Explaining sme participation and success in public procurement using a capability-based model of tendering
| Pages | 337-372 |
| Date | 01 April 2017 |
| Published date | 01 April 2017 |
| DOI | https://doi.org/10.1108/JOPP-17-03-2017-B003 |
| Author | Anthony Flynn,Paul Davis |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 17, ISSUE 3, 337-372 FALL 2017
EXPLAINING SME PARTICIPATION AND SUCCESS IN PUBLIC
PROCUREMENT USING A CAPABILITY-BASED MODEL OF TENDERING
Anthony Flynn and Paul Davis*
ABSTRACT. This paper develops and tests a model for explaining small and
medium-size enterprise (SME) participation and success in public
procurement. The model is informed by a capability-based view of public
sector tendering t hat includes relational and procedural dimensions. To test
the model a survey was carried out on firms competing for contracts with
Irish public sector organizations (n = 3010). The survey was repeated one
year later to demonstrate reliability (n = 3092). Overall, the results lend
support to the model. Procedural capability is associated with frequency of
tendering and typical value of contract sought . Relational capability is not.
Procedural and relational capabilities are each significant in accounting for
success rates in contract competitions and commercial orientation towards
the public sector.
INTRODUCTION
Small and medium-size enterprise (SME) involvement in public
contracting constitutes an important and growing line of research
inquiry. Over the past two decades, scholars from across public
administration and management disciplines have examined SMEs’
experiences and perceptions of competing for public sector contracts.
Successive studies have shown SMEs to be interested in doing
business with the public sector but highly critical of procurement
procedures and practices. Among U.S. firms MacManus (1991, p.
342) found that only one in three believed public procurement
practices were “competitive, efficient, or equitable”. Similar negative
sentiments have been expressed by firms across Europe (Cabras,
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* Anthony Flynn, Ph.D., is Assistant Professor, Business School, Cardiff
University. Paul Davis, Ph.D., is Assistant Professor, Business School, Dublin
City University. T heir teaching and research interests are in SMEs, public
procurement and supply chain management.
Copyright © 2017 by PrAcademics Press
338 FLYNN & DAVIS
2011; Fee, Erridge & Hennigan, 2002; Flynn, Davis, McKevitt, &
McEvoy, 2013; Loader, 2005, 2015). Findings to emerge from
Australia also indicate that firms rate public sector contracting less
favourably than private sector contracting across dimensions
including profitability and sales volume (Purchase, Goh & Dooley,
2009). The reasons for SMEs’ reported difficulties are said to include
a lack of professionalism in public sector purchasing, bureaucratic
tendering procedures, restrictive entry criteria for contract
competitions, buyers’ preference for market incumbents, and SMEs’
own resource constraints (Loader, 2013). Given such difficulties, it is
not surprising that SMEs are under-represented in public sector
supply chains (Clark & Moutray, 2004; Nicholas & Fruhmann, 2014).
While the barriers experienced by SMEs are well documented,
the same cannot be said of the factors that promote their
participation and success in public procurement. We still know more
about what hinders SMEs than what enables them to compete for
and win business with public sector organizations. Attempts to fill this
knowledge gap are being made, however. Some studies have sought
to explain SME involvement in public procurement in terms of
resource availability within the firm (Karjalainen & Kemppainen,
2008; Temponi & Cui, 2008). Others have employed
entrepreneurship and market positioning theories (Reijonen, Tammi
& Saastamoinen, 2014; Tammi, Saastamoinen & Reijonen, 2014).
Representing a new departure, this study adopts a capability-based
view. By capability is meant the capacity of a firm to leverage and
deploy its resources, using organizational processes, to achieve a
desired goal (Amit & Schoemaker, 1993; Makadok, 2001). The
contention is that SMEs need to possess certain capabilities if they
are to be active and successful in public procurement.
In the context of public sector tendering we understand capability
to have separate relational and procedural dimensions. Relational
capability refers to a firm’s ability to communicate with, engage and
influence public buyers. Procedural capability denotes a firm’s ability
to manage the technical and formal elements of tendering and
contract administration. Both capability types are integral to
explaining SME participation and success in contract competitions.
The capability-based perspective on SME involvement in p ublic
procurement is intended to add to the aforementioned market
positioning, entrepreneurial, and resource-based explanations
EXPLAINING SME PARTICIPATION AND SUCCESS IN PUBLIC PROCUREMENT 339
already proposed in the literature. At the same time, it extends
previous efforts by focusing not only on SME tendering activity but
also on their success rates in contract competitions and overall
commercial orientation towards the public sector. Public procurement
research should strive to be relevant as well as rigorous according to
Dimitri (2013). Here the identification of capabilities linked to SME
participation and success in contract competitions can inform
practice by highlighting areas that managers and enterprise support
agencies should target.
The paper takes the following format. Section one explains the
rationale for SME involvement in public procurement. Section two
puts forward a capability-based model to explain SME participation
and success in public contract competitions. The model comprises
discrete relational and procedural capability dimensions that are
predicted to be related to SME outcomes. Section three deals with
research design considerations. Relevant here is the
operationalization and measurement of independent, dependent and
organizational control variables, the data collection process, response
rate, representativeness testing, and a profile of respondents. Section
four tests the model using step-wise regression and then presents the
results. This is done in respect of data from two cross-sectional
surveys. The first survey was carried out in 2013. The second survey
is a replication of the first and was carried out in 2015. Section five
discusses the results and what they mean for research and
knowledge in the public procurement domain. Lessons for practice
are drawn from the results. The paper concludes with an
acknowledgement of the limitations of the study and identification of
actions to take this line of inquiry forward.
LITERATURE REVIEW
Public sector contracts are advantageous to SMEs in both
tangible and intangible ways. First, public contracts offer stable and
predictable sources of demand (Fee, Erridge & Hennigan, 2002;
Pickernell et al., 2011). In turn, stability and predictability afford
SMEs a degree of security to plan for the future, invest in new
technology or capital equipment and expand their pool of human
resources. The reported views of SMEs bear this out. Studies by
Loader (2005) and Cabras (2011) in Britain and MacManus (1991) in
the U.S. all found that long-term business opportunities, contract
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