Journal of Business Venturing 17 (2002) 123 142

The competitiveness of small and medium enterprises

A conceptualization with focus on
entrepreneurial competencies$
Thomas W.Y. Man*, Theresa Lau, K.F. Chan
Department of Management, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China
Received 1 February 1999; received in revised form 1 April 1999; accepted 1 May 1999

Abstract
By drawing upon the concept of competitiveness and the competency approach, a conceptual model
is developed to link the characteristics of small and medium-sized enterprises (SMEs) owner
managers and their firms performance together. The model consists of four constructs of competitive
scope, organizational capabilities, entrepreneurial competencies and performance. The central focus of
the model is the three entrepreneurial tasks that link different competency areas with other constructs
of competitiveness. Propositions related to these relationships are made. The model suggests further
research in different competency areas, interindustry comparisons, and validating studies. D 2001
Elsevier Science Inc. All rights reserved.
Keywords: Competitiveness; Entrepreneurs; Competencies; SMEs; Conceptual model

1. Executive summary
The extensive literature review by Cooper and Gascon (1992) and Murphy et al. (1996)
has pointed out the use of sound theoretical frameworks in further investigating the
relationships between a small and medium-sized enterprises (SMEs) performance and its
antecedents. They also proposed search for more appropriate dependent variables likely to
provide more significant relationships, and discussed the need for rationales for measuring
$
An earlier version of this paper was presented at the 43rd International Council for Small Business World
Conference, Singapore, 8 10 June 1998.
* Corresponding author. Tel.: +852-2766-7342; fax: +852-2714-3679.
E-mail address: mswyman@inet.polyu.edu.hk (T.W.Y. Man).

0883-9026/02/$ see front matter D 2001 Elsevier Science Inc. All rights reserved.
PII: S 0 8 8 3 - 9 0 2 6 ( 0 0 ) 0 0 0 5 8 - 6

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firm performance. In response to these issues, we have drawn upon the concept of
competitiveness and the competency approach to develop a conceptual model linking the
characteristics of SMEs ownermanagers and their firms long-term performance.
Competitiveness is conceptualized as having three dimensions, namely potential, process
and performance. This concept is also characterized by its long-term orientation, controllability, relativity, and dynamism. The use of this concept therefore provides us with a rationale
for investigating the long-term performance of SMEs. Following a review of the literature on
SME competitiveness, we have distinguished between three key aspects affecting an SMEs
competitiveness, including the internal firm factors, external environment, and the influence of
the entrepreneur. These factors in turn impact the performance of the firm.
In particular, the influence of the entrepreneur is addressed by the competency approach
from a process or behavioral perspective. Entrepreneurial competencies are considered a
higher-level characteristic encompassing personality traits, skills and knowledge, and therefore can be seen as the total ability of the entrepreneur to perform a job role successfully. The
main advantage of using this approach is that it offers us a way to investigate entrepreneurial
characteristics that have long-term effects and closer links to organizational performance. Six
major areas of entrepreneurial competencies are distinguished, including opportunity,
relationship, conceptual, organizing, strategic, and commitment competencies.
Based on these building blocks, we propose a conceptual model for SME competitiveness,
which comprises four constructs: the competitive scope and organizational capabilities of the
firm (together addressing the potential dimension), entrepreneurial competencies (the process
dimension), and performance. Central to the conceptual model is that the relationships
between the competency areas and other constructs of SME competitiveness can be
hypothesized into three principal entrepreneurial tasks, namely (1) forming competitive scope;
(2) creating organizational capabilities; and (3) setting goals and taking actions towards
achieving the goals through assessing the competitive scope and utilizing the organizing
capabilities of the firm. These relationships are addressed by the following propositions:
Proposition 1: The opportunity, relationship, and conceptual competencies of the
entrepreneur are positively related to the competitive scope of an SME.
Proposition 2: The organizing, relationship, and conceptual competencies of the
entrepreneur are positively related to the organizational capabilities of an SME.
Proposition 3a: The strategic and commitment competencies of the entrepreneur are
positively related to the long-term performance of an SME. This relationship is
moderated by the competitive scope of the firm.
Proposition 3b: The strategic and commitment competencies of the entrepreneur are
positively related to the long-term performance of an SME. This relationship is
moderated by the organizational capabilities of the firm.
An alternative proposition to Propositions 3a and 3b can be:
Proposition 4: Strategic and commitment competencies, competitive scope, and
organizational capabilities will positively influence the performance of an SME through
their interactive effect.

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125

As the focus of the model is the central role of the entrepreneur in determining firm
performance, this model implies that developing entrepreneurial competencies is a more
important issue than directly providing more resources and a positive environment to the
entrepreneur. Moreover, the moderating or interactive relationships suggested in Propositions
3a, 3b and 4 imply that there should be a balance between various competency areas in order
to ensure long-term performance. The model also calls for further studies in the form of
qualitative investigations into those competency areas, interindustry comparisons, and
statistical validation studies of the model.

2. Introduction
In entrepreneurship and small business research, a firms performance is often considered
the ultimate criterion in both empirical studies (Barkham, 1994; Box et al., 1994; Dyke et
al., 1992; Ibrahim and Goodwin, 1986; Learner et al., 1997) and theoretical models (Herron
and Robinson, 1993; Keats and Bracker, 1987; Hofer and Sandberg, 1987). The entrepreneurs demographic, psychological and behavioral characteristics, as well as his or her
managerial skills and technical know-how are often cited as the most influential factors
related to the performance of an SME. The relationship is also affected by many industrial,
environmental, firm-specific characteristics and firm strategies. A comprehensive review of
various factors influencing firm performance can be found in the literature survey of Cooper
and Gascon (1992).
While different factors have been found to influence firm performance to different
extents, the results are often inconsistent (Chandler and Hanks, 1994; Cooper, 1993).
Insignificant relationships were also reported (Begley and Boyd, 1985; Perry et al., 1988).
In order to tackle this problem, Cooper and Gascon (1992) suggested that future research
should pay more attention to, first of all, a more fully developed theoretical framework to
help us focus on the research question; secondly, contingency relationships on different
conditions and interactions; thirdly, characteristics that deserve more attention even if they
may be less easily operationalized; and fourthly, the performance measures chosen and
their implications, as well as the use of an appropriate analytical technique. Similarly,
Murphy et al. (1996), after examining prior studies on entrepreneurship performance, also
proposed the use of multiple performance indicators in order to improve the explanatory
power between independent and dependent variables of performance. More importantly,
they also suggested the need to provide a theory-based rationale for examining the given
dimensions of performance.
In line with the arguments suggested by Cooper and Gascon (1992) and Murphy et al.
(1996), therefore, we attempted to organize the existing theories and findings in the
relationships between individual level entrepreneurial characteristics and firm performance
into a theoretical framework that allows further theoretical development and empirical
studies of these relationships. We have adopted the concept of competitiveness and the
competency approach to develop this conceptual model. Competitiveness is a concept often
related to the long-term performance of large corporations and economies. We will show
how it can be applied to the SME context. The competency approach is also a way of

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studying individual characteristics leading to the accomplishment of a job role or

organizational success. It has been widely applied to the study of managerial performance
since the work of Boyatzis (1982), and is increasingly used in the field of entrepreneurial
performance. A comprehensive review of various entrepreneurial competencies identified in
the literature has led us to summarize six major competency areas that constitute the central
focus of the proposed model.
In this article, after introducing the concept of competitiveness particularly at the
firm level and its application to SMEs, we will introduce the competency approach
towards studying entrepreneurial characteristics, and explain why and how entrepreneurial competencies can be incorporated into a model of SME competitiveness. A number
of propositions will be proposed based on the three principal entrepreneurial tasks
suggested in the model. Finally, we will discuss the theoretical and empirical implications of this framework.

3. Competitiveness
Competitiveness is an attractive concept at various levels of study, including the
individual firm level, microeconomic level for industry policies, and the macroeconomic
level for the competitive positions of national economies (Nelson, 1992). A review by
Waheeduzzaman and Ryans (1996) also pointed out that the competitiveness concept
involves different disciplines, such as comparative advantage and/or the price competitiveness perspective, the strategy and management perspective, and the historical and
sociocultural perspectives. Competitiveness can also be treated as a dependent, independent, or intermediary variable, depending on the perspectives from which we approach
the issue. This variety of levels and approaches actually reflects the wide applications of
this concept.
Whatever the levels of focus are, competitiveness is ultimately concerned with the longterm performance of the subject related to its competitors, which is the result of being
competitive. Nevertheless, competitiveness is also concerned with what factors lead to being
competitive, as well as how it can be achieved. For example, in Orals (1986) model of the
competitiveness of industrial firms, competitiveness is a function of the firms industry
mastery, its cost superiority, and the politicaleconomic environment around it, implying a
need for both external and internal considerations of competitiveness. Feurer and Chaharbaghi (1994) viewed competitiveness as an interaction between the level of customer and
shareholder values through matching and improving the organizations capabilities, offerings
and potential, as well as the organizations ability to act and react through its financial
strength. Corbett and Wassenhove (1993) also suggested that a firms competitiveness has
price, place, and product dimensions. Therefore, competitiveness should be considered a
multidimensional concept. To further illustrate, two frameworks seem able to largely capture
the essence of this point of view. First, Buckley et al. (1988) suggested the application of a
threefold measure of competitiveness, including competitive performance, competitive
potential, and management process. Their model emphasizes the interrelationship of these
three kinds of measures. A similar framework can be found in the World Competitiveness

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127

Fig. 1. The model of Buckley et al. (1988).

Report (Institute of Management Development and World Economic Forum, 1993). In its
world competitiveness formula, world competitiveness is a combination of assets,
which are inherited or created, as well as processes, which transform assets into economic
results. These two frameworks are shown in Figs. 1 and 2.
These two frameworks show that competitiveness should not be a simple index for
measuring how competitive a firm, an industry, or a nation is. Rather, it involves
multidimensional constructs. More importantly, it is an ongoing process rather than a static
one. When using the term competitiveness, we need to consider not only the resulting
performance or the potential or asset to generate this performance, but also the process for
doing so. Nevertheless, in order to apply a multidimensional framework to the SME
context, it is necessary to consider the constructs for competitiveness that are more

Fig. 2. The world competitiveness formula.

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appropriate and more readily operationalized for it. For instance, in the model of Buckley et
al. (1988), which is applied to the international context, environmental factors are treated as
endogenous in all constructs. For SME competitiveness, internal and external environment
may be better considered under separate constructs, as they may have vastly different
implications for SMEs.
Apart from the three dimensions, we also propose the concept of competitiveness as
having four characteristics. First, competitiveness is long-term oriented, focusing on longterm performance rather than the possession of temporary competitive advantage only. For
example, Ramasamy (1995) defined competitiveness as the ability to increase market share,
profit and growth in value-added and to stay competitive for a long duration. This rules out
short-term competitive tactics such as dumping, where the market share is bought by
selling products at unprofitable prices (Buckley et al., 1991).
Second, competitiveness is controllable, relating to the various resources and capabilities
of a firm rather than simply the favorable external conditions leading to superior performance. This view is particularly popular from the resource-based perspective of studying a
firms competitiveness (Barney, 1991; Grant, 1991; Prahalad and Hamel, 1990; Ulrich,
1993). Also related to this condition are a number of studies focusing on particular aspects
such as Corbett and Wassenhove (1993) on marketing, Ross et al. (1996) on information
technology, Swann and Taghavi (1992) on the quality of products, and Grupp (1997) on the
firms innovative capability.
On the other hand, emphasizing the competitive strategy approach (Ghemawat, 1990;
Porter, 1980, 1985), competitiveness is also a relative concept, concerned with how
competitive a firm is when compared to the rest of the industry. This is also illustrated in
Feurer and Chaharbaghis (1994) model of competitive position mapping and Oral (1986) on
a firms industrial competitiveness. Corbett and Wassenhove (1993) also distinguished
between a firms competitiveness, which requires relative measures, and a firms competence,
which requires absolute measures.
The last characteristic is concerned with its dynamic nature, which involves the dynamic
transformation of competitive potentials through the competitive process into outcomes,
corresponding to the framework suggested by Buckley et al. (1988). As some companies
seem to be able to continually create new forms of competitive advantage, a simply static
view of competitive advantage based on relative positioning or the firms capability building
may not be sustainable for long. This is especially true in an intensely competitive market,
where advantages are easily imitated and lost. We need a more proactive approach in order to
sustain competitiveness.
These four characteristics long-term orientation, controllability, relativity, and dynamism together with the multidimensional approach described earlier, serve as the two
guidelines for the subsequent conceptualization of SME competitiveness. Different constructs
of the model have been chosen based on these attributes.
3.1. SME competitiveness
A small firm is not a scaled-down version of larger firms. Larger and smaller firms differ
from each other in terms of their organizational structures, responses to the environment,

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129

managerial styles and, more importantly, the ways in which they compete with other firms.
As a result, the competitiveness studies focusing on large corporations may not be applied
directly to the SME level. In fact, studies of competitiveness with a focus on SMEs have
increased substantially in recent years, with a number of studies devoted to identifying the
various factors of competitiveness described below. For example, the framework proposed by
Horne et al. (1992) stressed that competitiveness for small firms should be the interaction of
the scope for action or growth in the business environment, the degree of access to capital
resources, and the intrinsic ability of the firm to act as represented in entrepreneurship. This
framework corresponds to our review of the recent literature, which distinguishes between
three key aspects leading to an SMEs competitiveness, including the internal firm factors,
external environment and, unique to SMEs, the influence of the entrepreneur. These factors in
turn affect the performance of the firm.
3.1.1. Internal firm factors
The capital and resource dimension of the framework of Horne et al. (1992) represents the
internal aspect of SME competitiveness. It is seen as one key facilitating element applied to a
variety of competitive strategies. Similar internal sources have also been identified in the
literature. For example, OFarell et al. (1992) and OFarell and Hitchens (1988, 1989) have
conducted a number of studies on the relationship between sources of competitiveness and
firm performance, focusing on price, quality, design, marketing, and management. Slevin and
Covin (1995), however, applied a 12-factor instrument to measure the total competitiveness of SMEs, including the firms structure, culture, human resources, product/service
development, etc. According to them, total competitiveness means scoring high on all these
factors. Prattens (1991) study of small firms in several industries in the UK also highlighted
the importance of product development, the quality of customer service, efficiency of
production, marketing expertise, and low overhead costs as the sources of competitiveness.
Further lists of the internal factors are also given by Bamberger (1989), Chaston and Mangles
(1997), Stoner (1987), and more recently by Chawla et al. (1997). To summarize, these
studies have highlighted a number of firm-specific factors such as financial, human and
technological resources, organizational structures and systems, productivity, innovation,
quality, productivity, image and reputation, culture, product/service variety and flexibility,
and customer service.
3.1.2. External environment
The lack of market power and the turbulent nature of newly emerging markets faced by
many SMEs often make them more vulnerable to external influences than larger firms. The
external environment is therefore particularly influential in determining an SMEs competitiveness. Representing this external aspect of competitiveness, the framework of Horne et
al. (1992) highlighted the scope for action and growth, which indicates the availability of
opportunities to generate increased long-term profitability inherent in the external environment. The OECD (1993) study stressed that changes occurring in the economies can affect
the competitiveness strategy of the SMEs. Pratten (1991) also suggested the influences
of industrial differences on the sources of competitiveness. Although the focuses of the
external environment are different, these studies have shown the significant impacts of the

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external environment on SME competitiveness. Moreover, Barringer et al. (1997) found

that rapid-growth entrepreneurial firms operate in more munificent environments than
slower-growth ones, suggesting the positive influence of environmental opportunities. Other
authors have taken a more proactive approach when considering the external factors. For
example, Slevin and Covin (1995) suggested that continuous repositioning is needed for
small new firms to anticipate and be responsive to the actions of competitors. Malecki and
Tootle (1996) also emphasized the roles played by SME networks in their competitiveness.
These studies suggest an interaction between the firm and the environment. Small firms
need not behave only as recipients of environmental changes, but can also actively work on
the environment.
3.1.3. Influence of the entrepreneur
More importantly, for an SME, the process of achieving competitiveness is strongly
influenced by the key players, highlighted as entrepreneurship factors in the framework of
Horne et al. (1992). Even in the literature emphasizing the internal or external sources of
competitiveness, these entrepreneurial factors are also stressed. For example, the OECD
(1993) study has put forward the idea that the basic role played by the owner/manager is
one of the major determinants of SME competitiveness because of the concentration of
decision-making power in the owner/manager in an SME environment, consequently
affecting the firms overall strategy. This emphasis on the human factor is supported by
the finding of Stoner (1987) that the key distinctive competence of small firms is the
experience, knowledge, and skills of the owners and workers. Two of the critical success
factors highlighted in the study of Chawla et al. (1997) are the experience and goal
orientation of the small business owners. Slevin and Covin (1995) also suggested that the
total competitiveness is positively influenced by a founder who can pay attention to the
detailed operations of the business when the business is small. In sum, all of these studies
imply the influential role of the entrepreneur in affecting the performance of the firm,
particularly when the firm remains small.
3.1.4. Performance
Competitiveness is only a means to an end, that is, the firms performance. Although the
studies cited above tend to focus on identifying what leads to performance rather than
performance itself, all of them call for the long term performance, success or growth of the
firms. Just like their large counterparts, the performance resulting from an SMEs competitiveness should be long-term focused rather than short-term oriented.
Having reviewed the relevant literature, we can draw three major conclusions at this
stage. Models of competitiveness should take the threefold dimensions of potential,
process and performance into consideration, although it is necessary to specify appropriate constructs to these dimensions for different contexts and for operationalization.
The choices of constructs and variables should also meet the characteristics of longterm orientation, controllability, relativity and dynamism. Finally, an SMEs competitiveness should comprise the four major constructs relating to the firms internal factors,
external environment, influences of the entrepreneur, and the firms long-term performance. The relationship between the constructs, the characteristics, and the dimensions

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131

Fig. 3. The relationship between the constructs, characteristics and dimensions of SME competitiveness.

of competitiveness are summarized in Fig. 3, which will be further elaborated in the

subsequent conceptualization.
Nevertheless, different studies have proposed different sources or factors for competitiveness. To fit into our multidimensional perspective and the four characteristics of competitiveness, we need a more integrated framework with more specific constructs. To start with,
we first consider the influence of the entrepreneur using the competency approach, which
addresses the process dimension of our competitiveness framework.

4. Entrepreneurial competencies from a process perspective

As with competitiveness, the studies of individual competencies are also related to
performance. Entrepreneurial competencies are obviously related to managerial competencies, as articulated in the works of Boyatzis (1982). According to Boam and Sparrow (1992),
this rising importance results from two fundamental issues: first, large-scale change programs
have failed to change organizations, as they fail to deliver the necessary changes in individual
behavior. To sustain a change in behavior, people have to create a demand for new behavior.
Second, the growing link between business performance and employee skills has called for
the need to improve management capability in order to sustain business performance. In other
words, this approach is a response to the need for long-lasting individual characteristics
leading to success, rather than simply skills and abilities, in facing increasing competition.
Therefore, the use of the competency approach matches the long-term orientation characteristic of competitiveness.
The competency approach has become an increasingly popular means of studying
entrepreneurial characteristics. While competency can be studied from its inputs (antecedents
to competencies), process (task or behavior leading to competencies), or outcomes (achieving
standards of competence in functional areas) (Mole et al., 1993), we currently emphasize the

Opportunity competencies

Literature sourcea

10

11

12

Literature source: (1). Adam and Chell (1993); (2) Bartlett and Ghoshall (1997); (3) Baum (1994); (4) Bird (1995); (5) Chandler and Jansen (1992); (6)
Durkan et al. (1993); (7) Gasse (1997); (8) Hunt (1998); (9) Lau et al. (1999); (10) McClelland (1987); (11) Mitton (1989); (12) Snell and Lau (1994).

Commitment competencies

Strategic competencies

Organizing competencies

Conceptual competencies

Relationship competencies

Behavioral focus

Competencies related to recognizing and developing

market opportunities through various means
Competencies related to person-to-person or
individual-to-group-based interactions, e.g., building a
context of cooperation and trust, using contacts and
connections, persuasive ability, communication and
interpersonal skill
Competencies related to different conceptual abilities,
which are reflected in the behaviors of the entrepreneur,
e.g., decision skills, absorbing and understanding complex
information, and risk-taking, and innovativeness
Competencies related to the organization of different internal
and external human, physical, financial and technological
resources, including team-building, leading employees,
training, and controlling
Competencies related to setting, evaluating and implementing
the strategies of the firm
Competencies that drive the entrepreneur to move ahead with
the business

Competency area

Table 1
The six competency areas identified in the literature

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133

process or behavioral approach to studying entrepreneurial competencies in order to be in line

with the process dimension of the competitiveness condition. This approach assumes that the
mere possession of competencies does not necessarily make an entrepreneur competent.
Rather, competencies can only be demonstrated by a persons behavior and actions, which
correspond to the dynamism characteristic of competitiveness.
In terms of a casual relationship, behavior is closer to performance than other entrepreneurial characteristics, such as personality traits, intentions or motivations (Herron and
Robinson, 1993; Gartner and Starr, 1993). According to Bird (1995), competencies are seen
as behavioral and observable but only partly intrapsychic characteristics of an entrepreneur.
Consequently, competencies are changeable and learnable, allowing intervention in terms of
the selection and teaching of entrepreneurship. These natures allow entrepreneurial competencies to indicate the controllability characteristic of competitiveness.
In sum, the characteristics of entrepreneurial competencies can be investigated from a
process perspective, reflecting the actual behavior of the entrepreneur. They fit into the longterm orientated, dynamic, and controllable natures of SME competitiveness. They can be
considered as higher-level characteristics, representing the ability of the entrepreneur to
perform a job role successfully (Lau et al., 1999) and encompassing personality traits, skills
and knowledge, which are in turn influenced by the entrepreneurs experience, training,
education, family background and other demographic variables (Bird, 1995; Herron and
Robinson, 1993). We have examined previous empirical studies in entrepreneurial competencies in an attempt to categorize all of the identified competencies into relevant activities or
behavior in an SME context. Consequently, six competency areas are grouped together, as
shown in Table 1.

5. Development of the conceptual model

Since the above six competency areas can represent the process dimension of SME
competitiveness, we propose the following model by incorporating them into the other
constructs suggested earlier (Fig. 4).
This model distinguishes between four major constructs. Apart from entrepreneurial
competencies, there are also competitive scope, organizational capabilities, and firm performance. The competitive scope and organizational capabilities represent the constructs of
external environmental factors and internal firm factors, respectively, and together they make
up the potential dimension of competitiveness. The construct of firm performance, on the
other hand, addresses the performance dimension. Central to the model are the relationships
between entrepreneurial competencies and other constructs of competitiveness. These
relationships are conceptualized as three principal entrepreneurial tasks, as shown in the
model, and are explained in detail as follows.
5.1. Task 1: forming the competitive scope of the firm
This task is concerned with the entrepreneur and the external environment. Addressing
external factors/externality on the potential dimension of competitiveness, the construct of

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Fig. 4. A model of SME competitiveness.

competitive scope represents the perceived breadth for the firm to act. Previous studies
have highlighted several measures to capture this construct, including technological
sophistication, market heterogeneity, dynamism, market attractiveness, product/industry life
cycle, environmental munificence, perceived opportunity, market demand, and competitive
concentration (Covin and Covin, 1990; Chandler and Hanks, 1994; Davidsson, 1991;
Naman and Slevin, 1993; Stuart and Abetti, 1987, 1990; Romanelli, 1989; Tsai et al., 1991;
Zahra, 1993). In the strictest sense, all measures are subjective if the environment is
assessed by the entrepreneur. This construct therefore relates to the opportunities available
to the firm, as subjectively perceived by the entrepreneur. The perceived competitive scope
of the firm does not necessarily represent the actual objective opportunity available. The
nature of this construct corresponds to the relativity characteristic of SME competitiveness,
as it is subjective and externally focused. Taking these factors into consideration, we
suggest that the possible content of this construct can include perceived market or industry
growth, demands for new products or services, the demand for technological opportunity,
and the heterogeneity in the market. These factors should be positively related to the
perceived competitive scope of the firm.
This perspective seems to suggest that the competitive scope is likely to be affected by the
entrepreneurs ability to interpret environmental conditions. In fact, while the entrepreneur is
affected by the environment, the literature also suggests that the perceived environment is
influenced by entrepreneurial activities (Herron and Robinson, 1993; Keats and Bracker,
1987). The study of Westerberg et al. (1997) in particular highlighted the importance of the

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135

CEO in turbulent situations similar to those faced by small firms. In other words, the
entrepreneur in a small firm plays a crucial role in the relationship between the actual
objective environment and the perceived subjective environment. As a result, the corresponding competencies lie mainly in the opportunity competencies, which call for the ability to
search and to act on opportunities. Relationship competencies are also helpful in creating
contacts and connections, and many business opportunities can be established through this
process. We would also suggest that hidden opportunities can be uncovered with stronger
conceptual competencies, which equip the entrepreneur with sufficient skills in conducting
analysis, decision-making, learning and problem-solving. This leads us to the first proposition:
Proposition 1: The opportunity, relationship, and conceptual competencies of the
entrepreneur are positively related to the competitive scope of an SME.
A special consideration is the entrepreneurs age. While the entrepreneurs experience,
education, and training can be seen as the antecedents of entrepreneurial competencies, the
effect of the entrepreneurs age seems to be less conclusive. Cooper and Gascon (1992) found
that the relationship between age and performance is inconsistent in the literature. An
entrepreneur can become more competent (Brockhaus and Horwitz, 1986; Cooper et al.,
1988) or less entrepreneurial when he or she gets older (Begley and Boyd, 1985; Cragg and
King, 1988). It is therefore necessary to control the effect of the entrepreneurs age in order to
focus on the proposed relationship.
5.2. Task 2: creating the organizational capabilities
The second task is related to the internal capabilities of the firm and the entrepreneur.
Representing the internal potential dimension, various internal sources of competitiveness
were identified and discussed earlier. They can be largely differentiated into resources, which
are inputs into the production process, and capabilities, which emphasize the tasks or
activities for transforming these resources (Grant, 1991). In line with the controllability
and dynamism characteristics of our competitiveness framework, it is the latter which
constitutes our construct of organizational capabilities. Following this approach, we can
generalize some of the possible organizational capabilities including: innovative ability the
ability to be innovative in new products, services or processes; quality the ability to
maintain or achieve high quality in products or services, which leads to a good image and
reputation; cost effectiveness the ability to achieve cost effectiveness so as to set a
competitive price; and organicity the ability to create and maintain flexible, organic
organizational structures and systems for achieving production speed and responsiveness.
The task of creating organizational capabilities is seen as a function of the entrepreneurs
roles and behavior in gathering and using resources (Gartner and Starr, 1993; Ostgaard and
Birley, 1994). The study of Westerberg et al. (1997) on CEOs also suggests their importance
in acquiring and developing knowledge, skills, and abilities crucial to a firms success. The
relevant competencies are mainly related to the organizing competencies, which call for the
planning, organizing, and controlling of marketing, human and financial resources, and the
monitoring of the whole operation towards efficiency and productivity. Relationship
competencies are also required for gathering external resources such as external consultants

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and financial support. Moreover, the conceptual competencies also play a role in analyzing
organizational problems, making important decisions, and innovating new processes, products, or services. The second proposition is that:
Proposition 2: The organizing, relationship and conceptual competencies of the
entrepreneur are positively related to the organizational capabilities of an SME.
As in Proposition 1, the entrepreneurs age can be used as a control variable in this
proposition, as the exact role of age is still subject to debate. It may either improve the
competencies through experience, or make the entrepreneur less entrepreneurial as he or she
gets older.
5.3. Task 3: setting a goal and taking actions for the goal through assessing competitive
scope and using organizational capabilities
The final task links the external environment, the internal firm factors and the
entrepreneur with the firms performance. Firm performance is the ultimate criterion in
the model. However, there are few performance measures that are deliberately applied to
an SMEs competitiveness. Nevertheless, we have reviewed the performance criteria in
other studies of firm-level competitiveness (Buckley et al., 1988; Feurer and Chaharbaghi, 1994; Kravis and Lipsey, 1992; OFarrell and Hitchens, 1989; Institute of
Management Development and World Economic Forum, 1993). Also, after considering
the need for multiple measurements (Murphy et al., 1996) and the four attributes for
competitiveness proposed earlier, we suggest that SME competitiveness performance
should be considered from three perspectives, including the measures of efficiency and
profitability, measuring a firms capabilities in maximizing resources allocation and
profit, and indicating the controllability characteristic of competitiveness; growth,
including present growth and the potential for growth as an indicator of long-term
orientation and dynamism characteristics of competitiveness; and relative performance,
which addresses the relativity characteristics of competitiveness when comparison is
made with the firms competitors.
In order to ensure the long-term performance of the firm, the entrepreneur must set the
direction for the company, and be visionary, strategic and goal-oriented. Prior studies
suggest that there is a positive relationship between strategic planning and the performance
of small firms (Davig, 1986; Ibrahim, 1991; Kargar, 1996; Olson and Boker, 1995; Pleitner,
1989), although such planning behavior is often of an informal nature rather than a formal
one, of focused rather than an extensive horizon, and focuses on process rather than
content. More importantly, it is often the ownermanagers of these small firms who lead
the strategic planning process. The primary competency area required in this task should be
the strategic competencies.
The study by Kuratko et al. (1997) reveals that goal setting and motivation are required
not only in the prelaunch or early stages of a business startup, but also in its continuation.
In our competency approach, an entrepreneur also needs to possess strong commitment
competencies, equipping him with the necessary drive and initiative to sustain his efforts.

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137

Being persistent and committed to the task will enhance performance of the firm in the
long term.
Nevertheless, the levels of competitive scope and organizational capabilities will determine
the extent to which entrepreneurs can apply their strategic and commitment competencies. To
illustrate, a broader competitive scope will allow more space for the entrepreneur to take
action. Similarly, higher organizational capabilities let him or her perform with fewer
constraints. This demonstrates the moderating effects of competitive scope and organizational
capabilities on strategic and commitment competencies. Therefore, we make the following
two propositions:
Proposition 3a: The strategic and commitment competencies of the entrepreneur are
positively related to the long-term performance of an SME. This relationship is
moderated by the competitive scope of the firm.
Proposition 3b: The strategic and commitment competencies of the entrepreneur are
positively related to the long-term performance of an SME. This relationship is
moderated by the organizational capabilities of the firm.
Another way of approaching the same issue is to consider the relationship between
entrepreneurial competencies, competitive scope, and organizational capabilities as being
interactive. According to Adam and Chell (1993, p. 26), the entrepreneur needs to
maintain a critical internal focus on organizational activities and structure, whilst also
maintaining a critical external focus on the wider business environment. This view echoes
the interpretation of Lipparini and Sobrero (1994) of the entrepreneurial view of the firm.
They argued that it is through the entrepreneurs ability to build a set of linkages with
external actors, around a nucleus of firm-specific competence and skills, that competitive
advantage is reached and sustained, despite size limitations (Lipparini and Sobrero, 1994,
p. 126). The entrepreneur must keep an eye on the opportunities and resources available
and have the ability to integrate them. A study done by Sandberg and Hofer (1987) also
highlighted the interactive effect of industry structure, strategy, and the entrepreneurs
experience, on new venture performance. Recent studies also support the contingency or
even configurational view between entrepreneurial postures, strategy, environment, and
performance (Dess et al., 1997). Although we are not going to discuss this issue further
here, we can rightly propose an interactive relationship between strategic and commitment
competencies, competitive scope, and organizational capabilities in terms of a firms
performance. An alternative proposition can be:
Proposition 4: Strategic and commitment competencies, competitive scope, and
organizational capabilities will positively influence the performance of an SME through
their interactive effect.
Since firm performance is influenced by many factors, it is necessary to control more
factors in order to focus on the competencyperformance relationship. Apart from the
effect of the entrepreneurs age on entrepreneurial competencies, it is also necessary to
consider the firms age and size, the industry sector that the firm belongs to, and the stage
of business development. As a firm gets older or bigger in size, it may be more difficult for
it to grow as fast as when it was young or small. It is therefore necessary to control these

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two effects. It is also necessary to control the effect of the industry, because variations in
performance may actually be due to industry differences. Further, the stage of development
of the business can also either positively or negatively influence the performance of the
business (Churchill and Lewis, 1983). A firm in the introduction or maturity phase of its
life cycle tends to grow more slowly or even show no growth at all, whereas a firm in its
take-off phase can grow very fast. As a result, it is necessary to control the influences of
different stages of the life cycle on performance.
Finally, although the direct influences exerted by an SMEs competitive scope and
organizational capabilities may also have a positive impact on a firms performance, they
do not necessarily affect the long-term performance of the firm without the presence of
strategic and commitment competencies to set and sustain long-term goals. The direct impacts
of these two constructs on firm performance are not considered as a major impact.

6. Conclusion
To investigate the relationship between entrepreneurial characteristics and an SMEs longterm performance, we have adopted the concept of competitiveness and incorporated it with
entrepreneurial competencies to provide a theoretical rationale. The model distinguishes
between three dimensions of competitiveness potential, process, and performance as
well as four characteristics that qualify for competitiveness, which are long-term orientation,
controllability, relativity, and dynamism. Based on these two guidelines, we have developed a
model consisting of four constructs: entrepreneurial competencies, competitive scope,
organizational capabilities, and firm performance. The use of the competency approach in
particular provides us with a means of studying entrepreneurial characteristics as a kind of
variable, which is less operationalized yet higher level and closer to performance. This should
provide us with a more significant relationship than by using easily operationalized but lower
level variables such as the entrepreneurs educational background, age, and experience. It is
hoped that this model can provide a theoretical foundation for our purpose in response to the
suggestions by Cooper and Gascon (1992) and Murphy et al. (1996).
A major contribution of the theoretical framework is the organization of the existing
theories and findings in entrepreneurial characteristics and firm performance around three
entrepreneurial tasks, so that further theoretical development and empirical studies can be
made based on this framework. For instance, in terms of theoretical considerations, as it
focuses on the central role of the entrepreneurial competencies in entrepreneurial tasks, it
highlights the importance of the role of the entrepreneur in determining the firms
performance. While differences in the objective environment or the firms resources play
a role in forming competitive scope and creating organizational capabilities, without the
entrepreneurial competencies, they cannot be developed into competitive scope and
organizational capabilities that affect the firms long-term performance. Therefore, ultimately, differences in long-term performance are explained by entrepreneurial competencies. A policy implication is that developing competent entrepreneurs in the long term
seems to be a more important issue than directly providing them with more resources or a
positive environment.

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139

Another implication from the framework is that an entrepreneur needs a balance between
various competencies. Overemphasis on a few competency areas cannot ensure the firms
long-term performance, which can be seen as a result of the moderating or interactive
relationships of competencies and descendants of competencies. To illustrate, the lack of
organizing competencies hinders the development of organizational capabilities, which in
turn limits the use of strategic and commitment competencies.
As the theoretical framework focuses on the role of the entrepreneur in firm performance, it
will fit better with firms which are smaller in size and have a dominating entrepreneur, who is
most likely to be the founder of the business. It is less readily applicable to SMEs without a
dominating or founding entrepreneur, or to larger firms. This condition has imposed a
limitation on the generalizability of the framework. However, upon modification, it can also
be applied to the study of the strategic business unit for larger corporations.
The model also calls for several related directions for empirical studies. First of all, while
we have distinguished between six competency areas and three other major constructs, we
still need to identify which individual competencies lie in each area, as well as the appropriate
variables within each construct. Further empirical studies in the form of qualitative methods
are appropriate for investigating the competency areas in detail. It would also be of great
value to carry out interindustry or cross-cultural comparisons of different competency areas,
and look at how they affect other constructs of SME competitiveness. Finally, at present, only
a few studies of entrepreneurial competencies (Baum, 1994; Chandler and Hanks, 1994;
McClelland, 1987) have been validated for firm performance, and hence further statistical
validation of the model is clearly the way ahead.

Acknowledgments
This study is partially funded by the Central Research Grant of the Hong Kong Polytechnic
University under the project number G-V502.

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