The Influence of External Environment and Resource Capability on
the Hybrid Business Strategy and Business Performance
Ni Nyoman Kerti Yasa, I Putu Gde Sukaatmadja, I G. A. K. Giantari
and Ni Wayan Yuniari
Faculty of Economics and Business, Udayana University, Bali, Indonesia
Keywords: External Environment, Resource Capability, Hybrid Strategy, Business Performance, and SME.
Abstract: This research has a purpose to examine the role of hybrid business strategy in mediating the influence of
external environment and the capability of resources on business performance. The structural equation
modelling (SEM) based on AMOS is the analysis technique that was used to examine the hypothesis in this
research. A total of 135 people were selected as sample with the criteria as follows: is a small and medium
enterprise in Bali that has operated for at least one year. The research results show that (1) the external
environment has a positive and significant influence on business performance; (2) resource capability has a
positive and significant influence on business performance; (3) external environment has a positive and
significant influence on the implementation of hybrid strategies; (4) resource capability has a positive and
significant influence on the implementation of hybrid strategy; (5) the implementation of hybrid strategy has
a positive and significant influence on business performance; (6) hybrid business strategy is able to
significantly mediate the influence of external environment on business performance; (7) hybrid business
strategy also significantly mediates the influence of resource capability on business performance. The
theoretical implications attained from this research is that the business strategy concept can be developed
from various available business strategy choices such as innovation strategy, service strategy, differentiation
strategy, partnership strategy, and promotion strategy. Meanwhile, the practical implication and
recommendation in this research is that marketers are expected to be able to develop other hybrid business
strategies by integrating or combining several available business strategy choices in line with the external
environment conditions and the capability of the resources owned by the SME.
1 INTRODUCTION
The hybrid business strategy is the concept of
implementing several available business strategy
choices, such as a combination between the
innovation and promotion business strategy;
between service and partnership business strategy;
between differentiation and promotion business
strategy; and other forms of combination. The
hybrid business strategy is implemented in response
to the opportunity and challenge from the external
environment and the condition of the resources
owned by a business including SMEs. SMEs need to
implement the hybrid business strategy to maintain
and develop their business.
The development of SMEs can be assessed from
the increase in performance, which can be in the
form of increase in sales, increase in market share,
or even increase in profit which is largely
determined by the external condition of the
environment. External environment, which
comprises of economic condition, competition,
government regulation, availability of suppliers, and
the preference of the market, will determine the
performance achievement of the SME. If the
external environment condition provides
opportunities, the performance of the SME will also
increase, vice versa. Aside from the external
environment condition, resource capability also
determines the performance achievement of SMEs.
If the capability of the human resource, capital,
information technology ability, and the management
ability are good, the performance of the SME will
increase.
Other than the two factors above, SME
performance is greatly determined by the business
strategy implemented. If the business strategy
implemented is suitable with the external and
internal condition of the business, this would result
in an increase in performance. There are several
Yasa, N., Sukaatmadja, I., Giantari, I. and Yuniari, N.
The Influence of External Environment and Resource Capability on the Hybrid Business Strategy and Business Performance.
DOI: 10.5220/0008492903430349
In Proceedings of the 7th International Conference on Entrepreneurship and Business Management (ICEBM Untar 2018), pages 343-349
ISBN: 978-989-758-363-6
Copyright
c
2019 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
343
business strategy choices that can be implemented,
among others, the innovation strategy, service
strategy, differentiation strategy, cost leadership
strategy, focus strategy, partnership strategy, and
promotion strategy. The business strategies can be
implemented independently or in a combined
manner.
The phenomena of combining a number of
strategies have been implemented by SMEs in Bali.
The SMEs in Bali have already implemented
business strategies, among others, partnership
strategy (Yasa et al., 2013), differentiation strategy
(Yasa et al., 2014), business strategies which
encompasses innovation strategy, differentiation
strategy, service strategy, and partnership strategy
(Yasa et al., 2017), and the Blue Ocean Strategy
(Yasa et al., 2017). The research results show that
business strategy does have a positive and
significant influence on the performance
achievement of SMEs in Bali. Even though the
SMEs in Bali have already implemented several
business strategies, they are not yet able to provide
maximum results. This is shown from the annual
sales data, one of the performance measurements of
SMEs, which does not show an increasing year to
year trend. Thus, the SME performance is not yet
optimal, and there is a need to implement the hybrid
business strategy which is able to drive the SME
towards an increase in business performance.
Based on the business issue faced by SMEs in
Bali and the lack of previous studies that review
hybrid business strategies while considering the
external environment and capability of the resources
owned by the business, with the complement of
several empirical review results that are related with
the existing issue, the motivations of this research
are: 1) to review available business issues; 2) to
develop a suitable and comprehensive hybrid
business strategy implementation model to increase
SME performance; 3) to explain the role of business
strategy in mediating the influence of external
environment condition and resource capability on
business performance.
Hence, the aim of this research is to explain the
influence of external environment, resource
capability, and hybrid business strategy on the
business performance of SMEs in Bali.
2 THEORETICAL REVIEW AND
RESEARCH HYPOTHESIS
Industrial competition is a very dynamic external
environment. Industrial competition is the rivalry
between two or more similar industries that provide
products, service, price, distribution, and promotion
to customers (Adnan et al., 2016). The industrial
competition intensity is dependent on the number of
competitors in the same market, technological
advancement frequency, new product release
frequency, decrease in price, packet agreement
provided to customers among competitors, the
change in government relation and policy and tariff
cut (Chong and Rundus, 2004). Industrial
competition occurs in terms of cost, resource
dependency, managerial practice, entrance
difficulties, and implementation of technology. The
industry’s external environment factors which act as
the instigator of industrial competition are: (1)
intensity of business competition, (2). threat of new
entrants, (3). The bargaining power of suppliers, (4).
The bargaining power of buyers, and (5). The threat
of substitute products (Metts, 2007; Huang and Lee,
2012).
Companies that have and develop their resources
and internal capabilities to produce unique and
valuable products to customers will be able to
increase their competitive position and produce
better performance than their competitors (Huang
and Lee, 2012; Bobe and Kober, 2015).
Business performance is the indicator that is
usually used to measure the success of a company in
achieving their goal or the company’s ability to
provide satisfaction to customers and win the market
through the products and services they offer.
Business performance is generally measured by
using the indicators of financial and market
performance. Market performance is measured with
the market’s ability, total growth in sales, and total
profitability. There are 4 dimensions of business
performance used in this research, namely, relative
profitability, return on investment, customer
retention and total sales growth.
Likewise, there are variances in the indicators to
measure performance. For example business
performance is measured with financial performance
indicators such as return on investment or ROI,
return on equity or ROE (Abdifatah, 2014; Al-
Najjar, 2014; Kilic et al., 2015), income growth,
profit size (Pinho et al., 2014) and marketing
performance such as sales growth and profitability
(Lee and Yang, 2011), market share (Kilic et al.,
2015; Zehir et al., 2015; Prajogo, 2016), customer
satisfaction and total sales (Kilic et al., 2015).
In this research, the business strategy theory
(Porter, 1985) and RBV is used. According to the
industrial competition theory (Porter), competition
ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar
344
intensity in an industry will increase if the number of
companies in the industry increases. This condition
could cause increasing performance to be more
difficult. Likewise, the capability of the resources
owned will surely have a significant influence on the
competitive ability and performance achievement.
Thus, implementing a suitable and comprehensive
hybrid business strategy (innovation strategy,
differentiation strategy, service strategy, partnership
strategy, and promotion strategy) will be able to
increase the company’s performance (Kwak and
Kim, 2016).
The conceptual framework which explains the
correlation between variables is formulated and
displayed in picture 2.1.
External
Environment
Company
Performance
HybridBusiness
Strategy
Resource
Capability
Figure 1: Research Conceptual Framework.
Research Hypotheses: Based on the conceptual
framework, the research hypotheses are formulated
as follows:
H1:
External environment has a positive and
significant influence on company
p
erformance
H2:
Resource capabilities have a positive and
significant influence on company
p
erformance
H3:
External environment has a positive and
significant influence on hybrid business
strate
gy
H4:
Resource capability has a positive and
significant influence on hybrid business
strate
gy
H5:
Hybrid strategy has a positive and
significant influence on company
p
erformance
3 RESEARCH METHOD
This research is conducted on the SMEs in all
regencies/cities in Bali Province, including:
Denpasar City, The Regency of Gianyar, Bangli,
Klungkung, Karangasem, Buleleng, Jembrana,
Badung, and Tabanan.
The subjects in this research are the SMEs from
the commerce sector, agricultural industry, non-
agricultural industry, and other services in Bali
Province. The objects in this research are the
business performances influenced by the external
environment strategy, capability of the resources and
the hybrid business strategy.
There are three variables studied in this research,
namely: 1) the exogenous variable: external
environment (X
1
) and resource capabilities (X
2
); 2)
the Intervening variables: hybrid business strategy
(Y
1
); and 3) Endogen Variable: business
performance (Y
2
).
The population in this research are all the
SMEs that operate in the commerce sector,
agricultural industry, non-agricultural industry, and
other services in Bali. The samples in this research
are 135 SMEs in Bali Province.
The indicators of the external environment, resource
capabilities, hybrid business strategy, and business
performance is measured from the perception of the
owners or SME managers, as the ones who formulate
strategies, by using the five level Likert scale, where 1 =
strongly disagree, 2 = disagree, 3 = agrees enough, 4 =
agree, 5 = Strongly agrees. This research utilized
primary data. The data collection technique is
conducted through two methods, namely through
questionnaire and interview on the SME owners or
managers and SME observer/ academician.
The instruments used has its validity and
reliability tested in order to ascertain that it can
measure what it is meant to and to determine the
consistency of the responses given by the
respondents. The instrument validity test is conducted
using Pearson’s product moment correlation
technique with a minimum limit r = 0,3. The
instrument reliability test is conducted by
calculating the Cronbach’s Alpha reliability
coefficient. With a minimum limit of the alpha
coefficient > 0,6. Both tests utilize the SPSS
computer program.
The causal relationship formulated in this
research is a complex model; in which the variables
in the model have a recursive relationship. These
forms of causal relationships require analysis tools
that are able to explain them. Thus, the inferrential
The Influence of External Environment and Resource Capability on the Hybrid Business Strategy and Business Performance
345
statistic method used in this research is the
Structural Equation Modelling (SEM).
4 RESULTS AND DISCUSSION
The research data are attained through
questionnaires which have been distributed to 135
respondents. After attaining the data from the
questionnaire, the data are analyzed using the SEM
analysis.
Hypothesis Test Results: The hypothesis test is
conducted using the t-test on each direct influence
path separately. Table 1 shows the direct influence
hypothesis test results.
Table 1: Direct Influence Hypothesis Test Results.
Independent
Variable
Dependent
Variable
Path
Coefficien
t
p-value Description
External
Environment
(X1)
Company
Performanc
e (Y2)
0,079 0,681
Insignifican
t
Resource
Capabilities
(X2)
Company
Performanc
e (Y2)
0,470 0,099 Significant
External
Environment
(X1)
Hybrid
Business
Strategy
(Y1)
0,097 0,163
Insignifican
t
Resource
Capabilities
(X2)
Hybrid
Business
Strategy
(Y1)
0,292 0,014 Significant
Hybrid
Business
Strategy
(Y1)
Company
Performanc
e (Y2)
1,067 0,003 Significant
Research Result Discussion: From the validity and
reliability calculation results, it can be concluded
that each indicator is capable of measuring the
variable and the tested concept, and between one
concept and the other, there is an independent
nature/ characteristic. Based on the confirmatory
factor analysis (the goodness of fit test and the
weighted factor significance test), there are evidence
that the observed variables reflect the factors being
analyzed. With the overall model confirmatory test
(goodness of fit test and the weighted regression
causality test), there is evidence that the overall
goodness of fit and the causality relationship
formulated can be examined.
The Influence of External Environment on
Company Performance of SMEs in Bali
Province: Based on Table 1, the external
environment variable is determined to have an
insignificant influence on the company performance
of SMEs. This is proven with a p-value of 0,681
which is greater than 0,05. The positive relationship
between the external environment variable and the
company performance of SME is shown by an inner
weight value of 0,079. This result can be interpreted
as more or less even due to a better external
environment, it will not result in the increase in
company performance of SMEs in Bali.
In this research, the indicators of external
environment is formed by the indicators of the
economic condition variable, government regulation
support, conducive competition environment,
development of information technology, and the
development of the people’s socio-culture, does not
have an important role in the increase in the business
performance of SMEs in Bali. This research result is
consistent with the condition faced by the SMEs in
Bali. Company performance of SMEs in Bali is
dependent on the external environment condition.
The Influence of Resource Capability on the
Company Performance of SMEs in Bali
Province: Table 1 shows that resource capability
has a significant influence on the performance of
SMEs. A p-value of 0,099 which is less than 0,10 is
the evidence of this result. Based on the inner weight
of 0,470, the relationship between resource
capability and company performance is positive.
This result means that with higher resource
capability, the company performance of SMEs in
Bali will also be higher.
This research result is consistent with the actual
conditions in the field, in which a higher resource
capability makes the company performance of SMEs
higher too. In this research, the indicators of
resource capability, which are formed by the
indicators of human resource, capital resources,
information technology resources, and management
resource, have an important role in the increase in
SME’s company performance.
The Influence of External Environment on the
Implementation of Hybrid Business Strategy in
SMEs in Bali Province: Table 1 shows that the
external environment has a significant influence on
the implementation of hybrid business strategy. This
result is proven by a p-value of 0,163 which is
greater than the 0,05. The relationship between the
external environment variable and the hybrid
business strategy implementation variable shows
that there is a positive relationship indicated by the
inner weight of 0,097. This means the better the
external environment condition, the more intensive
ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar
346
the implementation of the hybrid business strategy in
Bali.
This research result shows that the
implementation of the hybrid business strategy will
be more intensive depending on the external
environment condition. In this research, the
indicators of external environment, which is formed
by the indicators of a good economic condition
variable, supportive government regulation,
conducive competition environment, fast IT
development, and a good social development of the
people do not have a significant role in increasing
the intensity of the hybrid business strategy
implementation.
The Influence of Resource Capability on the
Implementation of Hybrid Business Strategy in
the SMEs of Bali Province: Table 1 shows that the
resource capability has a significant influence on the
hybrid business strategy. This is proven by a p-value
of 0,014 which is less than 0,05. The relationship
between the variables of resource capability and
hybrid business strategy shows that with a higher
resource capability, there will be a more intensive
implementation of hybrid business strategies by
SMEs in Bali.
This research result is in line with the actual
conditions in the field, in which with a higher
resource capability, the implementation of the hybrid
business strategy will become more intensive. In this
research, the indicators of resource capability, which
are formed by the indicators of human resource
variable, capital resource, IT resource, and
management resource, have an important role in the
increase in intensity of hybrid business strategy
implementation.
The Influence of Hybrid Business Strategy on the
Company Performance of SMEs in Bali
Province: Table 1 shows that the implementation of
Hybrid Business Strategy has a significant influence
on company performance. This result is proven by
the p-value of 0,03, which is less than 0,05. The
relationship between the implementation of the
hybrid business strategy and the company
performance is positive which is indicated by an
inner weight value of 1,067. This result can be
interpreted as the higher the intensity of the hybrid
business strategy implementation, the higher the
company performance of the SME in Bali.
This research result is consistent with the
actual condition in the field in where a more
intensive implementation of hybrid business strategy
will increase the company performance of SMEs. In
this research, the indicators of hybrid business
strategy implementation, which are formed by the
dimensions of hybrid business strategy I : service
and partnership strategy, hybrid business strategy II :
innovation and promotion strategy, and hybrid
business strategy III :differentiation strategy, have
an important role in increasing SME performance.
The Role of Hybrid Business Strategy in
Mediating the Influence of External Environment
on the Business Performance of SMEs in Bali:
The hypothesis test regarding the role of hybrid
business strategy in mediating the influence of
external environment on the company performance
of SMEs using the SEM analysis for the direct and
indirect influence revealed that the influence of
external environment on company performance is
0,079, while the influence of external environment
on company performance of SMEs through hybrid
business strategy is 0,103. Thus, the hybrid business
strategy has a role as the mediator in the influence of
external environment on company performance of
SMEs. This means that the external environment is
able to positively affect hybrid business strategy in
increasing the performance of SMEs.
The Role of Hybrid Business Strategy in
Mediating the Influence of Resource Capability
on the Business Performance of SMEs in Bali:
The hypothesis test regarding the role of hybrid
business strategy in mediating the influence of
resource capability on the company performance of
SMEs using the SEM analysis for the direct and
indirect influence revealed that the influence of
resource capability on company performance of
SMEs is 0,470, while the influence of resource
capability on company performance of SMEs
through hybrid business strategy is 0,312. Thus,
hybrid business strategy is not able to mediate the
influence of resource capability on the company
performance of SMEs. This means that resource
capability positively affects the hybrid business
strategy, resulting in the increase in company
performance of the SME.
Research Implication: As conveyed in the analysis
and discussion, in terms of theory this research is
able to reveal the influence of the latent variables;
external environment and resource capability, on the
hybrid business strategy (combination of several
business strategies) and the company performance of
SMEs variable.
This research is able to contribute
recommendations to SME business practitioners
(commerce sector, agricultural industry sector, non-
agricultural industry, and other sectors). The
The Influence of External Environment and Resource Capability on the Hybrid Business Strategy and Business Performance
347
recommendations are that SMEs should maintain
and strengthen the implementation of their hybrid
business strategy in a comprehensive manner
through several strategies such as innovation
strategy, differentiation strategy, service strategy,
and partnership strategy which are able to increase
the company performance of SMEs.
Research Limitations: There are various limitations
found in this research, especially due to the
following reasons. 1) This research only gather data
from the managers or SME business practitioners in
Bali as respondents, thus the results cannot be used
for generalization purpose. 2) The mediating
variable studied is the hybrid business strategy
variable of several strategies (5 business strategies)
which in this research have a significant influence
on the performance of the company. In other words,
there is a need to think of other hybrid business
strategies as the mediator variables, such as the
customer relationship, cost leadership, and the blue
ocean strategy. 3) Additionally, other variables that
can influence the business strategy implementation
can be added in, such as: management
characteristics, company characteristics, and
company resources especially SME
entrepreneurship.
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