Introduction
In the Peruvian context, manager’s negotiation skills are of utmost importance because they can be applied in different areas of the company and allow agreements with each of the stakeholders (Wong & Lefranc, 2021). These skills facilitate the negotiation with suppliers to obtain competitive prices in the purchase of products and services, negotiation with financing sources to obtain a lower interest rate and a higher credit line, the purchase of fixed assets for the company and financing for new projects, renegotiations for payment problems in loans, debt rescheduling; negotiation with employees to achieve competitive salaries in line with the market; negotiation for promotions, salary increases, employees to have a good working environment, negotiation with customers to reach important sales agreements, collective negotiations with a given community and its environment to reach agreements on products and services. In the case of small and medium-sized enterprises (SMEs) in Peru, commonly the roles of the manager and owners are very similar; Peruvian managers work and make crucial decisions hand in hand with the owner, sometimes they are also the owners.
According to Ministerio de Producción (2017) small and medium-sized companies in Lima-Peru report annual profits between 200k to 2.5 million dollars. Furthermore, the literature confirms that SMEs are considered as the sector of society that provide economic growth to many countries, generating jobs even if their survival rate over time is too low (Jamali et al., 2015). Similarly, in Peru, it has been reported that small and medium-sized companies contribute to employment opportunities (Barron, 2020; Jauregui-Arroyo et al., 2023) and like most countries, especially developing, it contributes to the reduction of poverty (Wiid et al., 2016). A recent study also pointed out that although medium-sized companies have limited resources and deficient levels of innovation, they are the engine of a country’s economy (Ghezzi et al., 2022). For Ramírez-Solis et al. (2022) medium-sized companies must create better relationships with their suppliers, partners, customers, government, in addition to being more innovative in order to remain competitive. Notwithstanding, Gill and bigger (2012) claimed that a large number of these companies stop working overtime due to lack of infrastructure, regulatory problems in the country, lack of financing and poor management skills. Another study has also reported that external financial support is one of the factors that influence the performance and growth of a medium-sized company (Toth et al., 2022).
On the other hand, it is observed that studies with regard to the influence of top management characteristics on firm performance are commonly conducted in developed countries (Acar, 2016). For instance, Liam and Hein (2020) highlighted that the success of a firm is influenced by some manager characteristics. According to Clare et al. (2022) manager characteristics such as age, education, experience have evidence that can be relevant to the performance of a firm. Studies show different results when it comes to relationship between manager characteristics a firm performance, for example Zhang (2017) noted that there is a relationship between both variables, but for Liem and Hien (2020) age is not a relevant factor for firm performance. Karadag (2017) affirmed manager’s level of education influences the performance of a medium-sized firm, while other studies suggest the opposite (Besar et al., 2017; Hambrick & Mason, 1984). Additionally, managers are expected to demonstrate effective negotiation skills (Baber, 2022; Letonja et al., 2016). Since the studies’ reported results exploring the analysis of manager characteristics and medium-sized firm performance are inconclusive and considering that Peru, which is in a category of a developing country (Pawlak & Kołodziejczak, 2020; Rojas-Berrio et al., 2022), has not been analyzed in those studies, there seems to be an opportunity to study these variables in a different scenario. Therefore, this study intends to determine the influence of manager characteristics such as age, level of education and negotiation skills on small and medium-sized Peruvian companies’ performance.
Literature Review
Manager’s age
Regarding the manager’s age variable, Zhang (2017) noted that as the manager gets older, there is a negative relationship between cognitive skills and certain information processing skills. Setiawan and Gestanti (2022) pointed out after people turn twenty there is a decrease in numerical skills, memory and cognitive ability. The decrease in these skills is greater after sixty years old. For Mukherjee and Sen (2022) managerial characteristics such as age can influence strategic decisions and this is likely to influence the firm financial performance and growth. Shah et al. (2021) argued that the most risk-averse managers are commonly older; they struggle when it comes to new adaptations and product innovations. Peltomäki at al. (2021) stated that the relationship between age and risk tolerance is complex, there is no systematic evidence of such a relationship. Moreover, for Liem and Hien (2020) the age of the manager can influence risk taking in the firm, self-confidence and decision making, but it does not influence on financial performance.
Manager’s level of education
Karadag (2017) pointed out that the manager’s level of education is a characteristic that influences the performance of a small and medium-sized company, and according to the authors Kathuria and Porth (2003) the level of education is related to generating greater changes in the company. Likewise, Setiawan and Gestanti (2022) stated that a higher profit level of a company can be achieved by a high level of education of the manager such as having a master’s degree. Vale et al. (2022) noted that the choice of strategies is influenced by the manager’s level of education and this choice can influence the firm’s performance. For Nuryakin and Maryati (2022) the performance of a firm is related to the level of education of a manager and that younger managers are more likely to be well educated. Some manager’s skills can be improved through education as pointed out by Kotorri and Krasniqi (2018) indicating that the ability to analyze information, cognitive skills or strategic decisions can be improved through manager’s education, also thanks to this they have a better risk analysis and a more rational approach. According to Zhang (2017), decision making in the company is influenced by the manager’s level of education as well as their age. Information is a very important aspect for the manager to make decisions, for instance, Liem and Hien (2020) argued that the manager’s education can influence the process of obtaining information. Contrary to this, Besar et al. (2017) pointed out that managers with high level of education tend to focus more on short-term strategies and tend to be less innovative.
Manager’s negotiation skills
Negotiation is an interaction involving at least two parties to make decisions in search of a consensus (Schmid & Schoop, 2022). According to Borbély and Caputo (2017) negotiation includes both group discussions, interpersonal relationships with the objective of reaching agreements accepted by the parties. Negotiation skills can be more effective if managerial knowledge and the installation of good negotiation processes are taken into account. Lopez-Lemus (2019) highlighted that negotiation focuses on solving a conflict of interest between people, to give and receive benefits. There is also the internal negotiation which is related to partners, investors and members of the company and the external negotiation with stakeholders. Thanks to negotiation, the company’s objectives can be achieved. Beers et al. (2006) argued the way negotiation is conducted is also important for complex problem solving. Negotiators, in order to conduct a good negotiation process, must understand the position of the other party as it is an important factor in problem solving. In the words of ElShenawy (2010), negotiation requires decision-making by two or more parties and their performance is measured by the results obtained. Negotiation skills are an important characteristic for improving financial performance, companies should invest more in their managers so that they can receive training in this skill. Chapman et al. (2017) proposed a manager’s training model divided in distributive, integrative and adaptable skills in order to foster negotiation skill development. Negotiation skills are valuable for most organizations, they are taught from a general perspective with occasional tactics or suggestions without considering the business context or expected outcomes. However, they can be trained more specifically depending on the person’s attitude and leadership skills as well. Moreover, Baber (2022) stated that highly trained negotiators have an impact on the organization in terms of management success and positive negotiations. This can also result in managers getting promoted to senior positions. On the other hand, it has been reported that some Europeans SMEs partly struggle in their organization and management because of their lack of external negotiating power (Paul, 2020). In the Peruvian context, it has been reported that it is possible to start an unprecedented successful business regardless of your family business networking, unlimited investment or higher education background, even facing language barriers. Successful business skills can be also the product of other manager’s features such as the intellectual capacity, empirical experience of the sector, developing a market governance structure, generating a good company image, and making lobby actions (Wong & Lefranc, 2021).
Firm performance in medium-sized companies
Firm performance has been studied by organizational science and both financial and operational factors are very acceptable ways to measure it (Mbo & Adjasi, 2017). In the case of performance in medium-sized companies, Costin (2012) reported that the measurement of company performance is composed of financial measures such as the level of revenues and profits and non-financial measures such as the increase in the number of employees in the company. According to Mageto et al. (2022) another non-financial measure is the level of customer satisfaction. In addition, Ramirez-Solis et al. (2022) pointed out that to measure performance in medium-sized companies, metrics such as financial performance, customer satisfaction and also subjective measures of performance are used, which is useful in medium-sized companies since it is sometimes difficult to obtain objective measures of these. Other authors such as Kathuria and Porth (2003) analyzed the performance of a company from a subjective performance approach due to the difficulty of obtaining objective measures as well. Additionally, firm performance has been reported to be connected to sales growth, profit growth, sales margin growth; as well as sales growth satisfaction, profit growth satisfaction, and sales margin satisfaction (Costin, 2012; Kathuria & Porth, 2003; Mageto et al., 2022; Ramírez-Solis et al., 2022).
Relationship between manager characteristics and firm performance
On the relationship of manager’s characteristics and performance in small and medium-sized companies, Chan et al. (2020) noted that a manager’s decisions can be influenced by certain characteristics such as age, experience or level of education and also these can influence the manager’s strategic decision making which is an area of growing importance in strategic management. According to Liam and Hein (2020) some manager characteristics are essential for a good strategic implementation, characteristics such as age and education of the manager can influence the type of strategy they choose for the company and these affect the performance of the company. Regarding firms’ performance measurement, Kadam et al. (2019) pointed out that profit growth is an important financial indicator to measure performance in a medium-sized company. Moreover, sales growth has become an immediate performance indicator (K. Z. Zhou et al., 2022). Sales margin growth is a good way to know the financial performance of a company (Lento & Sayed, 2015). In this context, the present research aims to determine the influence of some characteristics of the manager in the performance of medium-sized companies in Peru. To do so, a theoretical model has been proposed including the characteristics of the manager such age, education and negotiation skills as the independent variables and firm performance as the dependent variable.
Study hypotheses
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Manager’s age influences positively on the performance of medium-sized companies.
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Manager’s level of education influences positively on the performance of medium-sized companies.
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Manager’s negotiation skills influences positively on the performance of medium-sized companies.
Methodology
This study was guided by the post positivism paradigm and the quantitative approach (Costin, 2012; Creswell, 2013); this is also an example of causal non-experimental research. The study population consisted predominantly of general managers of medium-sized companies from different age ranges and educational backgrounds similarly to other studies (Jauregui-Arroyo et al., 2023; Kathuria & Porth, 2003; Ramírez-Solis et al., 2022); most of the study participants reported to be the company owners confirming what has been stated in other studies regarding SMEs in Peru (Barron, 2020). Moreover, it has been found that SMEs in Lima-Peru report around 200k to 2.5 million dollars annual profits; and both the secondary sector (manufacturing companies) and tertiary sector (commerce and services companies) report a high presence in Lima (Ministerio de Producción, 2017). Considering this, 1536 small and medium-sized companies from different sectors were selected leading to a probability sample size of 235 companies (Hair et al., 2010).
Study instrument
To establish the survey validation; initially, seventy e-mails were sent to journal articles authors in the analyzed constructs, each e-mail included the proposed survey statements and a form that evaluated quantitatively (1-5) those statements in terms of sufficiency, clarity, coherence and relevance. Only five responses included these forms and items feedback. Moreover, to measure the survey reliability, a piloting test was developed involving nineteen managers. This stage helped improving statements wording and adjusting the Likert scale keywords. The final study survey (see appendix A) included three sections: Section A measuring some characteristics of the manager such as (a) age and (b) level of education (Costin, 2012; Karadag, 2017; Setiawan & Gestanti, 2022), it was established five age ranges (18-30, 31-40, 41-50, 51-60 and more than 61) and five educational backgrounds (primary, high school, technical studies, bachelor and Master; there was an extra option for managers to specify their chronological age). Another aspect of section A was (c) negotiation skills (ElShenawy, 2010; Letonja et al., 2016; López-Lemus, 2019; Schmid & Schoop, 2022) which were evaluated through a five-point Likert scale: (1) totally disagree, (2) disagree, (3) do not agree or disagree, (4) agree, and (5) totally agree. On the other hand, section B consisted of questions on (d) sales growth, (e) profit growth and (f) gross margin growth (Doris & Antoncic, 2008; Høgevold et al., 2020; Mageto et al., 2022; Ramírez-Solis et al., 2022) considering two measurements, the first: (1) negative, (2) 0.1% - 5%, (3) 5.1% - 8%, (4) 8.1% - 10%, (5) more than 10%; the second: (1) totally dissatisfied, (2) dissatisfied, (3) neutral, (4) satisfied (5) totally satisfied. Additionally, section C requested information about the company such as: its name, location, type of industry, years of operation, ownership and the participant position in the company.
Data collection
The use of telephone survey technique allowed to achieve participants faster response, it also reduced incomplete responses, especially among medium-sized companies’ managers (Edvardsson & Teitsdóttir, 2015). The fieldwork was conducted between June and July in 2019 by a polling company (three professional interviewers) to get in contact with the sample group by telephone and apply the instruments. Each interviewer stated the purpose of the study, the approximate time, and that the data collected would be treated anonymously and confidentially. Regarding the instrument application, overall, there was a 92% successful response rate; originally, 235 medium-sized companies were contacted to interview their managers, 220 agreed to be part of the study by responding the surveys. Later, a review was made of each of the completed questionnaires in order to identify missing information because of human error, 5 were eliminated due to incomplete answers. At the end, a total of 215 questionnaires were fully responded by the participants, this provided the necessary data for the statistical review.
Data analysis
Before starting the structural equation modeling, the constructs data normality distribution was analyzed through the coefficient of kurtosis and asymmetry. It was established that the data did not meet the criteria of the normal distribution. As reported, if values of skewness and kurtosis are not in (-2, 2), then the collected data is out of normality (Hair et al., 2010; Mohammadi & Izadpanah, 2019). Having confirmed this, then the SmartPLS software version 3.2 was selected for the analysis, PLS-SEM technique has been used in other studies to test internal consistency reliability and average variance extracted (W. Zhou et al., 2022).
Results
Table 2 summarizes the sample group main characteristics. For instance, most participants reported being the company’s general manager or executing that role, the rest of them were managers from other areas such as finance, human resources, operations, and sales. A great deal of them confirmed to be the company owners as well.
Additionally, most participants were male, they were predominantly on their 30’s, 40’s and 50’s representing different generations and levels of business experience. More than three quarters of them hold a bachelor’s degree, predominately in management followed by engineering and law. Moreover, few of them reported having done a postgraduate degree. On the other hand, 15% of participants reported not having reached higher education.
The analysis began by specifying the proposed framework, Figure 1. On the one hand, the model included independent variables such as age and education level, regarded also as unidimensional variables (Karadag, 2017; Setiawan & Gestanti, 2022), and negotiation skills with five items: (5.1) managing stress (5.2) work issues debate and consensus (5.3) ability to negotiate and reach agreement (5.4) intervening in business partnership problems (5.5) achieving successful negotiations (ElShenawy, 2010; Letonja et al., 2016; López-Lemus, 2019; Schmid & Schoop, 2022). On the other hand, the firm performance, represented the dependent variable, included six items: (6.1) sales growth (6.2) profit growth (6.3) sales margin growth (7.1) sales growth satisfaction (7.2) profit growth satisfaction (7.3) sales margin satisfaction (Costin, 2012; Kathuria & Porth, 2003; Mageto et al., 2022; Ramírez-Solis et al., 2022).
After analyzing the proposed model with the SmarPLS program, it was observed that some composite reliabilities were less than 0.7 and some average extracted variances were less than 0.5 (see Table 3).
Then, it was also established, Figure 2, the path coefficients and factor loadings outcomes testing the proposed model.
Furthermore, the results suggested eliminating items 5.2, 5.3 and 5.4 for generating reliabilities lower than 0.7 and average extracted variances lower than 0.5 (See Figure 2). After performing this procedure, the model was run again, and the following results were generated (see Table 4).
An adjustment to the previous proposed model was made, Figure 3, since the composite reliabilities revealed values greater than 0.7 and 0.5 for the average extracted variances, indicating that the items explained more than 50% of the variance of the study dimensions.
Table 5 shows that one of three independent variables was accepted, it has a reported p-value less than 0.05, meaning that manager’s negotiation skills affect positively the medium-sized firm performance. The other two variables such as age and level of education did not influence medium-sized firm performance since they reported p-values greater than 0.05.
Finally, after reporting and analyzing the results, the final theoretical model has been summarized in Figure 4, confirming the influence of manager’s negotiation skills on medium-sized firm performance.
Discussion
As reported, manager’s negotiation skills have a positive effect on the performance of SMEs in Peru. This outcome can be attributed to the sample characteristics, most of them were the company’s owners, so they were in a position to take key steps and actions in the organization. Another factor contributing to this result can be the Peruvian idiosyncrasy when it comes to making business in this developing economy, such as taking initiatives to stand out from competitors (Wong & Lefranc, 2021), or thriving in the middle of informalization in terms of lacking a valid tax ID registration, legal permission to operate in the sector, avoiding issuing sales bills, and manager’s unwillingness to totally embrace formality even after taking part in intensive financial training programs (Barron, 2020). Moreover, Peruvian managers have also learned to deal with other negative idiosyncrasies such as lack of trust on employees, suppliers, or even their business partners; supervising goods delivery and quality, dealing with customers changing loyalty, high loan interests; and somehow facing crime such as extortion, robberies, and kidnapping in a country which does not seem to guarantee safety, justice and investment.
On the other hand, Letonja et al. (2016) highlight that in the SMEs context, family owners’ entrepreneurial skills can be transferred or taught from generation to generation. Similarly, Lopez-Lemus (2019) argue SMEs businesspeople and entrepreneurs must apply suitable management strategies in order to gain expertise and skills to run their business. Other studies report that negotiation skills explicit training is both feasible and necessary for organizations success and internationalization (Baber, 2022; Chapman et al., 2017; Paul, 2020). With regard to manager’s age, it has been demonstrated that this variable does not affect the performance of medium-sized companies in Peru; however, it should be noted that the age ranges patterns reported here differ from other studies (Besar et al., 2017; Costin, 2012; Katsaros et al., 2014). Similarly, Liem and Hien (2020) point out that manager’s age does not affect financial performance of a company. However, it has also been revealed a positive effect of managers’ age on firms’ performance and other associated variables (Mukherjee & Sen, 2022; Peltomäki et al., 2021; Setiawan & Gestanti, 2022; Shah et al., 2021; Zhang, 2017)).
In the case of the manager’s level of education analysis, it was established that this construct does not affect medium-sized companies’ performance in Peru. This could be partly explained by the fact that even though a sixth of the participants did not go to college, they are still capable of running their company. Barron (2020) argues that most SMEs owners in Peru are not educated in business. Another aspect worth mentioning is that in Peru, there are reported cases of successful companies originally created by people with little academic background or experience in the sector who eventually managed to expand their business (Cirilo López & Toralva Fernández, 2017; Wong & Lefranc, 2021).
As also reported, holding a postgraduate degree does not seem to make a difference in companies’ performance; this seems to narrow managers’ openness to long-term strategic planning and innovation (Besar et al., 2017). This result may also differ from other economies due to cultural, social and economic differences; for instance, it is noted that some empirical skills such as coping with ambiguous and uncertain scenarios are more helpful for managers’ duties in a similar economy to Peru (Katsaros et al., 2014). In an emerging economy scenario, Karadag (2017) highlights that a high level of performance of a medium-sized company is due to a high level of education of the manager.
Conclusions
It can be argued that this research findings have contributed to the analysis of manager key characteristics and SMEs performance in Peru. First, it has been confirmed the positive impact of negotiation skills on SMEs performance in Peru; notwithstanding, this result is linked to Peru’s idiosyncrasy and its business culture which can be strikingly different from other economies. On the other hand, it has been determined that both age and level of education factors do not affect SMEs performance. Even though this outcome corresponds with part of the literature, it should be noted the study focused on transportation, commerce, real state, distribution, manufacturing, services sectors. Moreover, despite the fact that managers’ higher educational background does not apparently play a significant role in improving their duties in the company, the literature suggests designing and implementing programs connected to negotiation skills, so that managers can be more aware of them and improve their company performance. Some limitations are spotted, for instance, the preponderance of male participants, and the dominance of some age ranges which could potentially favor some views over others. Another limitation worth mentioning is the common method bias since this study’s variables analysis was based on a single instrument: Likert scale survey’s results. On the other hand, the study instruments and findings can be replicated in other countries from Latin America considering how similar these economies are in comparison to the Peruvian context. New studies could include additional constructs such as manager experience in the company, and gender differences. Furthermore, new research instruments such as in-depth interviews or semi-structures interviews can be implemented to provide other views of the study constructs.