CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

FOREIGN LITERATURES

Operational performance refers to a company's

operational effectiveness, which can provide light

on the company's marketability and competitiveness

(Hong et al., 2019). Based on the study conducted

by Trana & Nguyena (2019), there are three main

groups of factors affecting business performance of

enterprises: group of internal factors, including

cost structure in revenue, industry

characteristics, leadership skills, diversity of

products/services provided, etc.; group of external

factors, including input market, output market,

available resources, business environment, other

industries, and logistics service; and group of

factors that are part of institutions and

infrastructure such as institutions, politics,

infrastructure, business tax laws.

 According to Ali Qalati et al., (2020), Small

and Medium-sized Enterprises (SMEs) have emerged

as a vital and dynamic sector of the global

economy. Information technology is essential for

enhancing SMEs' productivity and competitiveness.

The main obstacles impeding SME growth in the UK,

according to Clegg (2018), are a lack of people-

based capability, a lack of competence, a lack of

skills, and a lack of information technology. Thus,

technology, organization, and the environment all

play important roles in SME performance.

In today's dynamic environment, technological

capabilities and open innovation are extremely

important to the operational performance of SMEs.

Technological capabilities have a significant

impact on open innovation, whereas open innovation

helps SMEs achieve operational performance

(Taghizadeh et al., 2021).

 Putra (2019) stated that the world's

technological developments have entered the fourth

industrial revolution. The effect on technological

progress is a shift in the perspective of manuals,

world business maps, and even various aspects of

economic, social, political, and cultural life.

Companies, as well as micro, small, and medium

enterprises (MSMEs), are increasingly reliant on

technology to ensure the long-term viability of

their operations.

As mentioned in the study of Chege et al.,

(2020), SMEs adopt and use Information

Communication Technology (ICT) differently as a

result of moderating factors such entrepreneur

innovation, which strengthens and improves

technological innovation effects of SME

organizational performance. The capability of

digital technologies, relational capability, and

innovation capability has a positive impact on the

performance of SMEs. These capabilities enable

SMEs in developing organizational agility (Troise

et al., 2022).

Also, in the study of Rajala et al., (2023)the

indicated that platform-based digital connectivity

can improve operational performance of SME in

highly turbulent environments. The effects of

platform-based digital connectivity on performance

vary depending on the level and type of

environmental turbulence. The government should

facilitate and encourage SMEs to widely implement

such technologies in their operations, not only to

reduce costs and increase productivity, but also

to add extra value to their products, which is

currently lacking in other SMEs (Mubarak et al.,

2019).

Moreover, Lim & Teoh (2021) believed that it

is important for SME entrepreneurs to identify the

factors that entrepreneurs lack in business

planning in order to sustain the business and

achieve success. The implementation of strategic

planning and management in business tends to

significantly increase the positive impact to the

SME business performance and success.

Organizations such as SMEs must improve their

entrepreneurial skills through various

motivational strengthening, training, and

workshops, and mentoring will have an innovative,

creative, risk-taking spirit in decision (Sulistyo

& Ayuni, 2020).

The study of Rahaman et al., (2021) proposed

that SME owners must develop a more convenient

business culture that benefits their employees to

become more innovative, creative, and proactive in

nature, as a result of which they will play an

important role in driving the future performance

of it. Likewise, Asenge (2018) claimed that

entrepreneurial skills had a favorable impact on

SMEs' performance.

The interdependence of human capital, customer

capital, structural capital, social capital,

technological capital, and spiritual capital can

lead to improved SMEs organizational performance.

All SMEs leaders must understand and appreciate

the impact of intellectual capital management on

organizational performance. They mentioned that

the positive and significant impact of

intellectual capital on the organizational

performance of SMEs may assist entrepreneurs,

policymakers, and managers in better understanding

the importance of capitalizing intangible assets

to gain a competitive advantage in the market.

SMEs face financial constraints as a result of

limited access to large capital pools. As a

result, SMEs can redirect their efforts to the

management of intellectual capital assets can be

used to alleviate these constraints. (Khalique et

al., 2018 & 2020).

Lastly, high-tech and non-high-tech SMEs rely

on physical capital to make a profit, managers

should concentrate on how to effectively use

financial and physical resources to achieve a

higher level of profitability. Managers,

particularly in SMEs, should strengthen personnel

structures and invest in Human Capital in order to

have a greater positive impact on SMEs'

performance (Xu & Li, 2019).

LOCAL LITERATURES

According to Francisco and Canare (2019), small

and medium-sized businesses are a significant

sector in the Philippine economy, contributing for

the vast majority of corporations and around two-

thirds of employment. However, they are less

productive than large corporations. One of the key

causes of this is a lack of market access. Key

Informant interviews indicate that common sources

of market access challenges include deficiencies in

business operations such as a lack of access to

suitable facilities and equipment technology, human

resource limits, and standards compliance

challenges and regulations, inability to compete,

insufficient infrastructure and market distance,

marketing and branding, and a lack of access to

capital. Consumer preferences are changing and

there is a lack of access to market information.

SMEs in the Philippines face several challenges,

including restricted or slow access to finance, a

lack of or underdeveloped information technology

infrastructure, trouble establishing adequate sales

channels, and a shortfall in market reach (Khan,

2021). Given that the majority of Filipinos are

involved in SMEs in some form, the expansion of

SMEs would surely result in not just economic

growth but also the improvement of different social

concerns. Unfortunately, SMEs in the Philippines

are currently not performing to their full

potential.

As per on the study conducted by Soledad

(2019), MSME sector will still have to do a lot

more in terms of organization, building up its

financial muscle and sophistication in the way they

run their businesses. While Borazon and Supangco

(2018) concluded that to improve performance and

increase their competitiveness as businesses, they

should encourage cooperation and collaboration

across all of their internal operations. By

establishing functional coordination across

divisions, integrating internal activities and

communications, and developing efficient

operational and production strategies, businesses

can achieve internal integration. Managers should

focus on internal integration because it is through

internal integration of organizations that customer

and supplier integration functions most

effectively. Mendoza et al., (2022) mentioned in

their study that the factors for business

opportunities were human capital (employee

entrepreneurial knowledge), social capital

(communication with family and friends), and

financial capital (invested additional funds for

business operations). SMEs should expand their

business networks, develop their entrepreneurial

knowledge and skills.

Company's competitiveness is determined by its

employees and the quality of its products or

services. Skilled owners, managers, and employees,

as well as high-quality products, are key

facilitators and top enablers of SME success (Luna

et al., 2018).

In order to improve and develop the precise

abilities in financial decision-making that are

essential to business performance, Racaza (2022)

concluded that managers of SMEs should participate

in training and seminars. According to Moreno

(2021)developing a growth attitude among owners,

managers, and employees through exposure to

training and programs this comprises visioning

activities to foster greater opportunity-seeking

goals, which drive organizations to have a growth

mindset.
 The study conducted by Cubin (2019) concluded

that management skills, psychological empowerment,

and entrepreneurial ambition have a big impact on

how well the informal sector does in business.

Moreover, managerial skills and entrepreneurial

intent have a big impact on how well businesses

perform. Hence, in the informal sectors, managerial

skills and entrepreneurial intent are excellent

indicators of business performance. Mandane (2020)

pointed out that strategic positioning and

entrepreneurial abilities have a strong effect on

the growth of micro, small, and medium firms.

Furthermore, Angeles et al., (2019) revealed

that micro-enterprises can capitalize on skills

rather than financing, they may be able to overcome

the sustainability mindset. Innovation and

technology may also contribute to growth. Instead

of simply sustaining the operation of their

businesses, micro-enterprises and small businesses

should take the risk of expanding capital and

invest in something that will improve their

abilities or invest in technological advances.

As mentioned in the study of Pascual (2022),

innovation does not only the development of new

products. It could refer to innovative and

responsive approaches to business organizations,

marketing strategy, or product distribution. It

allows an MSME to differentiate itself from

competitors in the market. With that, Lim (2022)

stated that as a result of digitization innovation

for small and medium-sized businesses, there has

been a rapid transition of how things are done for

small and medium firms.