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Factors That Affect Canadian Propensity To Grow And Expand Small Business

Amarjit Gill1*, Nahum Biger2, Neil Mathur3, Charul Shah1, Ishaan Bhutani4

1College of Business Administration, TUI University, CA 90630, USA

2Academic Center Carmel, Shaar Palmer 4, Haifa, Israel 33031

3Simon Fraser University, 515 West Hastings Street, Vancouver, BC, V6B-5K3, Canada

4O2 Salons, Chandigarh, Punjab, India

*Corresponding Author:
Amarjit Gill
College of Business Administration
TUI University, CA 90630, USA
E-mail: Amarjit Gill, [email protected], [email protected]

Published date: September 12, 2010

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Abstract

This paper seeks to extend the findings regarding factors that affect the propensity of small business owners to grow and expand small businesses. This study utilized survey research (a non-experimental field study design). A total of 218 Canadian small business owners were surveyed and reported their perceptions of various factors that adversely affect their propensity to grow and expand their businesses. The findings suggest that the factors are perceptions of lack of expertise, family-business role conflict, and lack of management skills. The findings may be useful for the Canadian governments and small business management advisors.

Keywords

Lack of expertise; family-business role conflict; lack of management skills; small business growth intensity; entrepreneurship.

Introduction

The purpose of this paper is to examine the factors that affect Canadian propensity to grow and expand small businesses in Canada. Small businesses, in the context of this study, are defined as those in which one or two people make all the key managerial decisions, without the help of internal specialists [1]. Small business plays an integral role in the Canadian economy. In 2007, 98% of all businesses were small businesses operating in British Columbia, providing employment for 1,048,000 people [2, p. 1]. In addition, British Columbia's small business Gross Domestic Product (GDP) accounted for a third of total provincial GDP, the highest in Canada and small business shipped over $12 billion worth of merchandise to international destinations in 2006, over 37% of the total value of goods exported from the province [2, p. 1]. On the national front, 78% of Canada's one million businesses employ fewer than five people. Small businesses employ six out of every 10 working Canadians [3, p. 1]. This is a major shift over the great industrial period. However, one cannot ignore the individual difficulty factors that affect negatively Canadian propensity to grow and expand small business in Canada.

The literature on entrepreneurship has acknowledged the influence of the entrepreneur’s motives and traits, as well as the environment in which his or her firm operates. For example, Tropman and Morningstar [4] proposed four key elements, the first two of which dealt with the characteristics and competencies of the entrepreneur and the last two with the specific and the general environment of the firm. Van de Ven [5] argued that whereas the infrastructure facilitates and constrains entrepreneurial activity, entrepreneurs shape and change the infrastructure. Kozan et al. [6] similarly took into account entrepreneurial intensity as well as environmental constraints and difficulties.

This study seeks to extend the findings of Kozan et al. [6]. It examines the relationship between personal constraints and difficulties and small business growth intensity in Western Canada. There are many environmental factors such as market competition, entry barriers, government policy, lack of financing, taxes, etc., that may affect Canadian propensity to grow and expand small business in Canada. To narrow down the scope, this study concentrates only on individual difficulty factors that affect Canadian propensity to grow and expand their business. Knowledge of the relative role of personal factors in bringing about expansion and growth is expected to provide insights for government policy and small business management advisors.

This study contributes to the literature on the factors that affect Canadian propensity to grow and expand small business. A very little research on the individual difficulty factors that affect on the propensity of small business owners to grow and expand small business has been reported.

Literature Review

Entrepreneurial intensity refers to the willingness of the individual to assume risk and be proactive as an indicator of commitment to growth [7, 8, 9]. Previous entrepreneurship research has emphasized either the characteristics of the entrepreneur or the environment of the firm, with a few scholars calling for studies that cover the joint effect of both sets of variables [6]. Research focusing on the individual entrepreneur involved the impact of psychological variables, such as sacrifice, motivation, intensity, and risk taking to explain small-business growth [10].

Growth is the key activity that separates entrepreneurship from small business ownership [6]. According to Tropman and Morningstar [4] and Kozan et al. [6], the definitions of entrepreneurship include innovation, (e.g., introducing a new product or service, or risk taking). Small business growth propensity of small-business owners captures the common element in these definitions.

Most entrepreneurial research, however, has focused on past behavior. Though past behavior may be a predictor for the future, behavior is also considered a function of intentions to grow and expand small businesses. The behavior of entrepreneurs is strongly affected by intentions [e.g., 11, p. 315; 12, p. 442]. The firm’s strategic behavior and subsequent growth is understandable in the light of its growth intention.

Individual intentions generally predict behavior [13]. Bird [12] and Boeker [14] demonstrate how entrepreneurial intentions play a crucial role in understanding organizational emergence. Davidsson [15] also points out that the owner of a small firm that operates in an imperfect market can choose whether to pursue expansion or not. The choice depends on the owner's satisfaction with the status quo versus the motivation to grow and expand [6, p. 117].

Growth intensity of small business owners is based on expected gains surpassing expected costs, monetary and nonmonetary. Personal factors such as expertise, family-business role conflict, and management skills also affect on the propensity of small business owners to grow and expand small business. Fielden and Dawe [16] indicate that lack of experience and lack of affordable and trustworthy childcare affect negatively on the propensity of women small business owners; that is, lack of expertise and familybusiness role conflict negatively impact the propensity of small business owners to grow and expand. Lack of affordable and trustworthy childcare leads to family-business role conflict because small business owners have to take care of children and at the same time manage their businesses.

Redmond and Walker [17] explain that small business owners are technically competent in their area of business activity; however, they do not always have equal managerial competence. They indicate that part of the problem relates to a lack of participation by small business owners in formal management skills development due to the perceived time and financial costs required. Redmond and Walker [17] also found that when small business owners participate in a dedicated management skills program, important gains are made that contribute to their personal and business development.

Resource aggregation intentions are influenced by lack of expertise and intensity. Gill and Biger [18] found positive relationship that individual expertise and individual propensity to grow through investment in the real estate market.

In summary, limited availability of literature review shows that i) lack of expertise, ii) family-business role conflict, and iii) lack of management skills affect negatively the growth intensity of small business owners. Accordingly, the following hypotheses are formulated:

H1: The lack of expertise negatively affect on the propensity of small business owners to grow and expand small business in Canada.

H2: The family-business role conflict negatively affect on the propensity of small business owners to grow and expand small business in Canada.

H3: The lack of management skills negatively affect on the propensity of small business owners to grow and expand small business in Canada.

Conjecture: There might be differences in the nature of the relationship between the factors and the small business growth intensity based on the level of education.

Methods

Research Design

This study utilized survey research (a non-experimental field study design). To test the hypotheses, p < .05 significance level was used to accept or reject a null hypothesis.

Measurement

Consistent with previous research, all measures pertaining to lack of expertise, family-business role conflict, and small business growth intensity of small business owners were adopted from Kozan et al. [6]. Robson and Bernard [19] provided measures related to lack of management skills.

All the scale items were be reworded to apply to Canadian small business owners and the reliability of these re-worded items was re-tested. Respondents were asked to indicate their agreement with each item, using a five-point Likert scale ranging from “Strongly Disagree” to “Strongly Agree.”

Industry was used as a control variable. Industry control variable was measured by a single item that asked respondents to indicate the industry in which their small businesses operate. Categorized alternative responses were: 0) Service, i) – Manufacturing, and ii) Other. There were only 5 surveys received from the manufacturing industry. Therefore, the industry control variable was discarded from the analysis and five surveys from manufacturing industry were included in the service industry.

Lack of expertise (LOE) is operationalized as the extent to which small business owners perceive that they have problems with i) reviewing sources of small business information properly, ii) reviewing market information properly, and iii) understanding entrepreneurship. Kozan et al. [6] used the seven-item tolerance-of-freedom scale which measures the “lack of expertise” variable. Three items were selected to measure the “lack of expertise” variable. Scale items were reworded and the reliability of these reworded items was re-tested.

The Cronbach alpha on the responses of the thirty small business owners who participated in the pre-test of the above scale items was 0.85. All three items were included in the final questionnaire.

Family-business role conflict (FBRC) is operationalized as the extent to which small business owners perceive that they are i) having difficulties in scheduling business and family activities together and ii) their family members do not take them seriously when they talk about small business growth. Kozan et al. [6] used the two-item tolerance-of-freedom scale which measures the “familybusiness role conflict” variable. All two items were selected to measure the “family-business role conflict” variable. Scale items were reworded and the reliability of these re-worded items was re-tested.

The Cronbach alpha on the responses of the thirty small business owners who participated in the pre-test of the above scale items was 0.82. All two items were included in the final questionnaire.

Lack of management skills (LOMS) is operationalized as the extent to which small business owners perceive that they lack training and experience to manage their small businesses properly. Robson and Bernard [19] used the seven-item tolerance-of-freedom scale which measures the “lack of management skills” variable. Four items were selected to measure the “lack of management skills” variable. Scale items were reworded and the reliability of these re-worded items was re-tested.

The Cronbach alpha on the responses of the thirty small business owners who participated in the pre-test of the above scale items was 0.92. All four items were included in the final questionnaire.

Small business growth intensity (SBGI) is operationalized as the extent to which small business owners perceive that i) small business growth is most important activity in their lives, ii) they are willing to do whatever it takes to make their small businesses grow, and iii) they rather own more small businesses than working for other people to pursue promising careers. Kozan et al. [6] used the ten-item tolerance-of-freedom scale which measures the “small business growth intensity” variable. Three items were selected to measure the “small business growth intensity” variable. Scale items were reworded and the reliability of these reworded items was re-tested.

The Cronbach alpha on the responses of the thirty small business owners who participated in the pre-test of the above scale items was 0.90. All three items were included in the final questionnaire.

Sampling Frame, Questionnaire Distribution, and Collection

The current study consisted of a sample of Canadian small business owners in the Lower Mainland area of British Columbia, Canada (North Vancouver, Vancouver, Burnaby, New Westminster, Surrey, Delta, and Richmond).

Sampling Method, Sampling Issues, and Possible Planned Solutions

The current study consists of the population of Canadian small business owners. Small business owners are defined by the British Columbia government as organizations employing less than 150 employees [20]. Industry Canada's definition of a "small business" is a firm that has fewer than 100 employees [21]. Canadian small business owners living in the Lower Mainland area of British Columbia, Canada (North Vancouver, Vancouver, Burnaby, New Westminster, Surrey, Delta, and Richmond) were chosen as a sampling frame.

This study applied a convenience (non-random) sampling method to select and recruit the research participants. Non-Canadian small business owners were excluded.

To achieve a large enough sample, an exhaustive list of Canadian small business owners’ names and telephone numbers in the Lower Mainland area used for telephone interviews. Survey questionnaire bundles coupled with an instruction sheet were provided to participating assistants for distribution.

The sample included approximately 900 research participants encompassing Canadian small business owners. A total of 218 surveys were completed over the telephone (approximately 45% of the surveys were completed over the telephone), through personal visits, and received by mail. Four of the surveys were non-usable. The response rate was roughly 24%. The remaining cases were assumed to be similar to the selected research participants.

Issues Related to Confidentiality of the Research Participants

All individuals who were approached were assured that their names will not be disclosed and confidentiality will be strictly maintained. In addition, all subjects were requested to NOT disclose their names on the questionnaire. Since the research was based on the survey questionnaire small business owners were not forced to respond to each specific question.

All subjects were provided with stamped envelopes and confidentiality was assured. There was no obligation for the subjects to answer our questions over the telephone and in person. Before any telephone interview, the person was asked for willingness to participate without coercion.

The small business owners’ consent letter specifically indicated that by completing the survey, subjects have consented to participate in the study. Any information that was obtained in connection with this study and that can be identified with subjects will remain confidential and will be disclosed only with subjects’ permission or as required by law.

Results

Measures of central tendency, variance, skewness, and kurtosis were calculated on responses to all of the items. Skewness measures for all of the items were within the range of: -1.15 to +1.0, which is considered an excellent range for most research that requires statistics appropriate to normal distributions. Therefore, we used statistics that assume scalar values and symmetric distributions to test our hypotheses.

Table 1 provides descriptive statistics related to the perceptions of small business owners on small business growth intensity, lack of expertise, family business role conflict, and lack of management skills.

Min Max _
x
σ
SBGI
SBGI1) Small business growth is most important activity in my life.
1 5 3.92 1.01
SBGI2) I will do whatever it takes to make my small business grow. 1 5 3.92 1.00
SBGI3) I rather own another small business than pursuing another promising career. 1 5 4.06 0.96
LOE
LOE1) I do not know how to review "sources of small business information" properly.
1 5 3.02 1.38
LOE2) I do not know how to review "market information" properly. 1 5 3.06 1.38
LOE3) I do not fully understand entrepreneurship. 1 5 3.07 1.42
FBRC
FBRC1) I am having difficulties in scheduling business and family activities together.
1 5 2.70 1.32
FBRC2) My family members do not take me seriously when I talk about small business growth. 1 5 2.76 1.32
LOMS
LOMS1) I have no prior experience in small business management.
1 5 2.61 1.31
LOMS2) I have no formal training in small business management. 1 5 2.66 1.35
LOMS3) I have no formal training in small business planning. 1 5 2.69 1.35
LOMS4) I have no formal training in bookkeeping/accounting. 1 5 2.74 1.34

Table 1: Descriptive Statistics.

We began our analysis by factor analyzing responses to the 12 items that described the respondents’ feelings about their small business growth intensity, expertise, family-business role conflict, and lack of management skills. The principle components analysis (a cluster analysis tool designed to capture the variance in a dataset in terms of principle components) with number of factors set to 4 and a varimax rotation explained 93.42% of the variance in the original scores (see Table 2). As can be seen in Table 3, all the items loaded on the expected factors.

Total Variance Explained
Rotation Sums of Squared Loadings
Component Total % of Variance Cumulative %
1 3.733 31.107 31.107
2 2.853 23.777 54.884
3 2.734 22.783 77.667
4 1.890 15.753 93.420

Table 2: Total Variance Explained – Rotation.

Components
1 2 3 4
LOE
LOE1) I do not know how to review "sources of small business information" properly.
0.145 0.957 -0.075 0.068
LOE 2) I do not know how to review "market information" properly. 0.137 0.969 -0.083 0.073
LOE 3) I do not fully understand entrepreneurship. 0.121 0.946 -0.053 0.116
FBRC
FBRC1) I am having difficulties in scheduling business and family activities together.
0.078 0.126 -0.087 0.956
FBRC2) My family members do not take me seriously when I talk about small business growth. 0.094 0.086 -0.104 0.957
LOMS
LOMS1) I have no prior experience in small business management.
0.935 0.109 -0.155 0.075
LOMS2) I have no formal training in small business management. 0.962 0.111 -0.081 0.055
LOMS3) I have no formal training in small business planning. 0.962 0.128 -0.068 0.060
LOMS4) I have no formal training in bookkeeping/accounting. 0.950 0.127 -0.091 0.066
SBGI
SBGI1) Small business growth is most important activity in my life.
-0.136 -0.043 0.958 -0.096
SBGI2) I will do whatever it takes to make my small business grow. -0.093 -0.014 0.957 -0.108
SBGI3) I rather own another small business than pursuing another promising career. -0.094 -0.148 0.907 -0.024

Table 3: Rotated Component Matrix.

Cronbach Alpha on the clusters of items: Lack of Expertise 0.9718; Family-Business Role Conflict 0.9390; Lack of Management Skills: 0.9767; and Small Business Growth Intensity 0.9492.

The question subsets were analyzed in order to enable the calculation of the weighted factor scores. In terms of these weighted factor score items: three lack of expertise, two family-business role conflict, four lack of management skills, and three small business growth intensity, loaded approximately equally.

Table 4 provides the Pearson correlation for the variables that we used in the regression model. We found that the small business growth intensity is negatively correlated with lack of expertise, family-business role conflict, and lack of management skills. The negative correlations indicate that lack of expertise, family-business role conflict, and lack of management skills affect negatively Canadian propensity to grow and expand small business in Canada.

SBGI LOE FBRC LOMS
SBGI 1 -0.163* -0.194** -0.227**
LOE 1 0.213** 0.270**
FBRC 1 0.176**
LOMS 1

Table 4: Pearson Bivariate Correlation Analysis.

Testing of Hypotheses

It was hypothesized that lack of expertise, family-business role conflict, and lack of management skills negatively affect on the propensity of small business owners to grow and expand small business in Canada.

The Relationship between Lack of Expertise and Small-Business Growth Intensity

A negative relationship between lack of expertise and small business growth intensity (see Table 5) was found; that is, lack of expertise affects negatively on the Canadian propensity to grow and expand small business in Canada.

R2 = 0.027; S.E.E. = 0.969; F = 5.78; ANOVA's Test Sig.= 0.017
Regression Equation: SBGI = 0.015 – 0.160 LOE
Unstandardized Coefficients Standardized Coefficients c t Sig.
B Std. Error Beta
(Constant) 0.015 0.066 0.233 0.816
LOE -0.160 0.067 -0.163 -2.404 0.017

Note that around 2.7% (R2 = 0.027) of the variance in the degree of small business growth intensity of small business owners can be explained by the degree of lack of expertise.

The Relationship between Family-Business Role Conflict and Small-Business Growth Intensity

A negative relationship between family-business role conflict and small business growth intensity (see Table 6) was found; that is, family-business role conflict affects negatively on the Canadian propensity to grow and expand small business in Canada.

R2 = 0.038; S.E.E. = 0.964; F = 8.32; ANOVA's Test Sig.= 0.004
Regression Equation: SBGI = 0.016 – 0.191 FBRC
Unstandardized Coefficients Standardized Coefficients c t Sig.
B Std. Error Beta
(Constant) 0.016 0.066 0.236 0.814
LOE -0.191 0.066 -0.194 -2.885 0.004

Note that around 3.8% (R2 = 0.038) of the variance in the degree of small business growth intensity of small business owners can be explained by the degree of family-business role conflict.

The Relationship between Lack of Management Skills and Small-Business Growth Intensity

A negative relationship between lack of management skills and small business growth intensity (see Table 7) was found; that is, lack of management skills affects negatively on the Canadian propensity to grow and expand small business in Canada.

R2 = 0.051; S.E.E. = 0.957; F = 11.48; ANOVA's Test Sig.= 0.001
Regression Equation: SBGI = 0.016 – 0.222 LOMS
Unstandardized Coefficients Standardized Coefficients c t Sig.
B Std. Error Beta
(Constant) 0.016 0.065 0.239 0.811
LOE -0.222 0.066 -0.227 3.388 0.001

Table 7: Regression Coefficients a,b.

Discussion

The main purpose of this paper was to examine the factors that affect Canadian propensity to grow and expand small business in Canada. This was done by surveying a sample of Western Canadian small business owners. These small business owners’ perceptions and judgments are the basis of our findings that lack of expertise, family-business role conflicts, and lack of management skills affect Canadian propensity to grow and expand small business in Canada.

The findings of this paper support the findings of Fielden and Dawe [16] which indicates that lack of experience and lack of affordable and trustworthy childcare affect the propensity of small business owners. In addition, the results support the findings of Gill and Biger [18] in which they explain that individual knowledge affects individual propensity to grow through investments. Finally, the results support the findings of Redmond and Walker [17] which indicates that management skills are necessary for the small business owners.

Conclusion

In conclusion, small business plays an integral role in the Canadian economy. Therefore, it is important to grow and expand small businesses in Canada. To grow and expand small businesses, it is important to improve small business knowledge of small business owners, minimize family-business role conflict, and to improve management skills of small business owners.

Since Canada is a multicultural country, a lot of new immigrants migrate on a yearly basis. The majority of new immigrants open family businesses in Canada, which leads to family-business role conflict. In addition, English is a second language for the majority of small business owners. The lack of language skills leads to lack of expertise to review the sources of small business development. Therefore, Canadian governments should consider providing free English language skills to small business owners and consider providing additional family support so that they can minimize family-business role conflict by arranging day care services for their children. The English language skills will help small business owners to improve management skills.

Small business management consulting firms must arrange consultants who can speak small business owners’ mother languages. This will help small business owners to obtain consulting services from consultants who can speak their language and English as well to understand the small business development sources.

Limitations

The present study asks for responses from fixed format, set-questions survey tools, which could direct questions to the exclusion of providing additional input. A mail/drop off survey data collection method contributed to a low response rate or response error. Some favorable techniques such as including postage paid mail, sending a cover letter, providing a deadline for returning the survey, and promising anonymity were applied in order to increase the response rate. Maturation of participants can also affect the survey response rate. Maturation of participants, in the context of this research, means that some of the research participants may be on holidays. However, a short study period (four weeks) limited any negative effects from maturation.

Future Research

The present study is limited to perceptions and intentions. The relations found may suffer from common factor bias, as the questions were parts of the same data collection instrument. Future research is needed to test the relation of growth intensity to actual future growth through longitudinal data. Personal characteristics of the entrepreneur also need further study in Canada.

Competing Interests

The authors declare that they have no competing interests.

Authors’ Contributions

AG developed the framework, gathered data, carried out the final estimations and statistical analysis, and drafted the manuscript. NB, NM, CS, and IB edited the final draft.

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