“Internal factors improving viability of small food and beverage businesses: The case of Indonesia”

Small food and beverage business is considered highly contributing to the economy as it has a close linkage with local micro and small businesses, both upstream and downstream. However, this business group faces challenges; many of them are unable to survive, grow, and compete with large ones. This study is intended to analyze internal factors affecting the performance of small food and beverage businesses in Indonesia. With the use of 100 samples of small businesses, the study applied OLS multiple regression to examine the four internal factors, which are entrepreneurial characteristics, marketing strategies, business capital, and innovation activity. The study results show that marketing strategies, business capital, and innovation activities have a positive and significant effect on the performance of small food and beverage businesses. These findings indicate that small businesses depend mostly on those three factors with dif- ferent levels of intensity for different business locations. Businesses located in universities and hospital areas are likely to have low intensity compared to those located in office areas or crowded places. Differently, entrepreneurial characteristics do not affect performance. Likely, small entrepreneurs did not have a strong business interest, still expecting to work in government organizations and companies. They established a business due to family encouragement and economic needs.


INTRODUCTION
The food and beverage industry is one of the crucial business sectors in every country, especially when viewed in terms of size. This group of businesses has a strong linkage with other economic activities, particularly local businesses. Therefore, this business is said to allow to drive up economic activities from upstream and downstream (Belyaeva et al., 2020). Unlike the large ones that rely mostly on imported materials, the small business applies raw materials produced locally. These businesses generally purchase raw materials and ingredients in traditional markets or directly at agriculture producers (Upe & Aswan, 2021; Prabowo & Rahadi, 2015). This then allows generating a chain of links with traders and local cultivators (Jusni & Aswan, 2020;Najib et al., 2011). In addition, this group also is linked with retailers. In marketing its products, this business is often found to be associated with retail businesses (Raharja et al., 2021).

LITERATURE REVIEW
The performance of small businesses has always attracted many researchers in various countries as many of these business groups are unable to develop, compete, and even survive in the market (Pham, 2017;Nkwabi & Mboya, 2019). The literature indicates that the main problem faced by this business is internal issues (Lestari et al., 2020;Widya-Hasuti et al., 2018). In contrast to medium and large businesses, small businesses are not affected by national and global economic shocks because they mostly serve their products to meet local demand, which is relatively more stable (Najib et al., 2011). Related to internal constraints, several studies have looked at various aspects of internal constraints. However, this study focuses on the four internal constraints that are believed to affect the performance of small businesses, especially in the food and beverage sector. Those internal factors are entrepreneurial characteristics, marketing strategy, business capital, and process innovation.
There is extensive literature discussing the important roles of entrepreneurial characteristics in small businesses and each of them has a different focus on small business success. For example, Lombardi et al. (2021) noted that entrepreneurship characteristics affect small business success and growth through strategic decision-making. Braidford et al. (2017) explained that a growth-incline attitude makes owners strategize their business for long benefits. Na-Nan et al.
(2019) indicated that entrepreneurial characteristics would drive a commitment for the business. Further, according to Chye Koh (1996), owners with entrepreneurial capability will devote their energy to develop an organization by implementing creative ideas and exploiting opportunities optimally.
Concerning attitudes owned by entrepreneurs, Soomro et al. (2021) noted that achievement, personal control, innovation, and self-esteem are crucial characteristics to run a business, while Smith and Sharma (2002) studied also personal responsibility. Na-Nan et al. (2019) consider the attribute of self-efficacy.
Marketing strategy is an important part to improve the performance of the food and beverage business. The use of a marketing strategy could increase sales growth and profit growth (Al-Samirae et al., 2020; Taoketao, 2018) and brand awareness (Rokhim et al., 2021). It also could drive up buying decision behaviors (Sudari et al., 2019) and it affects market share (Heiens et al., 2019). Marketing activity to some extent is said to be a part of innovation activity (Nurliza et al., 2021). In a competitive market environment, price, promotion, and product quality are key to sustaining in the market (Kowalska, 2020). Further, Arthur and Yamoah (2019) said that different products offered could attract different consumers. It is also echoed in the small businesses that offer food and beverage products (Sudari et al., 2019).
Business capital is the funds available to carry out operating activities, including purchasing raw materials, equipment, and paying salaries to employee (Yulianingsih et al., 2021). Literature shows that funds are crucial for small businesses. When small businesses do not have sufficient capital, they are hardly able to implement their business ideas into real action (Masocha & Dzomonda, 2016), struggle to support innovation in the processing activities (Hutahayan & Yufra, 2019), and count mostly on the use of a conventional system (Adhikari et al., 2021). It is also difficult to produce competitive products and services (Minarelli et al., 2015), they are unable to grow and survive in the long term (Archer et al., 2020), and are vulnerable to internal and external shocks (Eggers, 2020).
Literature noted that banks are the main source of external funds for small businesses (Wong et al., 2018). However, many of these small businesses do not have the business information needed by lenders. This condition leads them to be treated as risky consumers so that they have difficulties to be granted funds from commercial banks ( Innovation influences attributes of a product and innovation towards service affects sales performance. Innovative values delivered with products may make consumers feel comfortable and buy again in close time (Huang et al., 2017). They even recommend such products to their family, friends, and neighbors (Wicaksono, 2021;Yeo et al., 2017).

AIMS AND HYPOTHESES
The study aims to analyze how the four internal factors could affect the performance of small businesses in the food and beverage sector of Indonesia. Such internal factors as entrepreneurial characteristics, marketing strategy, business capital, and process innovation have been studied, but only individually or one/two combinations of them to potentially affect small businesses, especially in the case of the eastern part of Indonesia that relies on labor absorption. Therefore, to fill this gap, this study further seeks the effect of the four factors affecting the performance of small businesses to survive and to grow.
Based on the literature review, the study leads to the following hypotheses: H1: Entrepreneurial characteristics significantly affect small business performance.
H2: Marketing strategy significantly affects small business performance.
H3: Business capital significantly affects small business performance.
H4: Process innovation significantly affects small business performance.

Sample, procedure, and description of main variables
The study applied a quantitative approach with the use of 100 samples of small businesses focusing on food and beverage businesses located within the South and West Sulawesi Provinces comprising 3 cities and 27 regencies. The instrument used to reach the respondents is a self-administered questionnaire of the four main variables, which are entrepreneurial characteristics, marketing strategy, paid-up capital, and innovative activity. The entrepreneurial characteristics are measured by four features: the need for achievement (four items), personal responsibility (two items), personal control (three items), and self-efficacy (three items).
Concerning the marketing strategy, it contains four features, which are price (one item), market (two items), promotion (two items), and quality (two items). In business capital, it uses three features that are capital sources, capital adequacy to support regular demand, and capital constraints. With regard to the innovation process activities, there are four features developed and each of them has one item: processing, technology, services, and materials and spices. The last is the small business performance that is measured with four different features with one item of each. These features are a perception of return on asset, return on equity, market share, and competitive position.

Data analysis
The study uses multiple linear regression analysis with ordinary least squares (OLS) to test four independent variables (entrepreneurial characteristics, paid-up capital, marketing strategy, and innovative activity) to affect small business performance in the food and beverage sector. The regression formula is: To have efficient coefficient parameters called BLUE (Best Line Unbiased Estimator), evaluation on classical assumptions are applied for the assumption of normality with the use of PP Plot, linearity with Ramsey, multicollinearity with Tolerance and Variance Inflation Factor (VIF), heteroscedasticity using Rank Spearman, and autocorrelation with Durbin-Watson. Outlier detection is also evaluated using Z-score. The limit score for the Z-score is + 2.5.

RESULTS
The descriptive statistics of the main variables are given in Table 1. Entrepreneurship characteristic has a minimum score of 52 and a maximum score of 84 with a mean of 70.47 and a standard deviation of 5.787. Marketing strategy has a mini-mum score of 21 and a maximum score of 47 with a mean score of 32.85 and a standard deviation of 6.267. The lower score for independent variables is capital with a minimum score of 12 and a maximum score of 42. The mean of the variable is 30. 16 and a standard deviation is 4.668. For the innovation activity, a minimum score is 24 and a maximum score is 55 with a mean of 42.01 and a standard deviation of 6.078. Concerning performance, it has a minimum score of 5 and a maximum score of 17 with a mean of 13.30 and a standard deviation of 1.997. Based on multivariate regression analysis given in Table 2, the regression equation is then formulated as Y = 3.309 -0.025X 1 + 0.118X 2 + 0.102X 3 + 0.114X 4 + e. The result indicates that performance is affected by four independent variables with a significant score of 0.01, except for entrepreneurship characteristics showing an insignificant score. The four independent variables are entrepreneurship characteristics (X 1 ), marketing strategy (X 2 ), capital (X 3 ), and innovation activity (X 4 ).
The determination coefficient parameter (R square) as given in Table 2  Concerning the coefficient parameter, the coefficient score of the variable entrepreneurship characteristics is -0.025. The coefficient parameter of the marketing strategy is 0.118 with the assumption that other variables are unchanged. With regard to capital, the coefficient parameter is 0.102 with the assumption that other variables are unchanged. As for innovation activity, its coefficient score is 0.114 with the assumption that other variables are unchanged.
Viewed from its contribution of each variable, standardized coefficients show that the marketing strategy (0.404) have a higher impact on the performance of the small businesses in the food and beverage sector, followed by the innovation activity (0.348), capital (0.215), and entrepreneurship characteristic (0.074). Note: * significant at P < 0.05, ** significant at P < 0.01, *** significant at P < 0.10.
On the basis of result, the hypothesis testing with alpha is 0.05 (α = 0.05) for the findings indicate that H 2 , H 3 , and H 4 are accepted, but H 1 is rejected.

DISCUSSION
Given the result in Table 2, it can be explained that entrepreneurial characteristics did not show a significant score to affect the performance of small food and beverage businessesin two provinces, South and West Sulawesi. It is possibly due to a fact that small business are generally established to meet local needs at most so that this group of businesses can be run even though the owner only has limited entrepreneurial skills. Further, it is also likely that the establishment of the businesses by their owners does not fully arise because of the entrepreneurial spirit. Many owners are forced to do business because they do not have other jobs and some set up a business to solely fill their time while looking for opportunities to be an employee in a company or a civil servant. This group commonly established business due to meet family needs or family encouragement (Herdjiono et al., 2017;Sondari, 2014). Consequently, it is found that many small businesses face difficulties to reach a growth stage since owners do not manage their business professionally.
In that case, owners show low responsibilities and self-control when managing a business and little self-esteem to be an entrepreneur. This condition is also found in developing countries as stated by Ismail (2014) and Hutahayan (2019).
Business capital affects small business performance. This indicates that the increase in the capital could cause to affect the increase in small business performance. It is found that small businesses that have low constraints to have capital, could manage to produce food products that fit with the customer preferences and provide a wide variety of food products at most, able to have a well manageable raw material stock and to produce quality products. This condition has been found by Afrifa (2016) in England and Baños-Caballero et al. (2016) in Spain in which low working capital affects small business performance. On the contrary, small businesses suffering from capital constraints, face barriers to develop food products and they only manage to have limited stock on raw materials as is given by Chaochotechuang and Mariano (2016) in Thailand. Consequently, they only could manage limited customers than those of small businesses with low constraints in the capital.
Concerning marketing strategies, it has a positive sign to affect small business performance. It is a fact that small businesses use marketing efforts with different degrees of intensity. Those small businesses that apply intense promotions have more sales, booked high profitability, and are most likely to have a higher portion of market share (Al-Samirae et al., 2020; Sudari et al., 2019). Marketing efforts carried out by the small businesses in the provinces can be classified into three activities, namely traditional marketing efforts through the word of mouth, collaborating with online transportation providers, and promoting through social media, such as Twitter, WhatsApp, Facebook, Instagram, etc. It is the fact that there is only a few small businesses that rely solely on offline marketing, this group of small businesses operates during the daytime only, and their location choices are close to customers at most, such places as at universities, hospitals, and office areas. This group of small businesses has a limited number of customers and focuses to serve a narrow area of customers. Differently, those businesses that use offline and online media in marketing their products can be found in crowded places in the main street and operate until night. Some small businesses still can be found in universities, hospitals, and office areas, but mostly they do not apply online marketing strategies routinely. They only adopt online marketing by cooperating with online transportations. The small businesses that earn good profitability indicated by several customers apply intense online marketing. Besides cooperating with online transportation providers, these small businesses also actively and routinely provide updated information about their products through social media, such as Twitter, Instagram, Facebook, WhatsApp, etc. These businesses have more customers both during the day and at night. This indicates that small businesses in the food and beverage sector in the provinces apply marketing strategies to reach their customers. This condition has been noted by Nurliza  The use of technology is mostly found in small businesses that produce snacks product. Generally, this group is the franchise business. Some are also concerned to provide a comfortable place for their cus-tomer and excellent service. Conventional food and beverage businesses use technology on processing seasoning for efficiency on cost and time. This group is said to use low technology compared to other small business groups. This has been indicated by Karagouni and Kalesi (2011). However, this group maintains the taste offered to the customers as given by Hasibuan (2015). This group of small businesses is found in universities, hospitals, and partly in office areas at most.

CONCLUSION
The study examined four internal constraints that could affect small business performance in the food and beverage sector, which are entrepreneurship characteristics, marketing strategy, capital, and innovation activity. From the result, it can be concluded that except for entrepreneurial characteristics, the other four variables studied show significant relationships.
Concerning the entrepreneurship characteristics, it did not show a significant association because food and beverage products are produced mostly to meet local demands that can be conducted with low entrepreneurial skills only and the owners did not show entrepreneurial spirits. In a marketing activity, the owner shows a marketing strategy with a different degree of effort for the different locations. Small business located at hospitals and universities is likely to show low intensity counting mostly on offline marketing strategy compared to those small businesses located in crowded places (that use a combination of offline and online marketing strategies).
A positive relationship to business capital indicates that the businesses have sufficient capital. Businesses are mostly able to provide food and beverage products serving their target customers and have enough cash to support operational costs. For innovation activity on the process, attention is given in the processing activity to serve products following customer preferences. Tastes are highly concerned especially by those businesses located in hospitals and universities; quality of products served and excellent services are additional features considered by customers in crowded places.