FACTORS AFFECTING BUSINESS SUCCESS AMONG SMES: EMPIRICAL EVIDENCES FROM INDONESIA1

Nurul Indarti Small and Medium Enterprises Development Center (SMEDC), Gadjah Mada University, Yogyakarta, Indonesia E-mail: nurulindarti@ugm.ac.id

Marja Langenberg Langenberg Advies bv, Den Haag,The Netherlands CICAT, Delft University of Technology, The Netherlands E-mail: info@langenbergadvies.nl

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4 millions and they contribute to 56.4% of total export. Mazzarol. the study discloses that marketing.6% to Gross Domestic Product (GDP). The 1. which hinders access to markets. Indonesia. The rest of the paper is organized into six sections.g. 1999.2 million of national labors (Patrianila. despite the fact that some SMEs have been declined or stagnant. It has been argued that the main problem for SMEs in developing countries is not their small size but their isolation. Swierczek & Ha. independent variables explain 38. Volery. In Indonesia.7% of GDP. 2003). What factors affect business success among SMEs? The recent study aims to answer this main question. some others have been growing and successful. Thai SMEs are increasingly seen as creator of new jobs (Swierczek & Ha. and employ 79 millions of work force (BPS & KUKM. the number of Indonesian SMEs was 42. 2003). Therefore. Akhtar. Keywords: SME. Altogether. in particular against large and modern competitors. Based on survey to 100 SMEs.6% of the total variances. including capital shortage.and medium-sized enterprises (SMEs) have long been believed to be important in supporting economics development within a country (e. Why does legality have a negative effect on business success? The speculative explanation may be complicated bureaucracy and legal aspect that takes too many resources of the SMEs to deal with. contribute 31. According to Indonesian statistics. In Indonesia. in the Netherlands. For instance. finance and institutional support (Mead & Liedholm. 2 . 2003). old equipment and outdated technology have hindered the development of SMEs (Swierczek & Ha. in ensuring the economic growth of a country. Other interested parties with development of SMEs such as government agencies. Doss. 2003) and Vietnamese SMEs employ 64% of industrial workforce. Lack of capital. technology and capital access affect the business success in a positive way significantly. The theoretical framework is presented in section two. 2004). SMEs account 98. put SMEs in a vulnerable position. This is also the case for Vietnamese SMEs. Introduction Small. In Italy. 1998. 1999). universities. while legality does it in a negative direction. 1999).Factors affecting business success among SMEs: Empirical evidences from Indonesia Abstract In Indonesia. CDASED. most SMEs operate along traditional lines in production and marketing. more attention should be paid into SMEs development. despite the fact that some SMEs have been declining or stagnant. lack of skills. followed by description of study methodology in section three. SMEs contribute to USD35 million in exports and absorb 2. and to get capital access. account 19. success factor. the owners of the SMEs should pay more attention to improve marketing strategy. and employ 55% of total workforce (EIM Business & Policy Research. and business service development (BDS) should also be prepared for giving assistances in those fields. some others have been successful and growing. to advance technology.8% of all private sector companies. and problems in business development are of problems faced by Indonesian SMEs (Kementerian KUKM & BPS. business success. One of the important roles of SMEs in this context includes poverty alleviation through job creation. What factors affect business success among SMEs? The recent study aims to answer this main question. Internal limitation. 2003). in 2003. Increasing business competition. Simplification of bureaucracy and deregulation of legal aspects are also recommended to foster the development of the SMEs in Indonesian context. & Thein. These findings suggest that to be successful SMEs. as well as to information.

Length time in operation .Origin of enterprise . the characteristics of the SMEs.Marketing .Entrepreneurial readiness . Characteristics of entrepreneur . Gender.Capital access . In their study on Internet café entrepreneurs in Indonesia.Gender . we explore contextual elements of SME development.. Age.Education Characteristics of SME .Legality .Age .Information access . Mazzarol et al. 2.results of survey are expounded in section four and the followed by the discussion in subsequent section.1 Characteristics of the entrepreneur Several previous studies found that demographic characteristics.Social network . 3 . Furuholt. Theoretical Framework Storey (1994) identified key components to be important in analyzing the growth of SMEs: the characteristics of the entrepreneurs. 1999). and the type of strategy associated with growth.Government support . (1999) found that female were generally less likely to be founders of new business than male. (2000) found that individuals aged 25-44 years were the most entrepreneurially active. Instead of the last component. Similarly. The older (>25 years old) entrepreneurs were more successful than the younger ones. The general conclusions and policy recommendations bring the paper to an end. Justification for each variable included in the model is explained in subsequent section. 1996. Finding from another study in India by Sinha (1996) disclosed that successful entrepreneur were relatively younger in age. The theoretical framework is developed in line with these adjusted three components as depicted in Figure 1.Work experience .Capital source Contextual variables .g. Kolvereid (1996) found that males had significantly higher entrepreneurial intentions than females.Business plan Business success Figure 1. such age and gender. and individual background. Kolvereid.Technology . Mazzarol et al. Reynolds et al.Size of enterprise . Kristiansen. such as education and former work experience. Research model 2. had an impact on entrepreneurial intention and endeavour (e. & Wahid (2003) found a significant correlation between age of the entrepreneur and business success.

Work experience. et al. The SMEs that took advantage of family and third-party investment experienced higher level of success. Also. Mazzarol. the likelihood of selfemployment. and North (1995). Access to market was of problems faced by SMEs (Mead & Liedholm. Market development is. A research by Charney and Libecap (2000) found that entrepreneurship education produces self-sufficient enterprising individuals. crucial for preserving high growth in the business. But. and North (1995) in their study in UK found that the vast majority of the high growth SMEs had identified and responded to new market opportunities.3 . they did not investigate the relationship between previous employment experience in private companies and entrepreneurial intentions. Capital source. New market opportunities included findings new products or services to offer existing customers and obtaining new customers for existing product or services. in small firms. (1999) found that respondents with previous government employment experience were less likely to be successful founders of smallbusinesses. whereas most (67%) of the unsuccessful entrepreneurs did not have any technical background.e. where ownership and management were typically combined in one or more individuals. Leig. Size of enterprise. Furuholt. Larger enterprises were found to have a higher level of success. they found another characteristic that did distinguish high growth firms from others was their propensity to acquire other businesses. In a more recent study. future goals for the business might be determined as much by personal lifestyle and family factors as by commercial considerations. Leig. Furthermore. Size of enterprise reflects how large an enterprise in employment terms. the study revealed that entrepreneurship education of employee increases the sales growth rates of emerging firms and graduates’ assets. Sinha (1996) who analysed the educational background of the entrepreneur revealed that 72% of the successful entrepreneurs who had a minimum of technical qualification. Kolvereid (1996) found that individuals with prior entrepreneurial experience had significantly higher entrepreneurial intentions than those without such experience. McMahon (2001) discovered that greater dependence upon external finance associated with better business growth. According to Smallbone. McMahon (2001) found that enterprise size significantly linked to better business performance. Similarly. In a study in Australia. and the likelihood of self-employed graduates owning a high-technology business. high proportion of regular customers) was found to be 4 2. Swierczek & Ha. the likelihood of developing new products. Furuholt. Old players most probably have learned much from their experiences than have done by new comers. market stability (i. Further. Education. Also. they concluded that one characteristic which did distinguish the best performing firms from other firms in the study was their commitment to growth. 1998. 2003). & Wahid (2003) found that financial flexibility was significantly correlated to business success. Conversely. Stiffer competition in the market should be responded proactively by SMEs by doing market development. In a slightly different term. they found that entrepreneurship education increases the formation of new ventures. Length time in operation may be associated learning curve. Contextual variables Marketing. in Indonesia. therefore. Smallbone. Kristiansen.2 Characteristics of the SMEs Origin of enterprise. Length time in operation. which seems to play a critical role in entrepreneurial effectiveness. most SMEs operate along traditional lines in marketing. In Indonesia. She summed up that entrepreneurs with business and technical educational background are in a better position to appreciate and analyse hard reality and deal with it intuitively. 2. & Wahid (2003) found that length time in operation was significantly linked to business success. Kristiansen.

p. 2) pointed to the fact that ‘people’s level of motivation. Technology may play an important role in this respect. and on social capital such as networks (Kristiansen. Technology. The availability of new information is found to be dependent on personal characteristics such as the level of education. technological solutions. automation. Accordingly. in their studies of entrepreneurship in India. In their study among Norwegian and Indonesian students. Kristiansen. Bandura (1977. The attitude provides the foundation for human motivation (Pajares. survival and growth of firms (Duh. Previous study has revealed that lack of equipment and outdated technology are among hindrances of SME development (Swierczek & Ha. Mead & Liedholm. 1998. derived from Bandura’s (1977) social learning theory. they have little incentive to act or to persevere in the face of adversities (Pajares. Information seeking refers to the frequency of contact that an individual makes with various sources of information. Swierczek & Ha. and not fixed by personality traits formed in early childhood. 2003). In their study in US. Information access. Rapid changes in technology should be responded by the SMEs to find alternative ways to sustain their competitive advantage by deploying new process and new growth methods. Cromie (2000) stated that self-efficacy affects a person’s beliefs regarding whether or not certain goals may be attained. In this context. 2002). market orientation defined as organization culture creates the necessary behaviour for the creation of superior value to customers was found to be significantly correlated with company performance (Verhees & Meulenberg. self-perception plays an important role in the development of intention. 2002. The term self-efficacy. 5 . technology has a close relationship with improvement of production process. A study in Ireland unearthed that technological posture. Intentions and their underlying attitudes are perception-based. 2003). In their study of Internet café entrepreneurs in Indonesia. and process innovation were significantly linked to satisfaction on return on investment (ROI) (Gibbons & O'Connor. 2003. pointed out that eagerness in information seeking is one of the major entrepreneurial characteristics. and Posig (2003) disclosed that technological change innovations had significant relationship with market growth. Singh and Krishna (1994). Entrepreneurial readiness in this study refers to selfefficacy. Kriatinsen and Indarti (2004) found a significant correlation between self-efficacy and entrepreneurial intention. 2002) and personal accomplishment: unless people believe that their actions can produce the outcomes they desire. they pointed out market orientation is helpful in selection of an attractive product assortment when the SMEs operate in markets with relatively homogenous product. which should mean that they are learned and can be continuously influenced. According to Ryan (1970). and government rules and regulations. either through individual efforts and human capital or as a part of a social capital and networking. 2003). Welsch. Business information of special relevance for the perception of ability to succeed and thereby for entrepreneurial intention is related to markets and sources of inputs. 2004). they will vary across historical and cultural contexts. people behave according to beliefs about their capabilities rather than on real facts based on their competence and capabilities. More specifically. The result of this activity is most often dependent on information accessibility. Kickul. 2003). 2003b). An individual’s perception of self-efficacy has a strong influence on how he or she will act and how the available knowledge and skills will be utilized. Access to new information is indispensable for the initiation. infrastructure qualities such as media coverage and telecommunication systems.. affective status and actions are based more on what they believe than on what is objectively true’. Furthermore. refers to a person’s belief in his or her capability to perform a given task. design. Entrepreneurial readiness. Availability of business information is similarly important for the intention to initiate a new enterprise. Gundry.significant in determining business success (Kristiansen et al. Consequently.

Patrianila. growth and success (Kristiansen. where the capital to labour ratio is normally low and small amounts of capital may be sufficient for a business start-up. 1994. government support is of necessary condition to foster SMEs development. community saving and credit systems. Many governments in the world (e. In addition to lack of financial support as abovementioned. through Ministry for Cooperative and Small. Furuholt & Wahid. Mulhern. Government regulations are identified by Reynolds. Capital access. Day. 2003). 2003) have been paying a more attention to SME development in order to strengthen national economy. 2004). 2003). 2004). Government support. Kristiansen (2003a) found that social network has significant relationship with business adaptability. Hence. Chaston. extended family networks.Kristiansen.and Medium-sized Enterprises have launched many programs (e. Unsuitable legislation is also found of obstacles faced by Slovenian SMEs (Duh. 1986). access to capital may represent similar restrictions to individuals’ perception of entrepreneurial options because of the high entry barrier ensuing from high capital to labour ratios in most industries. Not many studies have been conducted to examine direct relationship between legal aspect readiness and business success. Swierczek & Ha. Networks represent a means for entrepreneurs to reduce risks and transaction costs and also to improve access to business ideas. not least in developing economies with weak credit and venture capital institutions. constitute very substantial contributions to business start-ups in developing countries. Several empirical studies have concluded that the lack of access to capital and credit schemes and the constraints of financial systems are regarded by potential entrepreneurs as main hindrances to business innovation and success in developing economies (Marsden. giving financial assistance) dedicated to SME development (Kementerian KUKM. 1996. In short. 1992. 1994). In many cases. dealing with legal aspects has forced the SMEs to allocate significant amount of financial resources due to bribery practices. knowledge and capital (Aldrich & Zimmer. 1992. In developed economies with efficient financial infrastructure. A more recent study among Vietnamese SMEs revealed that of internal limitations that hinder SMEs to succeed is capital shortage (Swierczek & Ha. The programs were proven to be significant in Indonesian SMEs development (Kementerian KUKM & BPS. Social networks have an impact on the likelihood of successful entrepreneurial endeavour. Indonesian government. 1998. Legal aspect is often also used in selection operating decision in order to ensure future business success (Mazzarol & Choo. As aforementioned. Potential sources of capital may be personal savings. Social network. 2003). capital flexibility as abovementioned is of factors determining business success (Kristiansen. A social network consists of a series of formal and informal ties between the central actor and other actors in a circle of acquaintances and represents channels through which entrepreneurs get access to the necessary resources for business start-up. In his study in Tanzania among small-scale garment and carpentry industries. 2000). and Lancaster (2001) to be one of the top problems faced UK SMEs. The study of entrepreneurship has increasingly reflected the general agreement that entrepreneurs and new companies must engage in networks to survive (Huggins. Steel. lack of institutional support was of hindrances of SME development (Mead & Liedholm. Robinson (1993) found that informal sources of credit. 2003). Legality.g. 6 . and Wahid (2003) also found that entrepreneurial readiness was linked significantly to business success. Meier & Pilgrim. lack of capital is of problems faced by Indonesian SMEs (Kementerian KUKM & BPS. or financial institutions and banks. Legal aspect in developing countries in Indonesia is probably of hindrances of success among SMEs. 2003). though with high interest rates. 2003). 2003). Access to capital is obviously one of the typical obstacles to the start-up of new businesses.g. Furuholt.

The respondents were asked to rank statement on contextual condition related to each success factor faced by the respondents in the third part. Most economic activities are run by SMEs. Five-point Likert scale anchored by strongly disagree and strongly agree were applied to measure the perceived success that comprised four items: “I am satisfied with the growth of net-income of the business”. entrepreneurial readiness. we believed that well-planned business activities as manifested in a business plan will yield a better business performance. social network. personal interviews were deployed. Inputs from one-day seminar attended by 25 entrepreneurs were used as a basis for developing the questionnaire. 1992). At average. the number of full-time workers of each SME was 17 ranged from 1 to 70. information access. while the number of part-time workers was 19 varied from 1 to 150. Gadjah Mada University. technology. This procedure was selected to get a high response rate. Therefore. & North (1995) pointed out that one characteristics that distinguished the best performing enterprises from other was their commitment to change. 3. The questionnaire was the main instrument of the study. In line with this. the respondents were asked to score the importance of nine factors considered to partake in determining business success using 5-point Likert scale anchored by very unimportant to very important. Purposive sampling procedure was used to select the respondents from SME database comprised 250 SMEs in Yogyakarta. Yogyakarta is typically one of Indonesian big cities where we can only find a few large enterprises therein. At average. According to Indonesian Statistics. The factors were marketing. Insufficient awareness of the need for a business plan was identified as one problem at the start-up phase among SMEs (Chaston. Smallbone. and government support.Business plan. we re-asked the respondents by telephone to supply the missing ones. business plan. In case of some values were missing. Yogyakarta is a good sample of Indonesia as the people come from all corners of Indonesia to get either better education or living. an enterprise with less than 100 employees is considered as SME. In filling in the questionnaire. “drop and collect” procedure then was chosen. 3. business plan can also be regarded as development orientation. However. each interview lasted for two hours. 20 semi structured interviews were conducted3. Not surprisingly. a large percentage (>70%) of the SMEs employed less than 20 full-time workers which could be 7 . the response rate was 100% and all returned questionnaires were usable for analyses. capital access. Leig. In this context. legality. The questionnaire consisted of three parts. Indonesia. “I am satisfied with the time needed to reach break event point (payback period)”. McMahon (2001) revealed that greater development orientation significantly linked to better business growth.1 Research instrument This study can be regarded as explanatory study since the focus is on identification of success factors of Indonesian SMEs. compiled by Small and Medium Enterprises Development Center (SMEDC). “I consider my business successful”. This part consisted of 31 items which were intended to measure factors of business success. In addition to quantitative data collected using the questionnaire. In the second part. and “I consider my business growing”. Research Methods 3. though some in-depth interviews were also conducted to grasp the dynamic of entrepreneurial process among SMEs2. The first part comprised demographic information of the respondents and a set of items to measure business success. In case such an interview was impossible practically.2 Sample and data collection The number of respondents was 100 owners of the SMEs.

Table 1.Bank .Other Source of capital . More specifically.Service . Before applying regression analysis.Female .University Previous experience . As regards their education.Trading . Background information Variable Gender . A large percentage (63%) of the entrepreneurs had no former work experience prior to running the business which was mostly (85%) established by themselves. Correlation analyses were used to examine relationship between characteristic of the entrepreneurs and SMEs and business success.Inherited . Obviously.Other % 29 71 12 12 38 37 37 63 85 12 3 56 3 23 2 3 12 54 6 12 15 3 10 3.Crafts and arts . Post hoc test using LSD (least significant differences) method was also applied when ANOVA revealed significant differences among groups compared. Table 1 comprises the background of the entrepreneur and the enterprises. As can be seen in Table 1.Food processing .3 Data analysis methods In addition to descriptive statistics.Junior high . Most SMEs (54%) were running in crafts and arts industry.Established .Elementary .Senior high .Yes .Family investment . in correlation analyses.Other Industry sector . we employed correlation and regression analyses. the vast majority of the respondents (75%) had senior high or university educations.categorized as small enterprises according to Indonesian Statistics.Never Origin of SMEs .Third party investment . personal savings (56%) and family investment (23) were the dominant source of capital.Joint venture with colleagues/friends . most entrepreneurs (71%) were male. t-test and ANOVA were used as appropriate. 8 .Agribusiness .Personal savings . the validity and reliability of the research instrument were examined using factor analyses and values of Cronbach’s alpha.Male Education of the entrepreneur . while regression analysis was employed to look at relationship between contextual variables and business success.

86 0.28 0.09 0.07 0.18 7.13 0.08 0.04 -0.22 0.03 0.22 8.04 -0.24 0.42 0.10 -0.48 0.89 0.80 0.06 0.04 0.21 0.34 0.01 -0.12 0.06 0.6 – or even 0.28 0.07 0. .05 0.19 -0.75 0.02 0.10 0.05 -0.01 -0.01 4.72 0.66 0.09 0.10 0.15 0.67 0.04 0.11 0.35 0.19 -0.13 0.07 -0. we concluded that the research instrument used in the study was valid and reliable.80 0.10 0. 4.14 0.00 0.18 0.01 0.01 0.01 -0. With exception on social network.06 0.11 0.81.13 0. Using exploratory factor analysis. SOCN: Social network.43 0.06 0.37 0.04 0.39 -0.5 for exploratory study – which was considered as acceptable ones (Nunally.11 0.07 -0.65 0. LEGA: Legality.17 0.88 CAPI 0.77 0.03 0.12 0.08 0.13 0.17 0.09 -0.00 0.50 0.17 0.80 0.67 0.10 0.82 0.11 0.28 -0.Extraction method: Principal Component Analysis.21 GOVS -0.08 0.22 0.03 0.07 -0.06 -0.25 0.69 3.08 0.00 0. 1978).05 -0.15 0.10 0.37 0.62 TECH 0.03 0. EREA: Entrepreneurial readiness.15 -0.08 -0.19 5.76 0. Taken together.07 -0.02 0.11 0.27 -0.08 -0.18 -0.02 0.17 0.00 0.01 23.44 0.08 0. Value of Cronbach’s’ alpha of the items was 0.05 0.08 -0.00 -0.20 0.02 0.06 0.11 0.09 -0.12 0.05 0.34 0.INFO: Information access.18 -0.01 -0.07 0. Table 2.77 -0.00 0.14 0.05 0.12 0. The result of exploratory factor analysis after deleting M1 is presented in Table 2.12 6. Hence.17 -0.03 -0.34 -0.02 0.08 0.34 -0.03 0.14 0. 31 items in the questionnaire were trapped into 10 variables.02 0.06 0.11 0.03 0.10 0.15 -0.30 0.15 0. BPLA: Business plan.26 0.18 0.16 -0.13 0.13 0.01 -0.55 LEGA 0.12 -0.74 0.08 0. TECH: Technology.05 -0.04 0.11 0.07 3.16 0.10 0.23 0.05 0.1 Validity and reliability of the instrument Factor analysis applied to items used to measure business success revealed one variable.60 0.27 0.21 0.02 0.10 0. MARK: Marketing.43 0.16 0.17 0.15 0.03 0.18 0.51 0.98 SOCN -0.07 -0.18 0.08 0.06 0.85 0.07 -0. 9 .18 0.80 0.27 0.08 -0.79 0.14 0. Factor loadings Item X14 X16 X15 X12 X11 X8 X13 X6 X5 X7 X2 X18 X28 X17 X3 X23 X24 X4 X26 X25 X27 X21 X22 X30 X29 X31 X10 X9 X19 X20 % variance explained INFO 0.26 -0.03 0.25 0.08 0.06 0.04 -0. Each variable consisted at least two items except one.04 0.23 0.03 0.11 0.Results 4. CAPI: Capital access.27 0.70 0. Rotation method: Varimax with Kaiser Normalization.50 0.23 0.11 -0.07 0.01 0.07 0.04 -0.02 -0. Hence.20 0.06 0.03 0.32 -0. we ignored it in further analysis since it has been represented by the items in marketing variable.23 0.05 0. Table 3 depicts values of Cronbach’s alpha of the instrument.87 0.10 0.01 0.53 0.17 0.03 0.01 0.50 0.09 -0.01 0.65 Notes: .22 -0.29 0.02 0.11 0.03 0.46 BPLA -0.02 0.25 0.07 0.06 0.78 0.09 0.02 0.01 -0.19 -0.52 0.09 0.20 0.18 0.10 0.02 0.37 -0.12 0.16 9.08 -0.08 MARK 0.06 0.14 -0.05 0. GOVS: Government support.23 0. the values of Cronbach’s alpha were greater than 0.13 0.17 -0.63 0.19 0.29 -0.67 EREA 0.05 0.11 0. X1 (see Appendix).00 -0.12 -0.30 -0.13 0.02 0.01 0.01 0.04 0. we could conclude that the items were valid and reliable measurement for business success.15 -0.

05 1. Capital access (mean=4.01.53 4.370*** -0.78 0.82 0.Table 3.036 0.82 0.277** 0.127 0.02 Standard deviation 0.81 0.77 0.07 4.05.182* 0. Regression results Variable Information access Technology Marketing Business plan Entrepreneurial readiness Legality Government support Capital access Social network Model summary Adjusted R2 = 32. marketing (4.66 0. and information access (4.020 10 .90 0.81 0. The results of regression analysis are summarized in Table 5.5% F = 6.07 4.107 0.1.29*** Notes: *p<0.69 0. Values of independent variables were calculated by multiplying the perceived importance of each variable (as depicted in Table 4) and the value of the independent variables obtained by averaging the values of items comprise the variable. Table 5. Table 4.43 4.53) were considered to be most important factors in running the business.04 Regression analysis then was employed to examine the relationship between nine independent variables (see Table 2) and business success.33 4.55). Beta 0.56 4. Reliability test No 1 2 3 4 5 6 7 8 9 Variable Information access Technology Marketing Business plan Entrepreneurial readiness Legality Government support Capital access Social network No of items 6 3 5 3 3 3 2 3 2 Cronbach’s alpha 0.56).2 Data analysis Table 4 summarizes mean ratings that indicated perceived importance of variables related to business.78 0.46 4.85 0.96 1.55 4.069 -0.70 0. Mean ratings No 1 2 3 4 5 6 7 8 9 Variable Capital access Marketing Information access Entrepreneurial readiness Government support Legality Business plan Technology Social network Mean 4. **p<0.302*** -0.01 1.07 4. ***p<0. while social network (4.83 0.02) was perceived to be less important in business operation.

Size of enterprise. Table 6 summarized findings of the study. As depicted in Table 1 above. previous experiences and similar sectors/industry had no significant effect on determining business success. we grouped them into one. Discussion In this section.(o) No significant association/correlation.Legality (-) . Education. Gender.3 Demographic data analysis 4.05) less successful than those with elementary and senior high school.Entrepreneurial readiness (o) .3. 5.Marketing (+) . (x) Significant association. we focus discussion on answering research question mentioned in the outset. 4. Altogether. did not distinguish them in terms of business success. either established or inherited. 4. We found that entrepreneur who took advantage of family investment was significantly (p<0. Because of limited number of respondents using capital source other than personal saving and family investment.Gender (o) .Social network (o) .3. Length time in operation.5% of the total variance. Individual background . Surprisingly entrepreneur with university education was significantly (p<0. Treating age both in interval and ordinal level of measurement (using several cut points).Capital access (+) . Origin of enterprises.1 Characteristics of the entrepreneurs Age.Business plan (o) Table 6.Capital source (x) Contextual variables . As aforementioned. Start-up time or length time in operation did not significantly link to business success. Previous experiences. those with university education experienced a lower level of 11 . .2 Characteristics of the SMEs Origin of enterprise. We found no differences in terms of business success between female and male entrepreneurs.Education (x) Characteristics of SME . technology. capital access. the variable independents explained 32. while legality did it in a negative direction. Size of enterprises in terms of number of employees was not associated with business success. Previous employment of the entrepreneurs had no significant correlation with business success.Age (o) . Summary of findings Notes: .Length time in operation (o) . (-) Significant negative correlation Education of the entrepreneurs was found to have significant relationship with business success.As can be seen in Table 5. (+) Significant positive correlation.Size of enterprise (o) . no significant relationship between age and business success was found.All listed variables are examined as regards their relationship with business success. the vast majority of the SMEs took advantage of personal savings (56%) and family investment (23%) as their capital sources.Information access (o) .Government support (o) . and marketing affected business success significantly in positive directions.Technology (+) . Source of capital.Origin of enterprise (o) . Only 3% of the SMEs utilized bank loan.Work experience (o) .05) more successful than those with other sources of capital. Neither.

Though the explanation power was not unusual in cross-sectional model. would give the SMEs more ammunition to struggle with stiffer competition and grow. items to measure social network should be improved to increase the reliability. and technology were determinants of business success. as defined by Duh (2003. Other individual backgrounds. Simplification of bureaucracy and deregulation of legal aspects are then recommended to foster the development of the SMEs in Indonesian contexts. Among those with university education. and technology were determinants of business success. and previous employment. As the enterprises were considered as the primary source of family income and investment was on personal risk. gender. This claim was substantiated by the fact that 97% of the SMEs was either established or inherited. high commitments should be devoted in running the business.success than those with elementary and senior high school. The latter finding is interesting and needs explanation. Personal saving and family investment were dominant (79%) source of capital among the SMEs. complicated bureaucracy and legal aspect that take too many resources of the SMEs to deal with are of the explanations. 12 . A further analyses revealed that those with elementary and senior high school educations have been being in the business (respectively 16. The regression analyses unearthed that capital access. However. Conclusions The results from a survey conducted to identify success factors of Indonesian SMEs have been presented in this paper. since “the owner or family members of the owner manage the enterprise and in which exists the wish that the enterprise remains in the ownership and in the management of the family in the future”. Interested parties to SMEs development in Indonesia. Regression analysis unearthed that capital access. should address these determinants and impediments of business success in giving assistances to SMEs. 73% considered themselves as self-learners and only 16% felt that formal education gave them skills to run the business. p. These findings should be well-considered in developing programs to develop SMEs. this also implied that other factors needed to be identified to get a more complete picture of determinants and impediments of business success among Indonesian SMEs. then. Altogether. However. they harvested a better success. Most probably. Slightly low explanation power of the model (32.5%) suggested that other variables should be identified to get a more explanation of business success among Indonesian SMEs.5 and 15. these two seemed to need moderating variables since more operational explanations were needed to link these two with business success. Absences of the problems. such as universities. marketing. namely age. Reliability and validity analyses have proved that the research instrument was a fairly reliable and valid measure. and business development services.3 years) longer than those with university education and junior high school educations (respectively 13. marketing. since lacks of these three have been identified as problems of Indonesian SMEs. We had to note here that most SMEs might also be considered as family enterprises. The former findings were not surprisingly. had no significant associations with business success. As the result. The analyses revealed that education and source of capital were related significantly to business success.3 years).0 and 11. Another possible explanation was that their educational background did not give applicable skills for running the business. then. variable independents explained 32. Selflearning was considered by most entrepreneurs (76%) as source of skills. would be beneficial to develop Indonesian SMEs. while legality was burden of business success. 118). while legality was burden of business success. nongovernment organizations.5% of the total variance. The entrepreneur who took advantage of family investment enjoyed a higher level of success than those with other sources of capital. The results. 6.

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capital availability to start and expand the business.g. T. favourable policies) Based on your experiences in running the business so far and the actual condition of the business. computer) Capital access (e. D. Product Innovation. plan product/service development) Entrepreneurial readiness (e. expansion plan.Storey. 134-154. decision making skills. market information. supportin equipments. Strongly disagree… 5. 46-58.g. Strongly disagree … 5. distribution channel. Understanding the Small Business Sector. International Journal of Entrepreneurship and Innovation. (2004). Verhees.g. Entrepreneurial orientation. & Meulenberg. funding scheme from government. J. business partners. I have no problems when having contact with government 15 . business permit. Journal of Small Business Management. helpful colleagues/consumers) Legality (e. please indicate your opinion regarding each statement (1. alternative sources of capital) Information access (e. business association. M. paying taxes) I have a good business plan All policies taken in my business are well-planned I have good leadership skills I have reliable managerial skills I have decision making skills I have good communication skills Government support to my business is satisfactory I got business permit and other permits easily and quickly During running the business. (1994). Very important) E1 E2 E3 E4 E5 E6 E7 E8 E9 Marketing (e. 4(1). uncertainty avoidance and firm performance: an analysis of Thai and Vietnamese SMEs..g. London: Routledge. potential market) Technology (e.. and Performance in Small Firms. & Ha. Swierczek.g. G. Very unimportant… 5.g. business feasibility study. F. taxes) Business plan (e. Innovativeness. production machinery. information on new design) Social network (e. W.g. T. communication skills) Government support (e. Strongly agree) S1 S2 S3 S4 I am satisfied with the growth of net-income of the business I am satisfied with the time needed to reach break event point (payback period) I consider my business successful I consider my business growing Contextual variables Please indicate your opinion regarding the importance of each factor to you running business (1. easiness to get business permit. 42(2). it is easy to get additional capital I have accessible alternatives of capital sources if needed I have access to information on market/consumer of my products I have access to information on capital sources I have access to information on technologies to support my business I have access to information on raw material sources I have access to information on government regulations that are relevant to my business I have reliable business network to run the business I have many helpful colleagues/friends who support the business I have professional affiliation/business association that supports the business I have religious association that support my business I have all permits to run my business I fulfil all my duties as a businessman to government (e.g. (2003).g. M.g. H. Market Orientation. F. Appendix: Questionnaire Measurement of perceived success Please indicate your opinion regarding following statements (1. T. managerial skills. Strongly agree) X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 X21 X22 X23 X24 X25 X26 X27 X28 X29 X30 X31 Distribution channel of my products is already in place Market potential of my products is promising Searching for new market for my products is not so difficult Marketing of my products is well-planned Existing technology suffices to support all production processes Existing technology supports innovation Existing technology is easily maintainable New technology to support innovativeness in the business is attainable Existing capital is sufficient to maintain and expand the business If needed. information of source of raw material.

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