An inquiry on the Nature of Small Business Firm Capabilities

Abstract

Why do organisations exist? Do various actors involved agree on how to manage a firm? newline Why do some organisations outperform others? How organisations co-operate? These are the newline four fundamental questions in the field of organisational studies. Several economic theories newline that emerged in the past tried to elucidate the above questions to a major extent. However, the newline source of firm-level heterogeneity has not been identified and explained clearly. Capability- newline Based View (CBV) theory of firm identifying firms as the collection of capabilities explain newline the reasons of firm-level heterogeneity better than other mainstream economic theories. The newline voluminous literature in the field identifies capabilities defining factor a firm and states it as newline the prime reason of firm heterogeneity. However, the critical capabilities and how those newline capabilities are developed, maintained and transformed within a firm have not yet been newline explained. The CBV theory identifies two different forms of capabilities, zero-order or first- newline level capabilities and First or Dynamic capabilities. While the former deals with the newline functional characteristics of firms, the latter identifies with the sensing, seizing and newline transforming opportunities of firms. The CBV theorist argues that the dynamic capabilities of newline the firms are the prime source of firm-level heterogeneity. At the same time, studies in recent newline times argue that the differences between ordinary and dynamic capabilities are not well newline defined. Also, most of the studies using CBV theory of firms have focused on large scale newline firms while small business firms have got less attention. Therefore the current study tried to newline identify the nature of capabilities in small business firms and identify the prime source of newline firm-level heterogeneity. The current study used an exploratory sequential mixed method newline ivresearch where the prime capabilities that define the overall performance of the firm were newline identified through in-depth interviews conducted among 40 small business firms using case newline study methodology. Based on the inference obtained from the case study analysis, a newline structured interview schedule was created to capture the key capabilities that constitute the newline overall performance of the firms. Before analysing the field level data, an intensive secondary newline data analysis using various data sources that include Input-Output Tables, Annual Survey of newline Industries (ASI), National Sample Survey of Organisation (NSSO) and UN COMTRADE newline data were analysed to get an overview of Indian leather industry. The results obtained newline highlighted that the backward linkage of the Indian leather industry is shirking while the newline forward linkage has improved in recent times. Also, both in organised and unorganised newline industries, it has been identified that labour plays a significant role in defining the growth or newline value addition in firms. The key capabilities identified that define the overall performance of newline the firms are Human Resource Capability (HRC), Financial Capability (FC), Buyer-Supplier newline Relational Capability (BSRC), Technological Capability (TC), Entrepreneurial Capability newline (EC) and Organisational Capability (OC). A Structural Equation Model (SEM) was newline developed to measure the role of each of these capabilities on the overall performance and newline competitive advantage of firms. Overall, five different structural models were created in newline which HRC turned out to be the most significant capability among all the other capabilities in newline small business leather firms. The study also shed more light on the difference between newline ordinary and dynamic capabilities in small business firms and recognises that even ordinary newline capabilities play a significant role in defining firm-level heterogeneity. newline