6 th ASEAN UNIVERSITIES
INTERNATIONAL CONFERENCE ON ISLAMIC FINANCE
(6 th AICIF)
14th - 15th November 2018
New World Makati City, Manila, Philippine
CONFERENCE
PROCEEDING
CORPORATE GOVERNANCE
ISLAMIC BANKING AND CAPITAL MARKET
MONEY PAYMENT SYSTEM &
FINANCIAL INNOVATION
TAKAFUL & RISK MANAGEMENT ISLAMIC SOCIAL FINANCE
ARABIC PAPERS 1. 2.
3.
4. 5.
6.
SUB THEMES
CORPORATE
GOVERNANCE
Sub Theme Corporate Governance
No Paper ID Paper Title Author(s) Affiliation
1 6th AICIF:
083-075
Tax Amnesty and JIHAD on CV. SR
(Phenomenology Study) Ahmad Rudi Yulianto
Universitas Islam Sultan Agung (UNISSULA), Indonesia
2 6th AICIF:
039-032
Good Corporate Governance, Earnings Quality, and Firm Value:
Empirical Study on Jakarta Islamic Index Companies 2008-2015 using Structural Equation Model-Partial Least Square Method
Sugiyarti Fatma Laela, Dian Yuni Anggraeni, Rahma Wijayanti
Sekolah Tinggi Ekonomi Islam (STEI) Tazkia, Indonesia
3 6th AICIF:
076-063
Taawun: An Islamic Practice to Reduce Voluntary Turnover Intention
Ken Sudarti, Alifah Ratnawati, Mulyana,
M. Husni Mubarok
Universitas Islam Sultan Agung (UNISSULA), Indonesia
4 6th AICIF:
079-066
Successful Determinant of Islamic
Knowledge Organization Marno Nugroho
Universitas Islam Sultan Agung (UNISSULA), Indonesia
5 6th AICIF:
082-069
The Effectiveness of Internal Control, Organizational Ethical Culture, and Fraud Prevention: The Role of Moderating Individual Morality
Provita Wijayanti, Rustam Hanafi, Nurhidayati
Universitas Islam Sultan Agung (UNISSULA), Indonesia
6 6th AICIF:
084-071
Critics on the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) from Shariah Banking and Investment
Hakimah Yaacob,
Khairul Hidayatullah Basir
Universiti Islam Sultan Sharif Ali (UNISSA), Brunei Darussalam
7 6th AICIF:
084-072
Enabling Legal Environment of Islamic Finance in Brunei: A Demand for Improvement
Hakimah Yaacob,
Khairul Hidayatullah Basir
Universiti Islam Sultan Sharif Ali (UNISSA), Brunei Darussalam
8 6th AICIF:
088-076
The Impact of Collaborative Networks and Islamic Works Ethic on Business Performance of Small and Medium Enterprises
Mulyana
Universitas Islam Sultan Agung (UNISSULA), Indonesia 9
6th AICIF:
090-078
Corporate governance from Islamic
perspective Abdulrahman Alnofli
International Islamic University Malaysia
10 6th AICIF:
093-082
Corporate Social Responsibility in
Islamic Perspective Chrisna Suhendi
Universitas Islam Sultan Agung (UNISSULA), Indonesia
11 6th AICIF:
094-084
Internal Control, Acceptance of Compensation and Unethical Behavior as a Predictor of Trends in the Establishment of Fraud
Khoirul Fuad
Universitas Islam Sultan Agung (UNISSULA), Indonesia
12 6th AICIF:
101-125
Earnings Management of Family Generation Company in Indonesia:
Socio Emotional Wealth (SEW) Theory Perspective
Edy Suprianto, Y Anni Aryani, Doddy Setiawan, Rahmawati
Universitas Islam
Sultan Agung
(UNISSULA),
Indonesia
13 6th AICIF:
081-103
The Role of Partnership in Improving SMEs Reputation: An Islamic Outlook
Tri Wikaningrum, Imam Ghozali, Ahyar Yuniawan
Universitas Islam Sultan Agung (UNISSULA), Indonesia
14 6th AICIF:
134-127
The Analysis of Online Shopping
Satisfaction in Islamic Perspective (Case Study to Student Of
University Of Darussalam Gontor Campus Magelang On Period 2017)
Mustaan Al Faruqi, Mufti Afif
University of Darussalam (UNIDA) Gontor, Indonesia
15 6th AICIF:
155-146
Short-run and Long-run
Relationship between Economic Growth, Foreign Direct Investment, Trade Liberalization and Education on Income Inequality: Evidence from Indonesia
Siti Nur Azizah, Neneng Ela Fauziyah
UIN Sunan Kalijaga,
Indonesia
1
6thASEAN Universities International Conference on Islamic Finance (AICIF), Manila, Philippines 14th & 15th November 2018
The Impact of Collaborative Networks and Islamic Works Ethic on Business Performance of Small and Medium
Enterprises
Mulyana
Sultan Agung Islamic University, Indonesia
Abstract
Small and medium enterprises have a contribution to economic development. Islamic works ethics and collaborative networks are needed to improve the performance of small and medium enterprises. The aim of the study is to examine the effect of Islamic works ethics and collaborative networks on the capability of innovation and business performance.
The research recipient is 89 leaders of fashion small and medium enterprises in Semarang and the sampling method uses purposive sampling. The results showed that Islamic works ethics and collaborative networks had a significant effect on the capability of innovation. Furthermore, Islamic work ethics and the capability of innovation also have a significant effect on business performance, while collaborative networks have no significant effect on business performance. Effect of Islamic work ethic on business performance is not mediated by innovation capabilities, while the influence of collaborative network on business performance is mediated by innovation capabilities.
Keywords: Collaborative Network, Islamic Works Ethic, Innovation Capability, Business Performance.
1. Introduction
Understanding the factors that influence business performance are very necessary for management.
Research on Muslim fashion SMEs is very important because Islamic business ethics are very important to be applied to a Muslim. Al-Qu'ran and Sunnah also explain the importance of applying ethical behavior in all aspects of life including business. The study shows that the work ethic Islamic can improve the capability of innovation (Muhammad Farrukh, et al, 2015; Kumar, 2012), while the Adibah study (2013) shows that Islamic ethics must be developed together and applied in daily activities for people who Muslim character. The research of Wilson (2005) showed that the application of business ethics to Islamic banks is explicitly questionable.
Muslim fashion SME operations really need the support of Islamic business ethics in developing corporate strategies so that customers can enjoy benefits directly on business policy. Study of Widana et al.
(2015), shows that Islamic business ethics can improve business performance, by creating features that are unique and different from competitors.
Improvement of good innovation capability requires the adequate support of human, financial, and technological resources, so that with small and medium-sized businesses with the flexibility they have to be able to build collaborative networks well. Information access can be obtained through business incubators which are expected to encourage an increase in organizational network collaboration for the development of innovation capabilities. Collaborative network development can encourage the creation of synergies that can help new technological innovations and commercialization activities (Ziemer, 2009). The development
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of information technology encourages SMEs to adjust to changes in the technology environment that can provide better value for customers. Collaborative networks are an effective way to improve continuous innovation capabilities, through the learning process, transfer of knowledge and technology.
The Previous empirical studies show that collaboration between academics, government, companies and civil society can improve innovation so as to increase economic growth (Alfonso, 2010).
The study also shows that collaborative networks are needed to determine innovation strategies by assessing the competence of external network partners such as universities, companies, and government (Varrichio, 2012; Carayannis, 2009). The study of Najib (2014) shows collaborative networks can be as source of innovation development in the creative food industry (Najib, 2014) and collaborative networks are also needed to create synergies for the development of technological innovation (Ziemer, 2009). The study of Chen (2013) shows financial performance, the performance of cooperation with customers can be done by developing collaborative communication. Other studies show that different results of collaborative network size cannot improve organizational performance (Ofem, 2014), as well as internal cooperation with small companies with the government unable to improve innovation performance (Zeng, 2010). Some previous studies still have contradictions, so this study focuses on Muslim fashion SME leaders who have a commitment and uphold Islamic business ethics. Therefore, research on the impact of Islamic works ethics and collaborative networks on the capabilities of innovation and performance of SMEs is needed. The findings of this study are expected to contribute to solving the gab from previous research and contribute to the development of SMEs in the face of global markets.
2. Literature Review and Hypothesis Development 2.1 Islamic Work Ethics and Innovation Capability
Islamic work ethics has a positive relationship with innovation capabilities (Farrukh et al, 2015) so that Islamic work ethic is needed to formulate and design change programs in organizations. In the public Islamic works ethic sector have a significant effect on the capability of innovation (Awan & Akram, 2012).
A capability of innovation can be developed through the values of existing work ethic Islamic organizations (Abbasi et al., 2012; Cloud and Akram, 2012; Kumar and Rose, 2010). Likewise, the integration of Islamic work ethic values in organizational culture will help organizations in empowering human resources to get better results (Abbasi et al, 2012). Islamic work ethic is also positively affected by this capability (Naresh Kumar and Raduan Che Rose, 2012; Mahfoudh et al, 2014).
H1: Islamic work ethic has a significant effect on innovation capabilities.
2.2 Collaborative Networks and Innovation Capability
Collaborative networks were developed to formulate innovation strategies by giving value to the competence of external network partners, including universities, companies, and government (Varrichio, 2012; Carayannis, 2009). Collaborative networks can encourage improvement of innovation capabilities (Najib, 2014). Collaborative networks are network models developed to improve innovation through suppliers, clients, competitors, and research organizations (Tsai, 2009). Collaborative networks are developed through vertical, which includes clients, suppliers, competitors, being horizontal by building collaboration with research institutions, universities, and government (Zeng, 2010)
H2: Collaborative Networks have a significant effect on innovation capabilities 2.3 Islamic Work Ethics and Business Performance
The Islamic work ethic in the workplace is very important for the organization. Work ethics has a positive influence on the results of individuals and organizations. Individual outcomes consist of job satisfaction, loyalty and fraternal attitudes in the organization (Koonmee et al., 2010; Sabir et al., 2012), while organizational outcomes are the company's performance and position in the product life cycle (Berrone et al., 2007; Donker et al. ., 2008; Sabir et al. 2012). Study of Widana et al. (2015) shows that Islamic business ethics can improve company performance. Islamic works ethic shows the atmosphere of running a business will create higher performance and greater success (Mahfoudh et al, 2014).
H3: Islamic work ethic has a significant effect on business performance
3 2.4 Collaborative Networks and Business Performance
The performance of innovation in small and medium enterprises can be improved through internal collaboration (Zeng, 2010) and collaborative tie heterogeneity is also able to improve organizational performance. In small and medium enterprises networking can affect the growth of the company (Sirec, 2009). While the financial performance, the performance of cooperation with customers can be improved through collaborative communication (Chen, 2013). Likewise, a strong network structure will strengthen the tendency of increasing company performance (Andrevski, 2009).
H4: Collaborative Networks have a significant effect on business performance 2.5 Innovation Capability and Business Performance
According to Suryana (2003), innovation is the ability to apply creativity in order to solve problems and opportunities to enrich and improve life. Companies without innovation will not compete and survive in an era of increasingly sharp competition. Changes in consumer needs and desires to satisfy will spur companies to innovate continuously in order to create products that are in line with consumer desires. The success of small businesses is a structural factor in meeting profits and location and business uniqueness (Chawla, 2010). Individual and organizational performance is strongly influenced by creativity and innovation (Liao and Wu, 2010). The study of Rosli (2013) showed that product innovation and process innovation are able to improve business performance, while the market innovation cannot improve business performance. Innovative creativity will better affect organizational performance (Tatik, 2009; Salim, 2011;
Mulyana, 2014). Likewise, innovation capability can increase the success of the project (Parkman, 2012).
H5: The capability of innovation has a significant effect on business performance
Figure : Framework of Thinking
3. Research Methodology
The research uses a quantitative approach to explain the relationship between research variants. The aim of this research is to examine the impact of the Islamic works ethics and collaborative network on the capability of innovation and business performance. Research respondents were 89 owners or leaders of Muslim fashion SMEs in Semarang and purposive sampling was used as a sampling method. Measurement indicators use a Likert score of 1 to 5, (1 = Strongly disagree and 5 = Strongly Agree). Operational variables can be explained as follows: Islamic work ethic is an Islamic value that animate a person in work, measured through four indicators adopted from Kumar (2012), which include: work dedication, generosity, the meaning of life in work, intention to work. Collaborative networks are able to build networks with
Islamic Work Ethic
Collaborative Networks
Innovation Capability
Business Performance
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external partners that improve performance, measured through four indicators adopted from Najib (2014), which include: puppliers, competitors, buyers, government. A capability of innovation ability to apply creativity in order to solve problems and opportunities to improve business performance, measured through indicators adopted from (Tatiek, 2008, Fen Lin, 2007), which includes: packaging innovation, market innovation, product innovation, process novation. Business performance is the ability of a company to dominate the market and is oriented towards its goals and finances, measured through four indicators adopted from Dibrel (2010), which consist of Return on Assets (ROA), profit growth, sales growth, market share growth.
4. Results
a. Validity and Reliability Test
The results of the validity of the indicators of the variable Islamic works ethic, collaborative network, innovation capability and business performance showed validly, it was proven that each indicator had a significance value of <0.05. While the results of the reliability test on the variables of Islamic ethic works, collaborative network, innovation capability and business performance showed reliable, it was proven that the value of Cronbach Alpha > 0.60 (Ghozali, 2006).
b. Classic Assumption Test
The results of the multicollinearity test showed that all variables did not occur in multi colonization, it was proven by the VIF value <10. The results of the autocorrelation test showed the value of Durbin Watson 1,861 so that autocorrelation did not occur. Based on Durbin Watson's table, it is known that the value of dl (lower bound) for k = 3 and n = 89 is 1.47 while the du value is 1.50, so it can be said that the multiple linear regression model does not occur or is free of autocorrelation symptoms. The results of heteroscedasticity testing using the glayzer test showed that all variables had a significance value> 0.05, so that the data were normally distributed.
c. Data Analysis
The result of the effect of the independent variable toward the dependent variable can be seen from table 1:
Table 1: Innovation Capability and Business Performance Regression Analysis
Independent Variable Dependent Variable
Regression 1:
(Innovation Capability)
Regression 2 : (Business performance)
Islamic Works Ethic 0.322** 0.398**
Collaborative Networks 0.408** 0.146
Innovation Capability 0.464**
Adjusted R Square 0.455
Adjusted R Square 0.796
Significance: p** < 0.01; p* < 0.05
In the first regression in table 3, it shows the Islamic Works Ethic variable regression coefficient 0.322 with a significance level under 0.05, so H1 is accepted. Regression coefficient variables are collaborative networks 0.408 with a significance level under 0.05, so H2 is accepted. While Adjusted R Square obtained a value of 0.455 means that the innovation capability can be explained by Islamic work ethic and collaborative networks of 45.5% and the rest is explained by other variables outside the research model.
In the second regression, it shows the regression coefficient value of Islamic works ethic of 0.433 with a significance level of <0.05, so that H3 is accepted. The coefficient value of collaborative networks regression is 0.146 with a significance level > 0.05, so H4 is rejected. Regression coefficient value of innovation capability is 0.464 with a level of < 0.05, so H5 is accepted. While the Adjusted R Square value of 0.796 shows that business performance can be explained by Islamic works ethics, collaborative networks
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and innovation capabilities of 79.6% and the rest are explained by other variables outside the research model.
5. Discussion
Islamic work ethics has a significant effect on innovation capabilities so that the better the implementation of Islamic works ethics in organizations can improve innovation capabilities. The results of the study support the finding that Islamic works ethics can encourage the improvement of innovation capabilities (Naresh Kumar and Raduan Che Rose, 2012; Farrukh, 2015). Every person who has a good work dedication and has the generosity to carry out the task sincerely will encourage someone to improve innovation capabilities. Likewise, if understanding the meaning of life at work and the intention to work as worship can also encourage someone to improve the capability of innovation in business activities.
Collaborative networks have a significant effect on innovation capabilities so that the better collaborative networks can improve innovation capabilities. The results of this study support the finding that collaborative networks with external parties can improve innovation capabilities (Najib, 2014). Ability to build collaborative networks with suppliers, competitors, buyers, and the government can create knowledge sharing so as to improve innovation capabilities.
Islamic works ethics also has a significant effect on business performance, so that the better the implementation of Islamic works ethics can improve business performance. The results support the finding that Islamic works ethics can encourage business performance improvement (Berrone et al., 2007; Donker et al., 2008; Sabir et al. 2012). Someone in working is based on work dedication, generosity and understanding the meaning of life in work and considers the intention to work is worship can improve business performance.
Collaborative networks have no significant effect on business performance so that the better collaborative networks cannot improve business performance. The results of this study support the finding that collaborative network size has no effect on organizational performance (Ofem, 2014). The ability to build collaborative networks with suppliers, competitors, buyers, and the government cannot create knowledge sharing well so that it is unable to encourage business performance improvement.
The capability of innovation has a significant effect on business performance so that the better the capability of innovation can improve business performance. The results of the research are in line with the findings which state that product and process innovations have a significant effect on business performance (Rosli 2013). Increased capability of innovation through packaging innovation, market innovation, product innovation, and process innovation, can improve business performance.
Innovation capability is not an intervening variable between the Islamic work ethic and business performance. It is proven that the direct influence value of the Islamic work ethic on business performance is 0.398. Indirect influence of Islamic work ethic on business performance through innovation capability is 0.322 x 0.464 = 0.149. Therefore, it can be concluded that the capability of innovation is not able to mediate the relationship between Islamic work ethic and business performance. Therefore, improving business performance will be more effectively improved by developing the Islamic ethic works.
Innovation capability as an intervening variable between the collaborative network and business performance proved the value of the direct influence of collaborative networks on business performance of 0.146 (not significant at 0.05). The indirect effect of collaborative networks on business performance through innovation capability is 0.408 x 0.464 = 0.189. Therefore, it can be concluded that innovation capability mediates the relationship between the collaborative network and business performance.
6. Conclusions and Suggestions
The capability of innovation can be improved by developing Islamic works ethics and collaborative networks in business activities. Likewise, the implementation of Islamic strong work ethic can improve innovation capabilities and have an impact on business performance. Improving business performance will be more effective by implementing the works ethic well.
Managerial implication of this study is in order to improve innovation capabilities. It is necessary to develop good Islamic works ethics and collaborative networks. Likewise, improving business performance can be done by building a good Islamic work ethic. Collaborative networks need to be built so
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that information sharing occurs that encourages improvement in innovation capabilities and impacts on business performance.
The limitations of this study only use objects in Semarang City and small samples (89 respondents) so that the results have not been optimal and future research can be directed to wider objects.
Future research is more directed at the capacity of collaborative so that it will provide better results.
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