and attempted to place their studies in the RBV framework
(Luo, Sivakumar, & Liu, 2005; Milfelner, Gabrijan, & Snoj, 2008). Their frameworks of
study are depicted in Figure 3.6 and 3.7 respectively, differ from Hooleys work. These
two studies have positioned marketing resources as a standalone construct rather than to
categorise it. However, the approach used by Milfelner et al. (2008) did imply the
existence of categorical by having marketing orientation as a predictor to other
constructs. In addition, Luo et al. (2005) had assumed marketing resources as a single
construct that comprised of a few dimensions such as entrepreneurial orientation.
Despite the fact that all the approaches used in the three studies are theoretically logic,
the approach used by Hooley et al. (2005) was perceived to be more apposite to the
present study. The two classifications used by Hooley are seen to aptly describe the term
resources as proposed by Barney (1986). Furthermore, this approach is noticed to
provide a better picture in explaining the effect of market orientation and entrepreneurial

99
orientation on performance. Several studies have shown that these management
orientations were facilitated by other factors (such as innovative capability) in their
performance relationship (Han et al., 1998; Hurley & Hult, 1998; Schindehutte, Morris
& Kocak 2008). Thus this provides support to the indirect effect of the two orientations
used as marketing support resources in the present study.

In spite of the differences in categorising marketing resources, all the three studies show
commonalities in the adoption of the dimensions for the construct. Market orientation
was remarked as crucial to the construct measurement of marketing resources. In fact,
this dimension (market orientation) was observed as an antecedent to other dimensions
in the studies by Hooley et al. (2005) and Milfelner et al. (2008). Besides market
orientation, other dimensions such as innovative capability, reputational resources and
customer related capabilities were seen to be idiosyncratic to the firm and theoretically
noticed as important factors in creating sustainable competitive advantage (Hooley et al.,
2005). Surprisingly, Luo et al. (2005) did count entrepreneurial orientation in their study
in addition to other dimensions for marketing resources construct. This dimension
(entrepreneurial orientation) was identified as another potential sustainable strategic
competitive advantage resource, which is in line with the RBV framework (Luo et al.,
2005). Such perspective is perceived to be parallel with the argument on the concept of
market-driving behaviour in which entrepreneurship orientation plays a critical role
(Schindehutte, Morris, & Kocak, 2008; Todorovic & Ma, 2008).

In view of the above arguments and their relevancy to the present study, a few
dimensions were selected to represent the marketing resources construct. For the record,
the present study adopted the approach used by Hooley et al. (2008) in conceptualising
marketing resources construct. In this study marketing resources was classified into
market-based and marketing support resources. Dimensions which represent marketing
support resources are: market orientation and entrepreneurial orientation while market-
based resources constitute innovative capability and reputational resources. Further
discussions on each dimension used were presented in the next subtopic.

100
 Marketing
Resources Customer Market Financial
Related Performance Performance
Capabilities
Customer
Loyalty
Innovation
Resources Financial
Market Performance
Orientation

Reputational Market Share

Resources & Sales
Volume

Distribution
Based
Assets

Figure 3. 6: Marketing Resources Contribute to Company Performance

Source: Milfelner, Gabrijan & Snoj (2008) pp. 6

Globalization Activities

Global Market
Sourcing

Global Market
Seeking

Global
Partnership

Marketing Firm Performance

Resources

Market
Orientation
Marketing
Program
Dynamism
Entrepreneurial
Orientation
Sales Growth

Innovative
Capability

Figure 3. 7: A Model of Marketing Resources, Globalisation and Firm Performance

Source: Luo, Sivakumar & Liu ( 2005) pp. 53

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3.4.3 Itemising Marketing Support and Market-Based Resources
As mentioned above, the marketing support resources construct was represented by two
dimensions namely, market orientation and entrepreneurial orientation. These two
dimensions were recognized as supporting resources that serve mainly to support
marketing activities and consequently contribute indirectly to competitive advantage
(Hooley et al., 2005). On the contrary, market-based resources which were represented
by innovative capability and reputational resources were seen to have direct effect on
competitive advantage and could immediately deploy in the market place. Below are the
descriptions on the four dimensions employed for marketing resources construct in this
study.

Market Orientation
It was observed that market orientation was the most widely used dimension in studying
marketing resources. There are two perspectives that could be used to explain the
concept of market orientation: (1) as a set of organisational behaviour; (2) as a culture.
As a set of organisational behaviour, a market orientated company is devoted to the
acquiring and utilising of market information for the purpose of achieving customer
satisfaction (Narver & Slater, 1990; Jaworski & Kohli, 1993). The behavioural
orientation consists of: organisation-wide generation of information, the dissemination
of information across department and organisational-wide responsiveness (Kohli &
Jaworski, 1990). Alternatively, market orientation can also be regarded as culture, a
deep-seated and shared set of beliefs and values that place the customer at the centre of
the firms thinking about strategy and operation (Deshpande & Wester Jr., 1989). It
comprises of customer orientation, competitor orientation and interfunctional
coordination (Nerver & Slater, 1990).

Traditionally, substantial amount of results from previous studies demonstrate that the
implementation of the market orientation leads to superior firm performance (Carmen &
Jose, 2008). Despite the fact that market orientation is a necessary condition, it is seen to
be inadequate to contribute sustainable competitive advantage (Baker & Sinkula, 2002;

102
Carmen & Jose, 2008). Recent studies indicated that organisations who merge
innovation and market orientation lead to sustainable competitive advantage (Carmen &
Jose, 2008; Lukas & Ferrell, 2000; Menguc & Auh, 2006; Woodside, 2005; Zhou, Yim,
& Tse, 2005). Apart from this, other studies showed that increased market orientation
was also likely to lead heightened levels of brand building and creating reputational
assets (Doyle, 2000; Hooley et al., 2005).

Entrepreneurial Orientation
According to Morris & Paul (1987), entrepreneurial orientation can be referred as a
propensity of a firms top management to support risk, to encourage innovativeness and
to demonstrate pro-activeness. A few important elements could be extracted from this
definition and these elements were basically used as the dimensions in studying
entrepreneurial orientation (Schindehutte, Morris, & Kocak, 2008). Those underlying
dimensions are: innovativeness, risk taking and pro-activeness (Covin & Slevin, 1991;
Lumpkin & Dess, 1996; Schindehutte et al., 2008).

Besides market orientation, entrepreneurial orientation was also identified as one of

dimensions in the study of marketing resources. In an effort to broaden the concept of
marketing resources that was adopted from Hooleys work, the present study took into
account this entrepreneurial orientation as one of the dimensions. This dimension was
used by Luo et al. (2005) in their study of the impact of marketing resources on firm
performance. This dimension is considered critical particularly in todays competitive
environment as well as the nature of the construction industry which mainly consists of
small and medium firms that operate independently. This strategic orientation is
perceived to be the driving force to the small and medium size firms. Due to its
characteristics such as: complexity, built out of tacit skills and experiences, this requires
time to build and difficult if not impossible to transfer from one firm to another (Barney,
1991). The present study has classified entrepreneurial orientation under the same
category as market orientation namely marketing support resources.

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Several studies have shown the essential of entrepreneurial orientation as to market
orientation. Both entrepreneurial orientation and market orientation are perceived to
complement each other where firm requires both to achieve optimum effectiveness
(Slater & Narver, 1994; Schindehutte et al., 2008; Webster, 1981). Besides this, other
findings showed that entrepreneurial orientation is the main source of a firms
competitive position and firm performance (Covin & Slevin, 1991; Zahra, Ireland, &
Hitt, 2000). However, not all studies convey the same result. For instance, as mentioned
by (Covin & Slevin, 1991), there is lack of empirical to conclude entrepreneurial
orientation leads to firm performance. The mixed result of the entrepreneurial
orientation performance link indicates that there is a requirement to advance the
literature by identifying the bridging gap such as innovative capability.

Innovative Capability
Innovative capability is the ability to develop and execute new ideas, products and
processes related to technology (Lukas & Ferrell, 2000). It can also be defined as the
propensity of a firm to actively support new ideas, novelty, experimentation, and
creative solutions in search of a competitive advantage (Lumpkin & Dess, 1996). The
latter definition by Lumpkin & Dess (1996) is seen to be more appropriate in the context
of current study. Such definition highlighted the competence of a firm to be engaged in
innovative activities which may lead to superior performance. Carmen & Jose (2008),
Hult & Ketchen (2001) and Zhou, Yim, & Tse (2005) reported the importance of
innovative capability to complement entrepreneurial and market orientation for a firms
success. This could be done by meeting the customer needs with innovative approach
which may lead to a long run success.

Several studies have shown that innovative capability is a predictor to firm performance
(Deshpande & Farley, 2004; Carmen & Jose 2008; Keskin, 2006; Zhou et al., 2005).
Such findings consistent the claim made by Lucas & Ferrell (2000) in which innovative
capability has been identified as stimuli to economic growth and major components of
competitive advantage.

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Reputational Resources
Based on the approach used by Hooley et al. (2005), reputational resources can be
identified as: (a) the firms reputation and image; (b) brand reputation and image.
According to Keller (1993), reputational resources (like the brand name and the
credibility) may lead to customer preference irrespective of their levels of satisfaction by
reducing cognitive dissonance and enhancing brand equity. From the perspective of
supply chain, this reputational resource of a firm may influence the level of acceptance
among supply chain members. As expressed by Shamsie (2003), strong reputation offers
the leading organisation valuable resources that it can continue to exploit to sustain its
position in the market (Milferner et al., 2008).

3.5 Firm Performance

Various measures have been used to express the term firm performance. This can be
observed through the number of methods used in previous studies in measuring this
construct. Nevertheless, there is no single approach that can be exercised to measure for
all the situations. Indeed, diverse fields of study will and should adopt different
measures of firm performance due to the differences in their research questions (Hofer,
1983; Venkatraman & Ramanujam, 1986). As stated by Venkatraman & Ramanujam
(1986), with the increased in volume of literature in this area, there seems to be little
hope of reaching any agreement on basic terminology and definitions.

Though earlier paragraph stressed on the complexity in adopting this construct, this sub-
topic will try to balance the difficulty by simplifying this construct into a few familiar
categories based on previous literature. In general, firm performance can basically be
classified into financial or non-financial performance. By looking at financial indicators
which are assumed to reflect the fulfilment of the economic goals of a firm, financial
performance is considered narrow in its conduct as compared to non-financial
(Venkatraman & Ramanujam, 1986). Due to its limitations, this concept of measuring
firm performance has gradually been complemented and replaced by the non-financial

105
performance approach. Technically, non-financial performance is perceived to be
broader and more practical in which it takes into account those key non-financial factors
that might lead to financial performance.

In relation to the above discussion, the present study adopted specific approach in
measuring performance. Non-financial performance was recognised to be more
appropriate in this present study and operational as well as customer performance were
selected as the dimensions. This decision is perceived to be consistent with the other
constructs used in this study. As mentioned in the earlier discussion, procurement
process coordination was employed as one of the constructs in this present study. Apart
from that, the focus of procurement process was solely on a particular resources (i.e.
building material). Though managing building material is considered crucial and could
lead to substantial impact on costs (Arshinder et al., 2006), such decision is seen to limit
the impact of procurement process coordination on the overall firm performance. In fact,
in reality firms overall performance often depend on many other factors.

Apart from that, as mentioned by Ray, Barney, & Muhanna (2004), simply investigating
the link between a firms resources and capabilities and its overall performance can lead
to a misleading conclusion. This is because firms can have competitive advantages in
some business activities and competitive disadvantages in others (Ray et al., 2004). As
mentioned by Nelson & Winter (1982), firm excel as of what they do. For instance, in
this present study concentration was given to procurement process coordination (for
building material) as resources to the firm. As such, the effect of the resources was
expected to be restricted to particular areas. For instance, firm operational performance
in managing their building material resources and final product (building). In this study,
firm performance was measured by using two key dimensions namely operational and
customer performance.

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In an attempt to measure specific operational performance related to resources of the
firm, this operational performance was categorised into two sub-dimensions. This was
based on the approach used by Gunasekaran, Patel, & McGaughey (2004) and
Gunasekaran, Patel, & Tirtiroglu (2001). Figure 3.8 illustrates the measurements used in
the five basic links in supply chain. Two of these basic links were selected as the
operational performance measurement for the present study. The two basic links are
sources performance and delivery performance. Source performance measures the
effectiveness of firm managing their building material while delivery performance
examines the finished product (building).Measurements depicted in Figure 3.8 mostly
relate to a specific industry, which is manufacturing. Since the current study is
concentrated on building construction, not all of the measures could be adopted directly
into the study. Furthermore, measures depicted in Figure 3.8 are a combination of
various types of performance. Thus, slight modifications were required.

As mentioned above, besides operational performance, firm performance was also

measured by customer performance. According to Eng (2004), customer performance is
concerned with the overall desirability of customer account with respect to relevant
customer portfolio dimensions from the selling companys perspective. Being a
customer oriented firm, it is crucial for the management to understand how their
managerial approaches and strategies influence customer performance. Superior
customer performance leads to satisfied and loyal customers who are relatively efficient
to serve (Hooley et al., 2005). Thus, in this study, it is essential for the building
contractor to pay attention to their clients requirement and level of satisfaction in order
to develop customer linking capabilities which could lead to higher level of customer
satisfaction and subsequently loyalty.

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 -Total cash flow time -Supplier lead time -Ability to change the -Delivery lead time -Customer query time
-Total cost against industry norm output level of product -Customer response -Level of customer
-Rate of return on -Mutual assistance in produced time perceived value
investment solving problems -Effectiveness of -Effectiveness of -Flexibility to meet
Order lead time -Mutual ability to master production delivery methods particular customer
-Total supply chain respond to quality schedule -Effectiveness of the needs
cycle time problems -Production lead time distribution planning -Number of customer
-Total revenue -Buyer suppliers -Ability to change the schedule complaints
-Product development partnership level variety of products -Delivery reliability -Efficiency of purchase
cycle time -Supplier assistance in produced -Fill rate order cycle time
-Order entry methods solving technical -Ability to introduce and -Responsive to urgent
-Accuracy of problems produce new products deliveries
forecasting techniques -Purchase order cycle -Total production cost -On-time deliveries
-Planned process cycle time -Cost per operation -Frequency of delivery
time -Suppliers ability to hour -Quality of delivered
-Information carrying respond to quality -Total inventory goods
cost problems -Inventory carrying cost -Achievement of defect
-Supplier rejection rate free deliveries
-Supplier delivery -Ability to change
performance planned delivery dates
--Achievement of defect
free deliveries

Plan Performance Source Production Delivery Customer Service &

Performance Performance Performance Satisfaction

Figure 3. 8: Measurements at Basic Links in a Supply Chain

Source: Gunasekaran et al. (2001) pp. 85

3.6 Development of Research Framework and Formulation of Hypotheses

3.6.1 Introduction
The earlier work by Srivastava et al. (2001) put forward a framework on how market-
based assets and capabilities were leveraged through market-based process to generate
superior customer value and competitive advantage. In response to the above
proposition, a conceptual framework of study was developed. The present study was
based on such premise and was applied specifically in the construction industry in which
RBV and CT were employed as the underlying theories. The framework that was

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proposed by Srivastava et al. (2001) is depicted in Figure 3.9 while the proposed
framework for the present study is illustrated in Figure 3.10.

Investments in Market-Based
Resources

Marketing Specific
Resources

Creating Customer Value via Market

Intellectual Market- Based Process Relational Market-
Based Assets Based Assets
- Product Innovation Management

- Supply Chain Management

- Customer Relationship
Management

Sustaining Customer Value and Competitive Advantage

Value Extraction and Financial

Performance

Figure 3. 9: Framework for Analysis of Market-Based Resources

Source: Srivastava, Faley and Christensen (2001) pp. 782

Srivastavas work argued that the resources in and themselves did not confer or to be of
equal importance in creating competitive advantage (Srivastava et al, 2001). In other
words they were idiosyncratic to the firm (Hooley et al., 2005). Srivastava et al. (2001)
further highlighted that the conversion of assets took place via the medium of process
which was the collection of interrelated work routines and tasks. In this situation,

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marketing based assets and capabilities need to be absorbed, transformed and leveraged
as part of the organisation process if they were to convert input into competitive
advantage (Srivastava et al., 2001). With reference to Day (1994) and Srivastava &
Fahey (1999) approach, three core processes were identified in Srivastavas framework
of study: (1) product development management, (2) supply chain management and (3)
customer relationship development. According to Lehman (1997) and Srivastava et al.,
(2001), marketing plays different but significant roles within each process. Though
procurement is just a process in the SCM processes, it is perceived to carry the same
weight as the core business process. Its distinct sub-processes are considered critical in
the transformation process of inputs into customer solutions (Day, 1994; Srivastava et
al., 1999). According to Lambert, Cooper, & Pagh (1998), the key to executing SCM
depends on critical supply chain members and key business processes along which the
partners are coordinated. These processes include procurement and other crucial
processes. In this context, supply chain capabilities such as procurement process
coordination are the crucial link. Basically the major aim of this coordination effort is to
generate competitive advantage to the firms and eventually lead to performance
improvement.

Based on the framework in Figure 3.10, this present study attempts to see the link
between the three main constructs namely, marketing resources, procurement process
coordination and firm performance. As mentioned above, the framework for the present
study was developed based on the concept used by Srivastava et al. (2001). This present
framework of study was underlined by two theories namely RBV and Coordination
Theory (CT). RBV worked as the main pillar while CT was used as a supportive theory.
The first part (marketing resources) of the framework was based on the model used by
Hooley et al. (2005) while the second part (procurement process coordination) was
principally based on the proposed conceptual model by Arshinder et al. (2006). The last
part of the framework (firm performance) adopted work by various studies that utilised
construct on firm performance. This includes work by Hooley et al (2005) and Milfelner
et al. (2008).

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The following discussion will touch on the relationship between the constructs and
dimensions used in this study. Although test/analysis of the relationship was made on
each of the dimension, the flow of the discussions was based on the relationship between
the construct. The idea is to simplify the discussions.

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 Supplier
H2a
MSR MBR Selection

H1a H2f
Market Innovative
Orientation Capability Source
H2b
Supply H3a
Operational
H1b Contracts Performance
H2g H3b

H2c
H1c
Order Delivery
H3c
H2h
Management Operational
Entrepreneurial Reputational Performance
Orientation Resources
H1d
H2d H3d
Joint Operation Customer
H2i Planning Performance
MARKETING RESOURCES H2e
H2j
H3e
Supplier
Relationship
Development FIRM PERFORMANCE

PROCUREMENT PROCESS COORDINATION

Note: MSR Marketing Support Resources; MBR Market-Based Resources

Figure 3. 10: Proposed Framework - Linking Marketing Resources, Procurement Process Coordination and
Firm Performance

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3.6.2 Relationship between Marketing Support Resources and Market-Based
Resources
The preceding discussion has noted that the conceptual approach used for the marketing
resources construct was based on Hooleys work. Hooley et al. (2005) identified two
classifications of marketing resources. The two classifications are: marketing support
resources and market-based resources. In this sense, marketing support resources which
constitute market orientation and entrepreneurial orientation were proposed to positively
influence the market-based resources dimensions. Market orientation and entrepreneurial
orientation were viewed as strategic management orientations that steer the organisation
which indirectly lead to the creation of competitive advantage. These orientations guide
the behaviour and activities of the organisation and the relationships with external
stakeholders (Schindehutte, Morris, & Kocak, 2008). A truly market-oriented firm for
instance, was expected to drive the organisation to practice activities contributing to
customer values. Similarly to a high degree of entrepreneurial orientation has the
possibility to impel the firm to be more proactive and innovative in its conduct. Levels
of market orientation and entrepreneurial orientation have been shown to directly
influence innovative capabilities (Camen & Jose, 2008; Schindehutte et al., 2008; Han,
Kim, & Srivastava, 1998; Zhou et al, 2005). Further, a higher degree of market
orientation was expected to lead to a greater emphasis on brand building and
reputational assets creation (Doyle, 2000; Hooley et al., 2005). The phenomenon
describes here leads to a proposition that there is a relationship between marketing
support resources and market based resources. Specifically it can be presented as:

H1a: Market Orientation positively influences the extent of Innovative Capability

H1b: Entrepreneurial Orientation positively influences the extent of Innovative
Capability
H1c: Market Orientation positively influences the extent of Reputational Resources
H1d: Entrepreneurial Orientation positively influences the extent of Reputational
Resources

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3.6.3 Relationship between Marketing Resources (Market-Based Resources) and
Firm Performance
The above discussion highlighted that effective management orientation such as market
and entrepreneurial orientations could influence the level of innovative capability and
reputational resources of a firm. Technically, most marketing activities were directed at
creating satisfied and loyal customers (Hooley et al., 2005). In addition, all functional
activities and organisational processes were centred towards anticipating and responding
to changing market and customer requirements ahead of competitors (Chen, 2007). On
the other hand, firms with entrepreneurial orientation were likely to have some level of
innovativeness, risk taking and pro-activeness (Covin & Slevin, 1991; Zahra et al.,
2000). Strong market and entrepreneurial orientations were expected to encourage
discontinuous innovations (Schindehutte et al., 2008) and promote reputational assets
(such as brand recognition) through effective and efficient approach in managing the
activities. Thus such capabilities and resources (innovative and reputation) were
expected to influence the performance of a firm.

It was predicted that with a high degree of innovative capability and reputational
resources these may influence the operational as well as the customer performance. As
for the operational performance, innovative capability was expected to influence the
activities of the firm, for instance, in several interrelated activities of the supply chain.
Simple example is in the area of inventory management. It would be crucial for an
organisation to harmonise the demand of the input used in the organisation and the
supply of the materials offered by the suppliers. Synchronising the inflow and outflow of
the materials were considered critical especially to those organisations that were oriented
towards customer satisfaction. Whichever default in any stages of supply chain would
affect the performance of a firm as a whole. In this sense, innovative capability was
expected to influence the conduct of a firm in managing this supply chain in a more
innovative approach which apparently could create positive effect to the operational as
well as customer performance.

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Besides innovative capability, it was reported that strong reputation offers the firms
valuable resources that can encourage them to exploit and sustain its position in the
market (Milfelner et al., 2008; Shamsie, 2003). Furthermore, these reputational assets
were seen as available to be used over a period of time and several study have shown
that the reputational effects were essential to generate future income (Eberl &
Schwaiger, 2005; Milfelner et al., 2008; Peteraf, 1993; Weigelt & Camerer, 1988)

Therefore, it was predicted that a high level of innovativeness and reputational resources
would lead to better performance of a firm. Several studies have reported on the
influence of innovative capability and reputational resources on firm performance
particularly with regards to customer performance (Hooley et al., 2005; Luo et al., 2005;
Milfelner et al., 2008).

3.6.4 Relationship between Marketing Resources (Market-Based Resources) and

Procurement Process Coordination
Coordination problems are managed by activities that employ coordination mechanisms
(Malone, 1988). These mechanisms include information sharing and collaboration (joint
decision making) (Arshinder et al., 2008; Lee, 2000; Simatupang et al., 2002). Such
mechanisms oblige a high degree of trust, commitment and cooperation between the
participants involved (Arshinder et al., 2008). Marketing resources through innovative
capability and reputational resources were expected to influence this procurement
process coordination by influencing these mechanisms

In order for an organisation to share information with other participants, it normally be

involved in a communication process. This communication requires appropriate means
in order for the message to be transmitted effectively to other parties. Innovative
capability may enhance this communication process by utilising proper means which
apparently could lead to better coordination. No doubt that IT plays a vital role in
influencing the effectiveness of communication, nonetheless, without proper

115
implementation, this technology would not be able to create advantage to the firm. In the
case of the construction industry, it was reported that this industry is lack in its adoption
of IT as compared to other leading industries such as manufacturing. However, this
innovative capability shouldnt be restricted to the adoption of complex IT or computer
system alone in managing the flow of the materials between the suppliers and the
contractor for instance. Traditional modes of communication such as fax, telephone, e-
mail were seen to provide assistance in this communication process too.

Besides means or modes of communication, innovative capability encouraged creative

approach in dealing with coordination with other participants in the supply chain. It
helped to discover new effective solutions in the information sharing process as well as
in the collaboration effort. With better approach used, it helped in overcoming the issue
of interdependencies among channel participants such as the contractors and the
materials suppliers. Therefore this may improve the coordination between participants
and encourage smooth flow of the activities involved in the procurement process.

Since coordination involves a high degree of trust and commitment, this may influence
the level and the amount of information to be shared between the supply chain
participants. Element such as reputational resources were expected to influence this trust
factor in dealing with other participants. Firms with a high credibility in term of brand
reputation for instance was predicted to have better position in gaining trust working
with other parties. Such trust would encourage greater collaboration and information
which eventually strengthen the coordination between members in procurement process.

The positive influence of innovative capability and reputational resources on

coordination was expected to spread throughout the activities in the procurement
process. Activities such as supplier selection, supply contracts, order management, joint
operation planning and supplier relationship development were anticipated to be
influenced by these capabilities (innovative capability and reputational resources) that
encouraged coordination. At this point a proposition stating that marketing resources

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(market-based resources) influence procurement process coordination is put forward.
The corresponding hypothesis is:

H2a: Innovative Capability positively influences the extent of Supplier Selection

H2b: Innovative Capability positively influences the extent of Supply Contracts,
H2c: Innovative Capability positively influences the extent of Order Management
H2d: Innovative Capability positively influences the extent of Joint Operation Planning
H2e: Innovative Capability positively influences the extent of Supplier Relationship
Development
H2f: Reputational Resources positively influences the extent of Supplier Selection
H2g: Reputational Resources positively influences the extent of Supply Contracts,
H2h: Reputational Resources positively influences the extent of Order Management
H2i: Reputational Resources positively influences the extent of Joint Operation
Planning
H2j: Reputational Resources positively influences the extent of Supplier Relationship
Development

3.6.5 Relationship between Procurement Process Coordination and Firm

Performance
Without reservation, coordination is crucial especially when dealing with supply chain
that consists of several actors and complex processes. As mentioned by Rai,
Patnayakuni, & Seth (2006) capabilities of core inter-organisational processes, like for
instance, customer relationship management, supply chain management and contract
manufacturing were suggested as critical to firm performance. These core inter-
organisational processes required to be coordinated in order to manage the
interdependencies between the activities and processes. Most studies showed that there
is a positive relationship between supply chain coordination (SCC) and performance
either directly to financial or indirectly via operational performance (Agan, 2005;
Boyaci & Gallego, 2002; Li, Huang, & Ashley, 1996; Rajaguru & Matanda, 2009). As

117
mentioned by Lynch, Keller, & Ozment (2000) these supply chain related capabilities
were widely acknowledged as sources of competitive advantage and it is consistent with
the proposed RBV and CT.

In relation to the above discussion, it was discovered that outward-facing SCC

(coordination with suppliers and customers) was correlated with a high degree of
performance improvements (Frohlich & Westbrook, 2001). Further, it enhanced lead-
time, inventory management, communication and improve scheduling as well as cost
efficiency (Barron, 2007; Gracia-Dastugue & Lamber, 2003; Power & Sohal, 2002;
Rajaguru & Matanda, 2009; Xue et al., 2005). On top of that, SCC was also associated
with improved firm ability to respond in a timely manner to the needs and wants of the
customers particularly with regards to customer responsiveness, agility and delivery in
term of speed, reliability and quality (Chen, 2007; Gustin, Stank, & Daugherty, 1994;
Paulraj & Chen, 2007; Stank, Keller & Closs, 2001). This situation is seen to be directly
linked to customer satisfaction (Chen, 2007).

However, the above reports were basically referring to SCC in general with inadequate
consideration on specific processes or activities. Nonetheless such reports provide a
positive sign to the current study that each coordinated process and activity could also
influence the firm performance. These coordinated activities include procurement
process coordination. Activities in this coordinated procurement process such as supplier
selection, supply contracts, order management, joint operation planning and supplier
relationship development were expected to positively influence the performance of a
firm.

An empirical study by Agan (2005), in the manufacturing industry, revealed that there is
a significant effect between supply chain process integration and firm performance
(operational and customer-based performance). Among those dimensions that show
strong significant were procurement and customer service. As such, this finding provides

118
a positive indication to the current study that concentrated on procurement process
coordination between the contractor and his materials suppliers.

In the contact of the present study, contractors and materials suppliers faced difficulties
due to the interdependencies that restraint the activities in the procurement process to be
performed. Firms that implemented coordination mechanisms were in the position to
have excelled in their performance. With high degree of coordination between
participants (contractors and materials suppliers) firms were expected to overcome
resource constraints through increased innovation and reduced costs, and uncertainties
(Rajaguru & Matanda, 2009). For instance, in the areas of order management and
operation planning where information sharing is critical. Sufficient and accurate data
through coordination would influence the performance of the firms.
For the record, detailed discussion on this area has been touched in the earlier sub-topic
(3.3.4).

As mentioned above several studies have shown that process coordination has positive
influence on performance. Such results lead to one surmising a proposition that
procurement process coordination (PPC) influences firm performance. The
corresponding hypothesis is:

H3a: Supplier Selection positively influences the extent of Firm Performance

H3b: Supply Contracts positively influences the extent of Firm Performance
H3c: Order Management positively influences the extent of Firm Performance
H3d: Joint Operation Planning positively influences the extent of Firm Performance
H3e: Supplier Relationship Development positively influences the extent of Firm
Performance

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3.6.6 The Mediating Effect of Procurement Process Coordination
RBV has been applied by a growing number of researchers to explain the relationship
between firms capabilities and its performance. These capabilities include the tangible
and intangible resources. Resources such as marketing resources have been proven to
positively influence the firm performance (Hooley et al., 2005; Luo et al., 2005;
Milfelner et al., 2008). However, as highlighted in the above discussion, resources
themselves did not confer or are not of equal importance in creating competitive
advantage (Srivastava et al, 2001). Business process such as procurement process was
seen to be crucial in the generation of competitive advantage. Superior performance was
likely to be attained when necessary capabilities such as marketing resources were
developed through supply chain process coordination (Chen, 2007).

In this vein, marketing resources through market-based resources (innovative capability

and reputational resources) contribute to the improvement of procurement process
coordination (PPC). This marketing resources capability is deeply embedded into the
procurement process coordination activities such as in the supplier selection, supply
contracts, order management, joint decision planning and supplier relationship
development. The coordination related with these activities is attained through a series
of initiatives that may include agreements between contractor and building materials
suppliers and supply chain relationships in addition to the deep embedding of marketing
resources capabilities as process enablers. The development of PPC which leverages
marketing resources entails considerable expertise spanning the business process
domain, relationship context and IT if possible. Such capability development requires
significant time, making rapid imitation by competition difficult (Rai et al., 2006). This
is consistent with the RBV theory where firms are viewed as bundles of distinct
resources and are able to create competitive advantage by developing unique firm
resources and capabilities (Barney 1991; Chen, 2007; Day, 1994)

As mentioned above, firms marketing resources capabilities have a substantial effect on

PPC. Higher PPC may contribute to the firm performance. The direct relationship

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between marketing resources and firm performance were expected to be significantly
positive. High marketing resources will indicate a high firm performance. Alternatively,
variables (marketing resources and firm performance) could also be indirectly related.
For instance, if PPC is high, it may mediate the relationship between marketing
resources and performance as well as directly influence firm performance. With
reference to Baron & Kenny (1986), a mediator is viewed as a variable that accounts for
a significant portion of the relationship between a predictor variable and criterion
variable. In this context, PPC was hypothesised as mediating the impact of marketing
resources (predictor) on firm performance (criterion). This present study argues that PPC
serves as a specific alternative strategy for implementation of marketing resources
within an organisation.

There are a few works that provide evidence on different contexts of the mediation role
of supply chain process coordination (Agan, 2005; Chen, 2007; Rai et al., 2006). Agan
(2005) in his study of various industries provides support of the mediation effect of
supply chain process integration on the relationship between marketing resources and
firm performance. Another study by Chen (2007), in the services industry, finds
evidence on the mediation role of supply chain process integration (internal and
external). Though in general there are evidences on the mediation role of supply chain
process coordination, nonetheless, there is inadequate attention received on the
mediation role of a specific supply chain process such as procurement process
coordination (PPC). As mentioned by Rai et al. (2006), it is crucial to understand the
role of specific business processes or in particular each activity of PPC as this will help
the scholar and the practitioner to uncover the potential of these activities as a source of
competitive advantage to the firms.

The above discussion draws attention to the need of looking into depth the extent of each
activity in the business process (such as the PPC). In this study, the requirement to
identify the level of mediation effect of each dimension in PPC is seen to be critical as it
is consistent with the theory of RBV in which firm could only achieve competitive

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advantage through its resources that carry certain characteristics (for instance, valuable
and difficult to imitate). In other words, not all resources can easily be considered as
competitive advantage to the firm. Further, as mentioned by Lamber & Cooper (2000);
Wisner & Stanley (2008), recognising which business processes/activities should be
jointly managed along the supply chain is a decisive issue. Thus, there is a need to
attempt to such problem by identifying the extent of mediating effect for each of the
PPC dimension

Therefore, based on the above discussion and support from empirical evidences it seems
reasonable to posit the following hypotheses:

H4: All the dimensions of Procurement Process Coordination (Supplier Selection,

Supply Contracts, Order Management, Joint Operation Planning and Supplier
Relationship Development) mediate the relationship between all the dimensions of
Marketing Resources (Innovative Capability and Reputational Resources) and Firm
Performance at different level of effect size

3.7 Chapter Summary

The initial part of the chapter has highlighted that RBV and CT as the two main theories
employed in this present study. Though there are various theories that can be applied to
the current study, operationalising the constructs (marketing resources, procurement
process coordination and firm performance) in the RBV framework and supported by
CT is perceived to be more pertinent in providing wider perspective for the development
of knowledge of this area. The adoption of these two theories in the area of marketing
and SCM research could help to demonstrate on how marketing resources are leveraged
via core business process (such as procurement process) in order to deliver customer
value that result in competitive advantages and firm performance (Srivastava, Fahey, &
Christnsen, 2001). On the basis of the above argument, the present study seeks to adopt
a resource-based approach to investigate the link between marketing resources,

122
procurement process coordination and firm performance. At the same time, with the
support of CT, it aims to examine the mediating role of procurement process
coordination in shaping such link. Though this might not be a pioneering effort, it does
provide fresh perspective into this area particularly when it is to be associated with the
construction industry.

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 CHAPTER FOUR
RESEARCH METHODOLOGY

4.1 Introduction
As discussed in Chapter One (1.4), the main purpose of this research is to examine the
link between the three main constructs: marketing resources, procurement process
coordination (PPC) and firm performance. In designing this research it is crucial that
appropriate choices of methods and procedures are made to enhance the validity of the
study result. In response to this issue, this particular chapter presents a discussion on the
research methodology used in the present study. It throws light upon research process,
research framework and hypotheses, sampling design, data collection methods as well as
data analysis procedure.

The presentation of this chapter is principally synchronised with the process involved in
a research which is also presented schematically in the form of research process flow
chart (Figure 4.1). In some ways, this flow chart helps to structure the discussion within
the subsequent subtopics of this chapter.

4.2 Research Process

A structural diagram is used to assist in explaining the flow of this research process. In
the initial stage of this research process (Figure 4.1), concentration was given to the
exploration of the research problem and theory. To appreciate this, literature review and
feedback from the industry were utilised. Through the identification of research problem
and research objectives, appropriate research design was selected. This present study
adopted conclusive research design which focused specifically on causal research
approach in conducting the research.

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 Research Intent

Literature Review & Preliminary Field Research

Research Problem Definition Theory Exploration

- Questions - Theoretical Examination
- Objectives - Model Building
- Hypotheses

Selection of Basic Research Method

- Survey (Questionnaire)

Questionnaire Development

Pilot Study

Refinement of Questionnaire

Data Collection (Field Work)

Editing/Coding of Data

Data Analysis
- Descriptive Analysis
- Test of the Goodness of Data
- Factor Analysis
- Construct Validity Assessment
- Analysing of the Structural Model

Interpretation of Results and Findings

Conclusion and Recommendations

Final Thesis Report

Figure 4. 1: Flow Chart of Research Process

Note: Adapted from Elisha Mkumbo (2008)

125
In this study, a survey questionnaire was employed as a focal mean for source of data
collection. Before the questionnaire could be used in full scale, a pilot study was carried
out. Feedback from this pilot study was used in refining the questionnaire. Once the
measurement requirement was met, data collection through mail and face to face survey
were conducted. Statistical Package for Social Sciences (SPSS) and Structural Equation
Modelling (SEM) were employed for data analysis. Based on the research results and
findings, conclusion and recommendation were presented.

The above discussion presents the layout of the research process which consists of
several activities. These activities include sampling design, data collection method as
well as data analysis procedure. Further discussion on these crucial activities was
discussed in the subsequent subtopics. For the record, the present study utilised the
quantitative research method in accomplishing its objectives with survey as the main
data collection method.

In order to hook up this chapter with the area of research of the present study, the
following discussion revisited the subtopic of research framework and hypotheses,
which has been covered in the previous chapter, Chapter Three (3.6).

4.3 Research Framework and Hypotheses

Figure 4.2 presents the relationship between the three main constructs used in this study.
As highlighted in the research process (4.2), this framework was resulted from a critical
review of literature and feedback from the preliminary field research. Several direct
relationships among study variables were integrated based on identified theories (RBV
and Coordination Theory) to make up the deduced framework. By and large, the
research framework in Figure 4.2 is of assistance in clarifying the proposed links
between marketing resources, procurement process coordination and firm performance.

126
 Supplier
H2a
MSR MBR Selection

H1a H2f
Market Innovative
Orientation Capability Source
H2b
Supply H3a
Operational
H1b Contracts Performance
H2g H3b

H2c
H1c
Order Delivery
H3c
H2h
Management Operational
Entrepreneurial Reputational Performance
Orientation Resources
H1d
H2d H3d
Joint Operation Customer
H2i Planning Performance
MARKETING RESOURCES H2e
H2j
H3e
Supplier
Relationship
Development FIRM PERFORMANCE

PROCUREMENT PROCESS COORDINATION

Note: MSR Marketing Support Resources; MBR Market-Based Resources

Figure 4. 2: Proposed Framework Linking Marketing Resources, Procurement Process Coordination and Firm
Performance

127
As pointed out in Chapter Three (3.6.1-3.6.6), there were several hypotheses that were
proposed in the present study. They are:
H1a: Market Orientation positively influences the extent of Innovative Capability
H1b: Entrepreneurial Orientation positively influences the extent of Innovative
Capability
H1c: Market Orientation positively influences the extent of Reputational Resources
H1d: Entrepreneurial Orientation positively influences the extent of Reputational
Resources

H2a: Innovative Capability positively influences the extent of Supplier Selection

H2b: Innovative Capability positively influences the extent of Supply Contracts,
H2c: Innovative Capability positively influences the extent of Order Management
H2d: Innovative Capability positively influences the extent of Joint Operation Planning
H2e: Innovative Capability positively influences the extent of Supplier Relationship
Development
H2f: Reputational Resources positively influences the extent of Supplier Selection
H2g: Reputational Resources positively influences the extent of Supply Contracts,
H2h: Reputational Resources positively influences the extent of Order Management
H2i: Reputational Resources positively influences the extent of Joint Operation
Planning
H2j: Reputational Resources positively influences the extent of Supplier Relationship
Development

H3a: Supplier Selection positively influences the extent of Firm Performance

H3b: Supply Contracts positively influences the extent of Firm Performance
H3c: Order Management positively influences the extent of Firm Performance
H3d: Joint Operation Planning positively influences Firm Performance
H3e: Supplier Relationship Development positively influences the extent of Firm
Performance

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H4: All the dimensions of Procurement Process Coordination (Supplier Selection,
Supply Contracts, Order Management, Joint Operation Planning and Supplier
Relationship Development) mediate the relationship between all the dimensions of
Marketing Resources (Innovative Capability and Reputational Resources) and Firm
Performance at different level of effect size

As mentioned in the above discussion (4.2), quantitative research method was used in
order to test the hypotheses in this study. The following discussion will further explain
how this quantitative study was carried out.

4.4 Preliminary Field Research

Earlier paragraph underlined that quantitative research method was adopted in testing
the hypotheses for this present study. Before the quantitative study (survey) was carried
out, a preliminary field research was conducted at the initial phase of the research. A
series of in-depth interviews were carried out for the purpose of obtaining a wide range
of opinions from the chosen industry of this present study. Although vast array of studies
have been carried out in the area of supply chain and marketing resources, applying
these areas into the construction industry was perceived to be new (Davis, 2008;
Khalfan, McDermott, & Swan, 2007). From the literature, it has been observed that there
was lack of empirical studies on supply chain in this industry. Thus, through preliminary
field research, it has helped to bridge the gap between the theory and the industry.
Feedback from the practitioners served as an essential input to the researcher in gaining
deeper understanding on the doubts whether the selected constructs or areas of study
were applicable in practice. Moreover, as pointed out by Homburg & Pflesser (2000),
preliminary field research permits for the verification of framework used in the study
which comprehensively was relying on literature review.

For the record, most works that have been carried out in these areas were largely
associated with more prominent industries such as manufacturing and retailing. As such

129
the present study that mainly focuses on a specific industry, which is building
construction, requires further investigation on the exploratory part before a conclusive
research can be conducted. In this preliminary field research, five in-depth interviews
were conducted with contractors from various classifications regardless of their firm
size. Each interview lasted roughly about 30-60 minutes where standard interview
format was applied to enhance the consistency and completeness of responses across
different interviews. Key issues from this in-depth interview were used in the
development of research structure such as the objectives, research questions and
questionnaire design. Appendix 4.2 depicts a list of questions that was used in this
preliminary field research. Based on the input from this in-depth interview, a decision
was made on the coverage of study. Due to the complexity of the construction supply
chain, a narrower approach to the study was decided. Instead of taking into account all
the contractors, decision was made to just focus on the G7 group. Besides that,
concentration was given to the procurement process alone rather than to cover the entire
supply chain process.

4.5 Sampling Design

The current study used stratified random sampling in selecting the study sample. This
path was chosen because it was identified to be useful for making general statements
about individual portions of the population and increase the representative nature of
samples (Davis, 2008). In order to establish the size of the survey population, databases
from Construction Industry Development Board (CIDB) Malaysia was consulted
(CIDB-Local Contractors, 2009). This produced an initial listing of a sampling frame
that comprises about 60,000 contractors, regardless of the categories, which ranges from
G1 G7. The target population was defined as all G7 building & construction
contractors that were listed with the CIDB Malaysia. However, only those registered
within Peninsular Malaysia and classified as active were counted as the target
population for this study. Contractors with the status other than active, such as
dormant, in-active and new were excluded from the sampling frame. With reference

130
to the CIDB database, there were about 4000 contractors listed as G7 group as for the
year 2007(CIDB-Local Contractors, 2009). Nevertheless this study only focused on
those G7 that are categorised under Building & Construction and with the criterions
which have been noted earlier. Apparently, based on the screening process result, the
number of contractors that belong to this category was only 2984. Detailed classification
of contractors is depicted in Table 2.6 while Table 2.8 (Chapter Two (2.6)) shows the
number of contractors by grade from 2001 to June 2007.

As prescribed earlier, in Chapter Two (2.6), contractors in Malaysia can be classified

into seven broad categories, starting from below RM200,000 project value to above
RM10 million value of project. Technically, what could be described here is that the
amount of value awarded to the contractors is basically consistent with the size of the
firms. Firms with greater resources are normally able to secure bigger projects as
compared to those with limited resources. In this study, the decision to choose G7 as
target respondents was partly due to the nature of relationship with their suppliers.
Larger organisations (contractors) were found to be more of structural bonding
(business-like approach) in their conduct when dealing with their suppliers apart from
social bonding (Petrovic-Lazarevis, Matanda & Worthy, 2008). Further, from the
perspective of trust and bonding, a respect for suppliers developed through experience
was indicated as crucial in managing supply chain. In addition, G7 group which
comprises of medium and large organisations typically adopted centralised buying
decision in procuring their resources such as building materials. Thus, this is consistent
with the present study that looked into organisational activities and performance rather
than project based.

On top of that, as discussed in the earlier chapter, Chapter Two (2.6.3), the requirement
by the CIDB for the ISO certification for G7 contractors was seen to be a movement
towards a more systematic approach in running the organisation. The G7 contractors
were forced to focus on improvement of the quality of their services and the efficiencies
of their processes. As such, it was expected that G7 group would adopt a better

131
organisational and managerial approach (best practices) in their firm conduct as
compared to other groups. Hence the choice of this group as target respondents was
considered justifiable.

The above discussion highlighted that G7 contractors were selected as a target

population for the present study. In this case, a total of 640 questionnaires were
distributed to G7 building contractors in Peninsular Malaysia, following the list provided
by CIDB Malaysia (CIDB-Local Contractors, 2009). This sample size (640) was
determined by using Krejcie & Morgan (1970) table. It was suggested that if the
population reaches 2500, the sample size must be 333. Out of 600 questionnaires
distributed through mail survey, 141 were returned. However, only 123 questionnaires
were classified as usable and valid for the study. As for the face to face data collection
which was conducted by two trained enumerators, 33 filled in questionnaire were
received from the total number of 40. The breakdown of population, sample size and
questionnaire response rate is depicted in Table 4.1

Table 4. 1: Total Number of Population, Sample Size and Response of the Study

Population Sample Size Responses/Cases

2984 640 156 (24.36%)

In term of adequacy in the number of sample (n), it has been pointed out that there was
no precise parameter to be recommended for SEM (Norzaidi, 2008). This was reflected
by different perspectives by several scholars. Loehlin (1992) for instance, proposed that
there should be at least 100 cases in order to use SEM. A more stringent approach by
Kelloway (1998) suggested the sample size need to exceed 150 in order to use SEM in
the analysis. Apart from these two perspectives, Hoyle (1995), suggested that the range

132
of 100 to 200 was recommended for requirement of the goodness of fit test. Therefore,
the present study with a sample size of 156 should be adequate for SEM utilisation in
testing the proposed model.

4.5 Data Collection Method

As underlined in the research process (4.2), the data collection method used in this study
was survey questionnaire. Data was collected through self-administered questionnaire
that were mailed directly to the director of a firm. The idea of mail survey was to
provide greater flexibility, where the respondents can answer at their leisure. Further it
also helped to reduce the interviewer bias due to lack of contact with the interviewee.
However, due to its typical problem, low response rate, a combination of data collection
method was used.

Attempting to maximise response, face to face data collection which was conducted by
two trained enumerators was also utilised. As mentioned in the preceding sub-topic
(4.4), a total of 640 questionnaires were distributed to G7 building construction
contractors in Peninsular Malaysia, from the total population of 2984, following the list
provided by CIDB Malaysia (CIDB-Local Contractors, 2009). From this number, a total
of 600 questionnaires were distributed via mail survey while another 40 were distributed
through face to face survey method.

4.5.1 Data Collection Administration

The questionnaire was mainly constructed to measure a firms business practices,
capabilities, and performance as well as its relationship with key/main building material
suppliers. Technically, the questions covered areas on strategic and managerial practices
where basically individual at the managerial level or higher were expected to attempt
this survey. On top of that, the informants were expected to come from the purchasing or
procurement department or the person most acquainted with purchases of building

133
materials. Thus individual such as the purchasing manager, quantity surveyor, contract
manager and project manager were among those who were targeted as key informants in
this present study.

Since unit of analysis of the present study was the activities of the G7 building
construction firm, at least a respondent from each firm was chosen to represent the
selected firm. In the current study, mail survey questionnaires were addressed to a
specific director of a firm. The names and addresses of target respondents were drawn
from CIDB Malaysia databases. As for the face to face survey, telephone contact was
established with selected firms and key informants were identified before the
enumerators went to their place for data collection. Since the questionnaire can be
completed by more than one respondent, the target respondents/recipients were
requested to complete the questionnaire themselves or an option to entrust the task to an
appropriate person who is knowledgeable. As such this could help to reduce the rate of
non-response error.

In answering the questions on procurement process coordination or supplier relationship

management, the informants were asked to focus on their key/major building materials
suppliers (for standard building materials). In this study, key building material suppliers
were referred to suppliers that were extremely important to the buying firm. This is in
term of the amount purchased and frequency of buying.

Although this study involved the relationship between two channel participants
(contractor and his building materials suppliers) it only looked from the perspective of
the contractor alone. The contractor was asked to evaluate this relationship based on
their experienced working with the supplier. Conceptually, a researcher could argue for
collecting data about buyer-seller relationship from the perspective of supplier, buyer or
both. However as pointed out in Chapter One, in the scope of study (1.6), it is normally
the customer (in this study the contractor) that ultimately makes the decision of whether
to purchase from the supplier. Thus, even if the supplier and buyer have different views

134
regarding relationships, it is the customers view that is likely to be the determinant
(Cannon & Perreault JR, 1999). Hence buyers or contractors view was elected.

4.5.2 Survey Instrument

As highlighted in the research process (4.2), a set of questionnaire was used in this
research. The questionnaire was structured into four main sections. Section 1 was
designed to measure firms marketing resources, namely: market orientation,
entrepreneurial orientation, innovative capability and reputational resources. Section 2
was designed to measure procurement process coordination. It consisted of questions
representing the dimension of: supplier selection, supply contracts, order management,
joint operation planning and supplier relationship development. The third section was
designed to measure the firm performance while the last section allowed the researcher
to understand the demographic background of the firms and respondents who attempted
the questionnaire. Table 4.2 shows the main constructs used in the questionnaire and
their conceptual definitions. The survey questionnaire is displayed in Appendix 4.1.

Table 4. 2: Main Constructs and their Conceptual Definitions

Construct Construct Definition Dimensions Used

Marketing Any marketing assets or capabilities that (1) Market Orientation

Resources can be deployed by the firm to attain (2) Entrepreneurial Orientation
competitive advantage in its market (3) Innovative Capability
(4) Reputational Resources

Procurement The ability to coordinate the (1) Supplier Selection and Development
Process interdependencies between different (2) Supply Contracts
Coordination organisations or activities in the (3) Order Management
procurement process in which ultimately to (4) Joint Operation Planning
attain the chain goal (5) Supplier Relationship Development

Firm The ability of a firm to fulfil its operational (1) Source Operational Performance
Performance and market-based goals (2) Delivery Operational Performance
(3) Market Performance

135
4.5.3. Description of Measurement Instruments
In this study all constructs were measured at the firm level. Although there were
arguments that supply chain relationship in the construction industry can take place at
the project as well as the firm level (Cox & Thompson, 1997; Dubois & Gadde, 2002;
Welling & Kamann, 2001), the current study had taken into account the latter
perspective (at firm level). This was based on the present area of study that focused on
building materials procurement activities. As discussed in Chapter Two (2.3), such
activities were mirrored to the manufacturing approach where it took place at the firm
level rather than project. Therefore, in designing the measurement instrument, all
questions were directed towards the firms activities and performance rather than at the
specific project level. In other words, the target respondents were instructed to
concentrate on the firms activities as the unit of analysis. Given the fact that the present
study mainly aims to investigate marketing practices and supply chain relationship of the
firm (G7 contractor), firm activities and performance as unit of analysis emerged to be
an appropriate choice.

As explained in Chapter Three, the survey instrument (questionnaire) used in this

research came from several studies. It was a combination of adopted questions of
previous literature and new questions that were developed based on the literature and
suggestions from academicians and practitioners. A majority of the questions were
close-ended 7-point Likert scale with only a few questions that were open-ended for the
intention of obtaining additional comments. With the exception of categorical type of
questions (in Section 4), a 7-point Likert scale was used to determine the agreement to a
particular question. As compared to categorical question, Likert scale type (i.e. when
treated as interval data) was perceived to be more powerful where parametric statistical
tests such as the analysis of variance could be realised (Cooper & Shindler, 2003;
Jackson, 2006).

136
Although there was some dispute on the classification of scale, most psychologists see
this Likert scale type as an interval scale rather than ordinal (Jackson, 2006). In addition
to that, there were also debates on the number of scale points to be adopted. This is vital
since it may affect the reliability and validity of the study as well as influence data
characteristics such as mean and variance (Dawes, 2008). Nonetheless, as observed by
Dawes (2008) through simulation and empirical studies, reliability and validity were
improved by using 5-7 point Likert scale rather than those with lower scale points. In
this study, the decision to employ 7-point Likert scale instead of 5-point were supported
by several scholars in which this Likert scale was seen to improve the scale reliability
without sacrificing its psychometric properties (Churchill, 1984; Dawes, 2008; Dursun-
Kilic, 2005; Nunnally, 1978). Table 4.3 to Table 4.5 depict the measurement items used
for each construct in this study as well as the origin of the items.

i- Measuring Marketing Resources Construct

As discussed in Chapter Three (3.4), the marketing resources construct was measured by
four dimensions which were categorised into marketing support resources and market-
based resources. The marketing support resources were represented by market
orientation and entrepreneurial orientation while market-based resources consisted of
innovative capability and reputational resources. This classification is consistent with the
approach used by Hooley, Greenley, Cadogan, & Fahy (2005) in their empirical study
on the relationship between firm performance and marketing resources.

Table 4.3 highlighted that all of the measurement items used for marketing resources
were adopted from previous literature. Yet, slight modifications were made on a few
items in term of sentence structure and wording in order to suit the current study setting
and most importantly compatible with the target respondents. Originally, a 5-point
Likert scale was used to measure for most of the items. Conversely, as have been
explained earlier, in this sub-topic, a 7-point scale was employed to suit with the
requirement of study.

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 Table 4. 3: Measurement Items for Marketing Resources

Dimension Measurement Item Source

Satisfying client needs is the central purpose of (Narver & Slater, 1990)
Market our business (Maignan, Ferrell, & Hult,
Orientation 1999)
We measure client satisfaction regularly (Narver & Slater, 1990)
(Maignan et al,. 1999)
We rapidly respond to competitors actions that (Narver & Slater, 1990)
threaten us (Maignan et al,. 1999)
Top management regularly discusses (Narver & Slater, 1990)
competitors strategies with other staff in the (Maignan et al,. 1999)
organisation
We earn our suppliers loyalty (Agan, 2005)
We are committed to a long-term relationship (Stank, Crum, & Arango, 1999)
with our suppliers (Agan, 2005)
All of our departments are integrated in serving (Narver & Slater, 1990)
needs to our clients (Maignan et al,. 1999)
Information are shared among our departments (Narver & Slater, 1990)
(Maignan et al,. 1999)
Entrepreneurial Our company actively searches for new (Covin & Slevin, 1989)
Orientation opportunities (such as new market, new clients) (Miller & Friesen, 1982)
Our company adopts creative methods of (Covin & Slevin, 1989)
running business ahead of competitors (Miller & Friesen, 1982)
Our company undertakes an aggressive position (Covin & Slevin, 1989)
to combat market challenge (Miller & Friesen, 1982)
Our company copies the business practices or (Covin & Slevin, 1989)
techniques of successful competitors to (Miller & Friesen, 1982)
enhance a competitive position
Our company commits a large portion of its (Covin & Slevin, 1989)
resources in order to grow (Miller & Friesen, 1982)
Our company invests in high risk projects which (Covin & Slevin, 1989)
promise high returns (Miller & Friesen, 1982)
Innovative In our company, management actively seeks (Han, Kim, & Srivastava, 1998)
Capability innovative ideas (Hurley & Hult, 1998)
In our company, innovation is readily accepted (Han, Kim, & Srivastava, 1998)
(Hurley & Hult, 1998)
In our company, innovation is not perceived as (Han, Kim, & Srivastava, 1998)
risky (Hurley & Hult, 1998)
Reputational Our company carries brand name reputation (Bennett & Gabriel, 2001)
Resources (Fombrun & Shanley, 1990)
(Milfelner, Gabrijan, & Snoj,
2008)
Our company has the credibility with clients (Bennett & Gabriel, 2001)
(Fombrun & Shanley, 1990)
(Milfelner, Gabrijan, & Snoj,
2008)
Our company is financially sound (Bennett & Gabriel, 2001)
(Fombrun & Shanley, 1990)
Our company is frequently mentioned in the (Bennett & Gabriel, 2001)
trade press and other media (Fombrun & Shanley, 1990)

138
The market orientation dimension was measured using the scale designed by Narver &
Slater (1990) and Maignan, Ferrell, & Hult (1999), which consisted of three sub-
dimensions: customer orientation, competition orientation and inter-functional
coordination. As an effort to widen the scope of market orientation, supplier orientation
was also included in these measurement items. The decision to include supplier
orientation was consistent with what had been acknowledged by several writers on the
need to broaden the range of market stakeholders in which it should encompass various
players such as suppliers and government agencies (Agan, 2005; Jaworski & Kohli,
1993; Matsuno & Mentzer, 2000; Narver & Slater, 1990). The items used to measure
supplier orientation in this present study was adopted from Agan (2005) and Stank,
Crum, & Arango (1999).

Entrepreneurial orientation was evaluated using the items developed by Covin & Slevin
(1989) and Miller & Friesen (1982). Apart from that, there were few other studies that
were referred to in developing the measurement items (Covin & Slevin, 1994; Lumpkin
& Dess, 1996). Theoretically, the item used in the study was intended to assess the three
components of firm-level of entrepreneurship. Although some scholars have reported
more than three components, which are: innovativeness, aggressiveness, risk taking and
pro-activeness (Lumpkin & Dess, 1996; Dess, Lumpkin, & McFarlin, 2005), the present
study was only centred on: competitive aggressiveness, risk taking and pro-activeness.
In this present study, innovativeness was viewed as separate construct which was
distinguishable from entrepreneurial orientation. In this sense, entrepreneurial
orientation was represented by boldness and tolerance for risk which lead to new
market entry (Lumpkin & Dess, 1996). In other words, entrepreneurial orientation was
considered as an antecedent of innovativeness, signifying that both are separate
constructs (Rhee, Park, & Lee, 2010). Such approach was seen to be in line with the
nature of the industry for the present study that consists of numerous numbers of
contractors with limited technology adoption.

139
The innovative capability scale was operationalised with three items Likert-type
measure, developed by Hurley & Hult (1998) and Han, Kim, & Srivastava (1998). The
items proposed by Hurley & Hult (1988) were originally developed by (Burke, 1989).
An attempt to increase the reliability of the instrument measurement, the initial scale of
5-point used by Hurley & Hult (1988) was changed to 7-point scale. As for reputational
resources, items were adopted from (Bennett & Gabriel, 2001; Fombrun & Shanley,
1990).

ii- Measuring Procurement Process Coordination Construct

All of the items for this construct were considered new. Even so, there were items in this
construct that were closely related to the previous literature. With some modifications on
the sentence structure and wording, a few items from previous literature were adopted to
suit with the requirements of the current construct used. As depicted in Table 4.4, this
construct was represented by five dimensions, in which each dimension was measured
by five items. As discussed in the previous chapter, Chapter Three (3.3.4), the approach
used in developing this construct was interlinked with a conceptual study on coordinated
procurement process, proposed by Arshinder, Kanda, & Deshmukh (2006). They
conceptualised procurement process as coordinated procurement process capability
which ultimately lead to performance. Five processes or activities had been identified
representing procurement process coordination. These include: supplier selection, supply
contracts, order management, joint operation planning and supplier relationship
development. Besides Arshinders work, empirical research by Power (2008) on
procurement collaboration did shed a light on the development of the items for the
present study.

As mentioned above, though all items for this construct were considered new, there were
cases where the dimension adopted were widely used in previous studies. The main
different is where the current study has conceptualised these procurement process
activities as coordinated activities.

140
Items for supplier selection were much associated with the work done by Tracey & Tan
(2001). In their empirical study on supplier selection and involvement, Tracey & Tan
(2001) used several items to measure supplier selection. However, their concentration
was more towards selection of supplier based on quality, reliability and product
performance. As pointed earlier, the current study however, rely much on the
coordination aspect. Nonetheless, this empirical study by Tracey & Tan (2001) provides
some directions in developing items for this dimension.

Regardless of the industry, quite a number of studies have touched on the issue of
contract (Bayfield & Roberts, 2005; Cachon & Lariviere, 2005; Colledge, 2005;
Kingshott & Pecotich, 2007; Toolanen & Olofsson, 2006). The literature in the
construction industry research for instance, indicated the trend towards relational
contract. Unfortunately, most works were conducted conceptually rather than empirical.
Hence, this limits the adoption of items for the current study.

Table 4. 4: Measurement Items for Procurement Process Coordination

Dimension Measurement Item Source

Selection of suppliers is also based on suppliers

willingness for information sharing with our
Supplier company
Selection Selection of suppliers is also based on suppliers
willingness for joint forecasting in building
materials price information.
Selection of suppliers is also based on flexible
contract (e.g. terms of payment) with both our
company and suppliers Newly developed items.
Selection of suppliers is also based on suppliers (Development of the items was
willingness for joint planning in delivery based on the works by
schedules of building materials Arshinder et al. (2006), Power
Selection of suppliers is also based on suppliers (2008) and Tracey & Tan
ability to commit to continuous improvement of (2001), apart from the input
product quality (building materials) gathered from the preliminary
study)

141
 Table 4.4: Measurement Items for Procurement Process Coordination
continued..

Dimension Measurement Item Source

Supply contracts are planned jointly by our

company and suppliers with no power
domination over one member to the other
Supply Suppliers are allowed to change the price of
Contracts building materials due to unexpected changes in
the current market price
A change in price will not hurt the profitability of
both our company and suppliers Newly developed items.
Supply contracts help both our company and (Development of the items was
suppliers to meet our defined goals based on the works by
The type of information (e.g. inventory levels) to Arshinder et al. (2006), Power
be shared by both our company and suppliers is (2008) and Tracey & Tan
also included in the supply contracts (2001), apart from the input
Our company and suppliers have access to gathered from the preliminary
order tracking of building materials study)

Order Our company and suppliers have access to

Management inventory level data of building materials
Our ordering information systems help to
connect different departments in our
organisation
Our ordering information systems help to
connect our organisation with building materials
suppliers
Our building materials suppliers will replenish us
continuously in order to maintain our company
adequate levels of inventory
Our company and suppliers are jointly involved
in forecasting price of building materials
Our company and suppliers jointly decide on
Joint building materials design
Operation Our company and suppliers are jointly involved
Planning in inventory planning of building materials

Our company and suppliers are jointly involved

in scheduling delivery activities of building
materials
Our company and suppliers are jointly involved
in forecasting the requirement of building
materials
There is cooperation between our company and
suppliers
Supplier Our company and suppliers have a long-term
Relationship commitment to each other
Development Our company and suppliers trust each other
Our company and suppliers are willing to share
risk that involved from our relationships
Feedback between suppliers and our company
is a common occurrence

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iii- Measuring Firm Performance Construct
In this study, firm performance, as discussed in Chapter Three (3.5), was assessed by
using two main dimensions, which are: the operational and customer performance. To
further understand on operational performance, it was categorised into two sub-
dimensions based on the approach used by Gunasekaran, Patel, & McGaughey (2004)
and Gunasekaran, Patel, & Tirtiroglu (2001). This approach permits for further
assessment of the performance related to supply chain activities. Instead of looking at
operational performance in a general setting, it would be critical to assess both, from the
supply side (building materials) as well as the delivery part of the finished product, i.e.
building itself.

In adopting the items for operational performance, four elements of performance

measure were considered, which are: quality, time, cost and flexibility (Neely, Gregory,
& Platts, 1995; Pires & Aravechia, 2001). As for the customer performance, items
proposed by Wisner (2003) were adopted into this current setting. On top of that, recent
studies by Hooley, Greenley, Cadogan, & Fahy (2005); Milfelner, Gabrijan, & Snoj,
(2008) were also used for the development items of this dimension. Table 4.5 depicts the
measurement items for firm performance.

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 Table 4. 5: Measurement Items for Firm Performance

Dimension Measurement Item Source

(Gunasekaran, Patel, &

Stock-out cost of building materials reduced McGaughey, 2004)
Operational (Gunasekaran, Patel, &
Performance Tirtiroglu, 2001)
(Source) Inventory holding cost of building materials
reduced (Gunasekaran et al., 2004)
Timely replenishment of inventory (building (Gunasekaran et al., 2001)
materials)
Defective rate of building materials reduced
On time completion of final products (buildings)
Final products (buildings) conformance to
Operational specification
Performance Defective rate of final products (buildings)
(Delivery) reduced
Ability to respond to urgent completion of final
products (buildings)
Trust between our company and client
Client complaints reduced (Hooley et al., 2005) (Milfelner et
Customer Client satisfaction al., 2008) (Wisner, 2003)
Performance Client retention

4.5.4 Pilot Test

In an attempt to reduce potential flaws and deficiencies of the chosen method and
research instrument (Jackson, 2006), a pilot study was conducted. A pilot case study was
performed over a representative convenience sample of 15 construction firms. The main
idea of this pilot test was to refine the questionnaire in term of the content, format and
scale. Furthermore, as highlighted by Naoum (2002), the feedback from this pilot study
allows the researcher to figure out certain key elements such as the adequacy of time to
complete the questionnaire, the clarity of the instruction given, ambiguous questions and
appropriateness of the layout.

Based on the response of this pilot test, several modifications were made on the
questionnaire. These include the addition of the term building materials on several
items in the procurement process coordination. The aim was to direct the focus of the
respondent to building materials in answering the questions in Section 2, which is

144
attached as Appendix 4.1. Besides these changes, questions on operational performance
were expanded into two categories. The first category was on the evaluation on the
source performance (i.e. building materials) while the other category was on the final
product delivery (i.e. buildings). These changes corresponded with the approach used by
Gunasekaran, Patel, & McGaughey (2004) and Gunasekaran, Patel, & Tirtiroglu (2001)
which was able to relate the firm performance metrics with supply chain activities.
Furthermore, from the perspective of the industry, it will be beneficial to see the
relationship between building materials management and final product (building). Since
product in the construction industry is immobile and expensive, it is critical to
understand factors that can contribute to the success of the building. Building materials
were reported to be one of the critical factors that have significant impact on the quality
and cost of this product.

4.5.5 Conducting the Survey

As mentioned in the above discussion, mail and face to face methods were used in this
survey data collection. Several pertinent issues in handling errors had been highlighted
in this process. As proposed by Mangione (1998), it is essential to ease errors that are
prone to mail survey collection method. Those errors are: sample selection bias, non-
response error, and response error.

In order to increase the response rate, Cooper & Shindler (2003) has suggested adopting
several methods such as reminders and incentives. On top of that, ethical issues such as
maintaining confidentiality, which may induce respondents to fill the questionnaire,
were also taken into account in the present research. For instance, all answers from the
respondents were treated as confidential in which all responses were kept anonymous
and were not traceable to individual respondents.

Intended to reduce the non-response error, each survey package was mailed to the
respective respondents with a cover letter, a questionnaire booklet and a postage-paid

145
return envelope. To ease the respondent, the cover letter provides clear explanation on
the purpose and instruction on how the questions were to be answered. Apart from that,
the questionnaire was designed to be respondent friendly with less cluttered in term of
the layout and sentence design. Simple and concise sentences were used in this
questionnaire. A sample of the questionnaire is attached (Appendix 4.1). As mentioned
in the earlier discussion (4.5.3), most items used in the study adopted close-ended rather
than open-ended type of question. By doing so, it helped to lessen the time and effort of
the respondents in answering the question which eventually could result in greater
response rate. Furthermore, the close-ended questions were set at the initial part with
personal particulars and open-ended questions were presented at last part of the
questionnaire. The idea was to give a favourable first impression of a questionnaire to
the respondents.

As noted above, face to face collection method was also used to complement the mail
survey. This method utilised two trained enumerators in the distribution process. The
idea was to increase the response rate by having the enumerator to personally hand over
the questionnaire to the intended respondents. Prior to this, telephone conversation was
made in order to increase the likelihood of getting the right person to attempt the
questions.

4.6 Data Analysis Procedure/Process

Taking over from the earlier discussion (4.5.3) on the measurement instruments
(questionnaire), this sub-topic discussed on the analysis procedure of the data collected
survey method. The analysis procedure was carried out in parallel with the types of data
collected as well as the objectives and hypotheses of the study. In particular, the
statistical methods adopted were set to be in line with the type of data collected. Table
4.6 presents a summary on the data analysis process used in this present study. This
summary, in such a way provides some ideas on the landscape of the discussion for this
sub-topic.

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 Table 4. 6: Data Analysis Procedure/Process

Descriptive Statistics

Test of the Goodness of Data:

Response Bias
Correlation and linearity
Normality test

Factor Analysis
Exploratory factor analysis
Confirmatory factor analysis (Items purification and assessment
of measurement models)

Construct Validity Assessment

Content (Face) validity
Unidimensionality and Reliability
Convergent validity
Discriminant validity

Assessment of the Structural Model

Testing for Mediation Effect

Hypotheses Testing/Path Analysis

The earlier discussion (4.2) has pointed out that this present study utilised SPSS and
SEM, Analysis of MOment Structures (AMOS) Version 16 in its data analysis process.
While SPSS has firmly been established among social science researchers in computing
Ordinary Least Squares (OLS) regression estimate, there were cases where this software
required other statistical programme to be complemented in enhancing the effectiveness
of the analysis (Garson, 2009). In this study for instance, each dimension was measured
by multiple indicators (i.e. items in a questionnaire). Unfortunately, OLS could not
handle multiple indicators for each variable in a model. In order to cater this to this
deficiency, SEM, so called Second Generation Technique, an extension of the OLS
was required. Furthermore, as highlighted by Garson (2009), there are several
advantages of SEM over multiple regressions. These includes: the ability to test model
overall rather than coefficients individually, adopting confirmatory factor analysis to
ease measurement error by having multiple indicators per latent variable, ability to test

147
model with multiple dependents, ability to model mediating variables rather than to be
curbed by additive model, ability to model error term as well as the ability to test
coefficients across multiple between-subject groups (Abramson, Rahman, & Buckley,
2007; Arbuckle, 2007; Byrne, 2001; Garson, 2009). Having said that the above qualities
are crucial, it is without doubt that SEM, using AMOS software appeared to be an apt
choice for this present study.

4.6.1 Descriptive Analysis

Initially, the data was coded into SPPS before further analysis could be performed by
AMOS. The last section of the questionnaire on demographic was analysed using a
simple descriptive method of looking into the frequency and percentage of the response
by using SPSS. This is consistent with the type of data (nonparametric) which limits for
further advanced analysis to be carried out. However it does help to describe and explain
the characteristics of sample that was being studied. Further it helps to compare with
sampling frame and to check the representativeness of the sample.

Apart from conducting descriptive analysis on demographic profile, further analysis was
carried out on each construct. This was done by looking at the mean score and standard
deviation for each item in the construct. This would allow better understanding on the
data captured which would not be available using multivariate analysis.

4.6.2 Test of Response Bias

With two different methods (mail and face-to-face data collections) employed in this
study, the possibility of response bias was apparent. In justifying this, independent-
groups t-test was carried to test the equality of the means. Non-significant result from
the test indicates that both groups could be analysed as a single data set (Jackson, 2006;
Pallant, 2005).

148
The current study addresses the response bias by splitting the respondents into two
groups, which are: mail surveys and face-to-face data collections. As pointed earlier
(4.4), mail surveys accounted for 123 responses, while 33 were completed through face-
to-face interviews. Items were submitted to t-test in order to compare the two responses.
The results yielded from the t-test indicated no significant difference (at = 0.05)
between the two groups. Thus, this signifies that these 156 sample responses can be
analysed as a single data set.

4.6.3 Test of the Goodness of Data

As compared to data on demographic, data on marketing resources, procurement process
coordination and firm performance was in the form of interval type. Such kind of data
permits for further testing with more powerful statistical methods to be adopted.
However, great care should to be taken into consideration in handling this type of data.
Certain conditions (such as normality and linearity of data) were required to be satisfied
before advanced analysis with more sophisticated software could be employed (Hair,
Black, Babin, Anderson, & Tatham, 2006; Jackson, 2006). Thus, test on correlations,
linearity and normality was considered crucial.

i- Correlations
Correlations can be used to describe the strength and direction of a relationship between
two variables (Pallant, 2005). The product-moment Pearson correlation, r, was used to
see the strength and direction of this relationship. According to Pallant (2005),
multicollinearity presents when the independent variables are highly correlated, that is
when r 0.9. Further, Pallant (2005) pointed out that this multicollinearity or singularity
is not a good contributor to the regression model. Besides Pallant, Tabachnick & Fidell
(2001) did suggest that the r coefficient shouldnt be too high or too low with the range
of 0.3 to 0.7 as the cut off point.

149
Apart from this, variance inflating factors (VIF) and tolerance were also used in
examining the existing of multicollinearity. According to Pallant (2005), tolerance is an
indicator of the degree of the variability of the specific independent that is not explained
by other independent variable in a model (1 R2). Small values (< 0.1) indicate the
existing of multicollinearity while on the other hand for the VIF high values (> 10)
signify multicollinearity (Pallant, 2005).

ii- Linearity
Besides looking at the correlation of the measurement items, it is also crucial to take into
account the linearity of the variables. In this study, linearity test was conducted by using
average values calculated for each set of items in second order latent variables. The P-P
plots were used to examine this issue. In this sense, the plotted points need to be close to
the ideal line for the linearity to take place (Hair et al., 2006)

iii- Normality
Aside from correlations and linearity test, normality test was conducted in order to study
the skewness of the data. With high value of skewness, it may lead the researcher to
investigate outliers. In this context, the normality test was conducted by looking at the
value of skewness (the symmetry of a distribution) and kurtosis (the clustering of scores
toward the centre of a distribution). According to Hair, Black, Babin, Anderson, &
Tatham (2006), the recommeded ranges for skewness value is from -1 to 1. As for the
kurtosis, Coakes & Steed (2003) suggested the statistics ranges of -2 to 2 are to be
considered. Besides these suggestions, Hair et al. (2006) explained that 2.58 indicates
rejecting the normality assumption at the 0.01 probability level and 1.96 signifies a
0.05 error level.

In this context, zero value indicates perfect normality in the data of distribution.
However, it is uncommon in social science for the result to be zero (Pallant, 2005). On
top of that, as mentioned by Pallant (2005), in social science particularly, the scores that
are skewed does not necessarily signify a problem with the scale, but rather mirror the

150
underlying nature of the construct being measured. Although such argument indirectly
implies skewed as a common problem in social science research, the current study views
this problem as a factor that may influence the results of the study. Thus, related analysis
was carried out in order to identify any extreme value of skewness.

4.6.4 Factor Analysis

Factor analysis was used to explain the dimensions of the concept that have been
operationally defined in which it helped to indicate appropriate items for each dimension
(Sekaran, 2003). Principally, factor analysis facilitated the researcher in summarising the
information contained in a large number of variables into a smaller number of factors
where eventually to achieve data parsimony (Zikmund, 2003). This present study
utilised both, the exploratory and confirmatory factor analysis.

There was a need to confirm on the suitability of items used as well as their dimensions
in this present study. This was crucial especially when the present research adopted
items from earlier studies as well as developing new items based on previous conceptual
papers. Although marketing resources and business performance constructs have been
firmly established in the literature, the construct on procurement process coordination
was perceived to be in its infancy stage. Thus in order to ascertain whether all
measurements adopted in the present study measure what they were supposed to
measure, EFA was performed based on their category of variable.

While EFA traditionally has been used to explore the possible underlying factor
structure of a set of observed variables without imposing a preconceived structure on the
outcome (Child, 1990), the CFA was used to verify the result of the EFA. The
combination of EFA and CFA approaches in the previous studies showed the need of
both in conducting a research (Agan, 2005; Lin, Chow, Madu, Kuei, & Yu, 2005; Luo,
Sivakumar, & Liu, 2005).

151
i- Exploratory Factor Analysis (EFA)
As noted above, the EFA which was performed by SPSS helped to trim down number of
items in the factors and at the same time removed the cross loaded items. However, prior
to this, it is essential to assess the suitability of data for conducting EFA. As depicted in
Table 4.7, there are some conditions with required specifications need to be fulfilled.
These include the normality and linearity test assessment, sample size, item to item
correlations, Bartletts test of Sphericity as well the KMO index. As always, there were
debates among various authors on these requirements. Thus, theres a need to draw the
line in order to have a clear idea on the cut off points for this study. Based on several
inputs, a summary of EFA requirements is presented in Table 4.7.

Table 4. 7: EFA Requirements on Data Set

Condition Requirement Reference

Normality of data set Should be normally distributed Hair, Black, Babin, Anderson, &
Tatham, 2006; Pallant, 2005
Linearity No multicollinearity; VIF < 10 Hair et al., 2006
Sample size Minimum of 5 cases to each study Pallant, 2005; Tabachnick &
items Fidell, 2001
Item to item Majority be 0.3 0.7 Hair et al., 2006; Pallant, 2005
correlations
Bartletts Test of Be significant ( < 0.05) Field, 2000; Pallant, 2005;
Sphericity
Kaiser-Meyer-Olkin Field, 2000; Hair et al., 2006;
(KMO) Index 0.5 Pallant, 2005

ii- Confirmatory Factor Analysis

CFA was carried out after the EFA by using AMOS. Basically the CFA assists in
evaluating unidimensionality and validity of the constructs. It consists of two stages of
analysis: items purification and assessment of the measurement models. In the
purification process, maximum likelihood estimation (MLE) method was applied. This
was supported by Min & Mentzer (2004) in which this method was seen to improve
parameter estimated to minimise a specific fit function. Deletion of items was based on
some indicators which include the modification index, standardised residuals, path

152
estimates (construct to indicator) as well as error term sign. However, before deletion of
items was made, previous review or theoretical assessment was taken into account. As
highlighted by Hair et al. (2006), this is crucial since it may influence the validity and
reliability of the study. Table 4.8 provides some indicators on model diagnostics in the
CFA.

Table 4. 8: Model Diagnostics in CFA

Model Diagnostic Requirement Reference

Modification Index 4 Hair, Black, Babin, Anderson, &

Standardised Residuals
Path Estimates (construct
to indicator)
Squared Multiple
Correlations or Reliability
Error Terms
Standardised Coefficients
Content and Face Validity
10 Tatham, 2006;
Fassinger, 1987
<2.5 - no problem Hair et al., 2006
>4.0 possible problem
0.5; ideally 0.7; and be Hair et al., 2006
significant
0.3 Hair et al., 2006
Positive terms Hair et al., 2006
1.0 Min & Mentzer, 2004
Thorough review of literature Min & Mentzer, 2004

Note: Adapted from Elisha Mkumbo (2008)

The assessment of the structural model was carried out in order to test the adequacy of
model fit. This evaluation of full structural model involves two mini steps, where it
starts with the measurement component of the model and finally the examination of the
full structural model (Abramson, Rahman, & Buckley, 2007; Byrne, 2001; Kline, 1998).
In the assessment of the measurement and structural model, several parameters were
used as a guideline for the present study. Generally, these measurement types of model
fitness could be grouped into three: Absolute, Incremental and Parsimony Fit Index.

Following Hair et al. (2006), absolute fit index was used to assess the overall goodness-
of-fit for the measurement model. However, this did not indicate whether the model was
preferred or inadequate. On the other hand, Hair et al. (2006) added that incremental fit

153
index could be used as indicator to ascertain the goodness-of-fit of the actual model to a
null model. Lastly, parsimony fit index could be regarded as the appliance of parameters
or coefficient of hypothesised model. It was observed that the lesser the estimated
parameters used in the model, the greater the parsimonious the model (Hair et al., 2006).

The above descriptions of the three types of model fit measure show that each
measurement conveys certain quality of the fitness. Therefore, there is a need for each
classification to be satisfied. In this study, effort was made to consider all the three types
of measures in assessing the model. However, only selected indices were taken into
account as the indicator of fitness in this present study. This decision is consistent with
what has been pointed out by (Hair et al. 2006; Wisner 2003). According to them, there
is no single test of significance that can certainly recognize a correct model given by the
sample data in SEM. For instance, the most basic indicator employed in this
measurement process is the chi-square ( 2) index. However due to its limitations in term
2
of sample size sensitivity, /df was proposed (Abramson, Rahman, & Buckley, 2007;
Byrne, 2001). The same situation goes to other indicators which have their pros and
cons. Thus the adoption of multiple indices of different type of measurements in
identifying the acceptability of fit for a given model was suggested (Hair et al.,2006;
Wisner, 2003). Table 4.9 summarised different types of measure to be used with its
recommended indices.

154
 Table 4. 9: Model Fit Indices

Types of Fit Index Recommended Reference

Measure Value
2
Absolute Fit Chi-Square Statistic ( ) Value with non- Hair, Black, Babin,
Index significant -value Anderson, & Tatham,
2006;
Normed Chi-Square ( 2) / df 1.0<( 2) / df<3.0 Hair et al., 2006; Min
& Mentzer, 2004
Goodness of Fit Index (GFI) 0.90 Hair et al., 2006
Root Mean Square Residual 0.08 Hair et al., 2006;
(RMR)
Root Mean Square of 0.08 Hair et al., 2006;
Approximation (RMSEA) 0.07 Min & Mentzer, 2004
Incremental Fit Normed Fit Index (NFI) 0.90 Hair et al., 2006
Index
Comparative Fit index (CFI) 0.90 Hair et al., 2006

Tucker Lewis Index (TLI) 0.90 Hair et al., 2006

Relative Non-Centrality Index 0.90 Hair et al., 2006

(RNI)
Parsimony Fit Parsimony Goodness of Fit 0.90 Hair et al., 2006
Index Index (PGFI)
Parsimony Normed Fit Index 0.90 Hair et al., 2006
(PNFI) 0.8 Chau & Hu (2001)
Adjusted Goodness of Fit Index 0.8 Chau & Hu (2001)
(AGFI)

4.6.5 Construct Validity Assessment

The critical aspect in the validity of measurement is basically stressed on the truth of
the measurement. In other words, it engages the assessment of the degree to which a
measure (items in a scale) appropriately measures the abstract or theoretical construct
(Chen & Paulraj, 2004; Elisha Mkumbo, 2008). Validity and reliability are partially
related and partially independent where both are used for evaluating the quality of a
measurement procedure (Jitpaiboon, 2005). Additionally, as mentioned by Churchill
(1979), reliability is a necessary but not a sufficient condition for validity. If a measure
is valid, it is reliable, but the converse is not necessary true (Churchill, 1979). Therefore,
there is an urge for the present study to conduct both reliability as well as validity test in
order to be certain with the truth of the measurement used in this study.

155
According to Garver & Mentzer (1999); Hair et al. (2006); O'Leary-Kelly & Vokurka
(1998), in order to realise construct validity, several components need to be satisfied.
The components consist of: content validity, unidimensionality, reliability, convergent
validity, discriminant validity as well as predictive validity.

Based on the approach used by O'Leary-Kelly & Vokurka (1998), Figure 4.3 illustrates
the construct validation process for the current study. The process initially embarks by
establishing content and substantive validity. Further, statistical process which involved
unidimentionality, reliability, convergent and discriminant validity were carried out. In
this case, convergent and discriminant validity were only conducted after construct has
been proven to be unidimentional and reliable.

i- Content validity
Among the above listed construct validity, content validity requires no statistical result
to support the validity of a construct. Generally, most of the explanation on content
validity has indirectly been highlighted in the earlier discussion of this chapter
(throughout the discussion). Nonetheless, effort was made in this sub-topic to re-
organise and to put it in a concise manner. In this study, content or face validity has been
assessed through several critical processes. These include a comprehensive review of the
literature. This was crucial particularly in making sure that measurement items were well
covered by the domain of the variable being measured (Nunnally, 1978). Key areas on
marketing resources, procurement process coordination and performance were carefully
browsed through in order to develop an appropriate concept for the study and eventually
to measure it. Through this comprehensive literature, items used in the data collection
instrument were generated.

To further enhance the content validity, recommendations of the academicians,

practitioners and a pilot case study with (n = 15) respondents were carried out. Since this
study involved multidisciplinary areas, academicians from a few different fields were
referred to. This includes those who were in the marketing discipline, supply chain

156
management as well as quantity surveying. On top of that, a few interviews with the
practitioners were conducted during the initial stage of the study. Input from these
interviews somehow provides deeper understanding on the industry chosen especially in
the adoption of concept and items for measurement from manufacturing to construction
industry.

Two independent academicians had been involved in the reviewing process of the
questionnaire. This was conducted before the pilot case study was carried out. Several
items that were perceived to be ambiguous and redundant were either modified or
eliminated, and whenever necessary, new items were added in this process. Items on the
procurement process coordination were mostly affected at this stage. This was expected
since items from this construct were mostly developed through digestion from the
conceptual paper. Apart from that, items for financial performance were suggested to be
removed since the particular dimension (financial performance) was perceived to have
no direct impact to procurement process coordination.

Through pilot case study, once again, few modifications were made on the items of the
measurement. However, changes were only made on the performance construct items.
Instead of having two classification of performance (operational and market-based), the
operational performance have been expanded to two categories based on firm
performance measurement. They are: operational source performance (building
materials) and delivery performance (final products buildings).

ii- Unidimentionality
In order to recognise whether the items were significantly associated with an underlying
construct as well as only associated with a specific latent variable, unidimensionality
assessment was carried out (Anderson & Gerbing, 1982; O'Leary-Kelly & Vokurka,
1998). Indicators such as EFA factor loading and regression weights were among those
statistics used in this validity process. Further, the process of refining and testing for
unidimensionality was conducted independently with each latent (first order) variables.

157
Once, each construct in the measurement model was deemed acceptable, the overall
measurement model then was assessed and each construct was examined in the presence
of other construct (Garver & Mentzer 1999). The mentioned steps were adopted in the
unidimentionality analysis for this present study.

iii- Convergent Validity

Convergent validity refers to the extent to which the measurement items were converged
into a theoretical construct (Jitpaiboon, 2005). It assesses the degree to which concepts
that should be associated theoretically are interrelated in reality (Trochim, 2006). As
explained by Anderson & Gerbing (1982), convergent validity refers to the degree to
which different methods used to measure the same construct produced similar result.
Further, Hair et al., (2006) mentioned that the items that are used as indicators for
specific construct should converge or share high proportion of variance in common.

In order to identify the presence of convergent validity, Sujan, A. Weitz, & Kumar
(1994), have suggested on conducting the assessment of the path coefficients. According
to them, the evidence of convergent validity exists when the analysis of the path
coefficients from latent constructs to their corresponding indicators show significant
value ( 0.001). Further, there are also requirements on direction and magnitude of the
estimated standardised regression weights between the items and their latent variable.
The directions are expected to be positive with appropriate level of regression weights.
Prior to this, in term of factor loadings, significant indicators will also help to provide
suggestion on the presence of convergent validity.

Besides the above statistical assessments, composite reliability (CR) and average
variance extracted (AVE) were also suggested to be considered in the evaluation of
convergent validity (Garver & Mentzer, 1999; Lin, 2007). However, the AMOS
programme does not provide value for CR and AVE. Alternatively, manual calculation
can be applied.

158
The two formulas that can be used to calculate CR and AVE (Bagozzi & Yi, 1988;
Gefen, Straub, & Boudreau, 2000; Garver & Metzer, 1999) are:

Composite Reliability (CR) = (iij)2 / (iij)2 + i var( ij)

note:
i = loadings of indicator i of a latent variable (standardised regression weight)
i = measurement error of indicator i
j = flow index across all reflective measurement model

Average Variance Extracted (AVE) = ii2 / ii2 + i var( i)

note:
i2 = squared loadings of indicator i of a latent variable (standardised regression weight)
var( i) = squared measurement error of indicator i

The rule of thumb for CR is: 0.7 or higher suggests good reliability and between 0.6
0.7 considers acceptable (Garver and Mentzer, 1999; Gefen et al., 2000). High construct
reliability value indicates that internal consistency exists, meaning that the measures are
all consistently representing the same latent construct (Hair et al., 2006; Garver and
Mentzer, 1999). Meanwhile Kline (1998) and Bagozzi & Yi (1988) suggests that AVE
below 0.5 shows that at least half of the observed variance may be due to random error
and the measures are considered unreliable. In other words, the value of AVE should
exceed 0.5 to suggest the adequacy of convergent validity.

Based on the above suggestions, the convergent validity for this present study was
carried out. Several selective indicators that were mentioned above were applied in the
analysis of convergent validity for this present study.

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iv- Discriminant Validity
In a simple definition, discriminant validity refers to the independent of the dimensions
(Bagozzi, 1980; Jitpaiboon, 2005). It assesses the degree to which a construct is truly
distinct from other constructs (Elisha Mkumbo, 2008).

In this study, discriminant validity was conducted for both the dimension as well as the
model. Two approaches were employed. In the first approach, the chi-square difference
test was performed for the proposed six different factor models in which comparisons
were made on each model. Results from these comparisons allowed answering the
question of discriminant analysis for the model. Anderson & Gerbing (1982) proposed
that in assessing discriminant validity for the measurement model, one can carry out the
2 2
difference test, where basically a lower value for the model will indicate
discriminant analysis.

The above approach was used to test the discriminant validity of the model. However,
there is a requirement to look into the discriminant validity test for the dimensions.
There are two methods adopted in this present study in order to test the later type. The
first method is where discriminant validity was examined by comparing the squared
correlations between dimensions and variance extracted for a dimension (Fornell &
Larcker, 1981). In this sense, if the value of square correlation for each dimension is less
than the average variance extracted (AVE), this signifies the measure has adequately
discriminant validity. For the second method the assessment of discriminant validity
involved two constructs at a time. It is carried out by comparing the model with
correlation constrained to one with an unconstrained model (Jitpaiboon, 2005). In
addition to this, Jitpaiboon (2005) did echo the work of Joreskog (1970) that a difference
2
between the value (df=1) of the two models that is significant at 0.05 level would
indicate support for the discriminant validity criterion (Ahire, Golhar, & Waller, 1996;
Sureshchandar, Rajendran, & Anantharaman, 2002).

160
The above discussion provides input on various methods that could be used in
conducting construct validity test. In order to maintain rigours, it is essential to be
certain that construct validity met the desired requirements (Garver & Mentzer, 1999;
O'Leary-Kelly & Vokurka, 1998). Since issues on reliability and validity were
considered critical to the present study, further analysis on construct validity
assessments were presented in the next chapter (Chapter Five: Finding and Discussion).

Content/Substantive Validity
Tool:
- Literature review
- Opinion of Experts in the field
- Opinion of Practitioners

Identification of theoretical based empirical

indications (items that are expected to
measure the construct) and the theoretical
linkage between the construct and its items

Construct Validity
Tool:
- Exploratory Factor Analysis (EFA)
- Confirmatory Factor Analysis (CFA)
using the measurement model

Empirical assessment of the extent to which

empirical indicators measure the construct
- Unidimensionality
- Reliability
- Convergent Validity
- Discriminant Validity

Predictive Validity
Tool:
- Analysis of causal relationships
among constructs
- Analysis of the structural model
from structural equation modelling

Determination of the extent to which the

construct relates to other constructs in a
predictable manner

Figure 4. 3: Construct Validity Process

Note: Adapted from O'Leary-Kelly & Vokurka (1998)

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4.6.6 Test of the Mediation Effects
In this sub-topic, once again, SEM (AMOS) was employed in order to run analysis on
the mediation effect of the study variables. According to Hair et al. (2006) and Baron &
Kenny (1986), a variable is said to be a mediator, if it accounts for the relation between
the predictor and the criterion variables. A model that involved an intervening variable
should be tested for the mediation effect and SEM can be engaged in conducting this test
(Kelloway, 1995). As highlighted in Chapter Three (3.6.6), there is a need to test the
mediating effect of procurement process coordination (PPP) on the relationship between
marketing resources and firm performance in this present study.

Kline (1998) in his discussion noted that the variable with dual role (as predictor and as
criterion) is referred in the SEM as an indirect effect or mediator effect. It involved
one or more intervening variables that transmit some of the causal effects of prior
variables onto subsequent variables (Kline, 1998). As mentioned earlier, Chapter Three
(3.6.6), in this present study, procurement process coordination (PPP) is viewed as the
intervening variable, which is also known as mediator. In this study, first order latent
variables of the PPC were tested. In other words each dimension in the PPC construct
were tested for their mediating effects. The dimensions of PPC construct are: supplier
selection, supply contracts, order management, joint operation planning and supplier
relationship development.

According to Preacher & Hayes (2008), generally, the approach to test the mediating
effect can be grouped into four:
1. Causal steps strategy (Barron & Kenny, 1986; Judd & Kenny, 1981; Kenny,
Kashy, & Bolger, 1998)
2. Product of coefficients, Sobel test (Sobel, 1982)
3. Distribution of the product approach, M-test (MacKinnon, Lockwood, &
Williams, 2005)
4. Bootstrapping (Preacher & Hayes, 2004, 2008)

162
Conventionally, Baron & Kenny (1986), Judd & Kenny (1981) and Kenny et al. (1998)
highlighted that a mediator is generally present when:
a. The independent variable (X) significantly affects the dependent variable (Y) in
the absence of the mediator (M)
b. The independent variable (X) significantly affects the mediator (M)
c. The mediator (M) has significant unique effects on the dependent variable (Y)
d. The effect of independent variable (X) on the dependent variable (Y) shrinks
upon the addition of the mediator (M) to the model

Figure 4.4 illustrates the link between the variables in the examination of mediating
effect. The direct link between X Y (c) is predicted to be equal to zero due to the
mediation effect (Baron & Kenny, 1986; Hair et al., 2006). Complete mediation is a
situation in which variable X no longer effects variable Y after variable M has controlled
and so the path X Y (c) is zero. Another situation, partial mediation is the case in
which the path X Y (c) is reduced in absolute size but is still different from zero
when the mediator is controlled (Kenny, 2009).

Even though works for mediation assessment by Baron and Kenny were widely cited,
with nearly 5300 citations (Science Citation Index as at September 2004), they were not
without their critics (Preacher & Hayes, 2008; Shrout & Bolger, 2002). Several scholars
have argued on the necessity of testing the overall association in Step 1 (a). In addition
to that, Sobel test which is normally used to complement this mediation test was found
to be statistically less powerful (to reject the null hypothesis that a * b = 0) as compared
to new method such as bootstrapping in estimating the confident intervals for indirect
effects (Fritz & Mac Kinnoon, 2007; Hayes, 2009; Mallinckrodt, Abraham, Wei, &
Russell, 2006; Preacher & Hayes, 2004; Preacher & Hayes, 2008; Shrout & Bolger,
2002). More sophisticated software such as Mplus and SAS macro were developed in
response to this new method. On the other hand, these critics stand in stark contrast to
claims that the basic mediation test approach by Kenny et al. (1998) provides the best

163
balance of Type I error and power (as compared to other competing methods) in which it
offers the minimal sufficient analysis for assessing mediation (Warbasse, 2009)

Independent Dependent

X c Y

Mediator
M

a b

c' Y
X

Three regression analysis that can be used to estimate paths a, b, c and c

1. Y = 1 + cX + e1
2. M = 2 + aX + e2
3. Y = 3 + cX + bM + e3

Note: X is hypothesised to exert an indirect effect on Y through M

Figure 4. 4: Illustration on Mediation Effect

Source: Preacher & Hayes, 2008

Apart from the above mentioned methods, there is also a method that used two
competing models in order to test this mediating effect. As stated by Anderson &
Gerbing (1988), Germain & Spears (1999) and Kelloway (1995), the fit model
(proposed structural model) can be compared to SEM results obtained from a model that
includes the direct relationship of the predictor and the criterion variable (such as the
link from X Y in Figure 5.8). In this sense, to conduct a mediation test, the full
mediation model (proposed structural model) is compared to a partially mediated model
where direct paths from the independent variables are added to the dependent variables.
If there is a significant improvement in the fit of the model (as indicated by 2
)
because of the addition of the direct relationship, the mediation is not supported and

164
partial mediation is accepted. If the two models display similar fits, then mediation is
supported (Anderson & Gerbing, 1982; Germain & Spears, 1999; Kelloway, 1995;
Prajogo & Sohal, 2006; Suarez-Mendoza & Zoghbi-Manrique-de-Lara, 2007).

While there were several methods to be used in conducting a mediating test, the present
study principally followed the approach used by Anderson & Gerbing (1982); Germain
& Spears, (1999); Kelloway, (1995); Prajogo & Sohal, (2006); as well as Sobel (1982)
in the assessment of mediation. Such decision was consistent with the objective of the
present study to test the mediation effect for the whole model as well as to conduct
individual test for each dimension of the PPC.

Earlier discussion somehow has shown that SEM (AMOS) method, to a great extent
expanded the capacity of a researcher to study a set of interrelated relationship
simultaneously. This is likely consistent with what has been pointed by Kelloway (1995)
that the adoption of SEM techniques has the potential to substantially progress the
understanding of organisational phenomena. But, great precaution should be taken into
account in handling such analysis in which the sophistication of an analysis should not
exceed the sophistication of the theories (Brannick, 1995; Kelloway 1995). Based on
that notion, the current study strives to balance these two contradicting perspectives by
adopting more comprehensive method and at the same time making sure that proper
procedure was carried out in running the analysis. For instance, as mentioned above,
instead of running the mediation test individually or separately, simultaneous or multi
mediation test was carried out. This method provides the opportunity to assess multiple
potential mediators in a model. In such away, this helps to reduce the weakness of
having individual mediation test in which separate models may suffer from the omitted
variables problem that may lead to biased parameter estimate (Judd & Kenny, 1981;
Preacher & Hayes, 2008).

Although the above paragraph underlined the advantages of simultaneous or multi

mediation test, there is a restriction from the software (AMOS) part. Certainly, it would

165
be inadequate to just looking at the significance of X M (a) and M Y (b) of each of
PPC dimension without taking into account the size of mediation which is normally
derived by calculating the value of indirect effect. This is enhanced by the claim made
by Preacher & Kelly (2011) that this method is not entirely satisfactory, as a and b alone
do not convey the full meaning of an indirect effect. Therefore, it is important to develop
a way to gauge the effect size of the product term ab itself.

Due to the limitation of AMOS to provide estimates and inferential test about specific
indirect effects for complex model (multiple mediations), product of the regression
coefficients a and b (ab) to estimate the indirect effect were used. In order to test this
indirect effect, Zhao et al. (2010) highlighted two dominant methods to be used which
are: Sobels test.and bootstrap. Though in their discussion (Zhao et al. (2010) perceived
Sobels test as less powerful statistical method, the present study which is lack of
alternative has adopted Sobels test in measuring the magnitude of ab. This would help
to identify the evidence of full mediation for any of the dimensions of the PPC. The
most commonly used of Sobels estimation is:

z-value = a*b/SQRT(b2*sa2 + a2*sb2)

note:
a = raw (unstandardised) regression coefficient for the association between IV and
mediator.
sa= standard error of a.
b = raw coefficient for the association between the mediator and the DV (when the IV is
also a predictor of the DV).
sb = standard error of b.

The above equation was derived from MacKinnon, Warsi, & Dwyer (1995), Preacher &
Leonardelli (2001) and Sobel (1982). Unstandardised regression coefficient and standard

166
error were taken into account in this calculation. Sobels calculator by Preacher &
Leonardelli (2001) was used in calculating the significance of specific indirect effects.

4.7 Chapter Summary

This chapter presents a detail description of the research methods used in the present
study. Several discussions were highlighted in this chapter which comprised of the
research process, research framework and hypotheses, sampling design, data collection
method and data analysis procedure. The research adopted quantitative approach in
accomplishing the objectives of the study. This study used SPSS 16.0 and AMOS 16.0
in analysing the data. SPSS was basically used in the exploratory factor analysis while
AMOS was utilised in the confirmatory process and structural modelling. Having to say
that reliability and validity aspects were both essential in a research particularly in this
survey, detailed analysis on the process involved in running the test were also presented
in this chapter. Since this study involved mediating factors (PPC variables), analysis of
multiple mediating effect was also included in the discussion.

The following chapter (Chapter Five) continues to debate on the analysis of the present
study which is deliberately consistent with the methodology discussed in this chapter.

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 CHAPTER FIVE
FINDINGS & DISCUSSION

5.1 Introduction
This chapter presents the data analysis in accordance to the analysis methods presented
in the previous chapter (Chapter Four). Further, findings and discussion of the result
were highlighted according to the hypotheses which were listed earlier (Chapter Three
and Four). The management of this chapter was divided into several core sections which
comprised of: the descriptive analysis of the data, test of the goodness of data, factor
analysis, assessment of the construct validity, analysis of the structural model as well as
testing of hypotheses. Towards the end of the discussion, a chapter summary was
presented.

5.2 Descriptive Analysis

5.2.1 Respondent Profiles
Table 5.1 illustrates the composition of the respondents in this study. It can be seen
clearly that the majority of the respondents who answered the questions were at the
managerial level. Although the questionnaire was addressed specifically to the director
of the firm, quite a number has delegated this task to other staff. The managers from
diverse divisions contributed the most. Nonetheless, this group of respondents were
considered qualified and technically fit the requirements of the current study.
Furthermore, the directors represent the second largest group of respondents in this study
with the percentage of more than 20%. In a nutshell, the figures indicate the
appropriateness of the position of the respondents who were involved in this study.

With regards to the duration of the current position of the respondents, it has been shown
that most of them have more than 3 years working experience. In addition, respondents
with 7 10 years working experience represented a significant number with nearly 30%

168
of the total respondents. In this context, the duration of working experience is likely to
influence the knowledge of the individual in the organisation and the area that they are
in-charge. A longer working experience, 7 - 10 years for instance, allows an individual
to gain greater exposures which ultimately broadens their knowledge. As such this
indicates a good sign of their capacity in providing more convincing feedback to the
present study.

In terms of the ownership status, it is widely known that private ownership dominates
this industry sector. While reports from the CIDB confirmed that majority of the players
in this industry are categorised as small and medium entrepreneur (Construction Industry
Master Plan Malaysia 2006-2015, 2007), the current study that focuses on G7 building
construction sector echoed almost the same phenomenon to such reports. The statistics
demonstrate that about 90% of the respondents are privately owned. Such ownership
includes private limited companies (which contributed the most) as well as other types
of private owned firms. This is consistent with the reflections of figures for the number
of full time employees in this sector. More than 80% of the respondents reported that the
firms have less than 100 full time employees.

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 Table 5. 1: Respondent Profiles

Position Frequency Percentage

Director 35 22.4
Manager (Project, Account, Admin, Site,
Contract, Operation, Purchasing etc.) 76 48.7
Quantity Surveyor 21 13.5
Engineer 10 6.4
Others 14 9.0
Total 156 100

Duration of Current Position Frequency Percentage

Less than 3 years 3 1.9
3 6 years 76 48.7
7 10 years 46 29.5
More than 10 years 31 19.9
Total 156 100

Types of Company Frequency Percentage

Sole-proprietor 3 1.9
Partnership 10 6.4
Private Limited Company 127 81.4
Public Limited Company 12 7.7
Others 4 2.6
Total 156 100

Length of Operation Frequency Percentage

Less than 3 years 3 1.9
3 6 years 17 10.9
7 10 years 43 27.6
More than 10 years 93 59.6
Total 156 100

Number of full time employees Frequency Percentage

Less than 100 134 85.9
100 - 250 15 9.6
More than 250 7 4.5
Total 156 100

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5.2.2 Descriptive Statistics of the Constructs Examined in the Study
The initial part of this sub-topic (5.2.1) draws attention to the breakdown of the sample.
It was concluded that the sample is a reasonable representative from the population
which could be used for further analysis in the present study. This second part of the
descriptive analysis helps to explain the mean score and standard deviation of items
(scales) employed. These items are presented in 3 classifications of constructs which are:
marketing resources, procurement process coordination and firm performance.

Table 5.2 depicts the mean score and standard deviation by items for the marketing
resources construct. From the table, it indicates that majority of the items scored above 5
points with only a few of the items showed below 4. Among items that indicate
vulnerable scores are EO06 and RR04. Item EO06 signifies that most of the building
construction contractors were sceptical in venturing into high risk projects though such
kind of projects were perceived to be associated with high returns. High risk projects can
be in the form of international projects which require a greater investment and involve a
high degree of uncertainties. As pointed out in the overview of the construction industry
topic (Chapter Two 2.6.1 and 2.6.2), there is lack of involvement from the Malaysian
contractors in the foreign market. This could due to the inefficient and ineffective
methods of practices which lead the Malaysian contractors underperform as compared to
other successful countries such as Japan and Germany (Construction Industry Master
Plan Malaysia 2006-2015, 2007). Being domestically derived demand oriented has
generally influenced the GDP contribution of this industry to the nation (CIDB, 2008).

As highlighted above, besides EO06, RR04 does show a similar standing. With an
average score of 3.93, it explains that this industry, in particular building construction
put less emphasis on conventional promotional medium such as trade press. As
mentioned by Petrovic-Lazarevis et al. (2008), trust and bonding are crucial in the
construction supply chain. A respect for suppliers developed through experience was
indicated as crucial in managing supply chain rather than the conventional promotional
approach (Petrovic-Lazarevis et al., 2008). This is also enhanced by the result from the

171
pilot case study which revealed that there is willingness and effort towards meaningful
business relationships with the suppliers in this industry which stress on trust,
commitment and long term relationship (Akmal Aini & Sofiah, 2010). Therefore, this
helps to justify the low average mean score for RR04.

In term of the score of standard deviation for this construct (marketing resources), it is
within the range of 0.828 1.692. The highest score comes from the item EO06 while
the lowest score is from the item MO01. In the case of item MO01, the standard
deviation is 0.828/6.10 or 13.58% of the mean where this value can be considered as
small. On the other hand, for item EO06, the standard deviation is 46.48% of the mean,
where this score is perceived as a large deviation. Such results indicate that data points
for item EO06 tend to be distant from the mean. The individual score for item EO06 is
likely between the ranges 1.948 - 5.332. In essence this provides support to the
vulnerability of this item, as stated in the earlier part of the discussion.

172
Table 5. 2: Mean Score and Standard Deviation by Items Marketing Resources

Standard
Code Items N Mean Deviation
Market Orientation
MO01 Satisfying client needs is the central purpose of our 156 6.10 0.828
business
MO02 We measure client satisfaction regularly 156 5.67 0.875
MO03 We rapidly respond to competitors actions that threaten us 156 5.42 1.153
MO04 Top management regularly discusses competitors 156 5.06 1.225
strategies with other staff in the organisation
MO05 We earn our suppliers loyalty 156 5.71 1.120
MO06 We are committed to a long-term relationship with our 156 6.21 0.907
suppliers
MO07 All of our departments are integrated in serving needs to 156 5.79 0.894
our clients
MO08 Information are shared among our departments 156 5.70 0.838
Entrepreneurial Orientation
EO01 Our company actively searches for new opportunities 156 6.08 0.957
(such as new market, new clients)
EO02 Our company adopts creative methods of running business 156 5.60 0.928
ahead of competitors
EO03 Our company undertakes an aggressive position to combat 156 5.51 0.980
market challenge
EO04 Our company copies the business practices or techniques 156 5.05 1.118
of successful competitors to enhance a competitive
position
EO05 Our company commits a large portion of its resources in 156 5.47 1.012
order to grow
EO06 Our company invests in high risk projects which promise 156 3.64 1.692
high returns
Innovative Capability
IC01 In our company, management actively seeks innovative 156 5.58 1.102
ideas
IC02 In our company, innovation is readily accepted 156 5.34 1.044
IC03 In our company, innovation is not perceived as risky 156 4.74 1.265
Reputational Resources
RR01 Our company carries brand name reputation 156 5.21 1.253
RR02 Our company has the credibility with clients 156 6.03 0.883
RR03 Our company is financially sound 156 5.84 1.156
RR04 Our company is frequently mentioned in the trade press 156 3.93 1.570
and other media

173
Table 5.3 illustrates the mean score and standard deviation for the items used in
measuring procurement process coordination construct. This construct is represented by
five dimensions. There are a few items that indicate weak scores from this table. In
particular, those items which are categorised under the supply contracts dimension. Item
SCB03, for instance indicates a very fragile position with an average score below 3.5. In
addition, item SCB02 which is under the same category (supply contracts) portrays an
unpromising score (4.06) too.

The score for items SCB02 & SCB03 help to explain the general practice of building
construction players, in particular the building contractors in dealing with supply
contracts issue. Although contracts have been recognised as a critical issue in the
construction procurement process (Ballard & Howell, 2005; Campbell & Harris, 2005;
(Colledge, 2005), such contracts are seen to be lacking in its relational aspect with price
dominating the supply contracts format. It is perceived to be discrete contracts rather
than relational contracts (Ballard & Howell, 2005). In this situation, items SCB02 and
SCB03 revealed that the industry players, mainly the building contractors and their
building materials suppliers pay greater attention on the price factor in their supply
contracts. Price is perceived as a crucial factor which could influence the profitability
level of both players, the contractor and the supplier. In essence, there is lack of
flexibility in the pricing decision. Any unexpected changes in the current market price
may create a burden to those parties that has little say in the decision making.

Taking into account the score for standard deviation, item SCB03 particularly, indicates
a less promising result. It represents the highest score for standard deviation and lowest
score for the mean. Individually, the range of score for item SCB03 is likely between
1.72 4.80. This signifies that data for item SCB03 is skewly distributed to the left.

174
Table 5. 3: Mean Score and Standard Deviation by Items Procurement Process
Coordination
Standard
Code Items N Mean Deviation
Supplier Selection and Development
SCA01 Selection of suppliers is also based on suppliers 156 5.64 1.249
willingness for information sharing with our company
SCA02 Selection of suppliers is also based on suppliers 156 5.61 1.184
willingness for joint forecasting in building materials price
information.
SCA03 Selection of suppliers is also based on flexible contract 156 6.05 1.027
(e.g. terms of payment) with both our company and
suppliers

SCA04 Selection of suppliers is also based on suppliers 156 5.85 1.112

willingness for joint planning in delivery schedules of
building materials
SCA05 Selection of suppliers is also based on suppliers ability to 156 6.00 0.944
commit to continuous improvement of product quality
(building materials)
Supply Contracts
SCB01 Supply contracts are planned jointly by our company and 156 5.21 1.263
suppliers with no power domination over one member to
the other
SCB02 Suppliers are allowed to change the price of building 156 4.06 1.453
materials due to unexpected changes in the current
market price
SCB03 A change in price will not hurt the profitability of both our 156 3.26 1.540
company and suppliers
SCB04 Supply contracts help both our company and suppliers to 156 5.48 1.302
meet our defined goals
SCB05 The type of information (e.g. inventory levels) to be 156 4.94 1.531
shared by both our company and suppliers is also
included in the supply contracts
Order Management
SCC01 Our company and suppliers have access to order tracking 156 4.91 1.336
of building materials

SCC02 Our company and suppliers have access to inventory 156 4.74 1.373
level data of building materials
SCC03 Our ordering information systems help to connect 156 5.08 1.295
different departments in our organisation
SCC04 Our ordering information systems help to connect our 156 5.00 1.339
organisation with building materials suppliers
SCC05 Our building materials suppliers will replenish us 156 5.24 1.224
continuously in order to maintain our company adequate
levels of inventory

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Table 5.3: Score and Standard Deviation by Items Procurement Process
Coordination continued..
Standard
Code Items N Mean Deviation
Joint Operation Planning
SCD01 Our company and suppliers are jointly involved in 156 4.53 1.443
forecasting price of building materials
SCD02 Our company and suppliers jointly decide on building 156 4.53 1.365
materials design
SCD03 Our company and suppliers are jointly involved in 156 4.69 1.400
inventory planning of building materials

SCD04 Our company and suppliers are jointly involved in 156 5.32 1.153
scheduling delivery activities of building materials
SCD05 Our company and suppliers are jointly involved in 156 4.85 1.372
forecasting the requirement of building materials
Supplier Relationship Development
SCE01 There is cooperation between our company and suppliers 156 5.72 1.196
SCE02 Our company and suppliers have a long-term commitment 156 5.79 1.136
to each other
SCE03 Our company and suppliers trust each other 156 5.69 1.156
SCE04 Our company and suppliers are willing to share risk that 156 4.17 1.655
involved from our relationships
SCE05 Feedback between suppliers and our company is a 156 5.29 1.175
common occurrence

As compared to the other two constructs (marketing resources and procurement process
coordination), the mean score for firm performance construct shows a better result with
most items attaining scores greater than 5 points. It is depicted in Table 5.5. This
provides an early sign that there is a positive connection between what has been adopted
by the building contractors and the firm performance.

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 Table 5. 4: Mean Score and Standard Deviation by Items Firm Performance

Standard
Code Items N Mean Deviation
Source Operational Performance
OPA01 Stock-out cost of building materials reduced 156 5.04 1.309
OPA02 Inventory holding cost of building materials reduced 156 4.79 1.309
OPA03 Timely replenishment of inventory (building materials) 156 5.09 1.144
OPA04 Defective rate of building materials reduced 156 5.06 1.123
Delivery Operational Performance
OPB01 On time completion of final products (buildings) 156 5.17 1.114
OPB02 Final products (buildings) conformance to specification 156 5.24 1.062
OPB03 Defective rate of final products (buildings) reduced 156 5.22 1.193
OPB04 Ability to respond to urgent completion of final products 156 5.28 1.088
(buildings)
Market Performance
MP01 Trust between our company and client 156 5.57 1.108
MP02 Client complaints reduced 156 5.42 1.119
MP03 Client satisfaction 156 5.66 1.063
MP04 Client retention 156 5.31 1.094

5.3 Test of the Goodness of Data

As highlighted in Chapter Four (4.6.3), a few test of the goodness of data are required
before further analysis can be carried out. This test helps to decide appropriate statistical
analysis to be used for examining hypotheses (parametric or non-parametric test). The
three tests are correlations, linearity and normality test.

5.3.1 Correlations and Linearity

With reference to Table 5.5, an inspection of correlation between the first order latent
variables was carried out. These first order latent variables consist of all the dimensions
of the three constructs used in this present study. The outcomes showed that all r
coefficients were positive with most of the values above 0.3. Further, all correlations

177
coefficients values showed significant result at < 0.01. Values with a score less than
0.3 (ranging from 0.223 to 0.296) mainly came from the correlation link of variables
reputational resources and supply contracts. This is considered fair since towards the end
of the study, these two variables failed in their screening process and were discarded
from further analysis. Furthermore, as highlighted in the descriptive analysis (5.2.2),
these two variables showed slightly lower score for its items as compared to other
variables.

On the whole, the result is consistent with what have been suggested by Tabachnick &
Fidell (2001) and Pallant (2005), that the r coefficients shouldnt be too high or too low
with the range of 0.3 to 0.7 as the cut off point. Based on the inspection of correlations
between first order latent variables, the result indicated that data was fairly loaded,
ranging from 0.223 0.810. In other words, the measurement items convey a negative
sign of multicollinearity existence. As such, the results signify that all items should be
retained and the data are suitable for factor analysis.

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 Table 5. 5: Correlations Between Dimensions

Dimensions MO EO IC RR SCA SCB SCC SCD SCE OPA OPB MP

Market Orientation
(MO) 1
Entrepreneurial
Orientation (EO) 0.472** 1
Innovative Capability
(IC) 0.617** 0.464** 1
Reputational Resources
(RR) 0.549** 0.477** 0.566** 1
Supplier Selection
(SCA) 0.282** 0.544** 0.223** 0.244** 1
Supply Contracts (SCB)
0.363** 0.387** 0.275** 0.291** 0.525** 1
Order Management
(SCC) 0.415** 0.417** 0.386** 0.366** 0.579** 0.721** 1
Joint Operation
Planning (SCD) 0.330** 0.432** 0.289** 0.325** 0.553** 0.648** 0.727** 1
Supplier Relationship
Development (SCE) 0.437** 0.562** 0.375** 0.380** 0.590** 0.525** 0.608** 0.621** 1
Source Performance
(OPA) 0.318** 0.365** 0.257** 0.296** 0.559** 0.481** 0.582** 0.652** 0.574** 1
Delivery Performance
(OPB) 0.350** 0.468** 0.313** 0.295** 0.535** 0.477** 0.536** 0.641** 0.646** 0.810** 1
Market Performance
(MP) 0.416** 0.537** 0.334** 0.362** 0.571** 0.454** 0.544** 0.615** 0.640** 0.677** 0.788** 1
N = 156
* < 0.05 (2-tailed)
** < 0.01 (2-tailed)

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As highlighted in Chapter Four (4.6.3), linearity test for this present study was
conducted by using average values calculated for each set of items in second order latent
variables. The three regressions were between: marketing resources and PPC, marketing
resources and firm performance and PPC and firm performance. The three linear
regression plots for this present study are presented in Figure 5.1. With the plotted points
close to the ideal line, the plots signify the items from predictor variables are linearly
related to those from the criterion variables.

The possibility of multicollinearity was also tested out by using the variance inflating
factors (VIF), tolerance and the condition index (Pallant, 2005). Table 5.6 shows the
score for each indicator with three second order variables tested. With VIF < 10, CI < 30
and tolerance values greater than 0.7, multicollinearity may not be an issue in this study.

Table 5. 6: Multicollinearity Test Results

Variance Condition
Variables Tested Inflating Factors Tolerance Index
(VIF) (CI)

MR and PPC 1.034 0.893 17.434

MR and PFMC 1.423 0.703 14.927

PPC and PFMC 1.433 0.746 22.390

Note: MR = Marketing Resources; PPC = Procurement Process Coordination; PFMC =

Performance

180
 MR and PFMC
MR and PPC

PPC and PFMC

Note: MR Marketing Resources; PPC Procurement Process Coordination; PFMC Firm

Performance
Figure 5. 1: Normal P-P Plots of Regression Standardised Residuals

181
5.3.2 Normality Test
Table 5.7 presents the result of the test of skewness and kurtosis for the first order latent
variables. The result indicates that the skewness and kurtosis values for all the variables
are within the suggested value (Hair et al., 2006; Coakes & Steed, 2003 and Pallant
2005).with skewness ranges from -1 to 1 and kurtosis with value ranges from -2 2.
Hence, indicating no series deviation from normality by the observed data.

Table 5. 7: Skewness and Kurtosis of the Variables

Variables Skewness Kurtosis

Market Orientation (MO) -0.862 0.610

Entrepreneurial Orientation (EO) -0.205 0.504
Innovative Capability (IC) -0.402 0.089
Reputational Resources (RR) 0.058 -0.227
Supplier Selection (SCA) -0.597 -0.273
Supply Contracts (SCB) -0.033 -0.558
Order Management (SCC) -0.496 -0.293
Joint Operation Planning (SCD) -0.514 -0.672
Supplier Relationship Development (SCE) -0.792 0.966
Source Performance (OPA) -0.825 1.104
Delivery Performance (OPB) -0.994 1.371
Market Performance (MP) -0.676 0.010

5.4 Factor Analysis

The discussion in Chapter Four (4.6.4) underlined that the present study occupied both
the EFA and CFA in its analysis. Such decision is seen to be consistent with the
combination of new and established items used in this study. The following discussion
will discuss on both types of factor analysis. It embarks with a discussion on the EFA
and eventually ends with a subtopic on the CFA.

182
5.4.1 Exploratory Factor Analysis (EFA)
As mentioned in Chapter Four (4.6.4) there are several conditions to be considered
before further analysis of EFA could be carried out. Table 5.8 depicts the results of
examination of variables for exploratory factor analysis suitability.

In terms of sample size, all the three constructs meet the minimum requirement of 5
cases to 1 item, which have been suggested by Bentler & Chou (1987) and Tabachnick
& Fidell (2001). On top of that, with the majority of correlations among items greater
than 0.3 (Hair et al., 2006; Pallant, 2005), this provides support to the suitability of data.

With reference to Field (2000) and Hair et al. (2006), results of the KMO for the three
variables indicated that all the three indices were higher than 0.5 and in terms of
Bartletts test of sphericity, once again the results were significant ( < 0.001). In other
words, those indicators used in the analysis suitability signify that data are apposite for
EFA.

Table 5. 8: Results of Examination of Constructs for Exploratory Factor Analysis

Suitability
No of Cases to Item to Item KMO Bartletts Remark
Construct Item Items Correlation* Index test
value
MR 21 7:1 0.3 r 0.7 0.820 0.001 suitable

PPC 25 6:1 0.3 r 0.7 0.885 0.001 suitable

PFMC 12 13 : 1 0.3 r 0.7 0.943 0.001 suitable

Note: MR = Marketing Resources; PPC = Procurement Process Coordination; PFMC = Firm

Performance
* Majority of the correlation coefficient values

183
In EFA, the extraction of factors was examined using principal component analysis
while Varimax rotation was adopted to clarify the factors. As mentioned by Nunnally
(1978), Varimax rotation is favoured due to its function in yielding clear factors in
which it minimises and maximise correlation across the factors. The scales loading with
eigenvalues greater than 1 was used. Table 5.9 provides the gist of the results from the
EFA.

In this study, factor loadings with absolute value below than 0.5 were discarded. In other
words, items with loading above 0.5 were intended to measure (Budd, 1987; Hair,
Black, Babin, Anderson, & Tatham, 2006; Nunnally, 1978). Further, those items with
significant cross-loading on two or more different constructs were also discarded from
further analysis. However, a few cases where items that were considered critical still
remained in the study though the above criterion wasnt meet. To further clarify on the
number of items to be retained, Hair et al. (2006) have suggested a minimum of three
items per factor. Hence, the present study mainly relied on this recommendation in
conducting the EFA as well as CFA.

As presented in Table 5.9, the number of items for each variable was reduced through
this extraction process. The variances extracted ranging from 59.47% to 83.11%, which
have higher than recommended cut off point of 50% (Hair et al., 2006). Scores of
Cronbachs alpha for all the variables were consistent with what have been suggested by
Hair et al. (2006) and Nunnally (1978), with the range of 0.679 0.936. All values were
above the suggested threshold. Detailed results for Cronbachs alpha are presented in
Appendix 5.2 while Table 5.10 provides a summary of items dropped in the EFA. In
addition, Table 5.11 5.13 provide statistics on factor loading for items retained in each
variable.

184
 Table 5. 9: Factor Retention Results from Exploratory Factor Analysis

Variable Initial Number Number Total Cronbachs Cronbachs

Number of Items of Items Variance Alpha Alpha
of Items Dropped Retained Extracted (Construct) (Dimensions)
(%)
MR 21 8 13 59.47 0.862 0.759 - 0.794

PPC 25 4 21 73.73 0.925 0.678 - 0.907

PFMC 12 nil 12 83.11 0.959 0.923 0.935

Note: MR = Marketing Resources; PPC = Procurement Process Coordination; PFMC = Firm

Performance

185
 Table 5. 10: Summary of Items Dropped in Exploratory Factor Analysis

st
1 Order Variable Original Final Number Description of Items Dropped in EFA
Number (EFA) of Items
of Items Number Dropped
of Item in EFA

We rapidly respond to competitors actions

Market Orientation 8 5 3 that threaten us (MO03)
(MO) Top management regularly discusses
competitors strategies with other staff in the
organisation (MO04)
Information are shared among our
departments (MO08)

Entrepreneurial 6 5 1 Our company invests in high risk projects

Orientation (EO) which promise high returns (EO06)
Innovative Capability 3 3 0
(IC)
Our company carries brand name reputation
Reputational 4 0 4 (RR01)
Resources (RR) Our company has the credibility with clients
(RR02)
Our company is financially sound (RR03)
Our company is frequently mentioned in the
trade press and other media (RR04)
Supplier Selection 5 5 0
(SCA)
Supply contracts are planned jointly by our
Supply Contract (SCB) 5 2 3 company and suppliers with no power
domination over one member to the other
(SCB01)
Supply contracts help both our company and
suppliers to meet our defined goals (SCB04)
The type of information (e.g. inventory levels)
to be shared by both our company and
suppliers is also included in the supply
contracts (SCB05)

Order Management 5 5 0
(SCC)
Our company and suppliers are jointly
Joint Operation 5 4 1 involved in scheduling delivery activities of
Planning (SCD) building materials (SCD04)
Supplier Relationship 5 5 0
Development (SCE)
Operational
Performance (Source 4 4 0
Performance) (OPA)
Operational
Performance (Delivery 4 4 0
Performance) (OPB)
Market-Based 4 4 0
Performance (MP)

186
Table 5. 11: Exploratory Factor Analysis for Independent Variables Items
Retained in Marketing Resources

Factors Factor Loading

Factor 1: Market Orientation
1.Satisfying client need (MO01) 0.630
2.Measure client satisfaction (MO02) 0.632
3.Suppliers loyalty (MO05) 0.841
4.Long term relationship with suppliers (MO06) 0.798
5.Departmental integration (MO07) 0.603

Factor 2: Entrepreneurial Orientation

1.Search new opportunities (EO01) 0.647
2.Creative methods (EO02) 0.655
3.Aggresive position (EO03) 0.655
4.Copies competitors techniques (EO04) 0.779
5.Commits large resources (EO05) 0.724

Factor 3: Innovative Capability

1.Innovative ideas (IC01) 0.611
2.Innovation acceptance (IC02) 0.761
3.Innovation is not risky (IC03) 0.751
Note: factor loading above 0.5. ( 0.5 were dropped)

Table 5. 12: Exploratory Factor Analysis for Dependent Variables Items

Retained in Firm Performance

Factors Factor Loading

Factor 1: Operational Performance Building materials
1.Stocks-out cost (OPA01) 0.860
2.Inventory holding cost (OPA02) 0.850
3.Timely replenishment of inventory (OPA03) 0.731
4.Defective rate (OPA4) 0.640

Factor 2: Operational Performance Final Products

1.On time completion (OPB01) 0.720
2.Conformance to specification (OPB02) 0.723
3.Defective rate (OPB03) 0.698
4.Respond to urgent completion (OPB04) 0.786

Factor 3: Market-Based Performance

1.Trust with client (MP01) 0.774
2.Client complaint (MP02) 0.835
3.Client satisfaction (MP03) 0.793
4.Client retention (MP04) 0.799
Note: factor loading above 0.5. ( 0.5 were dropped)

187
Table 5. 13: Exploratory Factor Analysis for Mediating Variables Items Retained
in Procurement Process Coordination

Factors Factor Loading

Factor 1: Supplier Selection
1.Willingness for information sharing (SCA01) 0.757
2.Willingness for joint forecasting (SCA02) 0.734
3.Flexible contract (SCA03) 0.808
4.Willingness for joint planning in delivery schedule (SCA04) 0.830
5.Ability for continuous improvement (SCA05) 0.758

Factor 2: Supply Contracts

1.Changes in the price (SCB02) 0.846
2.Changes in prices will not hurt profitability (SCB03) 0.821

Factor 3: Order Management

1.Access to order tracking (SCC01) 0.774
2.Access to inventory level (SCC02) 0.774
3.Ordering systems connect departments (SCC03) 0.831
4.Ordering systems connect with suppliers (SCC04) 0.746
5.Suppliers replenish continuously (SCC05) 0.617

Factor 4: Joint Operation Planning

1.Jointly in forecasting price (SCD01) 0.736
2.Jointly decide on material design (SCD02) 0.839
3.Jointly involve in scheduling delivery (SCD03) 0.701
4.Jointly in forecasting requirement of material (SCD05) 0.669

Factor 5: Supplier Relationship Development

1.Coopeartion (SCE01) 0.537
1.Long term commitment (SCE02) 0.578
2. Trust (SCE03) 0.551
3.Shared risk (SCE04) 0.729
4.Feedback (SCE05) 0.576
Note: factor loading above 0.5. ( 0.5 were dropped)

5.4.2 Confirmatory Factor Analysis (CFA)

As noted in the earlier discussion (4.6.4), CFA was used to validate the results of the
EFA. Based on EFA results, further testing was carried out in this CFA. Eleven variables
managed to survive in the EFA from a total of twelve. The variable reputational
resources were dropped since the results from factor loading were exceedingly poor.
This might be due to the nature of the construction industry that put less emphasis on the
brand or reputation in securing their position in the market. As compared to fast moving

188
consumer goods for instance, branding plays a crucial role in generating wealth to a
firm. On the other hand, construction industry is seen to pay greater attention to the price
factor. Though quality and brand recognition are among factors to be considered in any
transaction or relationship, apparently to the construction sector it doesnt work the
same. The price is seen to be a critical factor and carries more weight than other factors
such as branding.

Another uncertain variable, supply contracts was still retained due to its critical
contribution to the study although the number of items was only two. However, with its
weak score showed in the CFA, this variable (supply contracts) was eventually excluded
from further testing. This decision is consistent with the result from pilot case study that
was conducted prior to this survey. The findings showed that while most of the
contractors remarked contracts as crucial in the procurement process, such contracts
were perceived to be quite loose with either party ruling the games (Akmal Aini &
Sofiah, 2010). In other words, the coordination aspect in this supply contracts was seen
to be indiscernible. As highlighted in Chapter Three (3.3.4), contracts adopted in the
construction industry mostly come with power imbalance or domination of one member.
Thus coordination was achieved through the exercise of power rather than based on trust
and commitment. Such coordination approach is seen to be vulnerable and less effective
to the management of supply chain. By excluding supply contracts variable from the
study list, eventually ten different measurement models (first order latent variables) were
evaluated for construct validity and unidimensionality.

The main measurement item purification was conducted with multiple iterations of CFA
through maximum likelihood estimation (MLE). The reason of this purification of items
was to search for model specifications (Hair et al., 2006). Several indicators such as
modification index, squared multiple correlations and standard residuals covariance
were examined to verify whether modification was needed. As recommended by Hair et
al. (2006) and Min & Mentzer (2004), before final deletion of any measurement item,
qualitative review or theoretical assessment was made. Based on that standing, in this

189
purification process, one first order construct and a total of 13 items were cast off from
further analysis. Table 5.14 presents a summary of items dropped in the CFA.

Table 5. 14: Summary of Items Dropped in Confirmatory Factor Analysis

1st Order Variable Original Final Number Description of Items Dropped in CFA
Number (CFA) of Items
of Items Number Dropped
(after of Items in CFA
EFA)
Market Orientation 5 4 1 We measure client satisfaction regularly
(MO) (MO02)
Entrepreneurial Our company actively searches for new
Resources (EO) 5 3 2 opportunity (EO01)
Our company commits a large portion of its
resources in order to grow (EO05)
Innovative Capability 3 3 0
(IC)
Reputational 0 0 0
Resources (RR)
Supplier Selection Selection of suppliers is also based on
(SCA) 5 3 2 suppliers willingness for information sharing
with our company (SCA01)
Selection of suppliers is also based on
suppliers willingness for joint forecasting in
building materials price information
(SCA02)
Supply Contract (SCB) Suppliers are allowed to change the price of
2 0 2 building materials due to unexpected
changes in the current market price (SCB02)
A change in price will not hurt the profitability
of both our company and suppliers (SCB03)
Order Management Our company and suppliers have access to
(SCC) 5 3 2 order tracking of building materials (SCC01)
Our building materials suppliers will replenish
us continuously in order to maintain our
company adequate levels of inventory
(SCC05)
Joint Operation 4 3 1 Our company and suppliers are jointly
Planning (SCD) involved in inventory planning of building
materials (SCD03)
Supplier Relationship There is cooperation between our company
Development (SCE) 5 3 2 and suppliers (SCE01)
Our company and suppliers are willing to
share risk that involved from our
relationships (SCE04)
Operational Stock-out cost of building materials reduced
Performance (Source 4 3 1 (OP01)
Performance) (OPA)
Operational
Performance (Delivery 4 4 0
Performance) (OPB)
Market-Based 4 4 0
Performance (MP)

190
Measurement Models
Ten first order latent variables were measured in the measurement of component model
for the current study. Figure 5.2 Figure 5.4 illustrate the measurement models for study
variables. In addition to this, Table 5.15 describes the fit results for the measurement
models of the three constructs.

Looking at the test results of separate construct measurement model using AMOS 16.00,
which is presented in Table 5.15, the results yielded a fine model fit indices. In this
study several most commonly reported test statistics were selected. Those indicators that
were used as reference in the assessment of model fit are shown in Table 5.15.

191
 e1 MO01
.50
MO05
.85
e2
.78 MO
e3 MO06 .54

e4 MO07

.45

e5 EO01
.63
e6 EO02
.83
.77 .49
EO
e7 EO03 .31

e8 EO04

.68
e9 IC01
.84
e10 IC02
.82
.54 IC
e11 IC03

chi-square=70.106; d/f=41; p-value=0.001; cmin/df=1.710; CFI=0.948; TLI=0.930; Gfi=0.948; RMSEA=0.068

Figure 5. 2: Output Path Diagram for Measurement Model Marketing Resources

Note: MO=Market Orientation; EO=Entrepreneurial Orientation; IC=Innovative

192
 e2 SCA03
.79
.90 SCA
e3 SCA04.79

e4 SCA05

.49
e5 SCC02
.81
e6 SCC03
.83
.88 SCC .48
e7 SCC04

.76
e9 SCD01 .65
.81
e10 SCD02
.72
SCD
.79 .60

e12 SCD05

.67

e16 SCE02 .94

.93
e17 SCE03
.13 SCE
e18 SCE04.73

e19 SCE05

p-value=0.001; chi-square=116.510; d/f=59; cmin/df=1.975; GFI=0.906; CFI=0.954; TLI=0.939; RMSEA=0.079

Figure 5. 3: Output Path Diagram for Measurement Model Procurement Process

Coordination

Note: SCA=Supplier Selection; SCC=Order Management; SCD=Joint Operation

Planning; SCE=Supplier Relationship Development

193
 e1 OPA01
.90
e2 OPA02
.89
.85 OPA
e3 OPA03.87

e4 OPA04

.86
e5 OPB01
.86
e6 OPB02
.89
.90 OPB .73
e7 OPB03.88

e8 OPB04

.85
e9 MP01
.86
e10 MP02
.90
.91 MP
e11 MP03 .81

e12 MP04

chi-square=116.510; d/f=59; p-value=0.001; CMIN/df=1.975; GFI=0.906; CFI=0.954; TLI=0.939; RMSEA=0.079

Figure 5. 4: Output Path Diagram for Measurement Model Firm Performance

Note: OPA=Source Operational Performance; OPB=Delivery Operational

Performance; MP=Customer Performance

194
Table 5. 15: Fit Results for the Three Measurement Models after Items Purification

2
Measurement Model CMIN/df RMSEA CFI GFI TLI
0.08 0.9 0.9 0.09

Marketing Resources 70.106 1.710 0.068 0.948 0.948 0.930

Procurement Process
Coordination 116.510 1.975 0.079 0.954 0.906 0.939

Firm Performance 116.510 1.975 0.079 0.954 0.906 0.939

Note: 2=chi-square;CMIN/df=chi-square/degreeof freedom; RMSEA=Root Mean

Square Residual; CFI=Comparative Fit Index; GFI=Goodness of Fit Index;;
TLI=Tucker Lewis Index

An indicator that represents the discrepancy per degree of freedom measured in terms of
the population, RMSEA is one of the indicators that were used as reference in this
analysis. RMSEA values in this present models ranges from 0.068 to 0.079. All are well
below the recommended 0.08. The cut off points as suggested by Hair et al. (2006) are
0.08 and 0.07 respectively. Apart from RMSEA, other means that were used in this
measurement of model fit exhibit tolerable results which signify that the model under
consideration display good fits. For instance, the values of CFI which has been argued as
most prominent index since it accounts for sample size a common bias in index
calculations, show impressive fit with the range of 0.948 to 0.954 (Bentler, 1990; Byrne,
2001; Chen, 2007). The same thing goes to other indicators GFI and TLI, all are well
loaded, parallel with suggested model fit indices by Hair et al. (2006). Thus, this
explains that the models under consideration exhibit good fits.

The previous discussion in Chapter Four (4.6.5) has highlighted on the process of
refining and testing for unidimensionality. In accordance to that guideline, all the ten
extracted constructs were submitted to a measurement model analysis to check for the

195
model fit indices for each sub-construct. Result from the initial test indicates that the
model requires further model modification. Although few indicators reflect a good fit
sign, suggested modification indices and standardised residuals show evidence of misfit
between the default model and the hypothesised model. Figure 5.5 presents the result of
this model fit.

196
 e1 MO01 .52
.83
e2 MO05
.80
MO
e6 MO06
-.22

e60 MO07 .53

e7 EO02
.96
e8 EO03 .73 .46
.30
e9
EO04 .65
EO
.69
e9x EO01
e13 IC01 .68
.85
.45
e14 IC02 .82
.51
IC .46
e15 IC03 .47
.33
e20 SCA03 .79 .54
.89
e19 SCA04 SCA .74
.80 .55 .37
e17 SCA05

.49 .47 .58

e30 SCC02 .80
.48
.83
SCC03
e29 .88
SCC .48 .51
e27 SCC04
.46
e35 .75 .65
SCD01 .82
.73
.51
e32 SCD02
.77 SCD .60
e31 SCD05
.50
.66
e37 SCE02
.95 .62
.92
e38 SCE03
.13 SCE .77
e40 SCE04.73

e40x SCE05 r1
.76
e43 OPA02 .89
.85
OPA03
e42 .86 OPA
e41 OPA04.90
r2 .87
e41x OPA01

e48 OPB04 .88

.96
.90 OPB FP
e47 OPB03.89
.86
e46 OPB02
.89
r3
e45 OPB01

MP04 .81
e52
.91 MP
e51 MP03 .90
.86
e50 MP02

e49 MP01

chi-square=925.212; d/f=563; p-value=0.001; cmin/df=1.437; CFI=0.912; TLI=0.901; RMSEA=0.064

Figure 5. 5: Measurement Model for All Dimensions

Note: MO=Market Orientation; EO=Entrepreneurial Orientation; IC=Innovative

Capability; SCA=Supplier Selection; SCC=Order Management; SCD=Joint Operation
Planning; SCE=Supplier Relationship Development; FP=Firm Performance

197
As demonstrated in Figure 5.5, the initial model fit indices for the measurement model
2
comprise of /df = 1.437; CFI = 0.912; TLI = 0.901; RMSEA = 0.064. Thought these
indicators signify that the model fits is considered reasonable, effort had been made to
improve this model in order to achieve better fit. Thus, based on modification indices
results, a few items which has high error variance (item might share variance explained
with another item or redundant) were deleted (Hair et al., 2006). Nonetheless, the
essential principle still holds, in which dropping items were carried out judiciously and
where the main idea was to seek for greater parsimony and fitness. The summary of
items dropped is presented in Table 5.14.

After the purification process, the final model showed a satisfactory model fit. In this
pruning process, a total of 13 items were eliminated from further analysis in which the
decision was principally made based on modification indices and standardised residuals
result. Apparently a total of 32 items were left. These items were used to measure the 10
first order latent variables.

Overall, most basic indicators show well fit indices, which are consistent with what have
been suggested by various scholars (Abramson et al., 2007; Arbuckle, 2007; Hair et al.,
2
2006). For instance, the value of /df were between 1 and 3, with RMSEA value below
0.08, These showed good indicators for the absolute fit of the model. Therefore, this at
the same time indicates that convergent validity in this instance is established. Besides
that, Figure 5.6 highlighted the value of CFI, TLI which both are both above 0.9. Thus,
with such results it could be concluded that the unidimensionality exists for the
constructs of this study. The overall measurement model for this study is presented in
Figure 5.6 while Table 5.16 provides the list of final items used in measurement model.

198
 .26
e1 MO01
.71 .51
e2 MO05 .84
.62
.79 MO
e6 MO06.50
.25
e60 MO07.70 .41
e7 EO02 .83
.61
.78
e8 EO03 .30 EO .49
.09
e9 EO04
.71
.66 .67
e13 IC01 .85
.67
.82 IC .33
e14 IC02
.52
.27
.45
e15 IC03
.62
.33 .46 .48
.79
e20 SCA03 .79
.89
e19 SCA04 SCA .55 .28 .73
.80
.65
e17 SCA05
.64 .49 .47 .36
e30 SCC02 .80 .57
.69
e29 SCC03
.83
SCC .48 .51
.88
.78 .36
e27 SCC04
.67 .75 .65
e35 SCD01 .82 .51
.53
.73 SCD .60
e32 SCD02
.77
.59
.49
e31 SCD05
.90
.66
.61
e37 SCE02 .95
.85
.92
e38 SCE03 SCE .76
.73
.54
e40 SCE05 r1 .74
.71
.83
e43 OPA02 .84
.72
.85 OPA
e42 OPA03
.89
.80
e41 OPA04 r2 .91
.79 .95
e48 OPB04 .89
.82 .97
.90 OPB FP
e47 OPB03.89
.79
.86
e46 OPB02
.74 .87
r3
e45 OPB01
.65 .76
MP04 .81
e52
.83
.91 MP
e51 MP03 .90
.80
.86
e50 MP02
.74

e49 MP01

chi-square=666.963; d/f=464; p-value=0.001; cmin/df=1.437; CFI=0.945; TLI=0.938; RMSEA=0.053

Figure 5. 6: Final Measurement Model for All Dimensions

Note: MO=Market Orientation; EO=Entrepreneurial Orientation; IC=Innovative

Capability; SCA=Supplier Selection; SCC=Order Management; SCD=Joint Operation
Planning; SCE=Supplier Relationship Development; FP=Firm Performance

199
 Table 5. 16: Final Items Used in Measurement Model

Marketing Resources
Factor 1: Market Orientation
1.Satisfying client need (MO01)
2.Earn our suppliers loyalty (MO05)
3.Committed to long term relationship with suppliers (MO06)
4.Departmental integration (MO07)
Factor 2: Entrepreneurial Orientation
1.Creative methods (EO02)
2.Aggresive position (EO03)
3.Copy successful competitors strategy (EO04)
Factor 3: Innovative Capability
1.Innovative ideas (IC01)
2.Innovation acceptance (IC02)
3.Innovation is not risky (IC03)

Firm Performance
Factor 1: Operational Performance Building materials
1.Inventory holding cost (OPA02)
2.Timely replenishment of inventory (OPA03)
3.Defective rate building materials reduced (OPA04)
Factor 2: Operational Performance Final Products
1.On time completion (OPB01)
2.Conformance to specification (OPB02)
3.Defective rate (OPB03)
4.Respond to urgent completion (OPB04)
Factor 3: Market-Based Performance
1.Trust with client (MP01)
2.Client complaint (MP02)
3.Client satisfaction (MP03)
4.Client retention (MP04)

Procurement Process Coordination

Factor 1: Supplier Selection
1.Selection based on flexible contract (SCA03)
2.Selection based on willingness for joint planning in delivery schedule
(SCA04)
3.Selection based on ability for continuous improvement (SCA05)
Factor 3: Order Management
1.Access to inventory level (SCC02)
2.Ordering systems connect with suppliers (SCC04)
3.Ordering systems connect different departments (SCC03)
Factor 4: Joint Operation Planning
1.Jointly in forecasting price (SCD01)
2.Jointly decide on material design (SCD02)
3.Jointly in forecasting requirement of material (SCD05)
Factor 5: Supplier Relationship Development
1.Long term commitment (SCE02)
2. Trust (SCE03)
4.Feedback (SCE05)

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5.5 Assessment of the Construct Validity
As explained in Chapter Four (4.6.5), there are several essential properties for
measurement to be reliable and valid. It includes: content validity, unidimensionality and
reliability, convergent and discriminant validity. The following section will discuss
further on each of these validity assessment.

5.5.1 Content Validity

For the record, the discussion of construct validity assessment in this chapter was
centred on those validity tests that involved quantitative analysis. Thus the discussion on
content validity in this chapter is redirected to the previous chapter (Chapter Four). The
assessment of content validity was deliberately discussed in Chapter Four (4.6.5).

5.5.2 Unidimensionality and Reliability

As depicted in Table 5.17, factor loading of retained items from EFA projected a very
comfortable score where all of them are greater than 0.5. With these indicators for
unidimensionality assessment, this basically proved that the items were associated with
their underlying constructs. In a nutshell the existence of unidimensionality in the set of
variables in the present study was apparent.

Further diagnosis on the reliability test of Cronbachs Alpha revealed that items used for
measurement were technically free from error, hence conveys the existence of internal
consistency. As depicted in Table 5.17, alpha scores of greater than 0.6 is generally
considered to be acceptable (Hair et al., 2006 and Nunnally, 1978).

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 Table 5. 17: Result of EFA Factor Loading and Coefficient Alpha Index

Cronbachs
Marketing Resources Factor Loading Alpha Index
(after EFA)
Factor 1: Market Orientation 0.794
1.Satisfying client need (MO01) 0.630
2.Measure client satisfaction (MO02) 0.632
3.Suppliers loyalty (MO05) 0.841
4.Long term relationship with suppliers (MO06) 0.798
5.Departmental integration (MO07) 0.603

Factor 2: Entrepreneurial Orientation 0.759

1.Search new opportunities (EO01) 0.647
2.Creative methods (EO02) 0.655
3.Aggresive position (EO03) 0.655
4.Copies competitors techniques (EO04) 0.779
5.Commits large resources (EO05) 0.724

Factor 3: Innovative Capability 0.759

1.Innovative ideas (IC01) 0.611
2.Innovation acceptance (IC02) 0.761
3.Innovation is not risky (IC03) 0.751

Coefficient
Firm Performance Factor Loading Alpha Index
Factor 1: Operational Performance Building materials 0.928
1.Stocks-out cost (OPA01) 0.860
2.Inventory holding cost (OPA02) 0.850
3.Timely replenishment of inventory (OPA03) 0.731
4.Defective rate (OPA4) 0.640

Factor 2: Operational Performance Final Products 0.935

1.On time completion (OPB01) 0.720
2.Conformance to specification (OPB02) 0.723
3.Defective rate (OPB03) 0.698
4.Respond to urgent completion (OPB04) 0.786

Factor 3: Market-Based Performance 0.923

1.Trust with client (MP01) 0.774
2.Client complaint (MP02) 0.835
3.Client satisfaction (MP03) 0.793
4.Client retention (MP04) 0.799

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 Table 5.17: Result of EFA Factor Loading and Coefficient Alpha Index
continued..

Coefficient
Procurement Process Coordination Factor Loading Alpha Index
Factor 1: Supplier Selection 0.887
1.Willingness for information sharing (SCA01) 0.757
2.Willingness for joint forecasting (SCA02) 0.734
3.Flexible contract (SCA03) 0.808
4.Willingness for joint planning in delivery schedule (SCA04) 0.830
5.Ability for continuous improvement (SCA05) 0.758

Factor 2: Supply Contracts 0.678

1.Changes in the price (SCB02) 0.846
2.Changes in prices will not hurt profitability (SCB03) 0.821

Factor 3: Order Management 0.907

1.Access to order tracking (SCC01) 0.774
2.Access to inventory level (SCC02) 0.774
3.Ordering systems connect departments (SCC03) 0.831
4.Ordering systems connect with suppliers (SCC04) 0.746
5.Suppliers replenish continuously (SCC05) 0.617

Factor 4: Joint Operation Planning 0.882

1.Jointly in forecasting price (SCD01) 0.736
2.Jointly decide on material design (SCD02) 0.839
3.Jointly involve in scheduling delivery (SCD03) 0.701
4.Jointly in forecasting requirement of material (SCD05) 0.669

Factor 5: Supplier Relationship Development 0.768

1.Coopeartion (SCE01) 0.537
1.Long term commitment (SCE02) 0.578
2. Trust (SCE03) 0.551
3.Shared risk (SCE04) 0.729
4.Feedback (SCE05) 0.576

5.5.3 Convergent Validity

Table 5.18 exhibits the results of the factor loading (standardised regression weight)
between latent variables and their indicators as well as the scores of the composite
reliability and average variance extracted. All the 33 items loadings were statistically
significant where by and large the results indicated that the magnitude for most of the
variables and their indicators were above reasonable benchmark.

203
 Table 5. 18: Result of CFA for Measurement Model Factor Loading, Composite
Reliability and Average Variance Extracted

Factor Loading Composite Average

Latent Indicator (standardised Reliability Variance
regression Extracted
weight)
Market Orientation (MO) MO01 0.501***
MO05 0.843*** 0.765 0.462
MO06 0.790***
MO07 0.504***
Entrepreneurial EO02 0.835***
Orientation (EO) 0.747 0.509
EO03 0.784***
EO04 0.465***
Innovative Capability (IC) IC01 0.846***
IC02 0.820*** 0.780 0.552
IC03 0.517***
Supplier Selection (SCA) SCA03 0.786***
SCA04 0.890*** 0.867 0.685
SCA05 0.803***
Order Management (SCC) SCC02 0.799***
SCC03 0.831*** 0.876 0.703
SCC04 0.883***
Joint Decision Planning SCD01 0.821***
(SCD) 0.818 0.600
SCD02 0.730***
SCD05 0.770***
Supplier Relationship SCE02 0.950***
Development (SCE) 0.906 0.764
SCE03 0.922***
SCE05 0.734***
Source Performance OPA02 0.841***
(OPA) 0.895 0.741
OPA03 0.848***
OPA04 0.892***
Delivery Performance OPB01 0.858***
(OPB) 0.935 0.783
OPB02 0.891***
OPB03 0.903***
OPB04 0.887***
Customer Performance MP01 0.858***
(MP) 0.924 0.754
MO02 0.896***
MP03 0.909***
MP04 0.806***

Note: Significance level: *** 0.01 (significant at t-value exceed 1.96)

In term of the score for the composite reliability, the construct indicators indicate the
latent constructs, range from 0.747 to 0.935. In other words, the results of composite

204
reliability for all latent constructs exceeded recommended level of 0.7 (Gefen et al.,
2000). Further, analysis on average variance extracted which reflect the overall amount
of variance in the indicators accounted for by the latent construct (Lin, 2007), were in
the range 0.462 to 0.783. In this study the score for the average variance extracted for all
latent constructs (except for market orientation) exceeded recommended level of 0.5
(Bagozzi & Yi, 1988). Although the score of average variance extracted for market
orientation was below 0.5, the value (0.463) shows a very small difference from the
suggested level. In fact, by rounding this number to one decimal point, it would give the
answer of 0.5. Moreover, as noted by Hatcher (1994), this does not cause concern since
it is not uncommon to get the variance extracted values of below 0.5. As such this value
indicates a reliable score for this latent construct.

Apart from the above indicators, indices of the goodness fit of the measurement model
were also referred to in the analysis of the convergent validity. With reference to
multiple fit indices, the TLI and CFI, both generated value of above 0.90. The same goes
2
to RMSEA with the score below 0.08 (0.053) and /df value of 1.437. These indicators
are depicted in Figure 5.6. The combination of these results suggests that those
indicators used in the overall examination signify the evidence of convergent validity.

5.5.4 Discriminant Validity

Based on the guideline presented in Chapter Four (4.6.5), the present study measured
2
discriminant validity by conducting the difference tests. The proposed 10-factor
model (measurement model) was compared with 8-factor model, 6-factor model, 4-
factor model, 3-factor model and 1 factor model. This approach to assess the construct
discriminant validity was adapted from Ahire, Golhar, & Waller (1996); Chen, Aryee, &
Lee (2005); Jitpaiboon (2005); Sureshchandar, Rajendran, & Anantharaman (2002)
works. The 10-factor model consists of ten factors or constructs while the 8-factor model
for instance consists of 8 constructs in which constructs market orientation,
entrepreneurial orientation and innovative capability were combined to make up as one

205
construct that is marketing resources. Table 5.19 depicts the summary of the results for
this discriminant validity test. From this result of the fit indices (Table 5.19), it reveals
support for the proposed 10-factor model for the distinctiveness of the models. The chi-
square significance test indicates that all the six comparative models tested were
significant at 0.01.

Table 5. 19: Test of Discriminant Validity of the Models

2
Models df GFI AGFI CFI TLI RMSEA

10-Factor Model 630.949** 450 0.816 0.771 0.951 0.943 0.051

8-Factor Model 816.964** 467 0.755 0.705 0.906 0.893 0.070
6-Factor Model 1112.692** 480 0.657 0.599 0.829 0.812 0.092
4-Factor Model 1221.105** 489 0.649 0.598 0.803 0.787 0.098
3-Factor Model 1370.620** 492 0.614 0.560 0.763 0.746 0.107
1-Factor Model 1752.594** 495 0.527 0.464 0.661 0.638 0.128
Note: Significance level: *** 0.01

The above method of analysis was used to test the discriminant validity of the models.
Nonetheless, as pointed out in the research methodology chapter (4.6.5), there is a need
to analyse the discriminant validity for the dimensions. Two methods adopted in this
study. Based on Table 5.20, the first method of the analysis was carried out by
comparing the squared correlations between dimensions and variance extracted for the
dimension. The analysis result in Table 5.20 shows that the square correlations for each
dimension is less than the average variance extracted except for two cases (Source
Operational Performance - Delivery Operational Performance and Customer
Performance and Delivery Operational Performance). This provides support that most of
the measurements used in this study have adequate disriminant validity.

206
 Table 5. 20: Correlation Matrix Discriminant Validity of Dimensions

MO EO IC SCA SCC SCD SCE OPA OPB MP

Market Orientation (MO) 0.462

Entrepreneurial Orientation 0.405 0.509

(EO)

Innovative Capability (IC) 0.486 0.453 0.552

Supplier Selection (SCA) 0.675 0.333 0.334 0.685

Order Management (SCC) 0.454 0.466 0.546 0.493 0.703

Joint Operation Planning (SCD) 0.486 0.283 0.465 0.476 0.600 0.600
Supplier Relationship
Development (SCE) 0.728 0.357 0.508 0.656 0.603 0.661 0.764

Source Performance (OPA) 0.460 0.293 0.435 0.465 0.600 0.739 0.629 0.741

Delivery Performance (OPB) 0.529 0.305 0.464 0.451 0.557 0.716 0.703 0.807 0.783

Market Performance (MP) 0.621 0.439 0.540 0.506 0.572 0.685 0.748 0.750 0.842 0.754

Note: Diagonals represent the average variance extracted (AVE), while the other matrix entries represent the square correlation.

207
Table 5.21 helps to illustrate the result for the second method. In this second method, the
assessment of discriminant validity involved two dimensions at a time. It was carried out
by comparing the model with correlation constrained to one with an unconstrained
model. The result presented in Table 5.21 provides evident for the distinctiveness of the
2
dimensions. The difference between the value (df=1) of the two models for all the
pairs were significant at 0.001 and 0.05 indicating support for the discriminant
validity criterion (Ahire, Golhar, & Waller, 1996; Joreskog, 1970; Sureshchandar,
Rajendran, & Anantharaman, 2002). In addition, this revealed that the discriminate
validity is apparent for all the constructs used in this study. This further implies that
constructs were supposed to be truly distinct from other constructs of the study.

208
 Table 5. 21: Assessment of Discriminant Validity (Chi-square Difference Test
between Two Dimensions)

(Constrained) (Unconstrained)
Pair of Dimensions 2 (d/f) 2 (d/f) 2
at 1 d/f

1 MO EO 59.873 (14) 7.822 (13) 52.051**

2 MO IC 74.483 (15) 30.695 (14) 43.788**
3 MO SCA 55.442 (14) 23.488 (13) 31.954**
4 MO SCC 35.739 (14) 8.879 (13) 26.86**
5 MO SCD 42.388 (14) 14.925 (13) 27.463**
6 MO SCE 41.265 (14) 18.507 (13) 22.758**
7 MO FP 157.206 (87) 127.171 (86) 30.035**
8 EO IC 43.937 (9) 16.728 (8) 27.209**
9 EO SCA 296.666 (30) 242.582 (29) 54.084**
10 EO SCC 27.595 (9) 7.527 (8) 20.068**
11 EO SCD 42.545 (9) 9.893 (8) 32.652**
12 EO SCE 52.381 (9) 12.521 (8) 39.86**
13 EO FP 149.873 (74) 110.12 (73) 39.744**
14 IC SCA 75.348 (9) 21.511 (8) 53.837**
15 IC SCC 27.814 (9) 7.617 (8) 20.197**
16 IC SCD 35.201 (9) 10.221 (8) 24.980**
17 IC SCE 55.015 (9) 23.442 (8) 31.573**
18 IC FP 149.710 (74) 119.948 (73) 29.762**
19 SCA SCC 39.845 (9) 16.212 (8) 23.633**
20 SCA SCD 49.654 (9) 25.269 (8) 24.385**
21 SCA SCE 39.781 (9) 16.039 (8) 23.742**
22 SCA FP 132.029 (74) 99.506 (73) 32.523**
23 SCC SCD 19.860 (9) 15.150 (8) 4.710*
24 SCC SCE 28.682 (9) 19.148 (8) 9.534**
25 SCC FP 91.082 (74) 82.828 (73) 8.254**
26 SCD SCE 25.061 (9) 17.005 (8) 8.056**
27 SCD FP 98.412 (74) 94.356 (73) 4.056*
28 SCE FP 120.685 (74) 110.570 (73) 10.115**
Note: MO=Market Orientation; EO=Entrepreneurial Orientation; IC=Innovative
Capability; SCA=Supplier Selection; SCC=Order Management; SCD=Joint Operation
Planning; SCE=Supplier Relationship Development; FP=Firm Performance
Significance level: ** 0.01 * 0.05

5.6 Analysis of the Structural Model and Testing of Hypotheses

In the earlier chapter, Chapter Four (4.6.4), the discussion have touched on the
requirements from the measurement model that need to be fulfilled and from there the
measurement model has been tested to identify how well the indicator variables of
constructs were related to one another. In this particular section, assessment was carried

209
out in examining the structural model. Basically it involves analysing the relationship
between latent variables or a set of exogenous and endogenous variables. Figure 5.7
depicts the relationship between independents, mediating and dependent variables. The
structural model was formed to test a set of hypotheses of this study.

The first move of this particular sub-topic was to test on the fitness of the proposed
structural model. Once the model fit was confirmed, the next move was on the analysis
of competing model (full and partial mediation) and apparently leading to hypotheses
testing.

210
 e19x
1 e19 e20
1 1
SCA03
e6 e2 e2x e1 SCA04 SCA05
1
1 1 1 1

MO07 MO06 MO05 MO01

SCA r6
1
1 OPA02 e42
1 1 1
1
MO r1
OPA03 e43
OPA
1
e29x OPA04 e43x
e27 1 e29
H2a 1 1 H3a
SCC03
H1a SCC02 SCC04
1
1
OPB01 e45
1 r20
SCC r7 1 1
10 IC01
1 H2c 1 H3c 1 OPB02 e46
r3 1
1 1
12 IC03 e31 e32 e35 OPB03 e47
1 1 1 1
IC FP OPB
1 1
11 IC02 1 H2d SCD01 SCD02 SCD05 H3d OPB04 e48

1
H1b r10
SCD H3e
H2e 1 1
MP01 e49
r4 1 1
r8 MP02 e50
EO r5 1
1 1 1
MP03 e51

EO03 EO04 SCE MP 1

EO02
1 MP04 e52
1 1 1

e7 e9 e9x
SCE02 SCE03 SCE05
1 1 1

e37 e38 e40

chi-square = 815.545; d/f = 481; p-value = 0.001; cmin/df = 1.696; CFI = 0.910; TLI = 0.901; RMSEA = 0.067

Figure 5. 7: Proposed Structural Model of the Study

211
5.6.1 Specifying the Structural Model
Diagram in Figure 5.7 illustrates the relationship proposed between the dimensions in
the study. Before hypotheses testing could be carried out, there is a need to specify the
structural model and eventually to assess the validity of the relationship. In this context,
structural model was specified by the results obtained from the measurement models.
From here, the relationship between the independent, mediating and dependents
variables were built based on the proposed theoretical conceptual model mentioned
earlier in Chapter Three (3.6). This structural model was formed in order to test the
hypotheses of the study. The hypotheses were between the independent variables
(market orientation, entrepreneurial orientation and innovative capability), mediating
variables (supplier selection, order management, joint operation planning and supplier
relationship development) as well as the dependent variables (source performance,
delivery performance and market performance). Apart from that, the hypotheses have
also taken into account the test of market orientation and entrepreneurial orientation as
predictors to innovative capability. The structural model was then assessed for the
validity of the relationship.

2
As demonstrated in Figure 5.7, the score for /df is 1.696, where basically this index
signifies an acceptable fit between the hypothesised model and the sample data. In other
words, these figures are consistent with the proposed threshold of 3.0 or within the range
from 3 to 1 by Hair et al. (2006).

As discussed in the earlier sub-topic (4.6.4), the overall fit of the model can be assessed
through several indicators. The present study adopted several most commonly reported
test statistics in assessing the fitness of the structural model. The results of the model fit
2
indices revealed that the model have a reasonable model fit ( = 815.545; df = 481;
2
/df = 1.696; = 0.000; TLI = 0.901; CFI = 0.910; RMSEA = 0.067).Thus, the results
from this structural model can be used for further analysis. Since this study involved the
mediation effect (procurement process coordination) as mediating variable, the

212
following step would be to test the effect of mediation before proceeding to the other
step as suggested by Germain & Spears (1999), Kelloway (1995) and Prajogo & Sohal
(2006).

5.6.2 Analysing Competing Models Full and Partial Mediation

This analysis on competing model of full and partial mediation was conducted based on
the approach explained in Chapter Four (4.6.6). In this study, two models representing
full mediation model and partial mediation model were compared. For the record,
partial mediation model is a model where direct paths from the independent variable
(innovative capability and firm performance) are added to the dependent variable. Figure
5.8 illustrates the full mediation model while Figure 5.9 depicts the partial mediation
model. In this present study, the test of mediation was conducted on procurement
process coordination (represented by four variables supplier selection, order
management, joint operation planning and supplier relationship development) in the
relationship between independent variable (innovative capability) and the dependent
variable (firm performance).

213
 e19x
.63 e19 e20
.79 .64
SCA03
e6 e2 e2x e1 SCA04 SCA05
.79
.89
.28 .60 .73 .25 .44 .80

MO07 MO06 MO05 MO01 .70

.77 SCA r6
.53 .50
.85 OPA02 e42
.84 .72
.83
MO r1
.85 OPA03 e43
OPA .89 .79

e29x OPA04 e43x

e27 e29
.66 .62
.70
.78 -.02
SCC03
.61 SCC02 SCC04
.84 .89 .91 .73
.79 .56
.47 OPB01 e45
r20 .79
SCC r7 .86
10 IC01
.10 .69 .75 .04 OPB02 e46
r3 .68 .89 .81
.41 12 IC03 .32 .66
e31 e32 e35
.94
.90 OPB03 e47
.97
.38
.62 IC .67 .58 .55 FP OPB .89 .78
11 IC02
.73 SCD01 SCD02 SCD05 .47 OPB04 e48
.76
.82 .74
.53
.34 r10
SCD .44 .87
.81 .73
MP01 e49
.80
r4 .86
r8 MP02 e50
EO r5 .89 .82
.85 .31 .66
.76
.77 .91
.72 .59 .09 MP03 e51
.65
EO03 EO04 SCE MP .80
EO02
.74 MP04 e52
.95 .92
.90 .85 .55
e7 e9 e9x
SCE02 SCE03 SCE05

e37 e38 e40

chi-square = 815.545; d/f = 481; p-value = 0.001; cmin/df = 1.696; CFI = 0.910; TLI = 0.901; RMSEA = 0.067

Figure 5. 8: Full Mediation Model

214
 e19x
.63 e19 e20
.78 .64
SCA03
e6 e2 e2x e1 SCA04 SCA05
.79
.89
.28 .60 .73 .25 .44 .80

MO07 MO06 MO05 MO01 .70

.77 SCA r6
.53 .50
.85 OPA02 e42
.84 .72
.83
MO r1
.85 OPA03 e43
OPA .89 .79

e29x OPA04 e43x

e27 e29
.66 .62
.70
.78 -.05
SCC03
.61 SCC02 SCC04
.84 .89 .91 .73
.79 .56
.47 OPB01 e45
r20 .79
SCC r7 .86
10 IC01
.10 .69 .75 .00 OPB02 e46
r3 .69 .89 .81
.41 12 IC03 .32 .66
e31 .14 e32 e35
.94
.90 OPB03 e47
.97
.38
.61 IC .68 .57 .56 FP OPB .89 .79
11 IC02
.73 SCD01 SCD02 SCD05 .44 OPB04 e48
.76
.82 .75
.53
.34 r10
SCD .39 .87
.81 .73
MP01 e49
.80
r4 .86
r8 MP02 e50
EO r5 .90 .83
.85 .31 .66
.76
.77 .91
.72 .60 .09 MP03 e51
.65
EO03 EO04 SCE MP .81
EO02
.74 MP04 e52
.95 .92
.90 .85 .55
e7 e9 e9x
SCE02 SCE03 SCE05

e37 e38 e40

chi-square = 815.034; d/f = 480; p-value = 0.001; cmin/df = 1.698; CFI = 0.910; TLI = 0.901; RMSEA = 0.067

Figure 5. 9: Partial Mediation Model (Competing Model)

215
Figure 5.8 assumes that procurement process coordination fully mediates the effect of
marketing resources (innovative capability) on firm performance (source, delivery and
customer performance). Conversely, the second model, Figure 5.9, suggests only partial
mediation of procurement process coordination. In this case, the second model adds one
path that directly link innovative capability to firm performance to estimate the
proportion of direct effect of marketing resources on firm performance other than what
is generated via procurement process coordination variables.

In general, both model exhibits a reasonable model fit with several critical indicators
meeting the criterion. However, a comparison between the two models was required in
order to select a better model and eventually to examine the mediation effect. Table 5.22
explains the comparison of model fit value between the full and partial mediation model.

Table 5. 22: The Overall Fit of Full Mediation and Partial Mediation Model

2 2
Model df / df CFI TLI RMSEA

Full Mediation 815.545 481 1.696 0.910 0.901 0.067

Partial
Mediation 815.034 480 1.698 0.910 0.901 0.067

Difference 0.511 1

Based on the same source (Table 5.22), model fit of the full and partial mediation model
indicate that the partial mediation model exhibits no significant changes in all model fit
indices. To determine the significant changes between these two models, a comparison
2
was done by looking at discrepancy ( ) of the chi-square ( 2) values. In this present
study, the values were (815.545 and 815.034) respectively. With regards to the
discrepancy of ( df) degree of freedom (df), the values were 481 and 480. Thus, the

216
 2
change in of full mediation model as compared to partial mediation model was 0.511
for 1 degree of freedom. Since this value was smaller than 3.84 ( < 0.05) of chi-square
table (Appendix 5.4), it indicated that there was no significant different between these
two models. In the same vein, the additional paths created within partial mediation
model have not significantly changed the overall fit of the proposed model. Given the
2
rule of thumb that insignificant difference in indicates support for mediation effect,
the findings suggest that procurement process coordination fully mediates the
relationship between marketing resources (innovative capability) and firm performance.
In this context, the full mediation model Figure 5.8 was accepted due to the fact that the
relationship between marketing resources (through innovative capability) and firm
performance (source, delivery and customer performance) were fully mediated by PPC.

With full mediation model (Figure 5.8) accepted in this study, the subsequent step was
to analyse the significance of the mediating effect on each of the PPC variable of the
proposed model by using Sobel test. This helped to explicate the magnitude of each
dimension of the PPC. Furthermore, by calculating the size of mediation for each
dimension of the PP, this allowed to answer one of the research questions and apparently
helped to test the last hypothesis (H4). However, before further test on this was carried
out, several other hypotheses, path analysis, on the relationship between variables were
tested. For the record, since full mediation model (Figure 5.8) was accepted in this
study, this model was used as proposed model for further analysis in hypotheses testing.

5.6.3 Hypotheses Testing (Path Analysis)

As mentioned above, once the model has been specified (Figure 5.8), the next step was
to conduct the analysis of the hypotheses testing. This helped to examine the possible
relationships among dimensions.

The development of the study proposition and the establishment of the research
hypotheses in this study was explained in the previous chapters, Chapter Three (3.6) and

217
Chapter Four (4.3). However, there was a slight change in the list of the hypotheses in
this sub-topic as compared to the above mentioned two chapters. This was due to the
reduction of dimensions in the marketing resources and procurement process
coordination (PPC) constructs. As prescribed in the earlier sub-topic (5.4), a total of two
dimensions (reputational resources and supply contracts) were eliminated from this
study through the factor analysis process. Below is the final list of the hypotheses as
proposed in this present study which was based on the 8-factor model.

Table 5.23 is used to list the result of the hypotheses for the present study. This result is
assisted by the parameter estimates for standardised solutions of the proposed structural
model as illustrated in Figure 5.10.

H1a: Market Orientation positively influences the extent of Innovative Capability

H1b: Entrepreneurial Orientation positively influences the extent of Innovative
Capability

H2a: Innovative Capability positively influences the extent of Supplier Selection

H2c: Innovative Capability positively influences the extent of Order Management
H2d: Innovative Capability positively influences the extent of Joint Operation Planning
H2e: Innovative Capability positively influences the extent of Supplier Relationship
Development

H3a: Supplier Selection positively influences the extent of Firm Performance

H3c: Order Management positively influences the extent of Firm Performance
H3d: Joint Operation Planning positively influences the extent of Firm Performance
H3e: Supplier Relationship Development positively influences the extent of Firm
Performance

H4: All the dimensions of Procurement Process Coordination (Supplier Selection,

Supply Contracts, Order Management, Joint Operation Planning and Supplier

218
Relationship Development) mediate the relationship between Marketing Resources
(Innovative Capability) and Firm Performance at different level of effect size

Table 5. 23: Structural Model Results Results of Hypotheses Testing

Causal Standardised Std Critical

Hypothesis Relationship Regression Error Ratio Result
Coefficient (S.E) (C.R)
H1a MO IC 0.613 0.202 4.845 *** Supported
H1b EO IC 0.342 0.087 3.766 *** Supported
H2a IC SCA 0.661 0.112 6.365 *** Supported
H2c IC SCC 0.749 0.157 7.497 *** Supported
H2d IC SCD 0.731 0.165 6.940 *** Supported
H2e IC SCE 0.809 0.128 7.267 *** Supported
H3a SCA FP -0.023 0.084 -0.314 0.753 Not
Supported
H3c SCC FP 0.038 0.063 0.469 0.639 Not
Supported
H3d SCD FP 0.472 0.073 5.038 *** Supported
H3e SCE FP 0.441 0.097 4.784 *** Supported
Note:
MO=Market Orientation; EO=Entrepreneurial Orientation; IC=Innovative Capability;
SCA=Supplier Selection; SCC=Order Management; SCD=Joint Operation Planning;
SCE=Supplier Relationship Development; FP=Firm Performance
Significance level: *** 0.01 (significant at t-value exceed 1.96)
Fit statistics:-
CMIN/DF = 1.696; CFI = 0.910; TLI = 0.901; RMSEA = 0.067

219
 SCA
0.661

MO
SCC
0.613 0.749 -0.023

IC 0.038

0.342 SCD FP
0.731 0.472
EO

0.441
0.809

SCE

Note:
Significant path
Non significant path
0.01
Figure 5. 10: Result of Structural Model Path Analysis

Market Orientation and Entrepreneurial Orientation positively influence Innovative

Capability
H1a: Market Orientation positively influences the extent of Innovative Capability
H1b: Entrepreneurial Orientation positively influences the extent of Innovative
Capability

The significant and positive relationship between market orientation and innovative
capability at = 0.613, provides support that market orientation can serve as a solid
platform for competitive advantage (Deshpande & Farley, 2004; Hooley, Greenley,
Cadogan, & Fahy, 2005). This result reflects the study conducted by Kirca,

220
Jayachandran, & Bearden (2005) and Zhou, Yim, & Tse (2005) on the role of market
orientation in facilitating innovation. It is also consistent with the claims made by a few
scholars that the most important expression of market orientation is the success of
innovation, which paves the way to organisational success (Deshpande & Farley, 2004;
Milfelner, Gabrijan, & Snoj, 2008). In a nutshell, this particular hypothesis has shown
that these two categories of marketing support resources (market orientation and
innovative capability) have a great potential as a stimuli to major components of
competitive advantage (Lukas & Ferrell, 2000; Milfelner, Gabrijan, & Snoj, 2008).

The second hypothesis was suspected to reveal the same finding in which
entrepreneurial orientation positively influenced the extent of innovative capability. In
this study, the value of standard coefficient for this hypothesis was 0.342, significant at
0.01. This result is paralleled with previous study conducted by Covin & Slevin
(1991) and Zhou et al. (2005), which has shown significant positive relationship
between the two variables and eventually lead to business performance. To support this
premise, as noted by Han, Kim, & Srivastava (1998) and Hult & Ketchen (2001),
innovation is necessary to complement entrepreneurial orientation for firm success but
innovation alone cannot lead to superior performance With these two hypotheses
supported, it was predicted that the next hypotheses which linked innovative capability
and procurement process coordination variables would be supported too.

Innovative Capability positively influences Supplier Selection, Order Management,

Joint Operation Planning and Supplier Relationship Development
H2a: Innovative Capability positively influences the extent of Supplier Selection
H2c: Innovative Capability positively influences the extent of Order Management
H2d: Innovative Capability positively influences the extent of Joint Operation Planning
H2e: Innovative Capability positively influences the extent of Supplier Relationship
Development

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For this particular hypothesis (H2), it was expected that there would be positive
relationships between innovative capability and all the dimensions of procurement
process coordination. As depicted in Table 5.23, all the four hypotheses for innovative
capability exhibit strong relationships with each and every dimension of the procurement
process coordination ( values ranging from 0.661 to 0.809). In fact, this was also
supported by the p values, where all of them were significant at 0.01.

In this case, procurement process coordination was viewed as a higher level of capability
resulting from the combined effect of resources through innovative capability. This
result corresponded with the Resource Based View Theory (RBV) which proposed that
resources and capabilities when combined together will aptly generate higher level
capability (Agan, 2005; Barney, 1991; Penrose, 1959). It is also consistent with what
have been proposed by Morris, Schindehutte, & LaForge (2002) and Schindehutte,
Morris, & Kocak (2008) on the role of entrepreneurship, market orientation and
innovation in generating market-driving behaviour which eventually lead to a
sustainable competitive advantage.

Through innovative capability, marketing resources were leveraged into the PPC and
produced greater level of capability, which ultimately influenced the entire process of
procurement coordination. In this context, the adoption of PPC practices was driven by
marketing resources (through innovative capability). This result indicates the importance
of marketing resources, particularly the influence of strategic orientation such as market
orientation and entrepreneurial orientation on innovative capability which eventually
affects the PPC.

Supplier Selection, Order Management, Joint Operation Planning and Supplier

Relationship Development positively influence Firm Performance

H3a: Supplier Selection positively influences the extent of Firm Performance

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Findings from this study revealed that the relationship between supplier selection and
the firm performance was insignificant. These insignificant results provide an insight
that there must be some intervening factors that may help to translate the effect of
supplier selection and firm performance. As what had been discovered by Tracey & Tan
(2001), there was no evidence that supplier selection directly influenced firm
performance, but through customer satisfaction it had proven that there was a positive
significant relationship. Further result from their analysis revealed that despite selecting
and evaluating suppliers has a significant positive impact on customer satisfaction and
firm performance, involving suppliers on product design teams and in continuous
improvement programs has over twice the eventual impact on firm performance (Tracey
& Tan, 2001). Such claims indicate that supplier selection though considered crucial in
the procurement process coordination, this capability itself required support and
compliment from other resources such as joint operation planning to more effectively
realise the capability in achieving a higher level of performance.

The above discussion provides reason to the insignificant result of the relationship
between supplier selection and firm performance. This intervening factor between
supplier and firm performance might be the answer to the non-significant result for
hypothesis 3a.There is a need for supplier involvement apart from selecting the right
suppliers to the firm in order to gain greater impact from this supplier selection
capability.

With this hypothesis (3a) reported insignificant, this gives an early sign of no mediation
effect of SCA on the relationship between innovative capability and firm performance.
For the record, this indication corresponds with the third step of Baron & Kennys
(1986) causal step requirement for mediation effect identification.

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H3c: Order Management positively influences the extent of Firm Performance

As depicted in Table 5.23, the result of hypothesis testing for H3c seems to be mirrored
by those findings for hypothesis H3a. The hypothesis failed to confirm that order
management as a predecessor to firm performance. There might be several reasons
behind this finding but there is always a reason that might carry significant weight.

Based on the observation and input from previous literature, it has been identified that
the main reason to this insignificant result might be due to the complexity of ordering
process itself. Undoubtedly, information sharing between participants (contractors and
building material suppliers) is critical, but the means or the approach used in managing
this activity may also influence the efficiency of ordering process. As mentioned by
Arshinder, Kanda, & Deshmukh (2006), the intervention of internet in order
management has considerably reduced the order processing cost as well as improving
firm performance. In addition to this, information technology (IT) has been highlighted
by many researchers as an input to improve inter-organisational coordination (Co,
Patuwo, & Hu, 1998; McAfee, 2002; Sanders, 2008). Unfortunately, several authors
claimed that the adoption of IT in this building industry is still lacking especially if
compared to other industries such as retailing, transportation and manufacturing (Isatto
& Formoso, 2006; Xue, Li, Shen, & Wang, 2005). To support this, a recent pilot study
that looked into this aspect, has observed that IT adoption was relatively restricted,
particularly when dealing with inter-firm connection between contractors and the
suppliers (Akmal Aini & Sofiah, 2010). Due to this, in developing the concept of PPC
for this study, the element of IT as a mechanism to coordination was eliminated. In this
study, the PPC (such as order management) was viewed as the capability that carries the
ability to share information and collaborate with channel participants but with limited
capacity of IT adoption. The concept of PPC for this study was concentrated towards the
softer element such as information sharing and collaboration. Unfortunately such
concept has shown to be weak in generating impact to performance particularly when it

224
comes to ordering issue. With this kind of phenomenon, it is explicable to why there is
no significant result between order management and firm performance variables.
Since the hypothesis mirror the earlier hypotheses (H3a), it could be safely predicted
that there will be no mediation effect of order management on innovative capability
firm performance relationship.

H3d: Joint Operation Planning positively influences the extent of Firm Performance

Hypothesis 3d shows strong evidence on the relevancy of joint operation planning for
firm performance. As compared to the other three dimensions of procurement process
coordination, joint operation planning demonstrates impressive result with the
relationship link with firm performance at path coefficient of 0.472. Hypothesis 3d
provides support to the importance of joint operation planning in facilitating firm
performance.

As forecasted, this strong connection was due to the execution of knowledge sharing
process between the contractor and its suppliers. Earlier result from supplier selection
performance link for instance, argues on the missing link. What can be interpreted here
is that, with well selected supplier, it might promise for better performance but this
performance affect could only be transformed if the right supplier performs as it was
expected. For example, in the delivery process of building materials from the suppliers
to the contractor, it is perceived that it requires a high degree of coordination. With high
degree of coordinated operation planning between the contractor and its suppliers, this
might permit for quality of information exchanged during the planning process
(Petersen, Ragatz, & Monezka, 2005). Ultimately, adequate and efficient use of
information in this operation planning will help to reduce the problem of inaccuracy of
data, unplanned deliveries, wrong and defective deliveries between building materials
suppliers and the contractor. As such, joint operation planning that allows room for
knowledge sharing offers better results for performance affect.

225
H3e: Supplier Relationship Development positively influences the extent of Firm
Performance

Supplier relationship development demonstrated positive and significant result (path

coefficient - 0.441) with the links of firm performance. Besides joint operation planning,
hypothesis 3e present evidence to the essential of supplier relationship development in
facilitating firm performance. The outcome of this hypothesis testing was not only
consistent with most of the result from previous studies, Carr & Pearson (1999); Fink,
Edelman, & Hatten (2007); Sheth & Sharma (1997), but it also helps to confirm the
finding from pilot case study that was conducted prior to this survey (Akmal Aini &
Sofiah, 2010).

In this context, the elements of trust, long-term commitment and continuous feedback
were noticeable. Based on the items used to measure this dimension (supplier
relationship development), these three elements (trust, long-term commitment and
continuous feedback) were considered crucial in the development of the coordination
aspect for supplier relationship development. This is supported with the point made by
Moorman, Deshpande, & Zaltman (1993) that trust was found to influence the perceived
quality of the interactions, level of involvement and level of commitment to the
relationship. These three elements were seen to be critical in the relationship building
particularly between the contractor and its building materials supplier which eventually
influence the firm performance. As confirmed by Lee, Kwon, & Severance (2007), a
strong supplier linkage is seen as a key indicator to performance reliability as well as
overall performance. Hence, the result of this present study (H3e) helps to support this
proposition.

5.6.4 Hypotheses Testing - The Effect-Size of the Mediation

With regards to the mediating role of procurement process coordination (PPC), the
findings in the earlier sub-topic (5.6.2) suggest that it fully mediates the relationship

226
between marketing resources and firm performance. The next step of the analysis will
look into the effect size of the mediation (PPC dimensions) in the relationship between
innovative capability and firm performance. By looking at the X M (a) and M Y (b)
of each of PPC dimension, this study was able to recognise whether the PPC dimensions
were significant or not. Though this finding provides evidence on the mediation effect of
PPC dimensions, such result was not able to answer one of the research questions which
was on the extent of mediating effect of these PPC dimensions. Therefore, as been
explained in the research method (4.6.6), there is a need to see the level of effect by
calculating the (a) and (b) product of coefficient by using Sobel test.

Table 5.24 presents the results of the Sobel test. Unstandardised regression coefficient
and standard error were taken into account in this calculation. Sobels calculator was
used in calculating the significance of specific indirect effects (Preacher & Leonardelli,
Calculation for the Sobel Test - An Interactive Calculation Tool for Mediation Tests,
2001).

227
 Table 5. 24: Sobel Test - Effect Size Measures for Mediation Analysis

Sobel
Indirect a2 Sa b2 Sb Test Remarks
Effects Statistics value
(z)
IC SCA FP not
0.711 0.112 -0.027 0.084 -0.321 0.748 supported
IC SCC FP not
1.174 0.157 0.030 0.063 0.475 0.635 supported
IC SCD FP
1.146 0.165 0.367 0.073 4.072 0.001 supported
IC SCE FP
0.934 0.128 0.466 0.097 4.012 0.001 supported
Note:
z-value = a*b/SQRT(b2*sa2 + a2*sb2)
a = raw (unstandardised) regression coefficient for the association between IV and
mediator.
sa= standard error of a.
b = raw coefficient for the association between the mediator and the DV (when the IV is
also a predictor of the DV).
sb = standard error of b.
IC=Innovative Capability; SCA=Supplier Selection; SCC=Order Management;
SCD=Joint Operation Planning; SCE=Supplier Relationship Development; FP=Firm
Performance

Mediating role of Procurement Process Coordination

H4: All the dimensions of Procurement Process Coordination (Supplier Selection,

Supply Contracts, Order Management, Joint Operation Planning and Supplier
Relationship Development) mediate the relationship between Marketing Resources
(Innovative Capability) and Firm Performance at different level of effect size

The result in Table 5.24 provides confirmation to the significant values of the indirect
effects. From four hypotheses, half of them were supported. In other words the
significant results indicated that the particular variable mediate the relationships between
the dependent and the independent variables. In this case, the results revealed that joint
operation planning and supplier relationship development mediate the relationships
between innovative capability and firm performance. Moreover, joint operation planning

228
indicated the greatest effect (at z-test = 4.072), to be followed by supplier relationship
development with z-test value significant at 4.012. On the contrary, supplier selection
and order management show no effect towards the same relationships. The following
sub-topic will discuss further on this mediation results.

As predicted in the earlier discussion, the insignificant results of hypotheses 3a and 3c

provide the evidence that supplier selection and order management do not play any
mediating roles in the relationship between marketing resources and firm performance
variables. Prior results (H3a and H3c) reported supplier selection and order management
show weak relationships to firm performance. The Sobel test result (Table 15.24)
reconfirmed the findings, with all the values insignificant too.

There are plausible explanations to this research finding. The earlier discussions in
hypotheses 3a and 3c sections have brought to light several possibilities to these
insignificant results. One of the reasons was lacking of technology adoption, in
particular IT into the construction industry. Despite the fact that IT is just a mean to
achieve coordination, the adoption of IT has proven to generate better result in the
coordination effort. The use of IT to help actors in the supply chain to coordinate their
activities is referred as coordination technology (Malone, 1988).

It was discussed earlier that with appropriate management orientation (such as market
orientation and entrepreneurial orientation) this could lead to innovative capability. This
innovative capability was conceptualised with the ability to easily accept innovation and
seek for innovative ideas. On the other hand, as mentioned in the above discussion, the
concept of PPC was kind of reserved from the innovative element such as IT adoption.
This inconsistency between the concept of innovative capability and PPC was expected
to lead to insignificant result for H3a and H3c. Thus, ignoring IT as a catalyst to
coordination effort could not be considered as a wise idea. Failure to recognise the role
of IT in a supply chain process is suspected to lead one to a vulnerable position.

229
A few literatures pointed out that there being intermediate stages between marketing
resources (innovativeness) and performance (Agan, 2005; Khalfan & McDermott,
2006). After drawing distinction between several procurement process coordination
dimensions (supplier selections, order management, joint operation planning and
supplier relationship development), the current study managed to produce evidence that
joint operation planning and supplier relationship development act as mediator between
marketing resources and firm performance. Using Sobel test, this study statistically
showed what best accounts to enhance firm performance. The answer to that question is
the mediating effects of joint decision planning and supplier relationship development in
the relationship between marketing resources and firm performance. This finding is
basically consistent with hypotheses 3d and 3e. It provides evidence that joint decision
planning and supplier relationship development are crucial to firm performance
particularly they were complemented by marketing resources.

Apart from the above discussion, the findings also provide answer to hypothesis 4, on
the extent of PPC dimensions mediating the relationship between marketing resources
and firm performance. Sobel test results in Table 5.24 make clear that joint decision
planning contributes the most to this mediating effect followed by supplier relationship
development.

Table 5.25 summarised the links between the finding, research objectives, research
questions and hypotheses of the study. As highlighted in Chapter One (1.4 and 1.5),
there were several objectives to achieve from this study. These objectives lead to several
research questions and hypotheses. By employing those research methods as discussed
in Chapter Four, the findings were revealed.

230
 Table 5. 25: Research Objectives, Research Questions, Hypotheses and Findings

Research Research Hypotheses Research Findings

Objectives Questions

General Objective: to develop and test a model that will confirm the link between marketing resources, procurement process coordination (PPC) and
firm performance dimensions in the context of the building construction industry based on the integration of Resource Based View and Coordination
Theories.
1.To examine the Do marketing H2a: Innovative Capability positively influences the extent of Marketing resources through
relationship between resources influence Supplier Selection innovative capability do influence all
marketing resources PPC? H2c: Innovative Capability positively influences the extent of the four dimensions of PPC
and PPC Order Management
H2d: Innovative Capability positively influences the extent of
Joint Operation Planning
H2e: Innovative Capability positively influences the extent of
Supplier Relationship Development
2.To ascertain the Does PPC influence H3a: Supplier Selection positively influences the extent of Two dimensions of PPC (supplier
relationship between firm performance? Firm Performance selection and order management)
PPC and firm H3c: Order Management positively influences the extent of do not influence firm performance
performance Firm Performance
H3d: Joint Operation Planning positively influences the Another two dimensions of PPC
extent of Firm Performance (joint operation planning and
H3e: Supplier Relationship Development positively supplier development) do influence
influences the extent of Firm Performance firm performance

231
 Table 5.25: Research Objectives, Research Questions, Hypotheses and Findings continued..

Research Research Hypotheses Research Findings

Objectives Questions
3.To investigate the What are the extent H4:All the dimensions of Procurement Process Joint operation planning shows the
extent to which of the mediation Coordination (Supplier Selection, Supply Contracts, greatest score/effect, follows by supplier
procurement process effect of PPC Order Management, Joint Operation Planning and relationship development.
coordination dimensions in the Supplier Relationship Development) mediate the
dimensions mediate the relationship between relationship between Marketing Resources However, there is no mediating effect
relationship between marketing resources (Innovative Capability) and Firm Performance at from supplier selection and order
marketing resources and firm different level of effect size management
and firm performance in performance?
the building
construction industry.

232
5.8 Chapter Summary
This chapter presents the findings and discussion from the results of the data analysis. It
begins with some discussions on descriptive statistics mainly on the demographic profile
of the respondents and items of each construct. Before further test on multivariate
analysis was carried out, test of the goodness fit of data was performed and results
signified that data were fit for further analysis. EFA and CFA tests were conducted
which eventually lead to the proposed structural model of the study. This structural
model consists of ten dimensions (representing three main constructs marketing
resources, PPC and firm performance). Realising the fact that reliability and validity
were crucial, assessment of construct validity was carried out, which included test of
content, unidimensionality, convergent and discriminant validity. Assessment results
indicated that data satisfied with the requirements of the validity test. The completion of
this stage signified the adequacy of data for further analysis. Based on the proposed
structural model, analysis of competing model between full and partial mediation was
carried out. The result of these competing models indicated insignificant difference and
thus, full mediated model was selected in the analysis of the proposed hypotheses. In
particular, hypotheses 1 to 3 centred on the direct relationship between the variables
while hypothesis 4 focused on the mediating effect of PPC in the relationship between
marketing resources and firm performance. Hypotheses 1 to 2 confirmed the positive
influence between the variables of the proposed hypotheses while on the other hand,
hypotheses 3 and 4 indicated mixed results. Joint decision planning and supplier
relationship development appeared to confirm their role as mediating factor in the
relationship between marketing resources and firm performance. In addition, joint
operation planning showed the greatest mediation effect as compared to the other three.

233
 CHAPTER SIX
IMPLICATIONS AND CONCLUSION

6.1 Introduction
This final chapter presents the implications and conclusion of the study that resulting
from the entire process of conducting a research. It commences with the implications of
the research from the perspectives of the scholars as well as the practitioners.
Additionally, this chapter discusses the contribution of the study in advancing the
knowledge, limitations encountered during the research process as well as areas of future
research in the subject that are presented. Finally, it ends this present research with a
conclusion.

6.2 Implications of the Study

The findings and discussion in Chapter Five help to broaden the understanding on the
areas of the present research. Such input leads to the generation of several implications,
for both the scholars and the industry practitioners. Table 6.1 provides information on
the research questions, findings and implications of the study from two points of view,
the theoretical as well as practical. In addition, these implications are presented in the
following sub-topics:
The influence of marketing resources on PPC in the building construction
industry
The influence of PPC on firm performance in the building construction industry
PPC as a mediator between marketing resources and firm performance

234
 Table 6. 1: Research Questions, Findings and Implications

Research Research Findings Theoretical Implications Practical Implications

Questions
Do marketing Marketing resources through innovative The understanding on the association between The industry players must act upon the importance
resources influence capability do influence all the four dimensions marketing resources and PPC will help in of marketing resources in order to optimise their
PPC? of PPC recognising the important interactions among supply chain coordination capability
these variables and how marketing resources
can be employed as enablers to better
procurement process coordination.
Does PPC influence Two dimensions of PPC (supplier selection and The finding allows ascertaining the dimensions To be competitive, industry players need to
firm performance? order management) do influence firm of PPC that are most important and relevant to recognise their capabilities which could eventually
performance firm performance. Further, it helps to recognise lead to competitive advantage to the firm. In this
the importance of business process such as sense, one way to attain this competitive advantage
Another two dimensions of PPC (joint operation PPC in generating competitive advantage to is through managing well their PPC.
planning and supplier development) do not the firm.
influence firm performance
What are the extent of Joint operation planning shows the greatest The result shed the light to the essentiality of Emphasising on best practices is seen to be helpful
the mediation effect of score/effect, follows by supplier relationship coordination aspects in the relationship in the enhancement of the firms performance.
PPC dimensions in development. between marketing resources and firm Additionally, it is crucial for the practitioners to be
the relationship performance. It provides evidence that join selective in their investment strategy particularly with
between marketing However, there is no mediating effect from operation planning and supplier relationship regard to the aspect of resources competitive
resources and firm supplier selection and order management development facilitate the conversion of development. There is a need to recognise
performance? marketing resources into firm performance. appropriate resources that may complement each
Moreover, not all business processes or other in order to create competitive advantage to the
resources can easily be the source of a firm.
competitive advantage for the firm.

235
6.2.1 The Influence of Marketing Resources on PPC in the Building Construction
Industry
Theoretical Implication:
The present study responds to the need of the construction supply chain research by
empirically tested the link between the three main constructs (marketing resources, PPC
and firm performance). Generally, it provides substantiation to the role of marketing
resources in the development of effective supply chain coordination notably in the
context of construction industry. In the same vein, it offers support to the need of
marketing resources to be collaborated into the area of supply chain management
research.

Besides the above implication, finding on the relationship between marketing resources
and PPC provides greater room of understanding on the impact of marketing resources.
As mentioned earlier (3.6.4), most studies that tried to link marketing resources and SCC
adopted simple approach in conceptualising these two constructs (Agan, 2005; Chen,
2007). By conceptualising marketing resources into two broad categories which are: (1)
marketing support resources; (2) market-based resources, this provides deeper
perspective on the impact of this construct on PPC mostly. With strong significant
effects on PPC, this present study presents evidence to the rationale of such
categorisation.

Further, this study also enhances the understanding on the impact of marketing resources
on business process such as procurement process coordination. In this sense the concept
of marketing resources adopted in this study showed strong effect not only to the firm
performance but also to the PPC. This presents evidence to the importance of this
construct (marketing resources) to the enhancement of PPC capability particularly in the
construction industry. As mentioned by Khalfan & McDermott (2006) and Keskin
(2006) the realisation of coordinated procurement processes can be achieved through
innovative thinking and client orientation. Thus, this signifies the essential of marketing

236
resources in the enhancement of coordinated procurement process which eventually lead
to better performance.

Practical Implication:
This study provides evidence to the relevancy of organisational and managerial
approaches or best practices such as SCM, market orientation and entrepreneurial
orientation to the construction industry supply chain. This is consistent with the
movement of the industry players towards client oriented and innovativeness which have
been proposed and frequently highlighted in the construction reports (Construction
Industry Master Plan Malaysia 2006-2015, 2007; Egan, 1998; Latham; 1994). It also
suggested on the concentration effort of coordination to the enrichment of the
effectiveness and efficiency of the construction supply chain. The result provides
implication to the industry players on the importance of marketing resources to the
materialisation of supply chain coordination capability. In other words the industry
players must act upon the importance of marketing resources in order to optimise their
supply chain coordination capability. Therefore, it urges construction industry players to
adopt and to emphasis on such orientations in order to enhance their supply chain
coordination capability, mainly with regards to the procurement process coordination.

6.2.2 The Influence of PPC on Firm Performance in the Building Construction

Industry
Theoretical Implication:
Several approaches have been used by previous scholars to conceptualise the notion of
supply chain process coordination. The present study contributes to the new knowledge
by comprehensively detailing the activities involved in the procurement process
coordination. Unlike prior research, the present study views procurement process
coordination in a more precise manner, by conceptualising it into process capability
rather than a general approach of coordination. By doing so it helps to generate greater
number of possibilities on the link between marketing resources and firm performance.

237
As mentioned in the above discussion, the finding allows ascertaining the dimensions of
procurement process coordination that are most important and relevant to firm
performance. With vague concept defined and measured with broad items, it restricts the
understanding the nuances and intricacy of the concept of coordination in supply chain.
Explicitly, the present study helps to sharpen the focus on a specific area in the supply
chain management (procurement process) which apparently provides better
understanding on the interaction of the activities. In short, the proposed dimensions of
the PPC allow the scholars to grasp the essence of procurement process coordination in a
more meaningful context. For instance, such finding provides management with
strategically substance insights that procurement process coordination, in particular,
joint operation planning and supplier relationship development as crucial elements in the
enhancement of firm performance.

Practical Implication:
The results of this study have important implications to the practitioners of the building
construction industry. Industry players especially the contractors and the building
materials suppliers must consider coordinated approach in their operational aspect. This
is crucial since coordinated approach such as procurement process coordination was
proven in this study to influence the firm performance. To be competitive, industry
players need to recognise their capabilities which could eventually lead to competitive
advantage to the firm. In this sense, one way to attain this competitive advantage is
through managing well their procurement process coordination.

6.2.3 PPC as a Mediator between Marketing Resources and Firm Performance

Theoretical Implication
The present study managed to demonstrate a full mediation effect of the PPC in the
relationship between marketing resources and firm performance. Further, the significant
result of the Sobel test for joint operation planning and supplier relationship
development provides evidence on the criticality of supply chain coordination concept.

238
With these two dimensions of the procurement process coordination showed
significantly mediated, such result shed the light to the essentiality of coordination
aspects in the relationship between marketing resources and firm performance. It
provides evidence that join operation planning and supplier relationship development
facilitate the conversion of marketing resources into firm performance. Moreover, these
two dimensions of PPC provide greater room for understanding on the impact of
marketing resources on the effectiveness and efficiency of the construction supply chain.
In addition to the above explanation, this present study provides support to earlier
research that tried to bridge the gap between marketing resources, coordination and
performance (Agan, 2005; Chen, 2007; Khalfan & McDermott, 2006). Apart from all
these, it also indicates the importance of marketing resources, procurement process
coordination (particularly joint operation planning and supplier relationship
development) and firm performance to not just be restricted to certain industries such as
manufacturing and retailing, but also it applies to the construction industry as well.

Practical Implication:
In this context, in order for the firms (construction firms in particular) to grasp a greater
impact on their performance, especially on the operational and customer performance, it
is critical for them to take note on the mediating effect of PPC (joint decision planning
and supplier relationship development). Joint operation planning and supplier
relationship development are prevailing capabilities by themselves and if complemented
with other capabilities such as marketing resources, would allow for higher level of
performance. Thus emphasising on those best practices such as market orientation,
entrepreneurial orientation, innovative capability and PPC (joint operation planning and
supplier relationship development) is seen to be helpful in the enhancement of the firms
performance. Once again, this provides support to those constructive suggestions by
industry reports on the relevancy of best practices to this industry.

The result from the present study provides direction for the industry practitioners in
managing the firms resources. It helps to identify appropriate capabilities to be adopted

239
and at the same time to understand how these capabilities could be utilised and
leveraged in order to generate beneficial impact to the firm. Capabilities such as
marketing resources are seen to be critical to the development of competitive advantage
to the firm. As mentioned earlier, these capabilities (marketing resources) play the role
as the enabler to the generation of competitive advantage. Procurement activities such as
joint operation planning and supplier relationship development require coordination
among channel members such as the contractor and its building materials suppliers. By
emphasising on these activities in the procurement process coordination it may allow the
practitioners to develop distinct capability which eventually to be more competitive in
the market.

6.3 Contribution of the Study to the Advancing of the Knowledge

The findings of the present study help to place marketing resources, procurement
process coordination and firm performance firmly in the Resource Based View Theory
(RBV) and Coordination Theory framework. In this regard, the findings provide
evidence that procurement process coordination (joint operation planning and supplier
relationship development) facilitate the conversion of marketing resources into superior
firm performance. Theoretically, from the point of view of RBV, capabilities and
competencies together create higher level of capabilities. Moreover, this higher level of
capabilities through coordination of activities leads to a better performance. Having an
appropriate blend of capabilities such as being innovative can help to promote
collaborative culture. Such collaborative culture would help to generate knowledge
sharing capability. Interdependencies between activities and among players (for instance
the contractor and building material supplier) in the supply chain require them to be
coordinated. This knowledge sharing capability would help the participants to cope with
problem of interdependencies in a more effective and efficient manner. Apparently, the
capability of managing these interdependencies between activities and actors is
consistent with the Theory of Coordination.

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Additionally this present study demonstrates that the procurement process coordination,
specifically the joint the operation planning and supplier relationship development, are
higher level capabilities and they can be a source of competitive advantage to the firm.
As highlighted by Porter (1991) and Ray et al. (2004), resources are not worth in and
themselves, but they are valuable because they allow firms to perform activities. From
the theoretical perspective, the findings permit greater understanding on the concept of
resources to the firm mainly from the context of business process. There is a need to pay
attention to these critical resources in the transformation process of inputs into
competitive advantage. Relying on the fact that coordination is crucial in the business
process, effort should be made to further understanding on related business process as
this would help to uncover the hidden source of competitive advantage which could be
leveraged effectively with other relevant resources.

As prescribed in the finding and discussion chapter (5.6.3), there are several possible
reasons which lead to the insignificant result for hypothesis 3a and 4a. At the same time,
this insignificant result indicates an important implication to the enhancement of the
body of knowledge. First, the insignificant results for hypotheses 3a and 3c signify that
not all resources can be treated as the same. In other words, though RBV stressed on
resources in generating competitive advantage to the firm, not all business processes or
resources can easily be the source of a competitive advantage for the firm. Thus, with
such insignificant results (H3a and H4a), procurement process coordination is seen as
not a guarantee for success for a firm. There is no assurance that the establishment of
coordination with supply chain partners necessarily leads to firm performance
improvement and enhanced competitiveness if irrelevant capabilities were employed. In
fact, with such combination of resources, this may lead to a vulnerability to the firm
performance. This is because not all of the activities in a process can generate
competitive advantage to the firm. Without proper screening and identifying the right
activities to be stressed on in a particular process, this might lead to inefficient and
improper use of resources. As mentioned earlier, though the two theories adopted in this
study proposed procurement process coordination works as a competitive advantage to

241
the firm, the present study revealed that such proposition cannot be generalised to all
processes and resources.

Second, with reference to the results of hypotheses 3c and 4c, this indicates that in order
to be competitive, there is a need to recognise the appropriate blend of resources in
generating a better result for the firm performance. Though certain resources work well
as enablers to other resources, there are cases where activities in the same process
require different input for generating better performance. In the case of order
management for instance, it requires a high degree of interaction between channel
members which could only be supported by an efficient information system. Though
coordination between members can be enhanced by leveraging the capabilities from
marketing resources, such enablers are perceived to be inadequate particularly when it
involved complex ordering system. Thus, as highlighted in several studies, other
enablers such as information technology are required to facilitate this capability. This
study revealed the need for further investigation on the enablers for the business
processes. In the same line of thought, business processes which consist of several
activities may require different input or enablers for each of these activities. It would be
inappropriate to treat a process as one entity. Results from this study explained that there
is a requirement to do further separate investigation on each of the activity in the process
relating their requirement on the enabler regardless whether it complements them. In
addition, there is also need to identify how well each activity is compatible with other
resources. Some enablers may work as a complementary factor to an activity which
eventually leads to a competitive advantage. However there are cases where these
enablers are inadequate enough in generating a competitive advantage for the firm.
Thus, further enablers are required. Failure to recognise this problem could lead a firm
to inappropriately utilise its business process capabilities at an optimum level and in the
worst case, this may lead to an uncompetitive advantage for the firm.

242
6.4 Limitations and Suggestions for Future Research
Several limitations were observed in this present research. These limitations stem from
different facets. It includes within the research process as well as outside the research
process itself. By rectifying the shortfalls of the present research, it helped to address the
future research work. Hence, due to their relatedness, the two areas (limitations and
future research) were labelled under the same sub-topic.

This present study utilised a cross-sectional research instead of a longitudinal research

design. Given that cross-sectional research is a snapshot of a period of time, changes
over time were not captured. Such approach may limit the result due to a time lag
between the firms coordination effort and the realisation of tangible benefits (Rajaguru
& Matanda, 2009). Thus, future research with longitudinal research approach is
suggested since it may give better insight into the relationships investigated.

As mentioned in the scope of study (1.6), this research focuses on a specific group of
contractors (G7) and industry, which is construction industry. Though this encouraged
focus and tailored to the nature and characteristics of the group and the industry, such
decision has curbed from the generalisation of the study. In other words it may not be
generalisable to other levels of supply chain and other industries. Future research can be
more worthwhile by looking into various industries or comparisons are made between
different categories of contractors and industries.

Although previous studies (Arshinder et al., 2006 & 2008) regard IT as one of the
coordination mechanisms, the present study was kind of reserved towards this. In line
with the nature of the construction industry that lagged in terms of technology adoption,
IT was excluded from the list of coordination mechanisms. In other words, IT was cast
off from the list in the development concept of the coordination for this present study.
As discussed in the findings section, the absent of IT may influence the level of
coordination and thus limits the result. Therefore, future research should widen the

243
scope of the coordination concept by taking into account IT as one of the coordination
mechanisms.

Another limitation that was observed is that the present study did not model all possible
enablers. Concentration on one particular resource (i.e. marketing resources) as the
enabler may limit the finding. Though attempt has been made to broaden the concept of
marketing resources, there are other important factors which were considered critical too
and may influence the coordination. In this sense, failure to consider other factors such
as the micro-economic conditions may limit the implications of the results of the study.
Hence, future study should include such factors and to compare the impact between
these factors.

While efforts have been made to ensure the validity of the responses from the
respondents, there is still room for improvement to the rigorousness of the study.
Procurement process coordination involves relationships of several parties in which this
present study was mainly concentrated on the contractors and suppliers. Further, the
feedback was only looked from the perspective of the contractors in which data being
based on self-reports perhaps might lead to source-bias. Thus, examination on dyadic or
triadic method of data collection would certainly be worthwhile and provide more
interesting and meaningful results from which various participants perceptions were
taken into account.

In this present study one of the dimensions of the PPC (supply contracts) was cast off
from further analysis as a result of its poor loading. Due to the fact that this dimension
(supply contracts) is critical in the procurement process, it would be beneficial for future
studies to develop better scales for this dimension. Thus, this will help to measure the
PPC construct in a more comprehensive manner.

Further, another venue of study could look into other processes in the supply chain and
could replicate the model at different supply chain contexts. While this present study

244
conceptualise procurement as process coordination, future research could adopt other
supply chain processes such as customer relationship management (CRM) as process
coordination. Looking at different facets of supply chain process coordination would
help to contribute to the development of new body of knowledge.

On top of that, future research could employ more advanced methods and software (such
as M-test, Bootstrapping, Mplus and SAS macro) in estimating the confident intervals
for indirect effects. This is crucial especially when several mediation factors are required
to be tested simultaneously in a model.

6.5 Conclusion
The Malaysian construction industry is showing a growing concern to be successful not
only in the domestic market but also internationally. To achieve this inspiration, greater
emphasis is being placed on best practices such as client orientation, innovativeness
and SCM, with cooperation and coordination play a critical role. From the perspective of
construction management, the issue of coordination and integration in managing the
complexity of construction supply chain is considered crucial. In fact, quite a number of
reports and studies highlighted the same concern. Though there is a wide agreement over
the benefits of collaboration and coordination as a useful construction project
management strategy, this perspective is somewhat weakened by a lack of rigorous,
verifiable evidence to support the claims that are made. This is critical due to the nature
of the construction supply chain which limits the construction sector to bluntly adopt
successful managerial approach or best practices (such as SCM) used by other
industries. There is a need to rectify selected areas in the construction supply chain that
are suitable to these best practices. Based on the understanding of the nature of
construction supply chain, in this present study, it was identified that there is room for
best practices to be materialised especially in the procurement process of construction
building materials. In line with this, the present study was carried out in order to

245
investigate the link between marketing resources, procurement process coordination and
firm performance in the building construction industry.

Results from the descriptive analysis revealed that the level of coordination in the
procurement process for the building construction was seen to be mixed. In order words,
the practice of coordinated procurement process was not fully applied throughout the
processes. For certain areas such as supply contracts, the traditional approach (discrete
contracts) that mainly emphasised on price factors dominated this industry. The lack of
relational contracts (relationship marketing aspects) in certain activities of procurement
process limits the industry from further flourishing in the local market but
internationally. Moreover, construction industry was seen to pay less emphasis on
reputational resources such as brand building. With this standing, there is a need for the
players in this industry particularly the contractors to be more proactive in adopting
those crucial best practices. Perhaps, the intervention by the controlled bodies such as
the CIDB is critical. No doubt that a lot of efforts have been made by CIDB and other
related agencies in nurturing the adoption of best practices among the construction
industry players. Nonetheless, an attempt needs to be made to understand the barriers
faced by the industry players in adopting such best practices. Certainly, creating
awareness is crucial, however, without good understanding on the constraints faced by
the construction industry players, the desired end result may be hindered. As mentioned
in the earlier paragraph, adopting best practices of other successful industries is
important. However, the critical part is to identify the suitable areas to be adopted.
Identifying the complexities and difficulties inherent in the management of performance,
mainly in the project management is an important area of academic enquiry.

Based on the results of the structural modelling, this present study found evidence to
support the positive and significant link of marketing resources (market and
entrepreneurial orientation through innovative capability) and procurement process
coordination. Moreover in this present study, the full mediation model was accepted too.
Further analysis of Sobel test statistically demonstrated that joint operation planning and

246
supplier relationship development assisted the conversion of marketing resources into
superior firm performance. Such result provides support to the essentiality of PPC
(namely joint operation planning and supplier relationship development) in leveraging
marketing resources to a higher level of firm performance. Thus, this signifies that
coordination is vital particularly when it comes to managing interdependencies between
channel members, (like for instance the contractor and its building materials suppliers)
in a supply chain process such as procurement.

On the other hand, a great care should be taken in generalising the findings. As pointed
out in the earlier sub-topic (6.3), there is a need to recognise the critical resources in the
transformation process of inputs into competitive advantage. The current study provides
evidence to the importance of being selective in the investment of competitive advantage
building. Theoretically, though leveraging resources in the business processes is
considered critical, recognising the right mixture of resources to be utilised in a
particular business process is perceived to be more crucial. For instance, mature
processes such as procurement process requires further diagnosis in order to gain better
understanding of the importance issues that may shape and influence the requirements of
their input. By conceptualising this process as procurement process coordination, the
present study provides better picture on the understanding of the properties of the
process. The present study contributes to the new knowledge by detailing the activities
involved in the procurement process instead of testing it in a general setting. The results
from this study provide support that the activities or dimensions in the procurement
process coordination showed different levels of mediation effects towards the
relationship between marketing resources and firm performance. This indicates the
essentiality of understanding the properties for each business process rather than to view
or to test it in a general setting. Failure to identify the requirement of each activity in a
process may restrict a firm from utilising this capability at the best possible level.

If all the while, supply chain coordination concept (SCC) concept was dominantly
utilised in the prominent industries such as manufacturing and retailing, the result of this

247
empirical research brings to light on the relevance of the SCC concept to the building
construction industry. What is more, as mentioned in the above discussion, this result is
consistent with the movement of the industry players towards best practices. This can
be seen through the effort made by the CIDB Malaysia on the implementation of
construction industry plan that stresses on coordination and cooperation. The results of
this current study present evidence that such effort is worthy even though there are
certain aspects that require further improvement. There is a need for the industry players
to pay attention on the coordination aspect particularly when it comes to procurement.
Therefore, it is critical for the industry player to adopt best practices such as client
orientation and SCM concept in order for them to be more competitive.

Apart from the above points, the results of the present study signify the need of
collaboration between different fields of studies. As mentioned in the earlier part of the
thesis (2.6.3), built environment field comprises of inter-discipline and not a discipline
in the strict sense. Additionally, as noted by Morledge et al. (2006), major improvement
to the existing construction procurement derived from theoretical construct which was
taken from the softer discipline such as marketing and social behavioural science.
Thus, having the present study shows the importance of marketing resources and PPC to
the management of performance has positioned the managerial approach and
organisational behaviour theories comfortably in the construction research agenda.
Apparently, future research warrants for more collaboration efforts. Interdisciplinary
research agenda and espousal of multi theoretical approaches in the field of construction
management, especially in the area of supply chain management is seen to offer better
insight.

Generally, the result presented here represents a small fraction in the understanding of
the complexity of supply chain relationship. Future research could explore other relevant
supply chain processes by replicating the approach used by this present study (which
was concentrated on PPC). It is believed that such research would provide new,

248
meaningful perspectives to the body of knowledge and offer greater insights for the
practitioner in managing the seamless and intricate supply chain.

249
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 APPENDICES

Appendix 4.1: Sample of Questionnaire

SUPPLIER RELATIONSHIP MANAGEMENT SURVEY

BUILDING CONSTRUCTION INDUSTRY MALAYSIA

Graduate Business School

Faculty of Business Management
Universiti Teknologi MARA
40450 Shah Alam Selangor Malaysia

281
 A Survey on Supplier Relationship Management in the
Building Construction Industry

Dear Sir/Madam,
This survey examines various aspects of contractors relationships with their major
suppliers of building materials (standard materials). Your participation is critical to the
success of the study. All responses will be kept confidential and will not traceable to
individual respondent. There are no right or wrong answer to the following questions.
We are only interested in your assessment of your organisations activities.

You will be asked questions concerning the companys current business practice. If you
are unable to complete the questionnaire yourself, please entrust the task to another who
is knowledgeable about supplier relationship management (procurement system), firm
capabilities and performance. The questionnaire should take about 20 minutes to
complete. Kindly spare a few minutes from your busy schedule to complete the
questionnaire as your participation is of value to this study.

Once you have completed the questionnaire, please mail it directly to me using the
enclosed postage paid envelope. Thank you in advance for your cooperation and in
case of enquiry, please do not hesitate to contact the undersigned.

Akmal Aini Othman

PhD Student
Faculty of Business Management
Universiti Teknologi MARA
50450 Shah Alam Malaysia
Tel: 012-3033326
Email: a2o@icqmail.com

Serial no: _______

282
Section 1: Firm Capabilities
Please indicate your level of agreement on the following statements based on your experience
working in this company. The rating is from 1=Strongly Disagree to 7=Strongly Agree

Disagree
Strongly

Strongly
Agree 7
Code

1
MO01 Satisfying client needs is the central
purpose of our business 1 2 3 4 5 6 7

MO02 We measure client satisfaction

regularly 1 2 3 4 5 6 7

MO03 We rapidly respond to competitors

actions that threaten us 1 2 3 4 5 6 7

MO04 Top management regularly discusses

competitors strategies with other
1 2 3 4 5 6 7
staff in the organisation

MO05 We earn our suppliers loyalty

1 2 3 4 5 6 7
MO06 We are committed to a long-term
relationship with our suppliers 1 2 3 4 5 6 7

MO07 All of our departments are integrated

in serving needs to our clients 1 2 3 4 5 6 7

MO08 Information are shared among our

departments 1 2 3 4 5 6 7

EO01 Our company actively searches for

new opportunities (such as new
1 2 3 4 5 6 7
market, new clients)

EO02 Our company adopts creative

methods of running business ahead of
1 2 3 4 5 6 7
competitors

EO03 Our company undertakes an

aggressive position to combat market
1 2 3 4 5 6 7
challenge

283
 Disagree
Strongly

Strongly
Agree 7
Code

1
EO04 Our company copies the business
practices or techniques of successful
competitors to enhance a competitive 1 2 3 4 5 6 7
position

EO05 Our company commits a large portion

of its resources in order to grow 1 2 3 4 5 6 7

EO06 Our company invests in high risk

projects which promise high returns 1 2 3 4 5 6 7

IC01 In our company, management actively

seeks innovative ideas 1 2 3 4 5 6 7

IC02 In our company, innovation is readily

accepted 1 2 3 4 5 6 7

IC03 In our company, innovation is not

perceived as risky 1 2 3 4 5 6 7

RR01 Our company carries brand name

reputation 1 2 3 4 5 6 7

RR02 Our company has the credibility with

clients 1 2 3 4 5 6 7

RR03 Our company is financially sound

1 2 3 4 5 6 7
RR04 Our company is frequently mentioned
in the trade press and other media 1 2 3 4 5 6 7

284
The following questions are about your relationship with your major suppliers of building
materials (standard materials). In general kindly identify your agreement on the following
practices.
Section 2: Supplier Relationship Management (Procurement Process Coordination)
Please indicate your level of agreement on the following statements based on your experience in
dealing with major suppliers of building materials in this company. The rating is from 1=Strongly
Disagree to 7=Strongly Agree

Disagree
Strongly

Strongly
Agree 7
Code

1
SCA01 Selection of suppliers is also based on
suppliers willingness for information
1 2 3 4 5 6 7
sharing with our company

SCA02 Selection of suppliers is also based on

suppliers willingness for joint
forecasting in building materials price 1 2 3 4 5 6 7
information
.
SCA03 Selection of suppliers is also based on
flexible contract (e.g. terms of
payment) with both our company and 1 2 3 4 5 6 7
suppliers

SCA04 Selection of suppliers is also based on

suppliers willingness for joint
planning in delivery schedules of 1 2 3 4 5 6 7
building materials

SCA05 Selection of suppliers is also based on

suppliers ability to commit to
continuous improvement of product 1 2 3 4 5 6 7
quality (building materials)

SCB01 Supply contracts are planned jointly

by our company and suppliers with no
power domination over one member 1 2 3 4 5 6 7
to the other

285
Code

Disagree
Strongly

Strongly
Agree 7
1
SCB02 Suppliers are allowed to change the
price of building materials due to
unexpected changes in the current 1 2 3 4 5 6 7
market price

SCB03 A change in price will not hurt the

profitability of both our company and
1 2 3 4 5 6 7
suppliers

SCB04 Supply contracts help both our

company and suppliers to meet our
1 2 3 4 5 6 7
defined goals

SCB05 The type of information (e.g.

inventory levels) to be shared by both
our company and suppliers is also 1 2 3 4 5 6 7
included in the supply contracts

SCC01 Our company and suppliers have

access to order tracking of building
1 2 3 4 5 6 7
materials

SCC02 Our company and suppliers have

access to inventory level data of
1 2 3 4 5 6 7
building materials

SCC03 Our ordering information systems

help to connect different departments
1 2 3 4 5 6 7
in our organisation

SCC04 Our ordering information systems

help to connect our organisation with
1 2 3 4 5 6 7
building materials suppliers

SCC05 Our building materials suppliers will

replenish us continuously in order to
maintain our company adequate 1 2 3 4 5 6 7
levels of inventory

286
Code

Disagree
Strongly

Strongly
Agree 7
1
SCD01 Our company and suppliers are jointly
involved in forecasting price of
1 2 3 4 5 6 7
building materials

SCD02 Our company and suppliers jointly

decide on building materials design 1 2 3 4 5 6 7

SCD03 Our company and suppliers are jointly

involved in inventory planning of
1 2 3 4 5 6 7
building materials

SCD04 Our company and suppliers are jointly

involved in scheduling delivery
1 2 3 4 5 6 7
activities of building materials

SCD05 Our company and suppliers are jointly

involved in forecasting the
1 2 3 4 5 6 7
requirement of building materials

SCE01 There is cooperation between our

company and suppliers 1 2 3 4 5 6 7

SCE02 Our company and suppliers have a

long-term commitment to each other 1 2 3 4 5 6 7

SCE03 Our company and suppliers trust each

other 1 2 3 4 5 6 7

SCE04 Our company and suppliers are willing

to share risk that involved from our
1 2 3 4 5 6 7
relationships

SCE05 Feedback between suppliers and our

company is a common occurrence 1 2 3 4 5 6 7

287
Section 3: Firm Performance
Please indicate your level of agreement on the following statements based on your experience
working in this company. The rating is from 1=Strongly Disagree to 7=Strongly Agree

Disagree
Strongly

Strongly
Agree 7
Code

1
For the past 3 years, the following areas of our organisations performance have
improved:

OPA01 Stock-out cost of building materials

reduced 1 2 3 4 5 6 7

OPA02 Inventory holding cost of building

materials reduced 1 2 3 4 5 6 7

OPA03 Timely replenishment of inventory

(building materials) 1 2 3 4 5 6 7

OPA04 Defective rate of building materials

reduced 1 2 3 4 5 6 7

OPB01 On time completion of final products

(buildings) 1 2 3 4 5 6 7

OPB02 Final products (buildings)

conformance to specification 1 2 3 4 5 6 7

OPB03 Defective rate of final products

(buildings) reduced 1 2 3 4 5 6 7

OPB04 Ability to respond to urgent

completion of final products
1 2 3 4 5 6 7
(buildings)

MP01 Trust between our company and client

1 2 3 4 5 6 7
MP02 Client complaints reduced
1 2 3 4 5 6 7
MP03 Client satisfaction
1 2 3 4 5 6 7
MP04 Client retention
1 2 3 4 5 6 7

288
Section 4: Demographic Profile

Please tick () at the appropriate box/column or write in your answers where appropriate

D1. Your position in the company: D2. Duration of your current position:

less than 3 years

_____________________________________
3 6 years

7 10 years

more than 10 years

D3. This company is a: D4. Number of full-time employees:

Sole-proprietor less than 100 100 250

Partnership
more than 250
Private limited company
D5. Length of time in which company has
been in business:
Public limited company

Others. Please specify: less than 3 years

3 - 6 years

7 10 years

more than 10 years

This is the end. Your kind participation is much appreciated.

Thank you. -a2o-

289
Appendix 4.2: List of Questions used in the Preliminary Study

LINKING MARKETING RESOURCES, SUPPLY CHAIN COORDINATION AND BUSINESS

PERFORMANCE IN THE CONSTRUCTION INDUSTRY

Graduate Business School

Faculty of Business Management,
Universiti Teknologi MARA Malaysia

Questions Preliminary Field Research

1. Nature of Construction Industry

a. What kind of construction work does your company involved with?
b. What classification of contractor does your company belong to?
c. Who are the participants in this industry and their functions?
d. How does the work process take place in a construction project?

2. Problems in the Construction Industry

a. What are the problems that normally face by the constructor/sub-constructor in
completing their task
b. How do these problems affect the organization and the system as a whole?
c. What are the factors that contribute to these problems?
d. What are the barriers to overcome the problems?
e. What are the ways to solve these problems?

3. Supply Chain Management

a. Are you familiar with the concept of Supply Chain Management?
b. Does your firm maintain good contact with other members in the supply chain (e.g.
subcontractor, supplier, etc.)? If yes, how?
c. Does your firm share information between the functions and with other members in
the supply chain (e.g. subcontractor, supplier, etc.)? If yes, how? If no, why?
d. Does your firm and other members practice joint responsibility (responsibility
interdependence)? If yes, how and in which area? If no, why?
e. Does your firm learn from other members through this connection (e.g. gain new
ideas and information? If yes, what kind of knowledge?
f. Does your firm adopt new technology in sharing and disseminating information with
members in the supply chain? If yes, how? If no, why?

4. Marketing Resources
a. Does your firm have good relationship with the clients?
b. Does your firm pay attention with the strategies taken by the competitors and try to
overcome it?
c. Do the units/functions in your firm working closely towards the same goals?
d. Do the units/functions in your firm sharing and disseminating information in
accomplishing their tasks?
e. Does your firm have ability to identify client/customer wants? If yes, how does your
company make it happen?

290
 f. Does your firm have good relationship with other members in the supply chain such
as the suppliers? If yes, how does your company make it happen?
g. Does your firm have the capabilities to innovate (to come out with new strategies or
ways of doing things)?
h. Does your firm have good reputations that might help you in convincing your client
or supplier?

Many thanks.

Akmal Aini Othman PhD Student (UiTM)

a2o@icqmail.com
012-3033326

291
Appendix 5.2: Reliability Test Result

Reliability Test Internal Consistency of the Constructs (2 nd Model)

Cronbachs Cronbachs Cronbach
Construct/Dimension/Scale Mean Standard Alpha Alpha s Alpha
(before items (after items (after items
Deviation deletion) deletion - deletion -
EFA) CFA)
Overall 0.961 0.960 0.957
Marketing Resources 0.868 0.862 0.840
Market Orientation 0.801 0.794 0.675
MO01 6.10 .828
MO02 5.67 .875
MO03 5.42 1.153
MO04 5.06 1.225
MO05 5.71 1.120
MO06 6.21 .907
MO07 5.79 .894
MO08 5.70 .838
Entrepreneurship Orientation 0.689 0.759 0.780
EO01 6.08 .957
EO02 5.60 .928
EO03 5.51 .980
EO04 5.05 1.118
EO05 5.47 1.012
EO06 3.64 1.692
Innovative Capability 0.759 0.759 0.769
IC01 5.58 1.102
IC02 5.34 1.044
IC03 4.74 1.265
Reputational Resources 0.576
RR01 5.21 1.253
RR02 6.03 .883
RR03 5.84 1.156
RR04 3.93 1.570

Procurement Process 0.940 0.925 0.925

Coordination
Supplier Selection 0.887 0.887 0.847
SCA01 5.64 1.249
SCA02 5.61 1.184
SCA03 6.05 1.027
SCA04 5.85 1.112
SCA05 6.00 .944
Supply Contracts 0.670 0.678
SCB01 5.21 1.263
SCB02 4.06 1.453
SCB03 3.26 1.540
SCB04 5.48 1.302
SCB05 4.94 1.531
Order Management 0.907 0.907 0.853
SCC01 4.91 1.336
SCC02 4.74 1.373
SCC03 5.08 1.295
SCC04 5.00 1.339

292
SCC05 5.24 1.224
Joint Operation Planning 0.878 0.882 0.819
SCD01 4.53 1.443
SCD02 4.53 1.365
SCD03 4.69 1.400
SCD04 5.32 1.153
SCD05 4.85 1.372
Supplier Relationship 0.768 0.768 0.899
Development
SCE01 5.72 1.196
SCE02 5.79 1.136
SCE03 5.69 1.156
SCE04 4.17 1.655
SCE05 5.29 1.175

Firm Performance 0.959 0.959 0.956

Operational Performance A 0.928 0.928 0.917
OP01 5.04 1.309
OP02 4.79 1.309
OP03 5.09 1.144
OP04 5.06 1.123
Operational Performance B 0.935 0.935 0.936
OP05 5.17 1.114
OP06 5.24 1.062
OP07 5.22 1.193
OP08 5.28 1.088
Market-based Performance 0.923 0.923 0.923
MP01 5.57 1.108
MP02 5.42 1.119
MP03 5.66 1.063
MP04 5.31 1.094

293
Appendix 5.4: Table of Chi-Square Statistics

Degrees of Probability, p
Freedom 0.99 0.95 0.05 0.01 0.001
1 0.000 0.004 3.84 6.64 10.83
2 0.020 0.103 5.99 9.21 13.82
3 0.115 0.352 7.82 11.35 16.27
4 0.297 0.711 9.49 13.28 18.47
5 0.554 1.145 11.07 15.09 20.52
6 0.872 1.635 12.59 16.81 22.46
7 1.239 2.167 14.07 18.48 24.32
8 1.646 2.733 15.51 20.09 26.13
9 2.088 3.325 16.92 21.67 27.88
10 2.558 3.940 18.31 23.21 29.59
11 3.05 4.58 19.68 24.73 31.26
12 3.57 5.23 21.03 26.22 32.91
13 4.11 5.89 22.36 27.69 34.53
14 4.66 6.57 23.69 29.14 36.12
15 5.23 7.26 25.00 30.58 37.70
16 5.81 7.96 26.30 32.00 39.25
17 6.41 8.67 27.59 33.41 40.79
18 7.02 9.39 28.87 34.81 42.31
19 7.63 10.12 30.14 36.19 43.82
20 8.26 10.85 31.41 37.57 45.32
21 8.90 11.59 32.67 38.93 46.80
22 9.54 12.34 33.92 40.29 48.27
23 10.20 13.09 35.17 41.64 49.73
24 10.86 13.85 36.42 42.98 51.18

294
25 11.52 14.61 37.65 44.31 52.62
26 12.20 15.38 38.89 45.64 54.05
27 12.88 16.15 40.11 46.96 55.48
28 13.57 16.93 41.34 48.28 56.89
29 14.26 17.71 42.56 49.59 58.30
30 14.95 18.49 43.77 50.89 59.70

295
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