Effect of entrepreneurial orientation on SMEs performance

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Effect of entrepreneurial orientation on SMEs performance

Chapter one/Introduction

The myth that entrepreneurs are born, no more holds good, rather it is well acknowledged now that entrepreneurs can be created and nurtured through addressing issues such as opportunity identification and entrepreneurial orientation which has to a high degree potential to increase enterprise growth of SMEs (Kerosi and Kayisime, 2013).

Moreno (2008) observed an increased interest in the best way of explaining the phenomenon of enterprise growth, that there are diverse motives for this growing interest. As a result from the economic and social point of view, there is the fact that firms that grow more are the ones that generate more new jobs. Also, from the academic point of view, growth constitutes one of the least studied dimensions of performance within the field of management, as compared to other variables such as profitability.

An overall propensity in today’s business settings is the shortening of product and business model life cycles. As a result, the impending profit coming from established operations are not clear and enterprises need to constantly seek out new opportunities. Therefore, they may profit from adopting an ‘‘entrepreneurial strategic orientation’’ (EO). This involves a willingness to innovate to rejuvenate market offerings, take risks to try out new and uncertain products, services, and markets, and be more proactive than competitors toward new marketplace opportunities (Wiklund, 2005). When looking at the Strategic orientation of Small and Medium Enterprise, the firm’s strategic management and its success is centered at the entrepreneur’s skills, abilities perception and orientation this is so because Strategic Orientation of an SME is made up of Entrepreneurial Orientation (Covin, 2006, Chen, 2012). Shepherd (2005) hit back on the view that in this rapidly changing world, entrepreneurs need to continuously identify new business opportunities.

In this research the strategic orientation of an entrepreneur referred to the entrepreneurial orientation and the opportunity identification of an entrepreneur, while an entrepreneur is referred to as the owner or the custodian of the firm, this is so because most of (if not all) SMEs in Zambia are run by the owners themselves whose business skills, views, perceptions, capabilities and business orientation have a direct influence on the success that a firm makes. Therefore, it becomes so imperative for us to evaluate the entrepreneurial orientation of an entrepreneur and his/her ability to identify a business opportunity rather than looking at the external factors outside the entrepreneur’s locus of control.

Opportunity recognition has been quoted as a central and unique component of entrepreneurship (Fatima et al, 2011). Ramezanpour et al (2014) maintains that, at the heart of entrepreneurship is the recognition of opportunities or what is called in this research as opportunity identification (OI). Ramezanpour et al (2014) further explains that despite not having the universal definition of entrepreneurship, opportunity identification can be viewed as the central definition of this subject, and that without an opportunity there is no entrepreneurship. On the other hand, Moreno (2008) argues that at the center of firm’s high growth is the entrepreneur’s entrepreneurial behavior. Thus, growth tends to be considered as a logical consequence of innovative, proactive and risk-taking behavior on the part of the firm owner, as these are the part of dimensions which define an entrepreneurial orientation (EO) of a firm or an entrepreneur. According to Casillas (2010) in the literature on entrepreneurship, a firm’s entrepreneurial orientation (EO) is a well-defined idea that has been extensively discussed in the past few decades. Lumpkin and Dess (1996) established the conceptual basis for later research as revolving around three key factors of EO comprises five salient dimensions –innovativeness, risk-taking, proactiveness, competitive aggressiveness and autonomy. Wiklund (2005) suggested that some studies have found that firms with a more entrepreneurial orientation (EO) perform better. While others have failed to locate this positive relationship.

The relationship between the entrepreneurial orientation (EO) of the firm and its growth has been thoroughly investigated (Lumpkin & Dess, 1996). While the relationship between opportunity identification (OI) has been least scrutinized empirically though theoretical relationship exist. Therefore, this research was aimed at establishing the effect of Entrepreneurial Orientation (EO) on the relationship between Opportunity Identification (OI) and enterprise growth (EG) of SMEs. The research has evaluated the literature review of the relationship between opportunity identification (OI), entrepreneurial orientation (EO) and enterprise growth (EG) of SMEs in Zambia.

The outcome of this research has reviewed that there is a significant effect of Entrepreneurial Orientation (EO) on Opportunity Identification (OI) and Enterprise Growth (EG) relationship of SMEs in Zambia. Such that, in the first place the result showed no relation between Opportunity Identification and Enterprise Growth, and that in our Zambian SMEs there was a positive relationship on Entrepreneurial Orientation and Enterprise growth thereby making a significant impact on opportunity identification and business growth. This has been supported by (Wiklund, 2005) who retaliated the fact that empirical research has found that there is an influence of EO on enterprise growth.

The concept of entrepreneurial orientation (EO) was first proposed by Miller (1983) and later expanded by the work of Covin & Slevin (1989; 1991). Miller (1983) conceptualisation of EO combined the three independent dimensions of EO, which include innovativeness, risk-taking, and proactiveness to form a single construct, and explains that “an entrepreneurial oriented firm is one, which engages in product market innovation”, invest in risky businesses, and it is first to initiate and implement proactive ideas to outsmart competitors (p.770). A later study by Anderson and Eshima (2013) defines EO as the firm’s “behavioural tendencies, managerial philosophies, and strategic decisions-making practices that are entrepreneurial in nature” (p.414). This implies that EO is a combination of behaviours exhibited by the firm, which influences decisions associated with initiating new methods of production, introducing new products and services, and entering to explore new markets (Chin et al., 2016)

 

EO being regarded as a set of firm’s innovative, risk-taking, and proactive behaviours is among the most widely known construct in the strategic entrepreneurship literature (Linton 2016). Despite the numerous research work directed to the EO construct, there are still important debates about EO that are yet unclear. One of these issues that remains a contention among scholars in the EO literature is that of conceptualizing EO as unidimensional construct or a multidimensional construct (Anderson et al. 2015; Chin et al., 2016; Rank and Strenge, 2018; Isichei et al., 2019; Olubiyi et al., 2019; Luu and Ngo, 2019; Basco et al., 2020). Scholars who treat EO as a unidimensional or composite construct integrate the different dimensions of EO (i.e., innovativeness, risk-taking, and proactiveness) to form a single construct, which together reflects the orientation of firms toward exhibiting entrepreneurial behaviours (Miller, 1983; Eniola, 2020). However, some researchers contend that aggregating the different components of EO to form a single construct causes ambiguity and confusion because

such construct does not clearly quantify the individual effects of each component (Chin et al., 2016; Rank and Strenge, 2018). To avoid the ambiguities associated to the unidimensional construct, the current study applies the multidimensional construct to separately ascertain the unique roles of the EO dimensions in affecting firm performance. Innovativeness, risk-taking, and proactiveness are the generally accepted constructs of EO and remain the most widely used dimensions of EO in the entrepreneurship related literature (Basco et al., 2020).

Although, many EO related research studies exist in the literature, a detail review on the EO literature by Wales et al. (2013a) pinpointed that majority of these studies fail to identify and properly explain the theoretical foundations guiding their studies. Therefore, to strengthen the theoretical foundation, this study followed some researchers who applies the resource-based perspective as the theoretical ground to establish their arguments, while examining the performance effect of EO (Newbert, 2007; Wiklund and Shepherd, 2011; Anderson and Eshima, 2013). The current study will apply the resource-based view (Penrose, 1959; Barney, 1991) and the resource dependency theory (Pfeffer and Salancik 1978) as the theoretical foundation to guide and enhance better understanding of the EO-performance effect relationship. The RBV proposes that if there appears signs of volatility and uncertainties in the business environment, firms should focus internally on their rare resources to gain competitive advantage, rather than trying to control and manipulate external pressures on the firm (Kamasak, 2013; Jiang et al., 2018; Isichei et al., 2019). This implies that firms are expected to maximise their internal resource base to gain competitive advantage in dynamic markets when faced with external forces and challenges beyond their control (Isichei et al., 2019)

In the last decade and half, there has been a growing interest in the discipline of entrepreneurship, firm creation, its growth and factors affecting this phenomenon. Mainly it is because of the fundamental role the small and medium enterprises (SMEs) play in the nation’s economic development. Undoubtedly most countries count on the SMEs to move their economies forward of which Zambia cannot be an exception. Small and Medium Enterprises (SMEs) can therefore be recognized has one of the major drivers of the Zambian economy (Chisala, 2008). To achieve this the SMEs need to grow their enterprises in a holistic and aggressive manner.

Zambia, as a nation has been struggling on how best it can address the factors that constrain SMEs from performing at frontier (Chisala, 2008). And in the recent years, there has been a course of researchers discussing the issues that are to do with finances, market competition, and technology transfer to SMEs and government policy modernization towards empowering SMEs which are the external factors of enterprise growth. Unfortunately there is a disinclined approach towards internal factors of enterprise growth that includes Entrepreneurial skills of an entrepreneur. However, number of factors have now encouraged both policy makers and academicians to start believing that improving skills in SMEs can lead to a marked improvement in their business growth (Cecilia, et al., 1997).

MCTI (2003) indicated severe deficiencies in skills relating to the following fundamental areas:
– Strategic management capacities i.e. the SMEs ability to manage entry into new markets.
– Functional management skills i.e. skills required in production, finance, purchasing and marketing to improve production of capital, quality control etc.
– Technical management skills i.e. the actual technical know how to achieve the required quality and quantity.

Cooney (2012) identified inner discipline, ability to take risk, innovative, change-oriented and persistence as entrepreneurship skills while Kerosi and Kayisime (2013) recognized ability to recognize opportunities, innovative and communication as the only entrepreneurial skills that affect business growth. An in-depth scholarly review of Wiklund (2005) work shows that ability to recognize an opportunity stands alone to make a factor called Opportunity Identification (OI) while the other skills make up Entrepreneurial Orientation (EO) of an entrepreneur and these skills (innovative, Risk taking, Proactive) are referred to as dimensions of entrepreneurial orientation which were identified by Miller (1983).

Despite the advent of entrepreneurial opportunity recognition as a core concept and independent research area within the entrepreneurship literature towards growth of SMEs (Wang, 2013), the effect of entrepreneurial orientation on the relationship of opportunity recognition and enterprise growth is paramount and cannot be viewed as a black box.

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