The Impact of Key Internal Factors on Firm Performance: An Empirical Study of Small Turkish Firms

This article reports on some of the findings of an empirical study which examined production, marketing, management competencies, and strategic choices of small firms, and compared them with firm performance. The research issue discussed in this article is the determination of distinctive competencies and product/market strategies that correlate with small firm growth and sales revenue performance. The study is based on a sample of small firms (with fewer than 100 workers) in two mature industries (casting and machinery manufacturing) located in the Ankara metropolitan area. Data and Measures The data used in this study came from two separate surveys of small casting and machinery manufacturing firms located in the Ankara metropolitan area. The first survey(1) covered 101 small foundries and 118 manufacturers of machinery and equipment. In the second survey,(2) in order to increase participation and reliability, the respondents were not asked to state actual revenue figures but to state their 1987 sales revenue as a percentage of the 1985 sales revenue figure. Therefore, the sales revenue increase measure used in this study is an index value which compares the 1987 sales revenue with the base year (1985 = 100) sales revenue. The two surveys overlapped to furnish employment level, production/marketing/management competence, and product mix data for 96 firms (49 foundries and 47 manufacturers of machinery). Moreover, sales revenue increase data were available for 55 firms (29 in casting and 26 in machinery manufacturing) in this sample. One-way ANOVA analyses revealed no significant differences between firms with and without sales data. External Environment Factors affecting the growth and performance of a firm may be viewed in two categories: factors related to the "external environment" and factors related to the "internal environment." This research focuses on the internal environment and statistically controls for most industry-specific factors by limiting itself to two mature industries. The casting and machinery manufacturing industries studied here are both mature industries in that their real annual growth rates are less than 10 percent, their products and services are well-known by most users, and they have stable competitive structure and technology (Zeithaml and Fry as cited in Bracker and Pearson 1986, 507). Moreover, the effects of location or the local environment are largely eliminated as all firms are located in the same metropolitan area. Nevertheless, we include a dummy variable, firm's industry (casting or machinery manufacturing), to account for possible industry effects. Internal Environment In this research we examine the internal environment of the small firm in terms of five groups of factors: owner/manager experience, age of firm, production competencies, marketing competencies, management competencies, and strategy. Although the person at the center of the small firm bears the prime responsibility for the small firm's fortunes, systematic data on only one personality trait, experience of the owner/manager in the given industry, are available for the sample firms. This research does not address the impact of other CEO personality traits or entrepreneurial talents. However, the especially low frequency of entrepreneurs in mature industries (Schollhammer and Kuriloff 1979), and the limited impact of CEO personality in stable environments (Miller and Toulouse 1986) reduces the significance of this data shortcoming. We examined the impact the age of firm has on performance. There are conflicting findings on the relationship between firm age and performance. While some studies have associated higher performance with increased age (Birley and Westhead 1990, Bracker and Pearson 1986), others have suggested an opposite relationship (Begley and Boyd 1986, Kemelgor 1985). Production competencies allow the firm to: manufacture a broad range of products, including specialty and high quality items; build a reputation in the industry; and reduce operating costs, which act as key factors to achieve competitiveness (Conant, Mowka, and Varadarajan 1990; Dess and Davis 1984). …