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Chapter 1
The Small Firm Performance and Entrepreneurial Competence Revealed Through Competitiveness Framework: A Case Study of MSMEs in Indonesia
Puteri Andika Sari and Wiendy Puspita Sari
Abstract
The number of MSMEs is very influential in economic growth, especially in developing countries. What is of concern to developing countries, although the number of MSMEs is increasing every year, they cannot develop in an increasingly competitive business environment. In this case, good business performance is needed to survive in this intense competition. This study tries to make a performance model of small-scale enterprises by finding out the effect of entrepreneurial competency variables and moderated by the variable competitive sphere and capability of organization. We use the partial least squares to confirm the theory and get answers about the influence between variables. Respondents of this study were 100 MSME owners in Bandung, Indonesia. The study's findings revealed that entrepreneurial competence had a significant influence both directly and indirectly on small firm performance. The variable of entrepreneurial competence provides the most powerful influence on the competitive sphere than organizational capability's moderating variable. Although the moderating variable of organizational capability is not as strong as the competitive sphere in influencing firm performance, it has a strong predictor (quality and flexibility).
Keywords: Entrepreneurial competence; competitive sphere; capability of organization; small firm performance; MSME's competitive framework; Indonesian MSMEs
JEL Classification: O15; Human Resources; Human Development; Income Distribution; Migration
1. Introduction
The number of entrepreneurs is considered a driving factor in financial development, employment and advancement; and has a broad meaning as an important key in monetary dynamics in a country (Ali, Khan, & Asrar-Ul-Haq, 2019). A small middle enterprise is the first step in developing a business into a large/professional company that will influence economic contribution and employment. Furthermore, as Abubakar, Zainol, and Binti Wan Daud (2018) stated, SMEs are an important sector in the global economy and play an important role in the world economy and make a large contribution to income, output, and employment. Moreover, as Harrison was cited by Sedej (2019), the importance of SMEs in the global economy is that SMEs are influenced by the international environment and influence the environment.
As an archipelagic country with many potentials (natural resources and culture), Indonesia has the power to attract tourists, which can ultimately bring foreign exchange to the country. This opportunity is exploited by the majority of Indonesia's population in doing business. Several small and medium enterprises began to grow in support of the Indonesian economy and even survived when the economic crisis hit this country (Ardiana & Brahmayanti, 2010). The existence of entrepreneurship is seen as important in the economic development of a country. This entrepreneurship is closely related to small and medium enterprises (Hutahayan, 2019).
Bandung, the capital of West Java Province, is the third-most populous city after Jakarta and Surabaya on Java. Thus, Bandung became the center of economic, cultural, and political growth. Bandung City is a local tourist destination that is quite popular with local and international tourists (Tarigan et al., 2016). Besides that, UNESCO crowned Bandung as a creative city, where the city's economy will grow with this potential (Raharja, 2018; Rosavina, Rahadi, Kitri, Nuraeni, & Mayangsari, 2019). This condition is an opportunity for entrepreneurs to emerge in the city of Bandung. The city of Bandung's economic profile is also exciting. For example, being the city with the largest economic growth in West Java Province, the rapid growth of trade and industry has become the main contribution to the total GDP of Bandung City (Tarigan et al., 2016).
As stated by Sari and Sari (2018), the number of micro, small and medium enterprises (MSMEs) in Bandung City in 2012 reached 3,000 units consisting of various fields such as food and beverage, arts, fashion, handicrafts, and others. Based on data from the Department of Culture and Tourism of the City of Bandung in 2014, the fashion sector has the largest contributor to the total GDP of Bandung City (7.361%) and then followed by the second position by the culinary sector (2.783%) and the third in the craft sector (2.505%) (Raharja, 2018). According to the Bandung Chamber of Commerce and Industry interviews, the number of MSME members of the Bandung City Chamber of Commerce in the field of fashion has fluctuated and even experienced a downward trend from 2017 to 2019.
This occurrence suggests that small enterprises in the fashion industry are unable to adapt and survive. This can be caused by both external and internal issues that MSME owners confront. Hutahayan (2019) stated in his research that the external problems faced by most SME entrepreneurs in Indonesia include these: (1) Related to the legal aspects of business entities and licensing procedures, the implementation of fair business competition and regional autonomy, particularly the willingness of regions to empower small businesses; (2) Macroeconomic conditions in Indonesia greatly affect SMEs' condition; for example, an increase in fuel prices directly affects an increase in raw material prices; (3) Limited access to financial service providers, especially in terms of investment credit; (4) Limited availability and quality of business development services for small businesses. This external condition is very dynamic, where environmental turbulence can occur. Environmental turbulence represents the extent of unexpected changes in the organizational environment. This environmental uncertainty refers to an organization's inability to predict rapid changes in a country's economic conditions (Sajilan, 2015).
The internal ...
