Chapter 4 RESULTS
4.2 Empirical results
4.2.3 Profits above industry average
Table 6 is an OLS regression that estimates the ability to make more profits than the average on the industry. It turns out that neither Owner-manager characteristics, Management practices nor Capital variables are statistically significant to influence the capability of making more profits than the competition. The age of the owner though appears to be marginally significant; this can be explained by the wider experience older owner-manager have compared to young entrepreneurs. The firm’s date of creation might also be older than average, having time to understand and adapt the market mechanisms and gain a further position in the competition race. The lack of significant associations may be explained by several reasons. In the case of Taiwan, foreign entrepreneurs groups are miscellaneous, which is also true among members of a same group. Their origin, as well as their cultural differences result in a strong disparity among the businesses. Each has developed different competences and strategies to create an advantage unique to their firms. Consequently, each of the sampled firms that have made more profits than industry-average had done so using different ways. Some rely on their capacity to adapt the local needs, some succeeded in emphasizing their place of origin, cultural uniqueness and features differences compared to Taiwan. For most of the Asian entrepreneurs, the common key success was to localize the management practices, and standardized their products/services (based on the competition). Indeed, if you visit two companies from the same industry (retail or restaurant for instance), the products and/or services offered are the same, only the owner’s business skills differ. The achievements of some rely solely on creativity, while others excel in organizational management. Due to the sample size, a generalization of the factors that lead to higher profits than industry-average is not possible. An appropriate sample of more than 250 respondents would allow us to identify common factors to achieve higher profits than the competition.
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CHAPTER 5
CONCLUSION
5.1 Summary and interpretation of the results
This paper develops a model to investigate the effects of Owner-manager characteristics, Management practices and Capital factors on the performance of 33 foreign SMEs running in Taiwan. Performance has been defined by combining the principles of two theories: the Resource-Based View (RBV) of the firm (Penrose, 1959), which emphasizes on the internal resources of the firm as a mean to achieve competitive advantage, and the Strategic choice perspective which considers both the internal and external factors to explain a firm performance; competitive advantage is derived from the degree of fitness between a firm’s strengths and the needs of its environment.
According to previous literature, no generalized method has been agreed upon to evaluate a small-scaled firm’s performance. I follow the previous methodologies of Lussier and Pfeifer (2001) and Maes, Sels and Roodhooft (2003), and use a set of selected variables as endogenous variables. I have formulated non-financial variables and based the assessment of a firm’s performance on the owners’ subjective perception.
Our results follows a part of the conclusion formulated by Lussier and Pfeifer (2001) and Maes, Sels and Roodhooft (2003): the three factors do show a significant effect on the performance of small-to-medium scale firms owned by foreigners in Taiwan.
53
In the context of Taiwan, the firms distinguish themselves from other countries in the diversities of their products, services, competencies and weaknesses. I have demonstrated that in the context of a foreign environment, the firm that understands and responds to market needs the best have higher chance of survival. As young (1988) stated, “The environment supports the survival of the fittest”. The results also confirmed the findings of Lussier and Pfeifer (2001) which describe the effects of education and staffing on firm performance. Additionally, the results also highlight the role of market research and the initial investment in a firm’s profitability. Market research allows the firms to interpret and respond to the needs of local customers better than their competitors. Moreover, an appropriate initial investment is necessary to act as a buffer against the arrival of new competitors, the unexpected changes in demand, to compensate the costs created by the psychic distance or the unexpected costs due to a lack of experience.
This study also presents some differences with the researches of reference:
although work and industry experience have been said to be predictors of a firm’s success (Bruno and Tyebjee, 1985; Hisrich and Peters, 2002; Roberts, 1991; Sandberg and Hofer, 1987; Starr and MacMillan, 1990), it does not appear to be significant in foreign SMEs’ success in Taiwan. Instead, the degree of understanding of the market – market research, and the financial capabilities -initial capital and debt- of the firms show more significant effects on their performance –achievement of a firm’s purpose and the initial investment’s payback. Indeed, as noted by some researchers in entrepreneurship in developing nations, strategic plans and practices that succeed in one country may not be necessarily succeed in another one due to cultural and governmental differences, (Yusuf, 1995). Recipe for success in Taiwan is achieved through strategies specific to Taiwan. A firm may either fail to reach high profitability or meet with tremendous
54
success. As a consequence, many entrepreneurs take their chances and open a business on the island. This results in a strong disparity among management and financial practices: it may explain the reasons why capital and market research become so important in such an environment. Some competitors expect to gain an advantage on the others by the uniqueness of their products or services, neglecting the financial requirements and the minimum management skills required to run a business. Many are learning by doing, therefore, if one arrive with substantial financial and management capabilities, he or she could overcome the “uniqueness of products” of his/her neighbors, as the statistical results suggest it. Moreover, the importance of human resources on performance is also emphasized: employees do influence a firm’s success, if managed with efficiency.
Our model has the advantage of collecting the judgment of the direct actor – the owner-manager- who evaluates the strength of his business for each variable.
Moreover, it allows us to have a glimpse of the situation of foreign businesses’
performance in Taiwan.
5.2 Limitations and further research
A selected set of variables appears to be the most appropriate method to evaluate the survival and growth of SMEs. However, some limitations appear from this cross-cultural study: the research of Lussier and Pfeifer (2001) was examining the performance of Croatian firms; I apply a part of their research to my model. However, there are many differences between countries that I cannot control (Shane, 1993, 1994, 1996), the model would need to be tested on several countries to evaluate the significance of the predictor variables on a cross national scale study. Moreover, this
55
study is the first to examine the subject of foreign firms in Taiwan, this work is but a premise for other studies to understand the factors affecting inward FDI. A national-scale sample would be more than appropriate to answer this research question.
From a theoretical perspective, understanding the problems encountered by foreign entrepreneurs would help design appropriate policies or help business support network to assist businesses in their integration. Businesses benefit by receiving management, accounting or legal guidance in keeping with the best practices used by the local culture. Inward FDI are essential for a country’s development, especially for emerging countries such as Taiwan. Assisting the existing foreign businesses in Taiwan in their development could help attract and promote foreign small direct investments in the future, in times where inward FDI have been decreasing the past few years. The determination of those critical success factors is interesting since we could also be lead to find the key success factors (those that generate excellent performance) later on. On the other hand, even if Taiwan is classified 16th on the rank of the easiest country to do business in, succeeding in the market still require some competencies the foreign owners need to identify. What are those ingredients leading to success? Are they available to all or only to those using certain approaches? Is it then easier to succeed in Taiwan than in other countries? Does the Taiwanese market ask for newness, or on the contrary requires a combination of newness able to meet certain standard, and in the same time display innovative and fancy characteristics local are looking for? If we only consider the wealth it creates for both local and foreign parties, the subject is worth looking for, moreover, foreign companies also bring advantages on a national scale.
Besides attracting foreign FDI, they also participate in the creation of a certain local quality standard for both products and services.
56
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63 Table 3. Pearson’s product correlation results
PayBack4 2 3 4 5 6 7 8 9 10 11 12 13
2. MoreThanInd5 0.562***
3. Achieved6 0.644*** 0.594***
4. AgeOwner8 0.375* 0.174 0.330
5. EducationOwner9 -0.069 0.168 -0.178 -0.479***
6. IndExperience10 0.043 0.189 0.013 -0.014 0.019
7. BusinessPlan11 0.247 0.107 0.235 0.031 -0.141 0.203
8. QualifiedEmployee12 -0.153 0.126 -0.037 -0.289 0.126 0.437* 0.145
9. MarketResearch14 -0.043 0.323 0.113 0.162 -0.219 0.220 0.291* 0.221
10. DevoteMarketing16 -0.133 0.025 -0.283 -0.191 0.129 -0.068 0.014 0.232 0.440**
11. InitialEnough18 0.332* 0.480*** 0.510*** 0.307* -0.064 0.128 0.080 -0.105 0.406* 0.032
12. DebtHeavy19 -0.232 -0.440** -0.153 0.157 -0.190 -0.168 -0.004 -0.112 0.157 0.188 -0.110
13. NOofEmployee7 0.295* 0.166 0.375** 0.222 0.012 0.133 0.563*** 0.167 -0.095 -0.048 -0.019 -0.037
CompeteAdvantage21 0.164 0.265 0.216 0.189 -0.336* -0.132 0.283 -0.117 0.395** 0.176 0.327* -0.236 0.112
*p<0.1
**p<0.05
***p<0.01
64
Owner-manager characteristics
Management practices
Capital
Figure 1. Research model
SME performance
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1=Primary school, 2=Lower secondary, 3= Higher secondary, 4=Higher education 0= No experience, 1= Limited experience, 2= Fair, 3= Ample
5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree 5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree 5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree 5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree
5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree 5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree
1= investment paid back, 0=investment not paid back yet
5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree 5= Strongly agree, 4= Agree, 3= Neutral, 2= disagree, 1= strongly disagree
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Table 4. OLS regression: Achievement of the firm’s purpose of creation
Variables Estimate Standard error t-value
Owner-manager characteristics
AgeOwner8 -0.00509 0.02388 -0.21
EducationOwner9 -0.21433 0.26934 -0.8
IndExperience10 -0.18046 0.15117 -1.19
Management practices
MarketResearch14 0.12048 0.16928 0.71
DevoteMarketing16 -0.28* 0.15395 -1.76
Capital
InitialEnough18 0.38*** 0.13246 2.86
DebtHeavy19 -0.0993 0.15963 -0.62
Control Variables
NOofEmployee7 0.352* 0.1708 2.06
CompeteAdvantage21 -0.07447 0.18535 -0.4
R2 .5415
68 Table 5. Logistic regression, Payback investment
Odds ratio Standard error t-value Owner-manager characteristics
AgeOwner8 0.1275 0.1063 1.994
EducationOwner9 3.293* 1.9142 1.720
IndExperience10 -0.0206 0.6613 -0.031
Management practices
MarketResearch14 2.316* 1.3704 1.690
DevoteMarketing16 -1.4477 1.1507 -1.743
Capital
InitialEnough18 1.2619 0.9011 1.400
DebtHeavy19 -1.902* 1.0912 -1.743
Control variables
NOofEmployee7 1.4548 1.1368 1.279
CompeteAdvantage21 1.2142 1.0411 1.166
Wald 5.71
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Table 6. OLS regression. Profits more than industry-average
Variables Estimate Standard error t-value
Owner-manager characteristics
AgeOwner8 0.0522 0.03298 1.58
EducationOwner9 0.07524 0.37185 0.2
IndExperience10 -0.01026 0.2087 -0.05
Management practices
MarketResearch14 -0.22113 0.23371 -0.95
DevoteMarketing16 0.10953 0.21255 0.52
Capital
InitialEnough18 0.24276 0.18288 1.33
DebtHeavy19 -0.26136 0.22038 -1.19
Control Variables
NOofEmployee7 0.02592 0.2358 0.11
CompeteAdvantage21 -0.0615 0.2559 -0.24
R2 .3765
70 APPENDIX 1. Survey questionnaire
1. What type of industry does your firm belong to?
Restaurant☐ Retail☐ Wholesale☐ Technologies/Communications☐ Services☐ Manufacturing☐
Other: ________________________
2. What date did your company start its activities? ___________________
3. Is your company still in activity? Yes☐ No☐
If not, what date did your company stop its activities? _____________________
4. Your company already paid back the initial investment. Yes☐ No☐
5. Your company has made more profits than the industry-average’s for the last three years
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
6. The purpose of creation of your firm has been achieved. (E.g: Provide stable revenues for the owner, successfully launch your product in the market, etc...)
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
7. How many employees does your company currently employ?
0☐ 1-3☐ 4-7☐ 8-15☐ More than 16☐
8. How old is the owner-manager? __________________
9. What is the highest achieved educational level of the owner-manager?
Primary school ☐ Lower secondary ☐ Higher secondary ☐ Higher education ☐ 10. What was the owner-manager’s industry experience level when becoming owner-manager?
No experience ☐ Limited experience ☐ Fair ☐ Ample ☐
11. Your company had a clear business plan* before starting its activities. (*Clients segmentation, value proposition, market and brand positioning, financial projection, etc..)
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
12. Your company can easily attract and retain qualified* employees.( Qualified*: having a degree or experience related to their position or responsibilities)
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
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13. Qualified employees (s) are in charge of the financial management and/or accounting of the company.
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
14. Your company conducts market research before investing in new projects*. (*New product, marketing campaign, new location, new assets)
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
15. Your company uses the customers and/or market’s feedbacks to design new product/service/marketing/value proposition/strategies or improve existing ones.
Strongly agree ☐ Agree ☐ Neutral ☐ Disagree ☐ Strongly disagree ☐
16. Marketing plays a very important role in the development* of your company. (*Acquiring and/or retaining customers and/ or build
16. Marketing plays a very important role in the development* of your company. (*Acquiring and/or retaining customers and/ or build