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Succession Planning Context in Family Business: Its Predictors and Empirical Test
  • - Induk Suh (Yeungnam University)
  • - Yun Hee Park (Hankook Kwang Yu)
  • - Taekyung Park (Yeungnam University)
[Abstract]
This paper aims to investigate predictors which affect successful succession planning context in family firms and analyze their relationships in the context of South Korea. Building on previous literature on family business succession planning context, hypotheses are constructed and tested using data collected from 203 family firms. Findings indicate that management practices and family firm characteristics have a crucial role to play in implementing successful succession planning. Further discussion and implications are presented.
A Literature Review on Stakeholder¡¯s Factors Affecting the Succession Process
  • - Sun Hwa Kim (Seoul School of Integrated Science and Technology)
  • - Young Ho Nam (Konkuk University)
[Abstract]
Family firms play a significant role in the global economy, but despite their importance, research evidence points to their low survival rate. Therefore, it is not surprising that management succession is the most frequently researched topic in family business literature. While acknowledging that there are various definitions of a family business, in this article we follow the premise that it is ¡°a business governed and managed by members of the same family in a manner that is potentially sustainable across generations of the family.¡± The succession process involves the actions, events, and developments that affect the transfer of managerial control from one family member to another. Successful management succession for a family firm consists of two interactive dimensions. The first is the family members¡¯ satisfaction with the way the succession process is carried out. The other relates to how the succession affects the subsequent performance of the firm. Satisfaction with the succession process is crucial because of its direct impact on the relationships between family members and on effectiveness. The relationship between satisfaction and effectiveness is likely to be inter-temporal in nature.
According to the Korea Federation of Small and Medium Business, almost 70% of family companies established between 1970 and 1980, during the era of rapid economic development, will be facing business succession during the next 10 years. However, research into family businesses succession is rare in Korea. The purpose of this study is to review literature on family business succession, and take a more comprehensive and integrative approach to the succession process and the stakeholders¡¯ perspectives. To examine the stakeholder factors effectively, we have studied 55 articles taken from the Family Business Review (FBR) between 1988 and 2010. We first analyzed the factors that influence successful transition by stakeholders, then classified the succession process and integrated the key stakeholders¡¯ roles at each stage of the process.
The succession process in a family firm involves numerous participants, with the key stakeholders being the incumbent, successor, family members, and non-family managers. We analyzed the factors that influence successful succession and summarized the relative frequency of the most common findings from the literature we reviewed. One of the most frequently mentioned factors was incumbent attributes, characterized by the quality of the relationship with the successor (36%), effectively communicated and shared values for the future of the family business between family member and successor (24%), willingness to let go (18%), and knowledge transition, nurturing and development of the successor (16%). An equally important category is that of the successor. Variables or dimensions such as the successor¡¯s management ability (20%), willingness to take over (20%), early exposure to the family business (13%), the successor¡¯s attributes (13%), outside work experience (7%), and gaining legitimacy and credibility in the eyes of the stakeholders (5%) are viewed as critical to a successful succession. So is the quality of the relationship inside the family, including harmony (22%), family members¡¯ trust in the potential successor (16%), and commitment to the family business (11%). Another often mentioned but little characterized category was the non-family manager, as the employee¡¯s trust in the successor (18%) is also revealed as an important factor. In summary, the most frequently mentioned factor for a successful succession in the literature we reviewed is the quality of the incumbent-successor relationship.
Succession is to be viewed as a process, not an event, and must be fully understood and internalized from the perspective of the key stakeholders involved. A straightforward seven-stage model of succession in a family business, based on the successor, has been developed by Longenecker and Schoen. Churchill and Hatten proposed a four-stage life cycle approach to succession, while Handler put forward a four-stage process for the role adjustment required between predecessors and next-generation family members during succession. If taken together, the models described by the researchers allow the process to be divided into four stages. In the first stage, the owner is the only family member involved in the business. The second stage comprises a training and development period for the successor, while the third stage is a partnership period in which the owner shares the leadership of the business with the successor. Finally, the fourth stage involves the power transfer, in which responsibilities shift to the successor. However, some researchers have suggested there is a critical point in the process at which the successor needs to take charge, located somewhere between stages three and four in the model.
In this research, we tried to develop an integrated framework for the succession process that includes important variables with regards to the key stakeholders-incumbent and successor-at each stage. This included a period of phase-in and out between stages three and four as suggested by some researchers, meaning the succession process is actually divided into five stages. We then integrated the role of the incumbent leader and successor in each stage as follows. In the first stage, the incumbent is a sole operator and the successor has no role in the business. At this point, researchers recommend the successor¡¯s early exposure to the business, and working part-time within it. During the second stage, we view the incumbent as ruler and the successor as helper. The incumbent¡¯s role is to transfer knowledge and train the successor, and the successor starts working outside of the family firm or working full-time within the family business at the entry level. The third stage is the partnership period between incumbent and successor. Here the incumbent has six roles (supervisor, teacher, protector, introducer, mobilizer, and collaborator), while the successor has a managerial role. The incumbent relinquishing control, commensurate with the growth in the successor¡¯s ability and authority, occurs during the fourth stage. This is the healthy, mutual role adjustment pattern that precedes a smooth succession. Finally, in the fifth stage, the incumbent becomes a mentor and advisor, and the successor becomes the leader of the organization. Contrary to other theoretical models in which the final phase is characterized by the definitive withdrawal of the predecessor from the firm, we suggest they take on the roles of safeguard and observer to the organization, and mentor and advisor to the successor.
In this study, in order to systematize the succession process in a family business, we reviewed previous studies on family business succession and suggested a succession process framework. However, there may be limitations in applying the framework directly to Korean family firms because all the literature was based on Western family businesses, which possess different cultural backgrounds. In order to apply this study to Korean family firms, some case studies appropriate for the specific cultural framework are required. Nevertheless, we expect this paper to be helpful for owners preparing for business succession, as there is a scarcity of articles and books describing this process in Korea. Furthermore, it will be helpful to researchers studying family business succession in the future.
Status of Support Policy for Family Business Succession and its Development Method
  • - Byung Sun Cho (Soongsil University)
  • - Bong Hyun Cho (IBK Economic Research Institute)
[Abstract]
The weight of family business taking a share in a national economy is very high and family business contributes significantly to the creation of wealth, the provision of job opportunities, the national economy and social stability. As society is advancing into an aging one, business succession for enterprises that were established during the 60¢¦70s is being magnified as the biggest pending management issue for family enterprises. According to a survey carried out by the Korea Federation of Small/Medium Businesses targeting 500 small/medium manufacturing enterprises with a regular employee size in the range of 5¢¦300 people, post-generation foundation managers account for 12.2%. When estimating the number of family enterprises of which have gone through succession based on this (as of 2008), it reaches approximately 13,658.
ABusiness succession is emerging as a major issue of management as among small/medium enterprises the number of enterprises of which succession is under progress or scheduled in the future reaches 70 percent. It was revealed that managers of small/medium enterprises have a pressing concern over business succession as seen from the fact that only 11.4% of enterprises did not show any intention of succession.
As such, most family businesses want business succession, the reality in Korea is that heavy inheritance tax, gift tax, negative society reaction and inadequacy of successor fostering pose stumbling blocks to business succession due to the insufficiency of political support. So far, the establishment of a support policy for business succession by the government was out of the question as the view that business succession was tantamount to ¡®a passing-down of wealth' was prevalent.
Currently, a partial support system for business succession that includs the expansion of inheritance deduction is being presented. Support foundation for family business succession including the expansion of the deduction rate for family business inheritance, an exceptional system for prior inheritance, a postponement of tax payment system and operation of a support center for family business succession is being formed. In 2009, in case that a family business inheritor should operate his/her business lawfully even after inheritance by succeeding an enterprise that is more than 10 years old, the deduction amount of family business inheritance deducting from inheritance property value was increased from 20 to 40% and deduction limitation for family business inheritance was also was expanded from the previous 3 billion (KRW) up to 6¢¦10 billion (KRW) depending on the period of family business operation by the deceased founder and accordingly, the burden of family business inheritance tax was greatly decreased. According to the 'Tax Law Amendment of 2011,' it was stipulated that the deduction rate for family business inheritance be expanded from 40% of total amount of family business inheritance property to 100%. The deduction limitation was also expanded depending on the family business operation period of the founder from the existing 6 billion to 10 billion (KRW) in case of operation of more than 10 years, from 8 billion to 15 billion (KRW) for over 15 years and from 10 billion to 50 billion (KRW) for over 20 years.
However, as the requirement for support is too demanding, there is a gap between this system and enterprise reality and moreover, this system is not sufficient when compared with the cases of advanced countries as well.
In case that family enterprise should lose competitiveness or lead to a shut-down due to a rough succession, valuable intangible assets, including technology and knowledge accumulated within the enterprise would cease to exist and job opportunities and production facilities would be lost. As a consequence, the national economy will also be considerably adversely affected.
In the cases of countries like Germany and Japan that progressed with industrialization ahead of our country, they are implementing a ground breaking succession policy for maintaining employment and ensuring sustainable growth under their recognition that business succession is a second foundation. While exempting succession-related taxes, including inheritance tax and gift tax drastically, they support the sustainable growth of their enterprises.
Therefore, Korea is also required to establish a support policy for business succession and promote it through an approach in their proactive perspective. Creation of new job opportunities and foundation promotion to recover the growth power of national economy is important, but maintaining an enterprise that has been cultivated by investing efforts and resources since its foundation and a succession that enables sustained growth also falls under the category of very important policy tasks. In order to facilitate business succession, a new support policy for succession shall be pursued on a sustained basis.
First, the requirement of support for business succession should be actualized to match the reality of enterprises. The period of business operation of the founder was sharply strengthened from 5 years to 10 years in the past but this period should be shortened drastically considering the average operation period of small/medium enterprises of 10.7 years and requirement for holding the office of representative director over 60% of the time or over 8 of 10 years (shouldn't this be 6 of 10 years? this note after checking) before inheritance starts should be improved to be match reality. In addition, in order to facilitate family business succession of unlisted small/medium, middle standing enterprises that have relied on external investment capital in the growth process of enterprise, the requirement for share of the largest shareholder of the decedent should be alleviated. Even if an enterprise should graduates from the small/medium enterprise circle, the inheritance deduction benefit is limited up to a turn-over of 150 billion (KRW) but this limit should be expanded to a turn-over of 300 billion (KRW) to facilitate the growth of small/medium enterprises into large corporations.
Second, with a view to activating a succession in a form of gift preferred by family enterprises, a revolutionary measure for an exceptional system of prior inheritance is required to be considered. It is considered to be reasonable that the limit of support for prior inheritance be increased from the existing 3 billion (KRW) to 10 billikon (KRW). Reflecting the characteristics of family enterprises and reality, the evaluation method of unlisted stock should be improved as well. A method of lowering the maximum tax rate of inheritance and gifts by limiting its target to family enterprises and abolishing extra charge taxation should be pursued so that family enterprises may not give up a succession due to heavy taxes.
Third, in order to encourage the intention of succession by somewhat alleviating uncertainties in the process of succession, an introduction of stock having an approval right is desirable. It is required to proactively review the possibility of introducing a carry-over taxation system for capital gain as a way of eliminating taxational barriers that deter business succession and harmonizing the justice of the tax burden.
A taxation method for the acquisition value of succession that is viable to be introduced at this juncture may quote a tax support system for a merge among small/medium enterprises, a regulation of the special tax control law, as a substitute method for partial inheritance tax.
If the system is converted to taxation method for the acquisition value of succession, a similar effect would be exerted in terms of carry-over of the tax burden and it will be effective for a smooth succession of the family enterprise.
Fourth, ¡®a system of exempting inheritance tax subject to achievement of business succession' that exempts a certain rate of inheritance, a gift tax in the case that a small/medium enterprise was inherited or gifted is operated successfully and continuously while employment is maintained, like the case of Germany, should be implemented. This system is required to be implemented with priority targeting an enterprise that was succeeded to a successor after it had been operated for more than 20 years as a small/medium enterprise and attains management achievement steadily while creating employment and paying taxes adequately. This system is to be exempt from taxes for a period of 10 years by a constant rate (10% per year) in case that certain requirements are satisfied after determining inheritance, gift tax at the time of business succession and measuring enterprise achievement for the determined tax every year.
Fifth, in order to support business succession of family enterprises comprehensively and systematically, a support system, including an enactment of special law to support family enterprise succession, and the establishment of a business succession promotion agency should be undertaken. Comprehensive support for business succession would be enabled and its effect would be taken substantially only when a special law is enacted.
Once the groundwork for supporting family business succession has been laid down, it should be combined in a single body by the enactment of a special law, and the efficiency of the policy ution could be enhanced.
Limitation of partial support for family business succession by a general law could be overcome. When a special law is enacted, a separate tax rate (bringing down maximum tax rate) differentiated from general inheritance tax could be applied to family business succession.
The last thing to be emphasized is that in order to support sustained growth of family enterprises, a reliable mainstay and a hope leading our economy, now is the time for the government authorities concerned and financial institutions, not to mention of representatives of the relevant enterprises, to exert their respective efforts to arrange realistic counter-measures and provide efficient support for successful business successions. All of us should recognize the fact that only when fostering small/medium enterprises to carry on their family line for a long time will the growth of these enterprises and the future of Korean economy be promising.
The Effect of Franchisors¡¯ Image, Support Activities, and Ethics on Franchisees¡¯ Performance in Korea
  • - In Woo Jun (Korea Small Business Institute)
  • - Sunung Moon (Myongji University)
[Abstract]
The government policy for micro-enterprises in Korea can be segmented into the following areas: financial support, consultation, education, organization, and cooperation. The policy of organization and cooperation for micro-enterprises in Korea is generally centered on franchise chain and voluntary chain. The competitiveness of SME's distribution industry is strengthened by the introduction of ¡®Nadle Policy' which is a co-brand created in 2010. Especially, the franchise chain is for mutual benefit as the franchisor gets paid from franchisee and the franchisee obtains the rights and know-how of selling certain products. It is recognized that franchising stores is a means of strengthening the competitiveness of micro-enterprises.
Despite these effects of a franchise chain, Korea also has a negative aspect of franchising due to insolvency of franchisors. It is said that the franchise market in Korea has arrived at a stage of maturity but there are only few equipped with steady sales and organization system. Most franchisors are exposed to a dangerous situation which they could face insolvency, depending on the trend of establishment market.
In addition, the royalty system which franchisees pay to franchisors has not been set up definitely. This causes a considerable number of franchisors look for the growth engine from the establishment of franchisees. As the franchise market is directly affected by the business cycle, similar brands become flooded which cause not only ups and downs, but also entry and exit of franchisees. In addition, the problem of business ethics is on the rise because of an indiscriminate imitation and the holder's turnover, with the important know-how of a particular company, to competitors.
This study derives policy implications to enhance the management performance of franchisees as it empirically analyzes the effect of franchisors' image, support activities, and business ethics on management performance. From the review of previous studies, we set up a research model and three hypothesis and tested categorical regression models based on 2009 survey data with total 605 samples including 147 franchisees which are members of large franchisors, and 458 franchisees which are members of small franchisors.
For its empirical analysis, this study uses the regression model. In this model, the dependent variable is composed of the management performance of franchisees while the independent variables are composed of the image, support activities, and business ethics of franchisors. Besides these three independent variables, the factors affecting the management performance of franchisees are the loyalty, the size of franchisee, and whether the franchisors are large enterprises or SMEs.
The management performance of franchisees as the dependent variable of its analysis model is measured in three aspects including sales of franchisors, the net profit margin, and the intention of business transfer and liquidation. The monthly returns are measured with 1¢¦8 values after classifying them into 8 stages which are below 2 million won, 2.01¢¦4 million won, 4.01¢¦10 million won, 10.01¢¦20 million won, 20.01¢¦30 million won, 30.01¢¦40 million won, 40.01¢¦50 million won, and over 50.01 million won. The net profit margin is measured by the portion of the monthly return on sales. When there is the intention of business transfer and liquidation, the value is ¡®1'. On the other hand, the value is ¡®0' when there is no intention.
The image of franchisors as the independent variable can be referred to previous research. The value is used which is estimated by 7-scale with the questionnaires considering the relation of stakeholder, customer, business partner, etc. Referring to the previous research, the support activity of franchisors also uses the data estimated by a 4-scale on 15 factors including market research & information, and development & supply of new products, etc. The questionnaire estimated by the 7-scale should be focused on whether the franchisors have business ethics.
Besides the image, support activity, and ethical value, the loyalty paid to the franchisors as the independent variable is regarded as the gross amount. The size of franchisee is also measured as the size of floor space. For the verification of the effect regarding whether the franchisors are large enterprises or SMEs, the value of independent variable is ¡®1' when they are large enterprises and ¡®0' when they are SMEs to verify the statistic significance.
After the empirical analysis, the factors positively affecting the sales of franchisors are the floor space, size of loyalty, image, support, ethical value, and a dummy variable (it is ¡®1', when the franchisor is a large enterprise, it is ¡®0' when the franchisor is a SME). When the franchisor is a large enterprise, the floor space and gross amount of loyalty are the only factors which positively affect its sales. It is not significant that the variables of image, support activity, and ethical value of franchiser affect its sales. However, all the factors, including the size of floor space, gross amount of loyalty, image, support, and ethical value of franchisor positively affect its sales when it is a SME.
The gross amount of loyalty and the dummy variable negatively affect the net profit of the franchisor. As the gross amount of loyalty to franchisor gets large, the net profit of franchisee decreases. Unlike the empirical analysis in which the sales are increase as the size of loyalty gets larger, it implies that loyalty has a negative effect on the net profit as the franchise fee is raised rather than a positive effect which it reflects the quality of the franchise system. The more interesting result is that a regression coefficient of the dummy variable has a negative value. This indicates that the profit of franchisee is falls when the franchisor is a large enterprise. It means that the profit of the franchisee is improving in case of the franchisor established with SME's capital while it is aggravating in the case of that with a large enterprise's capital. It is analyzed that the support of the franchisor has a positive effect on the net profit margin of the franchisee. Meanwhile, similar results have been shown in the analysis conducted with and without the classification of franchisors by large enterprises or SMEs.
For the analysis of the factors affecting the business transfer and liquidation of franchisees, their intention is decreases when the franchisors' image get improves. When the franchisors have more support activities and follow ethical values, the intention of business transfer and liquidation is decreases. In case of when the franchisor is a large enterprise, there are no significant factors. However, the image and support of franchisors have a significant effect on the business transfer and liquidation of franchisees when the franchisor is a SME. It is important to enhance the image and to strengthen the support activities for sustainable growth of the franchise system when the franchisor is a SME rather than a large enterprise. This implies that the franchisees should join the franchisors as SMEs, which provide more support activities with a good image, for the business success of franchisees.
An Exploratory Study on the Govermental Interventions for the Growth of Social Enterprises: Demand-Pull and Supply-Push
  • - Jun Gee Cho (Chonnam National University)
[Abstract]
Social enterprises have been regarded as an innovative solution to address impending social issues such as social exclusion, unemployment, etc. It is the government that has been expected to take an active role in developing and enhancing corporate capabilities of social enterprises. However, there has been little research on the governmental interventions on social enterprises from a systematic perspective. In an effort to explore the desirable directions, scope, and limits of governmental interventions for the successful development of social enterprises, we review a theoretic framework of demand-pull and supply-push integrated with institutional choices in exercising specific policies: influence and regulation.
The theoretic framework in this study is introduced by King et al.(1994) who attempted to address various issues arisen from social changes such as economic development and technological innovation. They integrated economic theories of demand-pull and technology-push with neoinstituionalism to derive potential intervention actions by institutions on those issues. When institutions exercise those actions, they have the choice of influence and/or regulation. Influence is a persuasive approach to change practice, rules, and belief systems embedded in a society through education, articulation, and resource allocations (Kimberly 1979). On the contrary, regulation deals with social changes through conflicts, distributed decision making, and controls over the flow of capital and structure of social order (Boyer, 1988a, 1988b).
From the supply-push perspective, innovation advocates support the production of artifacts. This requires provisions of scientific knowledge, investments for research and development, and the adjustment of artifacts according to market demands. Meanwhile, the school of the demand-pull perspective emphasizes users¡¯ will to adopt innovation. It is also said that the interaction between supply and demand is critical to the success of innovation and changes along the degree of technological knowledge, complementary/supplementary items, and the degree of conversion of needs to demands (David 1975; Freeman 1988; Rosenberg 1972). In the King et al.(1994)¡¯s theoretic framework, institutions¡¯ options of choice are further segmented by supply-push and demand-pull. By placing appropriate policy actions in each segment, institutions can formulate a macroscopic policy strategy to stimulate productions of innovative artifacts and the market environment that consumes these artifacts. Policy actions presented in the theory are knowledge building, knowledge deployment, subsidy, standard setting, and innovation directive.
Throughout this study, the underlying assumption of the application of King et al.(1994)¡¯s theoretic framework is that social enterprises¡¯ operations rely on economic activities and market mechanisms. To ensure the success of social enterprises, institutions should control and manage not only social enterprises, but also the market environment. In addition, institutions must build social capacity in order to stimulate fast adoption and usage, and changes in attitude and value systems which are hard to be made without institutions¡¯ interventions. Furthermore, the incorporation of the concept of market environment and social capacity into issues of social enterprise will lead us to explore more systematic approaches to the issues of social enterprise. In these regards, we assume it is a meaningful approach to study governmental interventions on social enterprise from King et al.(1994)¡¯s theoretic framework.
We test the application of King et al.(1994)¡¯s theoretic framework on the UK government. Action plans presented in the government archive (SEA Plan 2006) are analyzed and coded based on the definitions and instances in the theoretic framework. By promoting researches on various subjects, this analysis presents the UK government¡¯s intentions to change social attitude toward social enterprise. These subjects range from the value and the management of social enterprise to measures for financial support, which involves modification of existing finance systems. We show that the UK government utilizes social enterprise in the health and social care service sector by offering institutional supports. We also present the systematic bottom line of the UK government policy to secure operations of social enterprise by ensuring business areas (i.e., waste strategy). Thus, we identify the goal of the UK government policy as promoting the growth of social enterprise. They do so by incorporating the pushing supply and the pulling demand of social enterprises simultaneously..
We further search for practical implications of the analysis of UK governmental policy on social enterprise by comparing it with that of the Korean government. The comparison of the two cases shows that many actions discovered in the UK government policy seem to be adopted by the Korean government as well. Compared to the UK, the Korean government focuses less on demand-side research, which increases the capability to adopt social enterprises. Especially, we could identify there is no action in the segment of regulation and demand-pull, which indicates that the Korean government has no practical policy on the creation of secure markets for services and products of social enterprises.
Despite many similarities in the policy actions of both countries, we identify three major differences: subsidy, standard settings, and innovation directives. In the subsidy, the data shows that the UK government has taken relatively more actions in the segment of regulation and demand-pull than the Korean government. This indicates that the UK government allocates more resources to legally secure and ensure markets for social enterprise than the Korean government does. Meanwhile, Korea turns out to place more subsidies in the segment of influence and supply-push compared to the UK. This difference arises from the fact that the Korean government allocates more resources to direct expenses of social enterprises such as labor expense, consulting, and advisory services for operations with relatively less resources allocated in the production of market demands for services and products of social enterprises.
Another difference between the intervention policies of the two countries lies in their standard settings such as enacting regulations and legislations. Compared to the UK government, the Korean government has more policy actions belonging to standard settings regarding the qualification and operations of social enterprises, which also reveal the supply-focused characteristics of the Korean government¡¯s policy.
The most conspicuous difference between the two governments are their innovation directives. Compared to the direct measures of the UK government policy that has limited focus on certain industries, the Korean government encourages the development of social enterprises in diverse areas such as future growth in the industry, as well as conversion of welfare jobs. In sum, we characterize that the Korean government¡¯s intervention policy on social enterprise is a ¡®government directive supply-push¡¯ whereas that of the UK government is relatively demand-focused.
In order for the innovation to succeed, this study concludes that the Korean government policy needs to be more balanced between supply-push and demand-pull. To do so, the Korean government is suggested to promote researches on the market environment, users¡¯ attitude, and belief system. It is also required to encourage the users to actively interact with social enterprises. At the same time, the government should make sure to support the production of social enterprises. Otherwise, the goals embedded in policy actions can be merely symbolic and impractical. By doing so, the Korean government is able to assure the market environment, which will provide sustainable operations and growth of social enterprises by allocating its resources more efficiently.
Throughout this study, we examined theoretic approaches to analyze government interventions for social enterprises in a systematic way, enabling us to identify differences in policy actions and to explore potential directions in the governmental policies on social enterprises. The finding of this study has limitations on generalizability in that the number of cases involved is limited. Further researches with more cases are expected to produce more generalized and practical views of governmental intervention on social enterprises.
A Study on the Factors Influencing Senior Entrepreneurship
  • - Chang Soo Sung (Chung Ang University)
  • - Jin Soo Kim (Chung Ang University)
[Abstract]
The current socioeconomic condition in South Korea is characterized by early retirement and a shift toward an elderly society. The fact that the age group of 50 or older is about 46.7% of total workforce poses a threat for future economic growth crisis. (The fact that the age group of 50 or older composes 46.7% of the total workforce could be a detrimental factor for future economic growth.) Even now in South Korea's contemporary society, the retired workforce suffers economically as well as socially.
To solve these socioeconomic problems, Small Business Administration is running many different projects and public policies to support senior entrepreneurship. Recently, developed countries such as the U.S., England, Australia and New Zealand have recognized the importance of senior entrepreneurship and are performing various research to systemize concepts for senior entrepreneurship.
TTo solve these socioeconomic problems, the Small Business Administration is running many different projects and public policies to support senior entrepreneurship. Recently, developed countries such as the United States, England, Australia and New Zealand have recognized the importance of senior entrepreneurship and are performing various research to systemize concepts for senior entrepreneurship.
The purpose of this research was to explain the concept of senior entrepreneurship and the importance of it by systemizing the relationship between beginner entrepreneur and entrepreneurial intention. As the ultimate objective of this research is to develop a systematic strategy to enhance the current entrepreneurial decision making process for senior entrepreneurs, the focus of this research has been set to the details about factors and mechanisms that influences start ups by senior entrepreneurs. Importantly, to identify general process of senior entrepreneurship, Ajzen's (1991) Theory of Planned Behavior model was used.
After reviewing the relevant literature, we developed a model and set our research hypotheses as follows H1: Risk taking will have a positive effect on entrepreneurial attitude. H2: Autonomy will have a positive effect on entrepreneurial attitude. H3 : Proactiveness will have a positive effect on entrepreneurial attitude. H4 : Entrepreneurial skill will have a positive effect on entrepreneurial attitude. H5 : Entrepreneurial skill will have a positive effect on subjective norms. H6: Entrepreneurial skill will have a positive effect on perceived behavioral control. H7 : Entrepreneurial attitude will have a positive effect on entrepreneurial intention. H8 : Subjective norms will have a positive effect on entrepreneurial intention. H9 : Perceived behavioral control will have a positive effect on entrepreneurial intention. H10 : Perceived barriers will have a negative effect on entrepreneurial intention. H11 : Perceived support will have a positive effect on entrepreneurial intention. H12 : Entrepreneurial intention will have a positive effect on the discovery of business chances. H13 : Entrepreneurial intention will have a positive effect on the exploitation of business chances.
To get the sample data, survey was conducted between October 25, 2010 and November 13, 2010 of seniors who graduated from a senior entrepreneurship academy operated by the Korea Small Business Administration. We received 371 responses and excluded 141 responses due to incomplete answers. Finally we accepted 230 samples.
We employed two statistical packages, SPSS 15.0 for descriptive and reliability analysis and AMOS 7.0 for confirmatory factor analysis and structural model analysis with latent variables. We found that questionnaires containing incomplete answers had two types. The first type, which were about thirty six percent of the incomplete questionnaires, were missing more than fifty percent of the values per construct. To use incomplete questionnaires in statistical tests, we adopted a regression input for the missing values which were less than fifty percent of the items per construct.
Second, we eliminated questionnaires containing a series of the same response value or of the same response values pattern. Although we tried to translate English questions into Korean questions to make it easy to check values, seniors who are about fifty years old or older may have difficulties to respond to these questions because of their age.
The minimum value of Cronbach¡¯s ¥á in the twelve research constructs is 0.721 and the maximum is 0.906. Fit indexes of confirmatory factor analysis model are ¥ö2(df)=491.116(368), p=0.000, RMSEA=0.038, GFI=0.888, AGFI=0.848, TLI=0.956 and CFI=0.965. In this test, composite reliabilities are 0.640 through 0.892 and AVEs (Average Variance Extracted) are 0.472 through 0.814. Research constructs in confirmatory factor analysis have discriminant validity because all of the 95 percent confidence intervals of correlation coefficient among the twelve latent variables do not include one. Fit indexes of our research model represent a satisfactory level in structural equation analysis (¥ö2(df)=643.475(406), p=0.000, RMSEA=0.051, GFI=0.854, AGFI=0.821, TLI=0.923, CFI=0.933). In the research model, significant paths/standardized coefficient/hypotheses are as follow; 「entrepreneurial skill ¡æ entrepreneurial attitude, 0.080」(H4), 「entrepreneurial skill ¡æ subjective norms, 0.703」(H5), 「entrepreneurial skill ¡æ perceived behavioral control, 0.894」(H6), 「entrepreneurial attitude ¡æ entrepreneurial intention, 0.296」(H7), 「perceived behavioral control ¡æ entrepreneurial intention, 0.395」(H9), 「entrepreneurial intention ¡æ discovery, 0.603」(H12), 「entrepreneurial intention ¡æ exploitation, 0.217」 (H13). We should revise our research model because, in testing the research model, there were two paths containing M.I. of more than ten. So, we tested the revised model with added two paths in the research model. The two paths were 「subjective norms ¡æ entrepreneurial attitude」 and 「subjective norms ¡æ perceived behavior control」. Fit indexes of the revised model were better than those of the research model (¥ö2(df)=619.654(404), p=0.000, RMSEA=0.048, GFI=0.857, AGFI=0.825, TLI=0.930, CFI=0.939) and the ¥ö2 difference test between the revised model and the research model was significant. So we accepted the revised model as the final model.
In the final model, we found full mediation effects of entrepreneurial attitude and perceived behavioral control, respectively in the relationship of subjective norms and entrepreneurial intention.
The overall results supported H1(0.469), but not H2(-0.216, -0.172). The result shows that risk-taking, rather than autonomy, is the factor that influences entrepreneurial decision making for seniors(Dess and Lumpkin, 2005).
Results also supported H4(0.458), H5(0.485), H6(H510). Similar to the Linan's(2008) proven fact, entrepreneurial capabilities have been shown to have the largest impact along with entrepreneurial behavior, subjective norms, and perceived behavioral control. H7(0.383) and H9(0.386) were supported by the results, but H8 was rejected. The overall result is similar with previous research performed by Linan(2008) and Linan and Chen(2009). On the other hand, H10 and H11 were rejected due to the lack of government support for senior entrepreneurship and the lack of a suitable socioeconomical environment. Lastly, H12(0.597) and H13(0.214) was supported by the results.
The results of this research were organized by Ajzen's(1991) TPB model. According to the results, there were positive relationships between entrepreneurial behavior, entrepreneurial intention, and entrepreneurial capabilities. These results show that the Senior Entrepreneurship Education Center should focus on educating seniors based on enhancing entrepreneurship capabilities. In addition, since risk taking was the only factor that affected entrepreneurial behavior, it is important to educate seniors to manage possible risks.
Another result showed that subjective norms had a relatively large impact on entrepreneurial behavior and on perceived behavioral control. Therefore, entrepreneurship education institutions should focus on building a curriculum based on communication.
Lastly, Korean senior entrepreneurs were found to focus on opportunity findings rather than environmental restrictions. This shows that it is realistic for the government to support senior entrepreneurship rather than putting the focus on economic relief.
Limitations and future research proposals have been categorized in seven different parts. Following is the list of those categories: lack of previous research about senior entrepreneurship, need for longitudinal study, limitation on error estimation, limitation on samples, need for various approach methods on senior entrepreneurship, need to develop a comparison model between senior and young adult entrepreneurs, and a need to categorize senior entrepreneurs based on the years they were in business.
An Exploratory Study on Relation between Market Orientation and Technological Innovation among Small Medium Sized Enterprises : With a Focus on the Mediating Effects of External Cooperation
  • - Seung Jin Kim (Inje University)
  • - Joong Woo Lee (Inje University)
[Abstract]
Today's enterprises place more and more importance on technological innovation to maintain their competitive edges in the midst of global competition and rapid technological advancements. Such a corporate environment makes no exception for small and medium-sized enterprises(SMEs), which play a central role in the local economy. In that sense, the technological innovation of small SMEs is one of the stepping stones for them to reinforce their competitiveness and maintain their long-term survival and growth in a global competition and secure the ongoing growth of the local economy. Technological innovation can help them improve their competitiveness and profitability by allowing them to introduce new processes and thinking into their various management activities and provide their customers with more competitive products and services through the launch of new products and services.
However, the poor internal resources that today's SMEs have are not enough to even maintain a competitive edge and impose many restrictions on their efforts to promote innovation and thus secure further competitiveness. Thus, there is a need for them to make active use of external technology and knowledge based on their own resources and capabilities in order to promote technological innovation. By reinforcing their external cooperation on technology, SMEs can facilitate learning processes to obtain needed expertise, take opportunities to share resources they do not possess, and actively promote innovation. Thus technological innovation in SMEs should be approached by taking into account various social and cultural factors, since it is not possible through only the capability of one single company.
In such a situation, many researches have been done on management environment, entrepreneurship, internal capacity, networks of technology and technological cooperation, interactive effects of the ability to absorb knowledge, and utilization of external resources affecting technological innovation in relation to the influence on the technological innovation of SMEs in the nation. However, there has been a shortage of research that considered both market orientation as a corporate culture to affect the technological innovation of SMEs and external cooperation to help them overcome their limitations with resources and capabilities. Market orientation, which is an active action taken by a company to create a superior value for consumers, can be understood through a corporate culture needed to achieve excellent results or company-wide efforts to gather, spread, and react to market information reflecting the needs of current and prospective consumers. As a part of corporate culture trying to actively embrace consumer needs, market orientation affects the level of technological innovation and furthers the competitive edge and growth of a company.
Thus the study presents two research hypotheses: First, there will be close correlations between market orientation and technological innovation sought after by SMEs. While providing customers with greater value added and actively reacting to the acts of their rivals to constantly create competitive edges in the market, SMEs will influence their technological innovation to develop new processes and improve the old ones. In the end, market orientation will drive the technological innovation pursued by a company. Second, market orientation will have greater influences on technological innovation when SMEs secure their needed resources and capabilities through cooperation with outside players to overcome their limitations with resources and capabilities. Thus they can actively react to the market flows and implement technological innovation to meet the market and customer needs by securing the resources they lack from the outside. The study saw cooperation with an outside player to overcome limitations as an organization's situational factor and examined its mediating effects between market orientation and technological innovation.
The study analyzed relations between market orientation and technological innovation among the SMEs in the field of machinery and metals in Gyeongnam Province and the mediating effects of external cooperation in an empirical manner. The analysis results can be summarized as follows: First, customer orientation and competitor orientation as the variables of market orientation had significant positive (+) effects on product innovation and process innovation, respectively, as the types of technological innovation. Second, the technological cooperation with suppliers had significant positive (+) mediating effects on relations between customer and competitor orientation and product innovation. However, external technological finance, technological cooperation with colleges, universities, or research institutions had no statistically significant mediating effects on relations between market orientation and technological innovation.
Those results of empirical analysis offer the following implications: First, market orientation makes active reactions to changes to environments and customers inside SMEs and thus promotes technological innovation to improve the existing products or to create new ones. Second, given that SMEs have a lot of room to be improved in terms of finance, manpower, and technology market orientation, which represents efforts to provide customers with superior values to those of their competitors in an effective fashion, partially and rarely supports the argument that they can activate technological innovation by collaborating with other enterprises or public agencies outside them.
Third, the results of empirical analysis show that the SMEs in the field of machinery and metals in Gyeongnam Province were not fully aware that they could promote technological innovation more actively through their collaborations with external organizations in the pursuit of technological innovation to realize market orientation. It is well reflected in the fact that their technological innovation is under the huge influence of market orientation and that their technological cooperation with external organizations has no big impacts as the mediating effects of market orientation. Finally, there is a need to search for ways to facilitate technological innovation in SMEs by combining policies to support their technological innovation with their market orientation, given that they have relatively limited resources compared with large enterprises and are part of the pillars to promote local economy. The plans to activate cooperation among industry, academy, and research, which can promote technological innovation in SMEs through cooperation with local research institutions, should be implemented in a concrete manner so that SMEs with a shortage of finance can realize their market orientation. Through cooperation among industry, academy, and research, SMEs will be able to have a chance to risk long-term uncertainties and achieve groundbreaking technological innovation rather than focusing on gradual innovation to produce visible short-term results.
The study has the following limitations: First, the results cannot be generalized to all SMEs in that the survey was done only among the SMEs in the field of machinery and metals in Gyeongnam Province and that the return rates were low. Second, the study used only categorical variables to measure the variables of external cooperation affecting technological innovation, thus failing to consider many quality characteristics to measure external factors. Finally, the study measured technological innovation only with process and product innovation, thus failing to reflect a variety of variables to measure the results of innovation activities such as innovation counts and patents.