LIFTing the life of the bottom billion

Understanding the competencies and practices that fuel growth could improve the success rate of micro and small business owners in Latin America.

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Editor’s Note: The SCM thesis The Influence of Manager-Centric Competencies on the Performance of Micro and Small Enterprises in Latin America was authored by Maria del Pilar Pardo Rodriguez and Elise Fredericks and supervised by Dr. Vytaute Dlugoborskyte and Dr. Josué C. Velázquez Martínez ([email protected]). For more information on the research, please contact the thesis supervisors.

Micro and small enterprises (MSEs) are a vital component of the social and economic fabric in Latin America. However, these firms are often susceptible to high failure rates due to low productive output, limited access to resources, and a lack of managerial skills. Therefore, understanding the factors which enable the survival and growth of MSEs is an important step towards closing the existing standard-of-living gap in developing countries.

What factors best enable the survival of these firms? What attributes of MSEs are most impactful in promoting long-term success? In collaboration with the Low Income Firms Transformation (LIFT) Lab at the MIT Center for Transportation & Logistics, we investigated which competencies—such as record-keeping ability, supply chain management expertise, and capacity for innovation—most significantly affect firm performance within the context of Latin America. We also studied how integrative practices—across suppliers, customers, and the firms’ internal employees—enable business success among MSEs in the region.

Motivated by similar studies conducted across different geographies, we administered a questionnaire to collect real-time, empirical data from the firm owners (decision-makers) of each surveyed MSE. The intent of the questionnaire was to assess the existence of business (firm-centric) competencies, behavioral (manager-centric) competencies, and integrative practices within the firm. Then, using statistical modeling techniques such as multivariate linear regression and analysis of variance, we regressed each competency against six different parameters (sales, profitability, number of total employees, number of paid employees, number of customers, and number of suppliers), each of which serve as a proxy for predicting firm performance.

MSE owners as game changers

The data sample collected from 45 MSEs in Latin America demonstrates that three of the firm-centric competencies—customer integration, supplier integration, and proactive innovativeness—have a significant influence on firm performance. The other firm-centric competencies we measured showed only a marginal direct effect on firm performance. However, when taken in context with the behavioral characteristics of an MSE owner, all firm-centric competencies exhibited a significant effect on the selected performance parameters.

Our research produces three main insights. First, our results show multiple instances where a significant and direct relationship does not exist between certain competencies and firm performance. However, when those same competencies are combined with the characteristics and behaviors of the decision-maker, the combinatory effect produces a net change on firm performance. Effectively, this suggests that the performance of MSEs in Latin America is highly dependent on the interaction between firm competencies and the personal characteristics of the firm owner.

Second, our results show that to achieve higher levels of profitability and sales, managers must alter their behavior according to the different stakeholders they engage with. For example, integration with customers requires that a leader be authoritative so that the customers do not make too many demands on the business.

In contrast, our research suggests that MSEs should openly collaborate with their suppliers instead of asserting a position of dominance, as this type of behavior might deter suppliers from doing business with the firm, thereby negatively affecting sales and profitability. Ultimately, managers must be willing to adapt to and leverage the complexities and dynamics of each business relationship to see substantive financial growth.

Lastly, the firm-centric competencies that showed a significant and direct effect on firm performance (customer integration, supplier integration, and proactive innovativeness) are less likely to demonstrate an indirect, multiplicative effect when combined with the personal traits of a manager. We argue that these attributes are sufficient to affect firm performance on their own. For that reason, MSEs must invest ample attention and resources to take full advantage of the benefits of these competencies.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

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