This chapter provides information about the methodological steps followed to realize this research. It includes the framework, the hypothesis, research method, sample, instruments and measure, validity and reliability, data collection, data analysis and research procedure.
Research Framework
Figures 3.1 illustrate this research framework. The service offerings of business incubators to MSMEs in Nicaragua are listed as independent variables and the performance indicators of these micro, small and medium sized businesses are listed as dependent variables.
H1a MSME´s Performance Indicators
Business Incubator Service Offerings
Capacity to respond to market demand
Formal organization administration Training Assistance
Figure 3.1. Research framework
Hypothesis General Hypothesis
The general assumption of this research is that the performance of MSMEs is affected by the services that business incubators offer to them. Thus, the following hypotheses are proposed:
H1: The technological assistance business incubator provide to MSMEs, positively affects their performance.
H1a: The technology assistance business incubator provided to MSMEs, positively affects their product/ service innovation.
H1b: The technology assistance business incubator provided to MSMEs, positively affects their quality of the product/ service product/ service.
H1c: The technology assistance business incubator provided to MSMEs, positively affects their capacity to respond to market demand.
H1d: The technology assistance business incubator provided to MSMEs, positively affects their formalization of internal administrative organization.
H2: The financial assistance business incubator provide to MSMEs, positively affects their performance.
H2a: The financial assistance business incubator provide to MSMEs, positively affects their product/service innovation.
H2b: The financial assistance business incubator provide to MSMEs, positively affects their quality of product/service.
H2c: The financial assistance business incubator provide to MSMEs, positively affects their capacity to respond to the market demand.
H2d: The financial assistance business incubator provide to MSMEs, positively affects their formalization of internal administrative organization.
H3: The networking assistance business incubator provide to MSMEs, positively affects their performance.
H3a: The networking assistance business incubator provide to MSMEs, positively affects their product innovation.
H3b: The networking assistance business incubator provide to MSMEs, positively affects their quality of the product/service.
H3c: The networking assistance business incubator provide to MSMEs, positively affects their capacity to respond to the market demand.
H3d: The networking assistance business incubator provide to MSMEs, positively affects their formalization of internal administrative organization.
H4: The training assistance business incubator provide to MSMEs, positively affects their performance.
H4a: The training assistance business incubator provide to MSMEs, positively affect their product innovation.
H4b: The training assistance business incubator provide to MSMEs, positively affect their quality of the product/service.
H4c: The training assistance business incubator provide to MSMEs, positively affect their capacity to respond to the market demand.
H4d: The training assistance business incubator provide to MSMEs, positively affect their formalization of internal administrative organization.
Research Design
Given the importance of MSMEs not only to Nicaragua but also to many countries in the world, an empirical study was developed to assess the impact of service offerings provided by Business Incubators.
A quantitative study was designed to test research hypothesis. Quantitative studies are the most common method to use when seeking to confirm hypothesis about a specific phenomena. Often rely on highly structured methods such as surveys or questionnaires with close ended questions. The primary objectives of quantitative approaches are to quantify variation, predict casual relationships or describe characteristics of a specific population (Woodsong, MacQueen, Guest, & Namey, 2005).
Research Procedure
The research procedure consisted of all steps followed by the researcher in order to complete this study. The Figure 3.2 described below, provides a brief description of these steps, starting from the review of related literature to the presentation of findings and recommendations.
Review literature
Design topic, methodology, framework, hypotheses
Develop instrument
Expert review and pilot test: changes were necessary
Data collection
Data analysis
Presentation of findings, recommendations and conclusions
Figure 3.2. Research procedure
Instruments and Measures
A survey questionnaire was designed to collect the data from the intended sample.
This questionnaire was constructed using reference literature related to the theme and previous questionnaires used for similar topics. The questionnaire was organized into three parts; part one referred to general information of the MSMEs such as type of industry, number of employees, age of the business, status of the business, reason to start the business, business ownership and funds to start the business. It also refers to information of the MSMEs and the program of assistance or incubator such as type of relation, type of assistance received, period of time in the program and finally it refers to demographics such as gender, age, level of education and experience, part two referred to questions oriented to the type of assistance the audience received from the incubator in detail and part three and
last one referred to items oriented to the current performance of the participating small and medium size enterprises. A 5 points likert scale was used in order to provide the interviewees sufficient values to proceed with the evaluation. Likert scale is the most frequently used in survey questionnaire research and is most suitable for use in factor analysis (Hinkin, 1998).
The first part of the questionnaire referred to general information and demographics required to assess the general profile of the MSME. Some of the questions such as number of full time employees and ownership of the business, were taken from the demographics of a questionnaire develop by Quazi and Padibajo (1998). Number of employees of full time employees was used to determine the size of the MSME according to the criteria establish by the law in Nicaragua. Other questions such as age, gender and education of the owner, type of industry, status of the business, reason to start the business, owner years of experience and sources used to start the MSME were retrieved from a previous questionnaire used by a study named Small Business Financing: Survey Evidence in West Texas (He & Baker, n.d.). The questions that referred to age of the business, type of assistance received from the incubator and period of time of participation in the incubator program were designed in order to assess the relation of the MSME with the incubator.
The second part of the questionnaire was oriented to the current situation of MSMEs in terms of the following dimensions: product innovation, quality of the product, capacity of response to market demand and formal organization administration.
The first section of the second part presented all items related to product/service innovation within the MSME. Innovation is the creation of new product, service or process and can also include the improvement of an existing product (Van de Ven, 1986; Zoltan &
Audretsch, 1988). Based on this definition and using items developed by Quazi and Padibajo (1998), 10 items were utilized to assess the product innovation of SME´s in Nicaragua. Some
of these items are: introduction of one new product/service/process within the last year, improvement of existing product, customization of product/service/process etc.
The second section of the second part was oriented to the quality of the product/service provided by the MSME. Reves and Bednar (1994) defined quality as:
excellence, value, conformance to specifications and meeting or exceeding consumer expectations. The items used for this dimension were taken from Quazi and Padibajo (1998) survey questionnaire, other from Almeida (1999) survey questionnaire and other were designed based on the definition of quality. In total, 10 items were included, some of them refer to: integration of quality factors in product/service design, use of customer complaints to improve product/service, ask customers about their expectations of the product and/or service etc.
The third section of the second part assessed the capacity of response to market demand from MSMEs. According to Kwaku and Satyendra (1998), the ability of MSMEs owners to adapt and respond to customers’ needs and desires is vital to survive in globalized and dynamic markets especially in the current era. The OECD (2004b) defined globalization as marketing and commerce trades, international investment, strategic alliances, partnerships and networking. All this factors created opportunities for MSME to access larger, unexplored and unexploited market niches. Using these literature as reference, 10 items were developed to evaluate SME capacity to respond to market demands, some of these items are: business approach to international markets, business approach to segment of the market not served by competitors, increase of client portfolio etc.
The last section of the second part referred to formal organization administration.
According to Nicolescu (2009), formal organization administration is “the exact determination of all components of the organization system and their consignment in detailed organizational documents, serving as working instruments for the company’s components
and for the work control and their performances by the entrepreneur and managers” (p. 409).
The majority of items for this part of the questionnaire were adapted from Quazi and Padibajo (1998). Some of the items referred to the possession of business plan, business goal, administrative documentation etc.
The third part of the questionnaire covered all items related to the current assistance MSMEs receive from incubators; this part includes the following sections: technology assistance, financial assistance, networking assistance and training assistance. The first section of this part is technology:
“Technology transfer can be generally defined as the transfer of a technology, technique, or knowledge” (Melkers, Bulger & Bozeman, 1993, p.
223).
Based on this definition, 10 items were designed to cover the most common needs MSMEs in Nicaragua have because of lack of information, knowledge or accessibility. Some of these items are: updated production machinery, access to information technology media (e.g. internet, computers etc).
The second section is financing. According to Thorsten and Asli (2006), access to financing is one of the biggest obstacles MSMEs encounter not only in the start up phase but along their existence. For this section He & Baker survey questionnaire was consulted in order to identify the types of financial assistance through which MSME can access to financing. The opinion of experts in the current financial situation of Nicaraguan MSMEs was also taken into consideration; and based on these two sources, microfinance loans; bank loans and governmental financing programs were utilized to develop 10 items.
The third section covered items related to MSMEs networking. Gibb (1997) classifies MSMEs network relationships with the following groups of people: customers, suppliers,
bankers, accountants, solicitors, agents, marketing channels, workers, family, friends, acquaintances and regulatory authorities. Based on this classification and considering the most common practices for MSMEs networking in Nicaragua such as national fairs, 12 items were developed. Among those items, there are: meeting with other MSMEs owners, contact with governmental and non-governmental support programs, and contact with unexplored clients etc.
The last section of this part referred to training assistance. “Training can, and should be a powerful agent of change, facilitating and enabling a company to grow, expand and develop its capabilities thus enhancing profitability” (Jennings & Banfield, 1993, p. 3). Gibb (1997) expressed the lack of motivation or willingness of MSMEs owners to encourage a learning environment in their businesses especially because of lack of resources. Ellinger, Watkins, and Bostrom (1999) highlighted the role of MSMEs owners as coaches, mentors and leaders. Therefore, the importance of managerial skills and knowledge in financing, marketing, strategic planning and human resources were vital to the successful administration of their businesses. Based on these authors definition of training and role of MSMEs owners, 10 items were developed. Some of these items are: access to conferences/workshops/courses about finance and strategic management, mentorship programs etc.
Specific variables were considered as control variables to have a better understanding of the influence the business incubators service offerings had on the performance of the MSMEs. These variables are: size of the business, age of the business and the period of time the MSME spend on the program. According to organizational ecology theory the size of the business and the age of the business determine the extent in which a business is likely to survive (Oertel & Walgenbach, 2009). Gibrat´s law states that the size of businesses positively affects its growth and development hence their probabilities
to survive (cited in Peña, 2004). The duration of a MSMEs incubation program is necessary to differentiate between graduates of the program and current tenants as is expected that those that already graduate have a better performance from those that have just started with the incubator and also that those MSMEs that have been with the incubator for a longer period of time compared to the other tenants.
Sample
The population of interest was targeted at owners of Micro, Small and Medium Sized Enterprises (MSMEs) in Nicaragua that belong to Business Incubator assistance program under the following categories: Technological, Financial, Networking or Training Assistance. This research covered 150 MSMEs that currently belong to the different incubators programs or are graduated from these incubators in Nicaragua.
Data Collection
A list of the participant MSMEs for each one of the contributor incubators was given to the researcher. Seven incubators provided their MSMEs database and the researcher contacted the MSMEs owners via email. A representative of the incubators and programs of assistance that collaborated with this research also contacted the MSMEs owners via email to ask them to fill the questionnaire online.
Data collection was conducted during the month of May, 2013. Before the final data collection, a pilot test was conducted to a sample of 30 people. Prior conducting the pilot test, all items included in the survey questionnaire were subject to expert revision. The experts suggested adopting a wider category of industry classification like food agribusiness, textile, furniture etc., instead of general industry such as industry, commerce and service. The experts also provided time ranges for the period of time a MSME spend as tenants in the incubators. Because the pilot test was too small and could not provide stable results, no item
was reduced after running inter-item correlation and factor analysis. Also the targeted audience presented a positive attitude towards the 96 items questionnaire. For these reasons the questionnaire administered to the final sample was not subject to further changes.
Sample Profile
A total of 150 questionnaires were delivered by the researcher and incubator representative via email. From these questionnaires, 118 were returned but only 100 were valid to use. From the 100 respondents, 5 tenants belong to Agora partnership, 5 tenants belong to Inspire, 10 tenants belong to Moderniza, 30 tenants belong to Dynamic entrepreneur, 10 tenants belong to Prameclin, 30 belong to Prodef and 10 tenants belong to Conimipyme. Inspire incubator was conceived as an incubator that assist MSMEs on site.
According to Table 3.1, the majority of the MSMEs belong to food agribusiness with 30% of the respondents located in this category. The majority of the MSMEs are microenterprises (1-5 employees) with 54% of the respondents located in this category. Most of the MSMEs have 5 or more years of existence with 38% of the respondents located in this category. Most of the MSMEs fall into the growth stage status with 44% of the respondents located in this category. Be an entrepreneur is the reason why most of the MSMEs decided to start a business with 50% of the respondents located in this category. The majority of the MSMEs owners are sole proprietary of their business with 67% of the respondents located in this category. The source of financing most of the MSMEs owners used to start their business was personal savings with 52% of the respondents located in this category.
Table 3.2 shows that the majority of the MSMEs that participated on this research are current clients of incubators and programs of assistance with 69% of the respondents located in this category. The type of assistance most of the MSMEs received is networking and training with 19% of the respondents located in this category. From these current tenants, the
majority have been in the program of assistance from 13 to 18 months with 27% of the current tenants located in this category.
According to Table 3.3, the majority of the sample was female with a percentage of 56. Almost all the respondents fall into the age range category of 31 to 40 years old with 34%.
The level of education that protrudes is college degree with 37% of the respondents located in this category and 27% of them have 1 to 3 years of experience in the administration of business.
Table 3.1, 3.2 and 3.3 show the descriptive statistics for the sample of this research.
Table 3.1.
Descriptive Statistics of the Sample (N=100): Business Profile
Variable Category Count Percentage Valid percentage Food agribusiness 30 30.0 30.0
Artesian 12 12.0 12.0 Maturity stage 13 13.0 13.1 Business status (N:99)
Survival stage 27 27.0 27.3 Be entrepreneur 50 50.0 50.0 Financial Reward 12 12.0 12.0 Career progression 10 10.0 10.0 Self employed 24 24.0 24.0 Satisfied friends or family 2 2.0 2.0 Reason to start business
(N:100)
Other 2 2.0 2.0
Sole proprietorship 67 67.0 67.0
Partnership 27 27.0 27.0
Joint venture 4 4.0 4.0
Business ownership (N:100)
Other 2 2.0 2.0
Personal savings 52 52.0 52.5 Friends and/or family 12 12.0 12.1
Bank 21 21.0 21.2
Table 3.2.
Descriptive Statistics of the Sample (N=100): Program Profile
Variable Category Count Percentage Valid percentage
Current tenant 69 69.0 69.0 Graduated (1-3 years) 13 13.0 13.0 Graduated (more than 3 years) 8 8.0 8.0 Relationship between
business and assistance program (N:100)
Recently graduated (less than 1 year)
37 or more(graduated clients) 31 31.0 31.0
Table 3.3.
Descriptive Statistics of the Sample (N=100): Owner Profile
Variable Category Count Percentage Valid percentage
Some college but no degree granted
25 25.0 25.0
College degree 37 37.0 37.0 Post-graduate degree 14 14.0 14.0 Level of Education(N:100)
Validity and Reliability of Measures
Because the questionnaire used to collect the data is designed by the researcher based on literature review, exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were necessary to ensure that the instrument was stable and effectively measured for what were intended to.
Exploratory Factor Analysis (EFA)
For the preliminary exploration of the data SPSS software was used so that errors, outliers and distribution of the data could be examined. For this, each one of the variables were subjected to factor analysis. Factor analysis allowed the refining of the scales by
reducing a set of observed variables to a smaller set of variables (Hinkin, 1998). Those items that presented significant cross loading (the difference between the loadings was below 0.2) were deleted.
Following Kaiser´s criterion (cited in Kinnear & Gray, 2000), those factors with an eigenvalue of less than 1 were excluded. Therefore a total of 18 components were considered for this study with a total variance explained of 79.711%. Varimax was used as criteria because it is the most common method used to preserved independence among the mathematical factors. Another statistical tool used during the EFA was the KMO and Bartlett test which was 0.603. It was expected by the researcher that the KMO value was in a range of 0.8 to 0.9 because the closer the value is to 1 the better as it generally indicates that the factor analysis can be useful with the data. However values of 0.5 are still acceptable. Bartlett test value should be <0.05. For this study this criteria was met by a value of 0.000 (Hair, Anderson, Tatham & Black, 1998; Kinnear & Gray, 2000).
Factor analysis was administrated several times in order to ensure that every item of each variable fall into one component as supposed. However, some of the items for one dimension or variable fall into different components or groups. For this reason these items that fall into different groups were deleted. For example, for the independent variable financial assistance only item number 3,7,8,9 and 10 fall into one component and the other were scattered in other components or groups. For the other independent variables all the
Factor analysis was administrated several times in order to ensure that every item of each variable fall into one component as supposed. However, some of the items for one dimension or variable fall into different components or groups. For this reason these items that fall into different groups were deleted. For example, for the independent variable financial assistance only item number 3,7,8,9 and 10 fall into one component and the other were scattered in other components or groups. For the other independent variables all the