ASEAN AUTOMOTIVE SUPPLY CHAIN MANAGEMENT (S CM...

The 11th International DSI and the 16th APDSI Joint Meeting, Taipei, Taiwan, July 12 – 16, 2011.

ASEAN AUTOMOTIVE SUPPLY CHAIN MANAGEMENT (SCM):ENTREPRENEURIAL SCM COMPETENCE AND PERFORMANCE

Tritos Laosirihongthong, Thammasat University, Thailand, [email protected] Hsu, University of Nevada Las Vegas, USA, [email protected]

Keah Choon Tan, University of Nevada, USA, [email protected]. Keong Leong, University of Nevada Las Vegas, USA, [email protected]

ABSTRACT

The purpose of this study is to discover thedimensions of a new construct called theentrepreneurial supply chain managementcompetence. We measured entrepreneurial SCMcompetence in terms of five first-order constructs:innovation orientation, proactiveness orientation,risk-taking characteristics, relational capital, andcoordination capability. We further proposed thatthis competence affects SMEs’ performancedirectly and indirectly via the firm’s SCMstrategies. A set of survey data collected fromautomotive OEM suppliers in five ASEANcountries was used to test the research model.Results show that the five constructs areimportant dimensions of entrepreneurial SCMcompetence, and that it affects performanceindirectly. Our findings provide valuable insightsabout the enablers of an SME’s SCM practicesand their effects on firm performance.

Keywords: Entrepreneurship, supply chainmanagement, competence, performance.

INTRODUCTION

In this immensely competitive globalenvironment, many firms resort to supply chainmanagement (SCM) as a core strategiccompetence to gain competitive edge. Thephilosophy behind SCM stresses the seamlessintegration of value-creating activities acrossorganizational boundaries to bring products andservices to market. Although SCM exists in manydifferent forms, depending on the levels ofintegration, individual performance, andindustries, its key objective invariably is to createan inter-organizational, boundary-spanningstrategy that enables both buyers and suppliers tointegrate their activities to eliminate waste.

Despite the positive influences of SCM on firmperformance though, research has shown thatorganizations that participate in the supply chainin the same market segment can experiencedramatically different performance levels [1].Unfortunately, there is a lack of research toexplore the linkage between SCM competenceand performance, especially among small andmedium-sized enterprises (SMEs). Hence, thefundamental question pertains to the intangible

resources that firms can employ to engagesuccessfully in a supply chain. This question hasmotivated many influential theories on thegenesis of SCM behavior, including theresource-based view, transaction cost economies,and social exchange theory.

These theories focus primarily on largemanufacturing firms; no theory pertains to theSCM behavior of SMEs. This trend isunderstandable, because for much of the 20th

century, large manufacturing firms occupied thedominant share of the world economy. However,by the early 1990s, SMEs accounted for morethan half of the domestic economic activity inmost developed nations. For example, in the U.S.manufacturing sector in 2000, SMEs accountedfor 98 percent of all manufacturers and employedtwo-thirds of the workforce [2]. The share ofmanufacturing SMEs continues to increase asthey continue to create more jobs and generatefaster growth rates than large manufacturers.

Despite the growing salience of SMEs, littleresearch looks into the intangible resources thatthese firms deploy to thrive, especially withrespect to supply chains. SMEs are not simplysmaller versions of large firms [3]. Since theylack the size and diverse resources that largefirms possess, especially in the capital- andtechnology-intensive industries, SMEs lack theadvantage of massive resources when theyengage in a supply chain [4]. Instead, they areconstrained by their limited resources, lack ofbrand recognition, and imperfect management.These characteristics constitute significantbarriers and influence the behavior of SMEsbecause a minute mistake can cause a small firmto collapse [5]. Hence, SMEs that intend toengage in SCM must rely on unique advantages,probably distinctly diverse from those discoveredin research of large firms, to overcome their size-and resource-related disadvantages [6].

This study attempts to contribute to the SCM andentrepreneurship literature by exploring this gap.First, we examine the role of a specificentrepreneurial SCM competence, which wedefine as the inimitable SCM capability forrecognizing and pursuing business opportunitiesthat engender success and growth. Businesscompetences have become central researchthemes for organizational strategy and


performance literature, but little empiricalresearch aims to uncover the bundles of SCMcompetences that may characterize the innovativeprocesses underlying entrepreneurial successamong the countless firms in a supply chain.Current knowledge in this area is fragmented andincomplete, and the benefits for firms that arecompetent in the supply chain, or what it takes toachieve this competence, is not yet clear.

Second, to extend the knowledge in this area, wefirst seek to establish whether a parallel existsbetween literature in entrepreneurship and SCM.Several key tenets from entrepreneurial literatureare representative of more nascent attributes ofsupply managers. Table 1 illustrates the specificcapabilities are applicable to SCM andentrepreneurship from the different theoreticalperspectives of transaction cost economics,resource-based view, and social capital theory.We therefore begin with an overview ofentrepreneurship literature and interviewpractitioners to describe specific attributes ofentrepreneurs that align with features of supplymanagers. We also conceptualize a new construct,entrepreneurial SCM competence, whichincorporates key firm characteristics and factorsthat collectively should enhance firmperformance. To study the impact ofentrepreneurial SCM competence on firmperformance, we conduct a series of interviewsand identify specific factors that reflectentrepreneurial SCM competence in SMEs. Third,based on our findings from the literature reviewand interview with practitioners, we develop aresearch model to analyze the direct and indirectintervening effects of entrepreneurial SCMcompetences on SCM strategies and firmperformance. Thus, we attempt to contribute tothe SCM and entrepreneurship literature bylinking an antecedent and mediator in a cohesivemanner to SMEs’ performance.

In the following section, we provide a rationalefor the emergence of entrepreneurship in SCM.We then summarize relevant literature andconceptualize the concept of an entrepreneurialSCM competence based on our proposedtheoretical model. Next, we develop a set ofhypotheses to assess the validity of our study,explain our research method, and test thehypotheses by means of a survey-based study.Finally, we report our findings, and conclude thestudy with several managerial implications andsuggestions for future study.

THEORETICAL BACKGROUND

What drives firms to engage in supply chain

management initiatives? Marketing andoperations management researchers disagree onthe rationale for the dynamics of supply chainactivities [7]. Moreover, there is no singletheoretical framework that can clarify theantecedents of SCM strategies [1]. We use theresource-based view (RBV) to identify a set offactors that might encourage firms to conductbusiness in a supply chain. In particular, the RBVassumes that gaining and preserving a sustainablecompetitive edge is a function of the firm’s coreresources and capabilities. These resources andcapabilities are the key source of a firm’s success,and heterogeneity in organizational resourcesleads to varied competitive advantages andperformance [8]. The RBV also explains howorganizational competences, and thus capabilities,may develop and leverage within enterprisingfirms [9].

Because of the differences between SMEs andlarge firms, especially in terms of their tangibleresources, we argue that business competencesinternal to the manufacturing SME are distinctiveand specific for achieving supply chain success.As trade barriers fell rapidly over the last decade,global supply chain and logistics capabilitiesadvanced rapidly. At the same time, thecomplexity and uncertainty of the global marketenvironment created greater supply chain risk,such as the risks associated with perceptions,cultural differences, organizational learning,e-business, information security, supplieropportunism, and dependence [10].

The uncertain returns on supply chain-relatedbusiness activities imply an entrepreneurial firmin a supply chain is willing to bear someuncertainty [11] [12] [13]. A thriving SMEoperating in a complex supply chain must possesssome form of unique entrepreneurial SCMcompetence to compete against large,multinational organizations. ManufacturingSMEs may exhibit specific entrepreneurialresources, in the form of orientations andcompetences that are helpful for implementingeffective supply chain management. Aligningentrepreneurial and SCM practices is crucial toachieving positive corporate outcomes. Corporateentrepreneurial activities might also complementSCM practices.

Entrepreneurship refers to a process ofopportunity recognition and pursuit that leads togrowth, including opportunistic activities thatcreate value and bear risk, which means it isfirmly associated with innovation [14]. However,entrepreneurship research is not restricted to

Table 1Alignment between Supply Chain Management and Entrepreneurship RolesTransaction Cost Economics Resource-Based View Social Capital Theory


Supply Chain M

anagement

Literature

Firms engaging in SC are driven by the objectiveof profit maximization and cost efficiencies [15].Relationships between buyers and suppliers lowertransaction costs and facilitate investments inrelation-specific assets [16].If a supplier can produce at lower cost than thebuyer and the differential is greater than the sumof transaction related costs, engagement in SC ispreferred [17].Transaction costs depend on the ability of thesupplier to meet buyer expectations [18].If there is a mutually beneficial interests betweenbuyer and suppliers, opportunism will no longerbe a concern for the buyer even when highlyspecific assets are involved [19].

SC member has developed its internal operationscapabilities and infrastructure, it is in a position toleverage relationships within the SC [22].Collaborative, inter-firm development of SCcapabilities affects performance [23].SCM capabilities, like just-in-time delivery andquality control, contribute to superior inventoryperformance in SC [24].A firm’s SC resources enable it to conceive andimplement SC strategies, thereby improving itseffectiveness and performance [25].Firms that want to offer goods and services at lowercost and higher quality must integrate andcoordinate their operations capabilities withmultiple supply chain members across a vast,complex set of tasks [26].

Buyer–supplier relationships also play a crucial rolein reducing uncertainties in the business exchangeprocess [32].Buyer–supplier relationship research providesextensive evidence of the positive effect of theserelationships on SC practices [33].In a SC, through formal and informalcommunication channels, social networks mayfacilitate information sharing, which helps matchbuyers and sellers or other business partners [34].Sharing information about labor and material costs,suppliers, distributors, and other market conditionscould reveal the profitability of an investmentproject, which is crucial for SC decisions [35].Social capital is important in developing acooperative strategy and thus aninter-organizational competitive advantage [36].

Entrepreneurship

Literature

Entrepreneurial firm can be explained as a hybridform of economic organization combiningselective advantages of market and hierarchy [20].The entrepreneur has cognition and acts withintarget areas to reduce transaction costs whilemaximizing profits, but staying in line withvisions for success [21].

Entrepreneurial resources shape the environment byintroducing new products, technologies, andadministrative techniques into the firm. Seizing newopportunities in the environment and takingpreemptive action in response to perceivedopportunity [27] [28].Entrepreneur’s ability to exploit opportunities fornew ideas and processes is shown to havesignificant impacts on performance [29] [30] [31].

Access to a social network enables an understandingof the entrepreneurial landscape and identificationof resources and information [37] [38].Entrepreneurial abilities to initiate, maintain, andutilize relationships with various external socialpartners comprise coordination, relational skills,market knowledge, and internal communication[39].Entrepreneur’s social ability to develop and useinter-firm relationships, measured by task executionand qualifications, determines firm’s success [40].

small start-up firms but is also applicable tocorporate ventures by established firms [41]. Anentrepreneurial firm thus engages inproduct-market innovations, undertakessomewhat risky ventures, and initiates proactiveinnovations to gain competitive edge [42].Similarly, the well-studied concept of corporateentrepreneurship refers to the development ofnew business ideas and opportunities withincorporations [27]. This broad definitionencompasses at least four schools of thought,each with its own assumptions and objectives:corporate venturing, intrapreneurship,entrepreneurial transformation, and “bringing themarket inside.”

Corporate venturing pertains to theorganizational arrangements that new venturesneed and the processes associated with aligningthem with the firm’s existing activities [43].Intrapreneurship examines the often subversivetactics these corporate entrepreneurs adopt, aswell as the actions executives take to make theirlives easier or harder. It also considers thepersonalities and styles of individuals who makegood corporate entrepreneurs [44].Entrepreneurial transformation assumes that

firms can and should adapt to an ever-changingenvironment and suggests that such adaptationwould best be achieved by manipulating thefirm’s culture and organization systems in a moreentrepreneurial manner [45]. Finally, bringingthe market inside focuses on structural changes toencourage entrepreneurial behavior, using themetaphor of the marketplace to suggest howfirms should manage their resource allocations. Itproposes the greater use of these markettechniques as spin-offs and corporate venturecapital operations.

Entrepreneurial SCM competences providesubstantial advantages that facilitate SCMactivities. As resources, they lead to superiorperformance, particularly in highly competitiveor challenging environments. The most useful

competences are those that are rare, valuable andinimitable because they are key determinant ofsuperior organizational performance [46]. TheRBV identifies inimitability and immobility asthe other characteristics that support sustainablecompetitive edge, and intangible resources areimportant for gaining competitive edge ininternational settings [47]. As a bundle ofbusiness culture and processes, entrepreneurialSCM competence should provide a source ofcompetitive edge because it is difficult forcompetitors to replicate. It is embedded inorganizational processes and thus difficult foroutsiders to observe [48]. Furthermore,entrepreneurial SCM competence is less likely tobe perfectly mobile across organizations. Itdevelops over time within the firm and is noteasily transferred. Consistent with the RBV, weexpect entrepreneurial SCM competence to offerthe firm a key source of sustainable competitiveedge. For resource-constrained manufacturingSMEs, entrepreneurial SCM competence isparticularly important because it allows them tocompete successful against large corporations.

HYPOTHESES DEVELOPMENT

Recognizing Entrepreneurial SCMCompetence

We used a two-phase research design to conductthis study. In the first phase, we utilized anexploratory research approach in which wereviewed the relevant literature and interviewedseveral SME executives to learn their SCMstrategies and to uncover key SCM constructs. Inthe second phase, we surveyed a large sample ofautomotive original equipment manufacturer(OEM) suppliers from five Association ofSoutheast Asia Nations (ASEAN) countries.

Manufacturing SMEs rarely fit the traditionalprofile of big, well-established firms withsubstantial financial and tangible resources.Rather, SMEs possess far fewer tangible assets,


such as plants, property, and equipment, and lackfinancial and human resources. The control ofvast resources favors large manufacturing firmsto compete effectively in the supply chain.However, this implies that the complexities ofsupply chain operations are especiallychallenging for SMEs [49]. For SMEs, competingin the supply chain is an innovative act thatrequires them to possess processes that are uniqueand inimitable by the better resourced large firms.

The interviews with SME executives revealedseveral types of competences that appear criticalto the performance of firms in a supply chain.Most of the interviewees mentioned the value ofan entrepreneurial orientation, particularlyduring the expansion phase of their business.They also highlighted the importance ofdeveloping good relationships with bothcustomers and suppliers in the supply chain. Theyfurther stressed that success required substantialcoordination capability to pursue informationalignment with supply chain members. Finally,these managers emphasized the significance ofawareness to customers and markets, asfacilitated by efforts to understand the customersand respond to their particular needs.

An inclusive review of the interviews indicates

that the most important organizational attributescan be grouped into five categories: innovationorientation, risk-taking characteristics,proactiveness orientation, relational capital skill,and coordination capability. Our literature reviewsupports that these attributes are vital to theperformance of entrepreneurial firms. Hence, wedefine entrepreneurial SCM competence as theinimitable SCM capability for recognizing andpursuing business opportunities that engendersuccess and growth. In theory, it is a second-orderconstruct that is measured by five first-orderfactors, as we summarized in Figure 1.

The five factors do not “cause” competitiveadvantage; rather, they collectively reveal thelatent, intangible construct of entrepreneurialSCM competence. Other indicators are plausible,but we focus on the five factors that emergedfrom our interviews, and to some extentsupported by our literature review. In developingour hypotheses, we further examined the extantliterature to uncover potential antecedents ofperformance for SMEs participating in supplychain activities [11]. While the factors arerelevant to any supply chain member, ourexploratory investigation suggests that they areparticularly important to the operations ofmanufacturing SMEs because they are generally

EntrepreneurialSCM Competence

InnovationOrientation

Risk-TakingCharacteristics

ProactivenessOrientation

RelationalCapital

CoordinationCapability

SCM StrategiesFirm

Performance

H3

H2H1

Figure 1: Conceptual Framework

rare, valuable, inimitable, and are capable ofcreating superior performance.

Conceptualizing Entrepreneurial SCMCompetence

We conceptualize entrepreneurial SCMcompetence as a multidimensional concept thatreflects the extent to which firms adopt a bundleof SCM competences to compete in a supplychain. The concept also implies that the SMEpossesses intangible capabilities and processesthat account for its SCM success, which

eventually leads to superior performance. Thecompetences span multiple dimensions, includinglearning about supply chain environments andadapting the organization to new supply chainchannels through interactions with customers andsuppliers.

Innovation Orientation: In the interviews, most ofthe SME managers mentioned the importance ofan aggressive innovative approach. Firms with astrong innovative orientation tend to possessdistinctive competences and outlooks [50], andare characterized by a managerial vision and


innovative organizational culture that aims atachieving the firm’s goals through a supply chain[29]. These SME managers revealed that aninnovation orientation implies active explorationof new businesses through the supply chain.Firms with limited tangible resources that want topursue SCM strategies may need a stronginnovative posture to take the initiative to pursuenew opportunities in complex and risky markets.An innovation orientation also should give rise toprocesses, practices, and decision-makingactivities associated with supply chain activitiesand thus may contribute to firm performance [7].

Risk-Taking Characteristics: The critical role ofrisk-taking characteristics appears in virtually allSME literature. Risk-taking activities engendersuperior organizational performance forentrepreneurial firms. Firms in complex supplychains require seamless coordinated flows ofgoods, services, information, and cash; or else,they face significant supply risk [51]. Manuj andMentzer [52] identify eight types of SCM risk:supply, operational, demand, security, macro,policy, competitive, and resource. ManufacturingSMEs with risk-taking entrepreneurialcharacteristics are likely to seekprofit-maximizing strategies in which theyleverage SCM. Risk-taking or venturing behavioralso may result when firms engage in new supplychains or provide new products and services tosupply chain members.

Proactiveness Orientation: Most SMEs in ourinterviews are highly proactive with respect totheir industry, product category, and how theycompete in the supply chain. We define aproactiveness orientation as the firms’ tendencyto originate proactive innovations that beatcompetitors to the punch [27]. Proactivenessentails a firm’s ability to integrate supply chaininformation and shape its environment byintroducing new products, technologies, andadministrative techniques [53]. This approachalso involves seizing new opportunities in theenvironment and taking preemptive action inresponse to opportunities. A proactive firm seizesand exploits new opportunities [28]. Proactivebehavior occurs when boundary spanners offertransparency to decision makers, whichinfluences entrepreneurial and learning actionswithin the supply chain [54]. Thus, aproactiveness orientation drives entrepreneurialSCM competence.

Relational Capital Skill: In our interviews, SMEexecutives frequently highlighted the importanceof being socially connected to customer andsuppliers, which the literature refers to asrelational capital skill [55]. In this context, socialnetworking activity is a strategy for augmentingtheir self-interests through mutual relationships.The benefit of information flows in such

activities has been widely emphasized [56]. InSCM terms, a relational capital skill symbolizesan ability to connect with supply chain memberswho control necessary inputs, especially thosewhom the entrepreneurs know well enough topredict their behavior [57]. Through formal andinformal communication channels, relationalcapital skill aids information sharing amongsupply chain members [58]. Moreover, relationalactivities in a supply chain, such as interactionswith buyers and suppliers, facilitate the provisionof firm-specific products and services, whichmay include creating awareness of the product,demonstrating its attributes, or modifying it tomeet unique requirements. To accomplish thisprovision, manufacturing SMEs could engage inrelationships with supply chain partners thatleverage the core competencies of the individualpartners and thereby better manage uncertainty inexchange processes [59]. In a supply chain,relational capital skill represents not only how afirm interfaces with a particular partner but alsohow it connects with firms throughout the supplychain; hence, it should enhance manufacturingSMEs’ SCM competence.

Coordination Capability: Prior literatureexamined information sharing as an enabler ofcoordination capability within the supply chain[60]. Sharing information about labor andmaterial costs, suppliers, distributors, and othermarket conditions is vital for manufacturingSMEs because it reveals the profitability of othersupply chain members [61]. This competencerefers to the capability to integrate key businessprocesses among supply chain members toprovide the correct products, services, andinformation [62]. A relationship also may arisebetween the use of coordination capability andthe richness of shared information. Coordinationcapability among supply chain members has apositive and direct effect on both internal andexternal collaboration, and information sharing isa key dimension of collaboration. Coordinationcapability relates positively to systemsintegration, or the ability to use informationsharing for collaborative purposes. Furthermore,information sharing between supply chainpartners should be collaborative and enablepartners to achieve the benefits of coordinationcapability [63]. Coordination capabilitysimplifies manufacturing processes to increasecost efficiency, increases employees’ productivity,reduces variation, and eliminates waste. Thepossession of coordination capability signals topartner firms that information sharing can driverelationship development; hence, coordinationcapability is a factor that supports entrepreneurialSCM competence.

Entrepreneurial SCM Competence and SCMStrategies


As indicated in Figure 1, we postulate thatentrepreneurial SCM competence reflects anSME’s capabilities to employ SCM effectivelyand it positive affects SCM strategies. An SME’spool of competences dictates its strategies to fitthe industry or market environment [64]. Besides,the relationship between entrepreneurship andstrategic management has been verified [65]; thus,for resource-constrained manufacturing SMEs,entrepreneurial SCM competence is acutelyimportant to the extent that they allow the firm toleverage its competency in the supply chain todevelop quality- and efficiency-orientedstrategies. Manufacturing SMEs attempt toachieve superior products that meet thepreferences of industrial buyers well and reachbuyers effectively and efficiency through SCM[6]. However, the competitive global marketsuggests that buyers are now better organized andmore demanding. The extent of entrepreneurialSCM competence implementation differs by firm,though firms that are more advanced in theircompetence should use their resources moreefficiently and effectively to achieve greaterbenefits. Hence, we hypothesize,

H1: Entrepreneurial SCM competence positivelyaffects the SMEs’ SCM strategies.

SCM Strategies and Firm Performance

The ability of firms to succeed in competitivemarkets is largely a function of their internalcapabilities and competences [47] [48].Evolutionary economics theory elaborates on thesuperior ability of firms to develop particularorganizational capabilities, which consist ofcritical competencies. Within a supply chain,SMEs attempt to offer products with value thatbuyers perceive as exceeding the value ofalternative offerings. The urge to provide superiorbuyer value drives manufacturing SMEs to createand maintain a business culture that fosters therequisite business behaviors. Althoughoperational practices typically emerge from theintegration of unique knowledge of the firm [66],SCM strategies also reflect the quality- andefficiency-focused business activities in which afirm has become skilled [67]. Therefore,entrepreneurial SMEs are able to performproductive tasks repeatedly to create value intheir SCM strategies [46], and in turn, the SCMstrategies become the main source of the firm’sperformance advantage [7]. Hence, wehypothesize,

H2: SCM strategies positively affect SMEs’performance.

Entrepreneurial SCM Competence and FirmPerformance

The RBV assumes that gaining and preserving a

sustainable competitive advantage is a function ofthe resources that the firm brings to thecompetition and these resources provide theprimary source of a firm’s success [48]. Researchefforts have examined the relationship betweenresources and better-than-normal performance,stemming from the assertion that theheterogeneity of resources leads to variablecompetence and performance level [68]. Firmswith valuable, inimitable, and non-substitutableresources generally excel in the market-place.Thus, competence and durable performancedifference can be accounted for by asymmetricresource endowments across firms withdifferential competence [69]. Firms with anentrepreneurial advantage enjoy monopolisticedge to create resource position barriers [9]. Thepositive influence of entrepreneurship on firmmarket performance also has been empiricallystudied [57]. As product life cycles shrink rapidlyin the modern supply chain environment, firmsmust rely on proprietary technology to bring highquality products to market quickly and efficientlyahead of the competition. To recap these ideas,we assert that entrepreneurial SCM competence,as evinced by innovation orientation, risk-takingcharacteristics, proactiveness orientation,relational capital skill, and coordinationcapability, positively affects manufacturingSMEs’ performance. Our literature review alsosuggests that the competency is especially salientfor the performance of the manufacturing SMEs.Thus, we hypothesize,

H3: Entrepreneurial SCM competencepositively affects SMEs’ performance.

METHODOLOGY

Questionnaire and Data Collection

To test the proposed model, we designatedmanufacturing SMEs as our sampling frame.Prior to conducting the survey, we firstinterviewed managers who had experience withSCM. We interviewed six experts (fourpractitioners, two academics) to exploreemergent phenomena and derive appropriateconstructs and explanations, even as weuncovered key constructs and associatedrelationships. Conducting these interviews as aprelude to our survey-based research providesgrounded and qualitative evidence about thevalidity of the key variables. We then undertookan exploratory study, beginning with an extensiveliterature review in which we locatedmeasurement scales and information for eachconstruct. Insights and input from the interviewsguided the survey instrument development. Theresulting questionnaire used five-point Likertscales, and was administered according towell-established procedures. A group of business


scholars reviewed the resulting questionnaire forface validity.

We collected data from automotive OEMsuppliers in five ASEAN countries: Indonesia,Malaysia, the Philippines, Vietnam, and Thailand.We focused on this region in an attempt to expandexisting literature, which largely has beenconfined to firms in the Western hemisphere. Weconducted a series of one-day workshops in eachASEAN country, to which we invitedrepresentatives (i.e., production, purchasing, andquality assurance managers) from the tiersuppliers of automobile SME manufacturers. Theinvitation, which came from the ASEANSecretariat, informed participants about the“Proposed ASEAN Policy Blueprint for SMEDevelopment 2004–2014” and suggestedmethods ASEAN automotive manufacturersmight use to enhance organizational capabilities.Participants also received self-assessmentworksheets, which 165 of them completed andreturned after the workshop. Response rates are67.06%, 37.50%, 74.00%, 42.86%, and 32.00%in Vietnam, Thailand, the Philippines, Malaysia,and Indonesia, respectively. Most respondents(62.27%) worked for tier-1 suppliers, and almosthalf were employed by joint ventures or foreigndirect invested firms. Majority of therespondents’ firms had some form of qualitymanagement system certification andimplemented formal total quality management orsimilar continuous improvement programs.

Measures

To increase scale validity, we used multipleindicators to represent the unobservableconstructs and employed existing scaleswhenever possible. The innovativenessorientation construct consists of six items thatreflect the quality of the new product, incomparison with products developed in the focalcompany in the previous three years, competitors'products, and other products developed by thefirm [70]. Five items measure Risk-takingcharacteristics by asking respondents to indicatethe extent to which their company’s attitudestoward uncertainty and risk [71]. To measureproactiveness orientation, we use five items thatrefer to the extent to which the company practicescertain strategies to position itself in the market[72]. The seven items that measure relationalcapital show the extent to which the firmmaintains relationships with its customers andsuppliers [58] [73] [74]. For coordinationcapability, we use nine items that ask respondentsto rate their firm’s practices on communicationand information exchange with customers andsuppliers [75] [76]. SCM strategies use nine itemsadapted from Hsu et al. [1], and the performanceconstruct consists of four items commonly usedin operations management literature (Table 2).

Statistical Analysis

To achieve a high degree of validity, we usedmultiple indicators to measure each latentconstruct. To assess the quality of the measures,we evaluated the psychometric properties of thesurvey instrument with confirmatory factoranalysis (CFA) using LISREL 8.72; we providethe measurement scales in Table 2. In Table 3, weshow the zero-order correlation matrix for theseven latent variables and provide a briefoverview of their interrelationships. Thecorrelation matrix shows that all correlations arestatistically significant at α = .05 and exhibit theexpected positive relationships, in preliminarysupport for the relationships in Figure 1.

We verify the seven measurement models inTable 2 by examining all variables for normalityusing third- and fourth-order moments andreduced the skewness of the data. The LISREL8.72 program also provides maximum likelihoodestimates, with the covariance matrix as input. AsTable 2 shows, the Cronbach’s α statistics for theconstructs range from .855 for coordinationcapability to .894 for proactiveness orientation,which suggests that the scales are sufficientlyreliable. Critics of Cronbach’s α argue that it is asimple measure of reliability based on internalconsistency, but it fails to adequately estimateerrors caused by the factors external to aninstrument, such as differences in testingsituations or respondents over time. For structuralequation modeling, composite reliability (CR)and average variance extracted (AVE) are viablealternatives, because they are more parsimoniousthan Cronbach’s α [77]. Thus, in Table 2, we alsoprovide the CR values, which range from .8995to .9472, in excess of the recommended thresholdvalue of .60. The AVE values range from .5377to .8117, which exceed the recommendedthreshold level of .50. These three statistics incombination suggest that all the constructs aresufficiently reliable.

Next, we assessed the unidimensionality of eachconstruct. We tested the measurement models forconvergent validity (i.e., degree of associationbetween measures of a construct), discriminantvalidity (i.e., degree to which measures ofconstructs are distinct), and nomological validity(i.e., validity of the entire model). In the CFA,each measure loads significantly on the expectedconstructs, which demonstrates convergentvalidity [77]. In Table 2, the seven constructsexhibit excellent convergent validity becausetheir AVE is greater than .50. The test fordiscriminant validity examines the correlationbetween each pair of latent variables [78]. If thetwo latent variables are distinct, their correlationshould be one-dimensional. In Table 3, allcoefficients are significant and most are less than


0.5; thus, discriminant validity can be assumed.Nomological validity is assessed by the model fitindices. The analysis reveals that themeasurement models are more than acceptablefor reproducing the population covariancematrices. These results suggest an adequate levelof construct validity.

Subsequently, we assessed the validity ofentrepreneurial SCM competence as asecond-order construct. In Table 4,innovativeness orientation (standardized loading[γ] = .55, t = 7.68), risk-taking characteristics (γ= .71, t = 10.63), proactiveness orientation (γ= .67, t = 9.73), relational capital skill (γ = .82, t =11.09), and coordination capability (γ = .52, t =7.25) are all significant factors (p < .01) of thesecond-order construct; thus, suggesting a goodlevel of convergent validity for entrepreneurialSCM competence. Furthermore, the CR of .8872and AVE of .6178 indicate that entrepreneurialSCM competence as a second-order constructattains good construct validity. We proceed toestimate our theoretical structural equation model,with entrepreneurial SCM competence as asecond-order construct and SCM strategies as a

mediator.

In the theoretical model, we also tested the directand indirect impacts of entrepreneurial SCMcompetence and the direct impact of SCMstrategies on performance. In Table 5, we reportthe LISREL results, which show an excellent fitof the model to the data. Again, the first-orderfactors, innovation orientation (γ = .60, t = 8.54),risk-taking characteristics (γ = .71, t = 10.70),proactiveness orientation (γ = .67, t = 9.73), socialcapital (γ = .81, t = 11.07), and coordinationcapability (γ = .53, t = 7.33) all loadedsignificantly on entrepreneurial SCMcompetence (p < .01). With regard to the modelparameter estimates, the results reveal thatentrepreneurial SCM competence affects SCMstrategies positively, with a coefficient of β = .46(t = 7.98). These findings support H1. Also, SCMstrategies positively and significantly affectperformance, with β = .71 (t = 5.25), in support ofH2. However, the impact of entrepreneurial SCMcompetence on performance is not staticallysignificant at α = 5%; hence, H3 is not supported.

Table 2 Measurement Scale

Construct and Items Standardized Loadings (λ)

(A) Innovativeness Orientation (Cronbach’s α = .878, CR = .8995, AVE = .6041)

1. The level of innovative and leading edge research & development pursues in your firm. 0.562. The level of novelty of the new products. 0.723. The use of the latest technological innovations in new product development. 0.664. The speed of new product development. 0.775. The number of new products the firm has introduced. 0.936. The number of new products that are first to market (early market entrants). 0.79

χ2 /df = 1.481, RMSEA = .054, NNFI = .99, AGFI = .94

(B) Risk-Taking Characteristics (Cronbach’s α = .881, CR = .9219, AVE = .7034)

1. Senior executives share similar beliefs about the future direction of this organization. 0.682. Senior managers actively encourage change and implement a culture of improvement, learning, and innovation in moving toward excellence. 0.813. Employees have the opportunity to share in and are encouraged to help the organization implement change. 0.794. There is a high degree of unity of purpose throughout the company, without barriers between individuals and/or departments. 0.805. There is a comprehensive and structured planning process which regularly sets and reviews short and long-term goals. 0.74


(C) Proactiveness Orientation (Cronbach’s α = .894, CR = .9079, AVE = .6646)

1. Our company always stays on the leading edge of new technology in our industry. 0.732. We anticipate the full potential of new practices and technologies. 0.813. We proactively pursue long-range programs to acquire technological capabilities. 0.904. We constantly explore and attempt to acquire next generation technology. 0.805. Our research and development pursues truly innovative and leading edge research. 0.69

χ2 /df = 0.773, RMSEA = .000, NNFI = 1.00, AGFI = .97

(D) Relational Capital (Cronbach’s α = .874, CR = .9032, AVE = .5748)

1. We actively and regularly seek customer inputs to identify their needs and expectations. 0.662. Customer needs and expectations are effectively disseminated and understood throughout the workforce. 0.723. We always maintain a close relationship with our customers and provide them an easy channel for communicating with us. 0.754. We have an effective process for resolving customers' complaints. 0.715. We strive to establish long-term relationships with suppliers. 0.816. We use a supplier rating system to select our suppliers and monitor their performance. 0.707. Suppliers are actively involved in our new product, component, module, and system development process. 0.60


(E) Coordination Capability (Cronbach’s α = .855, CR = .9111, AVE = .5377)1. Establishing more frequent contact with supply chain members. 0.612. Creating compatible information sharing systems with suppliers. 0.643. Locating closer to your customers. 0.474. Requiring suppliers to locate closer to your firm. 0.495. Outsource non-core activities to third-party logistics providers. 0.596. Improving the integration of activities across the supply chain. 0.727. Communicating your firm’s future plan to suppliers and customers. 0.788. Creating cross-organizational supply chain management teams. 0.729. Creating compatible information sharing systems with customers. 0.63

χ2 /df = 1.148, RMSEA = .030, NNFI = 1.00, AGFI = .93

(F) SCM Strategies (Cronbach’s α = .904, CR = .9472, AVE = .6736)1. Performance of your products. 0.542. Conformance of your products to specifications. 0.54


3. Durability of your products. 0.564. Flexibility and responsiveness of your delivery lead time. 0.665. Flexibility and responsiveness of your production lead time. 0.756. Turnovers of your raw materials and component parts. 0.817. Overall inventory turnovers. 0.778. Accuracy of inventory levels. 0.709. Delivery lead time of purchased materials and component parts. 0.80


(G) Performance (Cronbach’s α = .923, CR = .9449, AVE = .8117)1. Sales Growth 0.832. Market Growth. 0.933. Market Share. 0.964. Profitability. 0.80


Note: CR = composite reliability, AVE = average variance extracted

Table 3Correlation of the Constructs

1 2 3 4 5 6 7

1. Innovativeness orientation 1.0002. Risk-Taking characteristics .382* 1.0003. Proactiveness orientation .489* .441* 1.0004. Relational capital .385* .581* .514* 1.0005. Coordination capability .287* .309* .324* .414* 1.0006. SCM strategies .483* .391* .355* .429* .322* 1.0007. Performance .522* .335* .304* .265* .203* .458* 1.000

Mean 3.446 3.941 3.502 3.889 3.352 3.972 3.703Standard Deviation .780 .786 .852 .736 .705 .591 .824

* All correlations are significant at α = 5% (two-tailed, n = 165).

Table 4Second-Order Entrepreneurial SCM Competence Construct

Reliability Measures

Composite Reliability = .8872

Average Variance Extracted = .6178

Second-Order Model Fit Indices

χ2 / degrees of freedom = 1.36

RMSEA = .047

NNFI = .98

CFI = .98





RelationalCapital


0.55*7.68

0.7110.63

0.679.73

0.8211.09

0.527.25

*standardized Loadingt-value

IFI = .98


Table 5Structural Equation Model Results





RelationalCapital


SCM StrategiesFirm

Performance

* Loadingt-value

0.60*8.54

0.7110.70

0.679.73

0.8111.07

0.537.33

0.467.98

0.715.25

0.16 ++

1.87

++ Statistically insignificant at α = 5%H1 and H2 are supported, but H3 is not supported

Structural Equation Model Fit Indices

χ2 / degrees of freedom = 1.39 RMSEA = 0.49 NNFI = .97 CFI = .98 IFI = .98

DISCUSSION

Our findings suggest that organizationalcapabilities of manufacturing SMEs supportsuperior performance. Specifically, our resultsprovide empirical evidence that manufacturingSMEs that possess a high level of entrepreneurialSCM competence perform better in their supplychains. Entrepreneurial SCM competence leadsto superior SME performance through SCMstrategies; that is, entrepreneurial SCMcompetence precedes SCM strategies, and SCMstrategies affect manufacturing SMEs’performance.

The results stress the importance ofentrepreneurial SCM competence, whichprecedes SCM strategies in explainingperformance, and indicate that SCM strategiesshould be viewed as means to achieve superiorperformance. Our findings support the notion thatSCM strategies bridge the gap betweenentrepreneurial SCM competence and superiorfirm performance. The significant relationshipsfrom entrepreneurial SCM competence to SCMstrategies, and then from SCM strategies toperformance show that entrepreneurial SCMcompetence has indirect effects on firmperformance. However, entrepreneurial SCMcompetence does not affect performance directly.This finding is significant in that it may providean answer to the missing link between SMEs’capabilities and performance. SMEs mustimplement appropriate SCM strategies to fullybenefit from exceptional entrepreneurial SCMcompetence because such competence does notaffect performance directly. The results alsosuggest that manufacturing SMEs can enhance

their performance by establishing and skillfullymanaging their entrepreneurial SCM competence.These results in turn offer worthy theoretical andmanagerial implications.

MANAGERIAL IMPLICATIONS

Theoretically, our findings suggest that toflourish in this competitive global market,manufacturing SMEs should develop uniquecompetence that are inimitable to maximize theirutility in the supply chain. The possession ofentrepreneurial SCM competence leads to thedevelopment of crucial organizational capability.Entrepreneurial SCM competence thus reflectssuperior firm resources, leading to superior SCMstrategies undertaken by skilled personnel. As theRBV highlights, a firm's foundational resources,including its key competency, are important indiverse business environments, because theyprovide a stable basis for developing specificcompetency, which is particularly useful to theextent that it is embedded in organizationalculture and produce a unique configuration ofresources.

Our results suggest that a firm's entrepreneurialSCM competence is a multidimensional constructthat taps specific internal competency. Althoughmanufacturing SMEs tend to lack substantialfinancial and tangible resources, those thatsucceed in the competitive global market appearto leverage more fundamental, intangibleresources, which constitute their entrepreneurialSCM competence. Their key intangible resourcesinclude innovation orientation, risk-takingcharacteristics, proactiveness orientation,relational capital skill, and coordinationcapability. Although undoubtedly other


competencies are instrumental to manufacturingSMEs, our findings, based on interviews withpractitioners and an intensive literature review,indicate that these five factors are particularlysalient. As distinctive first-order constructs, theyreveal the level of firms’ entrepreneurial SCMcompetence.

This study reveals that manufacturing SMEs’performance hinges on the development andwell-conceived manipulation of a particular SCMcompetency, which can be broken down to fiveunique capabilities as measured by the fivefirst-order factors. Manufacturing SMEs may berelatively recent entrants into the supply chain.They also tend to lack the large base of financialand tangible resources that characterize largemanufacturing firms. Their entrepreneurial SCMcompetence, as identified herein, helps them toovercome the scarcity of traditional resources andsucceed through the supply chain. The quality ofthe management team in manufacturing SMEsalso likely has particular relevance for firmsurvival. Various competencies possessed bymanagement result from the specificcircumstances, causal relationships, and uniquesocial structure within each SME. Furthermore,entrepreneurial SCM competence may berelatively distinctive because it reflects thespecialized approaches owned by individualmanagers or is embedded within themanufacturing SME. That is, entrepreneurialSCM competence comprises of a collection offirm-specific capabilities that are inimitable bywould-be rival firms.

By exploring entrepreneurial SCM competenceas a second-order construct, we provide managerswith a means to assess their own abilities in theirsupply chain. Managers can examine howmultiple constructs simultaneously form theirfirms’ entrepreneurial SCM competence. Also,the complex structure of entrepreneurial SCMcompetence makes it difficult for competitors toreplicate this comprehensive strength. Wehighlight its components and empirically confirmtheir explanatory value. Managers ofmanufacturing SMEs should devise anappropriate collection of capabilities to supporttheir entrepreneurial SCM competence.

This study provides number of limitation. First,though we identify five distinctive dimensions ofentrepreneurial SCM competence, weacknowledge there are likely other relevantdimensions. Ongoing research should investigatethese potential dimensions, such as theorganizational learning or knowledgemanagement in which SMEs engage afterparticipating in supply chain activities. Second,our model does not consider performance frommultiple perspectives. Third, the antecedents ofentrepreneurial SCM competence have yet to be

explored. Further research should investigateboth internal and external factors of SMEs thatinfluence entrepreneurial SCM competence.

ACKNOWLEDGEMENT

The authors would like to thank Dr. Daniel I.Prajogo, who assisted in drafting an initialversion of the survey instrument. We also want tothank ASEAN Secretariat, the Thailand ResearchFund, and the National Research UniversityProject, Higher Education Commission ofThailand for their financial support of thisresearch project.

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