Collaboration of SMEs in Aguascalientes Region: An Alternative to Reduce SMEs Costs

Abstract

Today collaboration management is consider in the literature of administration sciences as one of the most important business strategies implemented in companies, essentially in Small and Medium Enterprises (SMEs), to gain and to increment competitive advantages and to integrate personnel as well as its functional areas and departments of the company. Similarly, collaboration between companies not only is a synonym of information interchange, but also a communication of best practices, sharing of risks and generation of knowledge. Then, the main objective of this research is to understand the effects of collaboration activities on costs of Small and Medium Enterprises (SMEs), considering for this study a sample of 346 companies operating in Aguascalientes region in Mexico. The obtained results show that collaboration activities have positive and significant effects on SMEs costs.

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Collaboration of SMEs in Aguascalientes Region:
An Alternative to Reduce SMEs Costs
GABRIELA CITLALLI LÓPEZ-TORRES
1
Doctor in Business Management
Universidad Autonoma de Aguascalientes
Email: gclopto@gmail.com
GONZALO MALDONADO GUZMÁN
Doctor in Marketing Universidad Autonoma de Aguascalientes
SANDRA YESENIA PINZÓN CASTRO
Doctor in Administration Universidad Autonoma de Aguascalientes
Abstract
Today collaboration management is consider in the literature of administration sciences as one of the most
important business strategies implemented in companies, essentially in Small and Medium Enterprises
(SMEs), to gain and to increment competitive advantages and to integrate personnel as well as its
functional areas and departments of the company. Similarly, collaboration between companies not only is a
synonym of information interchange, but also a communication of best practices, sharing of risks and
generation of knowledge. Then, the main objective of this research is to understand the effects of
collaboration activities on costs of Small and Medium Enterprises (SMEs), considering for this study a
sample of 346 companies operating in Aguascalientes region in Mexico. The obtained results show that
collaboration activities have positive and significant effects on SMEs costs.
Key Words: Collaboration, Costs, SMEs.
Introduction
During the last decades the variety of researchers, academics and professionals in enterprises sciences and
management, have provided sufficient theoretical and empirical evidence from multiple benefits that
generate the information interchange through collaboration activities, which drive to a substantial reduction
of total costs in the organization (Gavirneni et al., 1999; Lee et al., 2000; Kulp et al., 2004; Li et al., 2006).
Studies done by researchers shown that an information interchange among customers retailers and suppliers
(producers) generated not only a greater level of demand, but also it significantly reduce the inventories
level, which improve the service level and reduce total costs of companies.
However, these researchers and academics have concluded that companies (suppliers) had greater benefits
with the information interchange with its customers, which can discourage customer’s participation in this
collaboration process (Kamalapur & Lyth, 2014). So, for customers keep sharing information with
1
Universidad Autónoma de Aguascalientes, Centro de Ciencias Económicas y Administrativas,
Departamento de Recursos Humanos, gclopto@gmail.com Tel. +52449-9107400 Extensión 9073

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suppliers, in the literature, collaboration is proposed as one of the most effective and efficient enterprise
strategy to achieve synergy between clients and suppliers, which has been applied in various industries and
sectors of the economic and enterprise activity from various sizes, obtaining satisfactory results, among
them the reduction of costs, and greater performance for customers and suppliers
(Lapide, 2001; Baljko, 2003; Seifert, 2003).
In this sense, collaboration has become an essential enterprise strategy for organizations, specially for
SMEs, because it provide an excellent opportunity for clients and suppliers to have greater conditions to
significantly increment and improve both products demand and planning of activities to substitute these
products (Kamalapur & Lyth, 2014). An example of this is the collaboration done by Wal-Mart retailers
and Warner-Lambert (supplier) in 1995, achieving a significant demand and a reduction of costs in the
supply chain from the Listerine product, which similar to other companies following this example in their
collaboration activities (Esper & Williams, 2003; Seifer, 2003; Aviv, 2007).
Similarly, studies published in the literature that analyse collaboration, generally are descriptive or case
studies with scarce statistical analysis of information, or with a scares statistical analysis of information, or
in best cases these studies employ data analysis, and some of these studies where data simulation and some
of these studies have shown benefits from adopting and implementing collaboration activities. For example,
Raghunathan (1999) who developed an analytical model to study the impact from collaboration activities to
a supply chain in a manufacturing company with two retailers, with the conclusion that collaboration
activities helped to significantly reduce costs both in products and to retailers stores.
On the other had, Aviv (2007) developed a model to study the effects of collaboration activities in the
supply chain in a manufacturing company (supplier) on a detallista (customer) company, and he found that
when the supplier and customer have a periodical replacement of products, participating both companies
with resources to achieve the goal, supply chain costs were significantly reduced. Equally, Kazemi &
Zhang (2013) also implemented an analytical model with a manufacturing company and retailer company
to find the optimal price for products sold by retailers, concluding that collaboration activities carried out
by both companies allow them major profit levels and substantial reduction of prices on products offered by
retailers companies.
In this context, the main contribution of this investigation is the effect of collaboration activities on SMEs
costs of an emergent economy, like Mexico, and specifically SMEs operating in Aguascalientes region. The
rest of the paper is organized as follows. The second section presents the theoretical framework; previous
empirical research and hypotheses are formulated. The third section shows the research methodology,
sample and variables used. The fourth section shows the obtained results and finally, the fifth section
presents the main conclusions and discussion of this empirical investigation.
Literature Review
The two first decades of this millennium have been characterized by a globalization of economy and
markets, as well as by the high level of competitiveness and environment of business. Besides, the last and
half decade of this millennium is recognized by a higher percentage of researchers, academics and
professionals from business sciences and management as the “information era”, in which companies
basically SMEs are focused on the adoption and implementation of collaboration activities, in both inside
the company and in customers and suppliers as one of its most important resources that generate or
increment competitive advantages (Dyer & Singh, 1998).
Correspondingly, collaboration has been widely analysed in the literature by academics and researches
since 1990, from which it has been considered as one of the fundamental business strategies that enable
total costs reductions (Cao et al., 2010). Moreover, collaboration has been defined from various points of

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edges (Holweg, 2005; Simatupang & Sridharan, 2005), which can be grouped in general terms in two main
categories: focused on processes and to relationships.
First, collaboration can be considered as a business process where participating companies work together to
achieve common goals (Mentzer et al., 2000; Sheu et al., 2006), like activities planning (Kaufman et al.,
2000), integration of cross-functional processes (Lambert et al., 1999), coordination of supply chain
activities (Kim, 2000), the achievement of common goals in the supply chain (Peck & Juttner, 2000), the
adoption and implementation of strategic alliances (Stuart & McCutcheon, 1996), the establishment of
parameters for information interchange (Lamming, 1996) and the establishment of diverse and possible
options to outsource activities that do not add much value (Heriot & Kulkarni, 2001).
Second, collaboration can be considered a long-term relationship in which participating companies are
available to work together to generate and interchange information, resources and share risks to achieve
goals that were determined by both companies (Ellram & Hendrick, 1995; Golicic et al., 2003). Therefore,
companies keen to adopt and implement collaboration activities with other companies freely provide its
human, financial and technical resources to create a business model that integrate all of these (Bowersox et
al., 2003), always looking for higher levels of growth and costs reduction.
This way it is possible to assure that collaboration activities help and promote information interchange
(Manthou et al., 2004), goals achievement (Angels & Nath, 2001), collaborative decision-making (Stank et
al., 2001), interchange of resources available in every company (Sheu et al., 2006) and alignment of
incentives given by companies to its staff and workers (Simatupang & Sridharan, 2005). Hence, while there
are collaboration activities that implement both producers and customers and suppliers, a greater level of
integration can be possible, through information interchange and processes alignment, all actors in the
supply chain co- work in a more coordinated manner in order to achieve better results on every of the
collaborating companies, better than it could make it if working alone (Lambert et al., 1999).
Besides, some researchers, academics and professionals of management sciences have focused their
attention on some relevant aspects of collaboration activities, however other variables are important too,
such as communication (Macneil, 1980), because communication generally is presented in the literature as
one of the most transcendental variables that difficult the adoption and implementation of collaboration
activities, for which communication plays a fundamental role in collaboration activities made by producers,
its suppliers and customers (Cao et al., 2010).
Thus, many problems happen during the adoption and implementation of collaboration activities between
customers and suppliers, and this can be solved through an appropriate development of a good
communication strategy (Mohr & Nevin, 1990), because communication is elemental and not only to
improve relationships between members of the supply chain but also to obtain a greater level of
compromise and success in interchange activities that are generated among companies participating in
collaboration activities (Paulraj et al., 2008), and also to achieve a significant reduction of total costs in
companies, which can be feasible to be translated into a better level of enterprise performance.
Another fundamental variable that affect collaboration among producers, customers and suppliers is
knowledge creation because collaboration among companies integrate a variety of activities that develop
and apply knowledge in present and future businesses that are under development among the participating
companies (Cao et al., 2010). Therefore, knowledge creation is an essential activity because it includes
knowledge acquisition, dissemination and interpretation (Slater & Narver, 1995). In the case of
collaboration in the supply chain, knowledge creation incorporates innovation (Harland, 2004) and
entrepreneur activities that require innovation resources Lundvall, 1992; Nesheim, 2001).

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In this sense, collaboration activities carried out by two or more companies are made thinking on getting
more competitive advantages and diverse benefits that would be impossible if working in a separated or
alone (Simatupang & Sridharan, 2005; Sheu et al., 2006). Therefore, in order to achieve these objectives,
the participating companies in collaboration activities should work in a coordinated form to share
information, resources, risks and decisions that allow them to obtain greater revenues to all of them
(Bowersox et al., 2003), which at the same will allow them to have higher levels of enterprise performance
and significant reduction in its total costs.
Moreover, efforts made by companies to adopt and implement collaboration activities, also have positive
and significant effects in the development of new products and services, in just in time practices and data
interchange about markets demands and tastes and needs of current and future customers, in the reduction
of costs in purchase made by producers with customers and suppliers, and other multiple strategies of
information interchange (Ángeles & Nath, 2001; Green & Inman, 2005; Holweg, 2005), and all these effect
at the same time have a strong impact and high correlation with growth and performance of participating
companies.
At the same time, a higher level percentage of researchers and academics have considered collaboration
activities as an effective alternative to significantly improve decision making in companies, specially in
SMEs (Kay, 1997), because collaboration between participating companies and organisms in general tend
to construct and develop a number of relationships that allow them to invest on common and specific
projects, to share knowledge and skills that improve management system, create effective direction and
management mechanisms of the company as a whole (Dyer & Singh, 1998), which can generate all
participating companies not only substantial benefits but also competitive advantages (Mentzer et al.,
2000).
Thus, it is common to observe in the literature of business science and management that collaborative
activities, help firms share risks in projects and businesses that jointly carry out (Kogut, 1988), to obtain
valuable information about customers, consumers and the market (Koka & Prescott, 2002), and access to
the resources available from other companies (Park et al., 2004), thereby to improve substantially the
technological capabilities (Powell et al., 1996), purchases and logistics costs reduction (hair et al., 2001),
reducing the transactions costs of the goods or services and the increase in the products or services and the
increment of productivity (Kalwani & Narayandas, 1995), and significantly increasing the margin of
earnings and the level of competitive advantages at all times (Dyer & Singh, 1998).
Even though popularity of collaboration activities in business and management sciences, and its potential
and diverse benefits that have highlighted from this important business strategy, there are still a higher
number of companies, mainly SMEs, which ignore its benefits and have not very clear advantages from
collaboration (Barringer & Harrison, 2000). For that reason, Sabath and Fontanella (2002) concluded that
collaboration activities did not have the expected success when adopted and implemented as a business
strategy in companies, which has generated a point of disagreement in relation to collaboration
effectiveness.
In order to analyse these arguments, academics and professionals have considered in the current literature
that the nature and attributes of collaboration have not been clarified (Cao et al., 2010). In consequence,
Sheu et al. (2006) concluded that in the current literature collaboration is fragmented because this discipline
has been oriented only to certain factors that integrate innovation activities, for example, compromise
(Handfield & Bechtel, 2002), inventory control (Srinivasan et al., 1994) and information technology
(Grover et al., 2002).
In this sense, it is important to substantially increase research on collaboration activities orientated to
integration processes, communication activities and knowledge creation, so collaboration conceptualization

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and attributes is clarified and understood, which can be translated into a greater information interchange,
generating not only competitive advantages but also a reduction of total costs in collaborating companies
(Malhotra et al., 2005; Cao et al., 2010). Therefore, considering the presented information it is possible to
formulate the following research hypothesis:
H1: The higher level of collaboration the higher reduction of costs.
Methodology
Sample
To prove the formulated hypothesis in this investigation an empirical study was designed in SMEs
operating in Aguascalientes region, Mexico. To construct the reference framework it was considered
appropriated to use the National Enterprises Information System (SIEM from its acronym in Spanish),
which as 1,242 companies from 5 to 250 employees registered. Similarly, the data collection instrument
was designed to SMEs managers or owners, and it was applied through a personal interview to a sample of
400 selected enterprises with random sampling with a maximum error of ± 4.5% and a confidence level of
95% which represented a little more than 23% of all SMEs operating in Aguascalientes, validating 346
companies in total that represent 87% of the sample. Table 1 shows the most important aspects of this
study. Table 1. Research Design
Elements
Details
Population
1,242 SMEs
Geographic area
Aguascalientes state (México)
Sample
SMEs 5 to 250 employees
Data collection
Personal interviews to managers
Sampling method
Random sample
Sample size
400 SMEs
Sampling error
±4.5% error, confidence level 95% (p=q=0.5)
Field work
September to December 2010
Dependent Variable
The scale used to measure the reduction of purchases costs was based on Cannon y Homburg (2001), as it
incorporates coordination, delivery and transport costs, through six items with a Likert scale of 5 points
with 1 = completely disagree to 5 = completely agreeas limits, for which the variable “costs” was defined
from the arithmetic average of the six items what integrate purchases costs.
Independent and Control Variable
The independent variable considered in this research was collaboration, which is defined by a one-
dimension scale and measured through a Likert 5 points scale with 1= completely disagree and 5 =
completely agree, as limits. Besides, collaboration was measured in a scale of 5 points and adapted from
Heide and John (1990), Zaheer et al. (1998) and Corsten and Felde (2005). From the obtained answers the
surveys was built with the variable of “collaboration” through the arithmetic average of the five items was
form this variable. This way to configure the variable can be seen in Hughes (2001) and García, Martínez,
Maldonado et al. (2009).

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Similarly, two variables of control were used (size and age of the company) because it considers in the
actual literature these variables, which can also have positive and significant effects. Such variables were
organized as follow: size, which was measured through the average of employees in one year, and age of
the company, by the number of years that the company has been operating.
Results
To test the formulated hypothesis this research and verify the level of influence of collaboration activities
onto SMEs costs, especially those operating in Aguascalientes, a regression analysis was carried out done
with “ordinary least squares”, using the following model:
Costsi = b0+ b1•Colaborationi+ b2 Size + b3 Age + εi
Where, Costsi represent purchases costs of companies participating in collaboration. Collaborationi
corresponds to collaboration activities made by producers with their customers and suppliers. Size, average
number of employees and Age, existing years of the company. From the results (see Table 2) and it is
possible to observe that independent variables have a Variance Inflation Factor (VIF) near value 1,
therefore a presence of multicolinearity was discarded.
Table 2. Relationship between Collaboration and Costs (n = 346)
Variables
Purchases Costs
Collaboration
0.243***
(4.610)
Size
0.033
(0.149)
Age
0.141
(2.071)**
Higher VIF
1.030
F Value
7.121***
R2 Adjusted
0.192
Below each standardized coefficient in parenthesis, t-student statistical value.
*= p ≤ 0.1; **= p ≤ 0.05; ***= p ≤ 0.01
Table 2 shows that a greater use of collaboration activities in SMEs positively and significantly impacts
purchases costs of current producers, customers and suppliers (standardized coefficient = 0.243 y p < 0.01).
Therefore, the formulated hypothesis is confirmed. Nevertheless, the variable size did not affect the
reduction of costs in SMEs, as it was not a statistically significant variable (standardized coefficient =
0.033), but age in companies have significant and positive effects in costs, even though at a lower value
than collaboration, (standardized coefficient 0.141 y p < 0.05). The validity of the model was contrasted
with R2 adjusted resulting 0.192 and F value of 7.121 (p < 0.01). The independent variables have a VIF
near 1 (1.030), thus it is not possible to neglect the possibility to exist multicolinearity.
Conclusions and Discussion
The results obtained in this research allow presenting two main essential arguments. Firstly, SMEs in
Aguascalientes that want to significantly reduce costs, it would be necessary for them to adopt and
implement collaboration activities in daily activities of the company. Besides, collaboration should not only
be considered as basic strategic but as daily activity in the business, because it will allow the business to
substantially reduce purchases costs, not only from produces but from customers and suppliers.

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Secondly, collaboration activities should be orientated not only to information sharing among producers –
customers – suppliers but also in integration processes, in communication activities and knowledge
creation, for which companies have to create an appropriate environment in which workers and employees
are able to team working with their own partners and with others of different companies. So, SMEs
managers and owners should design and implement a training program for their employees that allow them
to create the conditions and skills necessary to team working and therefore to create a synergy of
collaboration in a innovation and organizational culture that in the end reduce costs and improve the level
of SMEs performance.
On the other hand, the number of companies, which are adopting and implementing collaboration activities,
is increasing, as part of its company strategies, because it helps to substantially reduce purchases costs with
its customers and suppliers, but also to survive in the market that is more and more globalized and
competitive. Furthermore, companies, especially SMEs, that do not consider collaboration as part of its
daily activities can have serious difficulties to remain in the market in which they participate and will see
reduced its market position, it will be also difficult to acquire or improve competitive advantages and they
can even disappear in a relative short time, since any reduction of its costs will lower tis level of
performance.
At the same time, SMEs managers and owners should give priority not only in collaboration activities
conducted to obtain information interchange and communication improvement and knowledge creation
inside companies, because that will enhance the development of new products or services, which will allow
higher levels of business performance.
Besides, in order to SMEs be able to significantly reduce purchases costs, managers and producers should
adopt and implement collaboration activities in all functional areas and departments of the company,
because in order to carry out collaboration activities with other companies or organisms, first the have to
adopt it inside the company. On the contrary, it is not done it will be very risky to collaborate with others if
workers, staff is not convinced about the benefits of such collaboration activities. Therefore, SMEs
managers and owners have to be convinced of the advantages of collaborating with others, so themselves
become the model to their workers.
Moreover, Aguascalientes SMEs managers and owners should implement all actions that allow companies
to take advantage of their collaboration activities made with other companies or organisms, basically in
knowledge creation because it will facilitate the development of new products and services that can be
commercialized using the same supply chain with its customers and suppliers. Then, if companies are able
to acquire knowledge generated from collaboration activities will have the opportunity not only to reduce
purchases costs that exist with its current customers and suppliers, but also to significantly increase its
market sharing and its level of business performance.
Additionally, if SMEs managers and owners are willing to substantially reduce the level of purchases costs
with customers and suppliers, then they have to construct the necessary conditions both inside and outside
the company to increase and to develop collaboration activities. As well, SMEs managers and owners
should create and implement a formal training program so its workers and employees not only can generate
and share information related to the commercialized product or service but also to develop the necessary
skills to generate and take advantage of knowledge created in collaboration practices, which will allow not
only to substantially reduce purchases costs but to obtain or increment its competitive advantages.
Finally, it is necessary to expose the main limitations that this research has. First, the scales used because it
included only one-dimensional variables with five items for collaboration and six for costs; consequently,
in future research it would be useful to consider other scales and factors to corroborate the results obtained.
A second limitation can be the data collection process because only qualitative variables were considered to

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measure collaboration activities and purchase costs, hence in future research it would be convenient to
incorporate quantitative variables to test if same results can be obtained.
A third limitation is the survey applied, because it was exclusively directed to managers and owners of
SMEs in Aguascalientes, thus the results can substantially differ if a different populations is studied; a
distinctive population would be necessary in future research, for instance, SMEs customers and suppliers. A
fourth limitation is that this research only considered companies that have between 5 and 250 employees;
therefore, to corroborate the results obtained, future research should consider companies with less than 5
workers, which in fact represent more than 60% of the total of companies,
The last limitation is that a considerable percentage of SMEs in Aguascalientes consider that the
information requested was considered confidential, then some data obtained from companies do not
necessarily reflect reality of its collaboration activities and purchases costs of this kind of companies with
its customers and suppliers; accordingly, in future research it would be necessary to consider the
participation of companies associations, customers and suppliers to avoid falsehood of information and to
triangulate information with customers and suppliers in order to corroborate information obtained from
SMEs managers and owners that will allow to obtain truthful information and a lower error level.
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