Adaptation Under Chaos: Small and Medium Sized Enterprises in Developing Economies

Adaptation under Chaos: Small and Medium sized Enterprises in Developing Economies – A Review and Critique Nguyen Hong Nga (h.nguyen24@uq.edu.au) Robert J.S. Beeton (r.beeton@uq.edu.au) Paul Dargusch (p.dargusch@uq.edu.au) School of Geography, Planning, and Environmental Management The University of Queensland

Abstract: The pressure on Small and Medium sized Enterprises (SMEs) in emerging East Asian economies to adapt their production and management to meet the global industrial environmental standards is enormous. These pressures come from both the international supply chain and the government’s environmental legislation. Yet, an effective way to help SMEs adapt to these challenges in emerging economies is not reported. This paper aims to review research studies that have investigated strategies to environmental adaptation from SMEs in both developed and developing economies with an emphasis on East Asian needs. The purpose is to identify key success factors for the environmental adaptation process and consider them in the context of East Asian countries.

Research journals, project documents and workshop proceedings were selected and reviewed to identify the diversity of views. Most of the literature studies adaptation in a commercial relationship, but mainly focuses on inter-firm adaptation (e.g. adaptation in supplier-customer relationships or buyer-seller relationships). These studies predominantly test the theory associated with the adaptation process rather than to understand the process of adaptation. They are based on successful adaptations and do not investigate and report the failures and reasons that limited proactive adaptation by SMEs to changing requirements. In addition, these studies do not shed light on environmental adaptation. Only few studies focus on adaptation by SMEs and there is no discussion about adaptation in East Asia.

The paper concludes that existing evidence is not adequate to identify potential success factors for the environmental adaptation process of SMEs in developing economies in general and in East Asia in particular. Further studies are needed to address this gap in knowledge and propose socially and culturally appropriate strategies for East Asian SMEs in their cultural and developmental context.

Key words: environmental adaptation, small and medium sized enterprises, East Asia

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Table of Contents Abstract: .................................................................................................................................................. 1 I – Introduction ....................................................................................................................................... 3 II – SME’s Adaptation - A Review and Critique ....................................................................................... 4 II.1 – The Concept of Adaptation ........................................................................................................ 5 What does adaptation mean? ........................................................................................................ 5 Forms of Adaptation ....................................................................................................................... 6 II.2 – The Motives of Adaptive Behaviour ........................................................................................... 8 Why do companies adapt? ............................................................................................................. 8 When does Adaptation occur? ....................................................................................................... 8 II.3 – The Process of Adaptation ......................................................................................................... 9 What does “process” mean? .......................................................................................................... 9 Understanding the adaptation process ........................................................................................ 10 II.4 – Drivers and Outcomes of the Adaptation Process ................................................................... 10 III – Summary and Conclusion............................................................................................................... 13 REFERENCES .......................................................................................................................................... 14

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I – Introduction There is no doubt that small and medium sized enterprises (SMEs) play an important role in the world economy. They are the engine of the economic growth in every economy. For example, SMEs account for 99% of all European businesses, provide two out of three of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU (EC, 2012). In ASEAN member states, SMEs account for more than 96% of all enterprises and 50% to 85% of domestic employment, contributing from 30% to 53% to GDP and 19% to 31% to exports (ASEAN, 2012).

However, SMEs are thought to be responsible for around 60% of all carbon dioxide emissions and 70% of all pollution (Parker et al., 2009). They now suffer increasing pressure to adapt their management and production to meet global industrial environmental standards (Andersson and Wolff, 1996, Clemens, 2006). These pressures come from both the international supply chain and the government’s legislation (Andrew et al., 2000).

Thus, and taking into account the predictability of stronger environmental requirements, it is necessary to investigate an effective way to help SMEs adapt to these challenges. Current literature, however, pays little attention to explain the reasons that limit the environmentally proactive adaptation by SMEs. Camison (2008) is among only a few researchers who studied SME’s problems with environmental adaptation. Yet, her study only examines the problem with information and knowledge. Most of the studies focus on inter-firm adaptation, but many of them, except Louise and Stuart (2002) do not shed light on how adaptation occurs as a result of particular events and activities. There are several studies focusing on business adaptation to climate change; however these are only at an early stage (David et al., 2010). In addition, there are no studies focusing on the adaptation process in the East Asian SMEs context. It is therefore quite difficult to identify any process of environmental adaptations taken by SMEs in these countries.

Nevertheless, current literature provides useful insights about adaptation in different business context, including supply chain management (Michael, 2003), buyer-seller and supplier-customer relationships (Brennan and Brennan and Turnbull, 1995, 1996, 1997, 1998, Louise and Stuart, 2001, Louise and Stuart, 2002, Hagberg-Andersson, 2006, Leonidou et al., 2011), decision support systems (Fazlollahi et al., 1997), firm economizing behaviour (Cyert and Kumar, 1996), investor strategy development (Marinov, 1998), product adaptation (Leonidas, 1996), and cultural adaptation (Fang, 2001). Specifically a literature on SMEs and environment is also very well-established (Shrivastava, 1995, Hillary, 2000, del Brío and Junquera, 2003, Parker et al., 2009). There is information on the impact of regulations on SMEs’ environmental performance (Hillary, 2004, Masurel, 2007, Crain, 2010). Much of the research in this area discusses the difficulties experienced by SMEs when developing and implementing environmental policies and practices (Hillary, 2000, Noci and Verganti, 1999, Revell and Rutherfoord, 2003, del Brío and Junquera, 2003, Parker et al., 2009).

This paper sets out to review the most relevant contributions of the literature with respect to environmental adaptation. It aims to deepen understanding of firm’s adaptive behaviour, identify the key success factors as well as barriers of the environmental adaptation process, and consequently draw implications for the development of an effective strategy for environmental adaptation for SMEs in East Asia.

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II – SME’s Adaptation - A Review and Critique Current literature is not adequate to understand the environmental adaptation process at SMEs in developing countries. However, Gladwin (1993) argues that understanding of environmental management could be further developed by making use of material from other streams of management research. Following this reasoning we draw on existing understanding of adaptation in different business context, including inter-firm relationships, firm behaviour, production adaptation and cultural adaptation. Reference is also made to the general literature on global environmental innovation management in SMEs. Adaptive behaviour, under the context of business marketing and purchasing, can be usefully and simply conceptualized in terms of the motivation causing one or other party to adapt, the process by which adaptation is taken place, and the outcomes of the behavioural process (David, 2002, Brennan and Turnbull, 1998). On the other hand, in order to investigate firm’s adaptive behaviour, it is necessary to understand the concept of adaptation first. Figure 1 is a conceptual model which guides the discussion on firm’s adaptive behaviour in this paper.

The understanding of Adaptation concept

The motives of Adaptive Behaviour

Adaptive Behaviour

Adaptation Process

Outcomes

Drivers or barriers

Figure 1: The conceptual model

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II.1 – The Concept of Adaptation What does adaptation mean?

Adaptation is understood differently in different contexts. In natural sciences, particularly evolutionary biology, adaptation refers to the development of genetic or behavioural characteristics which enable organisms to cope with environmental changes in order to survive and reproduce (Winterhalder, 1980). In social sciences, adaptation is related to success or survival of a culture (Smit and Wandel, 2006, O'Brien and Holland, 1992). This treatment of adaptation concept is also used by Fang (2001) when he examines the driving forces for inter-firm adaptation.

In the context of climate change adaptation, there is no common understanding of what adapting to climate change entails for businesses. Sometimes, adaptation is confused with mitigation (David et al., 2010). This is not surprising as climate change adaptation by business is a relatively new idea.

Despite this, there is emerging commonality of how the governments, the private sector and academic researchers understand about climate change adaptation. In 2001, the Intergovernmental Panel on Climate Change (IPCC) defined climate change adaptation as “Adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities”(IPCC, 2001). Brooks and Adger (2004 ,p168) simplify this definition by describing climate adaptation as ‘‘adjustments in a system’s behaviour and characteristics that enhance its ability to cope with external stress’’ In the marketing literature, adaptation is considered in the context of inter-firm relationships (often between seller and buyer or supplier and customer). This concept of inter-firm adaptation was first used in the Industrial Marketing and Purchasing (IMP) group (Turnbull and Cunningham, 1981, Hakansson, 1982, Turnbull and Valla, 1986, Hallén et al., 1991). For example, Hakansson (1982) introduced an interaction model including adaptation as one important element of a long-term relationship; Turnbull and Valla (1986) attempted to quantify adaptive behaviour and distinguished it between usual and unusual adaptations; Hallen et al. (1991) investigated the relationship between relative power, commitment, trust and adaptation. However, these researchers did not provide the literature with a clear cut definition of adaptation. Their examinations are either limited by supplier’s perspectives and exclude adaptations made by customers or concentrate too narrow on managerial variables (Brennan and Turnbull, 1995).

More recently, Halinen (1994) in her PhD thesis distinguishes between active adaptations (investing) and passive adaptations (adapting). However, she also observes that these are actually two sides of the same phenomenon. What can be seen as an adaptation in one situation may also be seen as an investment in another. According to her, adaptive behaviour can be regarded as a response to different parties in the suppliers’ surroundings. The response can be towards the buyer, another supplier in the supply chain, another potential buyer or to industry norms, for example, environmental requirements.

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In 1995, (Brennan and Turnbull) identified an alternative approach to define the concept of adaptation. Instead of focusing on the outcome of adaptation behaviour as previous researchers, they suggested focusing on the behaviour itself. Following this, adaptation is described as 5

“behavioural modifications made by one company, at the individual, group or corporate level, to meet the specific needs of another organisation”. Since then, this definition has widely used by other researchers in the IMP group, (Hagberg-Andersson, 2005) for example.

Most recently, in a study to investigate the drivers and outcomes of importer adaptation in international buyer-seller relationships, Leonidou et al. (2011 ,p529) express adaptability as “the firm’s ability to respond to environmental and other forces as a means of surviving and succeeding in the market”.

For the purpose of examining the environmental adaptation process of SMEs, the definition provided by Halinen (1994) and Leonidou et al. (2011) is the most relevant. Though (Halinen, 1994) only focus on the suppliers’ perspectives, it is considered covering the adaptation process by SMEs as most of the SMEs in East Asia are manufacturing companies and they are viewed as suppliers (Michael, 2003).

Forms of Adaptation The current adaptation literature emphasises classifying forms of adaptation. A synthesis of adaptation classification is presented in the following Table 1.

Among the 5 studies presented in Table 1, Brennan and Turnbull (1995) is an exception when classifying adaptations based on firms’ adaptive behaviour, or in other words, the motives of the adaptations. The rest share a focus on outcomes of adaptive behaviour, or in other words, the process of the adaptation. However, among these 4 studies, only Hallén et al. (1991) distinguishes adaptations between suppliers and customers. Four categories are common to all 4 studies (product, production process, logistic systems and administrative procedures). Two categories (knowledge and skills) are common to only Johanson and Mattsson (1987) and Leonidou et al. (2011). And financial procedures is the common category of all studies except Hallén et al. (1991).

We conclude that depending on the focus of the study, whether on the process of adaptation or on the motives of adaptation, either the classification of Brennan and Turnbull (1995) or a combination of the rest 4 authors would be considered. The actual choice is likely to be study data dependent.

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Table 1: Adaptation Classification (Hakansson, 1982)

(Johanson and Mattsson, 1987) There are 5 kinds of adaptation: 1. Technical: product 1. Adaptations of the and production product specification, processes product design and 2. Logistical: stock manufacturing processes, levels or delivery 2. Adaptations in the delivery systems procedures, 3. Administrative: 3. Adaptations in planning or stockholding scheduling systems 4. Adaptations in the 4. Financial: handling of administrative procedures payments 5. Adaptations in the 5. Knowledge: (i) financial procedures. information exchange (ii) acting The adaptive behaviour can be together in technical conscious or unconscious. It can development also be formal or informal, and be matters an important indicator of 6. Mutual orientation: commitment. changes in attitudes towards and knowledge of exchange partners

(HallĂŠn et al., 1991) Adaptations by suppliers: - Product - Production process - Logistic systems - Planning procedures - Quality controls Adaptations by customers: - Products - Production process - Procedures - Planning and scheduling routines

(Brennan and Turnbull, 1995) Adaptations are classified based on 5 dimensions: 1. Resource commitment 2. Proactive or reactive 3. Voluntary or coerced 4. Reciprocal or unilateral 5. Formal or informal

(Leonidou et al., 2011) Depending on their nature, adaptations can be distinguished in two major groups: 1. Soft adaptations: adjustments in areas not requiring heavy investment in financial resources and tackling mainly non-tangible issues (e.g., personnel systems, managerial values, business skills), 2. Hard adaptations: changes occurring mainly in tangible elements and usually involving a large amount of resources (e.g., product design, manufacturing processes, operating structures)

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II.2 – The Motives of Adaptive Behaviour Why do companies adapt?

The literature identifies four main motives for relational adaptation. First, adaptation occurs because companies desire to improve the relationships with their partner(s) (Louise and Stuart, 2001). This demand is created when interaction between the two parties takes place (Gadde and Håkansson, 1993). Adaptation by a company to meet the performance criteria of a partner organization is a signal that the company can be trusted (Johanson and Mattsson, 1987, Ford et al., 2003).

Second, adaptations occur because of the need to respond to elements of uncertainty (Louise and Stuart, 2001, Camison, 2008). The uncertainty elements occur because of legislation and market dynamics. For example, in the cases cited by Louise and Stuart (2001 ,p229), the companies anticipated that there would be legislation threatening a number of countries where they do a lot of business so they “better be proactive about this and not wait for the legislation to arrive”.

Third, the motives behind making relational adaptations can be monetary (Hakansson, 1982). One or both parties need to make the necessary adjustments in order to increase the financial benefits (sales and profits) for both parties. In some cases, adaptations are stimulated in order to achieve cost improvements (reduce its own internal waste and recycling costs, reduce the cost of packaging and disposal) (Louise and Stuart, 2001).

Finally, adaptive behaviour may be influenced by power balance (Brennan and Turnbull, 1999). In other words, adaptations occur as a result of the high degree of dependence of the supplier on the customers. This theory is based on the resource-dependence theory of Pfeffer and Salancik (1978) who suppose that the organisations achieve their own goals by shaping the behaviour from other organisations by using their power.

According to Gadde and Håkansson (1993), the motive for adaptive behaviour is more significant if the difference between the parties is large. Adaptation to demanding customers can strengthen the suppliers' competitive position (Hallén et al., 1991).

When does Adaptation occur?

According to (Hallén et al., 1991), adaptations occur in business relationships when one or both parties respond to the changing conditions to which they are exposed. As explained earlier, changes include new requirements to products systems, operational process, logistic systems or financial procedures. The introduction (or anticipation) of environment requirements also changes the behaviour of the companies and therefore can lead to adaptions (Louise and Stuart, 2001).

More specifically, with respect to environmental adaptations, the process will start when the companies try to align their activities with the environmental criteria of their partner companies (Florida, 1996). This process will be repeated as companies acquire new knowledge regarding the environmental impact of their activities and their understanding of the environmental requirements and capabilities of exchange partners develops (Louise and Stuart, 2001). Chakravarthy (1982)

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considers the process of continuously adapting to the changes in a firm’s environment as strategic management.

When starting the adaptation process, the companies need to make decision on level of adaptation.

The level of adaptation is influenced by materials resources, including human resources, finance and technology (Andrews, 1971). In addition, the level of adaptation is also determined by the way companies choose to adapt, either actively or passively. When the company chooses to invest (active), the level is higher than when it just adapts (passive) (Brennan and Turnbull, 1996, Halinen, 1994). When the company is forced to adapt (because of the legislation for example), the adaptation level is limited Asa Haberg 2002. The higher the level of adaptation, the higher is the environmental complexity that can be handled by the firm (Chakravarthy, 1982).

II.3 – The Process of Adaptation What does “process” mean?

In choosing to investigate the environmental adaptation process, clarity is needed regarding what is meant by the term process. According to the Oxford dictionaries, process means “a series of actions or steps taken in order to achieve a particular end”(Oxford, 2012). However, researchers of processes interpret this term in another way. Van de Ven (1993 ,p169-170) suggests three definitions of process as bellow: 1. Process as explanation for variance theory: a logic that explains a causal relationship between independent and dependent variables. However, the author himself criticizes this approach as being highly restrictive and unrealistic in its assumptions about the order and sequence in which events unfold in organizations (van de Ven and Huber, 1990) 2. Process as category of concepts: a category of concepts or variables that refers to actions of individuals or organizations. These concepts are operationalized as constructs and measured as fixed entities whose attributes can vary along numerical scales. Thus, it is best used to measure whether a change occurs in a variable measured at different points in time (Thai, 2008).

3. Process as developmental event sequence: a sequence of events that describes how things change over time. In using this definition, the process is presented as results of environmental adaptations in the form of events, activities and stages (Louise and Stuart, 2001).

Thus, if we want to investigate how environmental adaptations occur, the third definition could be adopted. However, current literature tends to use the first two definitions to investigate adaptations. Consequently they do not show how adaptations occur as a result of a particular events, activities and stages (Louise and Stuart, 2001). The exceptions are scholars on climate change adaptation. (Brooks and Adger, 2004) are among the few researchers who adopt Van de Ven’s third definition of process in their studies.

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Understanding the adaptation process Understanding the adaptation process would help identify the barriers for enhancing adaptive capacity (Moser and Ekstrom, 2010). It is, therefore, important to examine the key steps involved in an adaptation process.

Dunn (1971) divides the process of adaptation into two sub-processes which are called adaptive specialization and adaptive generalization. Chakravarthy (1982) sees adaptive specialization as the rationalization of the process and adaptive generalization as the process that improves the survival potential of the organization. He also claims that the aim of adaptive generalization is to enhance the organizational capacity of a firm required to move it to the next state of adaptation. This division is useful but still unclear as to the steps involved in the process. Thus, it is not possible to identify the key success factors or barriers of an environmental adaptation.

Among the researchers of adaptation process, Louise and Stuart (2002) and Moser and Ekstrom (2010) share similar understanding about steps of an adaptation process. These steps are illustrated in Figure 2.

UNDERSTANDING Awareness raising Information exchange

PLANNING AND COMMITMENT

EXECUTION

MANAGING AND MONITORING

Negotiation

Figure 2: The adaptation process (adapted from Louise and Stuart (2002) and Moser and Ekstrom (2010)) Understanding involves the stages of awareness raising; information exchanging and negotiation.

During this step, the decision makers are provided with knowledge and responsibilities, the two parties share understanding of the nature of the problems and agree on issues to be addressed.

Planning involves the development of adaptation options; assessment of options; and selection of options. The two parties make a commitment to the selected options.

Execution is the step where the actual tasks of adaptation take place. While the companies closely interact with each other through a series of negotiation and commitment in the first two steps, they take action individually during the implementation stage.

Finally, the management phase involves monitoring and evaluation of the outcomes of the realized options.

II.4 – Drivers and Outcomes of the Adaptation Process Studies on inter-firm adaptations reveal that there is an enormous variety of adaptive behaviour, “ranging from minor adaptations involving some additional inter-organizational contact and 10

exchange of non-confidential information, to major adaptations such as investment in large-scale customer-specific manufacturing equipment” (Brennan and Turnbull, 1995 ,p485). Similar results are reported by del Brío and Junquera (2003 ,p940) who claim that there exist numerous classifications of environmental strategies developed by SMEs. These run from “reactive, whose only aim is to comply with the legislation, through, to the more proactive, which perceive environmental conservation as a source of opportunities rather than a problem to be faced at minimum cost”.

However, most empirical studies agree with Remmen (2001) that SMEs still adopt reactive strategies. In fact some companies may not respond in any way, sometimes because they do not feel external pressures or they feel that their impact on the environment is minimal (Parker et al., 2009).

Studies on inter-firm adaptations suggest two groups of drivers for a successful relational adaptation. The reason for grouping these drivers is because they have interrelated relations with each other.

The first group includes trust, commitment, communication, cooperation, manager’s behaviour, manager’s experience, and power. The interrelated relationship of these drivers are presented in Figure 3.

Trust

Manager’s behaviour

Commitment

Adaptation

Power

Communicatio n

Cooperation

Manager’s experience

Figure 3: Drivers for a successful relational adaptation Trust and Commitment of managers-owners are the first two important drivers for a successful relational adaptation (Brennan and Turnbull, 1999, Hallén et al., 1991, Leonidou et al., 2011). The higher the trust of the companies in their partners, the higher the level of commitment to the relationship and consequently higher level of adaptation that will be displayed (Leonidou et al., 2011). The absence of trust in a relationship will discourage important adaptive behaviour (Brennan and Turnbull, 1999). Similarly, the lack of commitment by SMEs owner-managers to reduce their negative environmental impacts is considered as one of the reasons for an unsuccessful environmental intervention (Revell and Rutherfoord, 2003).

Once the managers have trust and commit themselves in a relational adaptation, they will have positive behaviours toward adaptation process. On the contrary, manager’s behaviour influences his commitment to the adaptation process. Manager’s behaviour and experience have a direct impact

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on adaptation (Hakansson, 1982, Louise and Stuart, 2002). In addition, if the managers have a good experience in an inter-firm relationships (i.e. managers’ judgement on partners) they normally tend to have more trust in the process, and consequently have higher commitment for adaptation.

Though communication has no effect on commitment, it does influence cooperation and subsequently leads to adaptation (Leonidou et al., 2011). Communication also plays an important role in negotiations between the two parties during the adaptation process.

Moreover, in order to increase the managers’ commitment to an adaptation process, communication needs to serve to educate these managers of relevant environmental issues and introduce them with environmental responsibilities (Louise and Stuart, 2001).

Power is considered an important driver of the inter-firm adaptation by (Brennan and Turnbull, 1999). In cases where a small supplier interacts with a large customer, the power in-balance leads to a desire on the part of the smaller supplier to respond to requests of the larger customer. This confirms the findings from Hakansson (1982) and corresponds with common sense. HallĂŠn et al.

(1991) also identifies power and trust as two interrelated mechanisms which can be used to explain adaptations.

The second groups of drivers involves corporate culture (Fang, 2001, Kitchell, 1995) and innovation adoption (Kitchell, 1995). The linkages between these factors are presented in Figure 4.

Environmental pressure to adapt

Adaptive cultural norms

Innovation Adoption

Enhanced environmental adaptability

Figure 4: Linkages between environmental adaptation, corporate cultures and innovation adoption (Kitchell, 1995 ,p197) Figure 4 shows that technology plays a key role in the environmental adaptation process. Corporate culture functions as a transforming agent to ensure system survival. Kitchell (1995) also found that a flexible and communicative corporate culture would positively influence the environmental adaptation process. In a related fashion, Fang (2001) considers culture as an important driving force of the inter-firm adaptation process.

Studies on environmental innovation management group the drivers and barriers in another way.

According to (Parker et al., 2009), key factors influencing SME environmental improvement can be external and internal.

External factors include regulations, financial incentives, assistance, education, and external demand.

Internal factors include knowledge of, commitment to and increased business performance achievable from environmental improvement.

It can be easily recognized that the inter-firm adaptation studies have ignored some important factors such as regulations and financial incentives. On the contrary, the environmental innovation studies do not cover the factors of culture, technology and power.

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Some researchers also emphasize the importance of a coordinated effort between related stakeholders in improving firm's environmental performance (Shrivastava, 1995, Camison, 2008, Louise and Stuart, 2001). Camison (2008) specifically discusses the role of public networks in providing knowledge-intensive services for SMEs. However, Noci and Verganti (1999) rank environmental regulation, the ecological market, together with other external forces as the most important factors that drive the adoption of environmental adaptation. The authors of this paper share this view.

III – Summary and Conclusion Studies on inter-firm adaptations extensively discuss different aspects of adaptations, including the concept, the motives of adaptive behaviour, the adaptation process and outcomes of adaptive behaviours. However, most of them seem to test the theories associated with the adaptation process rather than trying to understand the process itself. They are mainly based on successful cases of relational adaptations and do not investigate the failure and reasons that limited the proactive adaptation by firms. There is clearly a need for a closer examination of this issue (Brennan et al., 2003).

The majority of studies focus on inter-firm adaptions and do not shed light on how adaptations occur as a result of particular events and activities (new legislation from the government or new requirements from customers for example). HallÊn et al. (1991) support the view that adaptations may vary from one relationship to another, and have a different intensity and form. Thus, it is mostly unlikely that all the findings of current literature on inter-firms adaptations are valid to the environmental adaptations by SMEs. Most of current studies examine adaptations of firms in general, without a focus on SMEs as a specific target group. Meanwhile, the company’s size is a factor that may influence its environmental options (Azzone et al., 1997). In addition, SMEs are the firms that most suffer pressures to improve their green practices (Clemens, 2006). They are also the group with the greatest problems of adaptation and least awareness of and information on the situation (Hillary, 2000). It is, therefore, very crucial to focus more research on SMEs. All of the studies reviewed focus on developed countries, namely the US, UK, Finland, Italy, Canada, Australia, Spain, and Japan. This observation highlights the need for more research on this topic in developing countries.

It can be concluded that existing evidence is not adequate to identify key success factors for the environmental adaptation process of SMEs in developing economies in general and in East Asia in particular. Further studies are needed to address this gap in knowledge and propose socially and culturally appropriate strategies for East Asian SMEs in their cultural and developmental context.

The review in this paper; however, provides a basis for understanding the adaptation process, especially relational ones. This includes the concept of adaptation, the motives of adaptive behaviour, the adaptation process and drivers or barriers for adaptations. It provides a conceptualized framework for future study on environmental adaptations by SMEs in East Asia and Vietnam in particular.

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