The trinity of key competitiveness sources for SMEs in an emerging economy: credit access, innovation and collaborative advantage

Author: Agus Syarip Hidayat

Hidayat, Agus Syarip, 2020 The trinity of key competitiveness sources for SMEs in an emerging economy: credit access, innovation and collaborative advantage, Flinders University, College of Business, Government and Law

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Small and medium enterprises (SMEs) are the backbone of an economy, contributing to jobs creation and the growth of national income in many countries. However, the majority of SMEs in developing countries have been operating at low productivity, and hence low competitiveness. Earlier well-established theories including competitive advantage theory, the resources-based view and collaborative advantage theory have elaborated firm competitiveness factors in detail. However, these theories are generated from the experiences of large, well-established companies, mainly in developed countries. In order for these theories to be applicable to firms in the developing countries, it needs to adapt in accordance to the unique features of SMEs.

This thesis offers another way of looking at SMEs’ competitiveness by examining how internal firm factors interact with external factors to establish the key sources of competitiveness. These sources can be grouped into: (1) credit access, which represents the foundation factor; (2) innovation, which represents the growth factor; and (3) collaborative advantage (CA), which represents the expansion factor. The objective of this thesis is to investigate the effect of the three key competitiveness sources on SMEs’ performances. A questionnaire and interviews were conducted in 177 SMEs in the automotive sector in Indonesia and the data were analysed across three domains: credit access, innovation, and collaborative advantage. The data was collected in 2017 and information provided by respondents is based on firm condition in 2016.

The analysis of credit access is based on a study of credit rationing from the demand side. The study found that, for borrowers, credit rationing significantly reduces a firm’s probability of investing, and hence negatively affects firm performance. For non-borrowers, all types of non-price credit rationing (quantity, transaction cost, risk and cultural) negatively affect the probability of investing and hence lack of new investment. The three common variables that reduce the probability of rationing are offering a higher ratio of collateral to the proposed loan, establishing a risk-sharing scheme with peers and increasing competition among banks.

The analysis of innovation segregates innovation activities into three phases: innovation effort, innovation output and its relationship with firm performance. The main finding is that, in addition to standard price factors, non-price factors also contribute to each phase of innovation. Price factors play a role in moderating the direct relationship between product innovation and firm performance, but non-price factors moderate the indirect relationship.

CA is examined using the PLS-SEM Hierarchical Component Model. The empirical findings show that CA positively and significantly affects SMEs’ performance, and the effect is stronger when firm capability is taken into account. Furthermore, the analysis shows that the combined effect of the three key competitiveness sources on firm performance is significant.

This thesis contributes to asymmetric information theory by examining firms’ risk-sharing schemes as a screening criterion to reduce ex-ante and ex-post risks of credit allocation. This research also contributes to non-price credit rationing theory by incorporating the influence of cultural factors on the borrowing behaviour of non-borrowers. This thesis contributes to frugal innovation theory by showing how non-price factors moderate the indirect relationship between product innovation and firm performance, which has not previously been explained. The thesis also contributes to the theory of CA by examining how SMEs build inter-firm trust and improve dynamic synchronisation among collaborators. In addition, this study brings new insight by incorporating relational capital as a non-price factor in resources investment.

Keywords: Competitiveness, SMEs, Credit Access, Innovation, Collaborative Advantage, Emerging Economy

Subject: Economics thesis

Thesis type: Doctor of Philosophy
Completed: 2020
School: College of Business, Government and Law
Supervisor: Dr. Wee Ching Pok