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Procedia - Social and Behavioral Sciences 65 (2012) 46 – 51

International Congress on Interdisciplinary Business and Social Sciences 2012

(ICIBSoS 2012)

The Development of Entrepreneurial Social Competence And

Business Network to Improve Competitive Advantage
And Business Performance of Small Medium Sized Enterprises:
A Case Study of Batik Industry
In Indonesia

Meutiaa, Tubagus Ismailb*

a
Agribusiness Department, Faculty of Agriculture, University of Sultan Ageng Tirtayasa, Serang 42122, Indonesia
b
Accounting Department, Faculty of Economics, University of Sultan Ageng Tirtayasa, Serang 42122, Indonesia

Abstract
This study investigates the role of entrepreneurship social competence to build a business network and to improve the competitive
advantage and business performance of Small Medium Sized Enterprises (SME). This study collaborates entrepreneurship
competence and social competence, so as it creates a new concept that is of entrepreneurship social competence. Samples in this
study are the owner and the entrepreneurs of batik industry in Indonesia. There are 197 respondents and Structural Equation
Modeling (SME) is used as a tool to analyze the data with AMOS 16.0 as the aid tool. The results from this study show that
entrepreneurship social competence deeply influence the business network, competitive advantage and business performance of
Small Medium Sized Enterprises (SME).

2012The
© 2012 Published
Authors.by ElsevierbyLtd.
Published Ltd. Open
Selection
Elsevier accesspeer-review
and/or under CC BY-NC-ND license.
under responsibility of JIBES University Jakarta
Selection
Indonesia.and peer-review under responsibility of JIBES University, Jakarta

Keywords : Entrepreneurial Social Competence, Business Network, Competitive Advantage, Business Performance, Batik, Small Medium Sized
Enterprises (SME)

1. Introduction

The role of SME in economic development and growth is crucial, and it happens not only in developing countries
but also in developed ones. SME is considered as the outstanding industry since this kind of industry can not only

*
Corresponding author. Tel.: +62-812-985-3985 +0-000-000-0000 .
E-mail address: tia_almer@yahoo.co.id.

1877-0428 © 2012 The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license.
Selection and peer-review under responsibility of JIBES University, Jakarta
doi:10.1016/j.sbspro.2012.11.089
 Meutia and Tubagus Ismail / Procedia - Social and Behavioral Sciences 65 (2012) 46 – 51 47

absorb the larger sales force compared with the larger industry, but it can also provide the most significant
contribution to product domestic bruto (PDB) (Tambunan, 2009). Batik is one of the work of art and it becomes the
former heritage of Indonesia. Batik is adored by many countries. Batik has made Indonesia to be one of the excellent
country that produces the silky traditional fabric in the world. This label comes from a long standing tradition and it
has rooted in Indonesia, as a rich various, creative and artistic tradition, besides it has also been acknowledged by
UNESCO as Intangible World Heritage in October 2009, as well as keris and puppets, The growth of batik
includes art and technology aspects which belong to former cultural heritage predated from the palace community
then expanded into the outside of palace environment, and now it becomes the national culture based main industry.
Batik industry is a highly creative home industry by batik artists, and it has developed in the period of time. Batik
industry is able to survive and face the external environment change since batik s development is impelled by
entrepreneur driven not market driven. Subsequently, entrepreneurial competence and the strength of familiarity and
social value which belong to the entrepreneur are intangible asset. These intangible assets are some of the factors
which deeply influences batik development (Meutia, 2012).
There are many literatures that have explored and explained some factors which affect the SME business
accomplishment. Man et al. (2005) explained that entrepreneurs as the owner play a very important role in deciding
their successful business performance. Moreover, O'Regan et al. (2004) stated that SME accomplishment is
influenced by external factors or factors that come out from the external environment (such as economic condition,
government policy, the availability of financial support and the nature and infrastructure support). Another opinion
sated by McClelland (1987), who said that the business accomplishment is affected by internal locus of control and
the likelihood of entrepreneur to take a peril risk. Entrialgo et al. (2000) stated that locus of control, desire for
achievement, and likelihood to take a peril risk give no significant influences to the business accomplishment.
Another result from Zhao et al. (1995) explained that business SME s network to get an access into a specific source
will influence the business accomplishment.
Social capital and network will be able to support a firm with wider access to any chance or opportunity and
resources, so it will affect the performance of micro business (Johanisson, 1996). High social capital will provide a
wider access to any got information and it will improve cooperation and trust from other part (Fukuyama, 1995).
Another result said that a skill of an entrepreneur will contribute to the business performance and development
(Learner, 2002). The ability to develop entrepreneurial skill of the entrepreneur prove to contribute on profit and
sustainability of firm (Chandler et al., 1992). Another result, argued that entrepreneurial competence becomes a
more powerful influence and it can be modified into a business success compared with environment factor, however,
we always need to attach the measurement of the environment s effect on business success (Covin, et al., 1999).
This research stress the competence development belong to the entrepreneur both from the internal factor
(entrepreneur social capital) and external one which can be seen from the relational competence development, it
becomes one new variable that is, entrepreneurial social competence. Entrepreneurial social competence is a
determinant variable to improve competitive advantage and SME s business performance. Entrepreneurial social
competence is the capability of entrepreneurs to express themselves in building social relationship via relational
competence development and familiarism spirit based on social interaction.

2. Literature Review and Hypothesis Development

2.1 Conception of entrepreneurial social competence
Entrepreneurial social competence is seen as the important thing for the development and the accomplishment of
a business. Effort competence defined by Man et al. (2002) is a sufficient knowledge, skill, and ability to meet the
desire of a work, such as an effective performance of a task. Baum et al. (2002) explained some variables that can
explain effort competence, those are knowledge, cognitive ability, self management, administration, human
resources, decision skill, leadership, opportunity recognition, and opportunity development. Muzychenko et al.
(2004) distinguished between natural competence aspect and unnatural or learned competence aspect. Competence
aspect that naturally comes out consist of characteristic, attitude, self image and social role while the unnatural or
learned competence aspect include some competences that are needed when a task is done via practical and
theoretical learning (such as, skill, knowledge and experience), in which natural competence aspect is considered as
internalized element (Bartlett et al., 1997), meanwhile natural competence aspect is considered as externalized
element (Muzychenko et al., 2004).
48 Meutia and Tubagus Ismail / Procedia - Social and Behavioral Sciences 65 (2012) 46 – 51

Entrepreneurial social competence is the ability of an entrepreneur to express themselves in building the social
relationship through relational competence establishment which is based on familiarism spirit in order to create a
business network with business environment. The used indicators in establishing this these construct are the ability
to establish social relationship with employee, the ability to establish social closeness with customer, the ability to
establish social closeness with funding organization, the ability to establish social closeness with the government,
the ability to establish social closeness with professional organization (Meutia, 2012).
Based on the extension of previous studies, collaboration between internal competence aspect and external
competence aspect belong to entrepreneur will be further tested in this study with a new variable. The new variable
is entrepreneurial social competence. This variable is presumed as the determinant of performance s
accomplishment of batik SME in Indonesia.

2.2. Business Network

According to Anderson et al. (1994) business network is a business relationship which is formed from one
network or more. Business network is seen from three components, the performer, activity, and source in each sub-
network (Hakasson et al., 1992). As a result, business network will cover individual network, performance network
and source network. Identifiable business network is a firm, department, group and individual. Individual social
network is built on the social interaction, information and business one. Social network is made up by personnel like
family, colleague, peer and employee.
Entrepreneurial competence is considered as a highly capability which includes personality characteristic, skill,
knowledge which become total capability of entrepreneur s role to perform their task in order to reach a success.
Main benefit of using this kind of approach is an offering way to investigate entrepreneurs characteristic which has
long term effect to improve competitive advantage. Entrepreneurial social competence is will make an entrepreneur
to easily communicate with internal and external part via social interaction. Cunningham et al. (1991) stated that
profiles of a successful entrepreneur are assertive individuals who have high self confidence, active, easily social
relates with other, sole oriented, diplomatic, dare to make a decision and able to give a proper evaluation. An
entrepreneur who has a high social capital (based on extensive social network, status, personal relationship, and
other reference) will likely accept more fund from investor compared with entrepreneur who has lower social capital
(Shane et al., 1998). Social competence belong to an entrepreneur will play an important role in deciding final result
of an engagement (whether they will accept financial support, get an order, attract business colleague and employee,
and other things alike). Business network indicators (Bengstone et al., 2000) are the amount network of a firm with
production sector, supplier and distribution channel. Based on the explanations above it can be proposed three
hypothesis as follow:
H1: Entrepreneurial social competence positively affects the business network.
H2: Entrepreneurial social competence positively affects the competitive advantage.
H3: Business network positively affects competitive advantage.

2.3. Competitive advantage and SME s business performance

Basically, competitive advantage raises from created value of a firm for its customer instead of the used up cost
form the firm to create it. This kind of value or benefit will be paid by other customer, and superior value comes
from lower set price compared with competitor s price (Porter, 1985). Respatya (2001) stated that a firm or an
organization which produces goods or services has to pay attention on the concept of competitive advantage, in
order to make a firm or an organization to be survival and in return it will reach profit. Hall (1990) stated that
competitive advantage consists of three dimensions: long endurance, hard to imitate, and easy to be identical.
Competitive advantage will improve SME s business performance via profit growth, sale growth, and customer
growth. The result (Chan et al., 2004) stated that competitive advantage positively affects the firm s performance.
The indicators to measure advantage (Coyne, 19997) are to create : a better customer s loyalty compared with the
competitor, a better development of product s quality compared with the competitor, a better technology
development compared with the competitor and a more various product development compared with the competitor.
SME business performance indicators (Stamp, 2008), are the measurement of sale development, customer
development, profit development and working capital development. Based on the explanations above it can be
formulated hypothesis:
H4: Competitive advantage influence the business performance of SME.
 Meutia and Tubagus Ismail / Procedia - Social and Behavioral Sciences 65 (2012) 46 – 51 49

The relationship between these four variables will we described in figure 1, entrepreneurial social competence
will positively affect the network business and competitive advantage, meanwhile network business will positively
affect the competitive advantage, and competitive advantage will affect the business performance of SME.

Entrepreneurial
Social Competence

Competitive Business
Advantage Performance
of SME

Business Network

Figure 1. Theoretical Model

3. Methodology

Population in this study is the owner and manager of Small to Medium Sized Enterprises of batik industry in
Indonesia. Data collection has been done through mail survey in the early 2012. According to Ghozali (2005) the
minimal sample size by using Structural Equation Modeling analyses (SEM) with AMOS 16.0 program is 100
subject. The used sample in this study is 197 respondents. The sampling technique is purposive sampling, it means
that sample will be intentionally taken with criteria as follow: (1) 3 years minimum working experience, (2) the firm
has permanent workers, (3) the firm not only perform distribution activities but also production one, (4) national
marketing range. Targeted sample in this study is the owner and manager of Small to Medium Sized Enterprises
(SME) of batik industry in Indonesia. Data is analyzed through Structural Equation Modeling (SEM) with AMOS
program as the aid tool.

4. Results and Discussion

Structural Equation Modeling and AMOS 16.0 software program are used as the data analyses in this study. The
stratified analysis level is described with path diagram to analyze the relatedness logic and the sequence of variables
in this study. The aim of path analysis is to decide which variable that has antecedent role and consequent role as
well as to decide the direct and indirect effects of variables. This study has met SEM assumption by using AMOS
software (Hair, 2010), in the amount of sample. The sample is 197, it is above the required criteria as 100.
Normality value is below the required criteria as 2.46 < 2.58, there is no outlier and multicolinearity, discriminant
validity > 0.7 except for the competitive advantage as it has been required. Construct reliability testing show that
each entrepreneurial social competence, business network, competitive advantage and business performance has
reliability construct value as 0.72; 0.86; 0.62 and 0.75.
The result from model sufficiency testing in figure 1 has goodness of fit index for all used criteria that is Chi-
Square 53,741, probability 0.072 > 0.05, RMSEA = 0.042 < 0.08, GFI = 0.953 > 0.90, AGFI = 0.923 > 0.90, TLI =
0.972 > 0.95, CFI = 0.979 > 0.95 have proper values since all values are in the required range which means that all
used indicators in the variable of entrepreneurship social competence model is sufficient enough to test the
hypothesis.

Table 1. Regression Weights Kinerja Bisnis UKM

Estimate S.E. C.R. P Label
BN <--- ESC ,334 ,122 2,731 ,006 par_11
CA <--- ESC ,429 ,115 3,727 *** par_5
CA <--- BN ,218 ,070 3,119 ,002 par_6
BP <--- CA 1,139 ,191 5,965 *** par_7
50 Meutia and Tubagus Ismail / Procedia - Social and Behavioral Sciences 65 (2012) 46 – 51

To test all proposed hypothesis, we can see t-statistic value. The border to accept and reject proposed hypothesis
is CR ±1.96. The testing result show that entrepreneurial social competence positively affects business network and
competitive advantage with CR value as 2.731 and 3.727. It means that there is no logic to reject the hypothesis.
Then, the result shows that business network positively affects the competitive advantage with CR value as 3.119 at
significant at 0.05 and competitive advantage positively affects SME business performance with CR value as 5.965
and significant at 0.05. It means that there is no logic to reject H3 and H4.
This study gives contribution to the resources based view theory (RBV) which said that intangible asset will
affect the competitive advantage and business network. Resource based view (RBV) stated that an organization
needs to renew and preserve its competitive advantage by using superior, valuable, rare resource so it will be hard to
imitate by the competitor (Barney, 1991). Tangible asset and intangible asset have roles as organization s resources
and it is considered as the most important source for the organization to improve its competitiveness and
competitive advantage.

5. Conclusion, Limitation and Future Research

The result from H1 and H2 testing show that entrepreneurial social competence positively and significantly
affects the business network and competitive advantage. Furthermore, H3 and H4 testing show that business
network positively affects on competitive advantage and in return competitive advantage will positively and
significantly affect the SME s business performance. The result is supported by resources based view theory in
which intangible asset will affect competitive advantage and business performance (Barney, 1991).
Empirical model in this study does not see external factors such as change in business environment due to the
technology alteration. Future research is able to add business change variable to give moderating effect on the
relationship between competitive advantage and SME s business performance.

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