1. Art and Diseño

Japanese Journal of Administrative Science
Volume 15, No. 2, 2001, 145-156.
mwiimn^msmm 2 -t, 2001, 145-156.
m
Small- and Medium-sized Manufacturing Enterprises in Cambodia:
Effects of Key Managerial Functions on Business Success
Chet CHEALY
(Nagoya University)
This paper primarily focuses on how business outcomes of Small- and
Medium-sized Enterprises (SMEs) in Cambodia is affected by the way by which the
four key managerial functions are practiced, i.e. HRM, finance, marketing, and
production-technology functions. Results from t-test based on the sample of 112
manufacturing SMEs in the Phnom Penh area, Cambodia showed that there were
significant differences between successful and non-successful firms in terms of
practices of the four functions and business performance. Regression analyses
revealed that two key functions (HRM and marketing) had significant and positive
contributions to profit growth.
1 - What are the characteristics of Cambodian
Introduction
SMEs?
Cambodian economy was improperly managed
2 —What are the determinants of business suc
cess in manufacturing SMEs in Cambodia?
and isolated due to the exceeded state control that
followed
after
the
civil
war
for
decades
since
1970s (UNDP, 1987). Consequently, Cambodia now
is one of the poorest countries in the ASEAN region
with GDP per capita of only US$256 in 1999.
Conceptual Analysis and the framework for
the study
To
It is noticeable that the SME concept and theories
alleviate the poverty, Royal Government of Cambo
are built and developed based on experiences of
dia (RGC) has set up a multi-pronged strategy in
industrialized economies where the context is differ
which SME development comes into one of its fore
ent from that of developing economies. It is doubtful
front policies (Royal Government of Cambodia, 1996,
to what extent these concepts and theories are appli
2001).
cable to the developing economies (Cook, 1*996).
Yet, the SME and manufacturing sectors in Cambo
Arguments on differences in the nature of SMEs in
dia as a whole are poorly developed and documented,
the two worlds are observable in
and less has been known about the field.
argument of reasons behind the emergence (or
Lean
two areas: an
literature exists in both forms, availability and the
re-emergence) of SMEs and discussions on manage
quality, therefore, effective and efficient policies has
ment of SMEs.
never been made without sound data and under
Debates on the SME concept
Discussions of reasons behind the emergence of
standing of the field.
Based on the above-mentioned view, it is of great
value to investigate how key managerial functions
critical for development of
SMEs
(Boliko
SMEs point out the segmentation of market, the
advancement of information technology, and protec
and
tion policies by the government. Scitovsky (1978)
Wakabayashi, 1994) would affect their business
asserts that SMEs emerged as a consequence of
outcomes in Cambodia. Hopefully, empirical findings
trends towards differentiation of the market into in
derived from the present study can contribute to the
an increasing numbers of segments. The segmenta
improvement of policies supporting the SME sector
tion leads to multiplication of fashions for various
development in Cambodia. Research questions of the
types of consumers. Higher individual incomes allow
present study state as follows.
a growing number of consumers to satisfy their
-145-
ss?ri»4s*»i5**2^
needs for variety and thus for differentiation. This
where living standards of the people are very low
phenomenon is well-known to marketing specialists.
and most of their income is non-monetary. Taking
The demand that lasts for short run seems to be
the case of Cambodia, about 87% of her arable land is
accentuated by new distribution behavior that is
under rice yielding with providing income little more
forcing distributors to minimize the time between
than the subsistence level (ILO, 2000). With income
orders and sales. Thus SMEs are more likely to adapt
so low across the country, the pattern of demand is
to the growing "specialization" of market and faster
biased towards goods that are affordable by the poor
changes. Along with this, Julien (1998) adds that the
in Cambodia.
emergence of SMEs is a result of the development of
Against the concept of protectionism, there are
new computer technologies that are much better
practical concerns over how to implement such a
suited than before to the competitive requirement for
policy in developing countries. Previous attempts at
small firms, namely in access to information and
protection in some countries in the nome of import
market.
substitution have actually made businesses more
In addition some researchers continue to argue
that emergence of SMEs is a result of protection
isolated and less competitive. The capacity of many
countries' public administration systems for effec
policies taken by governments of some economies.
tively implementing trade protection policies is
For example, ILO (1998) pointed out the continued
questionable. In general, the key problem of advocat
absence of vigorous responses from the business
ing more active government interference rests in its
sector to 'supply-side' improvements in some econo
capacity to deliver well-balanced industrial policies
mies and questioned the ability of neo-classical
in developing economies. Therefore, reforms which
approaches to bring about major economic growth.
help remove or reduce the direct role of government
They, therefore, propose a more pro-active role for
are more likely to be successful than adopting biased
government to assist SMEs. One specific revision to
protection policies. Indeed, the interventionist suc
the standard framework that has been proposed
cesses in East Asian economies can be partly attrib
concerns the infant industry protection to make
uted to the efficacy of their civil service systems
favorable environment for emergence and develop
(ILO, 1998).
A synthesis on SME emergence in developing
ment of SMEs. It is certainly the case to see econo
mies that have achieved the highest growth in the
countries can be made based on results from the
last 30-40 years in Asia have done so with the help of
structural adjustment policy where a
some degree of protectionism for key industries.
environment was created for the private sector. In
Furthermore, in East Asia, the protection offered by
developing countries, SME and informal sectors are
favorable tariff or non-tariff shields provides the
active but indiscernible. A labor market change
favorable
opportunity for major investment, technological
followed after the structural adjustment policy has
advancement and economic growth0.
been the factor of emergence of these sectors.
Contrasting to these concepts, empirical evidence
Pedersen (1998) asserts that the emergence of both
gives different reasons for SMEs emergence in devel
SME and informal sectors is in response to the in
oping countries. Computer advancement may not
crease in the unemployment rate. The case becomes
explain the emergence of SMEs due to the fact that
more obvious in urban and non-agricultural areas
developing countries lag behind this advancement.
where high unemployment and active entrepreneu
And in contrast to Scitovsky's concept of demand for
rial attempts are prevailing simultaneously. Given
products with unique quality and fashion, such
this concept, SME and informal sectors are likely to
demand cannot be available in developing countries
increase in a period of crisis when the formal sector
only slowly grows to absorb labor surplus. A large
1) See argument, for example, in Report of com
part of literature has taken the position to interpret
mittee of donor agencies funded interventions,
the growth of SME and informal sectors after struc
Geneva, Switzerland, 1998.
tural adjustment where deregulatory policies applied
-146-
Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key Managerial Functions on Business Success
by governments of transitional economies to de
financial market not because of barriers (i.e. the
regulate and remove barriers preventing entries of
gaps) but because they wanted to maintain their
new firms and to create a business-friendly environ
control on daily management of the firms. And thus
ment to lure participation of the private sector. Duval
they simply resorted to financial sources with less
and Waterfield (1996) set four pillars to describe
restriction on loans even with higher interest rates.
market-friendly environment that is supportive to
He concluded that SME entrepreneurs prefer internal
SME. They are: 1) a stable macro economy, 2) a
financing to external financing. If external financing
competitive micro economy, 3) global linkage, and 4)
is necessary they prefer the short term less restrictive
investing in people.
one.
In addition to the debates on SME's emergence,
academicians as well as practitioners argue on suc
cessful management of SMEs.
Because, plenty of
existing literature on management of SMEs focuses
On the other hand, some scholars indicate that
management of innovation based on people is the
basis of small business success.
Ogawa (1994)
pointed out that SME management should be slanted
on causes of SME failures, financing seems to be the
toward care for people.
major area of emphasis to explain reasons behind the
and a solid sense of belonging among employees
failure.
provide the foundation for small business prosperity.
Pissarider (1999) asserts that the survey
around small business owners indicated that a lack of
Reliable communications
Boliko and Wakabayashi (1994) developed assump
financing is an obstacle to doing business and com
tions on the critical importance of HRM to sustain
pany growth. A theory of SME financing has been
business success.
built around accessibility to financial market2). It is
that although capital and technology are essential to
a common sense that the limited access is caused by
entrepreneurial success, people the most important
One of their assumptions states
what is called the financial gap. The financial gap
asset for the firm, play a critically important role in
seems to have two main components: 1) knowledge
the achievement of business prosperity. In short, the
gap, and 2) supply gap. The knowledge gap is the
success of SME management is not solely based on
lack of knowledge about different sources of financ
financial, market and technology aspects, but more
ing and their advantages and disadvantages.
importantly on the quality of human resource, a key
The
supply gap means that funds are not available for
player of SME business success.
SMEs, or that even some financing sources are
Given the above argument, the present study
available to SMEs but at a much higher cost than to
adopts an assumption that both financial and non-
large firms.
financial functions for business management deter
In contradiction to the above concept, literature
mine the SME business success. In other words, as
shows that most of SME entrepreneurs, especially
shown in Figure 1, the processes of managing the
those in developing countries, cannot clearly distin
following key four functions, namely HRM, finance,
guish their business assets from personal ones. In the
marketing, and production-technology functions, are
discussion of financial structure, some researchers
assumed to affect business outcomes in significant
refer to the key roles of the owner's personal equity,
ways. It is also assumed that the emergence of SMEs
and the extensive overlap between the personal
is prompted as a consequence of government policy
wealth of the business owner and the resource for the
changes, for example structural adjustment policies
business. This unclear boundary fills the financial
that bring about a removal for entry barriers of new
gaps for the growth of business and makes SME
firms and help reduce production and management
entrepreneurs to avoid outsider's involvement in
costs of firms due to de-regulation. Bearing this
management of their businesses. Calof (1985) con
framework, the following two hypotheses are set to
firmed that SME entrepreneurs did not enter into
be tested in this study. They are:
2) See for detail in Small Business: Critical Per
ing the four key managerial functions (HRM, fi
-HI: Successful SMEs are more active in perform
spectives on the Business Management, 2000
nance, marketing, and technology function) than
147-
IS
«Sff»*4^*15#*2-^
9
Background Variables •
-> Process Management
Firm's
HRM
and
Finance
-^Business Outcomes
Growth in
>*
and
Marketing
Entrepreneur's
Profil
Technology
Backgrounds
Figure 1
Size
p
A Framework for Analyzing SME Business Success
non-successful SMEs.
Measurement
—H 2: Among the four managerial functions, the
i) Managerial Functions: Four managerial functions
HRM function contributes most significantly and
(HRM, finance, marketing, and technology) were
positively to the success of a firm measured in terms
considered in this study, a) HRM items included: (1)
of growth in size and profit.
practices of human resource development in terms of
learning-by-doing practices, on-the-job training, and
Method
training given by the supplier, and (2) the quality of
For the purpose of testing the above hypotheses, a
firm's human resource in terms of creativity, coop
questionnaire survey was carried out in March 2001
eration, and work motivation among employees, b)
with 112 entrepreneurs sampled from manufacturing
Finance functions consisted of a self-evaluation on
SMEs in the Phnom Penh area, Cambodia. Prior to
financial adequacy of the firm by using two question
the questionnaire survey, visits to several govern
items: financial standing and access to the additional
mental and non-governmental organizations were
fund, c) Marketing items included: (1) marketing
made in order to obtain related information for the
strategy in terms of price adjustment, quality adjust
research and survey.
ment, improvement of distribution, market segmen
The organizations included
Department of SME (Ministry of Industry, Mine and
tation, and advertisement, and (2) a marketing
Energy), Department of Technical and Vocational
system in terms of retailing, wholesaling, subcon
Training, Department of Higher Education (Ministry
tracting, and government contract, d) Technology
of Education, Youth and Sports), ILO Cambodia,
items included: (1) technology input in terms of
UNDP (United Nations Development Programme)
condition of machinery, usage of public electricity,
Cambodia, and ACLEDA (Association of Cambodia
supply of machines and spare parts, and (2) technol
Local Economic Development Agencies).
ogy policy in terms of policy development, R&D, and
Due to the majority of SME entrepreneurs in
technology information.
All variables were meas
Phnom Penh are Chinese decedents, the difficulty in
ured by a 5-point scale ranging from 1 lowest (or
reading and writing Khmer, the official language of
never) to 5 highest (or always).
Cambodia, was observable. To avoid possibility in
2) Business Outcome: Two performance items were
making mistakes, it was decided that interviewers
used to evaluate the outcome of business activities:
read questions and wrote answers for the sampled
size growth and profit growth in the past period. Size
SME entrepreneurs.
growth was scored based on the size-change ratio,
This time-consuming method
required both interviewers and respondents to com
that is: current size minus beginning size divided by
municate face-to-face, and to double check questions
years of operation. Negative ratios were considered
and answers in order to ensure the accuracy of
to be "non-success" in terms of size growth, while zero
collected information.
and positive ratios were considered to be "success" in
terms of size growth. The profit-change is a self-
148-
Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key Managerial Functions on Business Success
evaluation given by the firm. The scale ranges from
current size of the firm, (2) the current level of profit
"1"= declining profit comparing to the beginning
the firm gains, (3) the level of HRM practices (HRM),
year, through "2" = stable profit comparing to the
(4) the level of financial adequacy (FIN), (5) the
beginning year, to "3"= increasing profit comparing
level of marketing practices (MARKET), and (6) the
to the beginning year. This implies that values "2"
level of technological capability (TECH) of the firm.
and "3" are for stable or increasing profit comparing
In terms of management functions, the above result
to the beginning year. Like size-change, firms with
means that there are significant differences between
value "1" are considered to be non-successful, while
the two groups of SMEs in regard to performing four
those with "2" and "3" are considered to be successful.
managerial
3) Control Variables: Eight variables corresponding
marketing, and technology functions. The firms that
to firm's and entrepreneur's characteristics were used
have higher emphasis on the four functions are likely
as control for explaining the SME success. They are:
to belong to successful group. Therefore, Hypothesis
(1) Current size of the firm (1= micro and small,
human
resource,
finance,
1 that states successful SMEs are actively performing
key managerial functions (HRM, finance, marketing,
2 = medium sized)
(2) Industry (1= garment-related, 2 = food/beverage
-related,
functions:
3 = construction
material-related,
and
technology)
significantly
more
than
non-
successful SMEs is accepted.
4=other)
(3) Age of the firm (l=not more that 5 years,
It was found that successfully growing SMEs in
2 = older than 5 years)
terms of size are more active than non- successful
SMEs: 1) in conducting HRD practices and enhanc
(4) Variety of products (l=not more than 2 types,
ing the quality of human resources, 2) in managing
2 = 3 types and more)
financial functions regarding the adequacy of work
(5) Education of entrepreneur (1 = less than or equal
ing capital for expanding business, 3) in managing
to primary level, 2 = higher than primary)
marketing issues with respect to strategies (price
(6) Age of entrepreneur (l=less than 45, 2 = older
and quality adjustment, distributing system, segmen
than 45)
tation of market, and advertisement)
(7) Years of entrepreneur experiences (l=less than
and sales
networking (contracts with large firms and govern
5 years, 2 = longer than 5 years)
ment, wholesaling, and retailing), and 4) in manag
(8) Types of entrepreneur experiences (1 = traderelated, 2 = others)
ing technological functions involving technological
Statistical Procedure
inputs (machinery, power, spare parts) and policy
development (R&D, seeking information, clear pol
Initially, a series of t-tests were applied to find
characteristics of successful firms (successful vs.
icy). The same results were observed with respect to
non-successful entrepreneurs).
Secondly, multiple
profit growth as shown in Table 1. These results
regression analysis was applied to find determinants
indicated that for the SME business success, proper
of business outcomes by introducing four functions
management of business process in terms of four key
of management with background variables as con
functions is critical. Also, two success criteria used
trols.
for the present study, ratios of size growth and profit
growth,
Result and Discussion
were
found
to
be
considerably
inter-
correlated, and tend to be determined by the same set
of factors simultaneously as t-test results in Table 1
1) Differential Characteristics of Successful and
Non-successful SMEs:
indicate.
To differentiate the characteristics of successful
2) Determinants of Managerial Functions for
and non-successful SMEs, t-tests were conducted.
Business Success:
Results in Table 1 indicate that the two groups of
In order to identify factors contributing to explain
firms are significantly different from each other in 6
ing managerial functions and
determinant factors surveyed. They are (1) the
multiple regression analyses were conducted.
149
business
success,
As
mi7mn¥%i5m%2^
Table 1
Result of t-tests conducted over 10 items between success and non -success SMEs
^^-^^^
Variables ^"~~"^^^^
Size Growth
^^^-^_
Success
Non success
Average
n = 82
n = 30
112
37.46
21.17
33.10
4.77
***
24.6
1.40
1.92
4.58
***
Current size of firm
Annual profit of firm
Age of firm
t
P
4.16
4.63
4.69
.05
45.60
44.90
45.41
.68
6.74
6.70
6.73
.05
Level of owner's education
1.18
1.20
1.19
-.19
Score for HRM
1.81
1.50
1.72
4.59
***
Score for FIN
2.52
1.97
2.37
3.15
**
Score for MARKET
2.53
2.26
2.46
3.3
Score for TECH
2.22
1.86
2.12
5.03
Age of owner
Years of owner's experience
**
***
Profit Growth
Success
Non-success
Average
35.70
28.03
33.10
5.34
2.39
1.00
1.92
15.82
Current size of firm
Annual profit of firm
Age of firm
t
p
*
***
4.58
4.76
4.69
.43
45.57
45.11
45.41
1.7
Years of owner's experience
7.04
6.13
6.73
3.50
Level of owner's education
1.20
1.16
1.19
.29
Score for HRM
1.18
1.50
1.72
9.63
***
Score for FIN
2.58
1.97
2.37
10.07
***
Score for MARKET
2.63
2.13
2.46
5.54
***
Score for TECH
2.22
1.94
2.12
7.90
***
Age of owner
p<.05, ~p<.01, ~p<.001
shown in Table 2, among background variables on
variables. Also, years of business experiences showed
firms and owners, industry shows strong impacts
positive influences except for size growth and mar
both on managerial functions and success criteria.
keting functions. These results suggest that SME
Since coding of industry is made for the garment
entrepreneurs with long years business experiences
industry to take the value "1", food and beverage "2",
in trade-related business are likely to succeed, espe
construction "3", and other "4", the negative coeffi
cially in achieving profit growth in the Cambodia
cient for industry means a strong garment industry
SME development context.
effect. Thus, this result shows that being in the
Regarding the effects of managerial functions, two
garment industry is a benefit for actively performing
functions, HRM and marketing, showed
HRM practices, marketing function, and technologi
impacts on the growth of profit, but no managerial
cal activities, and above all for achieving both size
functions had significant positive effect on the size
and profit growth for the firm. Likewise, a product
growth after firm characteristic variables entered
strong
variety variable showed rather consistently signifi
into the regression. However, this finding still gives
cant effect, although it failed to contribute to explain
support to Hypothesis 2 because the t-test result in
ing the HRM, marketing functions and size growth.
Table 1 clearly indicated the importance of the four
It is interesting to see that owner's background,
functions for both size and profit growth. In sum
especially their past experiences as being in trade-
mary, Table 2 indicates that among the four manage
related businesses, have
significant
rial functions, HRM (£ =.23, p<.01) and marketing
effects on both managerial functions and growth
(£ =.19, p<.01) affect SME success in terms of profit
consistently
-150-
Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key Managerial Functions on Business Success
growth significantly and positively.
This means
Cambodia. Since this study took place only in the
firm's efforts for
management
Phnom Penh (capital) area, it is hard to find firms
human
resource
practices and diversifying marketing strategies and
with financial problems that may exist outside this
sales network systems will lead to the firm's financial
area. In other words, the financial issue is not viewed
profitability.
Based on this finding, Hypothesis 2
by SME entrepreneurs in the capital area as con
stating that among the four managerial functions,
straints to firm's growth as serious as other issues
HRM significantly and positively contribute to the
such as training of human resources and expanding
success of SMEs in terms of size and profit growth is
market. ACLEDA (1998) evidently found that micro
accepted.
and small enterprises in Phnom Penh are more
It is evident that finance and technology functions
vibrant than those in provincial towns and rural
themselves are strongly determined by entrepre
areas in terms of financial adequacy, and for that
neurs' years and types of experiences.
reason the former may be considered to be in less
Therefore,
need of financial assistance.
after controlling the effects of these entrepreneur
Thus, financial assis
characteristics, effects of finance and technology
tance given to SMEs in the Phnom Penh area may
functions on success measures have disappeared.
contribute to encouraging rural-urban migration
This finding indicates that these two functions are
more than to the development of SME sector nation
subject to the above entrepreneur characteristics,
wide. It is also noticeable that ILO (2000) indicated
rather than to be independent determinants of SME
that the purchasing power in Cambodia is very low
success.
due to the low living standards. People place their
demands for goods with cheaper prices that they can
It is premature to give a conclusion based on the
present study that finance and technology functions
afford to buy.
Parallel with this low purchasing
are not the determinants of business success in
power, there are other two more factors that make
Table 2 Results of multiple regression analyses on managerial functions and business outcomes
Managerial Functions
HRM
B
T
Business Outcome
MARKET
FIN
0
t
B
t
SIZE Growth
TECH
B
t
B
t
PROFIT Growth
B
t
SIZE Growth
B
T
PROFIT Growth
B
t
Firms' Characteristics
Size of firm
Industry
.18
-.34
2.29"
.17
-4.01
-.04
-.54
-.16
-1.97
2.33"
-.22
-2.65-
-.31
-.10
-1.34
.09
1.24
-3.8-
.18
2.14*
.11
-.39
-4.43 ~
-.39
1.6
-5.60-
.12
1.46
-.27
-2.76"
-.26
.05
-3.64-
.84
Age of firm
.00
-.08
-1.12
- .04
- .59
.07
.84
- .04
- .64
.07
.96
-.01
-.24
Variety of product
.18
2.23
.17
2.29'
.13
1.66
.19
2.50*
.13
1.59
.21
3.12"
.06
.70
.12
1.92
Edu. of owner
.01
.19
.01
.16
.08
1.05
.04
.52
- .05
- .58
.02
.30
- .06
- .74
.00
.00
Age of owner
.02
.29
.04
.57
.17
2.04*
- .08
- .99
- .00
- .09
- .06
- .91
- .00
- .03
-.11
-1.70
.18
2.9**
-.14
-1.53
.11
-.42
-6.18-
-.14
-1.43
-.22
Owner's year of exp.
.11
Owner's type of exp.
- .30
.08*
1.5 ~
.32
4.37 ~
.06
.89
.33
4.52 -
- .05
- .67
- 3.62
-.32
-3.99-
-.48
-5.99-
-.26
-3.32"
-.26
-3.04"
R-square (1)
.42
.47
.45
.46
.37
Adj. R-square
.38
.43
.41
.42
,32
11.48~
10.64 -
11.35-
F.
9.67~
7.60-
1.68
- 2.99 **
.60
(Not applicable)
.57
20.00-
Managerial Functions
HRM
.19
1.70
.23
FIN
.00
.05
.13
1.67
MARKET
.02
.19
.19
2.31 "* •
1.55
- .02
TECH
(Not included in the regression)
(Not included ir the regression)
R-square (2)
.17
.42
Adj. R-square
.35
F.
6.05-
Note: 'p<05, **p<01, ~p<001
151
2.83"
- .26
.69
.65
18.91 -
«s-s»f4^*i5s*2*t
the technology temporally less important for the
found to be the strongest determinant (ft = -.22). As
First, low
mentioned earlier the negative coefficient is due to
skilled labor that is more suitable to be employed by
coding for the experience type. This finding suggests
business success for Cambodian SMEs.
SMEs is plentiful in Cambodia. Second, technology
that the trade-related experience is important for an
information and procurement of equipment are
entrepreneur to run a successful SME in the present
limited in Cambodia. This may cause the cost of
business context in Cambodia. Probably, because the
machinery and production itself to be high, so that
nature of trade persons are more alert to the business
SME owners would have to choose low technology
surroundings and make efforts for profit making
solusions. Firms that can take advantage of these
than other types of entrepreneurs.
conditions, namely adapting a labor-intensive strat
The second determinant from the background
egy instead of technology intensive one, are more
factors is the industry where business is in ( ft =
likely to be successful in the current Cambodian
—.26). Again, the negative coefficient is due to the
socio-economic context.
coding method. Garment-related industry appears to
Overall, in Table 2 an introduction of the four
be a growing industry in Cambodia and thus SME
managerial functions into a regression following
entrepreneurs in this industry enjoy the boom as
after firm characteristics variables contributed to
well. Since large enterprises in the garment-related
increase R square value from R2 =.37 to R2 = .42 for
industry in Cambodia have access to the larger and
size growth, and from R2 =.60 to R2 =.69 for profit
more profitable markets in the US, EU, and Japan.
growth. These incremental increase, namely (AR2
Thanks to the Most Favored Nation (MFN) and
= .05 and A R2 = .09, for size and profit growth re
Generalized System of Preference (GSP) treatments,
spectively were found statistically significant at the
this industry becomes the country's fast-growing
p<.01 value. These results indicate that the contri
sector (Hach, Huot, Boreak: 2001).
The chance of
butions of managerial functions put together are
having profitability trickles down from export-
significant beyond the effects of all background
oriented large firms to smaller SMEs though subcon
variables. This finding gives a strong support to
tracting and other linkages.
hypothesis 1.
Among the four managerial functions, only two
functions (HRM and marketing) positively and
Conclusion
significantly contributed to profit growth of the
In conclusion, based on the present study a set of
determinants for development of SMEs in Cambodia
firms (ft =.23, ft =.19 respectively). It is premature,
however, to simply conclude that finance and tech
was found. There existed significantly differences
nology do not determine SME success in Cambodia.
between successful and non-successful SMEs in the
Looking at a correlation matrix in Appendix 2 and
way the respective group of firms perform key
results of t-tests in Table 1, there are significant
managerial functions in
relationship existing between these functions (fi
doing their businesses.
Firms that highly value and practice the four key
nance and technology) and size and profit success.
managerial functions are more likely to be in success
As mentioned earlier, labor employed by the SME
ful group that have increased profit and size.
sector in developing economies is low skilled.
Figure 2 illustrates a path diagram of effect deriv
ing from determinants of SME business success
In
Cambodia this kind of labor is plentiful. In contrast,
information on technology and* the procurement of
(profit growth) in Cambodia based on findings of
machinery are priced very high.
this study. According to this diagram, profit growth
have to make choices between the labor-intensive
Therefore, firms
of the firm is determined by a number of factors from
way of production with cheap labor and backward
both the background of the firm and the entrepre
technology, or expensive advanced technology.
neur, and the way managerial functions are per
addition, the adequacy of working capital does not
formed by the firm. Among the background charac
necessarily guarantee success of the firm without a
teristics, the type of entrepreneur's experiences is
wise and skillful management of the other key
152-
In
Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key Managerial Functions on Business Success
.23
.19
Profit
Growth
.26
.22
Figure 2
Path of Determinants on Profit Growth
managerial functions. This means that the finance
findings by Boliko and Wakabayashi (1994) and
function can be determined by other functions, thus
Wakabayashi and Boliko (1994). Policies for assist
making it not outstanding determinant of
ing SMEs especially in the Phnom Penh area should
SME
include non-financial supports as much as possible.
success.
To sum up, the findings of this study lead to needs
for designing the new methods of assisting SMEs in
Cambodia.
Not only financial support but also
non-financial supports, such as training-, and market
These kinds of services have
to be available
to
enhance the manaagerial capacities of entrepreneurs
and strengthen the operations of key managerial
function for SMEs.
ing-related education and services, are useful for the
growth of SMEs. Based on this study, the two mana
gerial functions, human resource and marketing,
were found to play significant roles in bringing
prosperity to SMEs. This result gives support to
153-
«s?Ti«4¥*i5**2^
The case of Zimbabwe. CDR Working Paper 98.
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154
Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key Managerial Functions on Business Success
Appendix 1 Relatiorships between Managerial Functions (High vs. Low) and Determinants of SME
Success Based on t-tests
^^-^^^^ HRM
Determinants
^^^^^^^
Current size of firm
High score
Low score
group
group
n = 43
n = 69
44.67
25.88
33.10
6.46
4.69
4.60
4.69
.38
7.65
1
Total
t
P
i
***
!
!
Age of firm
Annual profit of firm
Age of owner
Years of owner's experience
2.58
1.57
1.92
46.19
44.93
45.41
1.3
7.23
6.42
6.73
1.0
***
i
Level of owner's education
1.19
1.19
1.19
-.02
Score for FIN
2.81
2.10
2.37
4.63
Score for MARKT
2.69
2.32
2.46
5.41
***
2.3
1.9
2.12
6.0
***
39.21
29.43
33.10
2.96
4.73
4.58
4.69
.66
Score for TECH
***
^—^-^^^Financing (FIN)
Determinants
-—-^_^^
Current size of firm
Age of firm
Annual profit of firm
Age of owner
Years of owner's experience
**
2.57
1.59
1.92
7.25
46.88
44.53
45.41
2.61
*
8.38
5.74
6.73
3.63
***
***
Level of owner's education
1.12
1.23
1.19
-1.35
Score for MARKT
2.67
2.33
2.46
4.71
***
Score for TECH
2.34
1.99
2.12
5.44
***
Score for HRM
1.90
1.62
1.72
4.62
***
35.16
30.35
33.10
1.44
4.60
4.68
4.69
-.34
^—--^Uylarketing (MARKET)
Determinants
~~^-~——___^^
Current size of firm
Age of firm
Annual profit of firm
2.33
1.46
1.92
6.27
46.14
44.44
45.41
1.90
Years of owner's experience
7.15
6.16
6.73
1.32
Level of owner's education
1.14
1.25
1.19
-1.38
Age of owner
***
Score for TECH
1.85
1.55
2.12
5.09
Score for HRM
2.22
2.00
1.72
3.34
**
Score for FIN
2.60
2.02
2.37
4.02
***
40.50
25.15
33.10
5.14
***
Age of firm
4.53
4.75
4.69
-1.01
Annual profit of firm
2.33
1.56
1.92
5.43
45.55
45.26
45.41
.32
***
^Technology (TECH)
Determinants
—--^________^
Current size of firm
Age of owner
Years of owner's experience
***
7.65
5.74
6.73
2.65
Level of owner's education
1.19
1.19
1.19
.05
Score for HRM
1.83
1.61
1.72
3.65
***
Score for FIN
2.71
2.02
2.37
4.59
***
2.46
3.09
**
Score for MARKT
2.57
2.34
*p<.05, ~p<.01, ~p<.001
155-
**
H
m
«l»ff»*4^*15#*2^
Appendix 2
Correlation Matrix of 14 Variables Used for she Study
1
2
3
4
5
6
7
8
9
10
11
12
13
1-Profit change
2-Size change
.561 **
3-HRM
.584-
4-FIN
.560-
.300"
.374-
5-MARKET
.519-
.372-
.387-
6-TECH
.457-
.383-
.321-
.305"
.211 •
7-Sizeoffirm
.355"
.336-
.519-
.319-
.208*
.442"
.335-
.309"
8-Industry
-.520- -.452- -.372- -.242*
-.271- -.348" -.159
9-Ageoffirm
-.153*
-.034
-.021
-.104
-.071
.127
.174
.187
.006
.018
-.046
-.033
-.169
-.114
12-Age of entrepreneur
.040
-.081
.123
.216*
13-Years of experience
.298-
.047
.216*
.412-
10-Variety of products
.246"
11-Education of entrepreneur
14-Type of experience
-.587- -.435-
Note: *p<.05,
***p<.001
"p<.01,
-.153
.232*
.026
.305"
.215*
.77
.124
-.017
-.108
.18
-.054
.005
.246-
.006
-.021
-.066
.024
-.141
.114
.229*
.193* -.029
-.017
.449- -.438- -.523- -.365- -.240*
156-
.292-
.025
-.389-
.208* -.107
-.091
.109
.067
-.253- -.089