HUE UNIVERSITY UNIVERSITY OF ECONOMICS HOANG LA PHUONG HIEN THE INFLUENCE OF ENTREPRENEURIAL CHARACTERISTICS AND COMPETENCIES ON THE PERFORMANCE OF SMALL AND MEDIUM SIZED ENTERPRISES IN THE SERVICE SECTOR IN THUA THIEN HUE PROVINCE SUMMARY OF DOCTORAL DISSERTATION BUSINESS ADMINISTRATION HUE - 2019 HUE UNIVERSITY UNIVERSITY OF ECONOMICS HOANG LA PHUONG HIEN THE INFLUENCE OF ENTREPRENEURIAL CHARACTERISTICS AND COMPETENCIES ON THE PERFORMANCE OF SMALL AND MEDIUM SIZED ENTERPRISES IN THE SERVICE SECTOR IN THUA THIEN HUE PROVINCE SUMMARY OF DOCTORAL DISSERTATION BUSINESS ADMINISTRATION Code: 9340101 Supervisor 1: ASSOCIATE PROFESSOR DR TRUONG TAN QUAN Supervisor 2: ASSOCIATE PROFESSOR DR NGUYEN TAI PHUC HUE - 2019 This study was completed at: University of Economics, Hue University Supervisor 1: Associate Professor Dr Truong Tan Quan Supervisor 2: Associate Professor Dr Nguyen Tai Phuc Reviewer 1: Reviewer 2: Reviewer 3: This dissertation will be defended in the Thesis Examination Council of Hue University in: At………….am/pm on ………/…………/…… 2019 This dissertation can be found in: The National Library and The library of University of Economics, Hue University, 99 Ho Dac Di, Hue City, Thua Thien Hue province 1 Introduction 1 Rationale of the study In Vietnam, especially in the Central region, SMEs in the service sector are considered the key driving factor for economic growth, employment opportunity, governmental income, growing export, and efficiency burst for the region and the country Data from the Office of Statistics department of Thua Thien Hue province (2017) shows that in 2016, the province had almost 64% of the SME working in the service sector The total business capital of these in 2016 was 14059 billion VND, the total revenue being 21518 billion VND These SMEs had contributed to the government 1.023 billion VND, with the total contribution from the province to the government being 5048.9 billion VND Besides, these have provided employment for 21250 individuals Firms in the sector of retail, automobile repair, accommodation and food, transport and warehouse have actively relieved the pressure of unemployment, secured employment opportunity for many geographical areas and individuals in secluded areas Being small in terms of scale, 79.71% of the firms in service sector in Thua Thien Hue have micro size Entrepreneurs in these firms actually are owners actively engaging in the management of the firms The status of the management in these SMEs reflect the centralization of power, almost all decisions are made by the business owners Thus, the performance of the business is largely determined and influenced by the owners There are some distinctive features of entrepreneurs having generally been neglected in the previous research Although some authors have noticed on the impact of entrepreneurial psychology on business performance (Hornaday 1971; Ahmed 1985; Hood 1993), these studies still have not reached a consensus on the direction and extent of this relationship Also, most of the research on the entrepreneurs’ characteristics topic focus on the demographic aspects (such as education, business experience), without considering psychological ones simultaneously (Lee & Tsang 2001) Furthermore, the topic of entrepreneurial competencies has been recognized as a field of growing interest worldwide Many research has been implemented to develop the evaluation scale of entrepreneurial competencies (Baum et al., 2001; Sony & Iman, 2005; Sánchez, 2011) Some other authors interest in clarifying the relationship between entrepreneurial competencies and the firm’s performance (Man et al., 2002) Despite the increase in the number of related researches, there are still gaps in the knowledge base While the relationship between entrepreneurial competencies and firm performance has been clarified by many researches, there is lacking statistical evidence in the case of SMEs entrepreneurs in service sector in Thua Thien Hue province Different from the other regions, under the effect of unfavorable socio-cultural environment factors, entrepreneurs in small and medium sized enterprises have less opportunity to capture start-up supporting resources, access business training courses and need to balance between business and family responsibility Besides, although numerous scholars in entrepreneurship have developed a quantitative scale to assess the entrepreneurial competencies (Brinckmann et al 2013; Man & Lau 2000; Lerner & Almor 2002) The evaluation scale of entrepreneurial competencies was not thoroughly tested in the practice of a small and medium sized enterprises in the service sector In this study, to investigate entrepreneurs in service sector in Thua Thien Hue province, Vietnam – an emerging economy, the adjusted measurement scales of entrepreneurial competencies, psychological characteristics and firm performance would be developed An integrated model also is built to outline how these concepts influence each other This dissertation then illustrates the research methodology, present the hypotheses testing and results Finally, we discuss theoretical contributions, managerial implications, research limitations, and future research directions 1.2 Research objectives 1.2.1 General objectives This research aims to examine the influence of entrepreneurial characteristics and competencies on the performance of small and medium sized enterprises in the service sector in Thua Thien Hue province 1.2.2 Specific objectives This research strives to address the following specific objectives: - Review the existing literature to determine whether entrepreneurial characteristics and competencies impact firm performance - Evaluate the level of competencies and psychological characteristics possessed by SMEs’ entrepreneurs in the service sector in Thua Thien Hue province - Explore the impact of entrepreneurial characteristics and competencies on the performance of SMEs in the service sector in Thua Thien Hue province - Propose some managerial implications to enhance the entrperneurial competencies of SMEs’ entrepreneurs in the service sector in Thua Thien Hue province 1.3 Research questions In order to solve the research objectives, some research questions are set out as follows: - Which theories / research frameworks are suitable to measure entrepreneurial characteristics, entrepreneurial competencies, firm performance and support the relationship between entrepreneurial characteristics, competencies and firm performance? - What are the level of competencies and psychological characteristics possessed by SMEs’ entrepreneurs in the service sector in Thua Thien Hue province? - To what degree entrepreneurial characteristics and competencies impact the performance of SMEs in the service sector in Thua Thien Hue province? - How to improve entrepreneurial competencies of entrepreneurs in the service sector in in Thua Thien Hue province? 1.4 Research object and scope 1.4 Research object The object of this dissertation is entrepreneurial characteristics, entrepreneurial competencies, firm performance, and the influence of entrepreneurial characteristics and competencies on the performance of SMEs in the service sector in Thua Thien Hue province 1.4.2 Research scope In terms of content: Small and medium sized enterprises in the service sector are classified by the number of employees according to Decree 56/2009 / ND-CP of the Government Entrepreneurs in these firms are owners actively engaging in the management of the firms Firm performance is accessible from the perspectives of Kaplan and Norton's balanced scorecard This dissertation only focuses on analyzing the impact of entrepreneurial characteristics and competencies on firm performance, so the relationship between entrepreneurial characteristics and entrepreneurial competencies is not be solved In terms of space: Data were collected from entrepreneurs and SMEs in the service sector in Thua Thien Hue province In terms of time: Secondary data from 2013-2016 were collected for research purposes Primary data were collected and analyzed in the period 2017-2018, the managerial implications were proposed until 2025 1.5 Research contributions This dissertation offers a wide range of contributions in terms of theory and practice as follows: First, multidimensional scales to measure psychological characteristics, entrepreneurial competencies and firm performance are successfully developed for the case of SMEs’ entrepreneurs in the service sector in Thua Thien Hue province Second, the study describes the level of competencies and psychological characteristics possessed by SMEs’ entrepreneurs in the service sector in Thua Thien Hue province Third, based on a sample of 418 SMEs’ entrepreneurs in the service sector in Thua Thien Hue province and applying the structural equation modeling (SEM) method, this study has found statistical evidence for the direct influence of entrepreneurial characteristics and competencies on SMEs’ performance Last, some managerial implications are proposed to enhance the entrepreneurial competencies of SMEs’ entrepreneurs in the service sector in Thua Thien Hue province Literature review and research methods 2.1 Literature review 2.1.1 Entrepreneurs Facing a world with increasingly rough challenges in commercial navigation, small and medium-sized enterprises (SMEs) are especially struggling to survive and succeed in the global competition Hence, defining the linkage between entrepreneurial roles and entrepreneurial competencies contributes to economic and social welfare advances insights (Ahmad et al., 2010) Accordingly, entrepreneurs are decision-makers utilizing opportunities in business and resources with advanced technologies to produce their products or services, which reflect their skills, experience, knowledge, and education (Bendary & Minyawi, 2015) Their eventual targets are to maximize profits and minimize cost and make an effective contribution to the society Thompson (1999) referred entrepreneurs to as risk takers who sort out high valued opportunities and start a new venture on the basis of resources in reality This encompasses the ability to set up strategies and tactics as well as to equip themselves with appropriate competencies to promote the odds of their business success These defined characteristics of entrepreneurs are termed as “entrepreneurship” 2.1.2 Psychological characteristics Kotey and Meredith (2007) suggested four approach ways of analyzing psychological characteristic, based on motivation, personal attributes, personal values, goals, and attitudes Timmons et al (2011) have synthesized the previous studies on the psychological characteristics of entrepreneurs Through this research, the author pointed out ten most popular aspects, including risk-taking the attitude, power ambitions, creativity and innovation, responsibility, successful aspiration, internal control propensity, self-control/ aggressive, flexibility, ambiguity acceptance, intuition Korunka et al (2003) concluded that there are four popular and classic psychological characteristics in the entrepreneurship research topic, including successful aspiration, Internal control propensity, risk-taking propensity and Innovation propensity (Duchesneau & Gartner 1990; Furnham et al 1999; Neneh 2011) These are essential characteristics that distinguish entrepreneurs from other people groups 2.1.3 Entrepreneurial competencies Entrepreneurial competencies are classified variously on the basis of traits, skills, and knowledge (Man et al 2005) or natural and unnatural competence (Meutia & Ismail 2012) These entrepreneurial, managerial and functional characteristics are possessed by an individual who is able to create a new venture and business success Indeed, these characteristics are considered to originate from genetic and specific knowledge which are unconscious attributes of a person or acquired by learning and practicing (Boyatzis 2002) Therefore, an entrepreneur’s intellectual, attitudinal, behavioral, technical and managerial traits are supposed to be hard to change (Garavan & McGuire 2001; Man & Lau 2008) When it comes to measuring the entrepreneurial competencies, there are many qualitative and quantitative research has been implemented to develop and validate the measurement scale (McGee & Peterson 2000; Man 2001; Georgellis et al 2004) The study of Bird (1995), Busenitz and Barney (1997) suggest that we can build the solid entrepreneurial competencies model on the basis of borrowing the management theories and developing some further business skill components On the basis of behavioral approach, Man et al (2002) proposed a theoretical model with seven aspects of entrepreneurial competencies, namely opportunity capturing competency, analytical skills, networking skills, commitment, strategic competency and organizational one Winterton (2012) groups all competencies into four main groups: cognitive ability, functional ability, human resource management ability and adaptive one To verify the proposed theoretical models, many quantitative research has been implemented Man et al (2002) has proved the essential of seven recommended components and added three new ones, including innovative competency, human resource management skills, and learning competency In the case of 255 retail business owners in the US, McGee and Peterson (2000) add customer relationship management skills, brand building skills, useful control competence and staff training ability In the case of 300 English enterprises, Georgellis et al (2000) have suggested that strategic competency, analytic and innovative competency are the two most important characteristics of entrepreneurs Only a few studies address the measurement scale for women entrepreneurs Mitchelmore and Rowley (2010) develop the first measurement scale specifically for female entrepreneurs In this research, by surveying 210 female entrepreneurs in England and Wales, the authors identify four factors of self-rated relevant entrepreneurial competencies: personal competencies; management competencies; entrepreneurial skills; and networking competencies (Mitchelmore & Rowley 2013) From the analysis above, the measurement model suggested by Man et al (2002) is the most comprehensive one This is because: (1) this scale is highly synthetic considering all roles of an entrepreneur (a manager, a businessman, and a professional expert) (2) the study gives a full description of how the proposed variables are analyzed (3) the scale is widely used in many studies on the relationship between entrepreneurial competencies and firm performance (4) this model provides the basis for behavioral categorization compatible with each entrepreneurial competence (5) This scale is also seen as one of the most suitable measurement models for the case of Asian countries 2.1.4 Firm performance There are two most popular approaches to analyzing firm performance The first way is based on goal achievement which relates to the general strategy (Lohman et al 2004) This approach tends to use the financial indicators (such as revenue, profit, market share, ROA, ROI) to assess firm performance Another research direction is based on stakeholders’ theory In this aspect, organizational performance can be assessed not only by financial returns but also by the level of stakeholders involved in organizational processes (Hernaus et al 2008) The non-financial indicators (such as employee satisfaction, customer perception, investors’ attitude) are more concerned (Murphy et al 2009) In terms of measurement scale, Balanced Scorecard (BSC) is the most popular tool which is used by many researchers around the world (Wu 2016) This method was suggested by Kaplan and Norton in 2001 Initially, it was designed as a framework for management usage Namely, BSC reports provide guidelines and information about the firm’s mission, vision, and financial data Due to the necessary of status quo assessment for firm activities, BSC then is adopted as a strategy performance management tool Regarding BSC’s structure, the content is included in four aspects: finance, customer, internal processes, learning, and development These analyses provide the data of the firm’s most important activities and highlight the relationship between firm strategy and its final success (Kaplan & Norton, 1993) Basically, BSC can be used to give instructions on managing the firm’s financial flows, improving customer perception and developing the firm’s human resources (Schwartz, 2005) 2.1.5 The influence of psychological characteristics and entrepreneurial competencies on firm performance According to Litunen (2000), the psychological aspects of entrepreneurs have a direct causal relationship with the firm performance The entrepreneurs with high successful aspiration tend to have better business-oriented, and this will help enterprises achieve better business results (Lumpkin & Dess, 1996) Also, in the research of Rauch and Frese (2010), the authors has reconfirmed the existence of a positive correlation between firm performance and business owners’ successful aspiration by compiling quantitative statistical evidences from the research of Di Zhang and Bruning (2011), Lee and Tsang (2001), Goebel and Frese (1999) Regarding the influence of Internal control propensity, entrepreneurs with this characteristic believe that their selections and actions would decide the success or failure of their business (Lee & Tsang 2001, Di Zhang & Bruning 2011) They thus tend to have a higher responsibility, higher endeavors in improving their business efficiency and satisfying customers Numerous studies have found statistical evidence of the positive effects of entrepreneurs’ Internal control propensity on firm performance (Hood 1993, Lee & Tsang 2001, Di Zhang & Bruning 2011) Referring risk-taking propensity, Begeley and Boyed (1987) argue that this characteristic would have a positive effect on firm performance up to a certain limit, after this limit level of risk, the tendency would create a negative impact on the business outcome By contrast, many other quantitative research has found statistical evidence to prove that risktaking propensity is not a good psychological trait for the success in business The higher risky in business owners’ characteristic, the business outcome would be more unstable (Duchesnau & Gartner 1990, Rauch & Frese 2000) This different point of view is rooted from different perspectives on risk On the standpoint of an observer, risk relates to the uncertainty or potential hazards Conversely, entrepreneurs perceiving risk-taking propensity is necessary for confronting and overcoming difficulties in the marketplace (Chell et al 1991) Lastly, the research of Wijewardena and Zoysa (2005) show that entrepreneurs’ Innovation propensity have a positive impact on the business’ financial performance Especially, in the beginning, or downturn stages, entrepreneurs with more aggressive in innovating would create better business outcomes Similarly, many other empirical research also gives evidence on the positive relationship between business owners’ innovation propensity and firm performance (Lee and Tsang 2001) H1: Psychological characteristics are positively associated with firm performance H1.1: Need for achievement is positively associated with firm performance H1.2: Internal locus of control is positively associated with firm performance H1.3: Risk – taking propensity is positively associated with firm performance H1.4: Innovative propensity is positively associated with firm performance Many studies have paid attention to the existence of the relationship between entrepreneurial competencies and business performance (Tehseen & Ramayah 2015) The resource-based view (RBV) suggests that a firm can distinguish itself from its competitors by possessing valuable, rare, non-substitutable and inimitable resources which create a firm’s sustainable competitive advantages (Barney 1991) In the view of RBV scholars, entrepreneurial competence is an intangible asset that positively contributes to the firm successfulness Due to entrepreneurs’ knowledge, skills and attitudes are considered as a precious and rare resource that competitors can not imitate, it creates added value and sustainable competitive advantage for enterprises (Bird 1995) Indeed, RBV theory argues that the successful strategies which help to find or develop resources are typically created by competent entrepreneurs (Grant 1991; Barney 1991) In another approach, the entrepreneurial competencies are closely associated with a firm’s life cycle (Colombo & Grilli 2005; Baum et al 2001) Many researchers have proved that entrepreneurial skills result in firm performance and its long-term growth (Lerner & Almor 2002; Bird 1995; Cooper et al 1994; Chandler & Jansen 1992) For example, Mitchelmore & Rowley (2010) gave evidence on the assumption that competent entrepreneurs are more likely to seek out good opportunities for firm’s investments, or formulate operational strategy fitting to each stage of business life cycle Freel (1999) analyze the influence of entrepreneurial competencies through entrepreneurs’ three fundamental roles, including businessman, manager, and expert The authors found that the failure of small businesses is generally rooted in the weak management competencies, such as poor planning, improper marketing, insufficient functional expertise, are an inadequate human resource By contrast, successful business is built on innovation, risk-taking competence, strong leadership (Martin & Staines 1994) H2: Entrepreneurial competencies are positively associated with firm performance H2.1: Strategic competency is positively associated with firm performance H2.2: Critical and creative competency is positively associated with firm performance H2.3: Opportunity competency is positively associated with firm performance H2.4: Learning competency is positively associated with firm performance H2.5: Commitment competency is positively associated with firm performance H2.6: Relationship competency is positively associated with firm performance H2.7: Organising and leading competency is positively associated with firm performance H2.8: Technical competency is positively associated with firm performance H2.9: Personal competency is positively associated with firm performance H2.10: Social responsibility competency is positively associated with firm performance 2.2 Research methods Sample and data collection In this study, the data were collected using structured questionnaires distributed with referrals and using snowball sampling to get maximum variation in the data and to identify cases of interest from the participants The sample size was decided on the basis of referencing the suggestions of Nunnally (1978) and Kline (2005) A total of 418 entrepreneurs were then selected from various SMEs in service sector in Thua Thien Hue province that had a membership-based network with The Thua Thien Hue Association of Enterprises, The Thua Thien Hue Young Entrepreneurs’ Association and Tax Dapartment of Thua Thien Hue province The variables selected in this study are entrepreneurial characteristics, entrepreneurial competencies and firm performance Items selected to measure these variables were adopted from previous studies Survey instrument The survey instrument used to measure the entrepreneurial competencies was extracted from the work of Man (2001) (for strategic competency, commitment competency, conceptual competency, opportunity competency, organizing and leading competency, relationship competency, learning competency, and personal competency) and Ahmad (2007) (for corporate social competency) Four elements of psychological characteristics aggregated by Robinson et al (1991) Each of the entrepreneurs was requested to rate the items that best describe the competencies they possess A five-point Likert scale was used The ratings started from for ‘strongly disagree’ to for ‘strongly agree’ The business performance in this research was measured according to the perception of the entrepreneurs about business performance against the goals that they want to achieve The business performance measures that were adopted and modified from Kaplan & Norton (1993) and Le Thi Phuong Thao (2016) consist of four indicators: financial, customer, internal processes, and learning and growth The rating was also based on the five-point Likert scale as above Data analysis The exploratory factor analysis (EFA) was conducted to determine the number of extracted factors in each scale In this study, the principal components factor analysis and Promax rotation method were applied Furthermore, the confirmatory factor analysis (CFA) was conducted to test the scale reliability, the convergent and discriminant validity of the constructs CFA allows for a more objective interpretation of validity and establishes items reliability and constructs’ accuracy Also, the structural equation modeling (SEM) was used to test the proposed hypotheses Research findings and discussion 3.1 Sample description The final sample of respondents in this study includes 418 entrepreneurs who are owners of small and medium enterprises in sercice sector at Thua Thien Hue province 79.9% of them are male entrepreneurs Most of the respondents have their level of education lower than a university degree (60%), and approximately 57.9% of all entrepreneurs start up their business between the age of 36 and 50 In terms of professional training, 92.3% of them receive the managerial or technical or both kinds of training Considering prior business experience, only 15.6% have business start-up experience before their current business These respondents, therefore, are regarded as “serial” entrepreneurs (Westhead & Wright, 1998) The results show that 83.0% of the entrepreneurs have been involved in other businesses Notably, enjoying the financially independent life and free life as an owner are the most popular motivation of these entrepreneurs (49.5%) A majority of firms in this study have under 10 employees (78.0%) and are in wholesale, retail, assembly and repair of vehicles and machinery sector (97,0%) The ownership structure of these firms indicates that 34.9% are sole proprietorship, 51.7% are limited liability companies, and 13.4 % is are partnership 3.2 Factor analysis 3.2.1 Exploratory factor analysis The exploratory factor analysis (EFA) was conducted to determine the number of extracted factors in each scale In this study, principal components factor analysis and Promax rotation method were applied The results show that Psychological characteristics (PC) scale and Firm Performance (FIRM) one are satisfied all requirements: Kaiser-Meyer-Olkin coefficient > 0.5, the significance level of Bartlett's Test of Sphericity < 0.05, Eigenvalue of each extracted factor > 1, total variance extracted > 50% and factor loading of each item > 0.5 (Gerbing & Anderson 1988; Hulland 1999; Hair et al 2004) (see table 1) representative factors are extracted from 17 observed variables in the psychological characteristics scale, include Need for Achivement (NA), Innovation propensity (INN), Internal locus of control (INCO) and risk-taking propensity (RISK) Similarly, 13 observed variables in the firm performance scale are represented by factors, include internal process aspect (IP), customer aspect (CUS), training and development aspect (TD) and financial aspect (FIN) Regarding Entrepreneurial Competencies (EC) scale, although satisfying four of five requirements mentioned above (See table 1), items have factor loading value less than 0.5, include STRA6, STRA2, OSA3, ORG4, PER1, and SRC1 After removing these items from the scale and re-analyze the measurement scale, all of the six-factors are satisfied 10 representative factors are extracted from 52 observed variables in the entrepreneurial competences scale, include critical and creative competency (CCC), personal competency (PER), strategic competency (STRA), organizing and leading competency (ORG), social responsibility competency (SRC), Relationship competency (RC), learning competency (LRN), commitment 10 competency (COMM), professional competency (PROF), opportunity competency (OC) 3.2.2 Confirmatory factor analysis The confirmatory factor analysis (CFA) was conducted to test the scale reliability, the convergent and discriminant validity of the construct CFA allows for a more objective interpretation of validity, establish items reliability and constructs’ accuracy (Hair et al 2014) Table EFA and CFA of the measurement models Exploratory Factor Analysis Scale Adjuste KMO d Sig Barlet's test Total variance extracted Confirmatory Factor Analysis CMIN /DF GFI TLI CFI RMSEA Psychological characteristics - 909 000 81.751% 2.054 0.907 0.956 0.963 0.070 Entrepreneurial Competences Before After 894 907 000 000 72.540% 72.939% 2.175 0.900 0.900 0.907 0.053 Firm Performance - 859 000 2.504 0.907 0.955 0.966 0.077 83.936% Model fit The key indicators in three measurement models provide good fit to the data: χ2/df < 3, Comparative Fit Index (CFI) > 0.9, Goodness-of-fit index (GFI) > 0.9, Tucker & Lewis index (TLI) > 0.9 and Root Mean Square Error Approximation < 0.08), (Kettinger & Lee, 1995; Arbuckle, 2006) (See table 1) These hypothesized model then was compared with possible alternative models The results indicated that the hypothesized measurement models outperformed the alternative ones Reliability Analysis The indexes in table indicate that the reliability values of three measurement scales are higher than the recommended values: Cronbach alfa coefficient (Alfa) > 0.7, Composite Reliability (CR) > 0.7, average variance extracted (AVE) > 0.5 (Slater, 1995, Hair et al., 2014) These results mean all of three scales are reliable Table Scale reliability analysis Scale Reliability Scale PSYCHOLOGICAL CHARACTERISTICS Need for Achivement (NA) Innovation Propensity (INN) Internal Locus of Control (INCO) Risk Taking Propensity (RISK) Alfa CR AVE 0.852 0.826 0.831 0.790 0.931 0.927 0.912 0.890 0.698 0.617 0.673 0.630 0.916 0.919 0.622 ENTREPRENEURIAL COMPETENCES Critical and Creative Competency (CCC) 11 Personal Competency (PER) Strategic Competency (STRA) Organizing and Leading Competency (ORG) Social Responsibility Competency (SRC) Relationship Competency (RC) Learning Competency (LRN) Commitment Competency (COMM) Professional Competency (PROF) Opportunity Competency (OC) 0.910 0.910 0.917 0.920 0.896 0.903 0.848 0.867 0.874 0.914 0.911 0.918 0.921 0.896 0.906 0.851 0.868 0.876 0.641 0.631 0.652 0.700 0.635 0.659 0.588 0.623 0.703 FIRM PERFORMANCE Internal Process Aspect (IP) Customer Aspect (CUS) Trainng and Development Aspect (TD) 0.824 0.817 0.827 0.928 0.627 0.926 0.622 0.691 0.708 0.784 0.884 0.692 Financial Aspect (FIN) Construct Validity The construct validity is evaluated through the convergent and discriminant Table Analysis of discriminant validity PSYCHOLOGICAL CHARACTERISTICS NA INN INCO NA INN (**) 0.835 0.439 0.785 0.465 0.438 RISK 0.487 0.501 FIRM PERFORMANCE INCO RISK FIN CUS IP TD FIN 0.832 CUS 0.444 0.831 IP 0.420 0.430 0.789 0.820 0.406 TD 0.794 0.563 0.486 0.384 0.841 ENTREPRENEURIAL COMPETENCES STRA STRA COM M CCC OC ORG REA LRN PER SRC PROF COM M CCC OC ORG REA LRN PER SRC PROF 0.794 -0.180 0.767 0.285 0.326 0.373 -0.013 0.151 0.000 0.789 0.485 0.838 0.330 0.470 0.460 0.484 -0.234 0.371 0.215 0.161 0.059 0.088 0.310 0.057 0.435 0.453 -0.183 0.446 0.300 0.262 0.509 0.491 -0.172 0.414 0.807 0.475 0.327 0.392 -0.149 0.314 0.797 0.533 0.470 -0.188 0.437 Note: ** - Square root AVE of each variable - sqrt(AVE) 12 0.812 -0.316 0.801 0.483 -0.155 0.837 0.373 -0.193 0.160 0.789 The scale achieves convergent validity if it satisfies two requirements: the standardized weights in the measurement model are higher than 0.5, significant with P-value < 0.05, and the average variance extracted (AVE) > 0.5 (Hair et al., 2010; Fornell & Larcker, 1981) From the analysis results, the standardized weights range from 0.705 to 0.957, with all of the Pvalue lesser than 0.05 Besides, all of the AVE values from table are higher than 0.5 Therefore, all three measurement model in this study achieves convergent validity Regarding discriminant validity, this requirement means a variable is unique and captures phenomena not represented by other varying constructs in the model Fornell-Larcker criterion is the most popular method used in assessing discriminant validity This standard requires square root AVE of each variable higher than the correlations among variables in the measurement model The results in table show that all of three models meet the above requirement Overall, the three tests mentioned above suggest that all of three measurement models are fit, reliable and construct validity Second-order Confirmation Factor Analysis Table Path regression coefficient in the second-order construct models Factor Path Construct Estimate NA INN INCO RISK < < < < - PC PC PC PC 1.042 1.000 0.967 0.799 SRC STRA COMM CCC OC ORG REA LRN PROF < < < < < < < < < - EC EC EC EC EC EC EC EC EC 1.533 1.314 0.160 1.198 1.543 1.191 2.001 1.460 1.000 PER < - EC -0.640 FIN CUS IP TD < < < < - FIRM FIRM FIRM FIRM 1.030 1.000 0.948 1.098 S.E P Result 0.113 9.256 Reference point 0.103 9.41 0.092 8.677 *** Significant *** *** Significant Significant 0.198 7.727 0.189 6.967 0.097 1.658 0.169 7.074 0.204 7.571 0.177 6.743 0.256 7.812 0.194 7.515 Reference point *** *** *** *** *** *** *** *** Significant Significant Significant Significant Significant Significant Significant Significant -4.872 *** Significant 0.112 9.227 Reference point 0.114 8.295 0.117 9.399 *** Significant *** *** Significant Significant 0.131 Note: *** - equivalent to the value of 0.000 13 C.R The second-order CFA method was conducted to re-examine and re-confirm the abovementioned measurement models remains validity in the form of second-order construct Testing the model fit, scale reliability, the convergent and discriminant validity show that all estimate parameter is still significant Besides, the results of the path regression coefficients in table also indicate a strong correlation between representative variables (PC, EC, FIRM) and 16 latent variables, with all estimate parameter > 0.5 and all p-value < 0.05 (Anderson & Tatham, 2006) 3.3 Hypotheses testing The structural equation modeling (SEM) was used to test the developed hypotheses From the analysis results, direct tested relationships and 22 indirect ones are supported with p-value range from 0.00 to 0.05 Namely, both psychological characteristics (PC) and entrepreneurial competencies (EC) are positively and strongly affect firm performance (FIRM), with the standardized regression weights are 0.623 and 0.450 respectively These factors also indirectly affect four components of firm performance (FIN, CUS, IP and TD) The regression coefficients of the PC with four above components are 0.723, 0.818, 0.783, 0.864 in the order given Similarly, the implication coefficients of EC are 0.498, 0.563, 0.539 and 0.595 Table Results of model testing using structural equation model Hypotheses Standardized S.E coefficients () 0.623 0.124 H1 PC  FIRM H1.1 NA H1.2 INCO H1.3 RISK    FIRM FIRM FIRM 0.168 0.178 0.341 H1.4 INCO  FIRM H2 NLKD H2.1 STRA H2.2 CCC H2.3 OC  FIRM    H2.4 LRN H2.5 COMM H2.6 REA H2.7 ORG H2.8 PROF C.R P Result 6.588 *** 0.017 0.019 0.023 2.832 2.959 5.078 0.005 0.003 *** Supported Supported Supported Supported 0.170 0.018 2.839 0.005 Supported FIRM FIRM FIRM 0.450 0.543 0.562 0.634 0.115 0.025 0.031 0.027 4.913 6.914 6.925 7.529 *** *** *** *** Supported Supported Supported Supported     FIRM FIRM FIRM FIRM 0.287 0.368 0.446 0.480 0.024 0.032 0.019 0.025 4.403 5.204 6.193 6.410 *** *** *** *** Supported Supported Supported Supported  FIRM 0.558 0.029 6.960 *** Supported 14 H2.9 PER H2.10 SRC   FIRM FIRM 0.447 0.276 0.026 0.021 6.218 4.350 *** *** Supported Supported Another 14 hypotheses between the latent variables of PC, EC factors and the dependent variable – FIRM are also supported Namely, four components of psychological characteristics (NA, INN, INCO, and RISK) are significantly and indirectly affect of the firm performance, with the regression weights are 0.168, 0.170, 0.178 and 0.341 Similarly, ten components of entrepreneurial competencies (include SRC, STRA, COMM, CCC, OC, ORG, REC, LRN, PROF and PER) are positively affect on the firm performance, with parameter estimates are 0.276, 0.543, 0.368, 0.562, 0.634, 0.480, 0.446, 0.287, 0.558 and 0.447 respectively 3.4 Discussion This study develops and tests the integrative model of entrepreneurial competencies and psychological characteristics of SMEs’ entrepreneurs influencing the firm performance in service industry in Thua Thien Hue province Regarding the measurement scales, the study found that in the entrepreneurial competencies scale, work-family balance ability, high physical and mental endurance need to add on the assessment of personal competency (PER) Besides, the assessment of social responsibility competency (SRC) is proposed adding two items: pay attention to employee welfare, and create employment opportunities for the community Because Vietnam is a developing country with low average labor income, the issue of ensuring workers' lives is considered very important Besides, Hue culture also upholds community values These adjustments are supported by the research of Orme and Ashton (2003) Referring the direction and extent of tested hypotheses, the study found that both of two latent variables, psychological characteristics (PC) and entrepreneurial competencies (EC), are significantly and positively impact on firm performance (FIRM) This result advocates some previous research outcomes of Baum et al (2001), Man, et al (2008), Bendary & Minyawi (2015), and Ahmad et al (2010) Also, the verified hypotheses support the view of RBV theory that considers the feature of business owners as firms’ sustainable competitive advantage (Barney & Arikan 2005) Notably, the effect of psychological characteristics (PC) on business outcomes is stronger than entrepreneurial competencies (EC) This once again emphasizes the importance of analyzing the psychological aspect of assessing an entrepreneur (Lee and Tsang 2001) 15 Another interesting finding from the SEM analysis, among the manifest variables of firm performance, training and development aspect is most strongly affected by two latent independent variables (regression coefficients are 0.864 and 0.595) From the explanation of respondents, due to most Thua Thien Hue enterprises are small and medium-sized ones, many companies not have a human resource (HR) department Business owners thus need to participate directly to HR training and developing activities; they need to interact and consult for employees day by day Hence, entrepreneurs’ characteristics would dramatically affect training and development outcomes This result is highly supported by Ahmad (2007) who researched the case of Australian and Malaysian entrepreneurs The findings relates to the manifest variable group of entrepreneurial competencies show that critical and creative competence (CCC), opportunity competence (OC) and professional competence (PROF) are the most critical factors affecting the firm performance According to Thua Thien Hue entrepreneurs, due to unstable market condition and lack of intellectual properties protected methods in Vietnam, business owners need to own high critical and creative competence (CCC) This allows them to respond promptly to the market changes and the hostile actions of competitors Further, the high critical and creative ability also help these entrepreneurs discover new distinctive ideas and commercialize it Sánchez (2011) also proved that owners’ analytical ability dramatically affect the business outcomes and is a backbone of corporate life Another essential competence is opportunity competence (OC) The interviewees acknowledge that because of the limited financial and organizational capabilities, many small and medium sized companies in Thua Thien Hue province not have a business analytic department or even marketing one These firms usually not have any preparation for business chances The market opportunities thus are mostly recognized by fortuitous discovery, or entrepreneurs’ intuition, and seized by business owners’ immediate decisions Sony and Iman (2005), and Bendary and Minyawi (2015) also found persuasive evidence to prove that businessman’s opportunity seizing skills have an indirect relationship with firms’ venture growth The third important competency is professional competency (PROF) The majority of SMEs in the service sector in Thua Thien Hue province are family-owned businesses, and many business owners have not formally experienced any professional training course Especially, for the case of SME’s entrepreneurs in service sector, they are still dealing with many unfavorable socio-cultural environment factors This limits their opportunity to access business training courses or professional ones Consequently, owners tend to focus on the 16 short-term business target, instead of on the long-term strategic decision They could not monitor their employees thoroughly or figure out a comprehensive business plan Hence, many surveyed entrepreneurs believe that professional training courses would create a strong effect on their performance and the business outcomes of their company This result generally advocates for the research findings of Chandler and Jansen (1992) Referring to the manifest variable group of psychological characteristics, risk-taking propensity (RISK) and Internal control propensity (INCO) are the most influential factors to firm performance This is quite understandable, Thompson (1999) referred entrepreneurs to as risk takers who sort out high valued opportunities and start a new venture based on their actual resources This encompasses the ability to set up strategies and tactics as well as to equip themselves with appropriate competencies to promote the odds of their business success These defined characteristics of entrepreneurs are termed ‘entrepreneurship.’ Managerial implications 4.1 For strategic competency 4.2 For critical and creative competency 4.3 For organising and leading competency 4.4 For social responsibility competency 4.5 For commitment competency 4.6 For relationship competency 4.7 For technical competency 4.8 For personal competency 4.9 For opportunity competency 4.10 For learning competency Conclusion In this dissertation, by utilizing both quality data collection methods (reviewing secondary data, in-depth interview) and quantitative data analysis techniques (factor analysis: EFA and CFA), the authors have successfully developed measurement scales for the case of SMEs’ entrepreneurs in the service industry in Thua Thien Hue province Besides, based on analyzing the sample of 418 entrepreneurs and applying the SEM analysis method, this study has found statistical evidence to prove the existence of the direct relationship between entrepreneurial competencies, psychological characteristics and firm performance Moreover, the tested indirect correlation also highlights the different importance level of each manifest variables in contributing better business outcomes The followings are some research objectives achieved by this dissertation: First, multidimensional scales to measure psychological characteristics, entrepreneurial 17 competenies and firm performance are successfully developed for the case of SMEs’ entrepreneurs in the service sector in Thua Thien Hue province Regarding the entrepreneurial competency scale, social competency and professional competence are added The study also found that work-family balance ability, high physical and mental endurance need to add on the assessment of personal competency Besides, the assessment of social responsibility competency is proposed adding two items: pay attention to employee welfare, and create employment opportunities for the community The scale of business performance uses both financial and non-financial indicators to reflect objectively, comprehensively and ensure the balance between four separate areas Second, the study describes the level of competencies and psychological characteristics possessed by SMEs’ entrepreneurs in the service sector in Thua Thien Hue province Specifically, among the typical groups of psychological characteristics, the entrepreneurs in Thua Thien Hue have the highest need for achievement, followed by the internal locus of control and the lowest is the innovative propensity, and risk taking propensity with an average score of 4.36; 3.9; 3.67; 3.63 As for entrepreneurial competencies, the entrepreneurs participating in the survey have higher performance in relationship competency, personal competency, commitment competency and professional competency with an average score of 4.01 points or above The remaining competencies have lower response levels than the above competencies with an average score of 3.17 to 3.82 In addition, the results of the importance and performance analysis IPA show that strategic competency, analysis – creative competency, organizing – leading competency, corporate social responsibility competency need to be especially developed in future because they are considered to be important for boosting firm performance but the current level of response is not as high as the remaining competencies Personal competency, commitment competency, and professional competency are over-develped competencies because they are not appreciated in importance but the level of response is higher than the remaining competencies Finally, the learning competency is not high in the importance as well as the performance, so it should not be too focused on improving Third, based on a sample of 418 SMEs’ entrepreneurs in the service sector in Thua Thien Hue province and applying the structural equation modeling (SEM) method, this study has found statistical evidence for the direct influence of entrepreneurial competencies and psychological characteristics on SMEs’ performance with p-value range from 0.00 to 0.05 Both psychological characteristics and entrepreneurial competencies are positively and strongly affect firm performance, with the standardized regression weights are 0.623 and 18 0.450 respectively Specifically, need for achievement, innovative tendency, internal locus of control, and risk taking propensity which are four components of psychological characteristics significantly affect firm performance, with the regression weights are 0.168, 0.170, 0.178 and 0.341 Similarly, ten components of entrepreneurial competencies including social responsibility competency, strategic competency, commitment competency, critical - creative competence, opportunity competence, organizing - leading competency, relationship competency, learning competency, professional competency and personal competency positively affect the firm performance, with parameter estimates are 0.276, 0.543, 0.368, 0.562, 0.634, 0.480, 0.446, 0.287, 0.558 and 0.447 respectively In addition, education level, age, gender, working in the business before being the current enterprise owner, the condition of having a family owned company, business scale and business sectors all affect firm performance of SMEs in the service sector in Thua Thien Hue with P-value