Answer To: GUIDELINES FOR THE PREPARATION OF FINAL YEAR PROJECT REPORT/ THESIS 2020 i TABLE OF CONTENTS PREFACE...
Swati answered on Nov 19 2021
IMPACT OF SUPPLY CHAIN NETWORK
ON
CREDIT QUALITY
OF
A MALAYSIAN CONSTRUCTION COMPANY
GOH SILVIA
XIAMEN UNIVERSITY MALAYSIA
2020
THESIS OF BACHELOR’S DEGREE
IMPACT OF SUPPLY CHAIN NETWORK
ON
CREDIT QUALITY
OF
A MALAYSIAN CONSTRUCTION COMPANY
NAME OF STUDENT -
STUDENT ID -
SCHOOL/ FACULTY -
PROGRAMME -
INTAKE -
SUPERVISOR - NAME
TITLE
16TH NOVEMBER, 2020
DECLARATION
I hereby declare that this project report/ thesis are based on my original work except for citations and quotations which have been duly acknowledged. I also declare that it has not been previously and concurrently submitted for any other degree or award at Xiamen University Malaysia or other institutions.
Signature -
Name -
ID No. -
Date -
APPROVAL FOR SUBMISSION
I certify that this project report/ thesis entitled “IMPACT OF SUPPLY CHAIN NETWORK ON CREDIT QUALITY OF A MALAYSIAN CONSTRUCTION COMPANY” was prepared by GOH SILVIA has met the required standard for submission in partial fulfillment of the requirements for the award of Bachelor Degree at Xiamen University Malaysia.
Approved by-
Signature -
Supervisor - Prof. Dr.
Date -
Signature -
Co-supervisor -
Date -
The copyright of this report belongs to the author under the terms of Xiamen University Malaysia copyright policy. Due acknowledgement shall always be made of the use of any material contained in, or derived from, this project report/ thesis.
(c) 2020, Goh Silvia. All rights reserved.
ACKNOWLEDGEMNETS
I would like to thank all who have contributed to the successful completion of this project. I would like to express my gratitude to my research supervisor, Prof. Dr. XXXXX for his invaluable advice, guidance and his enormous patience throughout the development of the research.
In addition, I would also like to express my gratitude to my loving parents and friends who have helped and given me encouragement.
ABSTRACT
Supply chain network impacts the credit quality of an organization. The purpose of this research study is to examine the impact of construction industry’s supply chain network on influencing credit quality or more specifically impact on the strong tie that is relational network and bridging tie that is structural network of construction industry of Malaysia in the supply chain can improve the availability of debt as well as equity capital through the channel of information sharing. To study this impact, a survey was conducted in the construction organizations of Malaysia with the help of questionnaires to test the entire hypothesis. The data collected then was analyzed by employment of the partial least squares path modeling. Findings from the study suggested that both strong as well as bridging ties that are supply chain networks of construction industry of Malaysia can lead to positive effect on information sharing in supply chain further enhancing the credit quality as a whole for industry. However, it was found that without information sharing, strong ties do not show significance influence on credit quality whereas bridging ties shows direct impact on the credit quality as such. In spite of crucial role by construction industry in sustaining national economies, the critical constraint of risk free financing is beset by them. On the basis of survey, this thesis finds that credit quality of construction industry in Malaysia is affected by 2 major factors that are information sharing in supply chain as well as the attributes of supply chain networks. This research implies that construction industry may have financing advantage for better embedment in the supply chain network but there may be varying effects that could be experienced as per the constraints associated with the supply chains information asymmetry.
TABLE OF CONTENTS
DECLARATION 3
APPROVAL FOR SUBMISSION 4
ACKNOWLEDGEMENTS
ABSTRACT 7
TABLE OF CONTENTS 8
LIST OF TABLES 10
CHAPTER
1 INTRODUCTION
1.1 Research background 11
1.2 Problem statement 12
1.3 Research questions 13
1.4 Research aim and objectives 14
1.5 Scope of research 14
1.6 Significance of research 15
1.7 Research contributions 16
1.8 Thesis outline and structure 17
2 Literature review
2.1 Introduction 19
2.2 Background of the Malaysian Construction Industry 19
2.3 Credit related challenges 20
2.4 Construction industry challenges for working capital 22
2.5 The direct effects on credit quality 22
3 Research methodology
3.1 Research framework 26
3.2 Hypotheses/propositions development 27
3.3 Research design 29
3.4 Operational definition 29
3.5 Measurement of variables/instrumentation 30
3.6 Data collection 30
3.7 Sampling 31
3.8 Data collection procedures 31
3.9 Techniques of Data analysis 33
4 Analysis, results and findings 34
5 Discussion, recommendations and conclusion 36
References 41
Appendices 49
LIST OF TABLES
Table 1- sample distribution 49
Table 2- Assessment of the reliability of the measurement model 50
Table 3- Result of hypothesis and estimates 51
Table 4- Interviewed companies and interviewees 53
Questionnaire 54
Chapter -1
Introduction
1.1 Research background
Construction industry of Malaysia contribute a major portion towards the GDP of the country in both ways- direct as well as indirect with the help of several infrastructure along with mega projects which are implemented in specific country. Construction industry in Malaysia plays vital role in order to provide quality, affordable and adequate facilities, infrastructures as well as homes as part of country’s development. A large sum of money is invested by Malaysian government in expenditure of country so that to transform it to industrialized one from the developing country by 2020. As technology and competition is increasing, many firms had been turning towards the management of supply chain as core of strategic competence so as to get competitive advantage (Sheth & Sharma, 1997). Along with this, firms have started exploring ways so as to leverage the supply chains along with specifically evaluating role of suppliers in activities in systematic manner.
In global economy, supply chains have become heart and core where a successful management of supply chain is most crucial for corporate success. Data of supply chain is patchy for individual supply chain companies as well as for links among several supply chains. Thus, the credit data via bank source may help in identification of weak links in networks of supply chain. Huge challenges are faced by the construction companies in Malaysia for operational support to obtain working capital in liquid form. Earlier, these organizations used to seek from commercial banks, the capital financing based on terms as well as credits of own. However, incomplete financial statements, limited operating history or may be positioning at start up stage with traits in association with the insignificant performance, small sizes, high risk along with several other factors lead to constraint these organizations towards working capital receipt in efficient manner with the help of traditional methods (Song and Wang, 2013). Particularly the companies introducing innovation in products are higher prone to face financial constraints in comparison to organizations in same industry (Brancati, 2015). In such cases, the bank can compensate potential loss by means of higher vouch or mortgage requirements only (Duan et al., 2009).
In debt financing case, collateral is requested by lenders mostly so as to mitigate the moral hazard risks and this collateral lack is the most commonly cited hurdle as faced by the companies to get access to finance. This results to fact that organizations can get the funds only under condition where they do have high credit quality based on the transparency of information as well as supply chain network. Most of the businessman knows very well that credit rating is vital to make the borrowings accessible and affordable. It also helps to increase the value of business as well as appeals to potential investors in the market. Credit quality further makes it easier to build relationships.
Based on these parts proven credit scoring worthiness and requirement of high credit score, optimism could be seen towards it being a good enough system for emulation effects of supply chain networks in Malaysian construction organization’s credit quality. Hence, this research study aims towards adoption of this practice of credit quality with emphasis on the impact of supply chain network on business’s credit quality.
1.2 Problem statement
Credit quality is a vital factor for obtaining the funds as well as working capital in liquid form so as to run business successfully and maintaining the supply chain network efficiently. Credit rating acts as a reliable indicator of a business paying promptly all its bills. This helps the suppliers as well as lenders know that they will be paid on time. Investors are keen to know about the business having fiscal responsible history in which they are considering putting their capital. Also, clients looks forward to good rating as this is sign that company would is unlikely to fold suddenly and would be around for a while. It indicated that financial woes chances are less in organization. Thus, credit quality is must for any businesses to not only get funding but to maintain the supply chain networks efficiently and effectively.
Supply chain plays vital role in any business as most of the businesses depend on suppliers for integral parts of their services as well as products. There are few companies that own entire supply chain of their own. Technology now a days has made world smaller making it very common even for small businesses to source inventory, raw materials or other service components from providers half a world away. Now, as it is factual that many clients and suppliers are distances apart physically, it becomes difficult to keep tabs on the financial health of the vital vendors. Due to spread of supply chain disruptions, sometimes business owners whose core vendors gets into trouble may find themselves soon apologizing own customers for delays and outages. This is weakest link for business. Also, the suppliers who are struggling have no incentive to alert their clients about this fact. Some of the clients jump ship which becomes more troublesome for already embattled companies. Thus, business owners owe it to themselves to stay in loop and stay updated about all the pertinent information and evaluating it further would take more time than the entrepreneurs have mostly. So, there is easier way here that is credit quality. Studying the impact of supply chain network on credit quality is must here as it enhances the credit worthiness of organization as well as increases chances of funding.
1.3 Research questions
Above section has enlightened the issues surrounding the Malaysian construction industry in context of credit quality along with the need of studying impact of supply chain network for credit quality. Furthermore, analysis highlighted the core gaps from the existing research studies requiring more attention further for credit quality improvement in better manner. Thus, on the basis of statement of problems, this research study came with research questions which are as follows-
1. What are the factors contributing to the credit quality in Malaysian construction industry?
a. What are the key reasons towards determination of credit score in Malaysian construction industry?
b. What are reasons behind the impact from credit quality on business in Malaysian construction industry?
2. How can Supply chain affect the credit quality?
a. How can Supply chain network improve credit score in Malaysian Construction Company?
b. What approaches can be used for improvement of the credit quality in Malaysian Construction Company?
1.4 Research aim and objectives
This problem statement analysis along with the answering the research questions, aims of this research is to study effects of supply chain network on the Malaysian construction company’s credit quality. Also, a framework may be developed utilizing the beneficial supply chain network tools in order to improve the credit score in Malaysian construction organizations. For this aim accomplishment, the research objectives that must be achieved are as follows-
1. To establish the credit quality nature, need of good credit rating and its impact on supply chain in Malaysian construction industry.
2. To identify the beneficial Supply chain network tools and development of framework utilizing these tools to improve credit quality in Malaysian construction industry.
1.5 Scope of research
This research does have scope towards only the impacts of supply chain network on the credit quality of a business along with studying strong ties as well as bridge ties of supply chain networks showing positive effect on credit quality of Malaysian construction companies. But the impact of information system which is another crucial part to affect the credit quality is not covered in this research. This developed framework may be used and applied on the different projects or different countries but there would be requirement of further modifications for ensuring the appropriateness based on varying environments. Scope of this research however is confined to the supply chain networks affecting credit quality in Malaysian construction companies.
1.6 Significance of research
Construction industry is one crucial sector for country playing vital role in wealth of nation, job opportunity generation, development, multiplier effect creation on services in other sectors such as services, manufacturing and professional services as well as translating the socio-economic policies of government (CIMP, 2007). Poor credit quality of construction industry would affect the business operations leading to affect on the image of industry, GDP contributions as well as affecting the confidence of investors. In general buyers are larger companies that do possess stringer credit ratings as well as better cash flow access whereas there may be independency of sellers with the limited financing as well as liquidity of the small companies. Here supply chain finance works with the help of large companies enabling towards helping their supply chain such as to get benefit from high credit scores along with the cash flow improvements at low costs totally. For example, in case the buyer possesses strong credit score is larger company in comparison to seller, bank may be notified by it regarding it having approved invoice for payment from the seller. Bank having information security thus will be able to offer immediate advance to supplier at the interest rates that are lower. This is result of bank being safe in terms of knowledge that the outstanding invoice will get paid inevitably by the buyer. This way supply chain network affects the credit quality. Further this research helps to understand the effects that in terms of facilitating liquidity into supply chain by injecting cash as well as helping to tackle crippling effects of late payments. Study also reflects that supplier gets benefits as he gets access to finance at low interest rates on the basis of credit quality of buyer. Here the core point is that buyer must have better credit quality compared to supplier. Buyer also gets benefited as the advantages can be leveraged such as in agreement of more favorable terms with the seller like payment terms extension. Hence, capital is retained by the buyer for long duration enabling the investment or interest collection on capital for longer duration. Meanwhile seller is able to access cheaper capital from a reliable source. Furthermore, this research develops a framework for improvement of credit score with the help of tools and approaches adopted by the Malaysian construction companies.
1.7 Research contributions
This research contributes to both the construction industry as well as the body of knowledge.
1. Contribution to the construction industry
a. This could help Malaysian construction industry understand the importance of credit quality.
b. Improvisation of credit score
c. Provides a guidelines to implement supply chain network for credit quality improvement
d. By making some modifications in the framework, benefits could be given to other countries or project with varying nature, value and organizational type.
2. Contribution to the body of knowledge
a. Establishing the impact of supply chain network on credit quality. Past researches has been short of studying the impact of supply chain network specifically on the credit quality in context of construction industry of Malaysia. Furthermore, this research also contributed to target specifically on the supply chain networks.
b. Proposing the realization of credit quality importance along with seeking advantage and taking its benefits from the supply chain networks to both the supplier as well as buyer.
c. To get an insight of both types of network connectedness, “cliques” and “bridge” in supply chain along with impact of both on credit quality.
d. Developing a supply chain network tool and approach that would help to increase the credit rating while seeking benefits from supply chain network in Malaysian construction companies.
Further research can be carried out towards impact of supply chain network on information system resulting in impact on the credit quality. Also, how the Information sharing mediates the effect of supply chain network on Organization’s credit quality can be discussed.
1.8 Thesis outline and structure
This thesis contains 5 chapters which could be outlined as follows-
Chapter 1- this is introduction of thesis where the research background is presented along with the main issues, industry problems supporting the proposition of research. Further, presentation of research questions as well as objectives is done based on the problem statement. Significance along with contribution of this research is detailed out following the structure of thesis.
Chapter 2 explored the literature review in detail along with the past studies that has been carried out towards the supply chain network, credit quality and related concepts associated with the research. An overview of Malaysian construction industry is also been detailed out along with working capital challenges, supply chain network role and affect on the credit quality.
Chapter 3 detailed out the research methodology used along with all approaches used in this research on both quantitative as well as qualitative methods. Also, the instruments selections, sampling approach etc were all justified. Furthermore, approaches for data analysis were also explained.
Chapter 4 was about the analysis, research and findings wherein the all collected data was analyzed. Step by step detailed explanations for data as well as findings were presented in this chapter.
Chapter 5 includes discussions, recommendations and conclusions where all the findings on analyzed data were discussed and appropriate recommendations were made and finally this chapter concluded the research by looking into contributions made, key findings, experienced limitations as well as future research propositions.
Chapter- 2
Literature review
2.1 Introduction
To achieve the objectives of research, this chapter begins by giving a supportive background of the Malaysian construction industry with the critical discussion about the current credit quality and the affect of supply chain network on same. Comprehensive literature view is here provided to define the credit quality, the construction industry in Malaysia followed by the challenges faced in terms of working capital and financial support. Further the role and importance of credit quality is highlighted with the help of present research and literature review. Finally the core concept where impact of supply chain network is presented well on the credit quality is given. These collectively lead to development of conceptual framework for the study.
2.2 Background of the Malaysian Construction Industry
The Malaysian construction industry plays a vital role in local community’s lifestyle along with offering contribution to country’s economic development ever since independence. There are broadly 2 types of work in construction industry of Malaysia. These are general constructions like civil works and buildings and another work is special trades like electric and plumbing works (Ibrahim et al., 2010). Due to these, several jobs for local as well as foreign workers are provided with many more people working in client organization whether private or public sector, surveying, contractors, architecture, engineering, manufacturing and management. Along with generating wealth for overall development of country there is contribution from construction industry towards other manufacturing industries, professional services, financial services and manufacturing sectors (CIDB, 2008). As per Ibrahim et al. (2010), construction industry has been developed greatly because of government spending for improvisation of the infrastructure of country. Along with public bodies, private sectors have also contributed largely specifically when the 9th Malaysia plan was introduced by government. Further 10th MP has a total of RM138 billion allocations towards physical development in construction sector including public projects development (CIDB, 2008). For maintenance as well as construction of government projects, a vital role was played by PWD that became main technical advisor of government on all matters that involved public projects delivery and public professions. A growth in construction industry by 3.7% annually was targeted by the Malaysian construction industry development board over 5 year period. Towards vision 2020, the closing chapter was 11th MP which was from 2016-2020. Some of objectives had been already achieved in 10th MP, but several challenges are faced by government in raising economy of nation to be on par with developed countries. Thus, aim of 11th MP is to strengthen the infrastructure such as to support expansion of economic growth for greater prosperity which includes transformation of construction industry and transformation of the public services for productivity increase. The growth of the construction industry particularly is evident under the 11MP, with a proposed contribution of RM327 billion or 5.5% to GDP by 2020 (EPU, 2015). This is because of ever increasing demand for housing as well as continuous investment in large scale projects in future like highways, power plants, ports, urban transport system as well as airports (CIDB, 2015). Further global economic uncertainties, rapidly rising citizen’s expectations as well as technological changes is making the Malaysian construction industry face challenges for government to deliver sophisticated services and infrastructure. To overcome these as well as to meet the objectives of 11th MP and for overall growth of construction companies in Malaysia, there is need for companies to have better credit quality for having smooth financial stability.
2.3. Credit related challenges
Rapid growth is expected in construction industry and these do face huge challenges for getting working and liquid capital so that operations can be supported well. In past, organization used to seek working capital financing from the commercial banks on the basis of their credits and terms, but the incomplete financial statement, limited operating history or positioning at start up stage with the features in association with the high risks, small sizes, insignificant performances and several factors puts constraints to receive working capital efficiently by the traditional manners (Song and Wang, 2013). In case of product innovation, financial constraints are more likely to happen (Brancati, 2015). Organizations can get funded based on the high credit scoring with the information transparency. Information sharing here tends to improve the information processing capabilities as well as information quality (Liu et al., 2015; Wong et al., 2015). Due to lack of sharing information, various supply chain related issues comes up. Also, information sharing needs transactional data exchanges along with product and material orders as well as strategic supply chain information (Prajogo and Olhager, 2012).
Recently, researches on the supply chain finance has been emerging directed towards improvement of working capital and liquidity (Yan and Sun, 2015; Hofmann and Kotzab, 2010; Pfohl and Gomm, 2009; Gomm 2010). Supply chain finance is basically a method that helps to optimize the cash flow as well as financial structure within the...