The Differential Effects of Inter-firm Co-operation and Institutional Support on Performance: A study of Small and Medium-Sized in a Developing Economy

Abstract

Small and medium-sized enterprises (SMEs) are considered as an important engine for economic growth in both developed and developing economies. However, SMEs in most developing economies face tremendous challenges that limit their growth and performance. While there has been increasing attention on factors that enhance SME performance in developing economies, few studies have explicitly investigated the roles of interfirm cooperation among SMEs and institutional support systems. Drawing on the resource based view and institutional support theories, this study models and examines how managerial ties, inter-firm cooperation and government support affect performance. Findings from a survey of SMEs in a developing economy indicate that managerial ties and interfirm cooperation have a significant positive effect on performance. Surprisingly, the results reveal that government support does not demonstrate a positive impact on firm performance. In addition these findings confirm that managerial ties play a more significant role on the performance of SMEs than inter-firm cooperation. Overall, policy interventions will be needed to enhance inter-firm cooperation and to address the effects of government support.