Keywords

1 Introduction

With the beginning of the new millennium, it has become increasingly clear how important human capital is and how managing and enhancing it is a key component of the modern economy. In Bahrain his highness King Hamed highlighted how investing in Bahrain youth by developing and caring for them socially, scientifically, cognitively, healthily, culturally, and athletically. Kingdom of Bahrain keen in all the strategies and plans to raise with intellectual and practical framework and it also works to refine the skills and provide them with the latest knowledge and sciences and the best educational system that qualified them to enter and compete in labor market. As encourage for the concept of human capital importance and part of firm value is the value of human capital his royal highness prince Salman bin Hamad started PM fellowship program which was launched in 2015 to provide young Bahrainis from government sectors with advanced training to enhance the skills and support the kingdom of Bahrain to grow (Office 2023a, b).

As a part of modern vision which enthesis to invest in human capital and innovation and lead to sustainable development, Kingdom of Bahrain promoted in economic growth through small and medium business and to measure it as part of sustainable development goals 2030, therefor the Ministry of Labor and Social Development adopted a number of projects of self-employed business that raise the economic level and always encourage creativity and innovation (SDGs 2023).

His Royal Highness Salman Bin Hamad Al Khalifa, Crown Prince, Prime Minister, and Chair of the Economic Development Board (EDB) established the SMEs Development Board (SDB) in 2017. The purpose of the project is to coordinate the efforts of the Ministry of Industry, Commerce and Tourism, the Economic Development Board (EDB), the Labor Fund Tamkeen, the Bahrain Development Bank (BDB) and the Bahrain Chamber of Commerce and Industry (BCCI) in order to improve competitiveness of startups across local, regional, and international markets. It is also intended to increase the number of SMEs contributing to GDP, SME exports, and employment levels in the private sector at national levels (Commerce 2023).

Human capital development is the process of helping others acquire knowledge. This act according to what an organization continuously and carefully supports its employees in acquiring or improving the skills necessary to perform the various job functions relevant to their current or anticipated future roles, develop general skills as an individual, discover their inner potential and use it for their own and/or organizational development goals and create a corporate culture in which subordinates and managers work together effectively. When evaluating which factors contribute to competitive advantage, the focus was not on external sources, but on internal resources deemed critical to maintaining effectiveness (Alnachef and Alhajjar 2015a, b).

The challenges small businesses face throughout their business life require training, expertise, and human motivation to pursue business strategies that lead to business success (Iñaki 2002). As a company expands, numerous issues arise because of things like technological advancement, in this case this requires some changes in strategy, systems and structures. Therefore, the role of human capital should be defined by companies. Start up-stage human capital needs may differ from growth-stage human capital needs in terms of their importance to achieving performance at each stage of the business cycle (Chang and Hsieh 2011). A study by Galabova and McKie (2013) states that small medium business owners value knowledge, skills, and experience as essential elements of human capital, but they often focus on people's soft skills and characteristics (attitudes, willingness and ability to learn and grow, passion for their work) they consider this elements as more important. HC is viewed as a rich resource that offers opportunities for competitive advantage on both an individual and corporate level.

Clarifying the role of human capital management in SMEs provides the most valuable results for achieving business goals in an effective manner. From this perspective, it is essential to better understand the role that entrepreneurial competence and human capital play in the success of small and medium businesses. The purpose of this study is to examine how human capital and capabilities influence the success of small businesses.

Despite the essential role of human capital in modern societies, Many small- to medium-sized businesses (SMEs) are currently unable to reach their full potential due to the international business climate and in some situations, completely stop operating, this is a result of SMEs being satisfied with their current business environment. This threat can be minimized by making effective use of the available resources. The implementation of human resource management by SMEs is encouraged in order to accomplish this (HRM). Given that HRM is recognized for its effect on business performance, it can be argued that it is beneficial for SMEs (Wuen et al. 2020).

2 Literature Review

2.1 Small and Medium Enterprises in Bahrain

There is various definition for SME’s depending on the states. In Bahrain According to Resolution 988 issued by Minster of Industry, Commerce Mr. Zayed bin Rashid Al-Zayani year 2017, he adopted new criteria for classifying micro, small and medium enterprises. Micro-enterprises where the number of workers up to 5 workers, and annual revenues from 1 to 50,000 Bahraini dinars. Small enterprises, the number of workers ranges from 6 to 50, and the revenues range from 50,000 to 1,000,000 Bahraini dinars. Medium enterprises, the number of workers ranges from 51 to 100 workers, and the revenues range from one million to three million Bahraini dinars.

2.2 Entrepreneurship and Business Management

Entrepreneurial ability and good business management are key factors in small and medium businesses' high competitiveness. This backs up the hypothesis put forward by Man et al. (2002). On the relationship between entrepreneurial characteristics and long-term company success. An entrepreneur's know-how includes knowledge of both internal and external environments. Entrepreneurial creativity determines the competitiveness and success of small businesses. This is possible when entrepreneurs have strong business skills and the ability to think outside the box when meeting customer needs (Suroso et al. 2017).

2.3 The Concept of Human Capital

A human capital concept implies that persons invest in themselves through education, training, or other activities in exchange for an increased level of income in the future (Woodhall 1987), or can be defined as employee’s knowledge, skills, and experiences (Fleischer 2007). When it comes to spending on assets that will generate future income, economists use the term “investment”. They contrast this with consumption, which provides immediate gratification or benefit but does not generate money in the future. Generally, capital refers to assets that are expected to generate income in the future. Physical capital, such as machinery, equipment, and buildings, which will generate income in the forthcoming by increasing production capacity, has traditionally been the focus of economic analysis of investments and capital. According to some classical economists, including Adam Smith, an employee’s productive capacity can be enhanced by education in the same way that it can be enhanced by the purchase of new equipment and other types of physical capital. increase. As a result, we compared investments in human and physical capital (Woodhall 1987).

Irving Fisher (FISHER 1906) gave a clear and comprehensive view of capital. He stated that capital includes all inventories of tangible goods used to manufacture goods or services that consumers demand. In addition to goods owned by people, governments, and enterprises, Fisher would also include things like land, other natural resources, and replicable goods. He included producer durables and consumed durables which include things like houses. Additionally, he includes items where the proceeds are always in-kind, such as owner-occupied homes, and items where the proceeds are sold for money.

However, the concept was not completely established until the early 1960s, when American economist Theodore Schultz investigated educational expenditure as a sort of investment (Schultz 1961), and when American economist Gary Becker published a book titled Human Capital (BECKER 1975), which developed the theory of human capital formation and examined at investment profitability.

2.4 Human Capital Theory

According to (Schultz 1961), many economistic shields away from the concept of investing human capital because moral and philosophical issues where people find it distasteful to consider investing in people except slavery, which our values and beliefs prevent us from viewing people as capital goods (Mill 1848), among others, formerly argued that a nation’s Citizens should not be viewed as wealth because wealth exists only for the benefit of the people. But (Mill 1848) was undoubtedly mistaken; there is nothing in the idea of human wealth that contradicts his claim that it exists solely for the benefit of people. People can increase their range of options by investing in themselves. That is one method that free men can improve their well-being (Nicholson 1891). Even though, they long know People are part of a nation's wealth, and when measured by what they bring to society, people's productive capacity is now far greater than all other forms of wealth combined (Nicholson 1891). Three notable individuals stand out among the few who have treated people like capital. Adam Smith, a philosopher, and economist made the inspirational claim that capital includes all the acquired and useful skills possessed by all of a nation’s citizens.

Most of the consumption is actually an investment in human capital. Direct investments in healthcare, education, and internalization to benefit from better job prospects are all good examples. Human effort may be substantially improved in these and similar ways, and its output can be increased. Schultz argued that the significant increase in real incomes per worker can be largely attributed to such investments in human capital.

Schultz (1961) the concept of capital as a tangible investment is no longer applicable, as human capital skills and knowledge can be a critical investment. We presume that capital has a major impact on entrepreneurship in the context of human capital. According to Schultz (1975), market mechanisms aren’t always balanced in the theory of entrepreneurship. Instead, it depends on how various segments respond to out-of-equilibrium occurrences, taking both benefits and costs into consideration and continuously adjusting, this is what is meant by innovation. They anticipated that capital had a significant effect on entrepreneurship in the context of human capital. Entrepreneurship, then, is the ability to change or redistribute various resources to efficiently respond to changing market conditions and an increasingly competitive environment (Burns and Stalker 1961). Entrepreneurial abilities are thus developed through experience, training, and education and can be considered as a sort of human capital (Suroso et al. 2017).

2.5 Entrepreneurial Competence Concept

Over time, there has been a growing understanding that identifying and pursuing business opportunities is a key and distinctive element of entrepreneurship. One of the most prevalent beliefs about entrepreneurs is that they are born with certain attributes that are difficult, if not impossible, to improve. In the 1990s, this was referred to as the 'trait approach' to entrepreneurship (Gartner 1989). Bird (1995) referred to entrepreneurial competences, as these qualities include personalities, self-images, specialized knowledge, motivations, social positions, and abilities that contribute to the development of a business, ensure its survivability, and promote its expansion and required to start a new firm, but successful entrepreneurs are those who use their competencies to sustain and expand their businesses. Whereas (Khalid and Bhatti 2015) defined entrepreneurial competence as the managerial ability to generate and express a strategic vision for building organizations’ systems for improved performance. Entrepreneurship definition expanded to be more than just owning a business and generate your own profit, and exceed taking advantage of market demand and producing goods and services.

Tittel and Terzidis (2020) developing an updated entrepreneurial competence framework, they collect a entrepreneurial competence definition from the year 1995 to 2019 and came up with 3 main categories with a sub components that identify the EC that effect business performance. In this paper we will examen major components of entrepreneurial, skills and attitudes which are the core of competence broadens to include capturing opportunities, contacting skills, organizing, Conceptual management skills, the ability to manage strategic capabilities, and self-efficiency which are the primary performance factors for SMEs (Lans et al. 2014; Kyguolienė and Švipas 2019; Muhammad and Aina 2017).

  • Opportunity competence

There is no doubt that your ability to spot opportunities is related to your ability as an entrepreneur. In its simplest form, typically, it is a gap in the market, a new technology or invention for which the market has not yet been identified, or a concept for a good product or service that can be considered a real business opportunity. Opportunity competence is more than simply recognizing opportunities. It focuses on systematically creating appropriate solutions to problems and emphasizes a more structured view of opportunities whereby perception, interpretation and construction underlie the identification of opportunities (Jemal 2020; Sakib et al. 2022).

  • Relational or social competence

This group focuses on interpersonal relationships. Networks are crucial to the creation of opportunities, the growth and development of novel ideas, ability to negotiate and the acquisition of resources and authority. The capacity to develop and maintain relationships, both internally and internationally, it appears to be significant because external interactions and relationships are frequently formed from scratch (Jemal 2020).

  • Organizing competence

The ability to build, organize, and coordinate management systems is included in the definition of business/management competence. Business competencies focus on exploitation, while Opportunity competencies focus primarily on exploration (finding, experimenting, discovering, etc.) (refinement, selection, implementation, execution). This ability includes establishing, analyzing, and putting into practice firm strategy, as well as managing a variety of internal, external, human, physical, financial, and technical resources. (i.e. planning and control) (Jemal 2020).

  • Conceptual competence

Different conceptual abilities are required in this field, which the entrepreneurs reflect in their behaviors. such is creativity, risk-taking, ability to make decisions, observation, the ability to make a quick decision when it is necessary, problem solving, creative thinking and understanding of complex information (Jemal 2020; Tehseen and Ramayah 2015).

  • Strategic capability competence

In connection with defining, evaluating, and implementing company strategy (Sakib et al. 2022; Jemal 2020) Prioritize work in line with business goals, know the impact of anticipated direction and changes on business success, and achieve goals better by redesign the business, connecting or comparing present actions with strategic goals, track progress of strategic goals, assess outcomes related to strategic goals, and defining strategic actions by weighing cost and benefit (Tehseen and Ramayah 2015).

  • Entrepreneurial self-efficacy

This domain includes a wide range of individual-level constructs known as meta-level competences, which serve to favorably affect other skills rather than actually making up those competencies. This category comprises conceptually related constructs to more motivating psychological constructs. According to a recent meta-analysis, entrepreneurial self-efficacy, or the confidence in one's own entrepreneurial ability, is one of the most significant individual level drivers of entrepreneurial success. Entrepreneurial self-efficacy is more directly concerned with a person's belief in their own (entrepreneurial) talents (Tehseen and Ramayah 2015).

2.6 The Concept of SMEs’ Performances Business Success

Key elements for small and medium-sized firms to attain notable business success are profitability, return on investment, turnover, and product quality. Mann and Kehoe (1994) and Liñán and Santos (2007) propose a more comprehensive method to performance measurement that considers both operational and strategic performance. According to Andriyansah and Zahra (2017), Sulaiman et al. (2017), dimensional measures are divided into four categories: market performance, process performance, human resource performance, and customer relationship performance. Performance is essentially determined by an organization's appropriate selection, which eventually increases the organization's competitive advantage.

2.7 The Impact of Human Capital on Business Performance

Suroso et al. (2017) state that entrepreneurial human capital is a significant factor in deciding how well small and medium businesses operate commercially. For entrepreneurs with a foundation in business education, expectations, and encouragement to develop business insights are greatly influenced by the management of education and training levels. As well, entrepreneurs who have taken management training find that it is particularly beneficial for setting effective short- and long-term business goals. In order to help entrepreneurs, use resources wisely, boost production, and maintain a firm, management training is crucial. Working in comparable environments helps to get a better understanding of the products or services that are being promoted, allowing to produce goods and services to operate more quickly and effectively. Entrepreneurs can access network resources and potential clients due to their prior employment expertise.

Studies by Shamsuzzoha and Tanaka (2021), Koo (2019) show that both managers’ and employees’ human capital is the most important factor for implementing multidimensional innovations and the long-term success of an enterprise.

2.8 The Impact of Entrepreneurial Competence on Business Performance

Suroso et al. (2017) point out that entrepreneurial competencies influence firm performance only when supported by other factors. A company’s performance can only be understood in terms of its human capital, not its entrepreneurial competence.

3 Conclusion

Finally, the Kingdom of Bahrain emphasizes the value of human capital in driving economic growth and supporting long-term development. The government has adopted a number of initiatives and programs to invest in human capital development and enhancement, notably in small and medium-sized firms (SMEs). The formation of the SMEs Development Board intends to boost startup competitiveness and raise their contribution to GDP, exports, and employment levels.

Human capital, defined as an individual's knowledge, abilities, and experiences, has come to be recognized as a key resource for competitive advantage. Small and medium-sized firms confront problems throughout their lifecycle, and human capital plays an important role in overcoming these challenges and attaining success. Entrepreneurial competence, which includes the capacity to recognize possibilities, establish relationships, organize and coordinate, think creatively, and be strategic, is critical to the success of SMEs.

SMEs in Bahrain may efficiently achieve their business goals and prosper in a competitive environment by recognizing the significance of human capital management and entrepreneurial skills. Investing in human capital and implementing good human resource management techniques can assist SMEs in realizing their full potential and contributing to economic growth. Overall, the Kingdom of Bahrain acknowledges the value of human capital in driving innovation, entrepreneurship, and long-term development, and it continues to emphasize its development and management in order to ensure a bright future.