RELATIONSHIP BETWEEN ENTREPRENEURIAL COMPETENCIES AND SMALL FIRM PERFORMANCE: ARE DYNAMIC CAPABILITIES THE MISSING LINK?

Author:Hashim, Noor Azmi Bin
Position::Report - Abstract
 
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INTRODUCTION

In SMEs, the small businesses are considered as the most dynamic business entities and viewed as the important promoters of worldwide economies (Roxas et al., 2017; Njoku et al., 2014). Internationally, small businesses are regarded as the platform for entrepreneurs, as they are the main pivotal force behind the economic growth and poverty reduction, through providing more job opportunities (Heinicke, 2018). According to Hallam et al. (2017), the majority of the countries in the world rely largely on the performance of the SMEs for the uplift and growth of their economy. Zafar & Mustafa (2017) added that on average, in the developed economies (high income countries), overall, the SMEs contributes 55% and 65% to Gross Domestic Product (GDP) and employment, respectively. In the developing countries (middle income countries), the SMEs on the average contribute 70% to GDP and 95% to total employment. Similarly, in low income economies, they contribute 60% to GDP and 70% to total employment. Thus, the importance of SMEs to economic growth and development of any nation cannot be denied.

Small and medium enterprises are like a shield to the economic shocks and fluctuations and consequently they are extremely crucial to the economic strength of any country (Hyder & Lussier, 2016). For instance, in Europe, at the time of economic slump (around year 2000) and the euro zone debt crisis, the SMEs have sustained their hold as the pillar of the European economy crediting for more than 98 percent of all businesses, for 67 percent of total employment and 58 percent of gross value added (EU, 2012). Similarly, in the United States, small businesses constitute 99.7 percent as the employer firms, 48.5 percent of private-sector workforce, 63 percent of net new private sector occupations and 33 percent of exporting value (SBA, 2014).

Although, small businesses are important in overcoming the challenges of high unemployment, high poverty rates and income inequalities, but the small businesses have suffered from weak performance and high failure rates in different countries (Bamiatzi & Kirchmaier, 2014; Machirori & Fatoki, 2013). It is reported that in various countries up to 40% of entering firms fail within the first 2 years of life (Vivarelli, 2013). There are various factors and challenges which are associated with the low small firm performance in developing countries that include the unfavorable economic situation, lack of suitable government policies, poor Infrastructural facilities, higher operating costs, corruption (Abdullahi & Sulaiman, 2015; Hafeez et al., 2013), low level of capabilities, insufficient entrepreneurial competencies, difficulty in accessing technology and low productivity (Hussain et al., 2015) and mostly inappropriate and inefficient utilization of firm resources (Rauch & Hatak, 2016; Bloodgood, 2014). Furthermore, the lack of understanding of how small and medium firms can develop essential capabilities and secure their future performance (Greer et al., 2016; Parida et al., 2016; Azadegan et al., 2012). These all are the current prevailing issues related to the small firm performance. However, insights from the United States show a positive indicator where about 50% of all new establishments get through five years or more and about one-third still in business after 10 years (SBA, 2014).

Firm performance is a significant enterprise outcome that has become a concern amongst academicians as well as practitioners (Leonidou et al., 2017; Chinomona, 2013; Watson et al., 2011). From the entrepreneurial perspective, performance of SMEs is the ability to survive, grow and contribute to the creation of employment and alleviate poverty (Ahani et al., 2017; Ong & Ismail, 2012). It is revealed that the entrepreneurial activities are so important; as it can foster growth led firm performance (Sok et al., 2017). Overall, the performance of a small firm can be influenced by various strategic factors, but most importantly, the entrepreneurial competencies (Grimmer et al., 2017) and the dynamic capabilities, which are important to boost firm performance (Agyapong & Acquaah, 2016; Wang et al, 2015). Similarly, Omar et al. (2016); Tehseen & Ramayah (2015) claim that the success of any business is dependent upon a few pivotal resources of which entrepreneurial competencies are the most crucial and intangible. They argue that entrepreneurial competencies are the strategically important resources of the firms and many potential benefits can be derived from such valuable competencies. It is important to realize that for entrepreneurs a through know how of the entrepreneurial competencies is very imperative to efficiently run a successful business (Ahmad et al., 2010a). This understanding can make them more apprehensive and alert of their own attitude towards the possible ups and downs in the business. There is a general agreement that individuals who initiate, evolve, advance and make progress are the ones making use of the knowledge of entrepreneurial competencies. (Ahmad et al., 2010a; Mitchelmore & Rowley, 2010).

Looking at the entrepreneurial competencies as the contributing factor to the firm performance, another important factor of dynamic capabilities is worth investigated as it is also essential in understanding the firm performance (Rice et al., 2015; Wang et al., 2015). For the inclusion of dynamic capabilities, it is suggested that dynamic capabilities are considered as the superior level capabilities (Dangol & Kos, 2014). As the dynamic capabilities are about reconfiguration, integrating, coordinating the existing resources and capabilities of the firms, they constitute the base for the firm performance and gain sustainable competitive advantage (Chryssochoidis et al., 2016; Chinomona, 2013; Progoulaki & Theotokas, 2010).

Within the context of researches regarding entrepreneurship and the SMEs, the SMEs referred to in this study are those with the total number of employees of less than 250 employees, as defined by Hafeez (2014); Jabeen (2014) for the definition of SMEs used in developing countries. This study model developed keeping in view the developing countries small businesses. Their performance and issues are crucial and need to be addressed (Hyder & Lussier, 2016). For example, Wahga et al. (2015); Azadegan et al. (2012) said that there is an absence of understanding of how small and medium firms can develop such critical capabilities and secure their superior performance, which the entrepreneurs become the driving forces.

The performance of the SMEs ensures the economic soundness of the country and act like a protective shield to economic shocks, especially in the developing countries where the entrepreneurial research is limited (Coder et al., 2017; Hyder & Lussier, 2016). That is why there is a dire need to conduct a research in small firms and entrepreneurship domains. Thus, a study was conducted attempting to fill the possible knowledge gap by positioning the dynamic capabilities as a missing link on the relationship between entrepreneurial competencies and the small firm performance and this article presents and discusses the framework of the research.

CONCEPTUALIZATION OF THE RESEARCH FRAMEWORK

After reviewing the literature, the theoretical foundation of the study was established. In the literature, the association between entrepreneurial competencies and small firm performance has been identified and further highlighted the dynamic capabilities as a missing link among entrepreneurial competencies and small firm performance.

Relationship between Entrepreneurial Competencies and Small Firm Performance

Entrepreneurial competencies are considered as the core ingredients, namely specific skills, self-images, social...

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