endlessly to job creation and economic growth (Zoltan J Acs, Audretsch, ... responsible for the success of SMEs (Zoltan J Acs et al., 2012; Zoltan J Acs,.
Role of entrepreneurial characteristics in the development of SMEs: a case study INTRODUCTION As the new growth theories foresee continuously rising productivity and economic growth, fostered by never-ending human desires and wants, the researchers have located two important mechanisms - small and medium enterprises (SMEs) and entrepreneurship - having the ability to contribute endlessly to job creation and economic growth (Zoltan J Acs, Audretsch, Braunerhjelm, & Carlsson, 2012; Audretsch & Thurik, 2001; Nooteboom, 1994; Pagano & Schivardi, 2003; Schuh & Triest, 2000; Wennekers & Thurik, 1999). The superior performance of the SMEs as compared to the large businesses results from their inherent ability to take advantage of the openings created by the unpredictable markets (Hashi & Krasniqi, 2011) and serve as a continuous source of innovation diffusion (Piech, 2004). But all SMEs do not perform well and only those contribute significantly to economic growth which come up with innovative products (Ngah & Ibrahim, 2012). That's why, the failure rate of SMEs may be as high as 60% (Chaudhry Shoaib Akhtar & Hussain, 2014). The proposed study posits that the the solution of this problem lies in entrepreneurship because a huge body of small business literature holds entrepreneurial characteristics mainly responsible for the success of SMEs (Zoltan J Acs et al., 2012; Zoltan J Acs, Audretsch, & Lehmann, 2013; P. Romer, 1989; P. M. Romer, 1994). Nevertheless, a complete understanding of the phenomenon presupposes the amplification of the concepts of SMEs and entrepreneurship. Besides, it is also necessary to elaborate the types of entrepreneurship and the entrepreneurial characteristics that are indispensable for SME development as well as for economic growth. The following literature review throws some light on the subject from this angle.
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LITERATURE REVIEW SMEs and entrepreneurship In the past, the two terms - SMEs and entrepreneurship - were occasionally used interchangingly but these are two different concepts. The SMEs do not have a universal definition, though these are generally defined as small and medium business establishments maintaining limited revenues or number of employees. For instance, in Australia, the businesses using the services of less than 200 employees are categorized as small and medium businesses (Dwivedi, Papazafeiropoulo, & Scupola, 2009). Entrepreneurship, on the other hand, simply implies turning a potential idea a profitable business (Warnecke, 2013), but this apparently easy concept actually entails a highly difficult and complex entrepreneurial activity of innovating products and services, spotting the new markets and exploiting the niches (Hashi & Krasniqi, 2011). Necessity vs. Growth Entrepreneurship To explore the factors underlying the success of SMEs, we need to approach them through the lens of entrepreneurs (Hung, Effendi, Talib, & Rani, 2011), though not the earlier type of entrepreneurs (Kirzner, 1973) who were individuals bent on filling the markets with the products and services the customers needed. Conversely, the entrepreneurs who really make a difference are innovative business leaders, enjoying entrepreneurial characteristics, and having strategic objective of exploiting opportunities and indulging in long term economic ventures contributing to economic growth (Estrin, Meyer, & Bytchkova, 2006; Scase, 2000; Schumpeter, 1934). As against the old entrepreneurship restricted only to an exclusive focus on necessity, the new entrepreneurship, because of its emphasis on growth and opportunity, opens the gates of unlimited businesses opportunities for the SMEs and, thus, contributes significantly to economic growth (Hashi & Krasniqi, 2011). In this respect, we are concerned with this type of growthoriented and opportunity-driven entrepreneurship. Page | 2
Characteristics of growth entrepreneurship Following are those characteristics of growth-oriented entrepreneurship that enable opportunity entrepreneurs to contribute significantly to SME development. Innovativeness Innovativeness is an indispensable characteristic of growth-oriented entrepreneurship, characterised by creativity, risk-taking, future orientation, openness to change, and pro-activeness, which helps entrepreneurs to amplify the gains of innovation and contribute significantly to the development of SMEs (Lynch, Walsh, & Harrington, 2010; Shoham, Vigoda-Gadot, Ruvio, & Schwabsky, 2012). Empirical evidence proves innovativeness as a vital quality of an organization to innovate its products and processes (Mairesse & Mohnen, 2002) and to perform better than their competitors (Davenport, 2013), thus enabling them to succeed in the market (Communities, 2005; F. M. OECD, 2002), Flexibility Innovativeness is peculiar to the firm while flexibility is peculiar to the entrepreneurs. In an age of knowledge-based economy, the business environment is continuously changing and the growth-oriented entrepreneurs are supposed to always ready for making innovative changes. Flexibility represents their critical entrepreneurial capability to respond promptly and rapidly to all these changes in the external setting, which is crucial for SME development because inflexibility results in the failure of the entrepreneurs in implementing innovation, thus leading to lower growth rates and possible demise of the SMEs (Baumol, 2004; Freel & Robson, 2004). So, because of technological advancements and industry requirements, they have to upgrade products, innovate processes and introduce organizational changes continuously for increasing productivity, efficiency and quality (Hashi & Krasniqi, 2011). Page | 3
Adaptability As against flexibility which implies the willingness of the entrepreneurs to make changes, adaptability represents their organizational capability to respond to tremors at the broad industry and economy levels, e.g. drastic changes in the demand of products and services, technological revolutions, demographic disruptions, radical changes in the business environment or extrme regulations (Dex & Scheibl, 2002; Sak & Taymaz). Growth entrepreneurs are supported by functional organizational structures and clearly designed decision making processes, which enable them to shift their operations within no time to avail themselves of the new opportunities or to meet the new challenges successfully (Power & Reid, 2005) and they are successful because small firms have comparatively lower adaptation costs as compared to the large and established business enterprises (Sak & Taymaz). Ability to spot new markets The last crucial characteristic of the growth-oriented entrepreneurs, which is responsible for SME development, is their ability to spot new markets for their goods and to exploit market niches even in the highly concentrated industries (Zoltan J. Acs & Audretsch, 1990; Porter, 1979). The enhanced competition does not harm small firms, rather it serves as an incentive for the SMEs to generate innovative ideas, provided the entrepreneurs are capable of spotting the new markets and exploiting the niches (O. Oecd, 2002). Instead of competing with the large and established businesses, small firms focus on producing allied and supporting products, which ultimately serve as the supply base for the big businesses (Hashi & Krasniqi, 2011), thus contributing to the SME development in particular and economic growth, in general.
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Proposed conceptual framework for study Based on the literature review, the following will be the conceptual framework of the proposed research:
Innovativeness
Flexibility SME Development
Entrepreneurial Characteristics
Adaptability
Ability to spot markets
Figure 1: Proposed onceptual framework
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Problem Statement In view of the vital role of small business in the economy, threatened by the high failure rate of SMEs, the the proposed research will aim at examining the entrepreneurial characteristics as major determinants of SME development. The study will first attempt to exaplain the true nature of entrepreneurship, differentiating between necessity entrepreneurship and growth entrepreneurship, and then will examine as length as to how growth entrepreneurship makes SMEs successful through such characteristic features as innovativeness, flexibility, adaptability and the entrepreneurial ability to spot new markets. Research Questions In the light of the problem statement, following will be the research questions: 1. How growth entrepreneurship is distinguished from necessity entrepreneurship? 2. What are important characteristics of growth-oriented entrepreneurship which can serve as major determinants of SME development? 3. How growth entrepreneurship contributes to SME development through the said entrepreneurial features? Research Objectives Keeping in view the research questions, the following will the main objectives of the study: 1. to define entrepreneurship in the context of the current changing small business environment 2. to develop an exhaustive list of important features of growth entrepreneurship serving as major determinants of SME development 3. to examine in detail how growth-oriented entrepreneurial characteristics work to contribute to SME development and economic growth
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Research gap and significance of the study The contribution of SMEs to economic growth has been established from literature (Chaudhry Shoaib Akhtar & Hussain, 2014; Hashi & Krasniqi, 2011; Hung et al., 2011), still we find half of the SMEs failing within their first three years of operation (Wiid, Cant, & le Roux, 2015). SME literature has tried to address the problem but not without loopholes and gaps. For instance, entrepreneurship has been established as a vital factor underlying the success of the SMEs (Zoltan J Acs et al., 2013), but there are different forms of entreprneurship which need to be differentiated. The concept of the 'growth entrepreneurship', focusing on opportunity, has to be distinguished from the old 'necessity entrepreneurship', which cannot help SME developoment. So, the type of entrepreneurship indispensable for SME development needsn to be sufficiently elaborated. Similarly, entrepreneurial features have been discussed as determinants of SME development (Hashi & Krasniqi, 2011), but, firstly, the the list is not exhaustive and, secondly, there are few researches explaining adequately the process through which these features of growth entrepreneurship work for making SMEs successful. The proposed research will try to address these gaps in the small business literature. Hence, proposed the study will make a significant academic contribution to the research area in a number of ways: by defining afresh the concept of entrepreneurship, differentiating between different types of entrepreneurship, preparing an exhaustive list of entrepreneurial features as determinants of SME development, and, by tracking the process through which entrepreneurial features work and may contribute to the success of SMEs. The findings of the proposed study will also have immense practical implications for the small business sector because these will help in checking the rising failure/disappearance rate of SMEs. Scope and Limitations As the proposed study will be an academic project to be completed in partial fulfillment of the requirements of PhD Program, it will suffer from certain time, resource and other constraints e.g.Following will be the limitations of Page | 7
the study:
The study will be conducted purely in the context of SMEs and, hence, it will be peculiar to the small business sector only. As the study focuses on the research area of entrepreneurship, it will study only entrepreneurial characteristics as determinants of the success of SMEs and the discussion of other determinants like size, age financial needs of SMEs and other external factors will be out of the scope of the study. As the research will be attempted in the form of a case study, the results of the study may not be generalizable to populations (Yin, 2013). There may be problem arising in validation of answers because the case study research will approach the problems from a specific context while there can be more than one way to look at the issues. The study will have to be completed within limited time frame (at the maximum two years) and will be restricted to whatever the limited resources allocated by the university.
Methodology
The proposed research is meant to investigate the phenomenon as to why more than half of the SMEs fail in the first three years of their inception and how entrepreneurial features can work to make SMEs successful. Accordingly, the research will be conducted through the case study method being the most appropriate research method to examine contemporary events through 'why' and 'how' questions (Yin, 2013). Extensive literature review will be carried out, followed by detailed observation of the phenomenon along with in-depth interviews of the stakeholders which will be used as evidence as per the requirements of the case study approach (Yin, 2013). The target population will be purposely chosen SMEs. To achieve the objective of producing an extensive and thorough case study on the factors underlying the failure of SMEs and the role of Page | 8
entrepreneurial features in SME development, 6 to 8 calculatedly selected thorough case studies of SMEs will be employed and will serve as the target population of the study. Of these, at least two cases will be selected from failed SMEs and the remaining from will be of those SMEs representing unprecedented success stories. It will help conducting a thorough and comparative examination of both the aspects of the case: causes of failure of SMEs and role of entrepreneurial factors underlying success of SMEs. The main source of sources of evidence will be the selected cases included in the target population. However, other relevant and supporting documents like articles, reports, news items and so on will also be employed wherever necessary. Additionally, interviews and direct observations will also be used as evidence. As far as the design of the case study is concerned, Yin's multiplecase studies design will be used in the research (Yin, 2013). The overall design will follow a holistic case about why the SMEs fail and how the entrepreneurial characteristics can make them succeed. However, the case studies on SMEs selected in the target population will serve as sub-cases from which data will be collected for the proposed research. Current theories on entrepreneurship and innovation will also be employed to select most suitable cases, collect as well as organize data and develop data analysis strategies as explained by Yin (2013). Finally, in view of the multiple-case studies design, cross-case synthesis and explanation building techniques will be used for data analysis.
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