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Impact of Service Offerings of Business Incubators on Performance of Micro, Small and Medium Sized Enterprises in Nicaragua.

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(1)Impact of Service Offerings of Business Incubators on Performance of Micro, Small and Medium Sized Enterprises in Nicaragua.. By Rossana María Obregón Córdoba. A Thesis Submitted to the Graduate Faculty in Partial Fulfillment of the Requirements for the Degree of. MASTER OF BUSINESS ADMINISTRATION. Major: International Human Resources Development. Advisor: C. Rosa Yeh, Ph. D.. National Taiwan Normal University Taipei, Taiwan July, 2013.

(2) ACKNOWLEDGEMENT I am grateful with God for giving me this opportunity, because he gave me the strength, intelligence and determination to fulfill this goal. To my parents Sergio Obregon and Eva Cordoba, thank you for your efforts, support, love and advices; I owe all my accomplishments to you. To Ariel, thank you for being with me through the whole process, for your patience and caring. To my brothers Sergio and Oscar, thank you for enriching my life with laughs and joy. To my dear Marita, thank you for introducing me this topic and caring about me. I express my sincere appreciation to the Jimenez Fonseca family, for believing in me and encouraging me during the hard times. I specially express my gratitude to my advisor Dr. Rosa Yeh. I am sincerely grateful for your patience, guidance and advices. To my committee members, Dr. Chengli Tien and Dr. YuHui Tao, thank you for your advices and valuable contribution to my research. To my dear friends Carmen and Karen, without you girls I would have been lost. Thank you for your solidarity and companionship. Last but not least, I would like to express my appreciation to the people that helped me with the information to make this research possible: Mr. Leonardo Caffarena, Mrs. Ximena Gurdian, Mr. Marcelino Castro, Mr. Juan Carlos Amador, Miss. Saralila Cordero, Mrs. Regina Lacayo, Mr. Rafael Lopez, Mr. Alfonso Valerio, Mrs. Juanita Lopez, Mr. Manuel Salgado, Mrs. Wendy Rostran and Miss. Amanda Rodriguez..

(3) ABSTRACT Business Incubators play a significant role in the development of Micro, Small and Medium Sized Enterprises (MSMEs) in Nicaragua. Therefore, this research examined the impact of the service offerings of business incubators on MSMEs performance. Specifically, this study assessed which aspects of performance are more likely to be affected by the four types of assistance incubators provide, namely technology, financing, networking and training. The aspects of performance studied are product/service innovation, quality of the product/service, capacity to respond to market demand, and internal organizational administration. A quantitative study was conducted with the use of SPSS and SmartPLS software in order to statistically analyze the information gathered from 100 MSMEs who had been or are current tenants in a business incubator in Nicaragua. It was found that training and technology assistance are the two service offerings more likely to have a positive effect on the performance of MSMEs. Quality of product/service is more likely to happen if technology assistance is provided, and innovation of product/service if training is provided. These two service offerings seemed to have a positive effect on formal organization administration as well. Financing did not seem to have any relation to MSMEs’ performance. Since the majority of responses came from tenants of two incubators, the results can be a reflection on the assistance provided by these two institutions, and are limited in generalizing to other contexts. Keywords: Business Incubators, Business performance, Micro, Small and Medium Sized Enterprises (MSMEs). I   .

(4) TABLE OF CONTENTS Abstract ............................................................................................................................................ I  Table of Contents............................................................................................................................II  List of Tables ................................................................................................................................ IV  List of Figures ................................................................................................................................ V . CHAPTER I INTRODUCTION...............................................................................1  Background of the Study............................................................................................................. 1  Problem Statement ...................................................................................................................... 2  Rationale of the Study ................................................................................................................. 3  Research Questions ..................................................................................................................... 3  Purpose of the Study ................................................................................................................... 4  Scope of the Study....................................................................................................................... 4  Contribution of the Study............................................................................................................ 4  Definition of Terms..................................................................................................................... 5 . CHAPTER II LITERATURE REVIEW ..................................................................7  Micro, Small and Medium Sized Enterprises: Definition ........................................................... 7  Importance of Micro, Small and Medium Sized Enterprises ...................................................... 8  Needs of Micro, Small and Medium Sized Enterprises. ........................................................... 10  Performance Indicators of Micro, Small and Medium Sized Enterprises................................. 12  Business Incubators: Origin and Definition .............................................................................. 17  Impact of Incubators in MSMEs Performance.......................................................................... 18  Service Offerings of Business Incubators ................................................................................. 19 . CHAPTER III METHODOLOGY .........................................................................27  Research Framework................................................................................................................. 27  Hypothesis................................................................................................................................. 28  Research Design........................................................................................................................ 30  Research Procedure ................................................................................................................... 30  Instruments and Measures......................................................................................................... 31  Sample....................................................................................................................................... 36  II   .

(5) Data Collection.......................................................................................................................... 36  Validity and Reliability of Measures ........................................................................................ 41 . CHAPTER IV DATA ANALYSIS, RESULTS AND DISCUSSION ..................55  Correlation Analysis.................................................................................................................. 55  Model Testing in PLS ............................................................................................................... 60  Post Hoc Analysis ..................................................................................................................... 71 . CHAPTER V CONCLUSIONS AND IMPLICATIONS ......................................76  Conclusions ............................................................................................................................... 76  Research Implications ............................................................................................................... 77  Practical Implications................................................................................................................ 78  Limitations ................................................................................................................................ 79  Future Research Suggestions .................................................................................................... 79 . REFERENCES.........................................................................................................81  APPENDIX A: QUESTIONNAIRE........................................................................88   . III   .

(6) LIST OF TABLES Table 3.1 Descriptive statistic of the sample: Business Profile...……………………………..40 Table 3.2 Descriptive statistic of the sample: Program of Assistance Profile………………….41 Table 3.3 Descriptive statistic of the sample: Owners Profile………………………………….42 Table 3.4 Matrix of rotated components………………………………………………………45 Table 3.5 Descriptive Statistics, Factor Loading, Composite Reliability, AVE and Items of Studied Constructs……………………………………………………………………………...47 Table 3.6 Factor loadings and cross loadings among variables…………………………….…...50 Table 3.7 Overview of discriminant validity testing among constructs…………………….......53 Table 4.1 Correlation analysis……………………………………………………………….......59 Table 4.2 Path coefficient, error, t-value and R square……………………………………….....61 Table 4.3 Overview of hypotheses testing……………………………………………………....70 Table 4.4 ANOVA post hoc analysis……………………………………………………….…....72 Table 4.5 ANOVA post hoc analysis: Scheffe test………………………………………………73. IV   .

(7) LIST OF FIGURES Figure 3.1 Research Framework……………………………………………………………..…28 Figure 3.2 Research Procedure…………………………………………………………………32 Figure 4.1 Hypotheses testing, path coefficient and R square……………………………….....66 Figure 4.2 PLS Model………………………………………………………………………......67 Figure 4.3 PLS Algorithm Result………………………………………………….…………...68 Figure 4.4 PLS bootstrapping Result………………………………………………………...…69. V   .

(8) CHAPTER I INTRODUCTION Background of the Study According to the National Business Incubation Association (NBIA´S): “Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts” (Nbia.org, 2009a, p. 1) Business Incubators were formally initiated in 1959 in Batavia, New York with Charles Mancuso Son (Nbia.org, 2009b) and expanded all over the world; though it is a mature initiative already adopted by many countries, some countries just began to implement it in order to help their micro, small and medium sized enterprises (MSMEs) and entrepreneurial businesses to insert in uncertain economies and develop successfully in terms of performance and survival. One of the countries who recently adopted the business incubator initiative is Nicaragua, located in the center of the Central American Isthmus in the American Continent, between the Republic of Honduras and the Republic of Costa Rica. In Nicaragua, the MSMEs generate 58% of employment in urban areas according to the Urban Economic Board of the Central Bank of Nicaragua (cited in El Observador Economico, 2011). These enterprises produce nearly 300,000 jobs, over 150,000 establishments of which 55% is managed by women. However, according to the Economic Commission for Latin America and the Caribbean (CEPAL), the mortality rate of MSME´s oscillates between 50% and 70% in the first 3 years of existence (cited in La Prensa, 2012). 1   .

(9) In 2010, Nicaragua joined the initiative of Business Incubators as a response to the needs of MSMEs by creating the first incubator in alliance with the International Finance Corporation (IFC) held by the World Bank, managed by the National University of Engineers (UNI) and the Commercial Science University (UCC), and promoted by the Nicaraguan Committee of Science and Technology. Since then, many other business incubators were formed to enhance the development of MSMEs. These incubators designed support programs that were sponsored by private, public and nonprofit organizations. Some of these initiatives are: Agora partnership, Dynamic Entrepreneurship, Inspire, Modernize, Prameclin, Conimipyme, Prodef and. CENAMI-. CADIN. These support programs are intended to provide technological, financial, networking and training assistance to new entrepreneurial ideas and MSMEs owners. For Nicaraguan MSMEs and entrepreneurs are of high importance to count on a supportive organism that helps them to accelerate the successful development of their businesses in terms of product/service innovation, quality of product/service, capacity of response to market demand and formal organization administration. Even though Nicaragua just initiated the project of Business Incubators, there is a considerable number of business support programs planned to make a significant difference to their clients.. Problem Statement MSMEs represent a fundamental part of countries’ economies, not only in Nicaragua but all over the world. Business incubators allocate valuable sources in promising enterprises in order to accelerate their development, through their process of selection; business incubators assess the MSMEs needs in order to provide the accurate assistance. This system allows business incubators to almost guarantee the successful development of their client but it is still very important to explore the impact of service offerings of business incubators on 2   .

(10) MSMEs performance in order to determine which aspect of performance is more likely affected by the different types of assistance they provide.. Rationale of the Study The fundamental reason of this research based on the newly initiative Nicaragua is taken regarding Business Incubators. Although Business Incubators have proved to be a helpful source to develop entrepreneurial ideas and micro, small and medium sized enterprises in other countries such as Spain and the United Kingdom (Hannon & Chaplin, 2003; Peña, 2004), it is important to assess the impact on the performance of Nicaraguan MSMEs. From 2010 to the present time, Business Incubators have designed different business service offerings that adjust to the specific needs the MSMEs may have. Because Business Incubators is at its early stage in Nicaragua, not many studies have been done regarding this topic, nevertheless; the opportunity to explore MSMEs development from the service offerings impact of business incubators is very valuable for both parties, MSMEs and Business Incubators.. Research Questions The role of Business Incubators is of primary importance in the achievement of MSMEs survival and competent performance in local and international markets; therefore, the following questions were developed in order to assess the relation of MSMEs performance with the service offerings of Business Incubators: What is the impact of Business Incubators service offerings on MSMEs performance? •. Which aspect of performance is more likely affected if the Business Incubator provides technology assistance?. 3   .

(11) •. Which aspect of performance is more likely affected if the Business Incubator provides financial assistance?. •. Which aspect of performance is more likely affected if the Business Incubator provides networking assistance?. •. Which aspect of performance is more likely affected if the Business Incubator provides training assistance?. Purpose of the Study This exploratory study aimed to determine the impact of service offerings of Business Incubators on MSMEs performance in Nicaragua. The indicators of performance considered were: product/service innovation, quality of the product/service, capacity to respond to the market demand and formal organization administration. These factors were studied from the influence of service offerings such as training, technology, finance and networking assistance that business incubators offered to the development of MSMEs in Nicaragua.. Scope of the Study Because the business incubator is a recent initiative in Nicaragua, it still has a long path to go in order to provide the complete package of services business incubators are intended to give. For this reason, the research was delimited only to the clients of business incubators that receive technological, financial, training and networking assistance separately or partially together, approximately 100 clients.. Contribution of the Study This research meant to contribute with business incubators in Nicaragua by determining the impact of their service offerings in the performance of their clients. Furthermore it will serve as reference for those incubators that did not participate in this. 4   .

(12) research and for future researchers that would want to study the situation of MSMEs as part of business incubators programs in Nicaragua. By understanding which aspect of performance is more likely affected by the different service offering of Business Incubators, the programs they offer will be more effective. Those MSMEs that have a need to improve their performance in terms of innovation for example, will be adopted by the incubator that provides the assistance that will be more likely to make that happen and so on.. Definition of Terms Business Incubators According to the National Business Incubation Association (NBIA), Business Incubators are programs that encourage and accelerate entrepreneurs and MSMEs success by providing resources and services that facilitate them to grow and establish in the market. Incubators also intend to revitalize economies by graduating MSMEs with potential to contribute to job creation, local and national financial system, and innovation among others. Incubators are characterized according to the type of service they offer, the target they serve and the structure of their organization. Among the services they offer, there is management guidance or managerial training, technology assistance, networks sharing and support in getting financial funds (Nbia.org, 2009a).. Micro, Small and medium sized enterprises (MSMEs) According to the Ministry of Promotion, Industry and Commerce (MIFIC) in Nicaragua (law 645, article 4 and decree 17-2008, article 3); all those enterprises that have 1-5 employees will be considered micro, all those enterprises that have 6-30 employees will be. 5   .

(13) considered small business and those that have 31-100 employees will be considered medium size enterprises.. Business Incubator Service Offerings For the development of this research, we will consider service offerings those services or assistance that business incubator provides to MSMEs in terms of technology, finance, networking and training as they are the most common ones provided by incubators in Nicaragua.. MSMEs Performance Indicators For the purpose of this research, the micro, small and medium sized enterprises performance will be measure in terms of the following indicators: product/service innovation, quality of product/service, capacity of response to the market and formal organizational administration. According to Kueng (2000), “a process can be seen as a system or a subsystem consisting of interrelated components that have a common purpose and share a set of goals” (p. 70). This research is looking at a more process oriented approach because in today´s globalized world, the only way businesses and especially small and medium sized businesses can survive and be competitive is by focusing on innovation and quality of the product/service. The capacity to approach unexplored and unexploited markets niches is what will give these MSMEs competitive advantage over other MSMEs. The role of managers is crucial as they represent the leading force that will conduct the business to success. Managers should be competent enough in terms of administration of their business so that they have the tools and instruments for decision making and risk control (Kueng, 2000). The International Organization for Standardization (ISO) defines a process as a “set of interrelated resources (e.g. personnel, finance, IT facilities, equipment, and methods) and activities (working steps) which transform inputs into outputs” (ISO, 1994, p. 2). 6   .

(14) CHAPTER II LITERATURE REVIEW Micro, Small and Medium Sized Enterprises: Definition Micro, Small and Medium Sized Enterprises (MSMEs) are businesses that are defined according to some specific characteristics. These characteristics vary from country to country. The most common characteristics under which every country classified its MSMEs are those stated by the European Union (EU); these are: number of employees, turnover or balance sheet total. The abbreviation "MSMEs" was also established by the European Union on the EU recommendation 2003/361 in 2003 (Ec.europa.eu). According to the Organization for Economic Cooperation and Development (OECD, 2005), small and medium-sized enterprises (MSMEs) are “Non-subsidiary, independent firms which employ less than a given number of employees, this number vary across countries. The most frequent upper limit designating an MSME is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers MSMEs to include firms with fewer than 500 employees” ( p. 17). This publication also considers the financial information of small and medium sized enterprises, defining the limits under which their turnover rate should be in order for them to fall into the category of SME. Based on the number of employees, the OECD established the following: “The turnover of medium-sized enterprises (50-249 employees) should not exceed EUR 50 million; that of small enterprises (10-49 employees) should not exceed EUR 10 million while that of micro firms (less than 10 employees) should not exceed EUR 2 million. Alternatively, balance sheets 7   .

(15) for medium, small and micro enterprises should not exceed EUR 43 million, EUR 10 million and EUR 2 million, respectively.” (OECD SME and Entrepreneurship Outlook, 2005, p. 17). In Nicaragua, the Ministry of Promotion, Industry and Commerce (MIFIC) defined the MSMEs through the law number 645 according to the number of employees in: Micro (15 employees), Small (6-30 employees), Medium (employees 31-100) and Large (101 or more employees). This decree also establishes that a business will be considered micro if its total assets sum 200 thousands cords (cords is the Nicaraguan currency), small (1.5 millions cords) and medium if reaches 6 million cords. Also if it´s total annual sales sum, for micro (1 million cords), small (9 million cords) and medium (40 million cords). The exchange rate on may 15, 2013 is for one USA dollar, 24.56480 cords.. Importance of Micro, Small and Medium Sized Enterprises MSMEs are key sources not only for industrialized economies but for emerging and developing economies. “MSMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the country” (OECD, 2006, p. 1). This means that they are responsible of a considerate percentage of job creation, introduction of innovative products and new techniques to the market. Their contribution to the economy and social system is valuable. MSMEs are a fundamental pillar not only in current economy situation but also for the pursuing of growth and development. The executive vice president and CEO of the International Finance Corporation defined MSMEs as “the growth engines of the world’s economies; yet their success rate is not as good as it could be simply because of a lack of access to good business management practices. Giving small businesses the information and new collaborative technologies they need, will help them grow and prosper” (Lars Thunell, Ifc.org). In developing countries where there are few big industries, MSMEs account as a big part of the economical system. 8   .

(16) This is why governments and the society itself should encourage the entrepreneurs and survival of these businesses by providing the necessary resources and knowledge that will allow them to grow and become those big industries such that it will lead to the development of the country. In developed countries like Japan and Italy, MSMEs represent a large share of the economy. In Japan for example, 81% of the employment has place in small and medium sized enterprises. Although in the United States small and medium sized enterprises represent a smaller share compared with Japan and Italy, all these countries equally allocate more than 50% of the entire budget of their public support programs to MSMEs. The most common ways of assistance for this sector are training programs, consultancy services, provision of updated equipment, funds for research and development etc (Luckacs, 2005; OECD, 1997). The World Bank (WB) recognizes the impact of MSMEs on countries development specially in developing countries like Nicaragua; these impacts can be measured in terms of job creation, poverty reduction and economic growth among other benefits; therefore, it provides common resources needed by these small and medium sized businesses such as financing, training, technology, support for improvements in their business environment, better corporate governance etc. In 2001 the WB together with the IFC and Multilateral Investment Guarantee Agency (MIGA) approved approximately 2.8 billion dollars to cooperate with the MSMEs sector (World Bank, 2001). In the European Union MSMEs represent 66% of the job, and generate 56.2% of the private sector turnover and in the United Kingdom (UK) 99.8% of the businesses are SME´s. In Asia, Taiwan’s and Hong Kong´s economy heavily rely on MSMEs, (Luckas, 2005). For the United Kingdom MSMEs represent a great contribution to innovation as “originators of new ideas and technologies; as links in supply chains promoting technical advances; and as. 9   .

(17) sources of knowledge and specialized goods and services for larger businesses” (Luckas, 2005, p. 8). Nicaragua is no exception because MSMEs produce nearly 300,000 jobs and generate 58% of employment in urban areas according to the Ministry of Industry and Commerce and the Urban Economic Board of the Central Bank of Nicaragua (cited in El Observador Economico, 2011).The former vice-president of the Republic of Nicaragua (Jaime Morales) defined the MSMEs as the backbone of Nicaragua´s economy, however; the vulnerability of this economic sector is a current and continuo concern. The Economic Commission for Latin America and the Caribbean (CEPAL) states that 50-70% of these enterprises disappear on the first 3 years of existence, from the MSMEs that survive the first 3 years, 90% disappear when a 5 years cycle of existence occurs and only 10% of these enterprises make it through 5 years of existence (Cited in La Prensa, 2012). MSMEs have great potential especially for developing countries, their main objective is to accelerate and mobilize these countries’ economies; with globalization there is a great opportunity for MSMEs to create alliances with larger enterprises, explore international markets and expand domestic markets. The survival rate of this sector will increase in the extent this sector receives the tools to become competitive and sustainable (Knight, 2001).. Needs of Micro, Small and Medium Sized Enterprises. According to Oertel and Walgenbach (2009), there are some environmental factors that determine the survival of MSMEs. These factors are known as inertia and change, density dependence, age dependence, resource partitioning and niche width and all of them are fragments of the organizational ecology theory. According to these authors, those MSMEs that fit the environmental requirements are more likely to survive. Those businesses that count on a solid organizational structure might have more chances to adjust to the. 10   .

(18) environment and survive. However, a proper organizational structure is a common need for MSMEs (Abell 1980). A qualitative study conducted by Obregon and Yeh (2013) found that the main needs of small and medium sized enterprises (SMEs) in Nicaragua are: access to financing, access to new technologies or technological improvement, innovation, and access to markets. Rising in utilities prices and updated infrastructure represented as well a big limitation for this sector of the economy. The study highlighted the importance of financing for these enterprises. The bank loan rate and the access to the bank loan become a huge barrier for the SMEs because they do not have the proper administrative documentation (i.e. financial documents) to support their business and fulfill the bank requirements for the application of the loan. From those enterprises that apply to bank loans, only few receive it. According to Mr. Ramiro Perez, business manager for SME at a local bank in Nicaragua; from those whom receive a bank loan, very few invest it correctly or according to the priorities of their business. This study brought into the surface the experience of different groups, the owners of SMEs and the experts on this sector. The results showed that the owners focus on the external needs such as rising utilities prices and the experts’ responses were oriented to the internal needs SMEs have such as lack of innovation or formal control and organization of their processes. In anyway, the results showed those weak areas where assistance should be focused and oriented in order to alleviate and reduce the high mortality rate of SMEs. Although the study conducted by Obregon and Yeh in 2013 focused on SMEs, it is still considered an important contribution on this study which includes micro enterprises as well.. 11   .

(19) Performance Indicators of Micro, Small and Medium Sized Enterprises Innovation of the Product/Service Product innovation refers to any new product, process or service that has been implemented or developed by a group of people and it can be categorized as technical or administrative innovation depending on the type. For example technical may stand for technologies, product, services and new procedures may stand for administrative. To understand innovation from a managerial perspective, people should consider the dynamic of communities’ interaction, ideas, transaction and environment itself. Innovation can be the combination of old ideas or an added value to other´s existing idea (Van de Ven, 1986). According to the Small Business Administration, there are four levels of significance for innovation: “(1) the innovation established an entirely new category of product; (2) the innovation is the first of its type on the market in a product category already in existence; (3) the innovation represents a significant improvement in existing technology; and (4) the innovation is a modest improvement designed to update an existing product” (Zoltan & Audretsch, 1988, p. 681). Gunasekaran, Lloria- Aramburo and March- Chorda (2002) state that “The major critical factors for the success of product development and innovation are classified into three groups: top management support, product development planning, and analysis of market requirements” (p. 302). Innovative MSMEs role is to seize technological and market opportunities in order to economically grow and expand. These types of MSMEs are also more likely to rapidly employ more workers, require more specific skills, improve salaries and offer better and stable environments for their workforce (OECD, 1996). The transition of innovation is very difficult for MSMEs; there are many obstacles that make the process sometimes impossible 12   .

(20) for most small and medium size businesses, such as lack of qualified workers, expertise, information and knowledge, managerial skills and eligibility for financial support, etc (Freel, 2000). Barriers can be classified in external or exogenous and internal or endogenous. All those factors related to supply, demand and environment are considered external and can include difficulties in getting technological information, raw materials, and access to finance. The most common ones for MSMEs especially start ups businesses are access to financing and technological innovation. On the other hand, the one that involves resources such as employee resistance to innovation or lack of internal funds, are associated to internal barriers (Piatier, 1984; Rush & Bessant, 1992, as cited in Hadjimanolis, 1988). Innovative MSMEs have the advantage of being more competitive in the market, more flexible to environment changes and more qualified for international markets. Although not many MSMEs are considered innovative, those that develop or improve their product or services are more likely to survive and grow. The performance of innovative firms is better in terms of communication, staff interaction and quality of information (Gunasekaran, MarchChorda, & Lloria-Aramburo, 2002).. Quality of the Product/Service Quality has been described as "the single most important force leading to the economic growth of companies in international markets" (Feigenbaum, 1982, p. 22). Reves and Bednar (1994) use excellence, value, conformance to specifications and meeting or exceeding consumer expectations to define quality because only by knowing customers expectations and needs, using quality control processes or practices and adding extra value to the product/service MSMEs offer, success, development and growing will be achieved.. 13   .

(21) Studies conducted in USA, Japan and Singapore have emphasized the importance of quality. Some of the results of these studies were reproduced by the Strategic Planning Institute of USA (SPI, 1986) finding the following statements: • “Product/service quality is an important determinant of business profitability. • Businesses offering premium quality products and services usually have large market shares. • Quality is positively and significantly related to a higher return on investment for almost all kinds of products and market situations • A strategy of quality improvement usually leads to increased market share, but at a cost in terms of short-term profitability. • High quality producers can usually charge premium prices”( as cited in Hezan & Padibajo, 1998, p. 490) MSMEs that supply larger corporations find a lot of pressure on quality requirements; quality is basically what makes them competitive but with limited resources it is hard for these small and medium sized businesses to implement quality systems that allow them to fulfill domestic and international conditions to commercialize their product (Haksever, 1996; Henricks, 1992). It happens very often that when purchasing a product or service, people does not get what they were expecting, it could be that they get something better or that they get something worst. This lack of standardization is what threatens the most MSMEs, especially when talking about quality standardization of service or product.. Capacity to Respond to the Market Demand Market behavior is very dynamic and sometimes unpredictable, and in all types of businesses customer orientation is defined by the market they serve; therefore, it is very. 14   .

(22) important especially for MSMEs to have the ability to adapt and respond to customers’ needs and desires (Kwaku & Satyendra, 1998). MSMEs that know their market and count on technological resources are more likely to explore and exploit new opportunities. Information about their capacity to respond to their current target and general market behavior will allow them to take risks or approach different niches. MSMEs that are aware of customer’s expectations and needs are the ones that see the opportunities where the competitors see threatens (Wiklund & Sheperd, 2003). There should be an equilibrium between the dynamic of MSMEs strategies and market requirements, this can only be accomplished through the understanding of the business and the customers that serves (Day, 1997). “As a concept marketing is the anticipation and satisfaction of consumers’ need and wants profitably” (Baker, 2000, as cited in Abimbola, 2001, p. 98). This means that MSMEs will be more competitive in the extent in which they know their customers and their market and the extent in which they possess unique advantages between the competitors (e.g. more efficient and faster ways of serving the customer) (Abimbola, 2001). Globalization has forced MSMEs to enroll in activities related to trades, international investment and participation on strategic alliances, partnerships and networking associations. These practices have a significant impact on the MSMEs performance. Besides the opportunity to access to larger and new market niches, there is great possibility to improve or upgrades technological capabilities, and also the potential to become high-grow firms and have easier access to financing (OECD, 2004a). One way to insert in globalization is by acquiring updated and modern technology. MSMEs that possess updated systems, procedures and practices are more likely to respond to the changes and challenges of a globalized market. If a business is able to define its market strategies it means that it is able to respond to market that serves. These can be accomplished. 15   .

(23) by putting efforts to meet strict product standards or develop unique characteristics in the product or service that will be offered. Global markets are not far from local markets in terms of diversity on consumer’s needs, competitor’s offerings, different economic and technological conditions etc. Therefore it is highly important for MSMEs to count with the resources and conditions to face the various scenarios of globalization and economy variation. Efficacy and efficiency are highly related to technological processes because one of the main purposes of technology is to reduce time and cost, especially on production process. Reduction of time and cost is of great importance for MSMEs, by implementing technology in their practices and having necessary resources such as financing, networking, knowledge etc.; small and medium sized enterprises would be able to respond to local and international market demand. Accessing international market requires MSMEs to standardize their product/services and subsequently their processes, once this is accomplish the benefits for the economy of both parties (MSMEs and large international companies) would be vast (Knight, 1998).. Formal Organization Administration Knowledge is the unique source of lasting competitive advantage in dynamic, changing and unpredictable economies. Those MSMEs that constantly update and create new knowledge are those who will succeed when markets change, technologies proliferate, competitors multiply and product /services become outdated (Nonaka, 1991). “Firms should produce wealth but should also enable personal development and values in the firm’s human resources (e.g., workers, middle management, upper management), as these are the foundation and starting point of all entrepreneurial competencies” (Senge, Roberts, Ross, Smith, Kleiner, 1994, as cited in Garcia, Llorens, & Verdu 2007, p. 547). The majority of MSMEs do not count with formal internal administrative processes or instruments; there is usually lack of human resources practices, managerial capacity, limited 16   .

(24) capital resources etc. This directly affects the overall performance of the business. If business want to access to financial institutions, they do not have supportive documents of their business functions which makes acquisition of financing almost impossible. For decision making there are no strategies aligned with formal objectives because sometimes MSMEs owners are no clear of their business objectives, and in most cases employees perform different positions at the same time which decrease their motivation and employee commitment, and increases the turnover rate (Garengo, Biazzo & Bititci, 2005). Formalization of the organizational system refers to: “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” (Nicolescu, 2009, p. 409). MSMEs owners need to be trained in managerial practices in order to improve or develop skills and abilities necessary to successfully run their businesses in terms of administration; for short term when looking for financial assistance and long term when visioning international markets. MSMEs survival heavily relies on the capacity of their owners to backup the internal practices and predict future scenarios (Nicolescu, 2009).. Business Incubators: Origin and Definition According to the National Business Incubator Association (NBIA), the first formal concept of Business Incubator began in the United States in 1959 in Batavia, New York. By the 1980´s the industry of incubators rapidly grew because people valued the great contributions these institutions were giving to sustain local economies. In addition, there were some activities that enhanced the creation of more and more incubators such as the efforts of the United States Small Business Administration (SBA) to hold conferences in order to. 17   .

(25) deeply explain the purpose and characteristics of incubators and the sponsorship to incubators programs from larger companies (Nbia.org, 2009b). Unlike the origin, there are many definitions of business incubators but for the purpose of this research, the NBIA definition will be use. The definition states that: Business Incubators are programs that encourage and accelerate entrepreneurs and MSMEs success by providing resources and services that facilitate them to grow and establish in the market. Incubators also intend to revitalize economies by graduating MSMEs with potential to contribute to job creation, local and national financial system, and innovation among others. Incubators are characterized according to the type of service they offer, the target they serve and the structure of their organization. Among the services they offer, there is management guidance or managerial training, technology assistance, networks sharing and support in getting financial funds (Nbia.org,  2009a). For the purpose of this research, these 4 services will be known from now on as business incubators service offerings and will be used to study the impact on MSMEs performance in Nicaragua.. Impact of Incubators in MSMEs Performance Previous studies have demonstrated the impact of incubator centers or business incubators in the performance of MSMEs (Hannon & Chaplin, 2003; Peña, 2004). Peña (2004) developed a study that aimed to find out the extent to which the assistance provided by incubators was vital to ensure the survival and success of MSMEs in the Basque Country. This study measured the performance of MSMEs in terms of profit growth, employment growth and sales growth. The assistance provided by business incubators was described in terms of networking and training. Besides these two factors, other variables were used to assess the performance of MSMEs. These factors were human. 18   .

(26) capital and firm resources and capabilities. The results showed that training was the only significant variable that positively associated with firm growth. Another study conducted by Hannon and Chaplin (2003) intended to find out if incubators were good for MSMEs in the United Kingdom. Although it also focused on the incubation practice and policy, it also measured the performance of MSMEs in terms of firm change and growth. The factor the researcher used to assess the impact of the incubator center in the performance of MSMEs was training. The study demonstrated that those firms that received assistance from incubation centers experienced a level of growth.. Service Offerings of Business Incubators Technology Assistance “Business incubators provide a mechanism for technology transfer, promote the concept of growth through innovation and application of technology, support economic development strategies for small business development, and encourage growth from within local economies”(Phillips,2002, p. 299). Technology transfer is usually known as the transfer of a technology, technique or knowledge with the objective of enhancing the firm performance, this could take form of updated production machinery or assets that accelerate efficiency and effectviness (Melkers, Bulger & Bozeman, 1993).Technology is crucial for MSMEs transition to innovation; Mowery (1988) captured its importance in this way: “The economic impact of innovation, whether revealed in productivity growth, employment creation and destruction, or changes in wages and profits, is realized only through the adoption of innovations” (p. 481). The adoption of new technologies involves the development of the owner or employee skills and competencies because when introducing technological resources to the functioning of the business, changes in processes, structures and strategies will occur. MSMEs need to be 19   .

(27) aware on the impact new technology will bring to its practices (McCole, Morrow, Ponsonby & Kelly, 2001). According to the OECD (2000), the adoption of technology influences MSMEs competitiveness and contributes to effective reduction of costs. MSMEs become more competitive in the extent, in which they standardized their product/services, and offer distinctive value compared with the competitors; cost reduction is a benefit from technology when reducing time of production or input material. The introduction of internet and web base information technologies also enables MSMEs to enhance organizational and management capabilities (e.g. Automation of clerical procedures). Given the importance of the technological assistance for small and medium sized business, the following hypotheses are proposed: 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.. Financial Assistance Access to financing is one of the biggest constraints MSMEs encounter not only in the start up phase but along their existence. In developing countries, getting financial support from friends or families is more likely to happen because of the lack of eligibility of MSMEs. 20   .

(28) owners to apply for bank loans or access to governmental support programs. The credit availability of MSMEs strongly relies on the administrative infrastructure that supports financial practices, business environment and legal system among others (Thorsten & Asli, 2006). Compared to larger enterprises, MSMEs face more severe credit conditions in terms of interest rates; therefore not many MSMEs consider bank loans as an alternative to invest in their business (OECD, 2012). The lack of funding directly impacts the overall performance of small and medium sized enterprises especially in terms of innovation (Hadjimanolis, 1998). According to Pissarides (1999), MSMEs access to financial resources is subject to the general profile of the country in terms of economic growth, access to international markets, monetary and fiscal policies etc. The role of the bank superintendence is crucial to improve the financial status of MSMEs. Pissarides (1999) propose the following suggestions for international financial institutions: • “Strengthen the local banking sector, whose weaknesses remain substantial and pervasive despite the significant reforms undertaken so far • Create incentives for local banks to lend to MSMEs • Develop equity markets that can serve the financing needs of MSMEs • Capitalize on the emergence of other financing vehicles and • Mobilize other pools of capital” (p. 524). MSMEs financing is necessary because they represent a huge portion of the economic system, contribute to innovation by creating new products and play key role in creating new jobs. Innovative firms are those who constantly invest on their product/services and study the market behavior in order to add features to existing product/services or explore undiscovered niches (OECD, 2006). 21   .

(29) Access to financing represents a significant obstacle especially for start up´s MSMEs since banks ask for conditions that go beyond start ups capabilities; therefore, most start up MSMEs rely on incubators and governmental support programs. A recent survey conducted by the European Central Bank (ECB) between April and September of 2012, showed that from 24% of European MSMEs that applied to bank loans, 15% were rejected and 46% of MSMEs did not apply to bank loans because of insufficient internal funds (Gabrielsson, Sasi & Darling, 2004; ECB, 2012 ). Given the importance of the financial assistance for small and medium sized business, the following hypotheses are proposed: 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.. Networking Assistance “A network is an organizational form of economic activities that may allow firms to cope with market failures that hierarchy (i.e. internalization of transactions through acquisition, mergers, etc.) cannot correct” (OECD, 2004b, p. 11). MSME networking is the most important channel for MSMEs to exchange and share knowledge and experiences. MSMEs heavily depend on external sources to access to information, know-how and technologies; by 22   .

(30) counting with a strong and solid network of contacts, MSMEs can develop innovation capabilities and can access to unexplored domestic and international markets, thus subsequently strengthen their position in the market (OECD, 2004b). Networks provide a wide range of benefits to MSMEs, by creating alliances or sharing market strategies with other interested parties, owners can share cost and risks when approaching unexplored niches. The capability of MSMEs owners to deal with complexity is also enhanced through the interaction with experts in unknown fields. By joining forces with other MSMEs owners, the capacity to respond to customers and potential markets increases in speed and efficiency (OECD, 2001; OECD, 2004b). According to Gibb (1997): “The very essence of a small company management is the personal day to day handling of transactional and other relationships with the network of customers, suppliers, bankers, accountants, solicitors, agents, marketing channels, workers and regulatory authorities as well as(more intimately) acquaintances, friends and family” (p. 18). Innovativeness of entrepreneurships often lays in the ability of new MSMEs owners to understand the market better than competitors, and a solid networking allow these owners to obtain information of new products/services and process ideas. The relations, alliances and partnership with larger enterprises are also a huge benefit for both parties. For MSMEs it means sources of capital and access to expertise management and for larger enterprises opens a wider source of ideas and market, networks strengthen the relations between the two most important sectors of economies, MSMEs and large companies (Malecki, 1994). The importance of networking is also emphasized by Ostgaard and Birley (1994) “the personal network of the owner-manager is the most important resource upon which he or she can draw in the early days of the firm’s development” (p. 281). Incubators play a significant 23   .

(31) role for SME´s networking as they purpose is to provide resources to them to strengthen the areas where they have gaps or lack of knowledge. MSMEs often lack of networking infrastructure; therefore, incubators connect them with external and internal sources of interest depending on the nature of MSME and with internal sources such as other tenants (Rice, 2002). According to Lichtenstein (1992), the role of incubators is vital for small and medium sized enterprises owners and entrepreneurs because it makes easier the contact, interaction and development of relationships with other MSMEs owners with whom they can create alliances to benefit their businesses in numerous ways. From reducing input material costs by getting access to deals not offered in the suppliers market to joining forces to approach unexplored markets. Incubators make possible that many MSMEs owners and entrepreneurs gather at the same time in conducive environments for them to naturally interact and share knowledge, projects, experiences and even find place to new ideas and market strategies (Abduh, D'Souza, Quazi, & Burley, 2007). Given the importance of the networking assistance for small and medium sized business, the following hypotheses are proposed: 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. 24   .

(32) Training Assistance MSMEs owners or managers act as leaders, coaches and facilitators in their businesses, one of their main tasks is to create a learning environment and transfer knowledge to their employees. To accomplish this objective, MSMEs owners need to be trained in managerial skills that permit them to manage personal, policies and administrative structures. All type of businesses, especially MSMEs are exposed to rapid and continuous change in the environment. Therefore, by strengthening the management capacity of owner, there is a bigger chance for them to deal with all the external factors that may affect their small and medium sized businesses (Ellinger, Watkins, & Bostrom, 1999). The main reason of why MSMEs are reluctant to formal training is because they have insufficient resources and lack of time; unfortunately not only this sector but large companies consider training as an expense instead of an investment. The benefits of training are usually display to a medium or long term; therefore, MSMEs owners do not demonstrate too much interest in allocating so much effort and resources to this practice (Gibb, 1997). MSMEs have more tendencies to adopt informal training in their practices because these are part of the daily responsibilities or the whole functioning of the business (e.g. recruitment and training); hence, owners do not perceive it as training. Still, there are two common situations where MSMEs owners embrace training: i.e., when facing crisis and when going through big changes in their business (Johnson, 2002). Because there many ways in which MSMEs owners can learn, it is of high importance to understand the dynamic of owners with their businesses and vice-versa in order to ensure effective results. Learning styles can be defined as a single loop and double loop, the first one aiming for businesses that want to optimize organizational efficiency and the second one for those that aim to exploit new knowledge to evolve new practices (Chaston, Badger & SadlerSmith, 1999a). According to Beach (1980), “learning is the human process by which skills, 25   .

(33) knowledge, habits and attitudes are acquired and altered in such a way that behavior is modified” ( as cited in Gibb, 1997, p. 15). “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). Those MSMEs that engage in the process of training are more likely to have the tools to overcome future difficulties and to insert in globalized economies. The power of information and knowledge is what makes businesses dynamic, creative and innovative. Given the importance of the training assistance for small and medium sized business, the following hypotheses are proposed: 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.. 26   .

(34) CHAPTER III METHODOLOGY 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. H1a. Technology Assistance. H2a. H1b H1c H1d. H3a H2b. Financial Assistance. Quality of the product/Service. H3b H2c H3c. Networking Assistance H4a. Training Assistance. H4b H4c. H3d. Capacity to respond to market demand H2d. Formal organization administration. H4d. Figure 3.1. Research framework. 27   . Product/Service Innovation. MSME´s Performance Indicators. Business Incubator Service Offerings. variables..

(35) 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.. 28   .

(36) 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. 29   .

(37) 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.. 30   .

(38) 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 31   .

(39) 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. 32   .

(40) 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 33   .

(41) 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, 34   .

(42) 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 35   .

(43) 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 36   .

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