6-IAJDR- Vol.1, No.1, July- December, 2012 - Manufacturing SMEs

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International Academic Journal Development Research (IAJDR)Vol.1, No.1, July - December, 2012

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EDITORIAL BOARD

Editorin - Chief

H. E. Prof. (Dr). Mik Saphanaret

National University of Management, Cambodia

Universidad Empresarial de Costa Rica, Costa Rica

Assistant and Members

Prof. (Dr.) Chhiv Thet

Passtra University of Cambodia, Cambodia

Prof. (Dr.) Sao Lim Houth

Angkor University, Cambodia

Prof. (Dr. h.c.) Tithsothy Dianorin

Angkor University, CambodiaLect. Ma Bun Seng Rithy, PhD Candidate

Cambodia University of Specialties, Cambodia

Prof. Hoeng Chiv Yann

Cambodian International Cooperation Institute, Cambodia

Prof. Met Vichet

Vanda Accounting Institute, Cambodia

Prof. Leng Dina

Bayon Book Publishing Manager, Cambodia

INTERNATIONAL EDITORIAL ADVISORY BOARD

Prof. (Dr.) Daniel Esteban Odin

The Business University of Costa Rica, Central America

Prof. (Dr.) Christopher Nigel Preece

Malaysia University of Technology, Malaysia

Prof. (Dr.) George Reiff

EIILM University; India, Universidad Empresarial, Central America

Prof. (Dr.) Frederick U. OzorUniversity of Gambia, West Africa

Prof. (Dr.) Arif Anjum

University of Pune, India

Prof. (Dr.) Andrew Ssemwaga

Kigali Independent University, West Africa

Prof. (Dr). Jayanta K. Nanda

Ravenshaw University, India

Prof. (Dr). Oyat Christopher

Gulu University, Northern Uganda, East Africa


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IAJDRis the Official International Academic Journal of the University Group and Bayon

Book Under the Management of Sastra Angkor Institute and Asia Marketing Solution Co.,

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policy is modified to ensure that good articles are not excluded simply because they do not meet thehighest English standards. We also hold it to be important that material be not over edited,providing its message is considered to be clear to the majority of our readers. The general objectivethat IAJDRis to create conditions whereby all informed persons are able to contribute to theongoing debates, regardless of their English language competence and their lack of familiarity withaccepted journal protocols.

IMPORTANT DISCLAIMERThe publishers, authors and editors are not responsible for the results of any actions on the basis ofinformation in this work, nor for any errors or omissions. The publishers, authors and editorsexpressly disclaim all and any liability to any person, whether a purchaser of this publication or not,

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CONTRIBUTIONS: Contributions should be forwarded to

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Please note the Notes to Contr ibutor sat the back of this edition


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International Academic Journal of Development

Research (IAJDR)

ContentsTitle Page

1. The Kenyan Investment Climate 1-09

Duncan Waiguchu Mwangi

2. Distance Education: The Nigerian Experience 10-16

Gabriel Udendeh

3. Honour Killings 17-26

Kemal Yildirin

4. To Standardise English is to Re-Build Babel 27-33

Bruce Duncan

5. The Case Study Method of Teaching Management 34-37

Daniel Valentine

6. Creating Competitive Advantage in Ghana 38-46

Alexander Ayogyam

7. Conflict Diffusion, Political Legitimacy and Social Wholeness 47-51

John Potter

8. Poverty Alleviation and Sustained Development in Uganda 52-58

Oyat Christopher

9. Jose Rizal and the Orden de Caballeros de Rizal 59-70

George Reiff

10. Manufacturing SMEs in Cambodia: A case of EffectiveBusiness Management Function 71-83

Kao Kveng Hong

11. Letters: The Chinese Say 84-93Clair Lasater


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Manufacturing SMEs in Cambodia:A case of Effective Business Management Function

Vol. 1, No.1, July- December, 2012, pp.71-83

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.

Introduction

Cambodian economy was improperlymanaged and isolated due to the exceededstate control that followed after the civil warfor decades since 1970s (UNDP, 1987).Consequently, Cambodia now is one of the

poorest countries in the ASEAN region withGDP per capita of only US$256 in 1999. Toalleviate the poverty, Royal Government ofCambodia (RGC) has set up a multi-prongedstrategy in which SME development comes

into one of its fore front policies (RoyalGovernment of Cambodia, 1996, 2001). Yet,the SME and manufacturing sectors inCambodia as a whole are poorly developedand documented, and less has been knownabout the field. Lean literature exists in bothforms , availability and the quality, therefore,effective and efficient policies has never beenmade without sound data and understandingof the field. Based on the above-mentionedview, it is of great value to investigate howkey managerial functions critical fordevelopment of SMEs (Boliko andWakabayashi, 1994) would affect their

business outcomes in Cambodia. Hopefully,empirical findings derived from the presentstudy can contribute to the improvement of

policies supporting the SME sectordevelopment in Cambodia. Researchquestions of the present study state as follows.

1 - What are the characteristics of CambodianSMEs?

2 - What are the determinants of businesssuccess in manufacturing SMEs inCambodia? Conceptual Analysis and the

framework for the study

It is noticeable that the SME conceptand theories are built and developed based on

experiences of industrialized economieswhere the context is different from that ofdeveloping economies. It is doubtful to whatextent these concepts and theories areapplicable to the developing economies(Cook, 1996). Arguments on differences inthe nature of SMEs in the two worlds areobservable in two areas: an argument ofreasons behind the emergence (or re-emergence) of SMEs and discussions onmanagement of SMEs.

Debates on the SME concept

Discussions of reasons behind theemergence of SMEs point out thesegmentation of market, the advancement ofinformation technology, and protection

policies by the government. Scitovsky (1978)asserts that SMEs emerged as a consequenceof trends towards differentiation of the marketinto in an increasing numbers of segments.

The segmentation leads to multiplication of


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fashions for various types of consumers.Higher individual incomes allow a growingnumber of consumers to satisfy their needs forvariety and thus for differentiation. This

phenomenon is well-known to marketingspecialists. The demand that lasts for short

run seems to be accentuated by newdistribution behavior that is forcingdistributors to minimize the time betweenorders and sales. Thus SMEs are more likelyto adapt to the growing "specialization" ofmarket and faster changes. Along with this,Julien (1998) adds that the emergence ofSMEs is a result of the development of newcomputer technologies that are much bettersuited than before to the competitiverequirement for small firms, namely in accessto information and market. In addition someresearchers continue to argue that emergenceof SMEs is a result of protection policiestaken by governments of some economies.For example, ILO (1998) pointed out thecontinued absence of vigorous responses fromthe business sector to 'supply-side'improvements in some economies andquestioned the ability of neo-classicalapproaches to bring about major economic

growth. They, therefore, propose a more pro-active role for government to assist SMEs.One specific revision to the standardframework that has been proposed concernsthe infant industry protection to makefavorable environment for emergence anddevelopment of SMEs. It is certainly the caseto see economies that have achieved thehighest growth in the last 30-40 years in Asiahave done so with the help of some degree of

protectionism for key industries. Furthermore,

in East Asia, the protection offered byfavorable tariff or non-tariff shields providesthe opportunity for major investment,technological advancement and economicgrowth0. Contrasting to these concepts,empirical evidence gives different reasons forSMEs emergence in developing countries.Computer advancement may not explain theemergence of SMEs due to the fact thatdeveloping countries lag behind thisadvancement. And in contrast to Scitovsky's

concept of demand for products with unique

quality and fashion, such demand cannot beavailable in developing countries.

See argument, for example, in Reportof committee of donor agencies fundedinterventions, Geneva, Switzerland, 1998.

Where living standards of the people

are very low and most of their income is non-monetary. Taking the case of Cambodia,about 87% of her arable land is under riceyielding with providing income little morethan the subsistence level (ILO, 2000). Withincome so low across the country, the patternof demand is biased towards goods that areaffordable by the poor in Cambodia. Againstthe concept of protectionism, there are

practical concerns over how to implementsuch a policy in developing countries.Previous attempts at protection in somecountries in the nome of import substitutionhave actually made businesses more isolatedand less competitive. The capacity of manycountries' public administration systems foreffectively implementing trade protection

policies is questionable. In general, the keyproblem of advocating more activegovernment interference rests in its capacityto deliver well-balanced industrial policies in

developing economies. Therefore, reformswhich help remove or reduce the direct role ofgovernment are more likely to be successfulthan adopting biased protection policies.Indeed, the interventionist successes in EastAsian economies can be partly attributed tothe efficacy of their civil service systems(ILO, 1998).A synthesis on SME emergencein developing countries can be made based onresults from the structural adjustment policywhere a favorable environment was created

for the private sector. In developing countries,SME and informal sectors are active butindiscernible. A labor market changefollowed after the structural adjustment policyhas been the factor of emergence of thesesectors. Pedersen (1998) asserts that theemergence of both SME and informal sectorsis in response to the increase in theunemployment rate. The case becomes moreobvious in urban and non-agricultural areaswhere high unemployment and active

entrepreneurial attempts are prevailing


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simultaneously. Given this concept, SME andinformal sectors are likely to increase in a

period of crisis when the formal sector onlyslowly grows to absorb labor surplus. A large

part of literature has taken the position tointerpret the growth of SME and informal

sectors after structural adjustment wherederegulatory policies appliedSmall-and Medium-sized ManufacturingEnterprises in Cambodia: Effects of KeyManagerial Functions on Business Success bygovernments of transitional economies toderegulate and remove barriers preventingentries of new firms and to create a business-friendly environment to lure participation ofthe private sector. Duval and Waterfield(1996) set four pillars to describe market-friendly environment that is supportive toSME. They are: 1) a stable macro economy,2) a competitive micro economy, 3) globallinkage, and 4) investing in people. Inaddition to the debates on SME's emergence,academicians as well as practitioners argue onsuccessful management of SMEs. Because,

plenty of existing literature on management ofSMEs focuses on causes of SME failures,financing seems to be the major area of

emphasis to explain reasons behind thefailure. Pissarider (1999) asserts that thesurvey around small business ownersindicated that a lack of financing is anobstacle to doing business and companygrowth. A theory of SME financing has been

built around accessibility to financialmarket2). It is a common sense that thelimited access is caused by what is called thefinancial gap. The financial gap seems to havetwo main components: 1) knowledge gap, and

2) supply gap. The knowledge gap is the lackof knowledge about different sources offinancing and their advantages anddisadvantages. The supply gap means thatfunds are not available for SMEs, or that evensome financing sources are available to SMEs

but at a much higher cost than to large firms.In contradiction to the above concept,literature shows that most of SMEentrepreneurs, especially those in developingcountries, cannot clearly distinguish their

business assets from personal ones. In the

discussion of financial structure, someresearchers refer to the key roles of theowner's personal equity, and the extensiveoverlap between the personal wealth of the

business owner and the resource for thebusiness. This unclear boundary fills the

financial gaps for the growth of business andmakes SME entrepreneurs to avoid outsider'sinvolvement in management of their

businesses. Calof (1985) confirmed that SMEentrepreneurs did not enter into 2) See fordetail in Small Business: Critical Perspectiveson the Business Management, 2000 financialmarket not because of barriers (i.e. the gaps)

but because they wanted to maintain theircontrol on daily management of the firms.And thus they simply resorted to financialsources with less restriction on loans evenwith higher interest rates. He concluded thatSME entrepreneurs prefer internal financingto external financing. If external financing isnecessary they prefer the short term lessrestrictive one. On the other hand, somescholars indicate that management ofinnovation based on people is the basis ofsmall business success. Ogawa (1994) pointedout that SME management should be slanted

toward care for people. Reliablecommunications and a solid sense ofbelonging among employees provide thefoundation for small business prosperity.Boliko and Wakabayashi (1994) developedassumptions on the critical importance ofHRM to sustain business success. One of theirassumptions states that although capital andtechnology are essential to entrepreneurialsuccess, people the most important asset forthe firm, play a critically important role in the

achievement of business prosperity. In short,the success of SME management is not solely

based on financial, market and technologyaspects, but more importantly on the qualityof human resource, a key player of SME

business success. Given the above argument,the present study adopts an assumption that

both financial and nonfinancial functions forbusiness management determine the SMEbusiness success. In other words, as shown inFigure 1, the processes of managing the

following key four functions, namely HRM,


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finance, marketing, and production-technology functions, are assumed to affect

business outcomes in significant ways. It isalso assumed that the emergence of SMEs is

prompted as a consequence of governmentpolicy changes, for example structural

adjustment policies that bring about a removalfor entry barriers of new firms and helpreduce production and management costs of

firms due to de-regulation. Bearing thisframework, the following two hypotheses areset to be tested in this study.They are:

-H1: Successful SMEs are more activein performing the four key managerial

functions (HRM, finance, marketing, andtechnology function) than son successfulSMEs.

Background variables process management Business outcome

Figure 1 A Framework for Analyzing SME Business Success

-H 2: Among the four managerialfunctions, the HRM function contributes mostsignificantly and positively to the success of afirm measured in terms of growth in size and

profit. MethodFor the purpose of testing the abovehypotheses, a questionnaire survey wascarried out in March 2001 with 112

entrepreneurs sampled from manufacturingSMEs in the Phnom Penh area, Cambodia.Prior to the questionnaire survey, visits toseveral governmental and non-governmentalorganizations were made in order to obtainrelated information for the research andsurvey. The organizations includedDepartment of SME (Ministry of Industry,Mine and Energy), Department of Technicaland Vocational Training, Department ofHigher Education (Ministry of Education,

Youth and Sports), ILO Cambodia, UNDP(United Nations Development Program)Cambodia, and ACLEDA (Association ofCambodia Local Economic DevelopmentAgencies). Due to the majority of SMEentrepreneurs in Phnom Penh are Chinesedecedents, the difficulty in reading andwriting Khmer, the official language ofCambodia, was observable. To avoid

possibility in making mistakes, it was decidedthat interviewers read questions and wrote

answers for the sampled SME entrepreneurs.

This time-consuming method required bothinterviewers and respondents to communicateface-to-face, and to double check questionsand answers in order to ensure the accuracy ofcollected information.Measurement

i) Managerial Functions: Four managerialfunctions (HRM, finance, marketing, and

technology) were considered in this study, a)HRM items included: (1) practices of humanresource development in terms of learning-by-doing practices, on-the-job training, andtraining given by the supplier, and (2) thequality of firm's human resource in terms ofcreativity, cooperation, and work motivationamong employees, b) Finance functionsconsisted of a self-evaluation on financialadequacy of the firm by using two questionitems: financial standing and access to the

additional fund, c) Marketing items included:(1) marketing strategy in terms of priceadjustment, quality adjustment, improvementof distribution, market segmentation, andadvertisement, and (2) a marketing system interms of retailing, wholesaling,subcontracting, and government contract, d)Technology items included: (1) technologyinput in terms of condition of machinery,usage of public electricity, supply ofmachines and spare parts, and (2) technology

policy in terms of policy development, R&D,

Firm'sand

Entrepreneur'sBackgrounds

HRMFinance

MarketingTechnology

Growth inSizeand

Profile


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and technology information. All variableswere measured by a 5-point scale rangingfrom 1 lowest (or never) to 5 highest (oralways).2) Business Outcome: Two performanceitems were used to evaluate the outcome of

business activities: size growth and profitgrowth in the past period. Size growth wasscored based on the size-change ratio that is:current size minus beginning size divided byyears of operation. Negative ratios wereconsidered to be "non-success" in terms ofsize growth, while zero and positive ratioswere considered to be "success" in terms ofsize growth. The profit-change is a self-Small-and Medium-sized ManufacturingEnterprises in Cambodia: Effects of KeyManagerial Functions on Business Successevaluation given by the firm. The scale rangesfrom "1"= declining profit comparing to the

beginning year, through "2" = stable profitcomparing to the beginning year, to "3"=increasing profit comparing to the beginningyear. This implies that values "2" and "3" arefor stable or increasing profit comparing tothe beginning year. Like size-change, firmswith value "1" are considered to be non-

successful, while those with "2" and "3" areconsidered to be successful.3) Control Variables: Eight variablescorresponding to firm's and entrepreneur'scharacteristics were used as control forexplaining the SME success. They are:(1) Current size of the firm (1= micro andsmall, 2 =medium sized)(2) Industry (1 = garment-related, 2 =food/beverage -related, 3 = constructionmaterial-related, 4=other)

(3) Age of the firm (l= not more than 5 years,2 =older than 5 years)(4) Variety of products (l=not more than 2types, 2 = 3 types and more)(5) Education of entrepreneur (1 = less than orequal to primary level, 2 = higher than

primary)(6) Age of entrepreneur (l=less than 45, 2 =older than 45)(7) Years of entrepreneur experiences (l=lessthan 5 years, 2 = longer than 5 years)

(8) Types of entrepreneur experiences (1 =trade-related, 2 = others)

Statistical Procedure

Initially, a series of t-tests were applied tofind characteristics of successful firms(successful vs. Non-successful entrepreneurs).

Secondly, multiple regression analysis wasapplied to find determinants of businessoutcomes by introducing four functions ofmanagement with background variables ascontrols.

Resul t and Discussion

1) Differential Characteristics of Successful

and Non-successful SMEs:

To differentiate the characteristics ofsuccessful and non-successful SMEs, t-testswere conducted. Results in Table 1 indicatethat the two groups of firms are significantlydifferent from each other in 6 determinantfactors surveyed. They are (1) the current sizeof the firm, (2) the current level of profit thefirm gains, (3) the level of HRM practices(HRM), (4) the level of financial adequacy(FIN), (5) the level of marketing practices(MARKET), and (6) the level oftechnological capability (TECH) of the firm.In terms of management functions, the above

result means that there are significantdifferences between the two groups of SMEsin regard to performing four managerialfunctions: human resource, finance,marketing, and technology functions. Thefirms that have higher emphasis on the fourfunctions are likely to belong to successfulgroup. Therefore, Hypothesis 1 that statessuccessful SMEs are actively performing keymanagerial functions (HRM, finance,marketing, and technology) significantly more

than non-successful SMEs is accepted. It wasfound that successfully growing SMEs interms of size are more active than non-successful SMEs: 1) in conducting HRD

practices and enhancing the quality of humanresources, 2) in managing financial functionsregarding the adequacy of working capital forexpanding business, 3) in managingmarketing issues with respect to strategies(price and quality adjustment, distributingsystem, segmentation of market, and

advertisement) and sales networking


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(contracts with large firms and government,wholesaling, and retailing), and 4) inmanaging technological functions involvingtechnological inputs (machinery, power, spare

parts) and policy development (R&D, seekinginformation, clear policy). The same results

were observed with respect to profit growth asshown in Table 1. These results indicated thatfor the SME business success, propermanagement of business process in terms offour key functions is critical. Also, twosuccess criteria used for the present study,

ratios of size growth and profit growth, werefound to be considerably inter-correlated, andtend to be determined by the same set offactors simultaneously as t-test results inTable 1 indicate.2) Determinants of Managerial Functions for

Business Success:In order to identify factors

contributing to explaining managerialfunctions and business success, multipleregression analyses were conducted.

As shown in Table 2, among backgroundvariables on firms and owners, industry

shows strong impacts both on managerial

functions and success criteria. Since coding ofindustry is made for the garment industry to

take the value "1", food and beverage "2",

Table 1 Result of t-tests conducted over 10 items between success and non-successSMEs

Variables Successn =82 Non successn =30

Size Growth

Average112 t P

Current size of firm 37.46 21.17 33.1 4.77 ***

Annual profit of firm 24.6 1.4 1.92 4.58 ***

Age of firm 4.16 4.63 4.69 0.05

Age of owner 45.6 44.9 45.41 0.68

Years of owner'sexperience 6.74 6.7 6.73 0.05

Level of owners education 1.18 1.2 1.19 -0.19

Score for HRM 1.81 1.5 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 ***

Profit Growth

Success Non-success Average t p

Current size of firm 35.7 28.03 33.1 5.34 *

Annual profit of firm 2.39 1 1.92 15.82 ***

Age of firm 4.58 4.76 4.69 0.43

Age of owner 45.57 45.11 45.41 1.7

Years of ownersexperience 7.04 6.13 6.73 3.5

Level of owners education 1.2 1.16 1.19 0.29

Score for HRM 1.18 1.5 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 7.9 ***

*p


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construction "3", and other "4", the negativecoefficient for industry means a stronggarment industry effect. Thus, this resultshows that being in the garment industry is a

benefit for actively performing HRMpractices, marketing function, and

technological activities, and above all forachieving both size and profit growth for thefirm. Likewise, a product variety variableshowed rather consistently significant effect,although it failed to contribute to explainingthe HRM, marketing functions and sizegrowth. It is interesting to see that owner's

background, especially their past experiencesas being in trade related businesses, haveconsistently significant effects on bothmanagerial functions and growth variables.Also, years of business experiences showed

positive influences except for size growth andmarketing functions. These results suggestthat SME entrepreneurs with long years

business experiences in trade-related businessare likely to succeed, especially in achieving

profit growth in the Cambodia SMEdevelopment context. Regarding the effects ofmanagerial functions, two functions, HRMand marketing, showed strong impacts on the

growth of profit, but no managerial functionshad significant positive effect on the sizegrowth after firm characteristic variablesentered into the regression. However, thisfinding still gives support to Hypothesis 2

because the t-test result in Table 1 clearlyindicated the importance of the fourFunctions for both size and profit growth. Insummary, Table 2 indicates that among thefour managerial functions, HRM ( =.23,

p


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Table 2 Results of multiple regress ion anal yses on managerial functions a nd busines s outcomes

SIZE Growth PROFIT Growth SIZE Growth PROFIT Growth

Firm Charectoris tics B T B t B t B t B t B t B t B t

Size of firm .18 2.29* .17 2.33** .04 -.54 .09 1.24 .18 2.14* .11 1.6 .12 1.46 .05 .84

I nd us try -.34 - 4.01 - .16 -1.97 -.22 -2.65** - .31 -3.8** - .39 -4.43** -.39 -5.60*** 2.27 - 2.76** -.26 3.64***

Age of firm .00 .08* -.10 -1.34 -.08 -1.12 -.04 -.59 .07 .84 .04 -.64 .07 .96 -.01 -.24

Va ri ety 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 .0.1 .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

Owne r's ye ar of e xp. .11 1.5** .32 4.37** .06 .89 .33 4.52** - .05 .67 .18 2.9** -.14 1.53 .11 1.68

Owner's Type of exp. - .30 -3.62 -.32 -3.99** -.48 -5.99** -.26 -3.32** -.26 -3.04** -.42 -6.18*** -.14 -1.43 .22 -2.99**

R-square (1)

Adj. R-square

F.

Managerial Functions

HRM .19 1.70 .23 2.83**

FIN .00 .05 .13 1.67*

MAR KET .02 .19 .19 2.31**

TECH .17 1.55 -.02 -.26

R-square (2)

Adj. R-square

F.

.42

18.91***

.65

.69

6.05***

.35

.60

.32 .57

7.60** 20.00***

(Not included in the regress ion) Not included in the regress ion

.42

11.35***

.45

.41

10.64***

.37

HRM FIN MARKET TECH

Managerial Functions Bussiness Outcome

(Not applicabl e)

.42

.38

9.67***

.47

.43

11.48***

.46

the technology temporally less important forthe business success for Cambodian SMEs.First, low skilled labor that is more suitable

to be employed by SMEs is plentiful inCambodia. Second, technology informationand procurement of equipment are limited inCambodia. This may cause the cost ofmachinery and production itself to be high, sothat SME owners would have to choose lowtechnology solutions. Firms that can takeadvantage of these conditions, namelyadapting a labor-intensive strategy instead oftechnology intensive one, are more likely to

be successful in the current Cambodian socio-economic context. Overall, in Table 2 anintroduction of the four managerial functionsinto a regression following after firmcharacteristics variables contributed toincrease R square value from R2 =.37 to R2 =.42 for size growth, and from R2 =.60 to R2=.69 for profit growth. These incremental

increase, namely (R2 = .05 and R2 = .09,for size and profit growth respectively werefound statistically significant at the p


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entrepreneur's experiences is found to be the

strongest determinant (=-.22). As mentionedearlier the negative coefficient is due tocoding for the experience type. This findingsuggests that the trade-related experience isimportant for an entrepreneur to run a

successful SME in the present businesscontext in Cambodia. Probably, because thenature of trade persons are more alert to the

business surroundings and make efforts forprofit making than other types ofentrepreneurs. The second determinant fromthe background factors is the industry where

business is in (= -.26). Again, the negativecoefficient is due to the coding method.Garment-related industry appears to be agrowing industry in Cambodia and thus SMEentrepreneurs in this industry enjoy the boomas well. Since large enterprises in thegarment-related industry in Cambodia haveaccess to the larger and more profitablemarkets in the US, EU, and Japan. Thanks tothe Most Favored Nation (MFN) andGeneralized System of Preference (GSP)treatments, this industry becomes thecountry's fast-growing sector (Hach, Huot,Boreak: 2001). The chance of having

profitability trickles down from export

oriented large firms to smaller SMEs thoughsubcon tracting and other linkages. Amongthe four managerial functions, only twofunctions (HRM and marketing) positivelyand significantly contributed to profit growth

of the firms (=.23,=.19 respectively). It is

premature, however, to simply conclude thatfinance and technology do not determineSME success in Cambodia. Looking at acorrelation matrix in Appendix 2 and resultsof t-tests in Table 1, there are significantrelationship existing between these functions(finance and technology) and size and profitsuccess. As mentioned earlier, laboremployed by the SME sector in developingeconomies is low skilled. In Cambodia thiskind of labor is plentiful. In contrast,information on technology and* the

procurement of machinery are priced veryhigh. Therefore, firms have to make choices

between the labor-intensive way ofproduction with cheap labor and backwardtechnology, or expensive advancedtechnology. In addition, the adequacy ofworking capital does not necessarilyguarantee success of the firm without a wiseand skillful management of the other key


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Small-and Medium-sized Manufacturing Enterprises in Cambodia: Effects of Key ManagerialFunctions on Business Success

Figure 2 Path of Determinants on Profit Growthmanagerial functions. This means that thefinance function can be determined by otherfunctions, thus making it not outstandingdeterminant of SME success. To sum up, thefindings of this study lead to needs fordesigning the new methods of assisting SMEsin Cambodia. Not only financial support but

also non-financial supports, such as training-,and market ing-related education andservices, are useful for the growth of SMEs.Based on this study, the two managerialfunctions, human resource and marketing,

were found to play significant roles inbringing prosperity to SMEs. This result givessupport to findings by Boliko andWakabayashi (1994) and Wakabayashi andBoliko (1994). Policies for assisting SMEsespecially in the Phnom Penh area shouldinclude non-financial supports as much as

possible. These kinds of services have to beavailable to enhance the managerial capacitiesof entrepreneurs and strengthen the operationsof key managerial function for SMEs.

REFERENCE

Association of Cambodian Local EconomicDevelopment Agency (ACLEDA) 1998,Impactsurvey Report, Phnom Penh.

Boliko, M., & Wakabayashi, M. 1994Entrepreneurship in developing countries:Small and medium sized enterprises in Roi-EtProvince of Thailand, Asian Review, 8(1),128-160.

Current

Firm

sizes

Industry

Product

variety

Age of

owner

Years of

experience

Types of

experiences

HRM

FIN

MRKT

TECH

Profit

Growth


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Calof, J. 1985 Analysis of small businessowners' financial preferences, Journal ofSmall Business and Entrepreneurship, 3(1),39-41.Cook,P. 1996 The impact of structural

adjustment on small-scale enterprises in

developing countries.Report for UNCTAD, Geneva.Duval, A., & Water field, S. 1996 Partnershiptools: working with local institutions formicroenterprise development. CARE, Atlanta.

Hach, S., Huot, C, & Boreak, S. 2001Cambodia's annual economic review 2001.CDRI, Phnom Penh, Cambodia. InternationalLabour

Organization 1998 Report of committee ofdonor agencies funded interventions. Geneva,Switzerland. International LabourOrganization 2000 Report on micro and smallenterprise development for poverty alleviationin Cambodia EASMAT, Bangkok.

Julien, P. A. 1998, The state of the art insmall business and entrepreneurshipAshgate. Ogawa, E.1994 Small business

management today. Asian ProductivityOrganization, Productivity Series 25.

Pedersen, P. O. 1998 The development ofsmall and medium-sized enterprises indeveloping countries: The case of Zimbabwe.CDR Working Paper 98.

Pissariders, F. 1999 Is lack of funds the main

obstacle to growth? EBRD's experience withsmall and medium-sized businesses in centraland eastern Europe. Journal of BusinessVenturing, 14, 519-539.

Royal Government of Cambodia 1996 Socioeconomic development plans 1996-2000.Phnom Penh, Cambodia.

Royal Government of Cambodia 2001 Socioeconomic development plans 2001-2005.Phnom Penh, Cambodia.

Scitovsky, I. 1978 The joyless economy.Oxford University Press.

UNDP 1989, Report of the Kampuchea needsassessment study. Phnom Penh, Cambodia.

Wakabayashi, M., & Boliko, M. 1994 Entrepreneur ship human resource management

and business success: A study of Japaneseentrepreneur in small- and medium-sizedfirms. Best Paper Proceedings of Associationof Japanese Business Studies, 1-30.


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Vol.1, No.1, July - December, 2012

82

Appendix 1Relationships between Managerial Functions (High vs. Low) and Determinants of SME

Success Based on t-tests

HRM

Determinants

High scoregroup

n = 43

Low scoregroup

n = 69

Total t P

Current size of firm 44.67 25.88 33.10 6.46 ***

Age of firm 4.69 4.60 4.69 .38


Age of owner 46.19 44.93 45.41 1.3

Years of owners experience 7.23 6.42 6.73 1.0

Level of owners 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 ***Score for TECH 2.3 1.9 2.12 6.0 ***

Current size of firm 39.214.73

29.434.58

33.104.69

2.96.66

**Age of firm

Annual profit of firm 2.57 1.59 1.92 7.25 ***Age of owner 46.88 44.53 45.41 2.61 *

Years of owners experience 8.38 5.74 6.73 3.63 ***


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 ***

Current size of firm 35.16 30.35 33.10 1.44

Age of firm 4.60 4.68 4.69 -.34


Age of owner 46.14 44.44 45.41 1.90

Years of owners experience 7.15 6.16 6.73 1.32


Score for TECH 1.85 1.55 2.12 5.09 ***

Determinants

Financing (FIN)

Marketing (MARKET)

Determinants


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APPENDIX 2

Correlation Matrix of 14 Variables Used for the Study

Variable 1 2 3 4 5 6 7 8 9 10 11 12 13

1-Profit change

2-Size change .561 -

3-HRM .584.442**

4-FIN .560**.300**

.374**

5-MARKET .519**.372**

.387- .335-

6-TECH .457**.383**

.321- .305- .211 *

7-Size of firm .355**.336**

.519- .319- .208* .309**

8-Industry .520**.452**

-.372** -.242* -.271**

-.348 -.159

9-Age of firm .153* *.034

-.021 -.104 -.071 -153 .026** .305**

10-Variety ofproducts

.246**

.127

.174 .187 .006 .232* 215* .77 .124**

11-Education ofentrepreneur

.018 -

.046

-.033 -.169 -.114 -.017 -.108 .18 -.054 .005

12-Age ofentrepreneur

.040

.081

.123 .216 246" .006 -.021 -.066 .024 -.141 -.389-

13-Years ofexperience

.298**

.047

.216* .412** .114 .229* .193* -.029 -.017 .208* -.107 .067**

14-Type ofexperience

.587**

.435**

.449- -.438** -.523 -.365 -240* .292- .025 -.091 .109 -253- -.089**

Note: *p


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