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

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

HybridBusiness

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

erformance

H2:

Resource capabilities have a positive and

significant influence on company

erformance

H3:

External environment has a positive and

significant influence on hybrid business

strate

H4:

Resource capability has a positive and

significant influence on hybrid business

strate

H5:

Hybrid strategy has a positive and

significant influence on company

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

) and resource capabilities (X

); 2)

the Intervening variables: hybrid business strategy

); and 3) Endogen Variable: business

performance (Y

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

p-value Description

External

Environment

(X1)

Company

Performanc

e (Y2)

0,079 0,681

Insignifican

Resource

Capabilities

(X2)

Company

Performanc

e (Y2)

0,470 0,099 Significant

External

Environment

(X1)

Hybrid

Business

Strategy

(Y1)

0,097 0,163

Insignifican

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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