Scholarly article on topic 'Entrepreneurship Management, Competitive Advantage and Firm Performances in the Craft Industry: Concepts and Framework'

Entrepreneurship Management, Competitive Advantage and Firm Performances in the Craft Industry: Concepts and Framework Academic research paper on "Economics and business"

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{SMEs / "Craft Industry" / "Firm Performance" / EntrepreneurshipManagement / "Management Accounting" / "Resource-based View" / "Porter's theory"}

Abstract of research paper on Economics and business, author of scientific article — Nor Azlina Ab Rahman, Aliza Ramli

Abstract The purpose of this paper is to contribute to the understanding of small medium enterprises (SMEs) and firm performances within the craft industry by drawing attention to the critical factors influencing its performance, and to further provide an integrated framework to examine SMEs performances. In this paper, an integrative framework of firm performance and factors influencing it is proposed that relies on resource-based view theory as well as combining insights from Porter's theory. The proposed framework allows the identification of the factors driving SMEs performances and the capture of holistic firm performance within the craft industry.

Academic research paper on topic "Entrepreneurship Management, Competitive Advantage and Firm Performances in the Craft Industry: Concepts and Framework"

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Procedía - Social and Behavioral Sciences 145 (2014) 129 - 137

ICGSM 2014

Entrepreneurship management, competitive advantage and firm performances in the craft industry: concepts and framework

Nor Azlina Ab Rahman*, Aliza Ramli

Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, 40450 Selangor, Malaysia


The purpose of this paper is to contribute to the understanding of small medium enterprises (SMEs) and firm performances within the craft industry by drawing attention to the critical factors influencing its performance, and to further provide an integrated framework to examine SMEs performances. In this paper, an integrative framework of firm performance and factors influencing it is proposed that relies on resource-based view theory as well as combining insights from Porter's theory. The proposed framework allows the identification of the factors driving SMEs performances and the capture of holistic firm performance within the craft industry.

© 2014 Elsevier Ltd.Thisisanopenaccess article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/3.0/).

Peer-review under responsibility of the Accounting Research Institute, Universiti Teknologi MARA.

Keywords:SMEs, Craft Industry; Firm Performance; EntrepreneurshipManagement; Management Accounting; Resource-based View; Porter's theory

1. Introduction

Small Medium Enterprises (SMEs) form an absolute larger sector in any worldwide country in the business world. In Europe, more than 90 per cent of the private enterprises are SMEs (Reijonen and Komppula, 2007). In addition, Reijonen and Komppula (2007) stated that SMEs are expected to bring new innovations into markets, thus rarely seen as catalysts in the society. The manufacturing sector have played an important role in SMEs and have

* Corresponding author. Tel.:+6-035-544-4980; fax: +6-035-544-4921 E-mail address:

1877-0428 © 2014 Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/3.0/).

Peer-review under responsibility of the Accounting Research Institute, Universiti Teknologi MARA. doi: 10.1016/j.sbspro.2014.06.019

made a significant contribution to the Malaysian national economy growth (Saleh and Ndubisi, 2006). In relation to that, SMEs are viewed as key industry players in the country's overall economic growth (Hashim, 2012). As the backbone of the country's economy, SMEs should be aggressively focusing on improving their productivity, competitiveness and efficiencies (Rusconi, 2008; Weerakkody, 2013). This is because SMEs can generate huge employment opportunities, stimulate competition, enhance quality of human resources, nurture a culture of entrepreneurship, support a large scale industries and open new business opportunities (Weerakkody, 2013).

SMEs are the potential larger contributors in the Malaysian economic growth based on their output, numbers (half a million) and substantial employment generation (labor-intensive) (Aris, 2007). It has also been suggested by Hashim (2012)that small firms make a significant contribution to the gross domestic product (GDP). According to Sidik (2012), SMEs are the key source for entrepreneurial creativity and ideas. The performance of the SMEs sector is closely linked with the performance of the nation (Suh and Kim, 2014) and it is becoming of the target for a high-income nation through nurturing more dynamic entrepreneurs (Abdullah, 2013). In addition to that Abdullah (2013), suggested that Malaysia will never achieve a developed and high-income nation status without the support from creative and innovative entrepreneurs in their performance from the different sectors.

Table 1 presents SMEs definitions according to SMECorp (2013). SMEs can be defined either by annual sales turnover or number of full time employees.

Table 1. New definition of SME in Malaysia effective on January 1, 2014




Services and other sectors

Sales turnover of less than RM300, 000 or full-time employees less than 5

Sales turnover of less than RM300, 000 or employees less than 5

Sales turnover from RM300, 000 to less than RM15 million or employees from 5 to less

than 75

Sales turnover from RM300, 000 to less than RM3 million or employees from 5 to less than 30

Sales turnover from RM15 million to not exceeding RM50 million or employees from 75 to not exceeding 200

Sales turnover from RM3 million to not exceeding RM20 million or employees from 30 to not exceeding 75

(Source: National SME Development Council, 2013)

Craft industry is considered as one of the outstanding industries and not only it can absorb the larger sales force compared with the larger industry, but it can also provide the most significant contribution to GDP (Tambunan, 2011). Craft industry is one of the works of art and becomes the heritage of Malaysia and many countries adore it. Craft industry in Malaysia typically reflects manufacturing sector as a contributor to the country's economic development (Amin, 2006). Amin (2006) explained that, combination of old and new is the new elements, culture and economy, traditional and contemporary, form and functionality to Malaysian craft industry. This industry can also be linked to the multi-racial population and multi-cultural facet of the country. This is shown in the vast array of products that constitute the Malaysian craft today and it is one of the oldest industries in Malaysia which evolved more than 80 decades ago (Manan and Mamat, 2011). Previous study finding by Manan and Jan (2010) indicated that this industry is small in size and scattered all over the country, their products are able to improve the performance of tourism industry and able to provide job and business opportunities (Manan and Mamat, 2011).

Craft industry produce variety of craft-based products such as textiles, handicrafts, paintings, garments, batik, curtains and bed sheet (Amin, 2006). The need for creativity and flexibility among small firms can be linked to SMEs and craft industry in the context of sustainability (Ashworth, 2011), unique product based on people's creativity, skills and talents and difficult to be developed through replication strategy (Suparman, Sudirman and Siswanto, 2012).

1.1 Problem Statement

SMEs account for 24.9% of all enterprises in manufacturing sector (Bank Negara Malaysia, 2012; SMECorp, 2012). However, SMEs manufacturing sector (including Craft Industry) still reports stagnated and/ or reducing profits, low sales growth, low market share, among others which have made them less competitive at both local and international markets (SMECorp, 2012). Frimpong (2013) also pointed out that full benefits of SMEs have not been realized because of many issues faced such as lack of entrepreneurial skills, lack of access to high quality and affordable business development services. Islam, Khan, Obaidullah, and Alam (2011) pointed out that poor financing plan and poor management were the main causes of failure of small enterprises. In addition, lack of knowledge among entrepreneurs in the utilization of technology poses problem for entrepreneurs to move forward (Bailetti et al., 2012). A review of the literature revealed that there is limited study within the craft industry on entrepreneurship and performance measurement (Amin, 2006). According to Maritz (2004) entrepreneur is a person who already habitually creates and innovates in order to build up something at recognized value based on perceived opportunities. Lack of research is seen in the Craft Industry in relation to firm's performance in building the capacity and capability of entrepreneur success, growth and competitiveness on performance measurement (Reijonen and Komppula, 2007). The result of this research can serve as a reference for relevant parties such as top management to better align their efforts through enhancing their entrepreneurial skills, embracing innovation and adopting management accounting practices in enhancing organizational performances. The issues commonly faced by SMEs are in relation to best practices and entrepreneur characteristic in the craft industry.

1.2 Purpose

The purpose of this study is to explore the link between the factors that influence entrepreneurship management and firm performances within the context of SMEs in the Craft Industry. Specifically, this paper seek to provide a review of the literature on SMEs performances, entrepreneur characteristics, business best practices and management accounting tools and techniques with the adaption of competitive advantage, thus it will enable a better understanding of what it takes for the owners to improve business performance to be at par and better than other firms competing as these factors are discovered to enhance the firm's performance (Teece, 2010; Yusof, 2010). By adopting resource-based view (RBV) as the underpinning theory and supported by Porter's Theory (competitive advantage), a framework is proposed with the highlights on the key factors that can drive SMEs performances.

1.3 Significance of contribution

Despite Malaysian government's intervention to improve SMEs performances, according to BNM Report (2012), they are still not able to reach their full potential. Thus, the novelty of the expected findings from this paper can contribute in establishing new criteria expected of entrepreneurs and SMEs to enable them to effectively cope with unprecedented challenges as a result of globalization, intense competition and rapid technological changes. Through improved productivity and performance, SME's specifically within the craft industry can significantly contribute to the national economy. This paper propose framework to the SMEs entrepreneurs to be successful in their businesses. This paper will provide some guidance for high performance entrepreneurs by enabling them to know their strength and for low performance entrepreneurs to be able to identify their weaknesses by comparing all the firm's resources possessed by the high performance entrepreneurs. The important thing in this paper is to provide supports for the future entrepreneurs and top management to establish new criteria expected with the requisite skills for success, various business potential, knowledge management, marketing and strategic management techniques, and financial management. This paper also provides a better understanding of the importance of management accounting tools and techniques in enhancing firm performance. Knowledge in this area of research would provide those in the craft industry a better explanation for factors that drive companies in the performance measurement systems. At the same time, SMEs entrepreneurs would be able to enhance their knowledge on performance

measurement by incorporating the non-financial or strategic measurement besides financial measurement in managing business to superior performance of the firms.

2. Literature Review

Entrepreneurship management according to Brown, Davidsson, and Wiklund (2001) which using Stevenson's definition found that "Entrepreneurial Management" can be defined as entrepreneurial management practices which can assist firms remain vital and contribute to firm and society value creation. According to the description provided by Kuhn, Sassmannshausen and Zollin (2010) using Stevenson's definition, it is stated that entrepreneurship as currently an approach to management by pursuit of opportunity without regard to controlled the resources. Entrepreneurial management is a proven strategy for getting more accountability changing in terms of internal services which leads to customers getting better value for their money and will be achieved through different structures, incentives and funding (Oregon, 2010).

2.1. Entrepreneurship Characteristic

According to Eroglu and Picak (2011), entrepreneurship, is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. Prior researchers (Eroglu and Picak, 2011; Ndubisi,2012) also defined entrepreneurs as individuals who exploit market opportunity through technical and/or organizational innovation and taking risk. However, McMullen, Sanchez, and Stout (2011) combinations of innovative, proactive and risk-taking behavior can create value in organizations. Maritz (2004) stated that entrepreneur is a person who already habitually creates and innovates in order to build up something for recognized value around with perceived opportunities. Zimmerer, Scarborough, & Wilson (2008) and Makhbul and Hasun (2011) stated that entrepreneur is someone who is able to take opportunities, take risk and develop a new business to gain profit.

2.2. Best practices and management accounting tools and techniques

Best practices may be described as optimum ways of performing work to achieve high performance (Alias, Ahmad@Baharum, & Idris, 2012). A best practice is a proven process that delivers measurable improvements in efficiency and/or effectiveness and help the companies speed their progress toward performance improvement, and to guide them around pitfalls that might otherwise slow or even halt their initiatives (Alias et al., 2012). Davies and Kochhar (2000) further defined best practice as a process or method that, when executed effectively, leads to enhance project performance. These "Best Practices" represent a collection of work practices around certain subject areas such as safety performance, constructability and Front End Planning (Kang, O'Brien, and Mulva, 2013). According to Malcome Baldrige National Quality Award (MBNQA) (2009) (Amerine, 2012) best business practices have a great impact on firm's performance, and the strategy might improve or obstruct the practices. According to Amerine (2012), it is stated that in order to understand the relationship between best business practice and performance, it is greatly considered an important aspect of the context in what situation best business practices are implemented, as specifically the impact on firms' choice of business strategy. In this context, it can be assumed that, organizations that use different strategies will moderate the relationship between best business practices and performance (Kang et al., 2013)

2.3. Management accounting tools and techniques

Sulaiman, Ahmad, and Alwi (2004) examined contemporary and traditional Management accounting (MA) tools being adopted in Malaysia, Singapore, China, and India. Sulaiman et al. (2004) found that not only the use of contemporary tools is lacking in all four countries, but also using survey method with the benefits that accrued from using traditional management accounting tools were "very high". Studies by Renyong, Xia and Baofeng (2005) and Schellhorn and Sharma (2013), suggested that management accounting tools attempted to establish an increase in the use by owners or managers in China. They discovered that there are differences in management accounting

tools used in relation to its location, types of industry and the size of the business. Previous studies on the adoption of management accounting tools have been carried out in various countries such as India (Anderson and Lanen, 1999), Asian (Sulaiman et al., 2004), Egypt (Carmona and Ezzamel, 2007), Sri Lanka (Kapuge and Smith, 2007), Greek (Pavlatos and Paggios, 2009), Syria (Kamla, Gallhofer and Haslam, 2012) and in Arab (Mclellan and Moustafa, 2013); and they found that there had been an increase in the use of management accounting tools that regional economic development had little impact; rather than larger firms and firms in the manufacturing sector that are more likely to have implemented management accounting methods. According to Malmi and Brown (2008) on their study of contemporary settings as little contingency work was carried out on balanced scorecard, target costing, life cycle costing, which come under the broad array of non-financial performance indicators.

2.4. Comparative advantage

According to Porter (1996), competitive advantage is the ability to earn returns on investment consistently above the average for the industry.Other scholars like Barney (1991) specifically noted that competitive advantage can be achieved if the firm implements a value-creating strategy that is not simultaneously being implemented by any current or potential competitors. Allen and Helms (2006) and Green, Lisboa and Yasin (1993) using Porter theory (1980, 1985) suggested that basic types of competitive advantage combined with the activities for which the company seeks to achieve them lead to three generic strategies. Porter (1990) stated that the strategies for achieving above-average performance in an industry are cost leadership, differentiation, and focus. Cost leadership represents a strategic alternative that centers around outperforming competitors through efficiency rather than product quality or service (Porter, 1990). This strategy focuses on offering buyers a competitively low cost without sacrificing quality and service. This strategy is exemplified by managerial control of expenditures and cost minimization in the aspects of a firm's organization (Hudson, 2002). Differentiated firms strategy is an attempt to create a real or perceived difference in product or service with the objective of establishing an industry-wide customer base that views the provider's product or service as superior (Porter, 1990). The focus strategy calls for a firm to narrow its marketing target by either engaging the buyer group, segment of the product line, or geographic region. In this strategy, the company concentrates on a particular group of customers, geographic markets, or product line segments (Lumpkin and Dess, 1996).

Further, Porter (1990), explained that each of the generic strategies involves a fundamentally different route to competitive advantage, combining a choice about the type of competitive advantage sought with the scope of the strategic target in which competitive advantage is to be achieved. Other scholars like Barney (1991) specifically noted that competitive advantage can be achieved if the firm implements a value-creating strategy that is not simultaneously being implemented by any current or potential competitors, and when other firms are not able to duplicate the benefits of the strategy. A Firm with a low cost position will have greater competitive advantage over a high-cost rival in low-growth industries than if they are to compete in high-growth industries (Wernerfelt, 1984).

2.5. Firm performance

Firm performance is defined in terms of financial performance which comprises of financial efficiency measures such as return on investment and return on equity, and profit measures such as return on sales and net profit margin, profit, turnover or return of investment (Walker and Brown, 2004; Reijonen & Komppula, 2007). Non-financial measures include autonomy, customer satisfaction, sales growth, employee's growth, market share, job satisfaction, the ability to balance work and family (Walker and Brown, 2004). Firm performance relates to the firm's success in the market with a different outcomes (Walker and Brown, 2004).

Performance measurement systems play a key role in the development of the company strategy and in the evaluation of the achievement of the organizational objectives (Velez-Gonzalez, Pradhan, and Weech-Maldonado, 2011). Traditionally, measuring an organization's success by using an accounting data was widely practiced. However, measuring company's performance using only financial data has its limitations. It is found that the accounting-based financial measurement systems are no longer adequate to measure the performance of a company (Ferreira, Moulang, and Hendro, 2010; Velez-Gonzalez et al., 2011). Therefore, many companies have adopted several new approaches that combine both financial and non-financial measures in order to better assess their performances. By using non-financial measures, managers will be able to track progress on the actionable steps that

lead to a company's success in the market with the values and the preferences of the enterprise to produce decisions about the required actions (Otley, 2001) .

2.6. Resources-based View theory

The Resource Based View (RBV) theory typically focuses on the internal resources of organizations (Madhani, Tywoniak, Azevedo, Ferreira and Datta, 2009). In the context of RBV, Barney (1991) argues that a firm has a valuable, rare, costly to imitate and non-substitutable, and create a greater competitive advantage. In other words, competitive advantage can be sustained over time through the unique bundling of resources (Barney, 1991; Saffu, Apori, Elijah-mensah, and Ahumatah, 2006). According to Kamyabi and Devi (2011), RBV was developed by Penrose (1959), and it is concluded that a company should be considered as a collection of physical and human resources bound together in an organizational structure. Furthermore, Hafeez and Essmail (2007) in their study classified resources into two categories; provide examples such as physical assets and intelectual assets. In accounting, resources typically relates to knowledge, skill and competencies (Everaert, Sarens and Rommel, 2006; Jayabalan, Raman, Dorasamy and Ching, 2009). Interestingly, RBV explains number of successfully in accounting from differences provision of advisory services by external accountants as sources of support services and to fill up gaps of advice in their internal resource (Everaert, Sarens and Rommel, 2008; Jayabalan et al., 2009; Kamyabi and Devi, 2011). On the other hand, RBV of the firm provides a theoretical grounding for the assessment of firm-specific factors as potentially to affect SME performance (Irwin, Hoffman, and Lamont, 1998). Even so, RBV is important to business owners as it reflects building businesses from the resources and capabilities that they currently possess or acquiring new resources(Saffu et al., 2006). An effective performance resources should be considered as an important antecedents to products and ultimately to performance (Wernerfelt, 1984).

3. Theoretical Framework

Based on the RBV theory, a framework is proposed in this paper. The development of this framework was also premised on the theory of Porter's Generic Strategy by Michael Porter. There are two independent variables and one dependent variable. The firm performance is taken as the dependent variable and it can be examined in relation to financial and non-financial perspectives, while the independent variables comprise of entrepreneurship management and competitive advantage to firm performance within the Craft Industry. The development of the framework will provide some guidance as the studies examine the factors driving performance in SMEs.

Independent Variable Dependent Variable

Entrepreneurship Management

1) Entrepreneur Characteristic

2) Best Practices a)Management Accounting

Tools & Techniques

Competitive Advantage

Fig. 1. Theoretical Framework of the Study

4. Conclusion

Basically, this has provided a review of relevant literature on entrepreneurship management, best practices, management accounting, competitive advantage and firm performance. Studies on SMEs performance is important because its finding can contribute to the company's development as well as the country's economy growth (O'Regan, Ghobadian and Sims, 2006). A purpose framework was also developed to provide the premise for future

Firm Performance


~ Profit& Sales


~ Customer satisfaction

~ Quality product/services

studies on this area to be carried out (Otley, 2001). SMEs performance measurement is continuing to maintain a central place not only among the academicians but also the practitioners. The important contribution made by SMEs sector is an improvement in the economic growth of the nation through a better understanding of financial and non-financial behavior and practices of entrepreneur (Slavec and Prodan, 2011). Factors discovered to influence SMEs performance is taking into consideration with entrepreneur characteristic (Slavec and Prodan, 2011), best practices (Teece, 2010) and management accounting tools and techniques (Scapens, 2006; Jack, 2008), and competitive advantage (Porter, 1990). Conclusively, the purpose of this paper is to explore the link between the influencing factors of entrepreneurship management and firm performances within the context of SMEs in the Craft Industry.


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