Academic journal article Journal of Management Research

The Effect of Entrepreneurial Orientation on the Firm Performance through Strategic Flexibility: A Study on the SMEs Cluster in Malang

Academic journal article Journal of Management Research

The Effect of Entrepreneurial Orientation on the Firm Performance through Strategic Flexibility: A Study on the SMEs Cluster in Malang

Article excerpt

Abstract

In the globalization era, the competition faced by all companies can not be avoided, as happened to small businesses in the city of Malang. Globalization will lead to the environment becomes increasingly complex and changing. To cope with the ever-changing environment changes, so SMEs need to increase the EO to improve firm performance. The purpose of this study was to determine the effect of EO on the firm performance.The population in this study are the owners or managers of SMEs cluster in Malang. Quantitative approaches were used to data collecton from 140 SMEs cluster and data was analyzed by using AMOS 16. The results indicate that the significance of the direct effect of EO on firm performance is reduced when the indirect effect of EO through strategic flexibility is included in a total effect model. Consequently, EO is positively related to firm performance, and strategic flexibility plays a mediating role in this relationship.

Keywords: Entrepreneurial Orientation, SMEs, Organizational Performance

(ProQuest: ... denotes formula omitted.)

1. Introduction

Many nations, particularly developing countries, have recognized the value of small and medium-sized enterprises (SMEs). SMEs play a role in enhancing a country's economic growth (Kilby, 1983; Venesaar and Loomets 2006; Jeswal, 2012). The characteristics of a dynamic, innovative and efficient SMEs, able to deal with the dynamics of the SMEs environment so that it is able to survive in a difficult situation (Miller, 1983). Therefore, realize the importance of the existence of SMEs in boosting a country's economic growth, then it should be the focus of attention of the entrepreneurship field for the Government.

In Indonesia, the role of SMEs in improving the economy of the country has been widely studied by several researchers, such as Partomo (2004); Tambunan (2005, 2008); Winarningsih (2006). Nevertheless, the magnitude of the potential possessed by SMEs was not offset by the ability of the owner to manage the effort. As a result, the growth of a SMEs under the SMEs will be followed by others. We suspect that the limitations of the resources owned by a factor causing SMEs do not capable of demonstrating innovative behavior, proactive and willing to take risks. Simply put, we can state that the lack of ability of SMEs entrepreneurial orientation in pointing out the critical factor that determines the development effort.

Entrepreneurial orientation (EO) of a firm is defined as firm that involves in technological innovation, undertakes risky ventures, and pursue opportunities proactively (Miller, 1983). EO refers to the processes, practices, and decision-making activities that lead to new entry (Lumpkin and Dess, 1996). EO is the degree of the phenomenon of companies that demonstrate a process, practice and decision-making activities that will lead the company to become a leader in the newly entered the business (Kroeger, 2007). From the behavioral perspective, Covin and Slevin (1989) shows the conceptual model of EO based on entrepreneurial activity, include innovative, proactive and risk taking. Business oriented organizations will enchance the EO behavior in the form innovative, willing to take risks and always trying to produce new products through proactive behavior in order to capture market opportuniy (Covin and Slevin, 1991; Wiklund and Sheperd, 2005). Based on the above explanation, we can describe that a firm should consistently be innovative, be proactive and be taking risks in order to be labeled as "entrepreneariciF.

Previous studies showed that the direct effect between EO gives rise to consequences on the firm performance (Covin and Slevin, 1989; Smart and Conant, 1994; Lumpkin and Dess, 1996; Wiklund, 1999; Lee and Peterson, 2000; Nelson and Coulthard, 2005; Loss and Coulthard, 2006; Naldi, etal,. 2007; Kaya, 2009; Hui Li, et al., 2009). Although the results of the study have been found and the resulting findings are quite significant, the relationship between EO and company performance can not be seen in the simple perspective. …

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