Modelling Collaborative Advantage of Small Medium Enterprises in Pursuit of Achieving Competitiveness

Abstraksi

Small and Medium Enterprises (SMEs) are the backbone of Indonesian economy, contributing to the jobs creation and growth of national income. However, evidence suggest that majority of SMEs in Indonesia have been experiencing low growth, operating at low productivity, and hence low competitiveness. Researchers account for weak business collaboration with the peers as one of the main factors contributing to the SMEs' slow growth in business and impede the internationalization process of SMEs. The need for Indonesia's SMEs to engage in the stronger and wider collaboration with larger enterprises or multinational companies is becoming urgent as the production bases as well as markets are now inter-connected under regional economic integration. Managing a successful collaboration, however, requires specific strategies in order to allocate resources efficiently and effectively to produce valuable, inimitable and affordable products and services. The earlier theories of collaborative advantage (CA) proposed by Cao (2010), Huxham (2005) and Dyer (2000) have established a good foundation for designing a successful collaboration among the firms. However, the conceptual framework of these models is generated from the experiences of large, well established companies, mainly in developed countries. Hence their CA model might not fully applicable for SMEs in developing economies, including Indonesia. To conceptualize the CA model that fits into SMEs in the developing economies, adaption to the CA model is necessary. This adapted model will capture the unique features of SMEs businesses. This paper examines the effect of CA on Small Medium Enterprises (SMEs) performance. It also examines the mediation effect of firm's capability in this relationship. Firm capability captures adaptability, flexibility, differentiation and affordability. Prior examining this effect, the conceptualization of CA model is thoroughly investigated. The SMEs producing automotive components are chosen as the case study. This is because they are one of the market actors who actively engage in the collaboration and adapt with the market dynamics. In addition, they are included as part of 12 Priority integration sector under ASEAN Economic Community (AEC). SMEs producing automotive components would have a strategic position to the future development of Indonesian economy. They could become generator for establishing both forward and backward linkages with other related manufacturing sectors. Hence, this sector is highly potential to become a future key source of employment creation that could contribute to foster the inclusive growth. Based on a questionnaire survey from the 177 Indonesian SMEs automotive component industry located in four provinces, namely Jakarta, West Java, Central Java and East Java, the analysis is conducted using PLS-SEM two stage under reflective-formative Hierarchical Component Model (HCM). PLS-SEM is suitable to explore and to extend the existing theories. This study explores the extension of an existing well-known collaborative advantage theory proposed by Dyer (2000). The extension covers the consideration of strengthening inter-firm trust building concept, enhancing dynamic synchronization concept and incorporating intangible or non-price factors such as relational capital in the resources investment concept. By taking account the important features of SMEs, we conceptualized CA in eight constructs (collaborative commitment, collaborative efficiency agreement, collaborative risk sharing, collaborative planning, collaborative resource sharing, collaborative relational capital, collaborative information & knowledge sharing, collaborative synchronizing response) and group it into three pillars (inter-firm trust building, dynamic synchronization and resources investment). Empirical testing of structural model in HCM shows that CA has direct positive effect on SMEs performance. Measuring the effect of CA on firm performance in many cases is not straightforward. CA may also affect firm performance indirectly through firm capability as a mediating variable. Firm capability is reflected by firm ability to adapt with the market environment changes, ability to meet customer request changes efficiently, ability to differentiate products and ability to produce quality products with competitive prices. The results provide evidence that firm capability mediates the relationship between CA and firm performance. The magnitude of indirect effect of CA on firm performance through firm capability is found higher than its direct effect. This study contributes to the theory of CA by addressing the constructs that fits for SMEs in the developing economies to strengthen inter-firm trust building and to improve dynamic synchronization among the CA members. In addition, this study also brings a new insight by incorporating relational capital construct as a non-price factor in the resources investment. This study provides guidance to the firm's owners and/ or managers to establish collaborations with their peers under the proposed CA model. For government, the proposed CA model could be applied to develop stronger and sustainable linkage programs among SMEs and between SMEs and larger enterprises. The need of SMEs to network with other business entities especially larger enterprises including multinational companies would need support from government through certain linkage programs that allow SMEs to become routine suppliers without abandoning the principle of efficiency. Government can establish an automotive industry cluster under a Special Economic Zone (SEZ) where the government provides equal incentives to all investors. In addition, under AEC scheme, government can attract foreign investors to invest in the automotive industry SEZ through joint ventures schemes between local and foreign investors. In addition, SEZ can be a hub to establish a more efficient and wider network with peers in different geographical areas, including peers in foreign countries.