09
An Analysis of Key Success Factors of SMEs: A Comparative Study of Singapore/Malaysia and Australia/New Zealand B C GHOSH Associate Professor Nanyang Technological University School of Accountancy and Business Nanyang Avenue, SINGAPORE 2263 Phone: +65 791 1744 Fax: +65 791 3697 Wayne KWAN Singapore Institute of Labour Studies (Formerly of Edith Cowan University, Australia) ABSTRACT The research examines and compares the key success factors, challenges, and issues facing SMEs in Singapore, Malaysia and Australia. The Singapore/Malaysia study was based on 152 responses from small and medium sized enterprises (SMEs), while the Australia/New Zealand study was based on 164 responses. A mail survey was carried out to collect the data. The main motivation behind this study was that there have been few studies directly of this nature, fewer still with a cross-country comparison. In general, there were fairly large similarities between the two country groups. With respect to reasons for starting their businesses, both Australia/New Zealand and Singapore/Malaysia entrepreneurs rated the top four factors as (1) liked the challenge, (2) personal need for growth, (3) greater personal freedom, and (4) opportunity to use knowledge and experience (From here onwards Australian will refer to Australia/New Zealand and Singapore will refer Singapore/Malaysia groups). Problems faced by emergent SMEs centred around financing, competition, availability of skilled workers, and marketing. Marketing was the top most concern for Australian SMEs while the Singaporean SMEs ranked shortage of capital as the most critical problem. Both sample reported that factors contributing to successful SMEs were closely tied to having a good customer relationship, effective management, and marketing. Constraints to success were found mainly in the high cost of doing business and competition. The Singapore sample ranked shortage of capital as the second most important factor while the Australian sample rated it last. General management was regarded by both sample as the most important experience in helping to start their businesses. For both sample personal savings was their most important source of
Page 1
09
financing. INTRODUCTION A small and medium-sized enterprise has been variously defined by different authors. In a paper published by the World Bank, 60 different definitions of SMEs were found to have been used in 75 countries. In Singapore, the Association of Small and Medium Enterprises (ASME) of Singapore generally defines an SME as having fixed production assets not exceeding S$8 million, employees not exceeding 100 and an annual turnover not exceeding S$15 million. In Australia, a business is considered a SME if it employs less than 20 people and in the case of manufacturing, less than 100 staff. For the purpose of this study, these two definitions will be used respectively for Singapore/Malaysia and Australia/New Zealand sample, although admittedly differences exist between Singapore and Malaysia and between Australia and New Zealand. The currency differences between Singapore and Malaysia and those between Australia and New Zealand have also been ignored. A comparison of key success factors and challenges of Australian and Singapore small and medium-sized enterprises (SMEs) is significant in that it takes place in a situation in which the two nation groups having contrasting economic, cultural and businesses aspirations. On the one hand, the weakness of Australia's industrial competitiveness in world markets is well chronicled and an established subject of highest national concern. This concern is heightened by evidence that, despite some encouraging absolute performance improvements in recent times, the rate of growth is still lower than that of many other countries in the Asia-Pacific region (Kwan and Yau, 1992). The reasons for this weakness have been debated inconclusively with the problem being variously attributed to macro-economic policy shifts, adversarial politics, labour market rigidity, 'shortterism' in financing and a non-export culture (Miller and Leptos, 1987). Once again, Australia refers Australia/New Zealand and Singapore refers to Singapore/Malaysia samples respectively in the study. Australia's situation, therefore, seems to be one of catching up and making some progress to establishing a competitive advantage. The Australian government is recognizing the importance for Australian enterprises to start viewing seriously the AsiaPacific as an area for business expansion. Singapore (and Malaysia), on the other hand, as Asian tigers, have experienced relatively robust growth. The primary concern of the government here is for local enterprises not to become complacent about the recent good times, but to become proactive
Page 2
09
to ensure that growth will continue. Much of Singapore's growth has been attributed to the presence of multinational companies (MNCs). There is a recognition that while MNC's will continue to play an important role in the development of Singapore, that by itself is no longer sufficient - local smaller enterprises must develop themselves at home and abroad to propel the country to new heights of economic sources (Hooi and Wan, 1993). In both Australia and Singapore, SMEs are fast gaining recognition as the economic backbone of a nation. In Australia, SMEs account for one-third of the nation's production and provides employment for more than two and half million people, about half the private sector workforce. In Singapore, SMEs constitute 90 per cent for the total number of establishments, providing 44 per cent of employment and contributed 24 per cent of value-added in the economy. The main objective of this research is to examine and compare key success factors, issues and challenges facing SMEs in Singapore and Australia. The research will also compare the profile of lead entrepreneurs of both country-groups. LITERATURE REVIEW A wealth of literature over the past five years or so has focused on what makes an entrepreneur or enterprise successful. This body of research, in our view, can be categorized into two broad approaches - descriptive and prescriptive. The descriptive approach seeks to describe the characteristics or attributes that a successful entrepreneur will presumably possess. The prescriptive approach seeks to prescribe the factors that contribute to a successful enterprise. Both can be either a conceptual model or an empirical model, though it is conceivable that prescriptive models will use empirical studies as supporting evidence more frequently than the descriptive ones. The Descriptive Approach The descriptive approach seeks to describe the characteristics or attributes that a successful entrepreneur should possess. An entrepreneur has been variously defined in the literature: as an innovator (Schumpeter, 1971); as a risk-taker (Yee, 1991); and as an opportunity-maximiser (Drucker, 1985). According to Herbert (1989), an entrepreneur bought goods or services at a certain price and sold at an uncertain price to make a profit and, therefore, was at the centre of transactions that created wealth in a society or market economy. Shapero (1975) viewed an entrepreneur as a displaced individual which could have been
Page 3
09
caused by a positive idea or a negative reason such as loss of job. To Holt (1992), an entrepreneur was an incubator of novel ideas who was distinguished from the run-of-mill business person: such an "idea" person added value to the economic activity in much more meangingly ways. Silver (1983) described an entrepreneur as a person with a mission and a vision, somewhat similar to Holt's way of looking at an entrepreneur. Gibb et al (1982) viewed entrepreneurship as a social process; Kets de Vries (1977) maintained that entrepreneurship was a product of childhood experiences; Brockhaus (1980) viewed an entrepreneur as one who had a high need for achievement, while Rotter (1966) associated an entrepreneur as one with an internal locus of control. For an entrepreneur to be successful, Graham (1992) believed that he or she must possess five basic skills such as the ability to develop original ideas, the ability to persuade others, and so on. Danco (1992) felt that there was more than just talent in success, that genius was about 90 per cent sweat applied to 50 per cent dumb-luck or accident and that a successful business founder must have an absolute singleness of purpose to survive the early days. In a research done by Duchesneau et al (1990), lead entrepreneurs in successful firms were shown more likely to have been raised by entrepreneurial parents, have had broader business and start-up experiences, and believed that they had less control of their success in business. According to Plotkin (1990), successful small-business owners possessed an intelligent mind that is creative and inquisitive, kept abreast of technological developments and were able to put them to productive use; they also possessed abundant energy, drive and assertive ability. A report prepared in 1989 showed that five personality characteristics were found to be necessary for an individual to succeed in a self-owned business which were drive, thinking ability, human relations ability, communication ability and technical knowledge. In a profile on Richard Friedkin, CEO of Monarch Industries, by Palmer (1988) revealed that his success was attributed to his financial expertise, intuitive nature and courage to take chances. The Profit Building Strategies for Business Owners (1988) reported that the most effective entrepreneurs were those who could think creatively, that is, those who had an open mind to new ideas. Silver (1988) presented a typical entrepreneur to be a male between the age of 27 and 34, who was dissatisfied with his career path, but not his field, and who decided to make his mark on the world by developing a product or service to make life easier for people. According to him, a successful entrepreneur needed the following traits: "heart", patience, drive, courage,
Page 4
09
the ability to co-operate and an understanding of leverage. Jim Gagan, CEO and founder of United Consumers Club (1988) believed that honesty and integrity were crucial in building a successful business. Cooper et al (1989) found that entrepreneurs starting larger firms tended to have more education, more management experience and objectives that were more managerial in nature. Niehouse (1986) identified 10 characteristics common to successful entrepreneurs among which were a personal vision, an ability to organize resources, creativity and intuition, a belief in ideas as a source of motivation, action-orientation, risktaking, impatience, restlessness, independence and individualism. Sexton (1985) described an entrepreneur as one who was tolerant of ambiguity, preferred autonomy, was aloof, enjoyed risk-taking, resisted conformity and adapted readily to change. Nelson (1986) believed that willingness to take risks was a key to becoming a successful entrepreneur. Other necessary elements included luck, timing, capital and persistent hard work. The Prescriptive Approach This approach seeks to prescribe the factors that contribute to the success of an enterprise. According to Duncan (1991), a key ingredient for business success is the skills of an entrepreneur who can identify a market niche and develop a venture for that niche. This is supported by another, similar study by DeHayes et al (1990) who found that the most frequent reason for success among businesses was their ability to identify and focus onto one or a few market niches. Other reasons for success included the ability of lead entrepreneurs who knew the 'craft' of the industry and the ability of companies to develop and sustain a technology advantage in their industry. A study by Steiner et al (1988) also suggested that developing a competitive advantage through specialization in products, markets or customers was a key factor in the success of small manufacturing firms. Prescott (1986) reported that developing a specialty or a niche could be vitally important for small business. In a study amongst Jamaican entrepreneurs, Huck et al (1991) found technical knowledge and customer relations to be the competencies most important for the success of small businesses. In an article published by the Economist (1991), Wilkin and Sons, which produces the famous Tiptree jams, was reported to have been successful by spotting a trend in the market well before its competitors; the company was also obsessed with quality and was very close to its customers. McCormack (1989) agreed that one of the most important factors to a successful business was a commitment to quality, which to him was the only absolute competitive edge. Profit-Building Strategies for Business Owners (1989)(1990)(1991) identified that one of the factors in building
Page 5
09
a successful business was the ability to deal effectively with customer complaints. The success and failure of a small enterprise also depended on the owner's personal qualities and the way the business was managed. A successful business owner must know how to get and manage the business, be dollar-conscious, follow a good credit policy, have flexibility and have financial intelligence. A profile on Joseph Maurelli, President and CEO of Techmatics Inc. (1988), revealed that he attributed his successful business to a strong company foundation which was essential to achieving future company's objectives. Foley (1987) reported in an unpublished PhD thesis three factors of particular importance which were found to be consistently important for successful business. These were a written business plan, the development of new products and having a strong sales and market team. Pollock (1989) and Barkham (1989) (also unpublished PhD thesis) identified factors such as skill, attitudes and the gathering of market information as factors contributing to -the success of an enterprise. Pollock, in particular, found that women proprietors placed a greater value on the quality of life and hence preferred long-term stability to repaid business growth. Moussavi (1988) in his unpublished PhD thesis stated that experience on the part of the owner/manager factor contributing to the survival of businesses. Also, of importance is the ability of the entrepreneur to communicate effectively. Evans (1986) emphasized that a firm's success in competing in a hostile environment was attributable to top management's involvement in all phases of the operation and upgrading of human resources. Campbell (1991) identified 12 keys for a successful business, amongst which were a clear mission statement and corporate value system, a customer-oriented policy, a competitive strategy and personal commitment from top management. Gaskill et al (1989) identified six keys to a successful business which included people power, a business plan, a study of the competition, measurement of performance, not becoming too comfortable with progress, and efficient financial reporting systems. Beam et al (1989) reported that to be truly successful, small-business owners must have a missionary zeal about their product or service, be willing to be personally involved in it, be willing to stick with the business, be able to define the market clearly and pay attention to details. Mraz (1989) stated that thorough planning was vital to starting a successful business; finding customers, vendors, employees and financial resources should be thought out in advance. Entrepreneurs should link up with venture capitalists who could fund new businesses. Ibrahim et al (1986) indicated that personality attributes, managerial skills, interpersonal skills and environmental characteristics were perceived to be success factors in small
Page 6
09
businesses. Blanchard (1991) stated that to be successful, the business owner needed to follow the four principles, namely ensure that sales exceed expenses, collect outstanding bills, take care of customers and take care of employees. According to Schilit (1986), some guidelines to a successful business venture were amongst other things, to develop a common value system, ensure adequate capitalization (by using debt and equity financing), develop a formal business plan, monitor the business environment continually, retain a marketing orientation, encourage entrepreneurial thinking throughout the company and not to be afraid to delegate authority. Haswell et al (1989) attributed the main causes of business failures to management incompetence and inexperience. Wood (1989) also confirmed that lack of experience was one of the causes of business failures. Brazell (1991) stated that lack of management skills, competence and experience were the greatest contributing factors to failure. Lauzen (1985) prescribed five steps that the owner had to take to ensure success of the business, amongst which were to develop managerial skills and possess determination and hard work. To Hornaday et al (1986), managers of successful small businesses did set goals and achieve them. According to Flahvin (1985), the reasons why businesses failed were a lack of capital, lack of financial control and accounting information, lack of management skills and experience, and inability to respond and adapt to changes. Smallbone (1990) concluded that a lack of revenue was the main reason for business failures. On the whole the dividing line between describing an entrepreneur and prescribing him is very thin. Problems Encountered by SMEs Ferguson (1987) reported in a Canadian study that not-sosuccessful businesses often ignored early warning signs of problems that eventually led to financial ruin. He believed that troubling scenarios could be avoided by monitoring the potential problem areas which could be captured in financial reports such as monthly financial statements, inventory turn-around time, backorders, etc. Howard (1989) reported that more CEOs perceived problems facing their businesses to be increasing. The biggest concerns were difficulty in finding qualified, motivated employees, anxiety about a cash-flow squeeze, keeping cost under control, too much government regulation and increased competition. In his research study in assessing the most important problem in running a business, Liebtag (1986) found that 41 per cent of the respondents mentioned difficulties with employees or partners. Recurring problems were noted with recruiting and motivating employees and many owners ran their businesses without a strategic plan. Steck (1985) found that common errors start-up businesses are likely to make represent
Page 7
09
failures to take advantage of marketplace success. The most common mistake was finding success and not pursuing it. The failure to put a competent management team in place in time was also perhaps the most critical and avoidable of the common entrepreneurial problems. According to Lauzen (1985), undercapitalization was a common problem faced by small businesses. One way to overcome this was by establishing a good relationship with a local banker. METHODOLOGY A survey questionnaire was developed based on our literature survey, generally speaking. It was pilot tested both in Singapore and Australia. A mail survey was used to collect the data. In Singapore, questionnaires were mailed to 600 SMEs who are members of the Association of Small and Medium Sized Enterprises and three other business associations in Singapore/Malaysia. 152 (25.3 percent) usable replies were obtained. In Australia and New Zealand, the Key Business Directory was used as a sampling frame to identify all SMEs, defined as one that has less than 100 employees. A total of 950 questionnaires were mailed to SMEs across all states and New Zealand, representing a wide cross-section of industries. 164 (17.2 per cent) usable responses were obtained from the mailout. Z-test was used to test whether there is any significant statistical difference between Singapore and Australia SMEs with respect to the factors under study. Since the two country-groups represent about the same population size (approximately 20 million) and as both the groups are fairly well developed now industrially, a general hypothesis of this research is that their SME characteristics will be generally similar too, with perhaps only minor variations of a local nature. Another, perhaps related hypothesis, is that there probably will be greater similarity in success factors than in the problem areas which may be more local in nature. Profile of Samples Table 1 presents the profile of the Australia and Singapore sample. Instead of showing every category of each variable, only major categories (in percentage terms) are highlighted. Personal Characteristics In both samples, the majority of the respondents comprises of male - 85 per cent in Singapore and 95 percent in Australia. It is worth noting that there are more female entrepreneurs in Singapore than in Australia. Most of the respondents are married, 81 percent in Singapore and 93 percent in Australia.
Page 8
09
With respect to education, 38 percent of the Singapore sample has some form of tertiary education, while the Australian sample, has 40 percent. The majority of Singapore entrepreneurs, 88 percent, are in the 30-49 age group. The Australian sample has 64 percent aged 30-49 but it has 36 percent aged 50 and above, suggesting that on average Australian entrepreneurs are older than those in Singapore. This is expected, Singapore/Malaysia being NIEs (newly industrialised economies). 79 percent of the Singapore sample held jobs before starting their business whereas the percentage for the Australian sample was higher at 95 percent. In the Singapore sample the largest group (39 percent) had their previous jobs in the manufacturing industry. The second largest group of 17 percent was from banking and finance. In the Australian sample, the largest group, 20 percent, also came from manufacturing. The rest were mainly from construction (19 percent), transport/communication/ utilities (12 percent), and mining (10 percent). The fact that Australian respondents were generally older and more of them held jobs prior to coming to their own business probably indicates the mature state of Australia/New Zealand economies, and perhaps also that more of them came to own their own businesses for different reasons. These variations are of a local nature, it seems. TABLE 1 PROFILE OF RESPONDENTS Singapore/ Malaysia (n 152)
Australia/ New Zealand (n 164)
Gender Male Female
85.0 15.0
95.0 5.0
Marital Status Married Others
81.0 19.0
93.0 7.0
88.0 12.0
64.0 36.0
58.0 38.0
60.0 40.0
Personal Characteristics
Age
30-49 Others
Education Less than Tertiary Tertiary
Page 9
09
Business Characteristics Actual Owner Started Business First Business Attempt Held Job Before Business
89.0 76.0 88.0 79.0
75.0 50.0 64.0 95.0
Previous Job Manufacturing Banking & Finance Others
39.0 14.0 47.0
20.0 6.0 74.0
Nature of Business Manufacturing Business Services Commerce Others
25.0 30.0 34.0 11.0
27.0 17.0 18.0 38.0
More than 5 Years In Operation
84.0
96.0
Business Characteristics The Singapore sample has a higher proportion of actual owners of their businesses, 89 percent, compared to the Australian sample which has only 75 percent. 76 percent of the Singapore sample started the businesses while only 50 percent of the Australian sample did so. 88 percent of the Singaporean entrepreneurs indicated that this was their first attempt in starting their businesses while only 64 percent of Australian entrepreneur did so. This may suggest that Australian entrepreneurs encountered more business dissolutions or had experience with greater number of businesses in the past. But it could also mean that the Singapore sample contains some elements of respondent bias. SMEs in the Singapore sample were mainly from commerce (34 percent) and financial/business services (32 percent), and manufacturing (25 percent). The Australian sample consist mainly of manufacturing (27 percent), services (17 percent) and construction (13 percent). 84 percent of the Singapore businesses were in operation for more than 5 years, while that for the Australian sample was 96 percent. This perhaps reflects the longer history of economic developments in Australia relative to Singapore. Main Reasons for Starting Business Table 2 presents the Singapore and Australian entrepreneurs' main reasons for starting their businesses. There was great congruence between Australian and Singapore SMEs in the pattern of weightage given to the reasons for starting their businesses. Challenge, personal need for growth, greater personal freedom,
Page 10
09
and opportunity to use own knowledge and experience ranked high by entrepreneurs from both countries as important reasons for starting their businesses. Of the nine reasons examined, only personal need for growth was significantly more important (p<0.05) for Singapore entrepreneurs (mean = 1.94) than their Australian counterpart (mean = 2.49). Two others (challenge, opportunity to use one's own knowledge) were significantly different at 10% level of significance. Rank correlation is also high. Family tradition, being a cultural factor, did not feature that strongly. TABLE 2: REASONS FOR STARTING BUSINESS Singapore/Malaysia (n = 152) 0% n Rank
Australia/NZ (n = 164)
(1) + (2) + (3) = 100%
(1) + (2) + (3) = 10
G.I.
M.L.
G.I.
M.L.
%
%
%
%
%
5.8
14.2
1.94
1
72.8
20.4
6.8
2.
1.8
20.2
2.06
2
68.4
21.8
9.8
2.
11.2
28.7
2.49
3
52.6
34.7
12.7
2.
10.4
40.7
3.00
4
51.6
27.0
21.4
2.
4.7
64.1
3.70
5
34.1
15.4
50.5
3.
12.6
73.2
4.16
6
16.7
11.8
71.5
5.
6.3
79.6
4.31
7
18.0
11.7
70.3
4.
7.8
84.1
4.59
8
11.2
5.7
82.1
4.
0.0
98.4
4.92
9
6.6
0.0
93.4
4.
Personal need for growth* 80.0 49 3 Liked challenge* 78.2 23 1 Greater personal freedom 60.1 46 2 Opportunity to use own knowledge and experience* 48.9 62 4 Disliked working for others 31.2 25 5 Influenced by family and/or friends 14.2 00 7 Family tradition 14.1 04 6 Promotion at previous workplace blocked 8.1 47 8 Loss of job 1.6 73 9
L.I. Mean Rank
L.I. Mea %
The 5-point scale was collapsed into three categories as follows: G.I. - Of Great Importance - combines two categories of importance
Page 11
09
- Very Critical and Critical M.L. - Of Moderate Importance L.I. - Of Little Importance - combines two categories of importance - Slightly Critical and Not Critical The lower the number the greater the importance of the factor. * Means of Singapore/Malaysia and Australia/NZ samples are significantly different at the 0.10 level. Problems Faced by Emergent Business Table 3 presents the problems faced by emergent businesses. For the Singapore entrepreneurs, the four most important problem areas were shortage of capital, obtaining sources of financing, strong competition, and lack of skilled/ trained workers. For the Australian counterparts, marketing, shortage of capital, obtaining sources of financing, and understanding of financial issues were the four most important problems. Howard (1989) and Lauzen (1985) also found that entrepreneurs of SMEs reported major problems related to finance and competition in operating their businesses. Production management is a common enough problem. Rank correlation in this table is not as strong as in Table 2, indicating perhaps that problems faced by SMEs may well vary from one country to another. Table 3:
Problems Faced By Emergent Business Singapore/Malaysia (n = 152)
0% an Rank Shortage of capital* 86 2 Obtaining sources of financing 27 3 Strong competition* 41 5 Lack of skilled or trained workers* 83 9 Understanding industry trends
Australia/NZ (n = 164)
(1) + (2) + (3) = 100%
(1) + (2) + (3) = 10
G.I.
M.L.
L.I.
Mean Rank
G.I.
M.L.
L.I.
Me
% 62.1
% 16.0
% 21.9
2.40
1
% 38.7
% 30.6
% 30.7
2.
54.7
18.8
26.5
2.58
2
29.6
25.6
44.8
3.
53.7
22.6
23.7
2.63
3
24.3
27.9
47.8
3.
44.3
19.8
35.9
2.87
4
15.9
19.7
64.4
3.
29.7
17.2
43.1
3.42
8
22.2
30.6
47.2
3.
Page 12
09
47 6 Lack of management skills* 82 8 Marketing your products/services* 69 1 Understanding financial issues 39 4 Economic recession* 01 10 Producing your products 50 7
30.1
23.4
46.5
3.33
7
12.8
23.8
63.4
3.
31.9
28.1
40.0
3.25
6
54.8
20.4
24.8
2.
23.5
15.6
60.9
3.63
9
24.8
26.6
48.6
3.
28.2
32.8
39.0
3.17
5
16.2
16.2
67.6
4.
28.1
14.1
57.0
3.69
10
30.4
16.2
53.4
3.
* Means for Singaporean and Australian samples are significantly different at the 0.10 level. In the Australian sample, marketing was considered the most critical problem while in Singapore it was ranked as sixth position. One plausible reason could be that market conditions were less favourable in Australia than in Singapore, therefore the need to focus on marketing. At the time of the research, Australia was experiencing an economic recession. Singaporeans generally operate in a more regional/global market, relatively speaking. Shortage of capital and obtaining sources of financing was ranked relatively high in both countries (1 and 2 respectively in Singapore; 2 and 3 in Australia). Understandably, banks or investors are rather cautious in providing capital for small business ventures especially if they have no track record to start with. And, this will be more so in an Asian situation. Shortage of skilled/trained workers were rated as the fourth most important problem by Singapore entrepreneurs but was only ranked ninth by Australian entrepreneurs. The reason was that Singapore (and Malaysia) was experiencing strong economic growth which contributed largely to a tightening of the labour market. Strong competition was ranked fourth as a problem by the Singapore sample. However, the Australian ranked it as fifth. This could again be explained by the contrasting economic situations of Singapore and Australia. Singapore, being economically buoyant, were attracting more players in the market, whereas Australia being in a recession was facing less intense competition. In examining individual problems and comparing each one across the two countries, there was significant difference (p<0.10) between the two countries in the importance they attached to
Page 13
09
seven of the ten problems under investigation. Shortage of capital, obtaining sources of financing, strong competition, lack of skilled/trained workers, lack of management skills, and economic recession were problems considered more critical by Singapore entrepreneurs than Australian in starting their businesses. Because Singaporeans market these products globally, global recession of the last few years affects them. Factors for Success Table 4 presents the factors for success of Singapore and Australian SMEs. In comparing individual success factors, there was very little difference between Australian and Singapore entrepreneurs concerning the importance of each factors contributing to the success of their business. However, when the rankings of the factors were considered, differences arose. For Singapore, the top five factors in order of importance are (1) a good customer relationship, (2) ability to identify and focus on a market niche, (3) a good service and delivery system, (4) availability of financial resources, and (5) a good and responsive management system. In Australia, the top five factors are (1) a good customer relationship, (2) a visionary, capable and strong CEO; (3) a good and responsive management system, (4) good service and delivery system, and (5) ability to identify and focus on market niche. The findings appear to support the study by Duncan (1991) and Dehayes et al (1990), Prescott (1986), and Huck et al (1991). They reported that, among other things, the most frequent reasons for success for small businesses were identification and focus on a market niche and being close to the customers. Table 4:
FACTORS FOR SUCCESS
Singapore/Malaysia (n = 152) 0% an Rank A good customer relationship 56 1 A good service and delivery system 98 4 Able to identify and focus on a market niche
Australia/NZ (n = 164)
(1) + (2) + (3) = 100%
(1) + (2) + (3) = 10
G.I.
M.L.
L.I.
G.I.
M.L.
L.I.
%
%
%
%
%
%
92.2
5.7
2.1
1.51
1
89.6
6.7
3.7
1.
78.1
10.9
11.0
1.89
3
73.6
14.8
11.6
1.
84.4
9.4
6.2
1.83
2
77.0
13.3
9.7
2.
Page 14
Mean Rank
Me
09
01 5 Good product features 69 11 A good network system 47 9 Availability of financial resources 28 6 A good and responsive management system 87 3 A good HRM system 33 7 Availability of human resources* 62 10 Spouse/family support 40 8 A visionary, capable and strong CEO* 81 2 Ability to develop and sustains technological advantage 57 9
64.1
18.0
17.0
2.28
8
49.6
25.0
25.4
2.
62.5
15.6
21.9
2.31
10
57.5
22.6
19.9
2.
68.2
19.8
12.0
2.11
4
61.5
26.3
19.2
2.
70.4
17.2
12.4
2.14
5
87.3
8.3
4.4
1.
70.3
15.6
14.1
2.22
6
60.9
27.0
12.1
2.
65.1
21.3
15.6
2.30
9
45.3
30.7
24.0
2.
61.0
18.8
20.2
2.38
10
50.8
31.3
17.9
2.
72.9
12.5
14.6
2.23
7
80.0
14.2
5.2
1.
59.4
18.6
21.8
2.53
11
50.6
21.0
22.4
2.
* Means of Singapore and Australian samples significantly different at the 0.10 level. It is worth noting that both countries believe that being customer-focused is the most important success factor. The most significant different was in the factor of visionary and capable CEO. Visionary and capable CEO was the second most important success factor for Australian entrepreneurs but was ranked seventh by Singapore entrepreneurs. In fact, this factor was considered significantly more important (p <0.05) for the Australian compared to Singapore entrepreneurs. This might indicate that Australian SMEs tend to establish longer-term goals compared to Singapore SMEs which might tend to pursue short-term profits. This finding appears to lend support to the crossnational research conducted by Ghosh et al. (1993) in which they found that Australian firms has a longer-term orientation than Singapore businesses. Alternatively, it could also mean a greater degree of workplace camaraderie in Singapore/Malaysia (Ghosh et al, 1995). Availability of financial resources was ranked as one of the top five important success factors for Singapore but not for Australia. This might suggest that funds are more readily available to SMEs in Australia than Singapore. In fact this was
Page 15
09
borne out in Table 3 (problems faced by emergent businesses), in which shortage of capital and obtaining sources of financing were more serious problems for Singapore than Australian entrepreneur. The overall rank correlation was less than very strong (59%). Obstacles to Success Table 5 presents the main constraints to success experienced by Australian and Singapore entrepreneurs. High cost of doing businesses was ranked as the most important obstacle to success in both Singapore and Australia. However, the Singapore entrepreneur placed significantly greater importance on this factor than the Australian counterpart (p < 0. 10). This probably suggests that the cost of doing business is higher in Singapore than Australia. This has been reported amply in newspapers and otherwise. Table 5:
CONSTRAINTS TO SUCCESS
Singapore/Malaysia (n = 152) 0% an Rank Cost too high* 66 1 Shortage of workers* 97 10 Competition too strong* 25 3 Too many competitors* 88 2 Lack of capital for expansion 70 1 No strong market niche* 73 9 Lack of creativity of CEO 38 4 Lack of leadership 55 5 Lack of focus on primary objectives
Australia/NZ (n = 164)
(1) + (2) + (3) = 100%
(1) + (2) + (3) = 10
G.I.
M.L.
L.I.
Mean Rank
G.I.
M.L.
L.I.
Me
% 77.9
% 5.2
% 17.8
1.80
1
% 46.8
% 28.6
% 24.6
2.
64.6
9.4
26.0
2.20
2
15.9
13.3
70.8
3.
56.3
21.9
21.8
2.40
3
27.8
25.6
26.6
3.
59.4
14.1
26.5
2.45
4
38.8
28.5
32.7
2.
60.4
15.1
24.5
2.45
5
20.7
27.1
22.2
2.
48.5
17.2
34.3
2.97
6
22.1
15.0
62.9
3.
35.0
23.4
39.6
3.20
7
23.7
24.6
51.7
3.
26.6
23.4
50.0
3.39
8
24.6
18.4
57.0
3.
Page 16
09
of business 50 7 Weak management team 40 6 Management not people-oriented 70 8
31.2
17.2
51.6
3.40
9
24.7
21.9
53.4
3.
25.6
28.6
45.8
3.42
10
26.1
17.4
56.5
3.
21.9
29.7
48.4
3.52
11
21.0
15.0
63.6
3.
* Means of Singapore and Australian samples are significantly different at the 0.10 level. The Singaporean entrepreneur considered shortage of workers as the second most important obstacle hindering success while the Australian ranked it in the tenth position. This reflects the contrasting economic and labour market situations in both countries. Singapore is currently having a tight labour market while Australia is experiencing serious unemployment. Strong competition was ranked third by both the Australian and the Singapore sample However, it was considered significantly more important to the Singapore than the Australian entrepreneurs (p <0.05). One possible explanation is that there is a greater density of SMEs in Singapore than in Australia. In other words, there are significantly more players relative to the market size in Singapore/Malaysia than that in Australia. Again, this makes local problems/constraints different from each other. Prior Experiences Helpful in Starting Business Table 6 presents the responses from entrepreneurs concerning the significance of their prior work experience in helping to start their businesses. Both Singapore and Australian entrepreneurs ranked general management as the most important experience in helping to start their business. This was not surprising since starting and running a business requires a diverse range of management knowledge and skills which general management experience is able to provide. Table 6:
EXPERIENCES HELPFUL IN STARTING BUSINESS
General Management Marketing/Sales Human Resoruce Management Engineering Banking and Finance Production/Operations Accounting/Auditing Retail
Singapore % 80.0 65.5 41.9 34.9 23.5 23.5 20.9 2.3
Rank 1 2 3 4 5 5 7 8
Page 17
Australia % 41.3 16.5 3.0 13.5 2.1 13.5 6.2 2.1
Rank 1 2 7 4 8 3 5 8
09
Other Experiences
2.3
8
3.1
6
Marketing was ranked as the second most important experience by both samples in helping them start their businesses. Ultimately the survival of a company is dependent on generating revenue and profits, therefore the respondents considered marketing experience as essential. The Singapore sample ranked human resource management experience as the third most important factor in helping them start their businesses. It therefore appears that once revenue and profits are forthcoming, the businesses could now focus on managing and developing their employees. However this was not the case for the Australian sample. The Australian sample ranked experience in human resource management at seventh position. The reason why human resource experience was given significantly more weight by Singapore entrepreneurs is probably due to the fact that the government has been constantly promoting to businesses the importance of developing and optimising the use of human resources. This was felt to be a critical factor for the economic survival of Singapore since she has no natural resources. Labour market is tight also. Both Australian and Singaporean samples ranked engineering experience as of fourth position. Therefore, it appears that both samples believe that some specific technical skills was helpful in starting a business. The importance of engineering experience is also due the fact majority of the businesses are in manufacturing and construction in which some measure of engineering experience could be useful. The trend indicates that the importance of prior experience moves from that of broad management skills to that of specific management skills. Rank correlation is pretty close in this table between the 2 samples. Sources of Financing Table 7 presents the various sources of financing for Singapore and Australian SMEs. The findings indicate that both Singapore and Australian SMEs ranked personal savings as their most important source of financing for their businesses. This was particularly critical at the start of the business since many financial institutions tend to be cautious in lending to smaller sized businesses. Table 7:
Personal savings Loans from family
SOURCE OF FINANCING Singapore % 44.0 19.5
Rank
Page 18
1 2
Australia % 38.2 7.0
Rank 1 5
09
Investment by family Debt financing Equity financing Other sources
14.7 9.7 9.0 3.1
3 4 5 6
12.6 31.8 9.8 0.8
3 2 4 6
Loans from family was regarded as the second most important source of financing by Singapore SMEs but was ranked as fifth position by Australian sample. One plausible explanation is that the Asian family is a more closely-knitted social structure than the Australian family. Therefore when the need arises, borrowing monies from family members in the Asian culture is not an uncommon practice. Lim (1986) Confirmed similar findings. In fact in the Australian sample, it appears that when personal financing was inadequate they would consider debt financing (second most important source of financing instead of financing from family). However, the Australian entrepreneur would consider financing from family only if it is an investment in their businesses. This source of financing was ranked third position by both samples. CONCLUSION The research examines and compares the key success factors, challenges, and issues facing SMEs in Singapore/Malaysia and Australia/New Zealand. In this study, the comparison of Australian and Singapore SMEs is particularly significant in the light of the two country groups having contrasting cultural, economic and business practices. For example, the Singapore/Malaysian economy has prospered, hence such factors as cost, shortage of workers, competition are viewed as problem areas or as constraining factors. In contrast, the Australian/New Zealand economy was experiencing a recession in the recent years, hence shortage of workers was not an issue whereas marketing was a major concern. From a cultural perspective, Singapore in contrast to Australia, has a strong family-orientation; hence the importance of family loans as an important source financing. On the other hand, the Australian sample would rather use debt financing than loans from family. Thus, the current study should add to the body of knowledge in the area of cross-national studies of SMEs which are few anyway. This research could well be replicated over an interval of (say) five years to examine the effect of time on the study. On the question of the general hypothesis that the SME characteristics of the two country-groups will be generally similar, this is accepted at most partially only. There are important differences quoted in Table 3 (Problems), Table 4 (Success Factors) and Table 5 (Constraints) which have been discussed earlier. Whilst it is accepted that success factors were more universal than the problems/constraints, this central
Page 19
09
hypothesis of this paper was found to have only limited or partial validity. REFERENCES Barkham, Richard Joh, Entrepreneurship: New Firms and Regional Development, PhD Thesis, University of Reading (UK), 1989. Beam, Henry H and Thomas A Carey, Could You Succeed in Small Businesses? Business Horizons, 32(5): 1989, 65 to 59. Blanchard, Ken, Keep to the Basics, Executive Excellence, 8(10): 1991, 20. Brazell, James L, Starting a Small Business, Business and Economic Review, 37(4): 1991, 10 to 14. Brockhaus, R. H, Risk-Taking Propensity of Entrepreneurs, Academy of Management Journal, 1980. Campbell, Regi, 12 Keys for Entrepreneurial Success, Business and Economic, Review, 37(3): 1991, 19 to 22. CEO Profile - Motivation by Integrity, Small Business Report, 13(l): 1988, 56 to 59. CEO Profile - Cornerstones of Success, Small Business Report, 13(l): 1988 56 to 59. Cooper, Arnold C, Carolyn Y Woo and William C Dunkelberg, Entrepreneurship and the Initial Size of Firms, Journal of Business Venturing 4(5): 1989, 317 to 332. Danco, Leon A, The Real World of the Entrepreneur, Agency Sales Magazine, 21(5): 1992, 60 to 62. Dehayes, Daniel W and William L Haeberle, University Alumni Small Business Research Program: A Study of Emerging Businesses, Centre for Entrepreneurship and Innovation, Indiana University, Bloomington, 1990. Drucker, Peter F, Innovation and Entrepreneurship, New York: Harper Row, 1985, 143. Duchesneau, Donald A and William B Gartner, A Profile of New Venturing 5(5): 1990, 297 to 312. Duncan, Ian, An Introduction to Entrepreneurs, CMA Magazine, 65(9): 1991, 32.
Page 20
09
Duncan, Leon A, The Real World of the Entrepreneur, Agency Sales Magazine, 21(5): 1992, 60 to 62. The Economist, Fruitful Staff......, 319(7711): 1991, 66, to 67. Effective Handling of Complaints a Key Factor in Business Success, Profit Building Strategies for Business Owners, 21(10): 1991, 5 to 6. Employment and Development of Small Enterprises, Sector Paper, Washington DC, World Bank, February, 1978. Evans, Joh H III and Frank C Evans, A Small Manufacturer's Success Story, Management Accounting 68(2): 1986, 47 to 49. Ferguson, Ted, Small Business - Hidden Dangers, Canadian Business, 60(9): 1987, 21 to 22. Flahvin, Anne, Why Small Business Fail, Australian Accountant, 55(9): 1985, 17 to 20. Foley, Paul, Marketing Management Policies and Small Businesses: An Investigation of the Factors Contributing to Small Business Success, PhD Thesis, Council for National Academic Awards (UK), 1987. Fruitful Stuff - Managing Small Firms, Economist (UK), 319(7711): 1991, 66 to 67. Gaskill, Gary T and J Michael Hyland, Starting and Managing a Small Business, Management Account 71(6): 1989, 28 to 31. Ghosh, B C, H P Schoch, W Kwan, S K Tan and O Yau, Australia and Singapore's Top Performing Organisations: A Comparative Study of their Marketing Effectiveness, Journal of International Marketing and Marketing Research, 18(3): 1993, 115 to 139. Ghosh, B C, Tan Teck Meng, An Exploratory Study of Strategic Planning Among SMEs, Working Paper, Dorset Business School, February, 1995. Gibb, Allan and John Ritchie, Understanding the Process of Starting Small Businesses, European Small Business Journal, l(l): 1982, 26 to 45. Graham, John R, What Skills Will You Need to Succeed? Magazine, 67(l): 1992, 23 to 24.
Managers
Haswell, S and S Holmes, Estimating the Small Business Failure
Page 21
09
Rate - A Reappraisal, Journal of Small Business Management 1989, 27(3), 68 to 74. Hebert, R E and Link A N, In Search of the Meaning of Entrepreneurship, Small Business Economics, 1(l): 1989, 42. Holt, D H, Entrepreneurship: New Venture Creation, Prentice-Hall, Englewood Cliffs, NJ, 1992, 11. Hornaday, Robert W and Walter J Wheatley, Managerial Characteristics and the Financial Performance of Small Business, Journal of Small Business Management, 24(2): 1986, 1 to 7. How Creative Thinking Can Bring Success to a Small Business, Profit-Building Strategies for Business Owners, 18(3): 1988, 23 to 24. Howard James S, Small Business CEOs - No Shortage of Worries, D & B Reports, 37(6): 1989, 16 to 19. Huck, John F and Thaddeus McEwen, Competencies Needed for Small Business Success - Perceptions of Jamaican Entrepreneurs, Journal of Small Business Management, 29(4), 1991, 90 to 93. Ibrahim A B and I R Goodwin, Perceived Causes of Success in Small Business, American Journal of Small Business, 11(2): 1986, 41 to 50. Kets de Vries, Manfred F F, The Entrepreneurial Personality: A Person at the Crossroads, Journal of Management Studies, 14(l): 1977, 34 to 57. Kwan, Wayne, and Oliver Yau, The Effectiveness of Australian Marketing Profile of the Top Performers, A Summary Report submitted to the University Research Committee, Edith Cowan University, Perth, 1992. Lauzen, Leo G, op cit, 1985, 34 to 38. Lauzen, Leo G, Small Business Failures are Controllable, Corporate Accounting, 3(3): 1985, 34 to 38. Liebtag, Bill, Entrepreneurs - A Breed Apart, Journal of Accountancy, 162(4); 1986) 70 to 79. Lim, Chee Peng, Small Industries in Malaysia, Berita Sdn Bhd, Kuala Lumpur, 1986, 10 to 11. Management World, 15(8): 1986, 7 to 8. McCormack, Mark H, Starting Your Own Business, Modem Office
Page 22
09
Technology, 34(9): 1989, 12 to 14. Miller, L O and C B Leptos, Australia and the World: The Management Challenge, Melbourne: Australian Institute of Management, 1987. Moussavi Barab, Mir Ayoub, Success and Failure in Small Business: Manufacturing Firms in California, PhD Thesis, United States International University. Mraz, Stephen J, Advice from Entrepreneurs, Machine Design, 61(9): 1989, 125 to 128. Nelson, Carol, Starting Your Own Business - Four Success Stories, Communication World, 3(8): 1986, 14 to 16. Niehouse, Oliver L, Just Who Are These Entrepreneurs? World, 15(8): 1986. 7 to 8.
Management
Palmer, Susan S, CEO Profile - Combining Courage and Intuition, Small Business Report, 13(4): 1988, 37 to 41. Plotkin, Harry M, Portrait of a Successful Small Business Owner, Small Business Reports, 15(l): 1990, 15 to 19. Pollack, Marilyn Frasier, Controlling Their Own Success: Women and Business Ownership, PhD Thesis, Rutgers State University of New Jersey, 1989. Prescott, Eileen, How to be Small and Successful, Public Relations Journal, 42(2): 1986, 31 to 32. Rotter, J B, Generalized Expectations for Internal Versus External Control of Reinforcement, Psychological Monographs, 1966. Schilit, W Keith, Guidelines for Entrepreneurial Success, Advanced Management Journal, 51(3): 1986, 44 to 48. Sexton, Donald L and Nancy Bowman, The Entrepreneur - A Capable Executive and More, Journal of Business Venturing, l(l): 1985, 129 to 140. Shapero, Albert, The Displaced, Uncomfortable Entrepreneur, Psychology Today, November 1975, 83 to 88. Shumpeter, I A, The Fundamental Phenomenon of Economic Development, In Peter Kilby Edition, Entrepreneurship and Economic Development, New York, Free Press, 1971, 43 to 70.
Page 23
09
Silver, A David, The Entrepreneurship Life: How To Go For It and Get It, New York: John Wiley, 1983, 26. Also, A Portrait of the Entrepreneur, Accountancy (UK), 102 (1134): 1988. 77 to 80. Six Factors that Separate Business Winners from Losers, ProfitBuilding Strategies for Business Owners, 20(5): 1990, 3 to 5. Smallbone, David, Success and Failure in New Business Start-ups, International Small Business Journal, 8: 1990, 34 to 47. Special Characteristics You Need to Succeed in Your Own Business, Profit-Building Strategies for Business Owners, 19(l): 1989, 21 to 22. Steck, Robert N, Why Business Fail, D & B Reports, 33(6): 1985, 34 to 38. Steiner, Michael P and Olaf Solem, Factors for Success in Small Manufacturing Firms, Journal of Small Business Management 26(l): 1988, 51 to 56. The Road to Success - What Thriving Small Business Have in Common, Profit-Building Strategies for Business Owners, 19(12): 1989, 3 to 5. Wood, Dorman, Why New Businesses Fail and How to Avoid Disaster, Corporate Cashflow, 10(8): 1989, 26 to 27. Yee, Wah Chin, The Entrepreneur as a Risk Manager, World Conference on Entrepreneurship and Innovative Change, NTU, July 3 to 5, 1991, 177 to 180.
Page 24
