Technical efficiency and environmental factors of the micro, small, and medium enterprises in Bandung city: a slack-based approach

This research investigates the technical efficiency of the micro, small, and medium enterprises (SMEs) in Bandung city as well as investigating the effect of environmental factors on the technical efficiency. The competition and the size of the SMEs are used to measure the environmental factors. This research uses field survey data collected from SMEs operating in Bandung city. Three-stage approach is used in this research. At the first stage, this research applies the data envelopment analysis (DEA) to estimate technical efficiency. At the second stage, this research employs the slack-based approach to estimate the effect of environmental factors on the technical efficiency. At the last stage, the technical efficiency is estimated using the DEA with the adjusted inputs derived from the second stage. This research finds that a significant improvement of the technical efficiency occurs after taking into account the competition and the size of the SMEs. This research also reveals that competition only affects significantly the capital slack. Further, the size of the SMEs affects significantly the slacks of all input variables.