Academic journal article Entrepreneurship: Theory and Practice

Exploring an Inverted U-Shape Relationship between Entrepreneurial Orientation and Performance in Chinese Ventures

Academic journal article Entrepreneurship: Theory and Practice

Exploring an Inverted U-Shape Relationship between Entrepreneurial Orientation and Performance in Chinese Ventures

Article excerpt

The critical role of entrepreneurial orientation (EO) in firm performance has been widely studied in the U.S. context. However, the examination of this key construct in emerging regions such as China has been very limited. In this article, we hypothesize that the relationship between EO and firm performance is best represented as curvilinear, as opposed to linear, in China. We use a two-study approach to test the link between EO and performance, as expressed in both perceptual and objective performance. Findings of both studies demonstrate an inverted U-shape relationship. Implications for future research on EO are discussed.

Introduction

Entrepreneurial orientation (EO) has emerged as a major construct within the strategic management and entrepreneurship literatures over the past 2 decades. A firm with high EO is defined as one that engages in technological innovation (i.e., innovativeness), undertakes risky ventures (i.e., risk taking), and pursues opportunities proactively (i.e., proactiveness) (Miller, 1983). Further, a firm must be concurrently risk taking, innovative, and proactive in order to be labeled "entrepreneurial" (Miller, 1983). Studies have suggested a positive linear relationship between EO and firm performance (e.g., Keh, Nguyen, & Ng, 2007; Lee, Lee, & Pennings, 2001; Lumpkin & Dess, 1996; Zahra & Covin, 1995). Nevertheless, findings regarding the extent to which such an entrepreneurial strategic posture is associated with improved performance have been inconsistent. The first possible explanation for these inconsistent findings may be due to the fact that current studies have neglected the market context in which the businesses run their operations, which is problematic as Lumpkin and Dess suggest that factors internal and external to the firm may moderate the EO-performance relationship. The second explanation may rest on the assumption that the relationship between EO and performance is linear.

In response to the first explanation, of particular interest to us is the nature of the EO-performance relationship within the Chinese context, as both the internal organizational structures and institutional environment in China represent strikingly different characteristics from those in the United States and other mature economies. Internally speaking, a significant lack of guanxi network, experienced management teams, and role formalization may impede high EO from benefiting organizations. Institutionally speaking, as China is transitioning from planned economy to market economy, the coexistence of socialist and market-based capitalist systems, along with the fact that government controls resources, financing, and materials distribution, may all promote a unique relationship between EO and performance. Thus, although previous studies have highlighted the importance of a contingent approach, we believe that greater insight into the role of EO on performance may be gained through investigating the relationship in an emerging economy rather than in a highly developed market.

To better address the second explanation for the inconsistent findings of the EO-performance link, we focus on a curvilinear relationship based on the current situation in China. The documented positive relationship between EO and performance implies utility in firms' efforts to innovate, take risks, and proactively pursue market opportunities, as doing so is likely to enhance firm performance. However, given that firms operating in an emerging region such as China are not equivalent to their counterparts in developed economies, we suggest that the relationship between EO and performance may be best represented as curvilinear within the Chinese context. Specifically, low-EO firms may not perform well because they do not strive to compete aggressively. However, high-EO firms may not obtain a competitive advantage either because of the lack of institutional support and organizational formalization, both of which are required for firms to engage in high-risk and innovative projects. …

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