Rattana Seedee, Mohamed Sulaiman, Ishak Ismail

9th Global Conference on Business & Economics ISBN : 978-0-9742114-2-7

Best business practices and performance in ceramics industry in Thailand

Rattana SeedeeFaculty of Management Sciences

Lampang Rajabhat UniversityLampang, Thailand

Email: [email protected]: +60 164918589

Mohamed SulaimanFaculty of Economics and Management Sciences

International Islamic University MalaysiaGombak, Kuala Lumpur, Malaysia


Ishak IsmailSchool of Management

Universiti Sains MalaysiaPenang, Malaysia


October 16-17, 2009Cambridge University, UK

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Best business practices and performance in ceramics industry in Thailand

Abstract

Many businesses have applied best practice for improving performance, but with mixed success.

In addition, the results of past studies on the relationship between best business practices and

performance are inconclusive. The aim of this study was to examine the extent to which ceramics

industry has adopted the best business practices and whether these practices contribute to

performance. Data were collected from 141 ceramics firms in Thailand. The results show that

most of the ceramics firms adopted best business practices with a high degree of acceptance. The

best practices of leadership, customer and market focus, process management, and product

innovation proved to be significant and positively related to performance. The paper also

discusses the implications and limitations of the study.

Keyword: Best business practices, MBNQA, performance, ceramics industry, Thailand

1. Introduction

Many businesses have placed their faith in best practice, hoping that they will bring about

desired improvements in business capabilities and performance. The linkages between business

practices, capabilities, and performance, however, are complex and not well understood. In

addition, the results of past studies on best practices have been mixed. One group found positive

relationships between best practices and performance (Lau, Zhao, and Xiao, 2004; Prajogo &

Sohal, 2003; Rahman & Sohal, 2001), while another found less than convincing results

(Anderson and Sohal, 1999; Arumugam, 2005; Beaumont, Sohal & Terziovski, 1997; Dow,


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1999; Pannirselvam & Ferguson, 2001; Powell, 1995; Samson & Terziovski, 1999; Sila &

Ebrahimpour, 2005).

Thai ceramics industry has played a pivotal role in the economic and industrial sector of

Thailand. It encompasses the manufacture of tableware, sanitary ware, ceramics tiles, ornamental

and electric insulators. This industry employs more 80,000 people in Thailand, and exports more

than 21billion baths worth of ceramics products per year (Bureau of Sectoral Industrial Policy 2,

2004). The industry went back to more than a thousand years in Northern Thailand. But the

modern ceramics factories in Thailand were established after the Second World War (“History of

Lampang Ceramics Industry,” 2002). But since then, they have rarely developed or upgraded

their management and technologies. Thus, most of them are in need of augmenting their

productivity and quality. Some factories are doing very well but others are facing serious

problems such as lack of product design development, out-dated manufacturing process, lack of

quality control, inefficient management and lack of business planning (Chiyannon, 1998;

Rangkavipa, 1989; Singhagum, 1996; Bureau of Sectoral Industrial Policy 2, 2004). Therefore,

there is the need for the ceramics firms to look at best practices to improve their performance. In

order to enhance Thai ceramics industry, this research attempts to find out the extent to which it

has adopted the best business practices and whether these practices contribute to performance.

The study hopes to shed some light on best business practices by ceramics firms in Thailand and

their consequences, which had not been studied before.

2. Literature review

2.1 Best business practices

A significant percentage of recent literature in the areas of business and manufacturing makes

reference to best practices (Davies & Kochhar, 2002). Voss and Blackmon (1996) stated that the


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introduction of new practices in manufacturing is normally associated with expected benefits in

terms of improved performance in specified areas. Any investment of time or resources in a new

practice will necessitate the provision of benefits in terms of improved performance.

International Quality Study (1993) described that “the ultimate result of management practices of

an organization is performance – market performance, operational performance, financial

performance”. So, it can be said that best practices are the key to unlocking the secrets of global

competition moving companies into higher gear to achieve rewards for higher performance.

Over the last 20 years, the competitive significance of quality in the manufacturing sector has

increased. This increase has been paralleled by growing investment in improved quality

performance. Total Quality Management (TQM) has developed in many countries into holistic

frameworks, aimed at helping organizations achieve excellent performance, particularly in

customer and business results. Between 1980s until now, there have a lot of new quality

practices were introduced to the business world such as Six Sigma, ISO 9000, and the Malcolm

Baldrige National Quality Award.

The Malcolm Baldrige National Quality Award (MBNQA) was started in the USA. This award

continues to generate great interest and provide role models throughout the world. The MBNQA

criteria were and are used for self-assessments by companies, to facilitate the communication of

best practices, and as a model for understanding and managing quality. The MBNQA criteria

represented the next step in the evolution of the quality movement. Internationally, many quality

awards in various countries, such as: Japan National Quality Award, Singapore Quality Award,

Australia Quality Award, Philippines Quality Award, Malaysian Prime Minister Quality Award

(Petrick & Furr, 1995) and Thailand Quality Award is mostly based on the MBNQA program.

Almost two million copies of the printed criteria have been distributed since the start of the


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award program (Calhoun, 2002). Many companies have benefited from the award criteria by

using them as self-assessment tools to provide an objective framework, set a high standard, and

helps compare units that have different systems or organization (Bemowski & Stratton, 1995;

Calhoun, 2002; Davis & Standing, 2005; Evans & Lindsay, 1993). Thus, this study uses

MBNQA criteria as a proxy of best business practices to find out the extent to which Thai

ceramics firms have adopted the best business practices and whether these practices contribute to

performance.

Innovation has become an absolute necessity to survive and perform well in almost every

industry (Hitt, Ireland, & Hoskisson, 2005). The importance of innovation is established as a

necessary ingredient for firms simply wanting to remain competitive (Walsworth & Verma,

2007) or pursue long-term advantages. Innovation is concerned with the development of a new

product or process, or the improvement of an existing product or process. The innovation process

can only be really successful when there is a market for this product or process (Vries, 2006).

Successful organizational innovation is a multi-step process which involves development and

knowledge sharing, a decision to implement, implementation, evaluation, and learning (Baldrige

National Quality Program, 2005).

The results of past studies have shown that innovation plays a major role in sustaining

competitive advantage for industries (Aragon-Correa, Garcia-Morales, & Cordon-Pozo, 2007;

Bhaskaran, 2006; Calantone, Cavusgil, & Zhao, 2002; Keller, 2004; Pearce & Carland, 1996;

Sher & Yang, 2005; Thornhill, 2005; Vazquez, Santos, & Alvarez, 2001; Wright, Palmer, &

Perkins, 2005; Yamin, Mavondo, Gunasekaran, & Sarros, 1997). This is supported by Juran’s

(1989) argument that business practices and innovation are two complementary aspects of


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strategic management. Therefore, innovation has been included as an important complementary

variable to the MBNQA criteria in this study.

2.2 Firm Performance

How performance is measured is related to the subject of interest (Li & Simerly, 1998).

Traditionally, firm’s performance is measured by financial success and profitability (Daft,

Sormunen, & Parks, 1998). Previous researches seemed to conclude that firms’ performance

measurement includes many variables. The financial performance variables are: return on assets

(ROA), return on equity (ROE), return on sales (ROS), and return on investment (ROI) (Daft et

al., 1998; Li & Simerly, 1998; Miller, 1988). For the purpose of this research profitability (ROS,

ROI & ROA) and sales growth were used as measures of firm performance.

2.3 Theory

The resource-based theory or resource-based view of firms is based on the concept of economic

rent and the view of the company as a collective of capabilities. The firm-specific resources and

capabilities largely differentiate successful firms from failing ones (Peng, 2006). Of course, not

all firms’ resources and capabilities have the potential to be the basis for competitive advantage.

This potentiality is realized when resources and capabilities are valuable, rare, costly to imitate,

and not substitutable (Barney, 1991, 2001; Barney, Wright, & Ketchen, 2001; Hitt, et.al., 2005;

Peng, 2006).

Firm’s resource and capabilities can be viewed as bundles of tangible and intangible assets.

Tangible resources are assets that can be seen and quantified. They can be broadly organized in

four categories: (1) financial, (2) organizational, (3) physical, and (4) technological. Intangible

resources include assets that typically are rooted deeply in the firm’s history and have

accumulated over time. Examples of intangible assets include (1) human, (2) innovation, and (3)


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reputation. Wernerfelt (1984) defined firm’s resources as anything which could be notional as

strengths or weaknesses of a firm and capability which can be defined as a part from firm’s

resources. Capability refers to a firms’ capacity to deploy firm’s resources, usually in

combination, using organizational processes, to affect a desired ending (Amit & Schoemaker,

1993). So, capability is firms’ joint resources to produce any work or activity.

Based on the resource-based theory, best business practices is considered as capabilities of the

firms that are used as the basis for competitive advantage which can lead firms to superior

performance. Given that the resource-based view addresses the resources and capabilities of the

firm as an underlying factor of performance, the resource-based theory was found to be a suitable

theory to explain the research framework in the relationship between best business practices and

firm performance.

3. Research framework

The research framework shown in Figure 1 has been developed to illustrate the relationship

between best business practices and firm’s performance.

Figure 1: Research Framework


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Best Business Practices

Leadership Strategic Planning Customer and Market Focus Information and Analysis

Focus Human Resource Process Management Ethics Innovation

Firm Performance

Sales growthProfitability (ROS, ROI

& ROA)


This study adapts the seven best business practice elements of the Baldrige National Quality

Program (2005). The studies of researches which adopted MBNQA model indicated that

organizations which adopted best business practices achieve high performance (Arumugam,

2005; Lau et al., 2004; Prajogo & Sohal, 2003, 2006; Samson & Terziovski, 1999; Wilson &

Collier, 2000). Innovation is added as an element in best business practices for the reason that

many researches indicate that innovation is an important element leading organization to high

performance (Aragon-Correa et al., 2007; Bhaskaran, 2006; Calantone et al., 2002; Sher & Yang,

2005; Thornhill, 2005; Vazquez et al., 2001; Yamin et al, 1997). To sum up, most of the studies

and research indicate that adopting best business practice should lead organization to high

performance. Thus, the hypothesis is as follows: There is a positive relationship between the

extent of best business practices employed and firm’s performance.

3.1 Variables and measurements

The eight dimensions of best business practices include leadership: strategic planning; process

management; information and analysis focus; customer and market focus; human resource;

ethics; and innovation. The first seven of these variables would be measured by five-point

Likert-type scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Most items of the

seven variables are adopted and adapted from the Malcolm Baldrige National Quality Award

examination criteria. The measurements for each of seven best business practices elements are

taken from a similar instrument used by National Institute of Standards and Technology,

Technology Administration, U.S. Department of Commerce. However, the seventh element

which is business results item are modified. Some items were dropped. The three elements on

customer and marketing focus are added by modifying from Porter (1980) (two items) and Kotha

and Vadlamani (1995) (one item). The assessment tool is obtained from Baldrige National


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Quality Program (2005) and Arumugam (2005). The measurement for innovation variable is

adopted and adapted from Arumugam (2005) and the OSLO Manual: The measurement of

scientific and technological activities (1996). The questions are simplified to suit the needs of

local environment and the study objectives.

Financial performance is measured by the average annual sales growth, return on assets (ROA),

return on sales (ROS), and return on investment (ROI). These measurements have been used as

tools in many studies of relationship between strategies and performance (Cater & Pucko, 2005;

Dess & Davis, 1984; Helms, Dibrell, & Wright, 1997; Kotha & Nair, 1995; Miller, 1988; Yamin,

Gunasekaran, & Mavondo, 1999).

3.2 Control Variables

To isolate the relationship between best business practices and firm performance, it is important

to control other variables likely to have an important impact on firm performance and is

systematically related to best business practices. They are control variables in this study, namely

companies’ age, amount of equity/investment and the size of organization. The size of an

organization would be determined by the number of employees. These variables have been

known to provide moderating influence on firm’s performance (Dean, Brown, & Bamford, 1998;

Geringer, Tallman, & Olsen, 2000; Hoskisson, Johnson, & Moesel, 1994; Lin, Chen, & Wu,

2006; Sulaiman, 1993). These variables would be controlled in the statistical analyses.

4. Methodology

The unit of analysis is the organization. This study uses the list of ceramics factories registered

with the Department of Industrial Works, Ministry of Industry, Thailand and published in 2006.

Purposive pre-sampling or selection was used to get the sample. For the reason of having

manageable size of samples, relevancy and reliability of information, cost and time spent, the


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factories selected for the study were limited to those employing 10 people or more. The

questionnaire was used in a pre-test before being employed on the target sample. The question in

each item in the questionnaire was pre-tested for validity involving pertinence and easy

understandability. However, before pre-testing the questionnaire, the translation and back-

translation technique (Brislin, 1970) was utilized accordingly on the adapted instrument. Results

of the study were analyzed using the Statistical Package for Social Sciences (SPSS) version 15.0

for Windows. The statistical methods used for preliminary testing are: factor analysis, reliability

analysis and descriptive statistics. Correlation and hierarchical regression analysis were used for

hypotheses testing.

5. Data Analysis

A total of 417 sets of questionnaire were mailed to the top executives of ceramics firms. The data

collection process took 7 months (August 2007 – February 2008) to complete. One hundred and

forty-three questionnaires were returned after two written reminders including new sets of

questionnaires being sent and phone calls. Whilst 20 questionnaires were returned to the

researcher with return to sender massages, indicating that the addresses were no longer valid or

firms out of business. It was found that two questionnaires had to be eliminated because there

were too many missing data. This made available 141 usable questionnaires. By discounting the

number of return-to-sender mails, the final response rate accounted for was 35.5 percent.

5.1 Profile of respondents

The demographic profiles of respondents show that a majority of the respondents were male

(75.2%). The respondents’ average age was 41 years, had experience of an average of 9 years.

Most of the respondents possessed a bachelor’s degree (65.2%) and master’s degree (19.1%).


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Respondents consisted of 71.6 % having manager position, followed by 19.1% CEOs, MDs, and

GMs, and a little over 9 % senior manger.

The profile of firms shows that the majority (44.7%) were located in Northern part of Thailand,

followed by Central part (34.8%). Thirty-eight percent of the respondents produced ceramics

products of more than one type, most of them produced tableware and ornamental ware together.

While 25.5% produced only tableware and 23.5% produced ornamental ware. The ages of firms

were between 11 to 20 years (53.9%), 10 years and less than 10 years (30.5%) and 21- 30 years

(10.6%).

Most of the responding firms (85.8%) were small and medium firms (SMEs) (200 employees

and less) and large firms 14.2 percent. In term of firm’s equity, 66.7% had equity of less than 10

million baht, 20.6% between 11-50 million baht and more than 50 millions baht were 12.7%.

Most of them had average annual sales between 1-10 million baht (50.4%), 29.1% between 11-

50 million baht and 9.2% above 500 million baht (1 USD equals to 38 baht). Overall, 66% of

firms exported their products to oversea markets, 48.4% of them attained over 50% of sales from

overseas markets. Most of them exported to Europe and USA (52.7%). Sixty-eight percent of

responding firms had contract sales, while 32% did not. The majority of respondents were aware

of the Excellence Award (66.7%). On the other hand only a few were aware of the criteria used

for deciding the Excellence Award (27%). It could be summarized that the sample consists of a

cross-section of ceramics firms from small, medium, and large companies representing Thai

ceramics industry.

5.2 Factor analysis

Factor analyses were used to determine the factors of best business practices and firms’

performance. The process of factor analysis uses a principal components factor method and


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orthogonal rotation using a varimax method. The criteria used to identify and interpret the

factors that is a cutoff point of eigenvalues of greater than 1, factor loading greater than .50 (Hair

et al., 2006). Furthermore, reliability test were used with Cronbach’s alpha coefficient as

indicator, which identified the internal consistency and reliability of each item. Cronbach’s alpha

of above 0.70 is considered reliable (Nunnally, 1978). This level was utilized in this study.

Table 1 shows results of factor analysis and the Cronbach’s alpha of each factor which indicates

acceptable reliability. It should be noted that, one component of best business practices

(innovation) was expanded from one to two, namely, product innovation and process innovation.

The two components of firm’s performance were reduced to only one component, namely,

financial performance.

5.3 Descriptive statistic and intercorrelation among the study variables

As evident from Table 2, the dimension of best business practices significantly and positively

correlated with one another, except product innovation and process innovation. Almost all of

variables in this dimension are significantly and postively correlated to financial performance.

Seven elements which are adapted from Baldrige National Quality Program (2005) have overall

mean scores of 3.46 to 4.16. Strategic planning gave the highest overall mean score (4.16). This

is followed by ethics (4.09), leadership (3.98), process management (3.95), Information and

analysis focus (3.75), customer and market focus (3.54), and human resource (3.46) the lowest.

Two elements of innovation are adapted from Arumugam (2005) and the OSLO Manual: The

measurement of scientific and technological activities (1996), product innovation gave the

overall mean score of 5.28, while process innovation of 1.55. These indicate that the firms’

adoption of best practices is high and especially product innovation.


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Table 1: Factor analysis results

Dimension Factor Loading Cronbach’s AlphaCustomer & Market Focus (CM)Focusing on a segment of the Product line .78Working closely with customers .75Importance of customers satisfaction .73Attending customers’ dissatisfaction fast .69Focusing on particular buyer groups .64Monitoring market & business trends .61 .88Human Resource (HR)Seeking employees’ ideas for improvement .83Teamwork encouragement .83Availability of fund for employees’ training .74Rewarding employees’ outstanding performance .71Appraising employees’ performance regularly .69Employees’ salaries & benefits are competitive .58 .90Leadership (L)Treatment employees fairly .85Good relationship with stakeholders .73Listening to staffs’ inputs & feedback .72Commitment towards job responsibilities .70Awareness of critical success factors .66 .88Ethics (E)Having high standards & ethics .81Obeying laws & regulations .81Helping employees help their community .77 .86Process Management (PM)Excellence of inter-department cooperation .82Removing things that get in the way of progress .69Having an excellent logistic system .65Efficiency of manufacturing processes .61 .76Information & Analysis Focus (IA)Monitoring manufacturing processes closely .76Monitoring suppliers on time-delivery .70Tracking all critical business performance .57 .70Strategic Planning (SP)Setting business goals & objectives jointly .87Executing action plans with diligence .69 .76Process Innovation (PcIn)Improved process 2006 .95Improved process 2005 .95Introduced new process 2006 .95Introduced new process 2005 .93Improved process 2004 .93Introduced new process 2004 .92 .97Product Innovation (PdIn)New developed product 2006 .92Improved product 2004 .92New developed product 2005 .91Improved product 2005 .90New developed product 2004 .87Improved product 2006 .87 .95Financial Performance (FP)ROA .87ROS .85ROI .79Sales growth .76 .83


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Table 2: Descriptive statistic and intercorrelation among the study variables

Variables 1 2 3 4 5 6 7 8 9 10 11 12 13

Control Variables

1. Firm’s Age 1.00

2. Firm’s Size .16

3. Firm’s Equity .17* .59**

Predictors

4. L .08 .00 -.02

5. SP .07 .04 .08 .48**

6. CM -.06 .04 .01 .57** .36**

7. IA .03 -.07 -.18* .36** .19* .51**

8. HR -.02 -.07 .01 .55** .39** .56** .35**

9. PM .08 -.11 -.09 .41** .26** .36** .31** .50**

10. E -.01 .04 .12 .53** .37** .39** .23** .47** .43**

11. PdIn .09 .05 .15 .19* .15 .18* .17* .23** .15 .13

12. PcIn -.02 -.02 .06 .17 .16 .14 -.06 .09 .04 .02 .32**

Dependents

13. FP .09 .36** 44** .49** .30** .39** .03 .40** .31** .41** .30** .19* 1.00

Mean 14.80 168.59 2.55 3.98 4.16 3.54 3.75 3.46 3.95 4.09 5.28 1.55 3.01

SD. 8.45 447.49 1.45 0.59 0.57 0.72 0.61 0.70 0.53 0.60 15.07 3.96 0.63

Note. N= 141. *p < .05, **p < .01

Table 3: The impact of the best business practices on firm performance

Financial Performance Variables Std Beta Step 1 Std Beta Step 2

Control VariablesCompany’s Age .01 -.02Firm’s Size .15 .19**


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Firm’s Equity .35*** .28***PredictorsL .31***SP -.02CM .15*IA -.20***HR .09PM .15**E .07PdIn .14**PcIn .04R2 .21 .55R2 change .21 .34F change 12.17 10.59Sig. F change .000 .000

Note: * p<.10, ** p<.05, ***p<.01

5.3 Best business practices and firm performance

Table 3 displays the results of hierarchical regression analyses on the relationship between best

business practices and firm’s performance. The three dimensions of control variables together

were significantly related to financial performance (R2 = .21, p < .01). However, only firm’s

equity was found to be positively and significantly associated with financial performance (

= .35, p < .01). The bigger firms seem to enjoy higher performance.

For the relationship between best business practices and financial performance, best business

practices as a construct significantly predicted financial performance and explained an additional

34% of the variance in financial performance (R2 change = .34, p < .01). Leadership practice ( =

.31, p < .01), customer and market focus practice ( = .15, p < .10), process management practice

( = .15, p < .05), and product innovation practice ( = .14, p < .05) have significant and positive

relationship with financial performance. The results on these best practices support the

hypotheses. Whereas, information and analysis practice is significant but negatively related to

financial performance ( = -.20, p < .01), which is contrary to the hypothesis.


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6. Discussion and limitation of the study

The first research question of this study is to investigate the extent to which the best business

practices are adopted by ceramics industry in Thailand. The findings revealed that the seven

dimensions which were adapted from Baldrige National Quality Program (2005), namely,

leadership practice, strategic planning practice, customer and market focus practice, human

resource practice, process management practice, and ethics practice, gave the mean scores

ranging from 3.46 to 4.16. Although, it is slightly lower than the level of TQM practices by

Singaporean organizations, which gave a scores of between 3.85 to 4.35, it is slightly higher than

the level of TQM practices by Malaysian SMEs and Australian organizations, which gave scores

between 3.82 to 3.92 and 3.39 to 3.82 respectively (Arumugam, 2005; Feng, Prajogo, Tan &

Sohal., 2006). Thus, it can be argued that Thai ceramics firms adopted the best business practices

with a high degree of acceptance.

One observation can be derived from this study; the finding showed that the trend of

development and improvement of product and process by Thai ceramics firms was on the

increase from 2004 to 2006. The study by Buranajarukorn (2006) indicated that Thai

manufacturing companies were confronted with moderate to aggressive competition situation. It

could be implied that these firms are aware of competition in the market. Some firms have spent

effort and investment on both innovation practices; however, they did not register their patents. It

is possible that they doubt about privilege of registering or may not understand correctly the

procedure for registering.

The second question of this study is about the relationship between best business practices and

firm’s performance. The finding of this study indicated that 34% of the variance of the firm’s

performance could be explained by the best business practices construct. With a slight difference


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of its impact on firm’s performance, leadership practice was found to have the greatest impact on

firm’s performance, followed by process management practice, customer and market focus

practice, and lastly, product innovation practice. On the other hand, best information and analysis

practice, best strategic planning practice, best human resource practice, best ethics practice, and

best process innovation practice were not strongly and positively related to firm’s performance.

Therefore, the relationship between best business practices as proposed by MBNQA and

performance are still in argument, and offer an opportunity for in depth empirical examination.

From the findings of this study, it can be said that Thai ceramics firms concentrate mostly on

best leadership practice, best customer and market focus practice, best process management

practice, and best product innovation practice to improve firm performance. However, this is not

to say that the other five elements should be ignored but rather to note that in our cross-sectional

study, these weaker elements did not powerfully distinguish the firm performance. This study is

descriptive of a given sample at a given point in time, whereas all the elements of best business

practices are used to measure and suggest dimensions in order to improve organizational

practices, quality and performance over the long term. There may be discrepancies between the

short-term view and the long-term effect of the practices. It is recommended that a longitudinal

qualitative case study research be conducted to overcome the short comings of the survey

method used here.

The dimension of information and analysis best practices is shown to have negative relationship

with performance. This is unexpected and against the hypothesis. It might be that information

collection and analysis is perceived as time consuming and costly.

7. Conclusion


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The findings show that the extent of best business practices adoption is high. This study also

found that four out of nine dimensions of best business practices, namely, best leadership

practice, best customer and market focus practice, best process management practice, and best

product innovation practice were positively and significantly related to firm performance.

Overall, it appears that the efforts by the Thai and various governments around the world to

promote the use of best practices through MBNQA-Style awards are bearing fruit. Generally,

best practices do lead to higher firm performance.

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Rattana Seedee, Mohamed Sulaiman, Ishak Ismail

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