Showing papers in "Journal of Small Business Management in 1993"

A Factor Analytic Study of the Perceived Causes of Small Business Failure

Abstract: The important role of small business in the U.S. economy suggests that an understanding of why firms fail (and are successful) is crucial to the stability and health of the U.S. economy. Robinson and Pearce (1984) recognized a growing interest, statewide and on the federal level, in identifying factors associated with the conduct and performance of small firms. An understanding of such factors would enable public policymakers and small business advisors to better serve the small business sector. Cochran (1981) suggests that research on business failure for subgroups of the small business sector would prove useful, and that research on business failures for specific industries in regions might be more useful than studies that are national in scope. Consistent with the advantages cited by Robinson and Pearce (1984), and Cochran (1981), the focus of this study is limited to a single industry within one region of the country. An analysis of the distribution of the total U.S. small business population identified retail trade as the largest sector of the small business industry (Handbook of Small Business Data 1988). In terms of specified kinds of retail businesses, the most current Census of Retail Trade for Iowa (1982) lists apparel and accessory stores as the most numerous types of retail establishments. This article, therefore, presents the results of a study that examined perceived causes of small business failure in the apparel and accessory retailing industry. Such research would be useful in identifying practices to be avoided and in aiding educators, consultants, and small business support agencies in meeting the needs of the small business community. REVIEW OF THE LITERATURE Recognizing the dynamic relationship between the firm and its operating and environmental characteristics, Keats and Bracker (1988) proposed a conceptual model of small firm performance. This model suggests that performance outcomes are a function of many variables, including individual owner characteristics, owner behaviors, and environmental influences. Their model, grounded in strategic, entrepreneurship, and organizational theory, transcends the belief that small firms are merely miniature versions of large businesses and recognizes small firms as unique entities. According to Keats and Bracker (1988), small firm performance is influenced by multiple constructs which have been labeled as "Entrepreneurial Intensity" (entrepreneurial characteristics and behaviors which differentiate entrepreneurs from other individuals); "Task Motivation" (intensity of entrepreneurial motivation to attain goal achievement); "Perceived Strength of Environmental Influences" (strategic choices and reactions in response to environmental elements); "Behavioral Strategic Sophistication" (acquisition and implementation of sophisticated strategic management practices); "Cognitive Strategic Sophistication" (comprehension and integration of strategic management practices); and "Task Environment Factors" (structure of the industry in which the organization operates). These six constructs have been proposed as substantial influences of small firm performance outcomes. Performance outcomes in the Keats and Bracker model includes a number of interpretations and measures including financial performance. The Keats and Bracker model is meant to provide a basis for explaining how owner characteristics, behaviors, and contextual factors relate to small firm performance. Small firm performance has been studied from a variety of approaches to better understand why some firms fail and why others succeed. Weitzel and Jonsson (1989) discuss business failures as being the last stage of an organization's life cycle. Organizational decline, leading to failure, is characterized by managers who have become reactionary. The result is inadequate or non-existent planning and inefficient decision-making. One of the earliest empirical studies (Larson and Clute 1979) examined the role of various owner and firm characteristics to explain business failures. …

Alternative Methodologies for Identifying Family- versus Nonfamily-Managed Businesses

Abstract: Family-firm research has gained increasing amounts of attention in recent years (Dyer 1986, Handler 1989, Ward 1987), largely due to the economic importance of this sector of firms Family firms represent the most prevalent form of enterprise in the United States today (Alcorn 1982, Danco 1980, Kirchhoff and Kirchhoff 1987, Sexton and Van Aucken 1985), generating from 40 to 60 percent of the gross national product (Ward and Aronoff 1990) While family firms are found in all sizes, more than 80 percent of all businesses in the United States today are small, family-owned firms (Kirchhoff and Kirchhoff 1987) Despite the prevalence and economic importance of the family-owned enterprises, social scientists have largely neglected the study of family-owned and operated businesses (Dyer 1986) This may be, in part, because one of the greatest barriers facing researchers is the difficulty in identifying and defining the family firm Most large firms (eg, Fortune 500 firms) are not family-owned or operated The majority of small firms, however, do fit this category (Ward 1990) These firms often prove to be the most difficult to access for research purposes The objective of this study, then, is to develop and test a technique to identify companies exhibiting family ownership and management characteristics, without intervention-type inquiries such as telephone interviews Both qualitative and quantitative methods for identifying family and nonfamily firms were employed Discriminant function and logistic regression analyses are used for examining firm characteristics and processes which are believed to differentiate family versus nonfamily ownership and management in small firms, where the impact of ownership and management are likely to be most salient Literature which supports the proposition that family versus nonfamily businesses can be identified based on firm age, firm size, the strategic profile emphasized by the firm, and use of internal control mechanisms is presented THE IMPORTANCE OF FAMILY VERSUS NONFAMILY CONTROL Questions concerning the extent to which ownership and control of the firm affect organizational characteristics and processes (Cubbin and Leech 1983) remain unanswered Agency theory (Fama 1980, Jensen and Meckling 1976, Fama and Jensen 1983), however, provides an explanatory framework for examining this important management type distinction Agency theory relies on the contract as a metaphor for explaining the behavioral implications of ownership rights (Jensen and Meckling 1976) The agent-principal relationship is defined as a contract whereby the principal (owner) engages the agent (manager) to perform some service which allows for discretion in decision making Agency costs occur because these contracts are not costlessly written and include monitoring costs borne by the owner, bonding costs borne by the manager, and residual loss (Jensen and Meckling 1976) Agents, in this case professional (nonfamily) managers, are hypothesized to impose costs on the firm These costs are derived from the diversity of interests between owners and managers, and the moral hazard and potential for opportunism that obtains when ownership and control are separate Actions which serve managerial self-interest result in performance disadvantages for the firm (Fama 1980) Costs result when managers seek to maximize their utility functions and owners seek to maximize their utility functions, but these are different functions (Daily and Dollinger 1992) Managers, for example, may use profits for personal gain, such as salary increases and extra benefits and perquisites Owners will likely seek to maximize firm value and realize gains directly (Demsetz 1983) When ownership is concentrated this conflict should disappear (Williamson 1981) To the extent that ownership and management affect firm performance, the family/nonfamily distinction remains a critical variable for organizational research …

The Impact of Size on Internationalization

Abstract: For most countries, prosperity depends on international trade. For example, in 1990, Canadian firms exported $146 billion ($ Canadian) in goods and services, or roughly 22 percent of Canada's gross domestic product (Statistics Canada 1991). However, as recent reports have noted, maintaining a country's standard of living requires that the domestic companies capture a larger share of international markets (Royal Bank of Canada 1991, Porter 1991). Much of this growth in exports is expected to come from small and medium-sized firms (Beamish and Munro 1987, Hardy 1986). Given the ascribed importance of these firms, the question arises as to whether they are capable of rising to the challenge? This article addresses this issue by asking two questions: Is there a relationship between size and internationalization? Is size a barrier to international activity? The first question seeks to evaluate the extent to which size has limited firms' international involvement while the second attempts to identify which firms are, in theory, capable of engaging in international activities. These two questions are examined in the context of three dimensions of internationalization: propensity to export; international sales intensity (international sales/total sales), and the countries served. LITERATURE REVIEW Most research on international business has started with the premise that small and medium-sized companies suffer from size disadvantages (Becker and Porter 1983, Levitt 1983, Mugler and Miesenbock 1986) that prevent or limit their ability to compete internationally. As a result, many studies on internationalization focus only on large businesses. However, some studies have incorporated a firm size variable within their investigation of internationalization. This section examines some of the literature surrounding the issue of internationalization and the small and medium-sized business in terms of international sales intensity and export markets. Exporters Versus Non-exporters In the study of the international sales orientation of firms, two distinct research streams have emerged. The first focuses on comparing the characteristics of exporters and non-exporters to see what differentiates the two. The second focuses on explaining what differentiates successful exporters (sometimes termed aggressive or committed exporters) from those firms who obtain a smaller percentage of their revenue from international sources, sometimes referred to as passive or experimental exporters (Cavusgil 1976, 1984). The size of the firm has been used as a discriminator within both research areas. Most studies have found that the larger the business, the more likely it is to export its products (Christensen, Rocha, and Gertner 1987; Abdel-Malek 1978; Tookey 1964; Kaynak and Kothari 1984; Lall and Kumar 1981). However, other studies have found that small and medium-sized firms can be involved in exporting (Cavusgil 1976, Edmunds and Khoury 1986, Malzehzadeh and Nahavandi 1985) and that size may not affect a firm's interest in exporting (Ali and Swiercz 1991). In distinguishing between exporters and non-exporters vis-a-vis the size of the firm, Cavusgil (1976) concluded that size was only a significant factor where the firm was very small; however, beyond some point exporting was not correlated with size. Taken collectively, these studies imply that very small firms are not likely to engage in export activity but--beyond the very small classification--size may not be an important factor. Export Intensity On the issue of size and export intensity, most studies have found that intensity (international sales/total sales) is positively correlated with firms size (Czinkota and Johnston 1983, O'Rourke 1985, Tookey 1964). However, some studies have found either no relationship or a negative relationship, with small firms having a greater level of international intensity than large firms (Bilkey 1978, Balcome 1986, Holden 1986). Balcome's study addressed this size issue, finding no discernible relationship between size and export orientation. …

Entrepreneurs' Problem-Solving Styles: An Empirical Study Using the Kirton Adaption/innovation Theory

Abstract: Entrepreneurship has become a subject of research interest as scholars strive to learn what characteristics, cognitive styles, and behaviors identify a potentially successful business initiator, how entrepreneurs survive the early years of a risky venture startup, and finally how they make the transition to a professionally managed business. Past recent research has focused on entrepreneurial characteristics and personality profiles (e.g., Hornaday and Aboud 1971; McClelland 1965; Sexton and Bowman-Upton 1986, 1990). Other research has focused on the differences in decision-making styles of managers and entrepreneurs. Begley and Boyd (1986) found that entrepreneurs exhibited higher risk-taking propensity than small business managers. Hoy and Carland (1983) found entrepreneurs to be more perceptive and flexible while small business owners were more logical and methodical in their decision making. In a comparison of the decision-making approaches used by entrepreneurs and managers of larger firms, Smith, Gannon, Grimm, and Mitchell (1988) found that the managers used a more rational approach than did the entrepreneurs. Finally, Swayne and Tucker (1973) argued that entrepreneurs are more innovative than managers in seeking ways to expand their business or start new ones. While research investigating entrepreneurs' unique personality attributes and actions to solve problems has contributed to our understanding of the entrepreneur, it sheds little light on how entrepreneurs approach the challenges of venture initiation. More recently, research has shifted to an examination of entrepreneurs' cognitive styles. ENTREPRENEURIAL COGNITIVE STYLES A number of other researchers have examined the relationship between decision styles and (1) subsequent behaviors and (2) firm performance. Hoy and Hellreigel (1982) applied the Kilmann and Herden (1976) model of organizational effectiveness criteria to small business. The underlying premise of this model (based on Jung's theory of psychological types) is that managers perceive and solve problems in different ways, depending on their preferred problem-solving style. Hoy and Hellreigel (1982) found that the majority of their participants were characterized by a logical, analytical thinking process with a focus on the specific details of the situation. Brodzinski, Scherer, and Weibe (1990) found that entrepreneurs' decision style, again defined by the Kilmann and Herden model and tested by the Myers-Briggs Type Inventory (MBTI), affected selection of boundary-spanning activities. That is, the number and type of outside contacts sought and the way that information was analyzed differed as a function of cognitive style. Dollinger (1984) found that small business owners' boundary-spanning activities, including networking and information seeking, were related to two dimensions of decision styles: integrative complexity (the ability to interpret and recode environmental information) and tolerance of ambiguity. Entrepreneurs high on both dimensions spent a greater percentage of their time on boundary-spanning activities. Further, Dollinger found that this decision style was positively associated with firm financial performance. In their investigation of small business owners' psychological traits associated with different information search patterns, Welsch and Young (1982) found two traits influenced entrepreneurs' choice of source and type of information sought from the environment: (1) rigidity, defined as a lack of variability and adaptability, and (2) openness to innovation. Thus, innovativeness seems to be related to one set of managerial behaviors: environmental scanning. Cumulatively, the results of these studies indicate that decision style affects such behaviors as information search and boundary spanning in small business. All of these studies used small business owners rather than individuals who fit the definition of an entrepreneur as one who creates, manages, and assumes the risk of a new venture (Cunningham and Lischeron 1991). …

Franchise Failure Rates: An Assessment of Magnitude and Influencing Factors

Abstract: When aspiring business owners compare the options of franchise versus independent business ownership, an important consideration is the relative risk of business failure. To date, the primary referent for examining franchise failure rates has been surveys conducted by Andrew Kostecka (1988)(1) under the auspices of the U.S. Department of Commerce, which indicate that less than 4 percent of all franchises fail each year. This figure compares favorably with various estimates of independent small business failures (e.g., Dun and Bradstreet 1989). Before concluding, however, that franchising is generally safer than independent business ownership, Commerce estimates must be corroborated. This is essential for two reasons. First, some have argued that independent small business failure rates have been exaggerated (cf. Bates and Nucci 1989, Dun and Bradstreet 1989, Haswell and Holmes 1989). Using data from the U.S. Bureau of the Census, for example, Timothy Bates and Alfred Nucci (1989) found considerable variance associated with business size. Small businesses with 10-50 employees (the size of many franchised convenience stores, fast food restaurants, and other establishments), had failure rates averaging around 4 percent--comparable to Commerce estimates for franchises.(2) Dun and Bradstreet (1989) reported even lower annual failure rates for small businesses in general, ranging from 0.4 percent for personal services firms to 3.8 percent for business services firms. These figures pertain only to failures involving losses to creditors, not to total closings. Since the majority of failures do not involve losses to creditors (Gaedeke and Tootelian 1991), Dun and Bradstreet estimates cannot be used as indicators of the failure rate overall (i.e., both creditor-loss and non-loss situations). Second, Commerce estimates are based on voluntary responses to surveys, and thus reported failure rates may have a downward bias. Even with assurances of confidentiality, individual franchisors may be reluctant to "air their dirty laundry" by reporting excessive failure rates. Furthermore, it is in the best interests of the franchise sector as a whole to convey the appearance that franchising is a relatively safe form of business ownership. Therefore, it is conceivable that franchisors will volunteer failure information only if they are experiencing relatively low failure rates. Though important, knowledge of franchise failure rates on average is, however, of limited usefulness to aspiring business owners. The more germane question is "How likely is it that my franchise will fail if I do acquire one?" Keeping this in mind, we conducted a study of franchise failure rates with two primary goals: (a) to corroborate or refute Department of Commerce failure rate estimates and (b) to isolate some franchisor-specific factors influencing franchise failure rates. A failure was defined as closure of a unit within a franchise organization. Thus, our failure rate estimates for each franchisor included both company-owned and franchised units that closed. (See the "Variables and Hypotheses" section for the logic behind this definition.) STUDY SAMPLE AND DATA In this effort, we requested Uniform Franchise Offering Circulars (UFOCs) from a random sample of 140 franchisors listed in a directory published by the International Franchise Association (IFA), a trade organization representing franchisors and headquartered in Washington, D.C. Since many franchisors are IFA members and the IFA directory includes both members and nonmembers, the IFA directory is possibly the most complete listing of our targeted population, franchisors. Following this request, 103 UFOCs were received (a 74 percent response rate). To ascertain the representativeness of our sample to the U.S. franchisor population, we compared it to the much larger (996 U.S. franchisors) sample of franchisors in the annual listing by Entrepreneur magazine (1991) along two variables used in our study: (a) age (number of years since the company began franchising) and (b) size (number of company-owned and franchised units) of the franchisor. …

Marketing Strategies during Recession: A Comparison of Small and Large Firms

Abstract: Recession is a phenomenon of decreasing demand for raw materials, products, and services. Technically, its beginning, progress, and ending depend on the operational measures used by different researchers and federal agencies. For example, in the United States a recession is said to exist when the gross national product (GNP) declines for two consecutive quarters, or when the leading economic indicators (LEIs) decline for three straight months, or when the index of the Association of Purchasing Managers dips below 50 points. Whichever the case, recession requires marketing managers to modify their marketing strategy and action in order to stay both profitable and consumer-responsive. This generally means adapting the marketing mix and/or changing the target markets. However, the response of marketing managers to recession depends on how they perceive its meaning and impact on their businesses. As a result, it is possible that a recession on the national level may affect different companies differently and may, in fact, indicate different economic environments, including those of growth and inflation. Specifically, an objectively measured and determined recession on the national level may affect companies of different size and different sectors and regions differently, hence requiring that marketing managers take different tactical and/or strategic measures to adjust to or even exploit changes in the economic environment. This article seeks to determine management perception of and response to economic recession by measuring the following and contrasting the results by sector and by company size: (1) The meaning of the 1991 economic recession to marketing managers, (2) The impact of this recession on marketing decisions, and (3) The resulting adjustments in marketing strategy and action. A fourth goal of this article is to make recommendations to marketing managers, which may be especially useful to those in small businesses. By accomplishing the goals of this article, the study will make a bridge between the scholarly marketing literature and daily or weekly reporting on marketing and economic performance. LITERATURE REVIEW Recession has been defined in the marketing literature as a "process of decreasing demand for raw materials, products and services, including labor" (Shama 1978) or as a "state in which the demand for a product is less than its former level" (Kotler 1973). Recession calls for marketing managers to use strategies to stimulate consumer demand. Such strategies often require a redefinition of the target customers and the marketing mix. They may include narrowing the product line, offering cheaper products and quantity discounts, lowering prices, increasing promotion, and offering products directly to consumers. To weather the recession, Bonoma (1991) advises practicing marketing managers to: (1) "Avoid |empty middle' marketing," (2) "Don't mistake expansiveness for empire," (3) "Do more for less," and (4) "Remember what winter is like when summer again comes" (Bonoma 1991, 10). In a related study, Goerne (1991) reports that marketing managers have been using significantly more coupons in the promotion mix in order to fight the negative impact of the recession on sales. In view of this, it is critically important that marketing managers make sure that the economic environment facing their company is indeed one of recession. However, the existence of a recession is often determined on a national level by federal agencies and business and economic research organizations. Thus, the U.S. Department of Commerce gathers and publishes two highly watched statistical data: the GNP and the LEIs. The GNP is the total monetary value of the "goods and services produced and consumed in the private, public, domestic and international sectors of the economy" and is therefore "the broadest indicator of economic output and growth" (Guide to Economic Indicators 1990). …

Cooperative and Competitive Networking by Entrepreneurs: A Critical Incident Study

Abstract: Our study explores the potential role of the entrepreneur's network on the motivation and success of the new business venture. We analyzed incidents in which entrepreneurs were and were not able to use their networks to help them develop their business, competence and motivation. In the growing literature on entrepreneurship, studies have focused on the individual values, aptitudes, and experiences that distinguish entrepreneurs and affect the development of the enterprise (Bird 1988, Vesper 1987, Wortman 1987). Recently, though, there is more emphasis on understanding the individual entrepreneur within his or her social context (Frey 1984, Low and MacMillan 1988, Schein 1983). The purpose of this study is to examine empirically the relationships entrepreneurs develop with financial backers, suppliers, and others as they implement their business plan. In particular, it tests the usefulness of the theory of cooperative and competitive goal interdependence to analyze the entrepreneurial network. ENTREPRENEURIAL NETWORK RESEARCH Birley (1985) found that entrepreneurs relied extensively on the informal network of family, friends, and business people and less on the formal network of banks, accountants, and lawyers. "Incubator" complexes and organizations appear to facilitate entrepreneurial activity as well (Vesper 1983). Networks seem vital to perceive opportunities, test ideas, and garner resources to create a new enterprise (Aldrich and Zimmer 1986, Gillingham and Loucks 1982). Entrepreneurs have their own independent businesses, but they operate within a network of people (Aldrich and Zimmer 1986, Dollinger 1985, Gillingham and Loucks 1982). Moreover, entrepreneurs need to keep abreast of current trends if they are going to adapt and implement their business plans successfully. Knowledge of new technologies, changing consumer trends, and new ways to manage and solve problems can have important implications for how they position their products and manage their companies. They also turn to others for support and encouragement to maintain long-term motivation and overcome obstacles. Indeed, entrepreneurs reported that they spend 59 percent of their time with people outside their own company in various kinds of boundary spanning activities (Dollinger 1985). Dollinger also found that financially successful entrepreneurs were particularly active in networking with business people, regulators, and union representatives. COOPERATION AND COMPETITION This study uses the framework of cooperative and competitive interdependence to analyze networks of entrepreneurs. Deutsch (1973, 1980) proposed that the dynamics and outcomes of interaction could be examined in terms of how people perceive their goals are related. In cooperation, people believe their goals are positively linked so that as one moves toward goal attainment, others move toward reaching their goal. They understand that their goal attainment helps others reach their goals; they can be successful together. In competition, people believe their goals are negatively related so that one's success interferes with others; one's successful goal attainment makes others less likely to reach their goals. People with independent goals consider their interests unrelated so that the goal attainment of one neither helps nor hinders other's goals. Considerable research has documented and extended this theory. In particular, studies have found that people with cooperative goals discuss problems and controversies openly and constructively and assist and influence each other effectively (Deutsch 1980, 1973, 1949; Tjosvold 1986a, 1986b, 1985a). Recent meta-analyses support the propositions that cooperative goals and interaction contribute to productivity and morale (Johnson, Johnson, and Maruyama 1983; Johnson, et al., 1981). Competitive goals result in reduced communication and exchange, avoidance or escalation of conflict, low productivity (except on some simple tasks), and low morale. …

Is It Equally Difficult for Female Entrepreneurs to Start Businesses in All Countries

Abstract: Do men and women face the same environmental conditions for business start-up across different countries? A large body of literature now explains that organizations face different environments as measured by differences in resources, technology, information, and external relationships (Tsai, MacMillan, and Low 1991). Moreover, environmental differences are perceptual as well as objective, and business people act in response to the perceptual environment (Tosi, Aldag, and Storey 1973; Tsai, MacMillan, and Low 1991). Little work has examined how perceptions of the environment influence business formation of male and female entrepreneurs across countries. While the organizational theory literature has identified four characteristics of organizational environments relevant to venture formation: munificence, resource availability, hostility, and uncertainty (Tsai, MacMillan, and Low 1991), no one has investigated whether these environmental characteristics are perceived differently by male and female entrepreneurs. Nor do we know whether these perceptions differ between male and female entrepreneurs across countries. There is evidence that these characteristics influence entrepreneurs in general. Environmental munificence, which measures the worth of the venture opportunity, encourages business formation (Covin and Slevin 1989, Dandridge 1982). Resource availability, which reflects the presence of labor, capital, and market demand, increases venture success (Cooper and Dunkelberg 1981; Dubini 1989; Holt 1987; Olofsson, Petterson, and Wahlbin 1986; Freedman 1983; Dandridge 1982). Environmental hostility, which reflects the fierceness of competition, discourages new venture formation (Covin and Slevin 1989, Holt 1987), and the uncertainty of the business environment inhibits business formation (Bull and Winter 1991, Bearse 1982). However, most of this research has been carried out in the United States using samples of predominantly male entrepreneurs. A small body of literature suggests that these environmental factors are perceived differently by male and female venture initiators. Female venture initiators have more trouble getting access to capital (Hisrich and O'Brien 1981, Collerette and Aubry 1990) perhaps because of a lack of confidence shown by banks, suppliers, and clients (Schwartz 1975, Lee-Gosselin and Grise 1990). They find it more difficult to get business training (Hisrich and Brush 1984; Knight and Gilbertson, forthcoming; Lee-Gosselin and Grise 1990) and have more trouble attracting qualified labor (Knight and Gilbertson, forthcoming). No research has yet examined perceptions of the business start-up environment across countries. However, unemployment rates, distribution of labor skills, rates of economic growth, availability of capital, interest rates, sources of capital, and proximity of producers and customers all vary from nation to nation. While within nations, environmental influences on business formation vary by location (Denison and Alexander 1986). If perceptions of the environment vary by country, there is a clear need to control for this effect in cross-national research. HYPOTHESIS AND METHODOLOGY The hypothesis tested here is: Controlling for the effect of country, do female entrepreneurs perceive the business start-up environment to be characterized by greater resource scarcity, turbulence, hostility, and uncertainty than do male entrepreneurs? Survey Instrument This study is part of a Society for Associate Researchers in International Entrepreneurship (SARIE) project on new business formation started in 1986. At that time, an international group of researchers collected data from 2,278 venture initiators and 1,733 nonventure initiators in 14 countries. In 1989, the research group decided to develop an abbreviated and improved version of the original questionnaire, aimed at the development of a new international database. This database was developed to look at the performance, growth, and characteristics of new ventures across national boundaries. …

The Ethical Decision Making Process of Small Business Owner/managers and Their Customers

Abstract: This article explores four research questions pertaining to the ethical decision making process of small business owner/managers and their customers The character and extent of this exploration is facilitated by the further extension and use of a multidimensional ethics measure developed by Reidenbach and Robin (1990) The nature of the relationship between a small business firm and its customers is, and must be, one of trust Consequently, it is highly susceptible to the debilitating and potentially disastrous consequences of unethical behavior The answers to certain questions concerning practices with potential ethical consequences can be used by small business owner/managers to understand and prevent the perception of unethical practices Do small business owner/ managers use the same approach in evaluating ethical situations as the rest of society? Specifically, are their perceptions of unethical practices different from their customers? If so, how? How does the ethical evaluation of a situation by small business owner/managers influence their willingness to behave unethically? To what degree? Would their customers behave in the same manner? This article begins the search for answers to these questions BACKGROUND Several studies suggest the need for separating research on small business ethical attitudes from those of larger organizations In an article by Longenecker and Schoen (1975) entrepreneurial managers were found to have several different approaches to business in such areas as innovation, risk-taking, and independent action than their counterparts in larger organizations A study by Erika Wilson (1980) compared perceptions and attitudes of owners or managers of small businesses with employees of larger organizations on 541 statements about social responsibility Seventy-three of the statements had some reference to ethics, and differences were noted between smaller and larger business managers Chrisman and Fry (1982) also examined social responsibility using comparisons between small and large organizations The study indicated more apparent understanding by smaller businesses of social responsibility issues than larger businesses "Small businesses seem to be in touch with the expectations of society, for the most part, and, in fact, to be more critical of their performance than is the general public" (Chrisman and Fry 1982, 26) Brown and King (1982) identified important internal and external factors that affect small business ethics differently from large businesses Internal factors included such things as different norms and pressures from community and peers as well as the differences in fear of punishment Differences in external factors included the impact of trade organizations, churches, and competition Longenecker, McKinney, and Moore (1989) compared small and large business managers' views of ethics Several significant differences between the views of small and large business managers on ethical issues were noted This study is of particular relevance to the research reported here because these authors also used scenarios and an ethics rating scale The Longenecker, McKinney, and Moore scale was a seven-point univariate measure anchored by "never acceptable" to "always acceptable" In their results they noted that " the uniqueness of small business extends to ethical issues" (Longenecker, McKinney and Moore 1982, 31) One final justification for separating ethical studies of smaller and larger businesses comes from the book Moral Mazes by the sociologist Robert Jackall (1988) In it he describes the sociology of bureaucratic organizations in the US from the view of managers in those organizations As Jackall portrays it, ethical decisions are heavily dependent on the complex interplay of the individual values of top level management and have little to do with personal values The small business owner/manager does not have the same constraints or guidance and can employ personal values to a much greater degree …

The Impact of Key Internal Factors on Firm Performance: An Empirical Study of Small Turkish Firms

Abstract: This article reports on some of the findings of an empirical study which examined production, marketing, management competencies, and strategic choices of small firms, and compared them with firm performance. The research issue discussed in this article is the determination of distinctive competencies and product/market strategies that correlate with small firm growth and sales revenue performance. The study is based on a sample of small firms (with fewer than 100 workers) in two mature industries (casting and machinery manufacturing) located in the Ankara metropolitan area. Data and Measures The data used in this study came from two separate surveys of small casting and machinery manufacturing firms located in the Ankara metropolitan area. The first survey(1) covered 101 small foundries and 118 manufacturers of machinery and equipment. In the second survey,(2) in order to increase participation and reliability, the respondents were not asked to state actual revenue figures but to state their 1987 sales revenue as a percentage of the 1985 sales revenue figure. Therefore, the sales revenue increase measure used in this study is an index value which compares the 1987 sales revenue with the base year (1985 = 100) sales revenue. The two surveys overlapped to furnish employment level, production/marketing/management competence, and product mix data for 96 firms (49 foundries and 47 manufacturers of machinery). Moreover, sales revenue increase data were available for 55 firms (29 in casting and 26 in machinery manufacturing) in this sample. One-way ANOVA analyses revealed no significant differences between firms with and without sales data. External Environment Factors affecting the growth and performance of a firm may be viewed in two categories: factors related to the "external environment" and factors related to the "internal environment." This research focuses on the internal environment and statistically controls for most industry-specific factors by limiting itself to two mature industries. The casting and machinery manufacturing industries studied here are both mature industries in that their real annual growth rates are less than 10 percent, their products and services are well-known by most users, and they have stable competitive structure and technology (Zeithaml and Fry as cited in Bracker and Pearson 1986, 507). Moreover, the effects of location or the local environment are largely eliminated as all firms are located in the same metropolitan area. Nevertheless, we include a dummy variable, firm's industry (casting or machinery manufacturing), to account for possible industry effects. Internal Environment In this research we examine the internal environment of the small firm in terms of five groups of factors: owner/manager experience, age of firm, production competencies, marketing competencies, management competencies, and strategy. Although the person at the center of the small firm bears the prime responsibility for the small firm's fortunes, systematic data on only one personality trait, experience of the owner/manager in the given industry, are available for the sample firms. This research does not address the impact of other CEO personality traits or entrepreneurial talents. However, the especially low frequency of entrepreneurs in mature industries (Schollhammer and Kuriloff 1979), and the limited impact of CEO personality in stable environments (Miller and Toulouse 1986) reduces the significance of this data shortcoming. We examined the impact the age of firm has on performance. There are conflicting findings on the relationship between firm age and performance. While some studies have associated higher performance with increased age (Birley and Westhead 1990, Bracker and Pearson 1986), others have suggested an opposite relationship (Begley and Boyd 1986, Kemelgor 1985). Production competencies allow the firm to: manufacture a broad range of products, including specialty and high quality items; build a reputation in the industry; and reduce operating costs, which act as key factors to achieve competitiveness (Conant, Mowka, and Varadarajan 1990; Dess and Davis 1984). …

Field Theory: An Alternative to Systems Theories in Understanding the Small Family Business

Abstract: Environmental changes have increased our sensitivity to family business issues. There are more than 30 million Americans over 65 years of age (U.S. Bureau of the Census 1987), and this group of people constitutes the fastest growing sector of the United States population (U.S. Bureau of the Census 1977). Business succession imposes a wide variety of significant management problems. Another change is the increasing number of women in the labor force. It has become difficult for individuals to disregard the close interrelationship between work and family life. The cumulative effect of these changes heightens our collective awareness of the interdependence of families and businesses (Lansberg 1988). Three research approaches have been identified in this emerging field of family business research: the rational approach in which owners are sometimes advised to excise the business from the family when making business decisions; focus on the founder approaches, also emphasizing the conflicts between the owner and the business; and business phase and stage concepts (Hollander and Elman 1988). The seeds of systems theory underlie all three. Hollander and Elman (1988) suggest it is premature to adopt a systems approach to this young field of inquiry. Generally, researchers in management accounting have adopted the systems approach (Hopper and Powell 1985). Most research models in management control are formulated under the assumptions that the organization is a separate or objective entity and that the human beings within the organization are passive. In the dominant cybernetic approach, the organization is "a machine" and the relative parts of the system can be set in motion to produce the desired product. According to modern systems theorists, the organization's well-being depends upon a smooth integration of these parts. Child (1972), Schreyogg (1980), and Cooper (1981) generally criticize insufficient theoretical consideration of the discretion possessed by key decision-makers and how values, beliefs, and ideologies may influence choices. Because owner-managers of small family businesses are key decision-makers in their firms and have the discretion to make choices and override business control systems at all levels, it is critical that the theoretical framework used as a research tool reflect this environmental fact. The purpose of this article is to propose the alternative of field theory as a research tool in understanding the management decisions of small family businesses. Relying upon field theory, owner-managers are expected to direct behaviors simultaneously to achieve both family and business goals. It impossible for the majority of individuals to excise the business "system" from the context of the family and business. Management control should therefore be designed for the larger field rather than for the business system. This study relates the general concepts of field theory to the ecology of the individual in the context of family and business. Empirical evidence is presented to support field theory as a research approach in explaining the behavior of owner-managers in the family firm. The theoretical constructs of the general model for field theory are operationalized in terms of the specific research problem. Testable hypotheses are developed, and the results of the analyses are presented. FIELD THEORY Clerk Maxwell (1921) characterized field theory in the physical sciences in the preface of his posthumous book. As Einstein and Infeld (1938, 259) have pointed out: "It needed great scientific imagination to realize that it was not the charges nor the particles but the field in the space between them which is essential for the description of physical phenomena (emphasis added)." Einstein's theory, formulated at the beginning of the twentieth century, provided a conception of space as a definitely distributed system of gravitational and electromagnetic forces. Under such a field theory, the distribution of forces in a given environment determines what an object with certain properties will do in that environment. …

Major Elements in Entrepreneurial Development in Central Mexico

Abstract: In the last three years, many centrally planned economies have given way to market economies. Private firms rather than state-owned enterprises are now seen as the key building block in economic development. This change has occurred over a wide spectrum of political and economic systems. One of the most recent and dramatic transitions is in Mexico, where President Carlos Salinas de Gortari has spearheaded a drive begun in the early 1980s to move Mexico into the mainstream of international business and finance. This vision of a modern Mexico is not based on bold promises, accompanied by cautious accomplishment, but rather on fundamental and far-reaching moves. For example, Sanderson and Hayes (1990, 40) noted the following: About 750 state enterprises have been sold, merged, or transferred to the private sector or to local governments since 1982; the banking and telephone industries were the latest to be privatized. There are now only about 400 state-owned companies left. However, to sustain the changes and expand them in ever-widening circles until there is a dominant and dynamic private sector, a strong and capable group of domestic entrepreneurs--the focal point of this study--is needed. On the basis of the assumption that the entrepreneur has a pivotal role in the development of Mexico, it is important to examine this research question: What are the major factors influencing entrepreneurial development in Mexico? In addressing this question, four factors were identified: two facilitating and two inhibiting. The two positive factors are entrepreneurial motivation and encouraging support groups. The negative factors are start-up obstacles and recurring problems. From a time perspective, the start-up process begins in the "venture feasibility" stage, during which the entrepreneur moves from an initial desire to go into business to identifying and evaluating the alternatives to writing a proposal and actually starting the business. "Support groups" become a critical factor in helping make the final "go ahead" decision. The entrepreneur still may encounter formidable "obstacles" that impede the actual start-up process. Once the business has been started, the entrepreneur continues to encounter problems in the process of growth. Each of these factors are examined in turn. Motivation for Starting a Business Entrepreneurs are motivated by a myriad of factors which include financial rewards, achievement, social, career, and personal fulfillment. These factors have been discussed in Hisrich and Peters (1992) and Kuratko and Hodgetts (1992). The purpose of this study was to document the strength of these motives among Mexican entrepreneurs. The question addressed is: Which of these motivations appear and how are they prioritized? Encouraging Support Groups The family is an important factor in the start-up decision. The family as a traditional force is not only the natural focus of individual emotion but also represents the strongest social unit in Mexico. In fact, the family enterprise plays a leading role in the development of the private sector. In addition to family members, other groups, such as business associates, professional associations, suppliers, customers, and social friends, are all in a position to provide encouragement (or discouragement), support, and resources. The question is: Which of these groups provides the most support to the entrepreneur starting his or her own business? Obstacles to Start-up The category of "obstacles" includes the set of inhibiting factors which the entrepreneur assesses as requiring significant resources to resolve. These factors were identified by in-depth field work in the United States and Mexico and a literature review. Three types of obstacles were constructed to reflect the primary categories in Mexico: (1) business, (2) individual, (3) family. Business: obtaining a loan, finding a good location, obtaining extension of credit from suppliers, lack of guidance and counsel, and lack of knowledge of information services. …

Choosing a Franchise: How Base Fees and Royalties Relate to the Value of the Franchise

Abstract: In recent years, entrepreneurs and "corporate dropouts" or former executives (Fortune 1991) have turned to franchising as an attractive alternative to traditional forms of organization. Franchises such as fast food chains, quick oil change operations, and business support companies (e.g., mail and printing services) have experienced phenomenal growth: an estimated 28,000 new franchise outlets were sold in 1991, compared to 13,960 sold in 1986 (Fortune 1991). There are over 370,000 franchise outlets in the United States, accounting for between $200 billion (Bond 1989) and $700 billion (Fortune 1991) in annual sales. This growth in franchising has occurred despite the restriction of freedom and financial costs incurred in entering franchise arrangements. Unlike independent entrepreneurs, franchisees must run their businesses as stipulated by the franchisor. Franchise contracts specify the products sold, retail quality standards, prices, and hours of operation. Contracts also specify a starting date, the length of franchise agreements, renewal periods, and termination clauses. More importantly, franchisees do not keep all locally generated profits: they agree to pay franchisors a base fee and ongoing royalties on sales. Contract terms vary greatly, but base fees typically range from $15,000-$40,000 and output royalty payments vary from 3 to 9 percent of gross sales. "How-to-franchise" resources suggest that the primary reason for this tremendous growth in franchising as an organizational form is that franchisees gain valuable advice, assistance, and a "proven formula" for running a business that increases their chance of success (Bond 1989, Norback and Norback 1982). Entrepreneurs (franchisees) purchase the right to use a franchisor's brand name and are provided with an array of support services that assure the value of the franchise. Contracted services typically include startup assistance such as site selection, lease negotiations, and field training, as well as ongoing services such as central data processing, inventory control, and field operations evaluation (Bond 1989). In sum, entrepreneurs entering into franchise agreements incur substantial restrictions and financial costs. The franchising literature and the rapid proliferation of fast food chains, quick oil change outlets, and similar businesses suggest that the value of the franchise and contracted services are commensurate with fees and royalties charged. We test this notion by examining whether franchisees receive good value for their required fees. RESEARCH OBJECTIVES Our objective is to assist potential franchisees in determining the value of franchises. We test the proposition that base fees and royalties are positively related and increase with the value of the franchise. We examine whether base fees and royalties demanded by franchisors vary with factors used by potential franchisees as indicators of the value of the franchise (age, growth, and market representation of the franchise operation), and whether they vary with contracted services. In previous studies, researchers have analyzed attitudes about franchising (Knight 1986, Withane 1991), master franchising (Justis and Judd 1986), and perceived advantages of franchising (Peterson and Dant 1990), but they have not empirically addressed how base fees and royalties vary or whether they are related to the value of the franchise. We begin to fill this void in determining the value of franchises. There are two contributions of our analysis. First, we examine whether franchisees receive good value for their base fees and royalties. If base fees and royalties vary with the value of both the franchise brand name and contracted services, we argue that franchisees receive value commensurate with fees and royalties charged. Second, we examine the usefulness of information provided to potential franchisees in databases such as the Sourcebook of Franchise Opportunities, 1989 (Bond 1989) for choosing a franchisor. …

Charitable Contributions by Small Businesses

Abstract: How active are small businesses in the area of charitable contributions? Few answers are available regarding this question because the research is quite limited For the most part, studies of corporate donations have emphasized large firms and their contributions to society (Burke, Logsdon, Mitchell, Reiner, and Vogel 1986; Fry, Keim, and Meiners 1982; Useem 1988; Wokutch and Spencer 1987) In comparison, information available on charitable contributions by small businesses is exceedingly limited (Chrisman and Archer 1984) Consequently, small business owners and managers have little basis on which to assess their social contribution efforts or to construct strategies and policies which foster socially responsible actions Haley (1991) argues that corporate contributions actually serve as a managerial masque; that is, primarily a mechanism to influence stakeholders or others Small businesses generally have fewer stockholders, employees, and other constituents to impress compared to large corporations Nonetheless, seminal work on corporate social performance argues persuasively that small businesses face numerous incentives to act responsibly (Wood 1991a, 1991b) In fact, prior research suggests that a wide variety of factors influence the nature, scope, and intensity of social performance by small businesses For example, leading surveys have documented that consumer relations, product quality, employee concern, and profitability are viewed as fundamental social responsibilities of small business (Aupperle, Simmons, and Acar 1990; Chrisman and Archer 1984; Chrisman and Fry 1982; Gomolka 1978; Reeder 1978) Despite the prevailing evidence on social performance perceptions of small business owners and managers cited above, considerable work remains to be completed in the area of charitable contributions This article examines the charitable donations of small businesses Specifically, the study reports an exploratory investigation into social issues policies and programs, charitable contributions, and decision criteria surrounding contributions in small businesses The implications for charitable contribution policies in small businesses are discussed BACKGROUND AND RESEARCH QUESTIONS The underlying knowledge on charitable contributions by small businesses can be traced to a handful of studies One report of small business contributions by banks suggests that charitable donations (i e, donations as a percent of income before securities gains, losses, and taxes) are negatively associated with organization size (ie, amount of assets) (Kedia and Kuntz 1981) Another study of Canadian small businesses found that a lower proportion of small businesses actually contribute to charitable organizations than large businesses, but as a group the small businesses donated more as a percentage of pre-tax income than larger firms (Martin 1985) Further, donation decisions in small businesses were found to be primarily a one-person decision; rarely are there written policies or guidelines concerning charitable donations (Martin 1985) Gomolka's (1978) research on minority-owned small businesses reported that minority ownership positively influences the extent of a firm's social involvement Minority ownership may therefore be a critical variable explaining a firm's willingness to make charitable contributions and explaining the amount of charitable donations Further insight on factors affecting charitable contributions is found in Reeder's (1978) study of 24 small businesses in San Antonio, Texas According to Reeder, social issues activities are informally structured and lacking depth within small businesses There is limited planning or policy formulation surrounding these activities Consequently, it is expected that small businesses which do take a more planned approach to social performance are also those which are more active and which allocate more resources to social performance efforts …

Crisis, Decline, and Turnaround: a Test of Competing Hypotheses for Short-Term PerformanceImprovement in Small Firms

Abstract: Although small firms are usually more vulnerable than large firms to faltering performance, investigations into their decline and turnaround are sparse in the small business literature. Risks faced by small firms are evident in their high mortality rates (Bracker and Pearson 1986, Vance 1983), and the natural selection assumptions of classical economics or organization ecology theories fatalistically preclude the possibility of individual firms making the adjustments necessary to turn around a deteriorating business situation. Nevertheless, most managers and management researchers would argue that failure is not inevitable; managers can indeed take discretionary action to turn around many deteriorating situations. However, at this point relatively little systematic knowledge or understanding of the etiology of their decline or turnaround exists. In this study, we examine two aspects of small firm decline and turnaround. The first tests competing theories as to whether a gradual decline or a crisis is more likely to precede successful turnaround. The second tests the relationships of external financial support with rate of decline and with turnaround success. BACKGROUND Both earlier research and common experience suggest a relationship between patterns of deteriorating performance and the likelihood of a performance turnaround, with a distinction often made between "crisis" and "decline" situations. Although crisis and decline are often rooted in different causes (Cameron, Whetton, and Kim 1987), they are nevertheless reflected in the same performance measures and are usually characterized as the high and low extremes of the rate of performance deterioration. Decline is a relatively smooth trend, involving a sustained low rate of deteriorating performance. Crisis, however, involves a sudden performance drop, involving a major downward shift in the performance trends (Cameron and Zammuto 1988). Therefore, crises are more perceptible, more rapid, and appear to be more immediately threatening to the firm. This distinction might have implications both for the ability of a firm's management to effect turnaround and to generate necessary financial support from external sources. These two phenomena, of course, are not independent. Since access to external funds fuels critical operating and strategic moves, the availability and management of financial sources can be important determinants of recovery. Therefore, a firm needs to convince an array of creditors that the business is viable and often must press for extended debt financing and other concessions. The success of these efforts may be affected by the speed with which performance deteriorated. A significant part of the explanation for how small firms respond to either crisis or decline situations seems to lie in the management structures that characterize them. Often, because of a strong ownership position, the chief executive of the smaller firm enjoys the utmost discretion over resources. Since small firms are often tightly controlled by one person, or by a small circle of people, their boards may be just a "facade." Moreover, in small firms the board chairman and the chief executive officer (CEO) are usually the same person, which further weakens the board's ability for effective oversight. This reliance on one individual, or on a very small management team, leaves the decision-making of the firm more vulnerable to individual cognitive limitations, and to problems resulting from the lack of oversight. These vulnerabilities have led to two competing theories of decline and turnaround. The first suggests that, other things remaining the same, decline is more likely than crisis to precede turnaround; the second predicts the opposite. Threat-Rigidity Explanation Conventional wisdom expects that firms are less likely to pull themselves out of crisis situations than to reverse a gradual decline (Harrigan 1980). This explanation is also argued by Staw, Sandelands, and Dutton (1981) in their threat-rigidity thesis. …

Motivation of Expansion Plans of Entrepreneurs and Small Business Managers

Abstract: The main purpose of the current study discussed here is to review research on locus of control (LOC) in relation to small business management, and to empirically relate LOC to expansion plans of small business entrepreneurs or managers operating within an adverse economic environment. The importance of LOC stems from the fact that the motivations of the small business person are key internal factors in the management of change (Gibb and Scott 1985). The importance of expansion plans is addressed by Amit, Glosten, and Muller (1990, 1233), who write: "Surprisingly little theoretical, quantitative, and rigorous literature focuses on decisions of entrepreneurs to develop their ventures...." This lack of knowledge as to how small businesses are developed, coupled with a survey of 255 small business owners who state that setting goals in areas such as sales growth and profit is a common activity (Naffziger and Kuratko 1992), indicates this is an area in need of study. Another purpose is to determine if entrepreneurs and small business managers differ on LOC. The reasons for selecting LOC are the lack of relevant research on other constructs, coupled with LOC having been adequately investigated to the extent hypotheses can be developed (Levin and Leginsky 1990; Perry, Macarthur, Meredith, and Cunnington 1986). The study of risk-taking was rejected due to failures to distinguish entrepreneurs from the general population or managers (Brockhaus 1980). In addition, from a theoretical viewpoint, risk-taking appears to be less basic to the study of small business persons, particularly entrepreneurs (Gormly 1984). In regard to LOC, a person with an internal LOC believes their behaviors determine outcomes, while a person with an external LOC believes luck and/or powerful others control outcomes relevant to them. LOC has been found, in studies conducted in the United States, Australia, and Great Britain, to differentiate entrepreneurs from the general public and middle/senior managers, as well as to distinguish successful from unsuccessful entrepreneurs (Brockhaus 1980, Cromie and Johns 1983, Gilad 1982). Concerning the current study, Wheatley, Anthony, and Maddox (1991, 57) state that "...internals are more likely to exhibit those entrepreneurial qualities that are necessary to enhance the strategic planning process than are externals." Robinson, Stimpson, Huefner, and Hunt (1991) criticize the study of the personality of entrepreneurs. However, in support of the study of an entrepreneurial personality, Smith and Miner (1983) find entrepreneurs different from top and middle level managers in terms of managerial motivation. Other researchers reach similar conclusions (Hull, Bosley, and Udell 1980; Timmons, Smollen, and Dingee 1985). Personality traits of entrepreneurs are found to be a determinant as to which persons display initiative (Lachman 1982). Low and MacMillan (1988, 155) reviewed the literature and conclude that "...entrepreneurs' personalities do have important influences on the organizations they create...." Likewise, Ibrahim and Goodwin (1986, 47) determined that "...entrepreneurial behavior (as measured by the personality attributes) is perceived as a key success factor in small business." In further review of the research to date, Kent (1984, 9-10) wrote: "...there does appear to be impressive evidence that, psychologically, entrepreneurs are not the same as those who choose management or wage employment." This fact is important if the contention of Buckley, Cote, and Comstock (1990) that personality accounts for 30 percent of the variance in behavior is correct. THEORETICAL BACKGROUND OF LOC An interpretation of research relevant to LOC, entrepreneurs, and the environment comes from Gilad (1982). Gilad theorizes that the influence of LOC on perceptual alertness (i.e., ability to see opportunities in the environment) explains the influence of LOC on entrepreneurs. This postulation is based on an extensive review of psychological research which found that persons who have internal LOC have greater amounts of perceptual alertness. …

The Effects of Venture Capitalists' Characteristics on the Structure of the Venture Capital Deal

Abstract: Previous research has found that venture capitalists seek to specialize. Such specialization occurs by way of geographical, industry, and investment stage preferences (Bygrave 1987, 1988; Gupta and Sapienza 1988; Tankersley 1989; Timmons 1990). Rosenstein, Bruno, Bygrave, and Taylor (1990) discovered the perceived contribution of the lead venture capital investor is greater if the lead investor is one of the top 20 venture capital firms that specialize in high-tech investment. Cluster analysis of survey data by MacMillan, Kulow, and Khoylian (1989) finds differences among venture capitalists with respect to their philosophy toward managing their portfolio firms; they detect three distinct philosophies which they label as "laissez faire," "moderate," and "close tracker." If venture capitalists possess different specializations and management philosophies, the same may be true regarding preferences for investment vehicles. Unlike the typical capital structure decision addressed in the finance literature, casual empiricism implies the venture capital investor, rather than the firm, plays the major role in determining the pricing and type of security to be purchased by investors. Thus, an analysis of venture capitalists' use of different investment vehicles is warranted. Venture capitalists face three basic investment vehicles: common equity, preferred equity, and debt. While it is true that many provisions and covenants can be attached to any investment vehicle, the research discussed in this article, as part of an initial empirical study, focuses solely on these three deal structures. The analysis in this article will extend the study of deal structure influences contained in Norton and Tenenbaum (1992). PRIOR EMPIRICAL RESEARCH The main thrust of Norton and Tenenbaum (1992) was to gather and examine quantitative evidence on influences affecting the choice of deal structure by venture capital investors. By examining mean responses from 98 venture capitalists on 26 survey items, Norton and Tenenbaum provide empirical evidence on the positive and negative impacts of external and internal deal specific factors on the choice of common equity, preferred equity, and debt as financing structures. Norton and Tenenbaum found that survey respondents favored the use of preferred stock as a financing vehicle regardless of the presence or absence of various deal specific influences. They found that items encouraging the use of debt investments by venture capitalists included expectations that the portfolio firm would soon generate taxable income; the presence of collateralizable assets; production of a good or service that is resistant to economic cycles; and an investment involving a latter financing stage. Positive influences for common equity investments were expectations of a strong initial public offering market at cashout; expectations of a capital gains tax cut; a strong economy; venture capitalist control of a majority of the investee's voting stock; and a firm producing a recession resistant good or service. Whereas this earlier work focused on deal specific influences affecting deal structure, the contribution of this present study is to examine the impact of venture capitalists' characteristics on deal structure. Driscoll (1974) and MacMillan, Siegel, and SubbaNarasimha (1985) state that a goal of venture capitalists is to control and manage risk. This article develops and tests hypotheses regarding the potential use of preferred equity and common equity investments as a means to do so. DOES THE FORM OF INVESTMENT VEHICLE MATTER? It is a fair question to ask if choice of an investment vehicle has any practical importance to the venture capitalist. If, by selecting various structures and covenants, the cash flow, security provisions, and voting rights are identical between two investment vehicles, the name given the investment contract is irrelevant; all investment structures are merely benign mutations of a standard contract. …

Family Business Succession in Korean and U.S. Firms

Abstract: Family businesses in the United States account for nearly 50 percent of the gross national product and employ approximately half of the private sector workforce (Ward 1987). While the fact that one generation will succeed the next with biological inevitability is undeniable, one of the most pressing problems in the realm of family business is planning to pass control of the business to the next generation. The topic of succession has long been a topic of interest in the small business literature (Dimsdale 1974, Barnes and Hershon 1976, Beckhard and Dyer 1983, Davis 1983, Holland and Boulton 1984, Peay and Dyer 1989, Ayres 1990, Berenbeim 1990, Handler 1990, Ward 1990). Davis (1983) stated that the concept of "smooth succession" in a family firm was a contradiction of terms. This contradiction is due to the fact that succession is a highly charged emotional issue that requires not only structural changes but cultural changes as well. The "family business" and the "business family" are two distinct components that must be dealt with and disentangled if progress toward succession is to be made (Holland and Boulton 1984). Kuratko and Hodgetts (1989) outlined a number of issues to consider in succession strategies. Among those identified were: understanding the contextual aspects such as time, type of venture, managerial capabilities, and environment; identifying succession qualities such as technical skills, business knowledge, perseverance, etc., and carrying out the succession plans which includes the grooming and preparation of a successor. The difficulty of succession decisions is compounded by the complexities of family dynamics that are not present in non-family owned businesses. Korean Small Business Environment Korea has made tremendous economic progress in the last 40 years. Between 1960 and 1980 it tripled its per capita income and made the transition from an agricultural to a semi-industrial economy (Kincaid 1983). In the last two decades Korea has achieved a growth rate of over 9 percent (Lee and Yoo 1987). The small business sector has been especially important to Korea's growth. In 1986, small businesses accounted for 32 percent of the country's exports, and it is estimated that this sector accounts for 57.3 percent of Korea's workforce (Clifford 1988). There are a number of traditional Korean business practices that may have an impact on the development of succession planning in Korean family-owned businesses. Lee and Yoo (1987) discuss a uniquely Korean approach to managing that they refer to as K-type management. There are 12 features which characterize K-type management. Of particular interest to the goals of this study are those characteristics that relate to control. They are: (1) family or clan management, (2) top-down decision making, (3) Confucian work ethic, and (4) paternalistic leadership. The authors suggest that these characteristics have been effective in the past, however, some refinement is needed for Korean small businesses to continue to be effective. From the perspective of succession planning, these particular characteristics may lead the owners of firms to ignore the critical need for succession planning. Kinicharo (1990), in fact, recognizes this potential weakness. In a review of current practices of the Association of Southeast Asian Nationals (ASEAN), he suggests that Korean managers of small businesses must shift from "decree" management to a more balanced approach which focuses on the long-term needs of the firm. A Comparison of U.S. and Korean Owners To what extent do variations in culture between the U.S. and Korea affect the likelihood of succession planning? This study attempted to identify a number of important succession concerns and compare the opinions of U.S. and Korean owners. Among the issues examined are the current utilization of family members in the business, level of planning for succession, preferences for succession, and expectations for succession. …

Employee Perceptions of Management Commitment and Customer Evaluations of Quality Service in Independent Firms

Abstract: Few words have come to symbolize the decline of American competitiveness as much as "quality." In a recent survey, executives ranked the improvement of service and product quality as the most critical challenge facing U.S. business (Zeithaml, Parasuraman, and Berry 1990). Organizations as diverse as Ford, where "Quality Is Job One," to McDonald's, where quality is the first component of their QVSC (quality, value, service, cleanliness) motto, have begun to publicize their commitment to quality. This emphasis on quality is not surprising given the numerous benefits enjoyed by firms able to produce quality services and products. Quality has been described as "the single most important force leading to the economic growth of companies in international markets" (Feigenbaum 1982, 22). Research on participants in the Profit Impact of Market Strategy (PIMS) program revealed that, "In the long run, the most important single factor affecting a business unit's performance is the quality of its products and services, relative to those of competitors" (Buzzell and Gale 1987). The PIMS studies have found that companies that offer higher quality products also enjoy advantages of stronger customer loyalty, more repeat purchases, less vulnerability to price wars, and decreased marketing costs. Both the PIMS studies and the majority of research done on quality in the past have been oriented toward large manufacturing firms. However, recent research (Gronroos 1984, 1988; Bitner 1990; Bitner, Booms, and Tetrault 1990; Zeithaml, Parasuraman, and Berry 1990) has begun to focus on service quality. Without improved quality in services, the United States may find itself in the same vulnerable position with its services as it has with its manufactured products. Quinn and Gagnon (1986, 103) concluded: It will take hard and dedicated work not to dissipate our broad-based lead in services as we did in manufacturing. Many of the same causes of lost position are beginning to appear. Daily we encounter the same inattention to quality, emphasis on scale economies rather than customers' concerns, and short-term financial orientation that earlier injured manufacturing. The benefits to a small firm able to successfully achieve high quality service are at least as great as those accruing to a large firm. It is difficult for small firms to compete with large firms on cost but, because they are small, these firms may find it easier to differentiate their services than large firms. The active involvement of the owner and employees in small firms allows them to tailor the firms' offerings to the specific needs of their customers without going through the bureaucratic layers typical in large companies (Main 1981). Further, consumers receiving customized services or products from small firms are assured that they have received something special; because of their size, small firms cannot reproduce their goods or services for mass consumption. This study investigates one question regarding the efforts of small firms to achieve high quality service: Do small firms whose employees believe their owners are committed to high quality service have more success in achieving high quality service than firms whose employees do not share this belief? Top management commitment and an understanding throughout the organization regarding the importance of service quality have been cited in numerous sources as critical to the achievement of high quality service. However, these reports are largely limited to case studies and do not represent a systematic attempt to empirically support the relationship. Although the relationship between employee perceptions regarding management commitment to quality service and customer evaluations of service appears to be self-evident, the lack of empirical support indicates the need for confirmatory research. This study is an initial step in exploring the existence of such a relationship. LITERATURE CONTRIBUTION Based on their research of five major service companies in different industries, Zeithaml, Parasuraman, and Berry (1990, 73-74) concluded that "the absence of total management commitment to service quality virtually guarantees |that quality won't be achieved~ . …

Sponsorship and the Survival of New Organizations

Abstract: Recently, state and local agencies have attempted to encourage, either directly or indirectly, increased economic activity. Often, these agencies focus on incentives to help new business formation, because of their dominance in new job generation and their contribution to the gross national product (U.S. Small Business Administration 1990). This attempt to create a richer, more nurturing environment can be defined as the process of sponsorship (Flynn and Falbe 1985). Sponsorship includes the intervention by government agencies, business firms, and/or universities to create an environment conducive to the birth and survival of organizations (Flynn 1988). Some notable examples of sponsorship are: * Efforts by state and local government, university, and private organizations, including special tax rates, subsidized mortgages, and endowed university chairs, to attract the Microelectronics and Computer Technology Corporation (MCC) and SEMATECH, two computer research consortia, to Austin, Texas; * A program entitled the Business Intelligence Access System (BIAS) based at the University of Pennsylvania was funded by a $200,000 grant from the National Institute of Standards and Technology and the U.S. Small Business Administration enabling small firms to access a plethora of databases from public and private sources; * Forty states have venture capital funds for seed support of new businesses (Livingston 1989); * The university and private industry sponsored business incubators at Georgia Tech and Rensselaer Polytechnic Institute; * The National Science Foundation (NSF) funds engineering research centers at selected universities; and * Small Business Development Centers (SBDCs) at universities that provide free comprehensive managerial planning to small businesses. Although the phenomenon of sponsorship is apparently quite visible, very little has been written on the topic. There are however, a number of different ways that the effects of sponsorship on the survival of a new organization can be studied. More dominant among these are theories that consider the level of control that organizations have on their environments. Prominent among these perspectives are population ecology and resource dependence which provide insights relevant to the critical issues facing new organizations. We will discuss each of these theoretical perspectives and attempt to integrate these for a better understanding of the somewhat unique phenomenon of sponsorship. SPONSORSHIP AND INFRASTRUCTURE: AN OVERVIEW Organizations' survival is contingent upon available resources in the environment (Lawrence and Lorsch 1967). These resources, termed infrastructure, may exist in the local environment (e.g. city or county,) as a composite of land, labor, capital, and existing organizations. Also, resources may be provided by public and private organizations through the sponsorship process. These two primary sources of resources have been shown to be important contributors to the emergence and survival of new organizations (Flynn 1990, 1988). At its initiation, sponsorship increases the amount of resources available to an entrepreneur, providing the opportunity for organizational formation. Without sponsorship, the existing infrastructure primarily contributes to organizational birth through the existence of compatible resources, such as the ecology of human resources, location costs, quality of life factors, and populations of existing firms. Resources are considered important in helping a firm survive when they provide a sustained competitive advantage (SCA). This is achieved if other firms cannot duplicate a value-creating strategy (Barney 1991). In order for a firm to have an SCA, its resource must have the following attributes: 1) it must be valuable, i.e., allows a firm to implement strategies that improve its effectiveness and efficiency; 2) it must be rare among a firm's current and potential competitors; 3) it must be imperfectly imitable, effected by unique historical conditions, ambiguous causality of the link between the SCA and the resource, and complex social phenomena among the firm's stakeholders; and 4) there cannot exist strategically equivalent substitutes (Barney 1991). …

Selection Criteria and Information Sources in the Purchase Decisions of Apparel Buyers of Small Retailing Firms

Abstract: In the present volatile business climate, mergers and acquisitions are turning many large retail organizations into giants, whereas the small retail businesses, for the most part, remain as one-person operations. The organizational structure as well as the modes of operation differ greatly between the two types of retailers, yet these differences are seldom examined in marketing literature. Traditionally, the tendency among managers and researchers alike has been to regard a small business as a "little big business" in terms of assets, sales, and number of employees (Welsh and White 1981). Recently, however, researchers are arguing that there are numerous factors that distinguish small businesses from their larger counterparts. Davis, Hills, and LaForge (1985) identified four conditions that are common among small retail organizations: (a) one person performs most of the retail functions, (b) they are one-store operations, (c) they are under-capitalized, and (d) objectives are based on survival. Clearly, the aforementioned conditions do not exist within most large retail operations. No area is more central to any retail operation than the merchandise-buying function. A review of marketing literature reveals a plethora of research in the areas of consumer-buying behavior and industrial buying, whereas retail-buying behavior has all but been ignored. Not only is there a scarcity of research focusing on retail-buying behavior, but most of the studies reviewed tended to concentrate on large retail establishments rather than on small ones. This article examines the retail-buying behavior of apparel buyers for small retail establishments. Buyers were asked to indicate the importance of various factors influencing their purchase decisions, including their merchandise and vendor selection criteria and the sources of information they use. Related Research Recent retail-related research studies, though limited, have addressed the relative importance of various factors influencing retail purchase decisions. Researchers have found that the importance or merchandise selection criteria, vendor selection criteria, and information sources varies depending on factors such as store type and merchandise classification (Francis and Brown 1985, Hirschman 1981, Hirschman and Mazursky 1982, and Stone 1987). It is quite possible that the importance placed on these factors will also vary depending on store size. This would be expected according to the Cravens and Finn (1983) model of vendor patronage. The Cravens and Finn model identifies three factors which influence vendor selection criteria (evaluative criteria). These are the decision situation, the product/service, and the buying organization. One of the elements of the buying organization listed as a potential influence on vendor selection criteria is the size of the organization. Therefore, one would not expect small organizations to make decisions using the same criteria and information sources as large organizations. In addition, other background characteristics of small stores and small store buyers may influence the buying process. No previous study has focused exclusively on the purchase decisions of buyers for small retail organizations. The purpose of this study is to extend the body of knowledge concerning retail-buying behavior to include small, independently owned apparel stores. Three research questions are addressed: 1. What is the relative importance of merchandise and vendor selection criteria used by buyers for small, independently owned apparel stores? 2. What is the relative importance of the information sources used by buyers for small, independently owned apparel stores? 3. How do the background characteristics of small independently-owned apparel stores affect the importance placed on information sources and selection criteria used by their buyers? METHODOLOGY A purposive sample frame composed of store owner/buyers who had participated in the apparel market activities sponsored by a southwestern state university was used. …

The Impact of Microcomputer Systems on Small Businesses: England, 10 Years Later

Abstract: A little over 10 years have elapsed since IBM made the microcomputer respectable by launching its own personal computer (PC) onto the market in 1981. This anniversary seemed an appropriate time to investigate the extent of usage, the reasons for adoption, and the purposes for which microcomputer systems are now being used in small businesses. In the past decade, a number of studies have been conducted both into these aspects of microcomputer usage and the characteristics of small businesses. Consideration of small business characteristics is important in order to avoid the dangers of technical determinism (Pfaffenberger 1991). Their special circumstances have been discussed by the Bolton Committee (CMND 4811, 1971) and Mackness (1975). Some of the latter's findings were later published in Barnett and Mackness (1983). These authors suggested that small businesses should not be thought of as miniature versions of large businesses but quite different and unique in their own right. For example, some may often assume characteristics of families or homesteads, and growth is not necessarily a prime motivating force. In the literature, there is evidence to suggest that most of the impact of microcomputers on small businesses has been basic and operational rather than decisional (Raymond and Magnenat-Thalmann 1982, MaLone 1985, Nickell and Seado 1986). However, there is also some evidence that the main use of microcomputers is moving from record keeping (word processing and bookkeeping) to decision making (financial modelling and data management) (Cerullo 1980, Mahmood 1982, MaLone 1985, Commission of European Communities 1985, Sanders 1988). However, this study will show this trend is not apparent in the smaller English businesses sampled (fewer than 50 employees). In large businesses, managers rely on decision support systems (DSS) for effective decision making. Chen (1989) and Sullivan and Shively (1989) point out, however, that this technology has not been fully utilized by small businesses despite advantages cited by several authors. Gupta and Harris (1989) suggested that DSS would lead to a better understanding of the small business, and Amer and Bain (1990) suggested that it would lift the focus of business from operational matters to long-term business success. The purpose of this study was to look at how a sample of small businesses were actually using microcomputer-based technology in England 10 years after its effective introduction. Method and Sample The study was conducted in May 1991 and was divided into two parts: postal questionnaires and follow-up interviews. It was based in Norfolk, a rural county in eastern England, characterized by a large number of small companies of a craft or agricultural nature. Two hundred and sixteen companies were randomly selected for the questionnaire survey from the Norfolk Industrial Directory (Norfolk County Council 1990). According to the directory, all of the companies chosen conformed to the definition of a small business in the United Kingdom (UK) Companies Act 1989 (i.e., they had fewer than 50 employees and were not subsidiary companies). The questionnaire(*) was arranged into a number of sections that were used to investigate the nature of the company, the staff's experience with computers, the use of microcomputer systems, and the influence of computerization in small businesses. In order to boost the response rate, respondents were asked to return blank questionnaires if they were too busy to fill them in and 125 responses (75 complete and 50 blank) were received in one month. The final usable sample, comprising 67 respondents, represented a response rate of 31 percent. Of the 67 companies, 37 used a microcomputer system, and 30 did not use any form of computer or computer bureau. Ten companies, comprising five microcomputer users and five nonmicrocomputer users, were chosen for follow-up interviews to further investigate the characteristics of small businesses and their owners, and how their attitudes and experiences affected the process of computerization and the implementation of microcomputer systems. …

Using Marketing Research to Enhance Franchisee/franchisor Relationships

Abstract: Franchising, as a form of market organization, has experienced rapid growth over the last several decades. Both the franchisor and the franchisee can improve performance from a marketing perspective and a profitability context when there is an effective franchising arrangement (Zeidman and Lowell 1986). Market advantage can be achieved when the franchise system successfully develops an identifiable product or service which assures customers of a uniform and predictable level of product quality and service. The strength of a franchise operation is focused around the dual roles of (1) excellent management and operations and (2) outstanding quality and reliability of the product and service (Foster 1989). A franchisor must therefore be concerned with both the quality of its franchisees and its products. The franchisor faces a dichotomous problem of marketing to both (1) perspective franchisees and (2) end consumers or customers (Justis and Judd 1989). In order to grow, the franchisor must recruit additional franchisees. Effective recruitment calls for a market program targeting perspective franchisees (Boroian and Boroian 1987, Storholm 1991). In addition, the franchisor often has the responsibility of promoting the product or service to the end consumer. The advantages inherent in franchising systems are often recognized by scholars and practitioners alike. The success that franchising has achieved during the past several decades attests to the merits of franchising. Nevertheless, there still exists within franchise relationships classic problems of control and self-interest. The conflict that arises between franchisors and franchisees may be one of the most difficult and frustrating challenges in franchising (Axelrad and Rudnick 1987). There are often several sources of conflict within franchise channels. Franchisees may not provide an expected level of managerial talent and energy to properly handle the business. The franchisee may be buying a vision of the American dream with unrealistic expectations of the work necessary to make the business succeed. The franchisee may not desire the hard work or long hours that are expected at the beginning of a franchising operation. The franchisee may be motivated to purchase a franchise to escape from either unemployment or poor job prospects but may not have the skills to manage his or her own business. The franchisee may not have thoroughly investigated the franchisor nor may he or she have sufficient operating capital to start up or run the business. When problems arise, the franchisee's disenchantment may seriously impair the relationship with the franchisor and cause serious harm to the business operation (Seltz 1982). Conflict arises when one party believes that its goal attainment is being impeded by another (Gaski 1984). In a franchising relationship, the franchisor and franchisee usually have different objectives (Boe, Ginalski, and Henward 1987). The franchisor generally will be considering performance of the entire system while the franchisees are focusing on their individual outlets. Both franchisor and franchisee will attempt to maximize profits for themselves. As each organization within the franchise system strives to meet its own goals, the problem of self-interest can create serious difficulties for the harmonious operation of the franchise relationship. One problem which must be addressed is the responsibility of the franchisor to properly select those franchisees whose goals complement their franchising system. Training can also be provided on an ongoing basis to ensure that the franchisees' goals remain consistent with those of the franchisor. In both cases, market research can prove to be a valuable tool to understanding franchisees' goals and aspirations. When a suitable franchisee is enlisted, the franchisor must continue to monitor and analyze the sales and profits of each unit. Such research can provide insight into the customers' buying habits and the demand for the product or service being offered. …

Complaint Resolution by OSHA in Small and Large Manufacturing Firms

Abstract: Regulation by governmental agencies is generally recognized as costly for business firms. The total cost of federal regulation has been estimated at more than $125 billion annually (Bowden 1992). Regulation can be classified as either economic or social, depending on the objectives trying to be achieved. Early regulation was primarily economic in nature and dealt with issues related to market structure. More recently, regulation has been targeted at social issues. Social regulation includes environmental, safety and health, and equal employment concerns (Luthans, Hodgetts, and Thompson 1990). Complying with regulatory requirements can be particularly costly for smaller organizations (Longenecker and Moore 1991). Surveys of small business owners and managers reveal that governmental regulation ranks among the most difficult problems with which firms must cope. Hoy and Vaught (1980), in a study of rural entrepreneurs, found that 16 percent felt government interference inhibited their abilities to operate effectively. Similarly, Franklin and Goodwin's (1983), research with 670 small businesses revealed government regulation ranked lower than only inflation and taxes as major problems for small firm owners. Thus, at least in the perception of small business owners and managers, government regulation poses a threat to profitability and ultimately, survival. This perception is given credibility when considering the impact of one regulatory agency, the U.S. Occupational Safety and Health Administration (OSHA), on small businesses. OSHA appears to pose many obstacles to the management of small organizations when compared to large ones. Several studies have examined the impact of occupational safety and health regulation on small business. Observers of the field generally agree that small businesses are at a competitive disadvantage when forced to comply with the OSHA regulations (Ashford 1976, Cole and Sommers 1980, Knight and Harju 1982, Longenecker and Moore 1991). Bartel and Thomas (1985, 1987) concluded the costs of compliance with OSHA regulations fall most heavily on small firms. Although some macro-level research has been conducted on the impact of OSHA regulations on the economic well-being of small firms, there has been no empirical investigation of how OSHA resolves compliance issues in small organizations. CURRENT RESEARCH The purpose of the investigation upon which this article is based is to identify potential differences in OSHA compliance processes used in small and large businesses. The research specifically focuses on one aspect of the compliance issue, the inspection and complaint resolution process. Both small and large firms are covered by the same OSHA regulations and inspection procedures; and both are held accountable for the same types of potential violations. However, as Bartel and Thomas (1985, 1987) observed, OSHA regulations have a differential impact on the organization depending on firm size. To identify how OSHA inspections on employee complaints may contribute to this impact, the study discussed here had the following objectives: (1) to determine if the inspection and complaint resolution process in small firms can be distinguished from the process in large firms, and (2) to identify potential differences on specific characteristics of the inspection and complaint resolution process in small and large organizations. Thus, OSHA cases originating from an employee complaint were reviewed. Understanding how the process might differ in small and large firms allows recommendations on how small organizations might cope more effectively with OSHA's regulatory activities. BACKGROUND ON OSHA AND THE RESOLUTION PROCESS The Occupational Safety and Health Act President Nixon signed the Occupational Safety and Health Act into law on December 29, 1970. Section 2(b) stated the goal of the act was to "assure so far as possible every working man and woman in the nation safe and healthful working conditions and to preserve our human resources. …

The Personal and the Personnel Adjustments and Costs to Small Businesses Entering the International Market Place

Abstract: The small business sector long has been regarded as a major vehicle for economic growth in industrialized countries (Litvak 1988, Knight 1988, and Havenga 1988) Indeed, increased efforts to develop global markets have viewed small business as important to overall economic policy (Cadwell 1988, Litchfield 1988) Although the actual impact of international trade agreements on the small business sector is not yet clear (Rugman and Verbeke 1989), managers of small firms have responded enthusiastically (Bullock 1987, Cadwell 1988) In addition, a substantial amount of research has been conducted on the economic impact of exporting on the small firm In general, these studies suggest that given careful product and market selection, intense commitment, and meticulous planning, firms that export generally exhibit above average growth, profitability, and stability (Edmonds and Khoury 1986; Beamish and Munro 1987, 1985, 1986) However, what is not well defined are the costs, in terms of training and other internal and lifestyle adjustments associated with becoming an exporter Although Beamish and Munro (1985, 1987) allude to the problems of managing sales representatives in foreign locations and suggest that presidents of small manufacturing firms typically devote 20 percent of their time to the export function, the personnel aspects of entering the international marketplace have not been delineated This article will explore two facets of personnel management Prince's (1988) definition of a small business (50 or fewer employees) was used, and it was surmised that either the owner or president would be personally involved in the exporting function (Beamish and Munro 1987) Hence, the "personal" costs and skill acquisition needs, as they relate to the entrepreneur or senior manager, will be described In addition, a more general approach will explore the costs and the necessity of job restructuring and new employee and skills acquisition Rather than attempt to develop new theoretical constructs, this article will add to the knowledge base developed by Rugman and Verbeke (1989), Beamish (1988), Beamish and Munro (1987, 1986), Edmonds and Khoury (1989), and Beamish et al (1985) The intent is to be of practical benefit in three ways First, entrepreneurs working to compete internationally will be more aware of the costs, in terms of their personal time and relationships, as well as likely skill requirements, both personal and employee-related The decision to export then can be made on other than purely economic considerations, because data will be developed that isolate factors that may influence changes in personal lifestyle and the lifestyle of employees Second, curricula development may be affected As the personnel aspects of exporting are not well known, these data could be integrated into present courses in small business creation and development Third, this article will point out where more in-depth exploration is necessary REVIEW OF THE LITERATURE Aside from the previously cited works by Beamish et al, Rugman and Verbeke, and Edmonds and Khoury, there is a dearth of supporting data on this topic Thom (1990) has done some useful work in linking "innovations on the social front" to the goal and strategy development system Cellich (1989) discussed training in a strategic sense, while Sullivan and Shavely (1989) mentioned human resources in a peripheral manner None of this research stressed the personnel function Of course, a large number of works explore the challenges and opportunities faced by small firms that export (Noriki 1988; Howard and Herremans 1988; Keynak, Ghauri, and Olofsson-Bredenlow 1977; Rossman 1984; Hester 1985; Darling and Postnikoff 1985; Vozikis and Mescon 1985; Sharkey 1989) Again, none of these articles strongly delineate the personnel aspects of exporting Finally, the training literature was researched, with a similar result Collins' (1990, 22) fine article on the British small business scene alludes to the "cost to family life," but does not elaborate on the concept …

The Effects of Foreign Ownership of U.S. Banks on the Availability of Loanable Funds to Small Businesses

Abstract: While the advent of financial deregulation and globalization of financial markets has created additional sources of loanable funds for many large business organizations, small businesses are still relegated to trade credit and bank loans as their primary source of operating funds (Curran 1986, Gitman 1988). Any change that is likely to disrupt these sources of funds for small businesses is particularly worrisome to them. One of the effects of increased internationalization that has potentially significant outcomes for American small business is the existence of large numbers of U.S. banking facilities owned by foreign interests (Goldberg and Saunders 1981a, Meinster and Elyasiani 1988). These foreign interests have opened or acquired operating units in the U.S. in three different formats; agencies, branches, and subsidiaries (Ogilvie 1980, Walker 1983). The purpose of the agency and branch forms of foreign banks has been to provide services for their home country businesses operating within the U.S. and to obtain direct access to U.S. exchange and security markets (Hultman and McGee 1989, Idaszak 1990). On the other hand, subsidiary banks operate as full-fledged, full-service commercial banks that are chartered under U.S. banking laws and regulated identically to U.S. banking units (Goldberg and Saunders 1981b, Park and Zwick 1985).(1) As such, these subsidiary banks compete on both sides of their balance sheets. Therefore, they are likely to have a significant effect on the competitive banking environment in their respective communities, particularly in the areas of direct customer/client relationships and the availability of loanable funds. Both of these issues are of extreme importance to the operation and success of most small businesses since commercial banks provide a broad array of services to virtually every small business. Banks also rank as either the first or second most important source of external operating funds for small business (Siropolis 1990, Van Auken and Carter 1989). For example, studies done by the National Federation of Independent Business in 1988 and 1990 found that 76 percent of all operating small business firms have utilized bank loans at some point during their existence. Sixty-five percent of these small businesses report they are currently using some form of bank credit. Likewise, these studies suggest that from 45 to 52 percent of all small business firms needed at least some portion of their original start-up funding from commercial bank loans (Dennis, Dunkelberg, and Van Hulle 1988; Cooper 1990). The data suggest that the ability to obtain commercial bank loans is a major component of the operating environment of most U.S. small businesses. This study was designed to assess the impact that foreign ownership of U.S. banking facilities is likely to have on the availability of loans for small businesses. While the issue of the potential changes in the customer/client relationship that could result from foreign bank ownership warrants further investigation, it is beyond the scope of this study. Several major elements of the foreign ownership issue underscore the potential significance that this could have for U.S. small businesses. First, most subsidiary banks fall under foreign ownership by acquisition rather than "start up" (Walker 1983). Second, as a practical matter, small businesses obtain more than 96 percent of their bank loans from local banks (Robichaux 1991, U.S. Small Business Administration 1990). This means not only that the banks are important but that small businesses are limited to the commercial banks domiciled within their own operating region (Schlesinger, Unsal, and Zaman 1987). Third, from the banks' perspective, small businesses are as critical to their success as is the reverse. For example, current estimates indicate that in excess of 50 percent of all outstanding bank loans to the U.S. commercial sector are to small businesses (U.S. Small Business Administration 1990). …

When Should the Small Firm Be Involved in Public Policy

Abstract: The relationship of business and government has changed markedly over the last four decades, forcing many executives to revise how they think and act relative to public affairs issues. The growth years of the U.S. economy throughout the 1950s and most of the 1960s allowed business to be fairly complacent in terms of political activity. Firms had only to consider their own political goals (Kaufman, Marcus, and Zacharias 1987). This philosophy defined the ground rules for corporate political action until the 1970s, when declining economic conditions challenged corporations to discover new means of coordinating the economy without centralizing authority in the business sector or in governmental agencies (Neal 1981). Failure to do so helped prompt the call for more government intervention in the economy, particularly with issues thought by many business people to be clearly under managerial control (Marcus, Kaufman, and Beam 1987). Through subsequent expansion of government's role in the economic and social issues, the business community began to learn the costs of complacency. Consequently, the 1980s saw business expanding its influence in the legislative process (Levitan and Cooper 1984). Today, the continued growth of government intervention in the economy, the power of unions, and the rise of public interest groups have shattered the view that firms can wait for problems to arise before acting (Yoffie and Bergenstein 1985). Whether through economic, national security and regulatory policies, or industrial incentives and constraints, most executives now acknowledge that government meaningfully affects a firm's performance, operations, and markets. In many industries, the political success of a business is no less important than marketplace success (Marcus, Kaufman, and Beam 1987). Other authors have defined and examined the business/government relationship. For instance, Buchholz (1988) states that managing the public policy process implies there is a public policy issue that affects many parties, including the firm. The public policy issue would also require collective action for resolution. He describes a generic system for strategically managing public policy issues, useful once a firm decides to become involved in the public policy process. Shipper and Jennings (1984) believe that businesses, regardless of the political sentiment at the time, need to develop a proactive and constructive position for incorporating new knowledge into national policy. Kaufman, Marcus, and Zacharias (1987) note that corporations, primarily through their public affairs function, have tried to manage politics by having public officials act according to the firm's preference and by attempting to align public values in a manner consistent with managerial autonomy. While useful, these strategies and models have been developed from, and are primarily applicable to, large firms. Large firms often possess entire public affairs and government relations departments that specialize in analyzing and tracking issues and affecting the public policy process. Further, these authors imply that, for the situations they have studied, the decision by a firm to become involved in the public policy process usually has already been made. Generally missing from the literature has been research into public policy involvement of small to medium-sized firms (here defined as between 20 and 500 employees), a group that constitutes the vast majority of private sector businesses in this country (Thompson and Smith 1991). Despite their size, these companies are often heavily affected by public policy dynamics; yet, because of resource constraints of time, money, and personnel, they must adapt to these dynamics in ways quite different from the large corporation. It was with this in mind that we set out to study what causes public policy involvement among small to medium-sized firms. METHODS Using a qualitative, grounded-theory approach (Glaser and Strauss 1967), we interviewed and observed 40 executives over a four-year period. …

Expert Systems Development in Small Business: A Managerial Perspective

Abstract: A well-researched and well-documented issue in the growth of a business is the transition from an entrepreneurial organization to a professionally managed company (Chandler 1962, Filley and House 1969, Steinmetz 1969, Thain 1969, Greiner 1972, Cooper 1979, Kimberly and Miles 1980, Galbraith 1982, Churchill and Lewis 1983, Hofer and Charan 1984, Robinson et al 1984, Flamholtz 1986) Recent advances in computer technology may provide solutions that can assist the small business owner or entrepreneur in making the transition from "doing" to "managing" One currently popular application of computer technology is the expert system, a method of applying human knowledge captured in a computer to solve problems that normally require human expertise (Turban 1988, Muller-Boling and Kirchhoff 1991) Expert systems are computer systems that are designed specifically to emulate the reasoning of an expert (Hayes-Roth 1988) They model a specific expert's approach to the solution of a narrowly defined, recurring problem By nature, these advanced systems can perform no better than the human after whom they are modeled Expert systems are developed by first identifying an expert who can solve a specific problem, eliciting his or her reasoning processes, and building a computer system that emulates that reasoning Accordingly, the computer is programmed to solve many problems that arise each business day The benefits of expert systems for small business have been presented in the literature (Torkzadeh and Rao 1988, Sullivan and Shively 1989, Muller-Boling and Kirchhoff 1991) The primary benefit concerns the opportunity for small business owners to use the computer to delegate many routine decisions to their employees, thus allowing owners to focus on managerial activities (Sullivan and Shively 1989) In large businesses, many problems such as training, enforcing procedures, or monitoring and controlling business activities are handled by overpowering these problems with available staff or by hiring staff with specific abilities The impact of expert systems in small business, therefore, may be greater than in large business since small firms may not have the luxury of alternative solutions Much of the expert system research has focused on the technical aspects of expert system development (Davis, Buchanan, and Shortliffe 1977; Hayes-Roth, Waterman, and Lenat 1983; Jackson and Lefreve 1984; Smith 1984; Fikes and Kehler 1985; Hayes-Roth 1985; Myer 1986; Weitzel and Kerschberg 1989) or on the general applications of expert systems in small businesses (Torkzadeh and Rao 1988, Sullivan and Shively 1989, Muller-Boling and Kirchhoff 1991) These studies give little attention to the difficulties involved in developing expert systems or the impact of these systems on the small business owner's activities Torkzadeh and Rao (1988) and Sullivan and Shively (1989) suggest that expert systems can handle a wide variety of management problems without regard to problem sophistication They also emphasize the advantages of expert systems without fully exploring several critical development considerations Although expert systems can benefit the small business owner, they can also waste time and money, which are usually scarce resources for the small business owner Two issues not included in the current literature need to be addressed in considering the use of expert systems in small business First, not all types of expert systems are appropriate for small business A categorization scheme presents the different types of expert systems based on the characteristics of the problems being solved These categories are then related to estimates of time and money needed to develop potential applications Second, many small business owners cannot tolerate the use of expert systems in their business Several managerial issues are presented as critical considerations that must be addressed before the expert system development process begins …

An Analysis of Strategic Intervention Policy in Namibia

Abstract: Namibia, the last colony in SubSaharan Africa to obtain independence (in 1990), set a precedent by becoming the first to specifically base its economic future on the small business sector. The government is relying on strategic interventionist policy to encourage new venture creation and a healthy small business sector. In contrast to neighboring states which have pursued principles of African socialism, Namibia has adopted a policy of promoting entrepreneurship via intervention in the marketplace. This study examines this intervention concluding with an evaluation of such policy in Namibia and generalizations for future application. Background In 1884, the German colony of Sudwest Afrika was annexed to Germany and remained so until 1915 when South Africa, an allied power, obtained the surrender of the German troops during World War 1. The League of Nations put the Union of South Africa (later the Republic of South Africa, RSA) in charge of administering the land which would be known as South-West Africa (SWA). In 1968, RSA declared SWA free to be independent, but tension spilled over from neighboring Angola when Portugal abandoned the latter and a Marxist government took control of it with military assistance from the U.S.S.R. and Cuba. Angola was subsequently used by the South West African People's Organization (SWAPO), a leftist organization with strong communist affiliation which pursued a violent campaign in SWA. Finally, in 1984 a Bill of Fundamental Rights and Objectives was compiled in SWA, specifying the right to own private property. In 1985, the Transitional Government of National Unity was established as an interim government of SWA, and RSA continued steps for the creation of the necessary infrastructure for eventual independence. The new country would be called Namibia," its new name meaning "great arid desert." In contrast to the National People's Congress of Zimbabwe which adopted the Zanu Constitution in 1989, reaffirming its commitment to socialism guided by Marxist-Leninist principles, policymakers in SWA did not wish to take the path of African socialism. Under colonial rule most African states including Rhodesia (as Zimbabwe was known) had been self-sufficient in food production and many exported food; after their independence, despite foreign aid, debt increased and per capita gross national product (GNP) usually fell considerably. Seeing repeated failures of attempts at African socialism, policymakers in SWA decided instead to pursue free enterprise ideals with an emphasis on small business. Up to its independence in March 1990, SWA obtained its wealth from free enterprise, mostly from big business--with large capital investments in mining, fishing, livestock farming, and tourism. In 1987, 60 percent of its exports were in diamonds and uranium, with a value of approximately $1 billion U.S. dollars. However, as reported by The Economist (1988), after six decades of intense mining, the diamonds may be running out. Furthermore, the exodus of many white residents has coincided with the flight of substantial capital and expertise. The economic future of the new country will henceforth depend "on the small entrepreneur who has the potential to provide goods and create jobs for most Namibians (Deacon 1989)." The purpose of this article is (1) to demonstrate how Namibia is using what Peterson (1988) describes as the "strategic interventionist approach" with the objective of modifying the environment such as to encourage the development of small enterprise culture and (2) to evaluate such a policy in that setting. Methodology This article is the result of primary research conducted by the author in SWA/Namibia. In the case of a newly born country, primary research is essential, as secondary sources are almost nonexistent, and when the latter are available, reliability is at times doubtful.(1) Apart from the fact that it is too early for many reliable sources to have been published, the lack of published field research is understandable--visa formalities, malaria tablets, broken telephones, roadblocks, and unbearable temperatures are but a few of the deterrents which the author had to contend with. …

Managing the Risk of Wrongful Discharge Litigation: The Small Business Firm and the Model Employment Termination Act

Abstract: Small business managers will soon be presented with the greatest opportunity since the introduction of worker's compensation laws to manage a potentially disastrous risk: the increasingly common and escalating costs lurking in wrongful discharge litigation. Seizing it will require an understanding of the Model Employment Termination Act (1991) and the complex problems it attempts to resolve, followed by concerted political action. This problem is only now emerging in its multifaceted forms because for more than 100 years employers were protected from wrongful discharge damages by the doctrine of employment-at-will (Feinman 1976). The employment-at-will doctrine permitted the termination of an employee, in the absence of a fixed term contract, for cause or no cause at all. This doctrine is now rapidly eroding. And this trend, if unchecked by newly proposed legislation, could inflict its harshest consequences on small business. First consider the cost for a small business, and the impractical nature of the current alternatives. The National Conference of Commissioners on Uniform State Laws estimates the expense for defending a single "typical" wrongful discharge case at $80,000. This cost is not contingent on the resources of the defendant nor is it diminished if the defendant is successful. This alone threatens small business more ominously than larger business firms, and the potential loss is devastating if the plaintiff wins. And, plaintiffs do win. In California, using a large state with diverse business activity as an example, plaintiffs won 70 percent or more of all wrongful discharge cases that reached a jury. The verdicts in these cases averaged $300,000 to $500,000 (Model Employment Termination Act 1991). Nationwide plaintiffs have received judgments as high as $20 million, $4.7 million, $3.25 million, $2.57 million, and $2 million. "Jury awards exceeding $1 million have been common," and the increase of wrongful termination cases over the past dozen years has been described as "a virtual landslide" (Model Employment Termination Act 1991). While large concerns may find the means to simply absorb such losses, the drain of resources will devastate small business. Large concerns also differ from small firms in their ability to avoid the risk of litigation. These organizations are more likely to have the option of relocating an inefficient employee to another or less significant position and hiring another in his or her place. The option is greatly restricted by the nature of a small business with fewer positions and limited ability to "carry" inefficient employees. Even when this option is possible it is an unreliable alternative when, in the end, the employee must be terminated. In a case involving the Southwest Gas Corporation in Nevada, as an example, supervisors warned and repeatedly relocated an employee prior to her termination, yet the company was found to have violated her rights created by the court's interpretation of a company handbook when she was eventually terminated (Southwest Gas Corporation 1983). Following rules and procedures created by stated personnel policies could probably have protected Southwest Gas but, here again, a small business finds itself at a disadvantage when compared to a larger organization. SmaLl businesses are less likely to have elaborate, enumerated personnel policies and grievance procedures, and less likely to have the internal bureaucracy necessary to create and implement them. Also, to create such an organization would generate an additional and excessive expense. Restructuring of the American workplace is becoming an ever increasing fact of life. Many large companies sometimes lay off thousands of workers at a time, encompassing whole departments and units. Because these units contain employees of mixed abilities and characteristics, the implication that one particular employee was unjustly discharged simply cannot be proved. Smaller firms, on the other hand, often discharge a single employee at a time who in turn may attempt to prove that his or her discharge was done wrongfully. …