The Journal of Asian Finance, Economics and Business

Korea Distribution Science Association (한국유통과학회)
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Demographic Characteristics and Small Business Success: Evidence from Indonesia

  • CHANIAGO, Harmon (Department of Business Administration, Politeknik Negeri Bandung)
  • Received : 2021.08.30
  • Accepted : 2021.11.15
  • Published : 2021.12.30
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Abstract

The demographic characteristics of a leader are important for small businesses during the COVID-19 pandemic. Several researchers have proven that demographic characteristics affect business success. Unfortunately, business success has only been analyzed from a financial perspective and has not been compared to the owner's interests perspective. This study examines business success from both perspectives. This study aims to analyze the demographic characteristics of small entrepreneurs and their impact on business success. Demographics consist of age, experience, education, and gender. Meanwhile, business success is seen from two perspectives: financial performance and the owner's interest. The study used an explanatory survey method. The number of samples is 155 entrepreneurs who are also the leaders of their businesses. The research was conducted in Bandung City, Indonesia, in 2021. The data was processed using descriptive statistics and multiple regression. The study results found that age only affects financial performance. Experience is proven to affect financial performance and the interests of the owner. Gender only affects the interests of the owner. This study concludes that in difficult times such as the COVID-19 pandemic, having young leaders who are experienced will make it easier to achieve business success.

Keywords

1. Introduction

There have been many research results proving that small businesses significantly contribute to the country’s economy and provide employment ( Ibarra et al., 2020; Nugroho et al., 2017; Omri, Frikha, & Bouraoui, 2015; Susanto & Meiryani, 2019). Most small businesses are owned by residents and run independently. Small businesses have several characteristics: owners double as leaders, employees come from the family, the technology used is simple, and managed independently (Chaniago, 2020; Patel et al., 2012). It means that small entrepreneurs operate individually and are not incorporated into particular company management.

In developing countries, the number of small businesses outnumbers medium and large enterprises. It also happens in Indonesia. Small businesses grow in line with the population growth. The Indonesian state law classifies formal and non-formal/micro-small companies (UU_No_20, 2008). From several research results and reports from the Indonesian government, small businesses experience problems regarding: marketing, raw materials, capital, technology, and production processes (Ariani & Utomo, 2017; BPS, 2020; Maksum et al., 2020). The problems of Indonesian small businesses have revolved around these things throughout the years and have not shifted to something better. Sundstrom et al. (2020) stated that small business barriers usually come from internal. The source of small business problems in Indonesia allegedly comes from internal human resources, namely human resources and leadership quality. The quality of human resources is also related to demographic characteristics, such as education, experience, age, and gender. As the leaders of small businesses are also the owners, they have an excellent opportunity to determine the success of the businesses (Amato et al., 2017; Cooper, 2011; Huang et al., 2014; Ibarra et al., 2020; Na et al., 2018).

Leaders and business owners have a very significant role in determining business success. However, studies so far are more inclined to analyze innovation, competence, motivation, and personality with the success of small businesses. Research that links the demographic characteristics of small entrepreneurs and owners simultaneously with business success is still rare. As far as the author knows, research on this field is still very little. Soomro et al. (2019) researched the relationship between demographic characteristics and the success of small and medium enterprises in Pakistan. They see business success only from a financial perspective. However, business success can be seen from various perspectives. Different cultures and business situations allow different results. Therefore, this research needs to be continued and developed. In addition, researchers report mixed findings of the demographic role of entrepreneurs. Researchers who reported that demographics have no impact on business success are Salleh and Ibrahim (2011) and Nguyen (2018), and those who conveyed an impact include Soomro et al. (2019) and Singh and Singhal (2015).

Based on the things that have been described, this study aims to investigate the demographic components that influence the success of small businesses during the COVID-19 pandemic. Exemplary leadership is needed during a pandemic. In this study, business success is seen from two perspectives: 1. Financial and organizational perspective and 2. Owner interest perspective. This study explains and provides information about the demographics of entrepreneurs needed to increase business success during the pandemic. The research findings are helpful for stakeholders (government, bank management, international non-profit organizations) in designing and making policies to develop small businesses in developing countries.

2. Literature Review

2.1. Demographic Characteristics

Researchers in measuring demographic characteristics use diversity. The literature study results show that most researchers use age, experience, education, and gender to measure demographics. This study also uses this measure.

Age: Several studies have proven that age determines business success (Serwinek, 1992; Soomro et al., 2019). Age must be used when conducting demographic analysis (Serwinek, 1992). Age shows how old a person is. Age can also indicate the level of human maturity. In business, age is seen as the length of time a person takes to live, reach maturity and be successful. From a religious perspective, age is defined as the length of time a person has spent on earth. That means age can be related to the experience gained in a particular field, the level of maturity regulated by the laws of each country, and others. The age of 25 years – 34 years is the range of age when people set up their own private business (Choo & Wong, 2006; Delmar & Davidsson, 2000).

Experience: Soomro et al. (2019) and Goll et al. (2008) showed that one’s experience determines business strategy and success. People with more experience are believed to be more capable of solving problems and issues that come at them. Experience has a relationship with age. Experience is knowledge and skills acquired by someone in a period and particular field in the past. It’s not necessarily someone older has more experience than the younger ones. It is hard to believe that a young person, without data, has more experience than an older person. However, young people can catch up with their knowledge by seeking information from various sources and references.

Education: Education is guiding, giving knowledge and skills to someone through various ways to become intelligent and skilled in a certain period. The period in question can be in years, months or days. Soomro et al. (2019) and Singh and Singhal (2015) showed that education determines business success. It includes formal and informal education. Education is closely related to experience. A highly educated person is more likely to obtain various sources of information from the educational process. Thus, a person who goes through the educational process is automatically knowledgeable but does not necessarily have practical experience. The question is, is the experience gained during the educational process relevant and supportive for business activities? It could be that the knowledge gained during the educational process is irrelevant and less helpful in running a small business. This mismatch forces entrepreneurs to seek expertise from scratch again.

Gender: Humans consist of two genders, namely male and female. Without women, there can be no men and vice versa. These two groups need each other, and they compete in certain things, including the business world. Gender is awareness of the biological identity that a person has in society. There are two gender groups, namely men and women. This study sees gender as a factor that correlates with business success. Several research results prove the positive influence of gender on business success, such as the findings of Soomro et al. (2019) and Singh and Singhal (2015). However, the results of Salleh and Ibrahim (2011) proved otherwise. This study will clarify these findings’ diversity.

2.2. Business Success

From the literature, there are many views and criteria for business success. Business success can be determined by various factors and a combination of those factors. There is no agreement on the requirements for business success, including in small businesses (Benzing et al., 2010; Omri et al., 2015).

Gorgievski et al. (2011) advised researchers to evaluate business success using a variety of criteria. The information gathered from the literature study was used to determine the prerequisites for assessing business performance from the perspectives of finance and management, consumer interests, and entrepreneur interests and satisfaction.

Several findings show that leaders determine business success (Amato et al. (2017); Ibarra et al. (2020); Cooper (2011); Huang et al. (2014)). It means that there is a relationship between leadership and business success. In small businesses, the leader who is also the owner is the crucial point for business success. The leader’s behavior and decisions are dominant in determining the progress of their business. Various references explain that there are multiple factors that determine business success. Most research analyzes entrepreneurs’ internal such as: entrepreneur motivation, innovation, competence and relate them to leadership performance or the success of small businesses. Research that looks specifically at the demographic side of small entrepreneurs is still rare. Therefore, this research is urgently carried out on small businesses. A business is said to be successful if it has achieved its goals. To measure business success and goals, criteria required.

Amato et al. (2017) used the criteria of company’s age, business success, and company’s performance (sales, shares, company size). Carr and Pearson (2002) and Cragg and King (1989) determined business success from a financial performance perspective. In his research on SMEs in Turkey, Benzing et al. (2009) reported that business success is determined by honesty, friendliness, social skills, and customer service. In their research in Pakistan, Coy et al. (2007) used business success criteria such as; hard work, good customer service, and quality products. Gorgievski et al. (2011) also examined small businesses, and he used business success criteria such as profitability, personal satisfaction, and stakeholder satisfaction. Paige and Littrell (2002) limited business success to growth, profit, and personal satisfaction. Walker and Brown (2004), who researched MSMEs in Australia, said that the criteria for business success are financial and non-financial factors. He believed non-financial matters are more important, such as personal satisfaction, pride, independence to be a boss/ flexibility, and lifestyle.

Walker and Brown (2004) warned that measuring business success by the number of employees can be biased. The reason for this is that small enterprises often operate more effectively by avoiding hiring additional personnel, among other factors.

The owner’s success is often identified with the success of his business. Simpson et al. (2012) stated that the success of small businesses is determined by the external environment, the characteristics of the owner/attributes of the owners and leaders, and the organization’s characteristics. According to him, the main goal of a business is to be successful in financial and non-financial fields. If the goals are achieved or exceeded according to the criteria, the company has been successful.

Based on the literature and findings of previous researchers, this study categorizes business success from three perspectives. The first perspective is the financial and organizational performance perspective, or better known as the traditional approach. This perspective measures the financial performance of profit levels and corporate activities. Second, the perspective of consumer interests. This perspective focuses on the interests and what consumers want. Last, the perspective of the owner’s interests, focusing on the views and desires of the company’s owners.

The traditional/financial perspective sees the success of business activities in terms of financial performance, management activities, and organizations (Amato et al., 2017; Carr & Pearson, 2002; Cragg & King, 1989; Gorgievski et al., 2011; Paige & Littrell, 2002; Simpson et al., 2012). The criteria used include sales, profit, capital increase, market growth, market competition, planning, liquidity, human capital, etc. Benzing et al. (2009), Chaniago et al. (2019); Coy et al. (2007) saw business success from the perspective of consumers or interests. This perspective uses service, product quality, and price of goods, discounts, guarantees, honesty, friendliness, and packaging. Other researchers (Coy et al., 2007; Gorgievski et al., 2011; Simpson et al., 2012; Walker & Brown, 2004) see it from the interests of entrepreneurs and owners. The criteria that can be used include stakeholder satisfaction, owner satisfaction, independence, innovative orientation, self-confidence, social impact, flexibility, lifestyle, etc. To achieve business success, entrepreneurs will find it easier to control factors that come from themselves, and find it more complex and challenging to predict if they come from outside.

Small business success is described in this study as achieving the company’s goals in terms of financial performance, consumer goals, and the owner’s wishes within a specific time frame. Time should be set aside for business success: a year, a quarter, or a semester. It takes a lot of time and effort to evaluate a company’s success from three angles. The more criteria and points of view included, the more complex and measurable the outcomes will be.

In this study, the success of small businesses is measured from two perspectives, namely the financial perspective (FP) and the owner’s interest perspective (OI). From a financial perspective, it includes management and organizational performance. It is possible to study both views simultaneously because the small business leader is also the owner. Financial and management performance refers to the research of Soomro et al. (2019), Wang and Ang (2004), and Perez and Canino (2009), who measure financial performance based on the perception of entrepreneurs. The reason is that small businesses rarely maintain financial books properly, they are entirely private, and when compared between their financial data, they can be biased.

This study uses the demographics of small entrepreneurs, which include age, education, experience, and gender, as variables that determine business success, based on the explanation provided. The success of a business is determined by two factors: financial performance (FP) and the owner’s interest (OI). The following hypothesis is established based on the assumptions and the relationship between the demographics of small entrepreneurs and company success (FP and OI):

H1: Entrepreneur’s age affects financial performance.

H2: Entrepreneur’s age affects the owner’s interest.

H3: Entrepreneur’s experience affects financial performance.

H4: Entrepreneur’s experience affects the owner’s interest.

H5: Education performance. of entrepreneurs affects financial

H6: Education of entrepreneurs affects interest.

H7: Employer’s gender affects financial performance.

H8: The gender of the entrepreneur affects the owner’s interest.

H9: Financial performance affects the owner’s interest.

The relationship between hypotheses H1–H9 is presented in Figure 1.

OTGHEU_2021_v8n12_399_f0001.png 이미지

Figure 1: Framework of the Study

3. Research Methods and Materials

This research uses the explanatory survey method. The study was carried out in one of the big cities and a tourist city in Indonesia, namely the city of Bandung. Around the city of Bandung, there are many large industries and medium-sized companies. Bandung city is a densely populated city. The number of small businesses operating in the city of Bandung in 2019 is 3, 723 business units. As the COVID-19 pandemic hit Indonesia, 60% of them have collapsed. Therefore, the remaining businesses in 2020 are 1, 516 business units, which is used as this research’s population. From the data collected, in 2020, the existing small businesses will have absorbed 13, 960 workers (BPS_Kota_Bandung, 2021).

The research subjects consist of entrepreneurs or small business leaders because the owner usually doubles as the leader in small businesses. The questionnaire was given to each company unit. The leader or owner of the company was asked to fill it out. The questionnaires were circulated via Google form and partly distributed directly to small businesses. Intensive and persuasive communication was carried out, so the leaders/owners of small businesses were willing to fill out the questionnaire. The total sample collected is 155 business units, as presented in Table 1.

Table 1: Sample Distribution on Small Business

OTGHEU_2021_v8n12_399_t0001.png 이미지

*BPS_Kota_Bandung (2021).

Referring to Suh et al. (2012), the distribution of the sample already represents the four types of businesses with the highest success rates: food (other), service, wholesale and retail, and manufacturing.

Sampling was carried out by purposive sampling. The sample was taken according to the small business criteria stipulated by the Indonesian government constitution, namely: maximum asset value of IDR 500 million (35, 000 USD) excluding land and buildings, maximum 20 employees. They were coupled with two more criteria: the business has run for at least three years and is dominantly operating in Bandung, Indonesia. The data obtained was analyzed using descriptive statistics and multiple regression analysis. The source of the measuring instrument is presented in Table 2.

Table 2: Source of Instrumentation

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4. Results and Discussion

4.1. Results

The research data shows that the majority of respondents are male (59%), they are of the productive age range (30 years), and their status is as owner and manager (69%). 70% of respondents have a graduate degree. The average turnover per month is 1, 150 USD, as presented in Table 3.

Table 3: Sample Characteristics of SMEs Entrepreneur in Indonesia (N = 155)

OTGHEU_2021_v8n12_399_t0003.png 이미지

Table 3 also provides information that, on average, the small businesses have been running for five years (67%), engaged in retail businesses (27%) and manufacture (34%), and have a workforce of 8 people. This data provides information that most small companies are experienced enough, managed by young educated people, and use internal sources of capital (80%). The data shows that monthly turnover has not been maximized because marketing is still at the local level (88%) with small capital.

Table 4 consists of 5 indicators. The approval score is an important criterion (4.04). At the same time, the standard deviation is below 1 (0.870). This figure gives a picture of the success of their business, and they think they have succeeded in achieving the company’s goals in the financial sector.

Table 4: Mean Score for Perspective Financial Performance

OTGHEU_2021_v8n12_399_t0004.png 이미지

Notes: 5 = very important, 4 = important, 3 = mildly important, 2 = not very important, 1 = unimportant.

Table 5 shows how eight indicators are used to assess the owner’s interest. With a standard deviation of 1.13, the average score for good criteria was 4.13. It signifies that small business owners believe their objectives have been met. Table 6 and Figure 2 show the data collected from the respondents, as well as how it was processed using multiple regression.

Table 5: Mean Score for Owner’s Interest Perspective

OTGHEU_2021_v8n12_399_t0005.png 이미지

Table 6: Hypothesis Testing Results

OTGHEU_2021_v8n12_399_t0006.png 이미지

Notes: FP = Financial performance; OI = Owner’s interest.

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Figure 2: The Influence of Demographics on Business Success success.

The results of data processing with regression obtained evidence that the education variable had no impact on FP and OI. Table 6 presents the variables that influence FP and OI. Age and experience variables were found to be positively correlated with FP. Experience is also positively correlated with OI, and gender is also positively correlated with OI. Age and experience have been shown to have a partial and simultaneous effect on FP. Experience and gender also have an impact on OI. From Table 6 and the explanation that has been presented, this study concludes that the hypothesis:

H1: Entrepreneur’s age affects financial performance, proven and acceptable. The partial effect is 67% significant at 0.

H2: Entrepreneur’s age affects owner’s proven and rejected.

H3: Entrepreneur’s experience affects financial performance, proven and acceptable. Its partial effect on FP is –4.6 % significant at 0.

H4: Entrepreneur’s experience affects the owner’s interest, proven and acceptable. The partial effect is 25% significant at 0.

H5: Education of entrepreneurs affects financial performance, not proven, and this hypothesis is rejected.

H6: Education of entrepreneurs affects owner’s interest, not proven, and this hypothesis is rejected.

H7: Entrepreneur’s gender affects financial performance, not proven, and this hypothesis is rejected.

H8: The gender of the entrepreneur affects the owner’s interest, proven and acceptable. The partial effect is 2.4% significant at 0.025.

H9: Financial performance affects the owner’s interest, proven and acceptable. The total effect is 56.3% significant at 0.

This study indicated that out of the nine hypotheses evaluated, five hypotheses were developed that were demonstrated to have a significant impact on FP and OI and could be trusted.

4.2. Discussion

When the world is hit by the COVID-19 pandemic, a company leader with specific characteristics is needed. Leaders who are thriving under normal conditions cannot necessarily maintain their achievements in difficult economic times. Various business activities, due to the COVID-19 pandemic, experienced a slowdown in growth, even collapsing. One of the aims of this research is to uncover these problems and relate them to the demographics of entrepreneurs.

This study found that demographic characteristics such as age, experience, and gender determine the success of small businesses. However, the results of this study are not in line with the findings of Salleh and Ibrahim (2011), who concluded that there was no effect of age, experience, education, and gender on risk-taking. The explanation is that, conceptually, risk-taking is part of the indicators of this research (including the indicators of independence and innovation in Table 5). It means that the results of this study reject the findings in question but support some of their conclusions about education that does not impact business success. The education in question is formal education, such as university education. Galloway and Brown (2002) and Pittaway and Cope (2007) concluded that the relationship between university education in general and the business world is not so strong.

Furthermore, the findings of this study are in line with the results of Soomro et al. (2019), who researched SMEs in Pakistan. He concluded that demographics such as age, experience, education, and gender affect increasing business success.

The outcomes of analyzing study data also show that education does not appear to be a factor in small business success. Hypotheses H5 and H6 are thus ruled out. Because small business activities are not complex, technology is simple, employees are few, and capital is limited, a high degree of education is not critical for success. Using technology and innovating, your business productivity will increase (Lee & Xuan, 2018).

Age and experience are proven to determine business success from a financial perspective. This proof causes the hypotheses H1 and H3 to be accepted. The effect of individual age on FP is 67% significant at 0 (Hair et al., 2010). However, the impact of experience on FP is minus (–4.6%). It means that the existing expertise of entrepreneurs may not necessarily improve financial performance in all situations. The situation referred to here is a slowing economic situation due to the COVID-19 condition because this research was carried out when COVID-19 hit Indonesia.

An experience, if applied carelessly, can harm growth and financial performance. Sales, profits, capital, and market expansion are used to gauge the financial success of a company. The explanation clarifies that an entrepreneur’s age and experience can help small enterprises improve their financial and organizational performance. The period referred to in this study is related to the productive age. The effective age of Indonesian human resources is in the range of 20 years to 55 years. Research data shows that most entrepreneurs as respondents are around 26–30 years old, and the average experience of managing a business is about five years. Based on the views of Choo and Wong (2006) and Delmar and Davidsson (2000), the age of 25 to 34 years is a young/productive age, the age of most people to set up their own company. Because young leaders will easily understand and adopt the latest technology (Kusuma et al., 2020). Leaders in productive age and experienced will quickly adapt to the existing situation. Effective age and experience will make it easier for someone to understand the current situation. Experienced leaders understand consumer buying motives will easily increase business success (Chaniago, 2021). Entrepreneurs feel that their productive age and experience help boost their literacy skills. It is an essential factor for improving the financial and organizational performance of small businesses. The results of this study are in line with the findings of Nguyen (2018), Singh and Singhal (2015), and Soomro et al. (2019), and they are different from the research results of Salleh and Ibrahim (2011).

This study also finds evidence that experience and gender affect business success from the owner’s interest (OI) perspective. The total effect of individual experience on OI is 25% significant at 0%, or hypothesis H4 is proven acceptable. The real impact of experience on OI is included in small or low criteria.

Likewise, gender affects OI of 2.4%, significant at 2.5%, or hypothesis H8 is proven and accepted. It means that the owners of small companies feel that their experiences and gender provide their satisfaction. Gender differences can also result in different business decisions (Salleh & Ibrahim, 2011). Owner satisfaction and interests are not only seen from decision-making. More broadly, it can also be seen from personal pleasure, increased self-confidence, easier to achieve innovative orientation, positive social relations with the community, and satisfaction with lifestyle as an entrepreneur. The findings of this study prove that entrepreneurs who are also owners recognize that gender-appropriate experience is needed to manage a business in difficult times, such as the COVID-19 pandemic. The food industry is unquestionably better handled by women entrepreneurs. Men, on the other hand, are better at managing the electronics industry, workshop business, etc. In the future, determining which companies are fit to be managed according to gender will necessitate independent research.

According to field observations, the average entrepreneur is an Indonesian native, still young, mostly woman, and has 5 years of experience. The characteristics of their business: local marketing, source of own capital funds, owner concurrently a leader, employs an average workforce of 8 people and during the COVID-19 period, their sales fell by 60%. The interesting finding is that 70% of these entrepreneurs have a doctorate degree, however, the test findings show that education has no impact on FP, and OI. Education may not affect the business’s success because the education obtained by the entrepreneur does not match with the business field. Seeing this, stakeholders (government and related organizations) can design various business development programs for young entrepreneurs who can survive the COVID-19 period. Providing proper and specific coaching and training as needed will increase the competitiveness of small businesses. The results of Idris and Bakar (2020) have proven that business coaching is indispensable for business actors.

The findings of the tests also show that FP and OI have a correlation. FP has a 56.3 percent effect on OI, which is significant at 0%. This influence is considered a reasonably strong influence (Hair et al., 2010). It signifies that this study discovers and establishes that financial performance and the owner’s interest are inextricably linked concepts. The results of this study are proof that conceptually FP and OI are one unit. When discussing about OI, it’s also necessary to talk about FP.

This study found that age and experience are important elements in determining the success of small businesses from two perspectives: financial performance and the interests of the owner. The findings of the hypothesis testing show that five of the nine hypotheses tested are confirmed and can be accepted. As a result, this study discovered that age and experience have an impact on business success and that financial performance improves business owners’ satisfaction.

Leaders of productive age and experience that match the business they manage will make it easier for small business owners to succeed. The achievement of business success within the planned period will increase the owner’s satisfaction.

5. Conclusion

According to the findings of the study, the age of the entrepreneurs influences the financial performance of small firms (FP). From a financial and owner’s interest (OI) perspective, an entrepreneur’s experience is a factor of business success. Gender only affects OI, according to other results. It is closely related to the local community’s assumption (unwritten local wisdom) that only certain genders are more suitable for carrying out these business activities.

This study groups small enterprises into several business sectors but does not evaluate each industry separately. Future research must consider increasing the sample size. Also, in the future, a sector-specific analysis will be necessary, such as retail, fashion, manufacturing, and service. Provide training and human resource development to stakeholders and the government who seek to develop small companies. The material provided should be specific and pay attention to the type of entrepreneur’s business. Avoid providing generative HR development materials.

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