CHAPTER 4

DEVELOPMENT OF A CONCEPTUAL MODEL, RESEARCH HYPOTHESIS AND RESEARCH METHODOLOGY

4.1 INTRODUCTION

Entrepreneurship qualities and their implementation in small to medium size enterprises (SMEs), play an important role in acquiring moderate to higher performance in general and reputation in particular.

This chapter contains conceptual model, research hypotheses, research methodology, methodology used in the research, questionnaire design, sample frame work of the survey and nature of businesses responded. In the beginning, conceptual model has been developed to demonstrate the important issues related to implications of entrepreneurship qualities on success of SMEs, beside the planned research hypotheses. Conceptual model will also be used to undertake empirical analysis. In last research methodology will be offered so that set objectives can be attained successfully. In this regard questionnaire was designed to collect required data from various nature of businesses from province of Sindh, Pakistan. 4.2 A THEORETICAL FRAMEWORK OF THE CONCEPTUAL MODEL

The conceptual model in the research summarizes possible course of action. In simple words, it draws suitable design to thoughts, ideas and proposals which arise in mind of researcher. The conceptual model used in this research work is type of intermediate theory which simply brings all investigative approaches in one form and explains every single theory of SMEs and entrepreneurship which can benefit reader. Furthermore, the conceptual model in this research work considered research approaches to explain the direction of research easily such as; problem definition and its purpose, literature and methodology together with data collection and analysis. Moreover, conceptual model often found to be useful in connecting all contents of

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thesis with each other, so that readers may not feel any difficulty in understanding empirical investigation.

Taking into account the above reasons and the results of the research, based on literature survey, the research hypotheses and a theoretical framework of the conceptual model for the implications of entrepreneurship qualities on success of SMEs has been developed as shown in Figure 4.1.

The issues of implications of entrepreneurship qualities on success of SMEs are discussed along six aspects that include: (i) identifying the types of entrepreneurs in surveyed companies, (ii) performance variables, qualities and strategies of entrepreneurs, (iii) factors affecting entrepreneurship, (iv) problems faced by the entrepreneurs, (v) government support system and (vi) ways to increase the role of conformity of entrepreneurship in small & medium enterprises. Each of these issues is discussed from the view of implications of entrepreneurship qualities on success of SMEs. The details follow in the following sections.

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Variables for performance indicators, entrepreneurial qualities and strategies

Government Support

Variables Employment, Investment, Turnover, Utility charges & taxes, Qualities Inner drive to succeed, Search for new ideas, Openness to change, Risk taking, Confidence, Committed, Decision making. Strategies Quality of product, Benchmarking Product innovativeness, Process innovativeness, Market innovativeness, Training & education of workers, Incentives & rewards to workers, Technological development, Safety at work place

Factors to identify types of Entrepreneurs

Tax rebate Technical backing Easy credit Special loans Liberalization of market economy Logistics

Education Experience Management skills

Implication of Entrepreneurship Qualities on Success of SMEs

Lack of finance Raw material Electricity Fuel/ Energy Taxation Government & SMEs interaction Environmental issues & compliance Government interference Labor laws Law & order Problems

Conformity with Economic growth Policy framework International standards Environment & pollution Quality control process Sound administration & management Group conformity
Ways to increase the role of conformity of entrepreneurship in SMEs

Management ability Employees Manufacturing methods Infrastructure Research & development Customers Competitiveness Marketing departments Suppliers Medias

Factors Affecting Entrepreneurship

Figure 4.1: A theoretical framework of the conceptual model for the implications of entrepreneurship qualities on success of SMEs.

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4.3

DEVELOPMENT OF RESEARCH HYPOTHESIS

For development of hypotheses, literature survey was carried out through different sources like: internet, research journals, books, others and following research hypothesis are proposed.

Entrepreneurs throughout their business career use different approaches to make their venture on the track of growth and success. In this regard, they often make plans and follow the map to reach at victorious stage of business after facing ups and downs in the path. According to Miles, et al., (1978) individual attempt to find different options to make project plan in reality is called strategy. Furthermore, every individual uses different strategies based on their approaches, even sometimes entrepreneur in the same industry applies different strategies; it is all because every entrepreneur thinks differently and believes in uniqueness. Rumelt, (2005) emphasizes that human being thinks differently from each other and this is why entrepreneurship and newness come together, in the same way entrepreneur believes in innovation therefore, often takes decisions differently. Moreover, entrepreneurs strategies can be different from each other by means of socio-economic and cultural diversity. In addition, some entrepreneurs use particular strategies which were applied previously but can be differently approached from social and economic perspectives. Therefore, it is better to say that there are no specific strategies used by entrepreneur Aldrich and Martinez, (2001). Keeping in view the above statement following hypothesis is proposed.

Hypothesis 1: There is mixed trend towards importance of strategies by entrepreneurs.

Education plays an important role in every individuals life but, one cannot ignore the importance of experience when there is discussion on entrepreneurs performance. Both education and experience are necessary for entrepreneurs performance in an enterprise. If any thing is missing, it will change the result in performance. However, it can be said that if entrepreneurs experience is strong but, education is low then he/she can perform reasonably, specifically and economically as whole. This is

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further confirmed with Staurt and Abetti, (1990) that education and experience of an entrepreneur both play significant role in company performance but, impact of experience on entrepreneurial performance is more than just education therefore, one can say that average education but high experience of individual leads towards reasonable performance. Tacking into account the above discussion following hypothesis is suggested.

Hypothesis 2: Well experience but less education of entrepreneur results moderate Performance.

.As discussed earlier that experience and education both are very important attributes in success of entrepreneurs performance. Whereas, if entrepreneur has weak education but good experience then results may be negotiable in performance or their results will be moderate. However, results vary if there is difference in education and experience on other side. For example; if individual is well educated but has less experience then his/her performance in company will be low. It is confirmed in Staurt and Abetti, (1990) study, where they claim that entrepreneurs previous experience of working with other firms is more important than just finishing higher education and then starting business directly. In simple, experienced entrepreneur can perform well in organization than candidate coming directly from college or university. Furthermore, this trend is proved that skills are needed to run business properly. Skills can be improved by working practically in company or one can only obtain knowledge in institute. This is further clarified with Lerner and Almor, (2002) study which indicate that majority of entrepreneurs possess formal education but experienced entrepreneurs performed well because, companys performance increases with skills of entrepreneur and skill increases with experience in business. Previous experience is important in success of firm and entrepreneurs performance. It is clear from above discussion that there are positive impacts of experience on performance, therefore following hypothesis is proposed.

Hypothesis 3: Well education but less experience of entrepreneur, results low performance.

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There has been long debate over performance of entrepreneur in company and its link between entrepreneurial qualities like education and experience. Robinson and Sexton, (1994) conclude in their research that sound education and experience enhance entrepreneurial qualities which increase chances of success and far above the ground results. The approach to this discussion claims that company can grow at required rate or higher if its manger possesses skills which he/she gained during the study and work experience. It is further justified by Lerner and Haber, (2001) that if entrepreneur possesses strong qualifications, previous active involvement and knowledge in company growth (experience) and managerial qualities, ultimately lead to company performance. Similarly, Lerner and Almor, (2002) also suggest that growth of companies is backed by entrepreneurial education, experience and skills achieved. Literature also suggests that education and experience build entrepreneurial qualities which are favorable in performance. Above statement clearly reflects that there is positive effect of attributes of entrepreneur on their performance. Therefore, given below hypothesis is suggested.

Hypothesis 4: Well education, well experience and other entrepreneurial qualities results high performance.

Businesses are competing with each other, which in result leads entrepreneur to increase the productivity and quality of product and services. However, every business has to comply with rule and regulation of government in their country which are made to protect economically, socially and environmentally. It is also found that SMEs are not much involved in Research and development (R&D) and interaction with media. Because, R&D helps to understand that what public need and what is right or wrong whereas, media has vital role to play in making public aware of issues. It is found in Kaufmann and Todling, (2002) study that lack of interest in research and development is problem of smaller companies. Whereas, Fassin, (2008) says that entrepreneurs of SMEs dont focus on research and development, it may be due to financial hindrances or ignorance but, entrepreneurs are considering environmental factors as their duty and focusing for well being of public but, often failed to provide reports to media. It is further confirmed with Kleinknecht, (1989) study that

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entrepreneurs of SMEs conduct little research and development than large scale industries. It is seen from above paragraph that entrepreneurs of SMEs offer less importance to research & development and Medias. Therefore, following hypothesis is suggested.

Hypothesis 5: Entrepreneurs are conscious to all environmental factors except research & development and Medias.

Everyone goes through different phases of life whereas; every individual has to face some crises and problems time to time. Similarly businesses also face problems before starting or during operating time. This is case with both small and medium enterprises (SMEs) and also with large scale industries. However, SMEs realize that they are more affected from these problems which vary company to company. According to Kaufmann and Todling, (2002) there is no doubt that both large and small firms face different problems but, smaller companies face more problems which affect their performance. Problems like: technological support, lack of finance, skilled worker, limited support from banks and governments. Peterson, (1992) has also found that SMEs are facing more problems than large scale industries which obviously affect SMEs than large firms. In simple words, SMEs in developing countries are more often found to be dealing with ordinary problems such as; supply difficulties, technical troubles, raw material problem and lack of finance Hadjimanolis, (1999). After going through above statements, following hypothesis is offered.

Hypothesis 6:

SME entrepreneurs recognize acuteness of problems.

SMEs have played exemplary role in economic growth of many countries. Governments in many countries also initiate different policies and regulation to encourage SME sector for betterment of country. However, entrepreneurs of many small firms often feel that policies are made to restrict them to grow or some entrepreneurs feel that there is very less support to SMEs than large scale industry from government. According to Hadjimanolis, (1999) lack of government support and

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un-necessary policies are felt by entrepreneurs in many developing countries which make it difficult for SMEs to grow. Sometime, change in government policies also effect small companies directly in cost. Marri, et al., (1998) stated that changes in government policies also affect SMEs in terms of raw material, technologies, electric supply and moving things from one place to another which increase cost for company. In simple words, it can be said that government initiatives are necessary for the growth of SME sector and economic growth. It is understood from this paragraph that SME entrepreneurs are deprived from government support. Therefore, following hypothesis is proposed.

Hypothesis 7: system.

SME entrepreneurs recognize acuteness of Government support

4.4

RESEARCH METHODOLOGY

Every professional often gets involve in research at least once in their career or in life and many even do more than that. According to Kumar, (2005) almost every

occupation in the world necessitate research. Research confirms the assumptions we made to generate profits or to produce benefits. In addition, the research leads to look at previously work done to construct a structure to carry out own project, with this structure we confirm and test our own ideas with already available structure in the field claim Shane and Venkatraman, (2000). Therefore, it is mandatory to examine the similar sample of assumption to authenticate before engaging in any business, project or giving strong statements.

Hence, research methodology is process of collecting basic group of techniques to validate viewpoints or beliefs on specific topic or particular thing. According to Seliger and shohamy, (2001) the principle object of research is to prove confidence and accuracy of assured thinking in particular area. Furthermore, it is general development of steps from start to end which shows how the effort will be put to accomplish. It is further clarified by Uy, et al., (2010), that it permits researchers to

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take steps into considerations to improve methodology by certifying claims and outcomes and reduce favoritism point of view through careful reasoning.

Moreover, research methods are similar applications which are made for people to understand their personal profession. It is ready process which is assessed by others to use for individual, whom is easy to follow and test in their profession says Kumar, (2005).

Research methodology can be classified in different ways. Firstly, co-relational, it is used in explanatory findings to determine causes of facts which affect particular area, even though results could be up-and-down, simply investigate relation between variables Kothari, (2004). Secondly; descriptive research method, which is used to understand living situation of society and explain related matters states Kumar, (2005). Thirdly, experimental methods, this asses reasons and its influence on variables claim Thomas, et al., (2005). Generally, two main theories on methods are recognized: quantitative and qualitative methods. According to Smith and Thorpe, (2002) quantitative research method relies on analysis of numerical data, figures and statistical analysis. It is a method of involving numerical and statistical variables of data collection procedure. The advantage of a quantitative approach is that one can quantify large amount of data with the help of standardized measures which can be generalized and compared to other data. Qualitative research is multi-method in focus, involving an interpretive, naturalistic approach to its subject matter. This means that qualitative researchers, study things in their natural settings, attempting to make sense of, or interpret phenomena in terms of the meanings people bring to them. Qualitative method encompasses characteristics like understanding, validity, and discovery. In a qualitative approach the researcher is continuously evaluating and working with the information he or she retrieves. This can generate new questions and ideas that were not thought off before. Qualitative studies aim to investigate what it is that characterizes an event, how it can be identified and so on.

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This is done through personal interviews, inspections and understanding different files from different perspective to get particular results, further it is process of generating accurate facts and figures through assessment rather in huge quantity indicate Kaplan and Maxwell, (2005).

To sum-up, there are many other methods which can be used while doing research but, depend on situation of research work. On other hand, the methods discussed above are commonly used methods. These are no doubt categorized in different terms but, when it comes to use them, all of above are used in all research one or other way.

4.5

METHODOLOGY USED IN THIS RESEARCH

Every technical professional uses different strategy to convert his/her novelty thinking into reality and where needed does not hesitate to get help from every supportive method. The aim of this research is to bring possible changes in practice of entrepreneurship in developing countries like Pakistan to produce qualitative products for customers and take maximum benefits and generate more profit using same resources with different strategies and qualities. Research strategies formed in this thesis are not only based on techniques but are also formed to support readers with complete picture. The research strategies in this thesis are characterized in a way that person from not only field of business but also from other professions can be benefited and see their own business beyond the ordinary way to arrive at new understanding of social life. Furthermore, the nature and purpose of research strategies used in this thesis are to enquire and explore new dimensions of SMEs and generate insightful ideas for business world. Moreover, report is not based on generalized results but, empirically tested at every stage of research from theoretical and analytical point of view. The sample size taken in this research is to confirm the readers who are interested in this report to know strategies for enterprises and want to apply very basic strategies to establish their own business in new ways.

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The methodology applied in this research study is based on review of literature, conceptual model as reflected in Figure 4.1, questionnaire, some structured in-depth personal interviews conducted and an empirical analysis of data collected from SMEs.

For analyzing the data sample statistics was used. ANOVA technique was applied to identify the significance of data/variance of data among groups on 95% confidence level; in this regard two soft wares i.e. Excel and SPSS (Special Package for Social Scientists) were used. 4.6 THE DESIGN OF THE QUESTIONNAIRE

The questionnaire formulation is a major process in research report, which identifies and portrays the research work previously done and information sought from the respondents in order to understand the need and difficulties of businesses. The questionnaire was developed and narrowed down during research process, when entrepreneurship and SMEs concepts and their mutual relationships were discovered more accurately. Furthermore, objectivity of questionnaire was maintained during the design, based on theory of entrepreneurship and SMEs and to discover new dimensions of business world. Moreover, techniques used in questionnaire construction were aimed as obtaining multiple viewpoints of experts in the area of entrepreneurship and SMEs and to get confirmed underlying assumptions. In addition, periodically questions were put forth to ensure true facts and figures and their results were disclosed for research benefits.

Questionnaire was designed as presented in Appendix-A and contains nine sections; section 1 deals with profile of company, section 2 deals with back ground & personal attributes of entrepreneurs, section 3 is concerned with financial information, section 4 provides information regarding strategies of the entrepreneurs under taken for improvements, section 5 provides information regarding the environmental factors which influence the entrepreneurs for their survival, section 6 provides information regarding the problems faced by the entrepreneurs, section 7 provides information regarding government support system, section 8 provides information regarding ways

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to increase the role of conformity of entrepreneurship in small and medium size enterprises and section 9 provides information regarding comments of entrepreneurs for SMEs in general and their grievances as particular..

4.7

CONTENT VALIDITY METHOD

This thesis deals with the implications of entrepreneurship qualities on success of SMEs. The set of questionnaire was based on various parameters related to various aspects which may influence and/or affect an enterprise. These parameters were derived from the current literature on the subject. The questionnaire used in this research work was reviewed by qualified professionals/concerned academicians in order to assure that correct points and contents in it were covered. Reliability of questionnaire was measured through test and retest strategy, in which answers were compared with similar nature of entrepreneurial statements in literature as well as on the basis of true facts figures and assumptions. Validity of the questionnaire were further confirmed through discussions with qualified professionals in the field and tested with entrepreneurs of varied fields. These results were measured on scales from low to high performance depending on their education, experience and management competencies. The positive ness of findings through questionnaires is the asset for researcher. These asset values are more important in any business and are defined by using questionnaire to identify the state, event, attribute or quality. Every researcher uses his/her efforts to measure reliability and validity of their contents rather than resources, dependent on requirements of research nature.

The feed back obtained by the entrepreneurs including number of workers, investment and turnover is shown in Table 4.1.

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Table 4.1: A tabular presentation of feed back obtained from companies Background of Companies No. of Companies 07 10 08 09 02 02 02 4.8 Nature of Business Garments Industries Auto Parts manufacturing Cotton & Ginning Industries Rice Husking Industries Oil Spelling Industries Glass Manufacturing Dates processing Industries No. of Investment Workers (Rs. million) 26- 75 11-25 26-100 16-25 51-100 16-25 26-100 16-25 10- 25 05-10 10- 25 05-10 10- 25 05-10 Turnover (Rs. million) 51-200 51-200 151-250 101-250 25-100 25- 50 51-100

DATA COLLECTION / SAMPLE FRAME OF THE SURVEY

There are two different ways to collect data viz: primary data and secondary data. Primary data is new information collected by a researcher through questionnaires interviews, observations and their reality, considered as triangular approach. Secondary data is collected for other purposes than the actual problem and consists of documentary data such as books, articles and reports. The disadvantage with secondary data is the difficulty to collect relevant and up-to-date material. In this research triangular approach was applied, primary data was collected through questionnaire then few personal interviews with entrepreneurs of study areas and finally personal observations. Interviews are most important part in collecting primary data. The use of interviews is helpful to gather valid and reliable data which is relevant to the research conducted to authenticate the theoretical approach on entrepreneurship and confirm research objectives. Before constructing research questionnaire, suggestions of field experts were obtained to achieve maximum research objectives. Questionnaire was based on structured, unstructured and semi structured interviews techniques to make sure that their responses were not biased. Each type of primary data was collected to gather quantitative data and further exploratory questions were asked in order to conduct qualitative data which was not based only on what and how responses but also covered why answer, which ultimately tell readers that what to do in special circumstances.

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It is often seen that researcher may not need all the information at one time, but needs apart thereof at different times but, needs to collect all the data at once to ensure that they have been obtained and will be utilized when they need it. However, the data may seem little biased in the report because some points have been overemphasized because, this data plays considerable role in decision making process. This data is used to show readers that it is based on facts and also supported by various theories to authenticate the same point repetitively. There is no doubt that sometime readers may not take interest in reading same things again and again from different authors point of views but, this is best way to increase the importance of major points which should be noted by readers and applied practically in business world. Therefore, the presumed biased data can be looked from other way to take benefit. Even sometimes data has really helped us to provide enough support to our contention by providing confidence Primary data was collected from SMEs on the basis of small medium enterprise development authority (SMEDA) criteria. This authority recommended a policy for SMEs; and the objective of SME Policy was to provide a short and medium to longterm policy framework with an implementation mechanism for achieving higher economic growth based on SME led private sector development. This authority has also recommended that, any organization with employment up to 250 work forces, paid up capital up to Rs. 25 million and turnover/sale up to Rs. 250 million is considered as SME. The Federal Cabinet of Pakistan approved this Policy on January 17, 2007 and recognized as SME policy (2007). This Policy guides in a new era of SME development initiatives, necessary for this sector to realize its true potential and contribute towards economic development.

To obtain high response, 300 SMEs were approached and sent an introduction of our thesis and questionnaire in various districts province of Sindh Pakistan. The follow-up was made by telephone call and also further correspondence to set up telephone conversation appointments.

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However, 200 (66.6%) enterprises did not response for providing any data because, these were already busy in their tight schedule of engagements and were also reluctant to provide their business secrets. Also 40 (13.5%) provided partial data because, they did not disclose any financial data likewise, 20 (6.4%) enterprises provided full data but, it was not on the criteria of SME policy. Therefore that data was not used in research work. However, 40 (13.5%) enterprises provided required data which was on the criteria of SME policy as shown in Figure 4.2. The response rate was observed as low because: Mostly SMEs were in private sector and their entrepreneurs were either less educated or lacking management knowledge therefore, these peoples do not like to bother for non business activities, particularly in developing countries like Pakistan. Entrepreneurs were un-aware of research benefit. Reluctant to provide financial data due to Government policies.

13.50% 6.50% Not Responded Provided Partial Data 66.50% Not on Smeda Criteria Data in Use

13.50%

Figure 4.2: Response Rate of Entrepreneurs

4.9

NATURE OF BUSINESSES IN STUDY

The nature of businesses provided required information is considered for this research work were: 7 (17.5%) garments enterprises , 10 (25%) auto parts manufacturing, 8 (20%) cotton & ginning, 9 (22.5%) rice husking, 2 (5%) oil spelling, 2 (5%) glass manufacturing and 2 (5%) dates processing as indicated in Figure 4.3.

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5% 5%

5% 17.50%

Garments Auto Parts 22.50% 25% Cotton & Ginning Rice husking Oil spelling Glass Manf: Date Processing 20%

Figure 4.3: Nature of Businesses

4.10

CONCLUSION

Implication of entrepreneurship qualities on success of SMEs explores the type of entrepreneurs and their performance in terms of economic variables, considering their different qualities and strategies. Environmental factors affecting entrepreneurship, problems of entrepreneurs, government support system and ways to increase the role of conformity of entrepreneurship in SMEs were also the main issues of study. This chapter contains a theoretical frame work of the conceptual model which indicates the above mentioned main issues to be under taken for implications of entrepreneurship qualities on success of SMEs and proposed research hypotheses are presented.

Research methodology presented here indicates triangular approach i.e. quantitative qualitative and observational methods used to obtain the data from enterprises. For obtaining the required data, a questionnaire was designed on basis of conceptual model. Initially quantitative method was applied to obtain the data and then qualitative method for interviewing with few entrepreneurs and then observation. A tabular presentation of feed back obtained from companies, sample frame of the survey and nature of businesses are also mentioned in this chapter.