Faculty of Business Management GSEC 2006 STRATEGIC ORIENTATION OF SMALL AND MEDIUM AGRO-BASED ENTERPRISES (SMAEs) IN MALAYSIA: DIRECT AND MEDIATION EFFECT OF DISTINCTIVE CAPABILITIES ON ENTREPRENEURIAL ORIENTATION AND RETURN ON SALES. Amran Awang amranawang@yahoo.com Abdul Rashid Said Asghar Khairul Anwar Subari Faculty of Business Management UiTM Perlis

SMALL AND MEDIUM AGRO-BASED ENTERPRISES (SMAEs) Small and medium agro-based enterprises operates in Malaysia with paid-up capital less than RM2.5 million, number of employees less than 150 and turnover less than RM75 million(SMIDEC, 2004). SMAEs are producers, manufacturers, and/or provide services for agricultural business activities. SMAEs were organized in various legal forms such as proprietorship, partnership, private limited and limited companies.

DISTINCTIVE CAPABILITIES (DC) Uniqueness of the firm’s driven by knowledge and behavioral routines (Prahalad & Hamel, 1990) Alpha Development process (.83) Financial information (.82) Human resources (.78) Capital structure (.69) General administration (.60) Entrepreneurial management (.67) Information technology (.69) Engineering (.64)

ENTREPRENEURIAL ORIENTATION (EO) The Methods, Practices and Decision making Styles Managers Use to Act Entrepreneurially (Lumpkin & Dess, 1996). Alpha Innovativeness (.54) Proactiveness (.72) Risk taking (.71) Autonomy (ns) Competitive aggressiveness (.89)

RETURN ON SALES (ROS) ROS = Average Net Profit/Average Sales Net Profit < RM50,000 92% > RM50,000 8% Average Sales < RM50,000 92% > RM50,000 8%

CONTROL VARIABLES Firm’s age (Older i.e. > 10 years) Business Types (Producers) Business Forms (Private Limited Companies)

SAMPLE AND DISTRIBUTION Small and medium Agro-based Firms (SMAEs) in the state of Kedah, Malaysia Ownership Owner 97.6% Manager 2.4% Firm’s Tenure Older firms 23.2% Younger firms 76.8% Type of Business Manufacturer 64.8% Producers* 24.8% Services 10.4% *Subject to agricultural cycle Business Registration Status Proprietor 91.2% Private Limited 5.6% Partnership 3.2%

ANALYSIS Factor Analysis (Construct Validity) Principal component Varimax Rotation Loading (> .50 for sample of 100) (Hair et al., 1998) Multiple Regression Analysis Two-stage analysis (Direct relationship) Three-stage analysis (Mediating) (Baron & Kenny, 1986)

ASSUMPTIONS FOR REGRESSION ANALYSIS Normality Linearity Homoscedasticity Free from multicollinearity Free from error term Free from outlier

FINDINGS EO ROS DC a Innovativeness b c Financial Information Proposed by Baron and Kenny (1986)

EO directly related to ROS (a) Beta Control (Adj. R2 =.22, F = 12.79**) Older firm .34** Producers .48** Private Limited Company -.13 EO (Adj. R2 = .48, F = 16.18**) Competitive Aggressiveness -.53** Proactiveness .05 Risk Taking -.02 Innovativeness .21** ** p < .01, * p < .05.

EO relationship to DC (b) PD FI HR CS GA EM IT EN Control Older -.11 .26** -.13 .03 -.25** -.14 -.09 .01 Producers -49** .69** -.21 .12 -.40** -.41** -.02 -.10 Private Ltd .16* .19* .28** .25 .16 .17* .15 .08 Adj. R2 .26 .32 .13 .03 .17 .19 .01 -.00 F 15.68** 20.25** 7.05* 2.40 9.43** 10.61** 1.23 .87 EO Com. Agg. .01 -.35** .07 -.12 .40** .34** .32** .11 Proactive .24** -.11 -.21** -.19 .10 -.05 -.14 .46** Risk taking .43** -.01 .45** .21* .12 .34** .09 -.15 Innovative .22** .24** .26** .42** .08 .10 .20* .13 Adj. R2 .57 .48 .42 .32 .26 .33 .08 .22 F 22.28** 10.02** 16.38** 13.35** 4.64** 7.21** 3.55** 9.40** ** p < .01, * p < .05.

DC and ROS Relationship (c) Beta Control (Adj. R2 =.22, F = 12.79**) Older firm .34** Producers .48** Private LTD -.13 EO (Adj. R2 = .43, F = 6.47**) Process development .08 Financial information .55** Human resources .08 Capital structure .02 General administration -.13 Entrepreneurship management -.19* Information technology -.13 Engineering -.08 ** p < .01, * p < .05.

Financial Information mediates innovativeness-ROS Relationship (abc) Beta Control (Adj. R2 =.22, F = 12.79**) Older firm .34** Producers .48** Private LTD -.13 EO (Adj. R2 = .48, F = 16.18**) Comp. Aggressiveness -.53** Proactiveness .05 Risk Taking -.02 Innovativeness .21** DC (Adj. R2 = .52, F = 10.15**) Financial Information .28** ** p < .01, * p < .05.

IMPLICATIONS EO and DC dimensions vary to each other Older firms and producers affect ROS EO predicts 5 DC components positively Innovativeness predicts higher ROS Financial information predicts higher ROS Financial information mediates innovativeness ROS relationship.

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