The impact of firm level factors and labor level factors on the performance of small businesses

Small businesses are the driving force behind economic growth, job creation and poverty reduction in developing countries. They are like tools with which economic growth and industrialization are accelerated. In addition, small-scale businesses are known as feeders for large-scale businesses, so they have become more important in pursuit of the economic and social development. Small businesses often struggle to survive and are vulnerable to competition from large companies. This type of business has a significant role in the sustainable economic and social development of a country in terms of contributing to GDP. Because of their strategic role in promoting the economy of a nation in terms of poverty reduction and creation of job opportunities, they are recognized in the management of the country.

The Resource Based View (RBV) believes that the company's resources enable it to gain a competitive advantage and achieve excellent performance in the long run. From a perspective of resources, the strengths and weaknesses of firms have been addressed in order to achieve a sustainable competitive advantage. Thus, in our study, we investigate the factors affecting the performance of small businesses at the firm-level such as ownership, experience, export ratio, inventory and R&D and labor-level factors including skills, education, gender, and manufacturing work force. Firm-specific factors are those that are specific to a business and distinguish it from other companies. Furthermore, in this study, four variables including industry type, total assets, sales and number of employees have been used as control variables.

The sample consists of small firms located in the urban and rural parts of Iran. The data are collected from 17000 industrial workshops by the Iranian Statistics Center. There is no single definition of small and medium industries in Iran; even at the level of industrial statistics centers of the country, different definitions are used. The Statistics Center of Iran has classified businesses into four categories including 1-9 staff, 10-49 staff, 50-99 staff and more than 100 staff. This is because the most common criterion for defining small and medium-sized industries is the number of employees; in many studies, workshops with 1 to 15 people are considered as small businesses, from 15 to 250 people as medium-sized businesses, and more than that as large businesses. The sample of this research consists of industrial workshops with 15 employees and fewer.. The firms with missing data were excluded. Thus, our final sample included 1527 small business. A correlation matrix and a hierarchical linear regression model were used to test the research hypotheses by the SPSS software.

The data show that, out of 5643 industrial workshops with 1 to 15 employees in 1991, only 106 workshops (1.88%) were active in exporting their products to foreign countries. The majority of workshop ownership (93.6%) is in the hands of the private sector. Next to that, most of the workshops are cooperatively owned (4.6%) and publicly owned (1.8%), respectively. The results show the impacts of factors such as company experience, research and development activities as well as skills and education of employees on the performance of small businesses in Iran. However, the type of ownership (private, government or cooperative) and export activity have no effect on the performance including assets growth and sales growth. Export activity and export experience did not affect the performance of small businesses in Iran. The findings also show that the type of industry, sales volume and assets play a significant controlling role in the performance of small businesses. In this study, there are some limitations, the most important of which are 1) confidentiality of the data available in the Statistics Center of Iran, which has led to a lot of time and money spent on the research, 2) the unavailability of some financial information of companies causing the researcher in the field not to consider more financial criteria for performance, and 3) the incompleteness of some data and the unavailability of corporate information that has limited the use of more samples.

Small businesses that are more involved in manufacturing activities and spend less money on product designs and development processes have more growth in assets and, therefore, perform better than other small companies. The Findings show that experience affects the performance of small businesses. Our findings show that there is a relationship between employee skills and small business performance. In fact, this means that having a skilled staff is essential for a small industrial workshop.  Finally, the findings indicate that younger small businesses that have limited R&D activities but well-educated workforce and focus on production have better performance in Iran.