[PDF] Engineering Consultancy Practice (ECP) Business Model in Malaysia

28638_3331f8a5e31cf11fe1a3b82d5110813c0b965.pdf International Journal of Business and Management; Vol. 11, No. 3; 2016

ISSN 1833-3850 E-ISSN 1833-8119

Published by Canadian Center of Science and Education 52
Engineering Consultancy Practice (ECP) Business Model in Malaysia:

A Structural Equation Modeling (SEM) Approach

Justin Lai

1 , Rosli Zin, Khairulzan Yahya 1 & Chai Chang Saar 1 1 Department of Structure and Materials, Universiti Teknologi Malaysia, Malaysia

Correspondence: Justin Lai, Department of Structure and Materials, Universiti Teknologi Malaysia, Malaysia.

E-mail: justinlaiwf@gmail.com

Received: December 19, 2015 Accepted: January 18, 2016 Online Published: February 25, 2016

doi:10.5539/ijbm.v11n3p52 URL: http://dx.doi.org/10.5539/ijbm.v11n3p52

Abstract

The implementation of liberalization in Malaysia has offered opportunities to the Malaysian to expand business.

The salient point of liberalization of Engineering Consultancy Practices (ECP) is the opening of the flood gate

for non-professionals (including foreigners) to register and operates consultancy practices. This would create an

excessive competitive environment to the Malaysian ECP. The aim of this study is to identify the successful

business model to be adopted by Engineering Consultancy Practice (ECP) for building its capacity and

competitiveness. This study is important in the sense that it serves as one of the pioneer studies, focusing on the

engineering consultancy practices, from the perspective of business model. Principal Component Analysis (PCA)

is employed to analyze data from a quantitative survey. Three components are extracted through PCA approach:

(1) Profit Structure factor, (2) Management Capability factor and (3) Stakeholder Relationship factor.

Consequently, Structural Equation Modeling (SEM) is utilized to perform analysis on the data extracted from

PCA. Two (2) Business Model Indices are formed to examine the business performance in terms of business

model criteria and business performance. Through the data validation, it is found that ECP Business Performance

Index is best to evaluate the business performance. Understanding the core values related to the Engineering

Consultancy Practices could help the local stakeholders to have better preparation and planning to face a greater

challenge lies as a result of the liberalization.

Keywords: Malaysian engineering consultancy practice (ECP), business model, structural equation modeling

(SEM)

1. Introduction

Liberalization is first introduced in October 2011 in Malaysian Budget 2012, to be enforced in seventeen (17)

sectors, including construction services, i.e. engineering consultancy practices. Engineering Consultancy

Practices (ECP) are referring to architectural, civil and structural, mechanical and electrical consultancy and

others professional engineer.

The nature of the services sector has changed radically as a result of Malaysia's commitment to the General

Agreement on Trade in Services (GATS). The salient point of the changes is that the ownership of the ECP has

now opened to the foreign service provider accordingly. Lim (2005) suggested that Malaysian services industries

will have to adapt to a more open market environment, where the sector needs to build up efficiency, productivity,

and thus competitiveness, through essential market means as it becomes increasingly open to foreign

participation and global best practice standards, including transparency of rules and regulations.

The liberalization of the ECP has posed great deal of challenges. While the flood gate of ECP ownership has

inevitably opened to the foreign service provider, the huge competitiveness of the environment is foreseeable in

the sense that only the winner can survive. Consequently, the liberalization of the ECP has inspired the motive of

this study to establish a successful business model to be adopted by ECP for building its capacity and

competitiveness. At the meantime, this study serves as the pioneer study in Malaysian ECP in examining their

business performance.

The significant of this study can be seen from both the theoretical and practical aspects. From the theoretical

aspect, it covers mainly the field of academics and educations. The result of this study is able to enrich the

context of the business management in academia and management philosophy. In addition, despite the fact that

www.ccsenet.org/ijbm International Journal of Business and Management Vol. 11, No. 3; 2016 53

this study only focuses on the Malaysian ECP, it can be served as a solid basis upon conducting an international

comparative study of the business performance in Southeast Asia or even Asia. This could further broader the

horizon on how to manage a business performance in different geographical locations.

From the practical aspect, the outcome of this study, a causal relationship framework is developed to draw

attention of the ECP practitioners, thereby improving the general understanding business management in ECP.

Meanwhile understanding the ECP success criteria could help to evaluate the success of a business. Managing

business criteria is complex in nature and multifaceted. Also, it is impossible to focus on every aspects of a

business performance criteria. Therefore, understanding ECP business success factors and criteria could help to

focus the restrained resources on certain aspect of the business (input), thereby enhancing the output of the

business.

2. Literature

2.1 Engineering Consultancy Practice (ECP)

The Board of Engineers Malaysia (BEM), with the aim of facilitating the registration of engineers and regulating

the professional conduct and practice of registered engineers in order to safeguard the safety and interest of the

public, was only formed in 23 rd August 1972. The BEM is fall in the ambit responsibility of the Minister of

Works, where the Board Member and the Registrar is appointed by the Minister. More specifically, for the

interest of the public, especially those who come from the background of engineering, it is uncommon that the

primary role of BEM is a statutory body enabling the registration of Profession Engineers. With the registration

of Profession Engineers, one can legally endorse drawings from their respective discipline, where this act is

generally associated with maximizing profit. However, the role of BEM is not limited to registration of

Profession Engineers, but also promoting Engineering Consultancy Practices (ECP), which serves as the main

subject of this study.

In Malaysia, those either sole proprietorship, partnership or body corporate desirous of practicing as consulting

engineers shall register with BEM. As such, the definition of ECP mostly adapted from the rule and regulations

of BEM. BEM first defines 'Professional engineering services' as engineering services and advice in connection

with any feasibility study, planning, survey, design, construction, commissioning, operation, maintenance and

management of engineering works or projects and includes any other engineering services approved by the

Board.

Meanwhile, ECP encompass the independent performance of engineering related study, preparation of reports,

making design, supervision of construction and similar advisory activities in the engineering disciplines in

conformity with generally accepted professional techniques and sound management practices. Also, the

requirements and procedure of the ECP has stressed that, regardless of single discipline or multi discipline, the

ownership of the ECP must comprise of Professional Engineers, Professional Architects and registered Quantity

Surveyors. The ownership of ECP is not open to the public in accordance with the requirements and procedure of

the Board as per stated in Engineering Act (7) (A) (1); (2); (3). The amendment of Engineering Act (2013) due to liberalization has allowed (i) the owner from a sole

proprietorship, partners and in case of body corporate, 2/3s of the board of directors and 70% of the equity shall

be or with Professional Engineers (local or foreign) with a Practicing Certificate; (ii) ensure that all the decisions

of a body corporate shall be made by a Professional Engineer with a Practicing Certificate; and (iii) equity to be

stated in these acts is for the ease of future amendments.

The liberalization of the ECP has posed great deal of challenges. While the flood gate of ECP ownership has

inevitably opened to the foreign service provider, the huge competitiveness of the environment is foreseeable in

the sense that only the winner can survive. Consequently, the liberalization of the ECP has inspired the motive of

this study to establish a suitable business model to be adopted by ECP in Malaysia to build its competitiveness.

2.2 Business Model

Southeast Asia countries are potentially high growth regions in both local and internationally. This positioning in

Southeast Asia countries encourage further development in both public and private partnership, adapting

business models for expansion and moving with greater agility. These imperatives will be critical not only for

global businesses seeking to expand into Southeast Asia, but also for large domestic businesses that are aiming to

assert a leadership position in the region or in Asia more broadly (Accenture, 2011).

Business model remains essential to every successful organization, whether it is a new venture or an established

player. It is referring to the organization production and managerial system. It shows a highly simplifies and

aggregate form which resources play an important role in the organization. A good business model facilitates the

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business model is based on the suitability and types of the business conducted. A competitive business model

articulates the logic and provides that demonstrates how a business creates and delivers value to customers. It is

greatly rely on the strategy and innovative renovation in the model to suit the business. The recent stage in

business model development is very much depended on structure of an organization, cultural behavior and the

potential customers in determining a business model. Taking into consideration of Engineering Consultancy

Practice (ECP) business development in Malaysia, the liberalization has brought direct impact to the ECP

development, creating competitiveness and flexibility to the ECP service providers. Moreover, the ECP business

model development is still considered young in its business performance resulting in the Malaysian ECP today is

facing greater challenges in sustaining their business.

The adoption of suitable business model is able to help ECP in managing the firm in a systematic way to ensure

revenue stream. As the selection and suitability of the business model is relied on the eleven business core values,

hence formation of best ECP business model could be generated by review the core values and criteria to suit the

Malaysian consultancy industry.

3. Research Methodology

The review on business model is intended to examine the existing business performance in Malaysian's civil and

structure engineer in order to justify their competitiveness in overcoming the challenges due to liberalization.

Based on binomial distribution, 95% confidence level of 3500 population size (civil and structure engineers

only), 346 sets questionnaire were distributed. 125 sets questionnaire were collected, 84 sets valid questionnaire

were received, representing 24.3% of response rate. According to Fellow et al. (1997), the normal expected

responses rate is ranging from 25%-35%. Thus, the response rate for this study is considered acceptable.

The questionnaire is designed in 5 points Likert Scale. "5" represent strongly agree, "1" representing strongly

disagree meanwhile "3" representing less agree. This is to prevent neutral opinion given by the respondents.

Principal Component Analysis (PCA) and Structural Equation Modeling (SEM) were utilized to examine the

causal relationship of ECP business model in Malaysia. One of the main reasons this study employs Structural

Equation Modeling (SEM) lies with its capability of modeling the relationship among multiple independent and

dependent constructs simultaneously (Zainudin, 2012).

4. Analysis and Discussion

Principal Component Analysis (PCA) is conducted through Statistical Package for Social Sciences (SPSS). The

results of PCA are utilized to compute ECP Business Model through Analysis of Moment Structure (AMOS).

The analysis is discussed in following sections.

4.1 Principal Component Analysis

Principal Component Analysis is greatly relying on the reliability and sampling adequacy test (Field, 2005).

Cronbach's alpha is commonly used to measure of the internal consistency of the factors which correlated to

each other. The higher Cronbach's Alpha represent the higher reliability of the variable set. It is suggested that

the threshold value for the Cronbach's Alpha is set at 0.7 (Nunnally & Bernstein, 1994). The Cronbach's Alpha

recorded in this study is 0.895, suggesting a high internal consistency as well as high level of reliability of the

survey instrument. Meanwhile, Kaiser-Meyer-Olkin (KMO) and Bartlett's measure are normally used to measure

the sampling adequacy in factor analysis. The threshold value of KMO should be greater than 0.5 if the sample

size is adequate (Child, 1990). The test result of KMO is 0.600 suggesting that the sample size is adequate for

factor analysis.

As this study involves 69-factors (refer Appendix), for the sake of interpretability, the coefficient display format

was set to suppress absolute values of less than 0.7. Meanwhile, the extraction method was set to principal

component while the rotation method was set to varimax. As Meyers et al. (2006) suggests the threshold value

for the cumulative of total variance explained is 50 per cent total variance explained, the number of groups

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