Academic journal article Journal of Small Business Management

Moderating Effects of Entrepreneurial Orientation on Market Orientation-Performance Linkage: Evidence from Chinese Small Firms

Academic journal article Journal of Small Business Management

Moderating Effects of Entrepreneurial Orientation on Market Orientation-Performance Linkage: Evidence from Chinese Small Firms

Article excerpt

Literature revealed that an appropriate alignment between firm strategic orientation and market positioning is critical because of its impact on firm performance. The alignment is especially crucial for small businesses as a result of their limited resource base. However, studies have not adequately accounted for the joint effect of entrepreneurial orientation (EO) and market orientation (MO) on firm performance in different institutional environments, such as transitional economies. In this study, we examine the moderating effect of EO on the linkage between MO and firm performance among small enterprises in China. We have found that MO, alone and in conjunction with certain EO dimensions, is positively related to firm performance. More specifically, innovativeness and proactiveness have positively moderated the relationship between MO and performance. We discuss managerial implications and offer suggestions for future research.

Introduction

In recent years, considerable effort has been placed in adding to the literature on the relationship between market orientation (MO) and firm performance, and the moderating effect of different factors on this relationship (Kara, Spillan, and DeShields 2005; Kirca, Jayachandran, and Bearden 2005; Sin et al. 2005; Kaynak and Kara 2004; Verhees and Meulenberg 2004; Langerak 2003; Atuahene-Gima 1996; Slater and Narver 1994; Narver and Slater 1990). With the rapidly changing market environment and pace of firm innovation, scholars have raised three different issues. The first issue was whether or not MO alone is sufficient to create sustainable competitive advantage. The second issue was whether the combination of entrepreneurial orientation (EO) and MO is more helpful to firms' MO. The third issue was whether such linkage has been related

to improved performance (Atuahene-Gima and Ko 2001).

The relationship between MO and EO and their influence on firm performance calls for more attention as the rapidly changing technological and competitive conditions have created environments characterized by high levels of market and technological uncertainty. Under such operational conditions, an alignment of MOs and EOs will have important implications for a firm's survival capacity. And it will allow the firm to outperform its competitors (Atuahene-Gima and Ko 2001; Slater and Narver 1995; Hamel and Prahalad 1994). For instance, Atuahene-Gima and Ko (2001) argued that in the market-orientated firms, EO is very important to promote firm performance. In such cases, the maximum positive effect on performance is achieved when a firm's MO and EO are aligned (Atuahene-Gima and Ko 2001; Slater and Narver 1995; Hamel and Prahalad 1994).

In management literature, EO has been characterized by the dimensions of innovativeness, risk taking, and proactiveness (Morris and Paul 1987; Miller 1983), all with the possibility of promoting firms' technological innovation and performance (Lumpkin and Dess 1996; Tan 1996; Miller 1983). Because EO has been viewed as a multidimensional construct, when it is combined with MO, it should have different influences on firm performance (Miller 1983). More recently, Bhuian, Menguc, and Bell (2005) reported the curvilinear moderating effect of EO on the relationship between MO and performance, suggesting that the synergistic effect of MO and EO on performance will be greatest with a moderate level of EO, a relationship resembling an inverse U-shaped curve. That the dimensions of EO exert as much importance on firm performance in combination with MO is not clear in literature. An improved knowledge would reveal the impact of the association between MO and different dimensions of EO on firm performance. This will likely motivate market-oriented firms to effectively breed and utilize EO and improve firm performance.

Furthermore, the moderating effects of different EO dimensions on MO and firm performance are influenced by a variety of factors, one being firm size. …

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