Critical Management Practices Leading to Venture Consideration by Mass Merchandisers: An Empirical Study

Article excerpt

A study was conducted using data from the assessment of 1681 small manufacturing enterprises wishing to establish supplier relationships with a major mass merchandiser. The firm assessment process was examined to determine which management practices seemed to distinguish between those ventures which were successful (forwarded for mass merchandiser consideration) and those which were not successful. Successful ventures tended to perform all management practices better than non-successful ventures, and all firms reported performing accounting and financial practices better than marketing, production, and technology practices.

Introduction

For small manufacturing enterprises (SMEs) wishing to enter the mass merchandising market, sound management practices are critical because the competition is often global in nature. For example, Wal-Mart, the world's largest discount retailer, operates in markets such as Argentina, Brazil, the United Kingdom, Germany and Mexico, and it has joint venture agreements in China. Kmart, Wal-Mart's perennial rival, has focused more on U.S. operations, though it does have locations in the territories of Puerto Rico, the U.S. Virgin Islands and Guam (http://www.multex.com).

Mass merchandising firms are not a purely American phenomenon. Wal-Mart and Kmart have competition from such firms as Coles Myer Ltd., Grupo Elektra, and PriceSmart. Coles Myer Ltd. operates throughout Australia and New Zealand in much the same way that the two American giants operate in the U.S. Grupo Elektra operates in Mexico, Peru, Honduras and other Latin American countries with a similar format, although several of its subsidiaries are more targeted to specific socio-economic clientele groups. PriceSmart follows a concept similar to membership warehouse clubs in the United States. It operates throughout Latin America, but also has locations in the U.S. Virgin Islands and the Philippines (http://www.multex.com).

Mass merchandising is a growing global retail concept, and manufacturers supplying products to the home companies involved in this market must meet a different set of competitive standards than those that exist for regional and local retail outlets. This study examines those manufacturer management practices that are critical for success in the mass retail arena.

Management Practices of Small Manufacturers

Because all business functions fall under the discretion of management to some degree (Bruno, Leidecker, & Harder, 1987), the term management practices refers to financial management, accounting, marketing, production operations, and strategy. While these management practices are not perfect predictors of firm performance, they provide a starting point for understanding SME success. This section reviews some of the empirical studies that identify successful management practices in the manufacturing industry.

Financial and accounting practices have been the focus of a few manufacturing studies. For 74 SMEs in Australia, Gadenne (1998) found that financial management and the use of professional advisors were important business practices. Successful firms were more likely than unsuccessful firms to seek out the cheapest financing and rely on external advice (e.g., accountants). Gadenne (1998) also noted that adequate financial resources provided by the owner or from profits was a success factor, and Tan and Tay (1994) reported that financial aid from the government was significantly related to business success in Singapore. In Canada, a study of SMEs found that knowledge of cash flow management was a characteristic of successful manufacturers (Chaganti & Chaganti, 1983).

Marketing techniques and strategies have been empirically linked to better performance. Pelham (2000) found that market orientation was positively related to the performance of small and medium-sized manufacturing firms. Market-oriented firms were quick to respond to negative customer feedback, competitor activities, and customer preference changes. …