MEDIATING ROLE OF COMPETITIVE ADVANTAGE ON THE RELATIONSHIP BETWEEN ENTREPRENEURIAL ORIENTATION AND SMALL AND MEDIUM ENTERPRISES (SMEs) PERFORMANCE

MEDIATING ROLE OF COMPETITIVE ADVANTAGE ON THE RELATIONSHIP BETWEEN ENTREPRENEURIAL ORIENTATION AND SMALL AND MEDIUM ENTERPRISES (SMEs) PERFORMANCE

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The performance of small and medium enterprises (SMEs) has become a very important area to researchers as they are very important drivers of economic growth and development in any economy. SMEs are considered to represent the driving force of sustainable local economic development throughout the world. SMEs generate employment and diversify the economy (Stamatovića & Zakic, 2010). In addition, SMEs are regarded as the engines of growth and key source of dynamism, innovation and flexibility (Organization for Economic Co-operation and Development [OECD] 2010). In most economies, SMEs play important role in innovation, economic, social prosperity, and poverty reduction (OECD, 2010). Haider, Asad and Fatima (2017) argued that SMEs play an important role in economic growth, innovation and competitiveness, which ultimately enhances the standard of living of people of any country. Similarly, Ismail, Dassanayaka and Mudalige (n.d) opined that in addition to SMEs contribution to economic development, SMEs play a key role in social development, reduction of poverty through more equal distribution of wealth, more engagement of female citizens, social stability through reduction in unemployment, use of domestic resources thereby creating a chain of new ventures that are important for the development of any country. According to Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) (2013), SMEs are growth supporting sectors that not only contribute significantly to improve living standards, but also bring substantial local capital formation and are responsible for driving innovation and competition in developing economies. The Organisation for Economic Cooperation and Development [OECD] came to a conclusion that SMEs account for approximately about 90% of firms and employ about 70% of workforce in the world. It has 2 been observed by Abor and Quartey (2010) that SMEs contributes significantly to the Gross Domestic Product and employment rate of most nations of the world (OECD, 2016). Precisely, in the United Kingdom (UK), SMEs account for over 99% of the UK‟s 3.8 million businesses, 56% of employment and 52% of total UK GDP (Peprah, Mensah & Akosah, 2016). Also in India, SMEs contribute about 45% of industrial output, 40% of exports, employ 60 million people, create 1.3 million jobs every year and produce more than 8,000 quality products for the Indian and international markets (Capacity Development Centre, 2012). And more recently SMEs contribute about 45% to the Indian GDP (Indian Bureau, of Statistics, Author Article, 2016) Abor and Quartey (2010) opined that in the report of United Nations Industrial Development Organisation, (UNIDO) in 1999, SMEs represent over 90% of private business and contribute to more than 50% of employment and of GDP in most African countries. For example in Ghana, SMEs in the report of Capacity Development Centre Ghana, 2012, contribute not less than 75% to the GDP and therefore have significant impact on economic growth and accounted for about 75% of the nations total employment. In South Africa, SMEs contribute between 52% and 57% to the country‟s GDP and provide about 61% of employment to the citizens of the country (Abor & Quartey, 2010). Also, in Nigeria SMEs for the past five years contribute about 48% to the GDP and above 50% employment opportunities (NBS, 2017). According to the Director, Monitoring and Research Division, Banji Oyelaran-Oyeyinka, SMEs in countries at the same level of development with Nigeria, contributes much higher proportion to GDP than currently observed in Nigeria. Similarly, the minister of communication in Nigeria, Adebayo Shittu, decried the poor contribution of the SMEs to the GDP in Nigeria, even as noted that currently 96 percent of businesses in the country are controlled by SMEs. Abdullahi, Abubakar, Aliyu, Umar, Umar, Sabiu, Naisa, Khalid, and Abubakar, (2015), argued that SMEs in Nigeria should be providing over 65% of employment to Nigerians and 3 contributes significantly to the GDP of the country. However, the authors further argued that SMEs sector in Nigeria remains stagnant as a result of so many problems that faces the industry. The cause of the underperformance of SMEs in Nigeria may be attributed to lack of access to finance (Olughor, 2015), behaviour of the entrepreneur (Arshad, Rasli, Arshad & Zain, 2014) and the turbulence in the business environment (Teece, 2007). As critical as these factors, the underperformance especially in Nigeria is believed to be caused by unfavourable competitive advantage and lack of proper orientation of the entrepreneurs. One of the prominent reasons that have been outlined by Arshad et al., (2014) that might be responsible for the underperformance of SMEs in Nigeria is the behaviour of entrepreneurs, which can be referred as Entrepreneurial Orientation [EO] (Arshad et al., 2014). EO represents the overall organisational entrepreneurial abilities. EO may be a very important predictor of SME performance especially when SMEs are operating in a turbulent business environment like Nigeria (Jalali, 2012; Hoq & Chauhan, 2011). Consequently, EO may be very useful for entrepreneurs when operating in a turbulent business environment, as turbulence has been earmarked by Teece (2007) as one of the reasons for underperformance of SMEs. Teece (2007) also opined that SMEs with high EO may have a superior performance especially within fast-changing industries. EO has been studied using different dimensions by authors. For example Miller (1983) conceptualise EO as having three dimensions, namely, innovativeness, proactiveness and risk taking. EO was measured using the three dimensions developed by Miller (1983), (Mahmood & Hanafi, 2013). EO is a crucial factor that help firm to build and sustain a competitive advantage, particularly for those firms in fast-changing market environments. (Racela, 2014).

1.2 Statement of the Problem

SMEs that display high EO may enjoy competitive advantage (Al-Swidi & Al-Hosam, 2012), and if sustained might lead to superior long-term performance as argued by the resource based view of the firm (RBV) developed by Barney (1986). The resource-based view (RBV) argues that firms possess resources, a subset of which enables them to achieve competitive advantage, and a subset of those that lead to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage (Barney, 1986). Consequently, adhering to the postulations of the RBV, competitive advantage can act as a mediator between EO and performance. However, less attention has been paid to the mediating effect of competitive advantage on the relationship between EO and SME performance (Ibrahim & Mahmood, 2016). Very few studies (Ibrahim & Mahmood, 2016; Mahmood & Hanafi, 2013) have examined the mediating effect of competitive advantage on the relationship between EO and SME performance. Consequently, this study aim to fill this gap of knowledge by examining the relationship between EO and SME performance through competitive advantage. The study of Ibrahim and Mahmood (2016) and that of Mahmood and Hanafi (2013) examined the effect of EO on SME performance, studying competitive advantage as a mediating variable. However, these studies (i.e., the studies of Ibrahim & Mahmood, 2016 and Mahmood & Hanafi, 2013) exhibited some weaknesses which needed to be improved on. For example in the study of Ibrahim and Mahmood (2016), the authors failed to report the sampling technique adopted for their study. In addition, the authors also opted to measure EO as a unidimensional construct. This study measured EO based on the three dimensions 5 developed by Miller (1983). On the other hand, the study of Mahmood and Hanafi (2013), with a population of 1040, utilised just 165 responses for analysis, which constitutes just 15.86 response rate.

The response rate of their study is considered not suitable for analysis (Tabachnick & Fidell, 2013). Similarly, as in the case of Ibrahim and Mahmood (2016), the study of Mahmood and Hanafi (2013) studied EO as a unidimensional construct. EO in this study was measured by three variables (i.e., innovativeness, proactiveness and risk taking) which formed the independent variables of the study. Innovativeness reflects the tendency to engage in and support new ideas, novelty, experimentation and creative processes resulting in newness (Arshad et al., 2014). Innovativeness has been found as an important predictor of SME performance by different authors (e.g., Mbizi, Hove, Thondhala & Kakava, 2013; Al-Swidi & Al-Hosam, 2012). Despite the importance of innovativeness in predicting SME performance, no study to the best knowledge of the researcher has examined the indirect effect of innovativeness on SME performance through competitive advantage.

Format: MS Word

Chapters: 1 - 5, Preliminary Pages, Abstract, References
Delivery: Email

No. of Pages: 115

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