Product Quality Growth Analysis using Canonical Correlation in

Small Business

Ami Dilham

, Baby Karina Fawzeee

and Fivi Rahmatus Sofiyah

Department of Management, Universitas Sumatera Utara, Medan, Indonesia

Keywords: Business, Quality, Resistance, Canonical.

Abstract: This paper is a concept of small business resistance in the point of product quality growth in facing the

progress of transformation era with case study : village-owned small enterprises in Deli Serdang. Through

this research, it is expected that they have good resistance by making the best product quality. The method

used is descriptive and canonical correlation analysis method. The result shows that willingness to pay

more, loyalty as the dependent variable and responsiveness as the independent one give the strong factor.

The rest weakness factor must be improved to get the small medium enterprises (SMEs) product quality

growth

1 INTRODUCTION

Deli Serdang Regency is an area close to Medan

City and greatly affect the economy of North

Sumatra. Fluctuating economic growth from the year

of 2013 amounted to 9.22%, tend to decrease by

7.5% and 2015 by 5.24%. This decline is related to

national economic conditions and 2016 began to

show an increase of 5.32% based on

https://deliserdangkab.bps.go.id/, 2018. The

improvements made in the direction of small

business development with village-owned

enterprises (VOE) in industry revolution 4.0.

The VOE officially endorsed by Regent Ashari

Tambunan in Galang District of Deli Serdang

Regency. Head of Deli Serdang Communication and

Information Office said that the inauguration of

VOE conducted in Galang District to meet the

demand from the community will be a in Subur

Village. The Regent hoped that it can be a business

for residents in Galang District based on the

information (http://beritasumut.com, 2017). The

Progress of VOE will be the responsibility to select

and rank the quality and the failures so that it can

make the high result for economic growth.

Firbank (2013) informed that Elderly users had

difficulty evaluating services because standards or

benchmarks they could use as a basis for comparison

were missing. Over half the elderly respondents had

considerable difficulty or were unable to select and

rank three quality failures they considered to be most

important.

The quality of VOE must be started from the

quality management universally. The real fact is

needed the practitioners to make it successfully.

As the competitive condition, it needs the good

brand quality in consumer point of view.

Sharma, et al (2012) said that It is worth

mentioning here that, in the present competitive

world, the dynamics of market does not allow any

deviation in quality of end product. Therefore, the

importance of quality management is universally

espoused by the researchers and practicing managers

working in this area.

The VOE needs the ecocentric approach thought

improving it. The empathy can transformation

towards a society. The one can touched with its

innovation. The result can be the better for the

environment movement.

Lithoxoidou, et al (2017) explained that Coping

with environmental crisis cannot but presuppose a

change in the values adopted by modern man. Both

eco centric values associated with creating a caring

relationship with nature, and the development of

empathy, can become vehicles of transformation

towards a society based on ecological principles.

Peterson & Leonhardt (2015) informed that For

instance, individual firms may vary in the degree to

1248

Dilham, A., Fawzeee, B. and Soﬁyah, F.

Product Quality Growth Analysis using Canonical Correlation in Small Business.

DOI: 10.5220/0010071012481253

In Proceedings of the International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches (ICOSTEERR 2018) - Research in Industry 4.0, pages

1248-1253

ISBN: 978-989-758-449-7

which nonverbal communication and empathy are

incorporated as components of their training

programs, depending upon their needs and available

resources.

Based on the phenomenon described, the main

problems of the research focused are how to solve

problems of product quality growth using canonical

approach with the case study in the VOE Of Deli

Serdang Regency.

Plank & Reid (2010) informed that Given the

strong role of empathy in this model, more work

needs to be done in the context of buyer-seller

relations on the actual process of empathetic

communication. As has been noted in the literature

review of this paper, process models of empathy do

exist, but not in buyer-seller contexts.

Sarwar, et al (2012) said that Generally, It has

been seen that quality of

services, transparent

policies, delivering what is

promised and

representing the things honestly ultimately generates

the customer trust. Customer trust is the pivotal

characteristic of each and every relationship.

Jahanshahi,et al (2011) said that One may pursue

the common point of these studies in undiscovered

customer needs. In a setting where companies do not

depend on others to serve customers, the customer is

aware to whom his/her perception is dedicated, and

the direct link between perceived quality, customer

satisfaction and loyalty is naturally expected.

Abidin, et al (2016) told that Based on a sample

size of 712 non-financial companies, the results

suggest board independence as one of the

determinant factors of auditor switch. Other

significant determinants include the provision of

non-audit service, changes in management, size.

Lokkerbol, et al (2012) informed that Financial

service organizations are coping with increasing

international competition. Organizations willing to

gain or to secure a competitive advantage are

required to continuously improve. One strategy to

improve results is to eliminate operational

inefficiencies.

Sampaio, et al (2012) said that Given the

economic and social relevance of the ISO 9000

phenomenon, as well as the increasing availability of

data related to it, we feel that more and more fact-

based and statistically oriented studies should be

conducted in this area.

Butler & Surace (2015) said that The newly

emerging businesses are very fragile and represent

an interest for managers and scholars alike to

identify success strategies in emergent business

sectors. According to the Australian Bureau of

Statistics, more than 50% of all established

businesses fail in the first four years, for example,

out of all existing new businesses established in

2007, just 48.6% were in business in July 2011.

Sukati, et al (2012) said that In today’s

competitive business, most of the firms increased

focus on delivering value to the customer. The focus

on attention of businesses is providing products and

services that are more valuable compared to its

competitors.

Roopchund & Boojhawon (2014) explained that

Service quality has become a key marketing tool for

achieving competitive differentiation and fostering

customer satisfaction and loyalty. Across industries

and sectors, firms seek to distinguish themselves and

retain customers by excellence in service

performance.

Pongpearchan & Ussahawanitchakit (2011) said

that When an environment does not reached its

carrying capacity, it may not guarantee survival of

SMEs but only shows that this environment is easier

to survive in than in other environments. Our study

is only limited in the isolated population.

Al Khattab & Aldehayyat (2011) said that With

regard to improvement of the tangibles dimension,

hotel managers should focus on specific items

(improvement areas) related to this dimension.

These areas include equipment and physical

facilities, appearance of employees, materials

associated with the service, and operating hours in

the hotels.

Goyanes (2015) said that As with age, gender

has been found to be a fundamental factor in the

analysis of intent to pay for online news in previous

studies, although the findings have never established

a significant association with general information;

hence, men and women tend to behave similarly in

this respect.

Makkonen, et al (2011) informed that A

preferable path of future research would be to

replicate our study also in other countries and

cultures by using a more precise categorisation of

age and income as well as a more varied set of

methods for measuring willingness to pay.

Demirgüneş (2015) said that The analysis

results reveal that perceived value dimensions have

differential effects on customer satisfaction with the

product and behavioral intentions. Implication of the

current findings proposed the importance of

perceived value in creating satisfaction and then

WTP more.

Malawat & Putra (2018) said that Human

capital which is the main point in improving the

quality of MSMEs is required an entrepreneurship

education support to be able to increase innovation

Product Quality Growth Analysis using Canonical Correlation in Small Business

1249

so as to be able to improve the performance of the

company. The SMEs needed the capability in

combining the income, capital, selling price, the

amount of manpower from the community who can

solve all problems to reach the market share

globally.

Dilham & Aisyah (2017) informed that The

community empowerment, transportation linked to

environmental conditions that can be directed to

produce results from the creation of society to be

more quickly achieved in the target market. In the

case of empowerment, the power of the development

community actors who cooperatively create synergy

and responsive to the problems that occur for the

common welfare.

2 METHOD AND MATERIAL

This research took place in Deli Serdang Regency

by taking the population from customers who are

loyal to conduct transactions in SBD with VOE with

samples taken by purposive sampling of 50 samples

conducted from January to April 2018 based on the

activity made. For data analysis techniques requires

understanding of the couple linear combinations are

called canonical variables because the dependent

variables are more than one and require

understanding the correlation value is called a

canonical correlation.

The assumptions in Canonical Correlation, such

as :

 There is a linear relationship and correlation

between the dependent variable to the

independent variables.

 The need for multivariate normality to test the

significance of every canonical function.

 There is no multicollenearity between the

members of the dependent variable group against

the independent variables.

The variables taken are

 Independent variables represents service quality

developments: Reliability is the ability of the

service provider to provide what is promised to

the recipient of the service (customer) accurately.

Assurance relates to the knowledge, modesty,

and ability of the worker (the service provider) to

generate a sense of trust and confidence from the

recipient (customer) for the services received.

Tangibles relates to the physical facilities,

equipment, and appearance of the service

personnel. Empathy is concerned with the

concern and care of the service provider to the

customer (recipient) and Responsiveness desires

to provide excellent services and to assist the

recipient (customer) in case of problems related

to the services provided by the service provider.

 The dependent variable is a value depends on the

change in the value of other ones. The indicators

are as follows: Loyalty company provides an

understanding that all customers can be more

loyal with the improvement of existing

indicators. Propensity to switch shows the

resilience of customers not to switch to other

products. Willingness to pay more shows the

willingness of the respondent / patient to pay

more for services

 The Pattern shows

Loyalty +

Propensity to

switch +

Willingness To Pay

= Reliability + Assurance +

Tangible + Emphaty +

Responsiveness

Metric Metric

3 RESULT AND DISCUSSION

3.1 Result of Canonical Function

The famous VOE in Deli Serdang such as mineral

managing water supply, cattle and pavin block. the

customers make the assessments with loyalty,

propensity to switch and willingness as dependent

variable and reliability, assurance, tangible,

empathy, responsiveness as the independent

variables, namely:

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - -

Eigenvalues and Canonical Correlations

Root No. Eigenvalue Pct. Cum. Pct. Canon Cor. Sq.

Cor

1 6,02435 99,59905 99,59905 ,92609 ,85

764

2 ,01924 ,31816 99,91720 ,13741 ,01

888

3 ,00501 ,08280 100,00000

,07059 ,00498

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - -

Dimension Reduction Analysis

Roots Wilks L. F

Hypoth. DError DF Sig. of F

1 TO 3 ,13898 8,09698 15,00 116,4

,000

2 TO 3 ,97623 ,13009 8,00 86,00

,998

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

1250

3 TO 3 99502 ,07345 3,00 44,00

,974

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - -

Three canonical functions are visible at root no,

with canon correlation for function 1: loyalty is

0.92609 and function 2: propensity to switch is

0.13741 while function 3: willingness to pay more is

0.07059. In the sig column. of f which tests the

significance of the canonical function, visible for

function 1 is 0.000, function 2 is 0.998 and function

3 is 0.974. From these results, it appears that

function 1 individually is significant, and can be

processed further. For functions 2 and 3, cannot be

processed because the numbers are significantly

higher than 0.05 then function 2 individually is

considered unable to be processed further.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - -

Multivariate Tests of Significance (S = 3, M = 1/2, N = 20

)

Test Name Value Approx. F Hypoth. DF Error DF S

ig. of F

Pillais ,88150 3,66166 15,00

132,00 ,000

Hotellings 6,04860 16,39843 15,00 122,00

,000

Wilks ,13898 8,09698 15,00 116,34

,000

Roys ,85764

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - -

While tested jointly with test name: Pillais,

Hotellings and Wilks for Sig numbers. Of F for all

three procedures are below 0.05 ie 0.00. Thus, if

combined together, then canonical function 1,

canonical function 2 and canonical function 2 are

significant and can be processed further.

3.2 Interpretation of Canonical

Variates

Canonical variates is a collection of 5 variables that

make up a variates. For measurement canonical

variates can be done in two ways: Canonical weight

and canonical loadings:

3.2.1 Canonical Weights

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - -

Standardized canonical coefficients for

DEPENDENT variables

Function No.

Variable 1 2 3

Loyalty -,00354 ,63380 -,83530

Propensi -1,16714 -3,27464 -2,55693

Willingn ,17370 3,20854 2,90435

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - -

Standardized canonical coefficients for COVARIATES

CAN. VAR.

COVARIATE 1 2 3

Realibil -,31135 -2,01593 ,27936

Assuranc ,58465 -,75070 1,00145

Tangible -,17904 -,12592 ,83062

Emphaty -,04855 -,08150 ,91619

Responsi -1,07671 2,71772 -,41674

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - -

Considering function 2 (second column

number), it is seen for the dependent variable that

loyalty variable is in the number 0.63380, the

propensity variable is at -3,27464, but it does not

meet because under 0.5 and willingness to pay more

is in number 3.20854 that meets above 0.5. As for

the independent variables (covariates), the

correlation numbers above 0.5 are only

responsiveness.

3.2.2 Canonical Loadings

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - -

Correlations between DEPENDENT and canonical v

ariables

Function No.

Variable 1 2 3

Loyalty -,28880 ,65104 -,70196

Propensi -,99920 ,02980 ,02684

Willingn -,96273 ,21347 ,16606

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - -

Correlations between COVARIATES and canonical varia

bles CAN. VAR.

Covariate 1 2 3

Realibil -,91770 -,37317 -,11841

Assuranc -,88512 -,11717 -,24101

Tangible -,92564 -,10636 -,01826

Emphaty -,29282 ,10810 ,82129

Responsi -,97689 ,05710 -,13062

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - -

By paying attention to function 2 (column of the

second digit), a row of canonical loadings numbers

for dependent variable loyalty above 0.5 is 0.65104.

as for the independent variables (covariates), the

correlation numbers above 0.5 are none.

3.3 Discussion

From the output of canonical weight or canonical

loading, it can be said:

Product Quality Growth Analysis using Canonical Correlation in Small Business

1251

 For significant numbers below 0.05 then function

1: loyalty individually is considered to be

processed further, but together have the same

significant level.

 For output results canonical weight that meets

with a significant level above 0.5 is willingness to

pay more dependently and responsiveness

independently.

 For the results the canonical loading output is

loyalty dependent and no one meets independently

if it is above 0.5.

 positive markings on the responsiveness variable

indicate that the more customers who favor

responsiveness and increase loyalty to increase

willingness to pay more by the customer.

Willingness to pay more is the strong factor in

VOE in Deli Serdang. As the Elderly users could

benchmark for as the importance of quality

management is universally espoused by the

researchers and practicing managers working in this

area with the eco centric values as the nonverbal

communication and empathy are incorporated as

components of their training programs like the

opinion Firbank (2013), Sharma et al (2012),

Lithoxoidou et al (2017) and Peterson & Leonhardt

(2015). As the strength factor to keep the customers,

it must be improved to touch their heart.

Benchmarking is the way to know the other

company way to get them in the future

Loyalty is the strong factor to get more work

needs to be done in the context of buyer-seller

relations on the actual process of empathetic

communication. Quality of services, transparent

policies, delivering what is promised and

representing the things honestly ultimately generates

the customer trust. the customer is aware to whom

his/her perception is dedicated and significant

determinants include the provision of non-audit

service, changes in management, size like the notion

Plank & Reid (2010), Sarwar et al (2012),

Jahanshahi et al (2011) and Abidin et al (2016).

Responsiveness as the independent variable gets

the strong factor.VOE Organizations willing to gain

or to secure a competitive advantage are required to

continuously improve based on ISO 9000

phenomenon. The newly emerging businesses are

very fragile and represent an interest for managers

and scholars alike to identify success strategies in

emergent business sectors. In today’s competitive

business, most of the firms increased focus on

delivering value to the customer. Service quality has

become a key marketing tool for achieving

competitive differentiation and fostering customer

satisfaction and loyalty lie the point Lokkerbol et al

(2012), Sampaio (2012), Butler & Surace (2012),

and Roopchund & Boojhawon (2014).

When an environment does not reached its

carrying capacity, it may not guarantee survival of

SMEs. With regard to improvement of the tangibles

dimension, gender has been found to be a

fundamental factor in the analysis of intent to pay

for online news in previous studies. A preferable

path of future research would be to replicate our

study also in other countries and cultures by using a

more precise. Human capital which is the main point

in improving the quality of SMEs is required an

entrepreneurship education. The weakness for

dependent variables such as propensity to switch

and reliability, assurance , tangible, empathy linked

to environmental conditions that can be directed to

produce results from the creation of society to be

more quickly as the idea of Pongpearchan &

Ussahawanitchakit (2011), Al Khattab &

Aldehayyat (2011), Goyanes (2015), Makkonen et al

(2011), Sukati (2012), Demirgüneş (2015), Malawat

& Putra (2018) and Dilham & Aisyah (2017).

4 CONCLUSIONS

 Product quality growth in the VOE in Deli

Serdang gets the loyalty variables individually

for significant level and other dependent ones

result the significant as group in industry

revolution 4 .0.

 The strong factor such as willingness to pay

more and loyalty dependently and

responsiveness independently make the quality

of the VOE growth must be improved to the get

the real result.

 Human capital which is the main point in

improving the quality of SMEs is required an

entrepreneurship education. The weakness for

dependent variables such as propensity to

switch and reliability, assurance , tangible,

empathy must be educated through the

academic and practitioners approach.

 Comparative study among the SMEs in Deli

Serdang to other success area can be directed to

produce results from the creation of society to

be more quickly.

ACKNOWLEDGEMENTS

The author's research is funded by The Grant Of

Talenta Research Institute of Universitas Sumatra

Utara 2018.

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

1252

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