AN ASSESSMENT OF THE RELATIONSHIP BETWEEN ORIGINS
OF CORPORATE COMPETENCIES AND BUSINESS
PERFORMANCE: EXAMPLE OF TAIWAN’S SMALL AND
MEDIUM-SIZED ENTERPRISES
1*
1*
Ming-Lang Wang, 2Shiaw-Wen Tien, and 3Yuan-Jung Tai
Graduate Institute of Management of Technology, Chung-Hua University
707 WuFu, Hsin-Chu City 300, Taiwan, ROC
marlon@chu.edu.tw
2
Graduate Institute of Management of Technology, Chung-Hua University,
707 WuFu, Hsin-Chu City 300, Taiwan, ROC
3
Graduate Student of Management of Technology, Chung-Hua University,
707 WuFu, Hsin-Chu City 300, Taiwan, ROC
Corresponding author/address:
1*
Ming-Lang Wang
Instructor
Chung-Hwa University
Department of Industrial Management
707 WuFu Rd, Hsin-Chu, Taiwan, ROC.
Tel: +886-3-5186578
Fax: +886-3-5186575
E-mail: marlon@chu.edu.tw
1
AN ASSESSMENT OF THE RELATIONSHIP BETWEEN ORIGINS
OF CORPORATE COMPETENCIES AND BUSINESS
PERFORMANCE: EXAMPLE OF TAIWAN’S SMALL AND
MEDIUM-SIZED ENTERPRISES
ABSTRACT
This paper explores an exploratory model to appraise the relationship between
sources of corporate competences and business performance, which targets small and
medium-sized enterprises (SMEs) in Taiwan, analyzes 15 competence items in two
dimensions: human resources management (HRM) and marketing (MKT). The results
from 506 valid samples from managers of Taiwan’s SMEs reveal that focus on human
resource management competence in fact raises business performance of Taiwanese small
and medium-sized enterprises. Accordingly, this paper seeks to scrutinize the relationship
between corporate competences and business performance in Taiwanese SMEs. At the
very top of the prevailing management competitive priority list are:(1) establishing rules
for duty and manufacturing process, (2) improving employee-management relations, (3)
performance-based compensation structure, (4) quality of products and services, (5)
improving after-sale services, and (6) improvement of management skills. The two
competence dimensions are found highly correlated to business performance. In
particular, the competence in human resources management shows greater impact than
marketing competence dimension, which reflects the policy adjustments that Taiwanese
small and medium-sized enterprises have made in the changing business environment to
respond to the global market.
Keywords:
SMEs (Small and Medium-sized Enterprises), HRM,
Competencies, Business performance, An Exploratory Model
Marketing,
INTRODUCTION
Under the globalization and liberation trends, Taiwanese small and medium-sized
enterprises have realized management hardships due to increases in operational cost and
market scale limitations. The subjects of primary concern to small and medium-sized
enterprises are improving enterprise quality and selecting appropriate management
strategies. Corporate strategies and business performance have been the core topics of
strategic management for the past three decades. A typical empirical example is the
resource-based “core competence” concept (Prahalad and Hamel, 1990). As one of four
Asian dragons, Taiwan created a worldwide famous economic miracle, in which, the
performance of small and medium-sized enterprises played a critical role. According to
Small and Medium Enterprise Administration (SMEA) statistics, currently, there are more
than 1.1 million small and medium-sized enterprises in Taiwan, with 7.42 million
employees, i.e. 77.56 per cent of total workforce, and the total revenue of SMEs accounts
for about 31.5 per cent of total production value. These SMEs continue to play an
important role in ongoing economic growth in Taiwan. After Taiwan joined the WTO, the
2
competitive challenges facing Taiwan enterprises have ever intensified. Improving SME
competitiveness has become a core topic that concerns both industry and government.
The current primary task to SMEs is to apply such enterprise functions as human
resources management and marketing to effectively integrate resources to master and
optimize enterprise competitive advantage and create great value-added. The purpose of
this study is to assess the relationship between the critical factors for improving SME
competences and business performance. The competence improvement effect on business
performance is explained using fundamental theories, adopting strategies centered on
competence improvement to increase the SME flexibility in responding to external
challenges.
LITERATURE REVIEW
The Concept of Competitiveness
In an attempt to take a position in a highly competitive enterprise environment, managers
must understand the importance of strategic decision-making to organizations. Porter
(1990) confirmed that to position themselves in a leading role, enterprises must adopt
strategies to take advantage of their own competencies including new product design,
new production technology, training plan, quality control plan and improved supplier
relationships. Market competitiveness is based on enterprise internal competence and
determines the future development of the enterprise. Internal competence is the
cornerstone for enterprises to succeed in market competition (Corbett and Wassenhove,
1993). The competitive advantage or core competence concept is some competitive
advantage that is the prerequisite for success in competition. Ansoff (1965) believed that
competitive advantage is an advantageous position in competition brought on by a unique
individual product or market asset.
Hofer and Schendel (1978) stressed that competitive advantage is a unique position in
competition relative to other competitors attributable to organizational decision-making
on operational activities and resources. Porter (1986) defined competitive advantage as
“the conditions resulting from competitive strategic planning that are beneficial to
competition and sustainable.” Relative to competitive advantage, competence has been
involved in deeper and wider discussions. In the literature, competence is usually divided
into three levels: enterprise, industrial and national competence (Francis and Tharakan,
1989; Nelson, 1992). At the enterprise level, in competition with other business firms
within the industry, if a company can create a relative competitive advantage by
developing the unique resource competence mentioned early, the company will find itself
in an advantageous position compared to other competitors in product price or quality,
and thus be able to generate better sales revenue and market share, and improve overall
corporate profitability. Therefore, this company possesses advantageous competencies at
the enterprise level by definition. The emphasis on competence is a sustainable advantage,
a long-term concept, that can be established and sustained only by long-run accumulated
efforts, experience and technology (Dunning, 1993).
Dimensions of Competence
Early researches were oriented towards a discussion of the impact that a single enterprise
functional competence area has on overall enterprise performance (Capon et al., 1990;
3
Drcker, 1973; Ettlie, 1997; Hayes and Wheelwright, 1984; Tunalv, 1992). Brown and
Eisenhardt (1995) asserted that functional integration is highly correlated to time, cost
and quality. Recent researches showed that enterprises can increase their market
competitiveness only by coordinating functional area competences (Evans and Lindsay,
1996; Hill and Jones, 1989; Li, 2000; Porter, 1990). In recent years, human resources
have been recognized as indispensable to competence in increasing market share,
servicing customers and improving performance (Deming, 1986; Evans and Lindsay,
1996; Simerly, 1997; Sohel et al., 2003). Besides, Marketing is essential competence to
enterprises (Drucker, 1973). Capon et al. (1990) advocated that corporate profitability is
closely correlated to market development competence. Leonidas et al. (2002) proposed a
direct relationship between the determinants of market strategy and enterprise export
competence. Sun and Hong (2002) believed that in addition to the alignment of
manufacturing strategy and business strategy, internal adjustment must be taken into
consideration as well. The strategy development process should include such dimensions
as human resource and marketing etc. Functional strategy involves developing unique
competence to provide companies or organizations competitive advantages (Hunger and
Wheelen, 2001). As a matter of fact, inter-functional cooperation and communication are
essential antecedents to business success (Bates et al., 1995; Hausman and Montgomery,
1997; Papke-Shields and Malhotra, 2001). Based on a literature review, this research
summarizes SMEs competitiveness improvement as attributed primarily to competence
enhancement in human resources and marketing dimensions. Only inter-functional
enterprise competence integration can support sustainable growth in intensified
competition. The selection of these two functions is based on their positive contribution
to business performance (Droge et al., 1994; Li, 2000).
Performance Measurement
The conventional state of competition is a static equilibrium where production factors
determine business success. The present competitive state is dynamic, in which great
numbers of manufacturers are entering the global market. The result is intensified market
competition (Li, 2000). Management, market, product, and technology reform thus occurs
at a fast pace, which imposes challenges to industrial competitiveness. What performance
indicators should be used to measure the impact of competencies improvement on overall
business performance in an intense competitive environment? Fenwick and Amine (1979)
stated that the appropriate criterion to determine the success of any corporate policy is
whether it meets the predetermined goals. Consequently, enterprise performance
measures should include whether the predetermined conditions have been satisfied but
not only as objective indicators. Dess and Robinson (1984) recognized that the most
common performance measurement was economic, using indicators like the rate of return
on assets and sales growth rate. Thorelli (1977) promoted the notion of “strategy +
structure = performance”. Miller (1988) pointed out that operational management
strategy and organizational function structure are interdependent, and thus the
collaboration between these two is critical in the pursuit of performance maximization.
Venkatraman and Ramanujam (1986) defined three component items for enterprise
performance. Business performance includes financial performance and business traits
performance. Business traits performance specifically refers to market share, new
products in the market, product quality and marketing utility etc. non-financial indicators.
4
Conversely, financial performance focuses on economic targets measured by profit
margin and profit per share etc. In comparing the correlation of strategy and performance
in multinational enterprises and global industry, Carpano et al. (1994) adopted two
performance indicators; the rate of return on investment and sales growth rate. Tsuneo
(1981) summarized numerous researches performed by many scholars and concluded that
enterprise objectives should include multiple objectives; sales growth, profitability, cash
flow, market share and stability, etc.
Business performance can be measured in two ways. In a narrow sense, financial
indicators are used to reflect enterprise accomplishments relative to the economic target.
The previous empirical researches concentrated on financial performance models (Hofer,
1983; Venkatraman and Ramaujam, 1986). The indicators employed in this research
methodology involve sales growth and profitability (for example, ROI and ROS).
However, in a broad sense, business performance is measured not only by financial
indicators but also non-financial indicators for operational performance. In such a
structure, performance measurements include market share, sales revenue and market
utility etc. (Smith and Grimm, 1987; Venkatraman and Ramanujam, 1986). Based on the
previous studies, performance in this paper is measured in financial and marketing
dimensions by such indicators as after-tax profit, return on investment, sales and market
share.
METHODOLOGY
Based on the research methodology literature, descriptive statistics and regression
analysis are appropriate for examining the subjects covered in this paper. The conceptual
and theoretical structure of the relationship between competences and business
performance derived from this paper is illustrated in Figure 1 below.
Performance Indictors
Enterprise Competences
◎Human Resource Management Competence
◎ Sales Revenue
◎ After-tax Profit
◎ Market Share
◎ Return on Investment
◎Marketing Competence
Figure 1 Origins of Competences and Performance
From previous researches, enterprise competitiveness comes from these two dimensions;
human resource and marketing (Blackburn, 1991; Capon et al., 1990; Leonidas et al.,
2002;). Fifteen competence items can be derived from the previous human resource and
marketing literature (Droge et al., 1994; Evans and Lindsay, 1996; Simerly, 1997). These
15 competence items are considered the strategic competences for enterprises to increase
their market share and improve financial performance.
Hypothesis Development
5
Human Resource Management and Business Performance
Employees are the most valuable assets to organizations (Ahmad and Schroeder, 2003;
Evans and Lindsay, 1996; Simerly, 1997). The human resource capital theory recognizes
employee skills, experience and knowledge as assets with the potential to generate
economic rent. To achieve global competitiveness, improved economic performance
requires enhanced organizational efficiency (Simerly, 1997). If manufacturers can give
employees a greater degree of autonomy in operations, manufacturers will be more
competitive (Hill, 1994; Simerly, 1997). Taking Singapore and the Swiss for example,
with scarce natural resources and adopting the same U.S. production technology, both
countries have established their own competitive advantage through human resources
development (Porter, 1990). Human resources are the competence that competitors
cannot replicate. The human resources development elements contain employee
autonomy, job enlargement, improved relationships between employees and management,
and enhanced criteria for performance measurement (Evans and Lindsay, 1996; Simerly,
1997). The previous researches showed that the development of human resources
management competence can improve the organizations’ performance (Ahmad and
Schroeder, 2003; Youndt et al., 1996). Based on the above literature review, the first
hypothesis in this research is proposed.
Hypothesis 1: Human resources management competence has a direct relationship
with business performance.
Marketing Competence and Business Performance
Drucker (1954) stated that: “marketing is not a specific company activity. Conversely, it
involves the entire organization. It is the organization viewed from the customers' point
of view.” Droge et al. (1994) found in their marketing research that the determinants of
performance included marketing promotion and the effect that quality has on market
share and return on investment. Furthermore, the transaction process and after-sale
service that meets customers’ requirements will increase sales volume and improve
financial performance (Conant et al., 1990; Hill, 1994). The literature relevant to
marketing and production also showed that the critical factor in corporate competence
development is to understand the customers’ needs and provide products superior to other
competitors’ (Conant et al., 1990; Hill and Jones, 1989). The enhancement of marketing
competence will lead marketing-oriented companies to outperform other competitors.
The application of marketing strategy and marketing competence development
establishes a powerful and fruitful basis for developing competitive advantages. These
types of companies tend to have superior performance in terms of profit, return on
investment, sales and market share (George and Spiros, 1997). Based on the conclusions
drawn from past empirical studies that an increase in marketing competence will improve
financial performance and marketing performance, the following hypothesis is proposed
in this research:
Hypothesis 2: An increase in marketing competence is positively related to business
performance.
6
Competences and Business Performance
Brown and Eisenhardt (1995) proved the close correlation between functional integration
and time, cost, and quality. Recent researches showed that only by coordinating
functional area competencies can enterprises become more competitive on the market
(Evans and Lindsay, 1996; Hill and Jones, 1989; Porter, 1990). Marketing is
indispensable competence to companies (Drucker, 1973). Capon et al. (1990) asserted
that corporate profitability is strongly correlated to product innovation competence and
market development competence. Leonidas et al. (2002) declared the positive
relationship that exists between the determinants of marketing strategy and corporate
export competence. Sun and Hong (2002) suggested that internal adjustments be
considered in addition to the manufacturing and business strategy alignment. The strategy
construction process should include such dimensions as marketing and human resources.
The functional strategy is engaged in developing competences and providing companies
or organizations with competitive advantages (Hunger and Wheelen, 2001). In recent
years, human resources have been recognized as the essential competence for increasing
market share, servicing customers and improving performance (Evans and Lindsay, 1996;
Simerly, 1997; Sohel et al., 2003). In fact, inter-functional collaboration and
communication are essential antecedents for business success (Bates et al., 1995;
Hausman and Montgomery, 1997; Papke-Shields and Malhotra, 2001). Based on the
literature review, we believe that an increase in corporate competences results from
dimensional competence improvements in human resources management and marketing.
Such inter-functional competence integration can realize sustainable growth for
enterprises in an increasingly competitive environment. These two functional areas are
selected based on their positive contribution to enterprise performance (Droge et al.,
1994). The third hypothesis in this paper is thus proposed as below.
Hypothesis 3: The improvement of competences has a direct relationship with
business performance.
Sample
This study is part of a large-scale survey of SMEs in Taiwan. The six-page questionnaire
was mailed to the managers of firms registered in the computerized database in Industrial
Development Bureau Ministry of Economic Affairs (IDB). This paper concentrates
exclusively on SMEs, i.e. those with employees under 200(according to the definition of
SMEA). In all, 2000 questionnaires were mailed and five hundred six-two firms
responded. Among them five-hundred-and-six were valid; the other fifty-six were
incomplete or unclear, the invalid questionnaires were excluded. The valid questionnaires
totaled 506, representing a valid response rate of 25.3 per cent. Table 1 shows the
company data by industry, revenue, capital amount, and number of employees.
Table 1 Basic Data of companies in Survey
Basic Data Item
Industry
Electronic
Photoelectricity
Instrument and Equipment
Times
(%)
Basic Data Item
50
22
34
9.6
4.3
6.8
Domestic
Primary China Mainland
Sales Area Other Areas in
Asia
7
Times (%)
309
51
48
61.0
10.0
9.5
Average Revenue
for the Past 3 Years
(NT$)
Capital
(NT$)
Number of
Employees
R&D Expense % of
Revenue
Plastic Processing
32
6.4
Machinery Processing
Textile
Materials
Pharmaceutical
Electrical Machinery
Auto Parts
Food
Service
Other
Below 50 million
20 ~ 30 million
30 ~ 50 million
50 ~ 80 million
80 million ~ 100 million
Above 100 million
Below 20 million
20 ~ 30 million
30 ~ 50 million
50 ~ 80 million
80 ~ 100 million
Above 100 million
Below 5
6~20
21~50
51~200
0~1%
1%~3%
3%~5%
5%~10%
Over 10%
70
19
33
13
28
30
45
57
73
220
124
68
23
16
55
280
110
44
12
15
45
90
173
113
130
152
135
109
65
45
13.8
3.7
6.6
2.6
5.5
5.9
8.8
11.3
14.5
43.6
24.5
13.6
4.5
3.2
10.8
55.3
21.8
8.7
2.4
3.0
8.8
17.8
34.2
22.4
25.6
30
26.6
21.6
12.9
8.9
Europe and
North America
Other Areas
Elementary
Average
Junior High
Education
High School
of
2-year College
Employees
Graduate School
73
14.5
25
20
31
211
228
16
5.0
4.0
6.2
41.6
45.0
3.2
Instrument
Competence and performance were measured using a Likert 5 Points Scale. The question
items in the questionnaire were confirmed during the interviews with several managers,
covering 15 items in two functional areas, as shown in Table 2. Managers first
Table 2 Ranking of Indicators for All Competence Dimensions
Item
Rank/Mean
1. Human Resource Management (HRM)
Establishing Rules for Duty and Manufacturing Process Manual
Improving Employee-Management Relations
Performance-based Compensation Structure
Improvement of Management Skills
Promotion of Training Classes
Job Responsibility Diversification
Employee Authorization
4.2968
4.1929
4.1836
4.0176
3.9487
3.7461
3.6776
2. Marketing (MKT)
Quality of Products and Services
Improving After-sale Services
Increasing Business Reputation
4.1084
4.0189
4.0118
8
Speed and Effectiveness of Decision-making System
Establishing Private Brand
Price Differentiation
Exploring Niche Market
Creating New Promotion Method
3.9068
3.8842
3.8803
3.8684
3.4776
ranked the importance of competence items where “1” indicates not important at all and
“5” indicates very important. Based on the relevant literature review, business
performance was measured using the following dimensions: Sales revenue (Y1), After-tax
profit (Y2), Market share (Y3), and Return on investment (Y4). In the scores for
performance items, “1” indicates not agreeable at all, and “5” indicates very agreeable. In
this paper, (1) descriptive statistics, (2) relational analysis, and (3) regression analysis are
applied to data analysis.
Statistical Analysis Method
All the sections related to corporate competencies in the questionnaire were based on
theories in the relevant literature, or the scale or measurement items used by other
scholars, with reference to industry expert and scholar opinions. Therefore, the validity
test result in this research is trustworthy. Cronbachα coefficient was calculated for all
question items in every dimension according to the answer scores. Nunnally (1978)
proposed acceptable reliability of 0.8 for fundamental research and 0.7 for exploratory
research. As shown in Table 3, the human resource management competence and
marketing competence, reliability has reached 0.7 or greater, indicating that this research
meets the reliability requirement set by Nunnally standards.
Table 3 Reliability of Variables in Study
Sources of Competences
Questionnaire
Human Resource Management Competence
Dimension
Cronbach α
0.8023
Marketing Competence
0.7582
Relational analysis and regression analysis are applied to investigate the relationship
between the origin of competencies and performance (Droge et al., 1994). A simple
regression coefficient ( β i) for every performance element is estimated using leastsquares, as explained by the following formulas:
Performance =α1 +β1X1(HRM) +μ1
(1)
Performance =α2 +β2X2(MKT) +μ2
(2)
To analyze the impact of the two competence dimensions on performance, the following
multiple regression formulas were established in this research. The multiple regression
coefficient (βi) is estimated using least-squares, as illustrated by the formula below:
Performance =α3 +β1X1(HRM) +β2X2(MKT) +μ3
(3)
Where μ is a random disturbance term and regression coefficient (βi) represents
the expected change in performance indicator caused by a unit of change in the ith
independent variable (origin of competences).
9
RESULTS
Sources of Competences
Competences come from the mentioned two competence areas. The mean and rank of the
importance of 15 priority items are detailed in Tables 2 and 4. Table 2 depicts the rank by
functional significance while Table 4 provides an overall ranking of 15 items.
Table 4 Average Score and Rank Order of Competences
Item
1.Establishing Rules for Duty and Manufacturing Process Manual
2.Improving Employee-Management Relations
3.Performance-based Compensation Structure
4. Quality of Products and Services
5. Improving After-sale Services
6. Improvement of Management Skills
7. Increasing Business Reputation
8. Promotion of Training Classes
9. Speed and Effectiveness of Decision-making System
10.Establishing Private Brand
11.Price Differentiation
12.Exploring Niche Market
13. Job Responsibility Diversification
14. Employee Authorization
15. Creating New Promotion Method
Competence Area
Rank by Mean
HRM
HRM
HRM
MKT
MKT
HRM
MKT
HRM
MKT
MKT
MKT
MKT
HRM
HRM
MKT
4.2968
4.1929
4.1836
4.1084
4.0189
4.0176
4.0118
3.9487
3.9068
3.8842
3.8803
3.8684
3.8368
3.6776
3.4776
The first six items in the two functional areas show a certain degree of consistency, which
suggests that SMEs tend to have better performance for the items deemed most important.
Among the most important six items, four belong to human resource management: (1)
establishing rules for duty and manufacturing process manual (a mean of 4.2968), (2)
improving employee-management relations (a mean of 4.1929), (3) performance-based
compensation structure (a mean of 4.1836), and (4) improvement of management skills (a
mean of 4.0176). In the past, owners of SMEs seldom deemed employees as important
assets of the company. Nonetheless, the results show SMEs realized in the changing
business environment, employees are valuable assets to assistant them to hit the overall
target. Two of the first six most important items belong to marketing competence: (1)
quality of products and services and (2) improving after-sale services (as shown in Table
4). The mean of quality of the products and services is 4.1084. The mean of improvement
in after-sale services is 4.0189. These results demonstrate the changes in key competence
items among Taiwanese SMEs. In the past, when competition was not as intense, quality
and after-sale services were never the focus for SMEs. However, in a globalized market,
SMEs do not have the advantage of economy of scale, and in most cases SMEs provide
outsourcing for large-scale enterprises. Consequently, in an intensified competition
environment, SMEs have clearly realized the important role of quality products and
services and improvements in after-sale services play in sustainable enterprise growth. By
now quality has become the common focus of attention by SMEs. In the actual
transaction process, quality of product and services play an even more important role,
which may be related to the fines imposed on manufacturers, or direct impact on
10
procurement of subsequent orders.
In the least important competence items, one is from the human resources management
area: employee autonomy (mean 3.6776). The other is from the marketing competence
area: developing new promotion method (mean 3.4776). Less attention is paid to
employee autonomy probably because of the psychology of SME owners or the business
patterns of SMEs. Most Taiwanese SME owners started their businesses from the scratch
and worked very hard. All of the efforts coupled with the opportunities led them to
business success. Some SMEs are run by families, in which employee autonomy is
minimal. Developing new promotion method that can help SMEs improve market share.
Nevertheless, SMEs- which often act as subcontractors of large firms this item is not the
focus of attention. Conversely, the data reflects that in such a changing environment,
SMEs have changed their operating patterns and management thought to respond to
intensified competition.
The Correlation between Competence origins and Performance
The mean and standard deviation of human resources management (HRM) competence
and marketing (MKT) competence and the performance measured by the four criteria are
illustrated in Tables 5, and 6. The mean of the performance measured using the four
criteria is greater than the mid point of 2.5, which reflects the positive growth in
Taiwanese SMEs in the changing economic environment. The correlations are shown in
Tables 5 and 6 as follows.
Table 5 The Correlation between Descriptive Statistics and Performance
Performance
Y1(Sales Revenue)
Y2(After-Tax Profit)
Y3(Market Share)
Y4(Return on Investment)
Mean
3.9207
3.8079
3.8632
3.8786
Correlation with
Standard
Deviation
Y1
Y2
Y3
0.5291
1
0.5915
0.8171***
1
0.5955
0.7841*** 0.7984***
1
0.5857
0.7632*** 0.8260*** 0.8129***
Y4
1
Note: *P < 0.1; **P < 0.05; ***P < 0.01
Table 6 The Correlation between Competence and Performance
Correlation with
Performance
X1 (Human Resource)
Y1(Sales Revenue)
0.5474***
Y2(After-Tax Profit)
0.5558***
Y3(Market Share)
0.5363***
Y4(Return on Investment)
0.5454***
Note: *P < 0.1; **P < 0.05; ***P < 0.01
X2 (Marketing)
0.4857***
0.4897***
0.4911***
0.1608*
In Table 5 shows the significant correlations between the four performance measures
when p < 0.01. As shown in Table 6, the two competences (HRM and MKT) are
significantly correlated to the four performance measures when p < 0.1 or better. The
results proved that an increase in human resources management competence and
marketing competence both make positive contributions to business performance. The
emphasis on the positive contribution by human resources management competence to
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after-tax profit is consistent with the conclusion drawn from prior academic researches on
manufacturers (Li, 2000; Simerly, 1997).
Results from Regression Analysis
In this paper, two types of regression analyses were employed. In the simple regression
model, two competence areas were considered independent variables and four
performance measures were defined as dependent variables. The model ran 8 times. In
the multiple regression model, HRM and MKT were the independent variables and every
performance indicator was a dependent variable. The multiple regression model ran 4
times. The simple regression analysis results with two competence areas (HRM and MKT)
as the independent variables are shown in Tables 7,and 8.
Table 7 Simple Regression Analysis Results with HRM (X1) being Independent
Variable
Model R2
Intercept
Y1 (Sales Revenue)
0.299***
2.145***
Y2 (After-Tax Profit)
Y3 (Market Share)
Y4 (Return on Investment)
0.306***
0.287***
0.297***
1.765***
1.879***
1.894***
Dependent Variable
β Value of X1
Non-Standard
Standard
0.461
0.547
0.531
0.515
0.516
0.556
0.536
0.545
Error
1.816
1.905
1.937
1.824
Note: *P < 0.1; **P < 0.05; ***P < 0.01
Table 8 Simple Regression Analysis Results with MKT (X2) being Independent
Variable
Dependent Variable
Y1 (Sales Revenue)
Y2 (After-Tax Profit)
Y3 (Market Share)
Y4 (Return on Investment)
Model R2
Intercept
0.235***
0.239***
0.240***
0.211***
2.295***
1.950***
1.988***
2.148***
β Value of X2
Non-Standard Standard
0.411
0.486
0.469
0.490
0.474
0.491
0.437
0.461
Error
1.735
1.800
1.892
1.697
Note: *P < 0.1; **P < 0.05; ***P < 0.01
Tables 7 and 8 also show that the Model R2, two-tail P-value, estimated intercept, and
estimated non-standard and standard slope. R2 for all models are significant at the P <
0.01 level. All estimated intercept values are significant at the P < 0.01 level. The results
proved the inference in this study that improvement in two competence areas positively
contributes to SME business performance. Based on the simple regression analysis results,
an increase in marketing competence and focus on human resources management
competence have positive impacts on the four performance measures when P < 0.01.
From the individual perspective, the two competence areas are all important determinants
in measuring overall business performance. This conclusion supports the accuracy of the
operational definition of competence given in this research, and also agrees with the
conclusions from the literature mentioned above (Calantone and di Benedetto, 1990;
Conant et al., 1990; Porter, 1990). Prior to the multiple regression analysis, this research
performed multilinearity test in advance. The independent variables were examined for
12
multilinearity. The variance inflation factor (VIF) was used in this research for estimation.
The results are shown in Table 9. All independent variables show VIF < 10 and the
average VIF equals 1.662 (Berk, 1977; Chang, 1997; Marquardt, 1970). This result
proves that no multilinearity exists in the multiple regression model in this study. This in
turn supports the correct implementation of multiple regression analysis.
Table 9 VIF from Multiple Regression Model
Independent Variables
Human Resource Management Competence (HRM)
Marketing Competence (MKT)
Average VIF
Variance Inflation Factor (VIF)
1.501
1.822
1.662
In the multiple regression model, human resources management and marketing
competence were the independent variables while the four performance measures were
the dependent variables. The analysis results are shown in Table 10, including model R2,
model P-value, β value of independent variables and intercept. The dependent sales
revenue, after-tax profit, market share, and return on investment variables in the multiple
regression model were all significant at the P < 0.01 level. This conclusion supports
Hypothesis 3 proposed in this research. Based on the multiple regression analysis results,
the focus on human resources management competence certainly has positive impacts on
the financial and marketing performance of SMEs. The only exception is that an increase
in marketing competence does not have an immediate impact on return on investment.
This result may be caused by the operational characteristics of SMEs being affiliates of
larger manufacturers or the OEMs of exporters. Consequently, there does not exist any
significant relationship between an increase in marketing competence and return on
investment.
Table 10 Multiple Regression Analysis Results
Model R2
Intercept
Y1 (Sales Revenue)
0.307***
Y2 (After-Tax Profit)
Dependent Variables
Y3 (Market Share)
Y4 (Return on Investment)
β Value
Error
X1
X2
1.996***
0.183***
0.306***
1.764
0.311***
1.615***
0.208***
0.350***
1.828
0.178*
1.652***
0.192***
0.380***
1.899
0.285***
1.811***
0.205***
0.321***
1.757
Note: *P < 0.1; **P < 0.05; ***P < 0.01
So far, the three hypotheses proposed in this paper were all supported by the statistical
analysis results. Eight simple regression analysis model iterations and 4 multiple
regression analysis model iterations show that improvement in human resources
management and marketing competence have significant impacts on the four
performance measures: sales revenue, after-tax profit, market share, and return on
investment. As measured by the βvalue, an increase in human resources management
competence has a significant impact on business performance. This is consistent with the
finding in prior academic researches (Adler, 1988; Ahmad and Schroeder, 2003; Youndt
et al., 1996). The above conclusion provides managers of SMEs guidance on improving
13
the enterprise attributes, increasing competitiveness, and enhancing business performance.
DISCUSSION
Critical Competence Factors
In this study 15 competence items were ranked by importance. The findings show that the
more important items received more management attention than the less important items.
In the marketing competence area, product and service quality, improving after-sale
services and increasing business reputation attracted most of the attention from SME
managers. This is in agreement with the conclusion from previous literature (Conant et al.,
1990; George and Spiros, 1997; Hill and Jones, 1989). This reflects the customer demand
impact in the changing business environment. This result provides an important indicator
of marketing competence in SME operations. In the human resources management area,
establishing rules for duty and manufacturing process manuals, improving the employeemanagement relationship and developing a performance-based compensation structure
have received widespread attention among SME managers. Compared to the items in the
marketing competence areas, the ranking by importance for these three items is higher.
This means the result indicates that human resources management is more important.
Based on the top three competence items, SME managers have recognized the market
changes and began paying more attention to human resources management competence
development because lack of good human resources makes sustainable business growth
impossible (Deming, 1986). Following the future development trend, if SME owners and
managers can adjust their existing concepts, continuously pay more attention to human
resources management competence, SMEs should be able to substantially increase their
competitiveness. This should be an important topic of future research.
Critical Factors of Business Performance
The simple regression analysis results show that the focus on human resources
management and marketing competence has a positive impact on various performance
measures. From the multiple regression analysis results, the two competence dimensions
showed a positive impact on business performance. One thing worth further exploration
is that concentration on human resources management competence has much more
impact on the four performance measures. Wathen (1995) proved that the concentration
on manufacturing competence can not directly impact business performance because
production strategy is only part of the overall business strategy. It seems that
concentration on human resources management competence, improving employeemanagement relationship, and establishing a performance-based compensation structure
can inspire employees of Taiwanese SMEs to maximize their capacities to help the
business growth in every functional area. To existing enterprises, a staff of excellent and
well-trained employees provides the essential basis for increasing business
competitiveness (Porter, 1990). To the managers of SMEs, employee loyalty and
assistance must be obtained for production process control, design and improvement. The
change in concept should be acknowledged by all managers.
CONCLUSIONS
In this paper an exploratory model is proposed to analyze the relationship between origins
14
of corporate competencies and business performance in Taiwanese small and mediumsized enterprises. A deeper-level study of 15 competence items in two competence areas:
human resources management and marketing was conducted. The three hypotheses were
tested using statistical data proving that competences improvement can certainly affect
business performance. Human resources management competence was at the top of the
priority list for SME managers and human resources management competence had the
more significant impact on business performance. Based on this data, concentration on
the multi-functional competence areas will usually result in better performance. This
study provides SME managers several significant guidelines. In the changing
environment, this paper provides in-depth analysis of the important items in two
competence areas. To SME managers, strategic decisions have a direct impact on
business performance. The results show that a focus on human resources management
competence has a significant impact on SME performance. In global market competition,
concentration on a single competence item cannot ensure a competitive advantage. Only
those enterprises with multiple competences will sustain business growth. The following
directions may be used to guide subsequent researches. First, further study can be
performed on any variation in impact that the selected competitive priorities may have on
SME performance at various scales or patterns. Second, further study can be performed to
understand why one competence may be more important than other competencies in an
identical operational environment. Third, further study can be performed to compare
SME strategic decision and implementation in developed countries (e.g., UK, US, and
Canada) and other emerging countries (e.g. Thailand, Philippines, Malaysia) to Taiwan.
Fourth, further analysis can be performed on any variation in strategic decisions and
focus on SME competence items that may be caused by a variance in the sales region,
employee education and R&D expenses % of sales revenue. Further understanding of
SME operational characteristics, market cooperation and competition status can be
derived from this type of comparative analysis.
15
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AN ASSESSMENT OF THE RELATIONSHIP BETWEEN ORIGINS
OF CORPORATE COMPETENCIES AND BUSINESS
PERFORMANCE: EXAMPLE OF TAIWAN’S SMALL AND
MEDIUM-SIZED ENTERPRISES
1*
Ming-Lang Wang, 2Shiaw-Wen Tien, and 3Yuan-Jung Tai
1Autobiographical
Sketch of Ming-Lang Wang
Ming-Lang Wang is a Ph.D. student in the Graduate Institute of Technology
Management, Chung-Hua University and an Instructor of Industrial Management
Department at Chung-Hua University, Hsin-Chu, Taiwan. He received a MBA degree in
international business from The George Washington University, Washington, D.C.,
U.S.A., in 1993. His current research interests include performance management, human
resource management, international business management, and enterprise valuation.
2Autobiographical
Sketch of Shiaw-Wen Tien
Shiaw-Wen Tien received the Ph.D. degree in industrial engineering from Texas
University at Arlington, U.S.A., in 1994. He is an Associate Professor at Chung-Hua
University, Hsinchu, Taiwan. He has published papers in the Environmental Impact
Assessment Review, Technovation, International Journal of the Computer, Internet and
Management. His research areas include TQM, environmental management, innovation
management, and quality management.
3Autobiographical
Sketch of Yuan-Jung Tai
Yuan-Jung Tai is a master student in the Graduate Institute of Technology
Management, Chung-Hua University, Hsin-Chu, Taiwan. Her current research interests
include enterprise valuation, supply chain management, and green supply chain
management.
20