Sustainable Performance of Thai SMEs: Investigating ...

Sustainable Performance of Thai SMEs: Investigating the Role of Entrepreneurial Competencies Siriluck Thongpoon1*, Noor Hazlina Ahmad2, and Sofri Yahya3 1

Graduate School of Business, Universiti Sains, Penang, Malaysia 2 School of Management, Universiti Sains, Penang, Malaysia 3 Graduate School of Business, Universiti Sains, Penang, Malaysia *Corresponding author, E-mail: [email protected]

Abstract Since sustainable development is the primary call for our society, SMEs entrepreneurs are explicitly viewed as one of the key players in promoting sustainability. This paper seeks to propose a conceptual framework of a sustainable performance of SMEs in Thailand. The objective of the paper is to examine the extent to which entrepreneurial competencies, which are postulated to be formed by sufficiency economy philosophy, could enhance sustainable performance. The moderating effect of government support is also considered as an important external factor for creating a sustainable business atmosphere in the country. Keywords: sustainable performance, entrepreneurial competencies, sufficiency economy philosophy, government support 1. Introduction The sudden rise in the issues of sustainable development has attracted the attention of scholars, policymakers, business practitioners as well as the community alike. This recent development in the interest on sustainability, especially within the commercial landscape, is not only the focus of the developed nation, but also the developing countries such as Thailand. Once, Thailand has been in anguished due to the economic crisis as known in the name of “Tom Yam Kung Crisis”. It had an immense effect on several parties. Businesses were stuck. Many lost their jobs due to the layoff of the workforce resulting in high unemployment rate. This is seen as a resolution that would derail the efforts toward enhancing social sustainability. Given this unfortunate circumstances, government soon realizes that the only way to mitigate the dramatic impact of economic crisis is via strengthening the SME sector in Thai. SMEs are claimed to be crisis shock absorbers (Wiboonchutikula, 2002) that would act as buffer for a country’s economy at times when large organizations resort to drastic measure of laying off workers during the rough period of economic downturn. As such, promoting sustainable performance among SMEs is seen pivotal.

In the context of Thailand, 99% of the enterprises are held by SMEs. However, the contribution of the economic performance of SMEs is inconsistent and still less than Large Enterprises (OSMEP, 2010). The reasons may be because of SMEs are having limited resources if compared to Large Enterprises. SMEs are known to face various difficulties and constraints, leading many to close their businesses each year; particularly, within the early years of operation (Taylor, 1999; Jeffoate, Chappell, and Feindt, 2002). In Thailand, despite various support mechanism made available to SMEs, many still fail. It has been claimed that the failures were due to the lack of knowledge, ability, experience, insufficient capital, marketing, information, and technology among the entrepreneurs (Wiboonchutikula, 2002). These problems have created major stumbling blocks for SMEs to achieve sustainable performance. Studies investigating the success factors of SMEs suggest that SMEs owners/managers are the core competence of the firm (Gibb, 2005). Their actions and inactions would influence firm performance substantially. On the other hand, government support especially in the developing countries, also play an important role in determining rules and

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policies which could affect SMEs performance. Government support is perceived as an important factor in predicting firm performance (Yusuf, 1995; Mohd Shariff, Peou, and Ali, 2010). A review of SMEs literature in the context of Thailand suggests that empirical research investigating the role of SMEs and factors leading to sustainable performance is rather scant (OSMEP, 2010). This paper endeavors to emphasize on the role of entrepreneurial competencies, which particularly derived from sufficiency economy philosophy, as well as the moderating effect of government support in developing sustainable performance of Thai SMEs. It is envisaged that the results of this study will be beneficial to many parties, including policy makers, entrepreneurs, government and agencies, venture capitalists, and academic scholars. The following sections present the literature review on the area of sustainable performance, entrepreneurial competencies, the effect of sufficiency economy philosophy in developing entrepreneurial competencies, and the moderating effect of government support respectively. Secondly, theoretical framework and proposition are conceptualized based on the previous literatures. Finally, the implications and conclusion are provided. 2. Materials and Methods

(Schick, Marxen, and Freimann, 2002) due to the various constraints posed by the internal and external factors on the entrepreneurial ventures. Having noted that, Kantabutra (2007) has highlighted that business will be sustainable when it meets the conditions of delivering strong financial performance, having ability to endure economic and social difficulties over time, and being able to maintain a leadership position. Therefore, the sustainable performance in this study is defined as the extent to which the entrepreneur owner/manager can sustain the economic and social performance in the long run. Also it has been highlighted that for performance measurement, multiple dimensions of performance is the most appropriate approach to measure firm performance (Murphy, Trailer, and Hill, 1996). In order to capture firm performance, financial measures, on the one hand, represent the economic performance which consists of cash flow, profitability, liquidity, solvency, and market share. On the other hand, nonfinancial measures represent social performance which consists of employee satisfaction, customer satisfaction, owner/self satisfaction, relation with suppliers, and relation with community. In addition, to measure the small firm performance, the subjective measurement is appropriate (Ahmad, 2007).

2.1 The Sustainable Performance

2.2 The Entrepreneurial Competencies and Firm Performance

Sustainable development has recently been discussed as an influential concept for business and policy. However, it has been sparse within the entrepreneurship literature (Hall, Daneke, and Lenox, 2010). There appears to be no single set of sustainable performance measurement especially within the SMEs literature. Previous study suggests that the specific indicators for different business sectors have to be defined separately, on a case-by-case basis in order to reflect the specific business characteristics (Azapagic, and Perdan, 2000). Although many studies have reached to a consensus on utilizing the satisfaction in the achievement of social, environmental, and economic goals as performance measurement, it is difficult to apply environmental aspect especially in the beginning stage of business development

Competency consists of the underlying characteristics such as generic and specific knowledge, motives, traits, self-images, social roles, and skills which results in venture birth, survival, and/or growth (Bird, 1995). The competency approach allows researchers to study the complex, multi-level, multidisciplinary research. There are some empirical studies have shown that entrepreneurial competencies are not only increase competitive advantages; they are predicted to influence firm performance (Man, Lau, and Chan, 2002; Ahmad, 2007; Ahmad et al., 2010). Importantly, it is notable that the entrepreneurial competencies can be observable and measurable. These competencies are learnable, even in adulthood. The list of entrepreneurial competencies is 2


therefore developed based on the previous literatures (Man, Lau, and Chan, 2002; Ahmad, 2007; Ahmad et al., 2010). It consists of opportunity, relationship, conceptual, organizing, strategic, commitment, learning, and personal competencies. 2.3 The Effects of Sufficiency Economy Philosophy in Developing Entrepreneurial Competencies The sufficiency economy philosophy may be new to other countries, but not to Thailand. The concept, which comprises of three components and two underlying conditions, is bestowed by His Majesty King Bhumipol Adulyadej who is the greatly respected. Due to the value of sufficiency economy philosophy perceived by Thais, it is encouraged and applied in several sectors. It has put in national economic and social development plan as well as in the SMEs Master Plan (2007-2011) (OSMEP, 2006). Many schools and universities offer courses and activities in promoting sufficiency economy philosophy. It has been successfully applied in agricultural sector. In addition, some empirical studies have found that the successful business owners to a certain extent do employ sufficiency economy philosophy in running their businesses (Puntasen, Premchuen, and Keitdejpunya, 2003; Wattanasupachoke, 2009). Despite various calls to empirically study the application of sufficiency economy philosophy in business sector (Puntasen, Premchuen, and Keitdejpunya, 2003; Kantabutra, 2007; Wattanasupachoke, 2009), the focus on sufficiency economy philosophy as antecedent of entrepreneurial competencies is seen novel. This study attempts to fill the gap by investigating the value of sufficiency economy philosophy in the development of entrepreneurial competencies among SME owners in Thailand. 2.4 The Moderating Effects of Government Support on Firm Performance North (1990) defines institutions as the rules of the game in a society and organizations are the players. He suggests that institutional frameworks interact with organizations by signaling which choices are

acceptable and supportable. So, institutions help to reduce uncertainty for organizations. Since the institutional theory provides meaningful approach, it has recently been employed into the entrepreneurship research. Mohd Shariff, Peou, and Ali (2010) point out that governments can improve opportunities available to entrepreneurs as well as strengthen the cognitive environment by offering various supports, thus, increasing the ability of entrepreneurs to conduct businesses. Following that argument, government is seen as a critical factor of business success (Hall, Daneke, and Lenox, 2010). Government provides various means to support business activities. Even though government support is carried out by numerous agencies through various programs, it is still limited comparing to the high demand on the part of SMEs. This study seeks to examine the perception of SMEs entrepreneurs in terms of the usefulness of the government support made available to them. Government support in this study is expected to improve the magnitude of the relationship between entrepreneurial competencies and sustainable performance. 3. Results and Discussion Based on previous literature and the call to redirect the focus on the contribution and ability of entrepreneur owners/managers in generating successful business performance, a theoretical framework is advanced to postulate the link entrepreneurial competencies, their antecedent, the moderating effect of government support, and sustainable performance of SMEs. Specifically, the propositions are put forth as follows; Proposition 1: Higher level of entrepreneurial competencies will be associated with greater sustainable performance among SMEs in Thailand. Proposition 2: The usefulness of government support will significantly moderate the relationship between entrepreneurial competencies and sustainable performance of SMEs in Thailand. Proposition 3: The value of sufficiency economy philosophy will positively influence the development of entrepreneurial competencies. 3


Figure 1: Conceptual Framework

Sufficiency Economy Philosophy - Moderation - Reasonableness - Self-immunity - Knowledge - Morality

Entrepreneurial Competencies - Opportunity - Relationship - Conceptual - Organizing - Strategic - Commitment - Personal - Learning

Sustainable performance - Economic aspects - Social aspects

Government support

4. Implications Based on the framework, the findings are expected to assist to relevant parties. Firstly, SMEs owners/managers can be enlightened of the critical competency areas that are needed to sustain business performance in the long run. Secondly, government and its agencies including the policy makers can provide the appropriate policy to promote the good business environment in particular for the SMEs. Thirdly, the bankers and venture capitalists can integrate entrepreneurial competencies in the assessment tool. This may help them in considering and generating loan/fund to the competent entrepreneurs. Last but not least, the scholars who are Thais and non-Thais may further delve into the sufficiency economy philosophy, especially as important values that would eventually determine firm performance. This alternative approach may either directly or indirectly helps in promoting business sustainability in the country. 5. Conclusion The thesis of this paper is that SMEs entrepreneurs are the key players in ensuring the sustainable performance of SMEs in Thailand. Their embedded abilities will be reflected through competencies. These competencies that were building from the value of sufficiency economy philosophy would eventually lead to sustainable performance. Entrepreneurs, thus, have to

equip themselves with the relevant competencies over time. Government inevitably is also an important institutional player to support the SMEs in achieving sustainable performance. References Ahmad, N H 2007, ‘A Cross Cultural Study of Entrepreneurial Competencies and Entrepreneurial Success in SMEs in Australia and Malaysia’, The University of Adelaide, Australia. Ahmad, N H, Ramayah, T, Wilson, C, and Kummerow, L 2010, ‘Is Entrepreneurial Competency and Business Success Relationship Contingent upon Business Environment?’ International Journal of Entrepreneurial Behaviour & Research, vol. 16, no. 3, pp. 182-203. Azapagic, A and Perdan, S 2000, ‘Indicators of Sustainable Development for Industry: A General Framework’. Process Safety and Environmental Protection, vol. 78, no. 4, pp. 243-261. Bird, B 1995, ‘Toward a Theory of Entrepreneurial Competency’. In J. A. a. B. in Katz, R.H. (Eds) (Ed.), Advances in Entrepreneurship, Firm Emergence, And Growth, vol. 2, pp. 51-72, Greenwich, CT: JAI Press.

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