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

1* 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

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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

ABSTRACTThis 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, Marketing, Competencies, Business performance, An Exploratory Model

INTRODUCTIONUnder 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 competitive challenges facing Taiwan enterprises have ever intensified. Improving SME

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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 CompetitivenessIn 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; 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

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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 MeasurementThe 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. 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

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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.

METHODOLOGYBased 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

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

Human Resource Management and Business PerformanceEmployees 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

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◎Human Resource Management Competence◎ Sales Revenue◎ After-tax Profit◎ Market Share◎ Return on Investment

◎Marketing Competence

Enterprise Compet ences

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 PerformanceDrucker (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.

Competences and Business PerformanceBrown 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

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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.

SampleThis 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 SurveyBasic Data Item Times (%) Basic Data Item Times (%)

Industry

Electronic 50 9.6

Primary Sales Area

Domestic 309 61.0Photoelectricity 22 4.3 China Mainland 51 10.0

Instrument and Equipment 34 6.8 Other Areas in Asia

48 9.5

Plastic Processing 32 6.4 Europe and North America

73 14.5

Machinery Processing 70 13.8 Other Areas 25 5.0Textile 19 3.7

Average Education

of Employees

Elementary 20 4.0Materials 33 6.6 Junior High 31 6.2

Pharmaceutical 13 2.6 High School 211 41.6Electrical Machinery 28 5.5 2-year College 228 45.0

Auto Parts 30 5.9 Graduate School 16 3.2Food 45 8.8

Service 57 11.3Other 73 14.5

Average Revenue for the Past 3 Years

(NT$)

Below 50 million 220 43.620 ~ 30 million 124 24.530 ~ 50 million 68 13.650 ~ 80 million 23 4.5

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80 million ~ 100 million 16 3.2Above 100 million 55 10.8

Capital(NT$)

Below 20 million 280 55.320 ~ 30 million 110 21.830 ~ 50 million 44 8.750 ~ 80 million 12 2.480 ~ 100 million 15 3.0

Above 100 million 45 8.8

Number of Employees

Below 5 90 17.86~20 173 34.221~50 113 22.451~200 130 25.6

R&D Expense % of Revenue

0~1% 152 301%~3% 135 26.63%~5% 109 21.65%~10% 65 12.9Over 10% 45 8.9

InstrumentCompetence 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 DimensionsItem Rank/Mean

1. Human Resource Management (HRM) Establishing Rules for Duty and Manufacturing Process Manual 4.2968Improving Employee-Management Relations 4.1929Performance-based Compensation Structure 4.1836Improvement of Management Skills 4.0176Promotion of Training Classes 3.9487Job Responsibility Diversification 3.7461Employee Authorization 3.6776

2. Marketing (MKT)Quality of Products and Services 4.1084Improving After-sale Services 4.0189Increasing Business Reputation 4.0118Speed and Effectiveness of Decision-making System 3.9068Establishing Private Brand 3.8842Price Differentiation 3.8803Exploring Niche Market 3.8684Creating New Promotion Method 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.

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Statistical Analysis MethodAll 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 StudySources of Competences

Questionnaire Dimension

Human Resource Management Competence Marketing Competence

Cronbach α 0.8023 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 (βi) for every performance element is estimated using least-squares, 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).

RESULTS

Sources of CompetencesCompetences 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 CompetencesItem Competence Area Rank by Mean

1.Establishing Rules for Duty and Manufacturing Process Manual HRM 4.29682.Improving Employee-Management Relations HRM 4.19293.Performance-based Compensation Structure HRM 4.18364. Quality of Products and Services MKT 4.10845. Improving After-sale Services MKT 4.01896. Improvement of Management Skills HRM 4.0176

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7. Increasing Business Reputation MKT 4.01188. Promotion of Training Classes HRM 3.94879. Speed and Effectiveness of Decision-making System MKT 3.906810.Establishing Private Brand MKT 3.884211.Price Differentiation MKT 3.880312.Exploring Niche Market MKT 3.868413. Job Responsibility Diversification HRM 3.836814. Employee Authorization HRM 3.677615. Creating New Promotion Method MKT 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 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 PerformanceThe mean and standard deviation of human resources management (HRM) competence and marketing (MKT) competence and the performance measured by the four criteria are

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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 MeanStandard Deviation

Correlation with

Y1 Y2 Y3 Y4

Y1(Sales Revenue) 3.9207 0.5291 1Y2(After-Tax Profit) 3.8079 0.5915 0.8171*** 1Y3(Market Share) 3.8632 0.5955 0.7841*** 0.7984*** 1Y4(Return on Investment) 3.8786 0.5857 0.7632*** 0.8260*** 0.8129*** 1

Note: *P < 0.1; **P < 0.05; ***P < 0.01

Table 6 The Correlation between Competence and Performance

Performance Correlation withX1 (Human Resource) X2 (Marketing)

Y1(Sales Revenue) 0.5474*** 0.4857***Y2(After-Tax Profit) 0.5558*** 0.4897***Y3(Market Share) 0.5363*** 0.4911***Y4(Return on Investment) 0.5454*** 0.1608*

Note: *P < 0.1; **P < 0.05; ***P < 0.01

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 after-tax profit is consistent with the conclusion drawn from prior academic researches on manufacturers (Li, 2000; Simerly, 1997).

Results from Regression AnalysisIn 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

Dependent Variable Model R2 Interceptβ Value of X1 Error

Non-Standard StandardY1 (Sales Revenue) 0.299*** 2.145*** 0.461 0.547 1.816

Y2 (After-Tax Profit) 0.306*** 1.765*** 0.531 0.556 1.905

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Y3 (Market Share) 0.287*** 1.879*** 0.515 0.536 1.937Y4 (Return on Investment) 0.297*** 1.894*** 0.516 0.545 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 Model R2 Interceptβ Value of X2 Error

Non-Standard StandardY1 (Sales Revenue) 0.235*** 2.295*** 0.411 0.486 1.735Y2 (After-Tax Profit) 0.239*** 1.950*** 0.469 0.490 1.800Y3 (Market Share) 0.240*** 1.988*** 0.474 0.491 1.892Y4 (Return on Investment) 0.211*** 2.148*** 0.437 0.461 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 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 ModelIndependent Variables Variance Inflation Factor (VIF)

Human Resource Management Competence (HRM) 1.501Marketing Competence (MKT) 1.822Average VIF 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

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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

Dependent Variables Model R2 Intercept β Value ErrorX1 X2

Y1 (Sales Revenue) 0.307*** 1.996*** 0.183*** 0.306*** 1.764

Y2 (After-Tax Profit) 0.311*** 1.615*** 0.208*** 0.350*** 1.828

Y3 (Market Share) 0.178* 1.652*** 0.192*** 0.380*** 1.899

Y4 (Return on Investment) 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 the enterprise attributes, increasing competitiveness, and enhancing business performance.

DISCUSSION

Critical Competence FactorsIn 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 employee-management 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

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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 PerformanceThe 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 employee-management 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.

CONCLUSIONSIn this paper an exploratory model is proposed to analyze the relationship between origins of corporate competencies and business performance in Taiwanese small and medium-sized 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

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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.

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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.

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