Success Factors of Small- and Medium-Sized Enterprises in Taiwan: An Analysis of Cases

Lin, Carol Yeh-Yun, Journal of Small Business Management

Small- and medium-sized enterprises exert a strong influence on the economies of all countries, particularly in the fast-changing and increasingly competitive global market (Anaroni 1994; Drilhon and Estime 1993). They have been a major engine of economic growth and technological progress (Mulhern, 1995; Thornburg 1993). Carrier (1994) said that SMEs are often more fertile than larger firms in terms of innovation. The features of SMEs such as flexibility, innovativeness, and problem-solving action orientation are now being considered as vital for success in the 1990s. Even large companies have attempted to implement entrepreneurship and have learned to think like a small business (Chittipeddi and Wallett 1991). Simon (1996) investigated 500 SME champions in Germany and commented that they have much to teach companies of all sizes and all regions about commercial success.

SMEs have been the primary source of employment creation worldwide over the last decade (Mulhern 1995). In the United States, firms with fewer than 500 employees account for more than 99 percent of all business establishments and employ over 80 percent of the work force (Aharoni 1994). In Holland, 95 percent of firms are SMEs (Bijmolt and Zwart 1994); SMEs also comprise 95 percent of the total establishments in the Philippines (De la Pena 1995). In Taiwan, SMEs constitute 96.5 percent of the approximately 935,000 business establishments and employ 78.6 percent of the total work force (Taiwan Medium and Small Business Administration 1995).

The success of SMEs in Taiwan has been well acknowledged (Hannon 1996; Hiebert 1993; Huang 1990; Kao and Lee 1991; Liu, Liu, and Wu 1995). They have played a vital role in promoting rapid growth during Taiwan's economic transition (Hannon 1996; Liu, Liu, and Wu 1995). The scale, scope, organization, and management of SMEs have changed over time in response to evolving markets, technologies, and economic conditions. An in-depth study of management practices of SMEs in Taiwan may unveil characteristics of their success.

Literature Review

Studies on the economic prosperity of Taiwan have been mainly macroscopic in nature (Fu 1991; Lee, Liu, and Wang 1994; Park and Johnston 1995; Wu and Chou 1987), or limited to a single perspective like outsourcing and networking (Chen 1991; Shieh 1992). A systematic in-depth investigation of the management practices of SMEs in Taiwan has yet to be reported.

Management is dynamic. Longitudinal probing of the progression or organizational change in successful SMEs may provide a modeling of management practices. Theories of organizational change include process-oriented and content-oriented models. Lewin's three steps of unfreeze-change-refreeze and action research using the diagnosis-analysis-feedback-action-evaluation steps typify the process orientation. Peters, Waterman, and Phillips' 7S model (1980) - shared value, strategy, structure, system, style, skills, and staff - and Leavitt's model (1964) of structure, technology, and people are of content orientation.

Leavitt's model is simple, all-encompassing (covering "hard" structure/technology and "soft" people) and has been widely used (Nadler 1981). In attempting to explore the key contents of management practices, this study has adopted Leavitt's model. Leavitt states that an organization can be changed by altering its structure, technology and people (Stoner and Freeman 1989).

Research in the area of Taiwanese business practices has an added significance because of the increased importance of Asia and, in particular, the Pacific Rim nations in the world economy. Meller (1993) said that East Asia will set the world pace for prosperity, and what is happening in the Pacific region has become a global concern. Adler, Doktor, and Redding (1986, p. 296) also mentioned that "Paralleling the shift of business from the Atlantic to the Pacific Basin, we move from the field's conceptually Occidental history to an Oriental perspective." The aggressive outbound investments of Taiwanese SMEs in Southeast Asia have had a substantial impact on the economic development of the Pacific region (Lee 1994). Investigating the management activities of SMEs in Taiwan may provide significant insight into understanding the nature of ethnic Chinese enterprises in the region. Furthermore, business founders in Taiwan typically exert an overriding influence on management style and practice (Chen 1993; Fu 1991; Liu, Liu, and Wu 1995), so their attitudes and philosophies deserve special attention.

Specifically, this study attempts to answer the following two research questions: (1) what are the major management practices of successful SMEs in Taiwan pertaining to structure, technology, and people? and (2) what role does the business founder play in successful SMEs in Taiwan?

Methodology

This study utilizes a case survey analyses of published cases - to probe key factors of successful SMEs in Taiwan. The methodology of the case survey involves the in-depth study of various issues across large numbers of cases. Larsson (1993) has noted that the case survey centers on synthesizing fragmented but fertile pools of managerially relevant findings. A systematic analysis of patterns across cases can help maximize the value of individual case studies. The case survey bridges the gap between nomothetic surveys and ideographic case studies by combining their respective benefits of generalizable, cross-sectional analysis and in-depth, processual analysis.

Sources of Cases

In Taiwan, SME success stories of varying degrees of expertise and length are frequently reported in local newspapers and magazines. In 1996 alone, the Medium and Small Business Administration, Ministry of Economic Affairs Taiwan published three books containing 57 cases which explored and promoted successful management practices of SMEs. These cases, comprised of about 7,000 words each with a rather unified format, were written by business school faculty members in Taiwan sponsored by the government. Case companies are mainly recipients of outstanding organizational performance awards granted by the Taiwan government. These characteristics have made the studies an ideal source of secondary data for the current study. Not all cases were included, however. Cases with the following features were discarded: companies that were under 50 percent or more foreign ownership, organizations that were government-owned, and companies with more than 500 employees. As a result, the data reported in this work are based on 43 useful cases.

Coding and Analysis

To conduct a systematic investigation, a theoretical model is required. As …

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Publication information: Article title: Success Factors of Small- and Medium-Sized Enterprises in Taiwan: An Analysis of Cases. Contributors: Lin, Carol Yeh-Yun - Author. Journal title: Journal of Small Business Management. Volume: 36. Issue: 4 Publication date: October 1998. Page number: 43. © 2002 Journal of Small Business Management. COPYRIGHT 1998 Gale Group.

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