Custom essays: Entrepreneurial Competencies and SME Performance

2. Entrepreneurial Competencies and SME Performance
In the study “The competitiveness of small and medium enterprises. A conceptualization with focus on entrepreneurial competencies”, Man, Lau and Chan (2002) developed and analyzed a conceptual model describing the relationship between the specific characteristics of SMEs’ owners and their companies’ effectiveness. The presented pattern is built out of four concepts – competitive scope, organizational capabilities, entrepreneurial competencies and firm performance, which will be analyzed in further subsections.

Fig.4. A multi-dimensional construct of SME competitiveness

Source: Model of (Man et al, 2002), The competitiveness of small and medium enterprises: A conceptualization with focus on entrepreneurial competences.

2.1. Competitive scope
The competitiveness of the enterprise is a relative feature that expresses the difference between the development of the company from the development of competitive firms in the degree of satisfaction of people’s needs and in the efficiency of production. The competitiveness describes the capabilities and dynamics of the company’s adaptation to the conditions of market competition.
The competitiveness of the enterprise depends on several factors: the competitiveness of goods in a domestic and foreign markets, type of goods produced, market capacity (number of annual sales), simplicity of market access, homogeneity of market, competitive position of companies already operating in the market, competitiveness of the industry, ability of technological innovation in the industry, competitiveness of the region and country (Man 2002; Jeppesen, 2005; Jones 2003).
As the world practice of market relations shows, the general principles that provide a competitive advantage to producers are (Jeppesen, 2005; Jones 2003):
-Aim of each employee to act, to continue the job once it started.
-Closeness to the customer.
-Establishment of autonomy and creative atmosphere at the company.
-Increased productivity through the use of people’s abilities and their desire to work.
-Demonstrating the importance of common values.
-Ability to hold one’s ground.
-Simple organization, minimum of management levels and personnel.
-Ability to be both soft and hard. Keep the most important issues tightly controlled and pass less important ones to subordinates.

The competitiveness of product and competitiveness of manufacturer relate to each other as part and whole. Company’s ability to compete on a certain commodity market is directly dependent on the competitiveness of goods and the range of economic methods of the enterprise, impacting the results of competition.
In the entrepreneur-consumer relations, the consumer acts as an indicator of the business process. The entrepreneur, in planning and organizing his activities cannot ignore consumer’s interests, expectations, and estimates. However, this situation does not mean that the entrepreneur is obliged to act only in strict accordance with the identified interests of consumers. He himself can form consumer demand and create new shopping needs.
Thus, the entrepreneur’s aim is the necessity to win consumers, to create his own range of consumers.
The main means of entrepreneur’s influence on consumer are the following factors (Jones, 2003):
• novelty of the product and its compliance with consumer interests;
• quality;
• price, availability of goods;
• degree of universality of goods;
• presentation and packaging;
• positive characteristics differing the goods from other producers;
• access to after-sales services;
• conformity with generally accepted or government standards;
• prestige and attractiveness of advertisement, etc.
Competition is an adversary activity between producers for the most profitable markets. The competition serves as a motivational force that compels manufacturers to improve product quality, reduce production costs, and increase productivity.
Market competition and competition of countries they are located in have a mutual influence. At the heart of these main aspects of competitiveness is something that can be called “soft” components of competition, which cannot be evaluated in monetary terms and are difficult to quantify.
In the industrialized countries, these components are usually more important than in developing countries. At the same time, “soft” components cannot be politically manipulated, and changing them requires more time than, for example, increasing productivity or building infrastructure. Despite the lack of developed methods of study, this group of factors of competition cannot be ignored. They include the following (Pinchot, 2000; Man 2002; Steenkamp 2010): work ethics, flexibility and willingness to self-improvement, willingness to work in the service sector, level of claims, openness to the outside world, labour mobility, spirit of competition.

2.2. Organizational capabilities
Obviously, the stock market is ready to appreciate the value of some businesses higher, while the value of these estimates exceed than the indicators that reflect the real results of their activities. The gap between market and balance value of equity can be explained by the influence of those resources that are not included in the balance. These resources can justify the high market valuation only in the future when they start to work effectively, providing the company a substantial increase in profits. Such expectations are largely associated with intangible organizational capabilities (Man, 2002).
Considering organizational capabilities as dynamic units, D. Teece (2009) defines them as the possibility of firms to integrate, build and reconfigure internal and external competencies in response to rapid environmental change. In fact, we are talking about controlling processes, which occur at all organizational levels of the enterprise. These processes in turn can be regarded as taking place in the time sequence of actions to meet the challenges. Each process can be controlled good or bad. Quality of control depends on the organizational capabilities of the enterprise.
Dynamic capabilities of an enterprise can be narrowed to controlling three types of processes – integration, reconfiguration, and training (Teece, 2009). The purpose of the integration process is to ensure efficient and effective coordination of resources. Moreover, these processes are the re-treatment of the already known tasks. Therefore, organizational capabilities, associated with the control over the integration processes, can be characterized as the replication capacity. Numerous case studies indicate the presence of a positive relationship between replication capability of the enterprise and the growth of business.
The ability to control reconfiguration processes can be described as the ability to recognize the need of reconfiguring the structure of corporate assets and carry out the necessary internal and external transformation. This requires continuous monitoring of markets and technologies and the willingness to use the best practical experience. Reconfiguration processes lead to broad changes in the resource equipment of the enterprise (Bhat, 2004).
The organizational capability to control the learning process includes the processes which through repetition and experimentation are helping to solve problems better and faster. It also allows the entrepreneur to identify new industrial opportunities. These organizational capabilities are seen as an important part of the replication and reconfiguration ability of the enterprise and are effectively expressed in them (Pinchot, 2000; Teece, 2009). D. Teece (2009) also distinguishes two types of training – analytic (learning before doing) and experimental (doing before learning).
Consolidation of organizational capabilities in the enterprise is the important factor in the calculations on the extended growth of the company, which requires the right balance between “exploitation” of existing and new capabilities. The essence of “exploitation” is to improve and expand existing skills and experiment with new alternatives (Steenkamp, 2010).
Thus, the excess of market value of the enterprise over the balance value is due to the influence of its intangible resources, particularly organizational skills. Following the approach described by Man and Lau (2002), the potential organizational capabilities include innovative ability, ability to maintain or achieve high quality; cost effectiveness; and organicity as the ability to create organic organizational structures. The better the company codifies and transfers the knowledge of the staff, the higher is its efficiency, and thus the market value of the company. Generally, the market value of the enterprise grows, if it is well controlled processes of abstraction and absorption of knowledge and skills.

2.3. Entrepreneurial competencies
The main economic goals of the SMEs in the market conditions are improving production efficiency, profit maximization, conquest of new markets and meeting the needs of the team. However, with the growing of influence of economic risk factors, there appear the advantages of free pricing, the possibilities of self-selection of suppliers and consumers. Entrepreneurship as a process is a complex “chain” of targeted actions of entrepreneurs, possessing certain entrepreneurial competencies (Table 1), since the inception of entrepreneurial ideas and ending with their embodiment in specific business projects.

Table 1 showing Entrepreneurial competencies, their behavioral focus and preliminary elements.

Adapted from (Thi, 2009)
Opportunity competencies. Management process requires large expenditures of all factors of production, it is often doomed to a temporary setback, but eventually the entrepreneur is satisfied with the income. Consequently, entrepreneurship as a process involves the search for new creative ideas, their analysis and evaluation from the perspective of market needs and economic benefits, the formation of goals to implement the ideas, turning ideas into a new enterprise, the development of new products, improvement of the production organization, i.e. in implementing and translating ideas into concrete results (product, technology, services, etc.), bringing the entrepreneur the profit (Rowley, 2010; Steenkamp, 2010).
Organizing competencies. Development and implementation of enterprise strategy consists in managing the economy at the micro level (Steenkamp, 2010), which requires the construction of an appropriate system that performs the following functions: directing (justification of goals and choice of ways of achieve them); coordinating (balancing of the major resource constraints and coordination of conflicting interests of all participants of production process); stimulating (activation of the driving forces of development).
Relationship competencies. Experience shows that with the complexity of implementation of all tasks, one of the most difficult to implement is the last of these functions. It aims to motivate the employees and partners to the success of the common business and the realization of their abilities and opportunities. Typically, traditional methods help to solve such a problem in practice only partially. According to experts (Jones, 2003; Bhat, 2004; Man, 2002; Rowley, 2010), most national economies now use less than a half of the creative potential of its employees (and this is obviously one of the root causes of the current crisis situation). Therefore, the way out of the deadlock should be sought in the motivation of people, in the first place, that is, in the sphere of interaction of their interests and benefits. But this requires a clear understanding of the composition and structure of economic interests in a managed team, it requires knowing and taking into account the interests not only common to the whole enterprise, but also the specific ones – those of teams units (primary, ancillary, administrative, etc.), as well as of different categories of workers (by gender, age, skill level, etc.). The internal mechanism of economic management, the mechanism of stimulation and motivation cannot operate without such knowledge concerning relations-building concepts (Bhat, 2004).
However, the external outline is equally important – the mechanism of interaction between enterprises with different agents and contractors, partners and competitors in the region, country and abroad. This mechanism is even more complicated because of its novelty and the set of largely unfamiliar requirements introduced today by the market. The development of the models of behavior of enterprises with entities of external outline of relationship requires continuous analysis – monitoring tracking the status of the external outline and timely identifying the emerging problems. First and foremost, it is the problem of marketing.
Strategic competencies.
The main purpose of the strategy is to create a complex of competitive advantages to achieve business success in the long term. It is important to understand the very concept of approach to building strategy: a vision and direction for achieving the goal – the view from the future onto current company’s resources, rather than an extrapolation of current conditions and internal constraints for the next period (Man, 2002; Rowley, 2010). We are dealing not with logic, but with interest. A sign of lack of strategic approach is the organization’s focus on domestic resources. This ignores all the possible threats from outside (they are perceived only as a fait accompli), and favorable trends are missed. Strategic approach consists in making any changes to the positive opportunities and their use, and the plan in this case is not a dogma, but a system of work organization, which is adequately adaptive to changes in the environment.
Commitment competencies.
Increased market dynamics and instability makes the factor of entrepreneurial initiative increasingly important. Creativity, autonomy in choosing activities, the desire to maximize profits and hope for the success of the business are mandatory features inherent of any entrepreneurial activity. Creativity is a forceful quality that makes people act creatively. This is the active and brave position that corresponds to the time and conditions, flexibility of man’s actions. Creativity manifests itself consciously and deliberately, and not under the influence of unconscious natural impulse. As a rule, it is associated with physical and spiritual efforts. The possibilities for its manifestations appear when a person has the inner interest in changing the existing situation for the better. That leader is responsible for creating these conditions within the organization (Man, 2002; Bhat, 2004).
Conceptual competencies.
Analyzing various viewpoints on this issue, one can conclude that business is implementation of individual’s specific abilities expressed in a rational combination of factors of production through innovative venture approach. The entrepreneur uses the latest manufacturing techniques and technology, organizes work and manages in a new way, which leads to reduction of individual production costs, on the basis of which the price is set. Entrepreneur organizes marketing activities in the most effective way. He better defines the profitable market for purchasing production means, feels the product most demanded in market at certain period. So, he earns more profit than conventional businessmen. In addition, the entrepreneur is constantly at risk. He does not avoid risk, as it is usually done, but takes risks to get more income than others – a kind of compensation for this risk (Man, 2002; Jones, 2003; Teece, 2009).
Business income is understood, above all, as an extra income, income from management, the surplus obtained by the entrepreneur due to his natural qualities or special skills to analyze and re-combine the factors of production depending on external conditions.
The economic essence of business is to find and implement new combinations of factors of production (updated products, technologies, organizational approaches) to satisfy an apparent or potential demand. The subject of an innovative creative economic activity can be both a private entrepreneur and a group of people acting within the organization and take the initiative to produce a new product, new solutions, new approaches, etc.
Thus, the tasks mentioned above can be divided into two levels: macroeconomic (development of rules of the game by public authorities) and microeconomic (direct adaptation of concrete businesses to the new conditions of production and consumption of goods). According to the conceptualized model of the authors (Man, 2002), “Strategic and commitment competencies, competitive scope, and organizational capabilities will positively influence the performance of an SME through their interactive effect.”