Antecedents of establishing small and medium-sized sport enterprises

Seyed Morteza Azimzadeh, Jerred J.Wang and Brenda G. Pitts

Introduction

One of the topics which have been continuously attractive in entrepreneurship is the subject of small and medium-sized enterprises (SMEs). SMEs are considered necessary and important for the growth of sport industry and the whole economic structure in many countries. Researchers have shown that, in the developing countries, small and medium-sized companies constitute the majority of active companies and play an important role in employment market (Haj Karirni, Azizi, & Akhavan, 2009). For example, 84-4% of the population of Japan in 1981 were employed in the small industries sector, 90% of jobs created in France from 1988 to 1989 were related to the small industries sector, and 99% of the German industry was made up by small and medium-sized business units in 1981. Iran’s statistics also reveals the importance of this sector. In 1997, 94.5% of the total Iranian industries has been small and medium-sized enterprises; while in the same year, the waste of raw materials in small industries has been announced 10.5% and in heavy industries 23% (Ahmadpour & Moghimi, 2009). Therefore, research investigations are warranted to explore the factors that effectively establish these types of companies.

In Iran, due to human resource redundancy within the government organizations and a large number of newcomers to the work field, high unemployment rate has become a major economic and social issue (Davari & Rezaei, 2006). This issue has been largely escalated with the expansion of college students in recent years, leading to new challenges in national development and security. During the years 1996-2006, accumulation of unemployed individuals with a college degree increased from 58,000 individuals in 1996 to 373,000 in 2006, 540% increase in unemployment accumulation of this social group (Statistical Centre of Iran, 2006). This trend has been more severe among graduates in the field of social science (Poorkazemi, 2009). Given that physical education is one of the disciplines in social science, this trend of unemployment can be a great alarm for the planners in this field. However, organizations run by government or nonsport organizations do not have enough capacity to accept the massive number of graduates majoring in physical education. Accordingly, being the entrepreneurs running their own sport-related businesses could be a solution.

Nowadays, there is increasingly high demand for sport-related leisure activities, which bring in a large number of jobs for students with a physical education degree. For example, a research conducted by the Puerto Rico Olympic Committee showed that the market scale of sport-related leisure activities has reached $700 million per year. In 2008, these activities directly and indirectly created over 10,000 jobs in the local economy. These jobs have paid their employees more than $150 million, while its economic impact has been more than $300 million per year. In addition, the relevant products and services have brought in $249 million (The business of sports, 2010).

The presence of small and medium-sized businesses can be an appropriate solution to overcome the challenge of unemployment among sport graduates. On the one hand, identifying important factors of establishing sport businesses can help starters understand the landscape of sport business and help them succeed in establishing their own businesses. Therefore, it can be acknowledged that conducting such a research on the identification and analysis of the factors affecting the establishment of small and medium-sized businesses could take an important step to create the necessary awareness for sport entrepreneurs and sport graduates.

A thorough literature review was conducted to reveal key factors in establishing small and medium-sized sport businesses. Gartner (1988) is one of the pioneers in the field of small and medium-sized businesses. In his model, he considered four crucial factors in the establishment of new risky businesses, which include: individuals, establishment process, organization, and environment. Acs and Audretsch (1989) showed that establishing small companies is the result of the decision made by practitioners. This decision is influenced by several factors, such as work experience, motivation, personality, social norms, and conditions of a family environment.

Mazzarol, Volery, Doss, and Thein (1999) concluded that environmental and personal factors are the major factors. McPhee (2000) noted some factors in his model regarding entrepreneurial behavior, including socio-economic factors, status factors, and personal factors. Other researchers such as Parker and Belghitar (2006) expressed that the individual and economical characteristics are accompanied with success in establishing a risky business. Other factors have been identified in the literature. Reynolds (2007) proposed that the business experience especially in the same industry, activities to establish the financial and organizational structure, and establishment of financial commitment teams, and the collection of resources and rapid implementation of the establishment activities are important to start small and medium-sized sport businesses. Smith (2009) highlighted the importance of financial, economic, personal, and governmental factors in this process.

The model offered by Schwarz, Wdowiak, Almer-Jarz, and Breitenecker (2009) emphasized on the interaction between individual and environmental factors in the entrepreneurial intention. Similarly, Townsend, Busenitz, and Arthurs (2010) considered that individual and personality factors are important in setting up a business and stated that individuals who are overconfident in their capabilities may even have a high possibility of failing in their business. Vliamos and Tzeremes (2011) specified the existence of three factors in establishing a business: capital entity; having different skills; and education. Stripeikis (2011) also stated that environmental factors affect the establishing of a business. Also, Chan and Quah (2012) identified some propel factors such as family business, existence and readiness of resources (land and building), market potential, existing opportunities for business, impact of friends and family, earning a profit, and attracting factors such as personal attitudes, previous experience, and individual interest in establishing a business.

According to the history of the research, the existing literature in this area can be divided into three categories: the first category is the research focusing on individual or the entrepreneur dimensions in the process of entrepreneurship and business establishment, such as personality variables (Acs &. Audretsch, 1989; Townsend et al., 2010), entrepreneurial skills (Vliamos &. Tzeremes, 2011), and demographic variables (Mazzarol et al., 1999). The second category of research emphasized environmental factors and considered the environment and its features (politics, society, culture, economics, and technology) more important than personal factors. However, we need to note that a number of researchers considered the presence of both the individual and the environment factors in interaction with each other, essential to explain the entrepreneurial process and the establishment of the small and medium-sized businesses (Mazzarol et al., 1999; Stripeikis, 2011). The third category highlighted the initial capital factor for the establishment of small and medium-sized businesses and have introduced it as an important and influential factor individually or along with individual and environmental factors (Reynolds, 2007; Smith, 2009).

Hence, the conceptual model (Figure 10.1) in this study was developed based on considering the existing approaches in literature and the identified major factors in starting small and medium-sized businesses. As it can be observed, in this model, three main factors have been considered important in establishing small and medium-sized sport business including: personal, environmental, and the capital factors. These factors themselves are composed of subdivisional parts. For example, the environmental factor is composed of subdivisions in policy, socio-cultural, economy, and technology. The personal factor also contains subdivisions in entrepreneurial characteristics and entrepreneurial skills. The capital factor includes subdivisions in private resources (including personal, friends, and family financial resources), the capital and stock (the risk-taking individuals and companies), and liabilities and debts (getting loan from the banks and financial institutions).

Based on the conceptual model of research, the following three questions were further empirically examined:

  • 1 What relationship is there between personal factors and the establishment of small and medium-sized sport businesses?
  • 2 What relationship is there between environmental factors and the establishment of small and medium-sized sport businesses?
  • 3 What relationship is there between capital factors and the establishment of small and medium-sized sport businesses?
Research Conceptual Model

Figure 10.1 Research Conceptual Model

Method

The small and medium-sized sport businesses in Tehran have formed this research population. Out of these companies, major manufacturers and distributors were focused on (1,500 companies). Sampling was conducted via Cochran formulas and through the simple random method. As the results, 258 questionnaires were collected and compiled in the analysis. The questionnaire in this study includes personal information, personal factors including personality characteristics of entrepreneurs (a = 0.77) and entrepreneurial skills (a = 0.75), the realized environmental factors (a = 0.86), capital factors (a = 0.74), and business set-up competence (a = 0.81).

Confirmatory factor analyses (CFA) were used to verify the factor structure of measurement scaled in the current research context; accordingly, to test the power and the meaningful share of any of the variables in measuring any of the structures, procedures in AMOS 16.0 were applied as follows:

1 CFA for the individual factor including two sub-factors: entrepreneurial skills and entrepreneurial characteristics. The CFA was conducted for each of the sub-factors.

a CFA for the entrepreneurial character index: According to Ghasemi (2010), if RMSEA is .05 and less than that, the model is pretty. The RMSEA value in this CFA was .05. Also, other indexes, such as the CFI, IFI, NF1, GF1, and AGFI respectively were as follows: .95, .95, .89, .94, and .89. These values, in general, indicate that entrepreneur character index with 16 measurement items has a very good reliable structure, b CFA for entrepreneurial skills index: For this variable, RMSEA index was .04, which represents a very good suitability. Also, other indexes, such as the CFI, IFI, NF1, CFI, and AGFI respectively were as follows: .99, .99, .97, .95, and .98. These values, in general, indicate that the entrepreneur' ial skills index with seven items has very good structure reliability.

  • 2 CFA for environmental factor: RMSEA index was .07, which represents acceptable suitability. Also, other indexes, such as the CFI, IFI, NFI, CFI, and AGFI, respectively, were as follows: .90, .90, .83, .83, and .88. These values, in general, indicate that the environmental factor with 24 items has acceptable structure reliability.
  • 3 CFA for capital factor: RMSEA index was .02, which represents a very good suitability. Also, other indexes, such as the CFI, IFI, NFI, GFI, and AGFI respectively were as follows: .99, .99, .98, .97, and .99. These values, in general, indicate that the capital factor with five items has very good structure reliability.
  • 4 CFA for the establishment of small and medium-sized sport businesses: RMSEA index was .05, which represents a very good suitability. Also, other indexes, such as the CFI, IFI, NFI, GFI, and AGFI respectively were .99, .99, .98, .96, and .99. These values, in general, indicate that the establishment of small and medium-sized sport businesses with five items has very good structure reliability.

To measure personality variables, entrepreneurial skills, and the competence of establishing business, 5-point Likert scale (Completely Disagree = 1 to Completely Agree = 5) was used; to measure the environmental factor, 5-point Likert scale was used (1 = Too Low to 5 = Very Much); and for the capital factor 7-point Likert scale (1 = Not at All to 7 = Completely) was used. To study the data from the appropriate descriptive statistics, inference statistics was conducted (including Pearson and Kolmogorov Smirnov correlation coefficient) with SPSS Version 16.0 software and AMOS 16.0 software.

Results

Out of 258 survey respondents, 97% of them were males and 3% were females. The educational level of the sample was as follows: under diploma (20%), diploma (54%), associate degree (8%), bachelor’s degree (12%), and master’s degree (5%). Also, the average age of the survey sample was 41 (see Table 10.1). In addition, Pearson correlation coefficient was used to show the relationship between these factors along with each other through business establishment. The findings showed that all the considered factors had a meaningful and positive correlation with the establishment of small and medium-sized sport businesses (p < .01) (see Table 10.2). It is necessary to note that one of the main assumptions to use Pearson test was normal distribution. To examine this assumption, the Kolmogorov- Smirnov test was used. Its results showed that the data is normally distributed (p > .05). Moreover, the effects among research main variables in the model, based on the results obtained from AMOS outputs have been studied.

The results obtained from the AMOS equations in Table 10.3 indicate that the personal factor has left a meaningful impact on the establishment of small and medium-sized sport businesses (a = 0.001) and this is while the other two factors, namely the environment and capital factors could not leave meaningful impact on the survey model (p > .05). Also, the results showed that the environmental factor has left meaningful impact on the personal factor (p = .001). However, the results indicate the lack of significant relationship between the environmental factor and financing (p > .05). The personal factor has a meaningful impact on capital (p = .001). Indirect relationships that variables have were also examined. Results showed that the environmental factor had the most noticeable indirect influence ф = 0.28) on the establishment of small and medium-sized businesses.

Table 10.1 Descriptive Statistics of Survey Samples

Demographic Variable

N

%

Gender

Male

250

97

Female

8

3

Education Level

Under Diploma

51

20

Diploma

140

54

Associate Degree

21

8

Bachelor’s Degree

32

12

Master’s Degree

14

5

Total

258

100

Table 10.2 Correlation Matrix Between SMSEs Establishment and the Main Research Variables

Variable

M

SD

A

В

c

D

SMSEs (A)

4.06

.57

Environmental (B)

3.90

.51

** 24

Capital (C)

1.75

.64

** .18

** 24

Individual (D)

4.06

.39

** .46

** 29

**.23

** Significant at .01 level

Table 10.3 The Impact of Research Factors on the Establishment of SMSEs

Direct Impact of Main Research Factors on the SMSEs Start-up

Variables

Standard Regression Rate

Unstandardized Regression Rate

Standard

Error

Critical

Rate

P

Individual

.74

.71

.18

3.99

.001

Environmental

-.01

-.01

.05

-0.69

.940

Capital

.01

.01

.05

0.14

.890

The Direct Impact of Main Research Factors on Each Other

Environmental

on

Individual

.37

.24

.08

2.98

.003

Capital

.22

.29

.13

1.83

.070

Individual on Capital

.35

.72

.24

3.01

.003

The Indirect Impact of Main Research Factors on the SMSEs Start-up

Environmental Through Individual

.28

.23

.1 1

1.75

.040

Individual Through Capital

.01

.00

.06

0.16

.780

Accepted Indexes

X2 = 187.67; RMSEA = .08; GFI = .92;AGFI = .87; NFI = .83; IFI = .88; CFI = .88

Table 10.4 Statistics Related to the Efficacy of Indexes Relevant to the Survey Factors

Variables

Dimensions

Standard Regression Rate

Unstandardized Regression Rate

Standard Critical Error Rate

P

Environmental

Policy

.52

.66

.20

3.17

.002

Economy

.32

.28

.11

2.54

.010

Socio-cultural

.54

.58

.08

7.10

.001

Technology

.84

.99

-

-

-

Individual

Entrepreneurial

Skills

.64

.99

-

-

"

Entrepreneurial

Personality

.76

.75

.09

7.88

.001

Capital

Private Source

.72

.99

-

-

-

Debt

.45

.79

.22

3.55

.001

Equity

.15

.16

.12

1.31

.190

Accepted

Indexes

X2 = 187.67; RMSEA = .08; GFI = ,92;AGFI = .87;* 8NFI = .83; IFI = .88; CFI = .88

As shown in Table 10.4, four indexes of environmental factors have significant impact on the final model. The maximum regression weight is related to the technological item with the impact coefficient of .84 and after that they were respectively, the society and culture .54, politics .52 and economy with the impact coefficient of .32. In the case of the personal factor, we should mention that the entrepreneurial character item with the regression weight .76 and entrepreneurial skills and with the regression weight .64 has meaningful impact on the final model. In the case of the financing-related factor, all items except for the capital and stocks have been included in the research final model (p = .001).

As shown in Figure 10.2, the test results of the research conceptual model suggest that among the factors, which have been studied regarding the determination of establishing small and medium-sized businesses, the personal factor has direct and significant impact (p1 = .74) on the variable of establishing small and medium-sized sport businesses. The same factor has exerted direct and significant impact on financing provision (P = .35). This is while the indirect impact of the personal factor was .005 on the business set-up. Also, regarding the personal factor determining indexes, it must be said that the entrepreneurial character with the lambda coefficient of X2 = .76 had the most impact and entrepreneurial skills with a coefficient of X= .64 in the next ranking.

The environmental factors, unlike the personal factors could not have direct and significant impact on the dependent variable (establishment) (y* = .007); But this factor had a direct and significant impact on the personal factors (y = .37). Meanwhile, the same factor was unable to exert significant influence on the capital provision directly (y = .22). It should be noted that the environmental factor indirectly and through personal factor with the influencing rate of .28 could influence on the establishment of small and medium-sized sport businesses. Also, regarding the indexes determining the environmental factors, the technology indexes with the lambda coefficient of .84 had the maximum effect. The social, cultural, political, and economic indexes, respectively with the .54, -51, and .32 lambda coefficients, were in the next rankings.

Statistical Results of Structural Equation Model of the Effective Factors on the Establishment of SMSEs

Figure 10.2 Statistical Results of Structural Equation Model of the Effective Factors on the Establishment of SMSEs

Discussion

As summarized in the literature review, the research model in this study is composed of three main factors (personal, environmental, and capital) and their related indexes. The descriptive statistics showed that most of the business owners were males. In other words, the presence of women in this field has been pale (3%). Also, most respondents’ education level (over 70%) were diploma or below diploma, which represents the slight presence of educated individuals in this field. To evaluate and test the survey conceptual model Amos 16.0 program was used. Before discussing about the statistics obtained in the existing factors in the model, it is necessary to examine the statistical properties of measurement scales.

According to Ghasemi (2010), if comparative indexes, here, CFI, IFI, and NF1 are between .90 and .95, the model is acceptable. In the current model, these indexes were .88, .88, and .83, respectively. It can be stated that all three indices together represent an acceptable model fit. RMSEA is another index to evaluate model fit: less than .05 is very good, and 0.5 - 1.0 is acceptable. In the present model this index is equal to .08, which represents the model being acceptable. If absolute suitability indexes were closer to .95, it indicates the model being acceptable model. In this research, the suitability goodness indexes of GF1 and AGFI were equal to .92 and .87, respectively. Therefore, it can be concluded that the research final model has an acceptable measurement soundness.

Although the results of Pearson coefficients showed that the environmental, personal, and capital factors all had significant relationships with small and medium-sized sport businesses (a < 0.05); when these factors were examined with the structural model, the influence of individual on establishing businesses was most noticeable ((3 = .74), which is consistent with previous studies (e.g., Acs & Audretsch, 1989; Chan &. Quah, 2012; Mazzarol et al., 1999). However, some research also indicated the negligible importance of personal factor in determining the process of business establishment. For example, Aldrich and Zimmer (1986) pointed out that a person cannot autonomously decide and take action regarding the establishment of a business; therefore, it is reasonable to look at the entrepreneurial process as a whole process in the context of economic, social, and cultural fields. Since the relationship between the personal factor and business establishment has been identified to be strong, it can be acknowledged that the personal factor still can be an important and influential factor. Also, relying on statistics obtained in the final model of this research, it became clear that in the set-up of small and medium-sized sport businesses, the personal factor especially the entrepreneurial character played a more important key role. Hence, the personality factor in establishing the business was confirmed in this research. This finding was consistent with the research results of Townsend et al. (2010) and Vliamos and Tzeremes (2011).

Environmental factor, unlike the personal factor, did not directly and significantly impact the research dependent variable (establishment) (y = -.007). But this factor is significantly related to personal factor (y = .37). The same factor was unable to have a direct and significant impact on providing finance (y = .22). On one hand, in the final model, the environmental factor indirectly and through personal factor with the influencing rate of .28 could put a good effect on business establishment (Figure 10.3); but, based on the history of research (Mazzarol et al., 1999; McPhee, 2000; Stripeikis, 2011), the good and direct impact, which was expected from it, did not happen in this research. This issue can probably be sought in the undesirable business space in the current context; to confirm this case, it should be pointed out that the business environment in Iran ranked 144 in 2012 among the 183 known world economies and dropped in comparison to the ranking of 140 in 2011. It seems that the business environment held back the influence of environment factor on small and medium-sized sport businesses.

Contrary to the expectation we had regarding the importance of the capital factor in establishing businesses (e.g., Parker &. Belghitar, 2006; Reynolds, 2007; Smith, 2009; Vliamos & Tzeremes, 2011), this factor did not exert significant influence on the establishment of small and medium-sized sport businesses. One potential explanation is that the absence of environmental factors’ effective role impacts the role of the capital factor. Generally, the positivity of the capital factor links to powerful presence of banks and financial and credit institutions and the right political and economic environment. While in the current research context, there were sanctions, political tensions, uncontrollable foreign exchange process, inflation, and other causes related to the government and current state of business in the country, which holds back its positivity such as the provision of initial finance to establish a business. We should note that among the items of providing the initial financing, the item regarding private resources such as personal, friends, and family resources had the highest impact coefficient (.72); and the

The Main Factors Final Model and Influencing Indexes on Establishing SMSEs item regarding debt and liabilities such as bank resources and loans had the second highest coefficient

Figure 10.3 The Main Factors Final Model and Influencing Indexes on Establishing SMSEs item regarding debt and liabilities such as bank resources and loans had the second highest coefficient (.54). This indicated that, due to the high risk of investment in Iran, the presence of individuals and risk-taking companies for investment would not exert a significant impact on the initial capital.

Conclusion

The findings of this research suggest that the personal factor is the most influential in the establishment of small and medium-sized sport businesses. This conclusion overshadowed the studies that indicate personal factors being insignificant and pale and once again support the valuable status of this factor in the entrepreneur intention and business establishment process. Among the personal factors, it became clear that the entrepreneurial character is relatively more important in establishing small and medium-sized sport businesses. Also, this research concludes that entrepreneur skills is required to succeed in establishing the sport business. It is necessary to explain that in this study, the environmental factor did not play a significant role in establishing small and medium-sized sport businesses. In addition, the financing-related factor could not have any impact on establishing small and medium-sized sport businesses. It should be noted that this research finding only applies for the current research context and should be reexamined in other social environments. According to this research, for people who desire to enter into the field of sport business, it is recommended to highlight the personal factor, especially personality character of themselves and their partners. Also, the entrepreneurial skill is another dimension that deserves to be emphasized. Although, in this study, the environmental factor was not correlated with the establishment of small and medium-sized sport businesses, its indirect impact should be further examined.

Notes

  • 1 Beta coefficient: the effect of the inner variable on the outer one.
  • 2 Lambda coefficient: load factor of each index.
  • 3 Gamma index: the impact of outer variable on inner one.

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