(PDF) Effect of Entrepreneur and Firm Characteristics on the Business Success of Small and Medium Enterprises (SMEs) in Bangladesh

www.ccsenet.org/ijbm International Journal of Business and Management Vol. 6, No. 3; March 2011 ISSN 1833-3850

www.ccsenet.org/ijbm International Journal of Business and Management Vol. 6, No. 3; March 2011

ISSN 1833-3850 E-ISSN 1833-8119

290

resources for acquiring information about the market and changing the course of the enterprise are more limited.

The response to environmental changes is different in SMEs than in large companies (e.g. Chen & Hambrick

1995). Large firms may even exit from one of its business areas, but this is not usually possible in a

single-business firm. The options for responding are limited by the firms’ resources and strategic choices as well

as by the opportunities offered by the industry and location. Those ways may also differ between the

development stages of the firm. The role and contribution of SMEs differ from industries to industries and from

countries to countries. Similar to other businesses, SMEs also face miscellaneous problems which in some

instances may affect their profitability and growth. In order to cope with the constant rapid changes in business

environment, having a well-versed good business manager is vital to the organization. Given the above scenario,

the relevant and the interesting issue for researcher is to consider, at this stage, would be factors to ensure the

success of the SMEs sector in Bangladesh.

SMEs stimulate private ownership and entrepreneurial skills, are flexible and can adapt quickly to changing

market demand and supply situations, generate employment, help diversify economic activity, and make a

significant contribution to exports and trade. Even in the developed market economies SMEs account for a large

share in output and employment (UNECE, 2003). Bangladesh has thus far failed to maximize the benefits

derived from the SME sector, which promises and needs to play a pivotal role in promoting and sustaining the

industrial as well as overall economic growth (Ahmed M. U., 2003). The failure can be attributed to various

reforms and trade liberalization measures that have squeezed the sphere of Government’s activity in business.

Consequently, the private sector has to lead the economy in a dynamic growth path. Most of the previous studies

dealing with the conditions of successful business have focused on large companies rather than SMEs (i.e.,

Ghosh and Kwan, 1996; Kauranen, 1996 and Pelham, 2000). However, changes in the environment cause more

uncertainty in SMEs than in large companies. Their resources for acquiring information about the market and

changing the course of the enterprise are more limited. The response to environmental changes is different in

SMEs than in large companies. Large firms may even exit from one of its business areas, but this is not usually

possible in a single-business firm. The options for responding are limited by the firms’ resources and strategic

choices as well as by the opportunities offered by the industry and location. Those ways may also differ between

the development stages of the firm. SMEs have long been believed to be important in supporting economics

development within a country (Mazzarol, Volery, Doss, & Thein, 1999). One of the important roles of SMEs in

this context includes poverty alleviation through job creation. Thai SMEs are increasingly seen as creator of new

jobs (Swierczek & Ha, 2003) and Vietnamese SMEs employ 64% of industrial workforce. Therefore findings on

SMEs in Bangladesh will help the policymakers of Bangladesh in particular and will also help other developing

countries in general to formulate strategies to strengthen and stabilize SMEs operations in respective countries.

2. Literature review

The word enterprise has been used in a range of contexts and meanings (Bridge, O’Neill & Cromie 2003).

Salminen (2000) describes an enterprise as a controlled system consisting of a detector, a selector and an effector.

The detector is the function by which a system acquires information about its environment, which is then used as

the basis of the selection of a behavioral response by the selector. Finally, the behavior is executed by the

effector. The measurement system of an enterprise gathers information about the changes in both the

environment and the performance of the enterprise. This information is then used together with the values and

the preferences of the enterprise and its management to produce decisions about the required actions. As a result,

the outputs of the enterprise – the products, the services, the operational performance and the financial

performance – are changed.

Firm performance refers to the firm’s success in the market, which may have different outcomes. Firm

performance is a focal phenomenon in business studies. However, it is also a complex and multidimensional

phenomenon. Performance can be characterized as the firm’s ability to create acceptable outcomes and actions.

Success, in general, relates to the achievement of goals and objectives in whatever sector of human life. In

business life, success is a key term in the field of management, although it is not always explicitly stated.

Success and failure can be interpreted as measures of good or indifferent management. In business studies, the

concept of success is often used to refer to a firm’s financial performance. However, there is no universally

accepted definition of success, and business success has been interpreted in many ways (Foley & Green 1989).

There are at least two important dimensions of success: 1) financial vs. other success; and 2) short- vs. long-term

success. Hence, success can have different forms, e.g. survival, profit; return on investment, sales growth,

number of employed, happiness, reputation, and so on. In other words, success can be seen to have different

meanings by different people. In spite of these differences, people generally seem to have a similar idea of the

phenomenon, i.e. of what kind of business is successful.

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