Market orientation (MO) and entrepreneurial orientation (EO) are separate yet important strategic orientations that can coexist and relate to the firm’s performance especially in the development of a new product (Frishmmar & Horte, 2007). Substantial studies show that firms with an entrepreneurial orientation (EO) are more likely to have increased performance as well (Wang, 2008). Currently, the business environment faces pressures that can jeopardize the performance or the existence of the firm if measures are not taken to stabilize the company (Aloulou, & Fayolle, 2005).
The business environment has led to shortened cycles of business models as well as product cycle. Moreover, it has now become uncertain to predict the future profitability of the firm from the current operations. As a result, businesses are continually seeking newer opportunities. The purpose of this review is to examine the moderating effect of market orientation towards the relationship between entrepreneurial orientation and performance of the cooperative firms in Malaysia.
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The literature reviews relevant studies in relation to the topic and seeks to draw a comparative analysis of the studies concerning the topic. The components of entrepreneurship are fully discussed in relation to performance of the Malaysian Cooperative firms. These components include innovative, proactive, risk taking, autonomy and competitive aggressiveness. Similarly, the dimensions of MO will be measured on these components, and these dimensions are customer orientation, competitor orientation and coordination between departments.
The review seeks to establish the relationship between EO and performance in firms when MO is considered as a moderator. Overview of Malaysian Business Environment Malaysia is a rapidly growing economy that has a mean annual gross domestic product of 5-8 percent (Sim, 2009). Asia was hit by a financial crisis period, an event that led to rigorous turn around events in the firms in most of the East Asia countries such as Malaysia, and China.
Nevertheless, China has set a trend in enterprising and corporate development, and this has labelled it as the world’s fastest growing economy (Luo, Sivakumar & Liu, 2005). Chua (2003) urged the businesses in Malaysia to restate their roles as well as their competitive edges, and also evaluate their strengths and weaknesses in order to benefit China’s rise as the region’s economic trend setter. According to Chua (2003), Malaysia can integrate itself in China’s economic path if a beneficial policy can be pursued mutually.
This can be achieved through innovation, and effective human resource practices in both the public and private sectors. Malaysia is targeting economic growth through increasing employment and promoting a favourable business environment. The Small and Medium Agro-Based Enterprises (SMAES) have contributed to the economic growth of Malaysia in some recent years (Awang, Ahmad, Asghar and Subari, 2009). According to the authors the success is attributed to new leadership governance that benefited most of the small enterprise firms, and especially the Agro-based firms.
Despite the harsh economic conditions in the country, and cuddled with the fact that Malaysia is still a developing country (Zain & Hassan, 1999), the Malaysian government provided abundant fiscal and financial support to boost the industry, and since then, it has been a critical agenda for the firms to boost the human capital development (Sheng-Hsun, 2007), and entrepreneurship in order to achieve a Vision 2020 in which Malaysia expects to position among the developed nations.
Many small firms in most entrepreneurial-favourable countries have benefited from EO (North & Smallbone, 2000), and it is likely that if effectively moderated, the cooperative firms of Malaysia will also benefit from the same. According to Lehmann (2009) talent development in Maalysia firms has become a priority in human resource management as the society seeks to move a knowledge-based economy. Teng, Ong, and Ching (2007) suggest that the advancement in technology has enabled firms to reach customers easily and hence increased sales.
Customer relations are an important aspect of the organization because it strongly relates to increased performance. As competition strengthens, companies result to more efficient techniques that can help the business attain a competitive advantage (Eraydin & Koroglu, 2007). However, Rindfleisch and Moorman, (2003); and Luo Rindfleisch and Tse (2007) suggest that the formation of cooperative alliances with competitors, like the Malaysian case can lead to reduced customer orientation activities with time.
Sim (2006) reports on a study in which seven Malaysian firms were evaluated in establishing the events of corporate recovery, in the Asian context. The turnaround strategies and management at the levels of the firms were considered. The progress or lack thereof of the firms was measured in relation to how they have been impacted with aspects like ethnicity, government involvement, and business ownership styles.
The findings showed that there were differences among the firms as well as the turnaround features that compare the East Asia and western business turn around events. Sim (2009) asserts that financial crisis of Asia led to the increased momentum for business turnaround activities. Some of the problems that Sim (2006) identifies as limiting to some firms, in the recovery process include slow identification of the core problems, slow replacement of retrenched executives, and slower implementation of the planned strategies.
In the current competitive environment, organizations need to react first to strategic decisions, in order to avoid being muffled by competition (Morrison, Murray, & Ngidang, 2006; Song, Di Benedetto & Mason, 2007). Definitions: Market Orientation and Entrepreneurial Orientation and their components Frishmmar & Horte (2007) defines market orientation (MO) as the process in which the needs of customers are satisfied, and this is done through assessment of continuous needs.
The dimensions of market orientation include customer orientation, competitor orientation and coordination between departments. MO is a strategic management task that if well applied within its dimensions, then it leads to successful business performances (Kreiser, Marino & Weaver, 2002). Wang (2008) defines Entrepreneurial orientation (EO) as a combination of processes, practices, and decisions that eventually lead to new entry.
An entrepreneurial firm engages in product-market innovation, involves in risky ventures, is always the first to introduce proactive innovations, and in the event attains a competitive advantage over other firms (Marino, Strandholm, Steensma, & Weaver, 2002). These entrepreneurial dimensions; - innovative, proactive, risk taking, autonomy and competitive aggressiveness, are related to increased firm performance despite today’s business environment which is characterized by short life cycles of business models and products.
Just like MO, EO is also a strategic management task of which if the management appropriately applied in the running of the firm, it can lead to improved performance in businesses (Baker& Sinkula, 2009). EO and MO moderate each other, and there needs to be a certain balance in the dimensions for optimal performances in the business (Tzokas, Carter & Kyriazopoulos, 2001). Market Orientation (MO) dimensions According to Sin, et al. (2005), globalization has led to companies adopting strategies with a global outlook for the purpose of reaching the world market.
Nevertheless, the authors assert that differences in the market environments of various countries can influence the kind of strategies that companies develop and adopt, for the purpose of increasing the business performance (Kumar & Subramanian, 2000). Cadogan, Kuivalainen and Sundqvist (2007) carried out a study to prove the reasoning that MO has a positive linear relationship with business performance. In their study, the authors find out that the relationship between the two is a curvilinear presented by an inverted U-curve.
This indicates that excessive MO can actually reduce performance of the business (Ward, Girardi & Lewandowska, 2006). The authors therefore suggest that the management task should not focus on ever-rising levels of market orientation but should manage MO to a level that is optimal when the firm’s environment and market approach is considered. A customer orientation approach is a market orientation strategy that when combined with EO dimensions can provide a competitive advantage to the firm and ensures the continual running of the business through customers’ transactions (Dawes, 2000).
Moreover, satisfied customers are likely to do business with the firm again and also invite fellow customers (Im, Mason & Houston, 2007). The more the number of customers using the products of a particular firm, the higher the revenue that this firm will generate. Higher revenue also means that the firm will enhance its profitability and create more room for business growth and expansion (Noble, Sinha, & Kumar, 2002). All the EO dimensions should be regulated with the customer in mind, such that the business carries out innovations that will benefit the customer (Coley, Mentzer & Cooper, Martha, 2010).
Second, the business takes risks of which the outcome will meet the customer needs, both at the present and the future. Third, the business involves aggressive competition in order to retain its market share though holding on to existing customers and attracting newer ones. Fourth, the business is proactive in identifying opportunities for newer ventures for the purpose of satisfying the customer needs, and this can be through addressing the emerging market problems, or through fulfilling areas of deficiency in the market (Langerak, 2003).
Finally, the business allows an environment of the autonomy so that the employees are able to work on their own in identifying problems, or areas that need reinforcement, for the purpose of customer added value or making customers satisfied with the firm’s goods and services (Jordan & Segelod, 2006). Autonomy should be encouraged in any enterprising firm because it is the employees who interact moist with the customers and are in touch with the market, and therefore have a better chance of contributing the best ideas ever (Lumpkin, Cogliser & Schneider, 2009) a.
Customer orientation Li, Zhao, Tan and Liu (2008) highlight the various ways in which a firm shows orientation to the customer. Firms which are customer-oriented show a strong emphasis on customer satisfaction. Such companies also develop a strong emphasis in understanding the needs of the customer. Moreover, they participate on the frequent and systematic measuring of the extent to which the customer is satisfied. Customer-oriented firms pay great attention to services especially the after-sales services, and are frequently focused on increasing the customer value.
Overall, such firms are characterized by high customer commitment practices. b. Competitor Orientation Positioning in the market requires that a firm is aware of the competitor activities and works become ahead of the competitors. A competitor oriented firm responds to competitor’s action very rapidly. In identifying the competitor’s strategies, the information is shared in the company. A competitor oriented firm always has its top management discussing the strengths and weaknesses of the competitor. Importantly, appropriate competitor orientation means gaining the competitive advantage in regard to the target customer.
c. Coordination between departments Inter-functional coordination requires that all members of the organization are aware of the customer needs and preferences, and that they understand the market environment (Homburg, Grozdanovic & Klarmann, 2007). Coordination between the departments requires that there is efficient sharing of customer information among the departments. This also includes making interdepartmental customer calls, and there is always the awareness that all the functions contribute to the value of the customer.
Through working together, and sharing, all the employees get to know the market information, and the marketing employees also take part in new product development (Stam & Elfring, 2008). Coordination between departments or individuals positively correlates to improved performance as it contributes to employee motivation through work satisfaction and coexistence (Ayup & Kong, 2010). Malaysia firms especially in the retail industry can tremendously benefit from coordination in the departments for the purpose of promoting a good social environment in the firms.
Ayupp & Kong (2010) show that the retail industry is of great importance to the economy of Malaysia and interdependence in the firms’ departments is necessary for appropriate work execution and compatibility of the performance of co-workers. As a moderator of EO, coordination across the departments affects autonomy in which independence is desired. However, with the current business environment, it is desired that autonomy is promoted to encourage entrepreneurship, but this should be guided by coordination across the departments so that the goals of the entire organization are common.
Ayupp & Kong (2010) highlight two aspects for coordination within the departments and these are one; - for task performance, and two; for outcome interdependence. Entrepreneurial Orientation dimensions The dimensions of entrepreneurial; - innovativeness, proactive, competitive aggressiveness, risk taking, and autonomy permeate strategic styles and processes in decision making from the members of the firm. These dimensions work together to enhance the entrepreneurial performance of the firm although sometimes the firm can still work successfully with only a few of the dimensions.
This is also true considering that MO acts as a moderator in which the strategy will work much better when combined with some EO dimensions as compared to others. a. Innovativeness Innovativeness is the tendency to support new novelty, new ideas, creative processes and experimentation, and therefore discourages the following up of already established business practices and technologies (Atuahene-Gima, & Ko, 2001) With the EO firm setting a trend in novelties in the market, the competitive advantage is highly gained (Song & Xie, 2000).
Malaysian cooperative firms should strive to innovate, and this will position their competitive advantage in the region a well as globally. New product development contributes to the renewal of the firm and therefore ensures that the firm remains market active (Calantone, Chan, Cui, 2006; Frishmmar & Horte, 2007), as well as grow and remain competitive. However, development of new products depends on a lot of capabilities that the firm needs to exercise. According to Moen, Rahman, and Salleh (2004) the entrepreneur has certain specific quality personality that is used to drive a business to success.
This personality is highly connected to the attitude that an individual possesses. Through attitude, entrepreneurs are able to; - develop innovations in the introduction of new products, introduce new production methods, handle new market, source for new raw materials, and manage a new organization for an industry (Shu, Wong, & Lee, 2005). To achieve all these, an EO firm needs to have employees with a vivid imagination, and effort abilities, as well as deliberation, and maintenance (Verhees & Meulenberg, 2004).
Innovation requires the reinforcement of intellectual capital for positive gain (Wu, Chang & Chen, 2008). In order to amplify the effect of intellectual capital on innovation, then a firm needs to engage higher levels of EO and social capital (Mort, Weerawardena, & Carnegie, 2003). This indicates that the performance of an organization is more or less determined by the internal organizational environment. Malaysian cooperative firms have a chance to grow and attain global market shares through innovations.
Innovativeness necessitates the need of firms to depart from the existing practices, venture models, and technologies, beyond the current art of affairs (Salomo, Talke, & Strecker, 2008). Innovative practices include coming up with efforts in research or engineering for the purpose of creating new technologies, for new products or processes (Lukas& Ferrell, 2000; Renko, Carsrud, & Brannback, 2009). Another way can be through conducting a market research, for a product-market innovative strategy, and the targeted final material can be a new product design, or promotion and advertising strategies (Grinstein, 2008).
Innovation can also take place in the administration division in which new leadership models are identified (Chen, Tjosvold, & Liu, 2006; Mokhtar & Yusof, 2010). This in turn can contribute to novel control techniques, management systems, and organizational structures (Selvarajan et al. , 2007). Innovativeness leads to a steady corporate growth and great progress. A major pit fall that can reduce the developmental progress in the Malaysian firms is that there are high research and development expenditures incurred with innovation (Hadjimanolis, 2000).
This means that the firms need to be aggressive in sourcing g for external venture funds that support innovations. Moreover, the innovative process can be discouraging if all these expenses are incurred and yet the process does not yield results (Lassen, Gertsen, & Riis, 2006). Another drawback is another company can still in vest in the same technology that has failed in the first firm and correct the loopholes, and the innovation becomes a success, such that it is another firm which benefits from the effort of another (Van, Allard, Lemmink and Ouwersloot, 2004). b.
Proactiveness Proactiveness is a posture of readiness, anticipating, and acting on the future needs and wants of the market (Matsuno, Mentzer, & Ozsomer, 2002). Seizing of newer opportunities is a term that best describes proactiveness. Through proactiveness, a firm acts as a first-mover and gains an advantage over the competitors (Anand, Mesquita, & Vassolo, 2009). Therefore EO firms, through being proactive will capitalize on emerging opportunities with a vision for the future performance. This relates to the Malaysia where the country has set a 2020 vision for economic growth.
To achieve this, proactiveness in the firm must be enhanced and this will require the production of products for the future. Market orientation moderates this aspect when it comes to defining the latent needs and wants of the market for the future. In the ever changing business environment, it is uncertain which venture will prove profitable in the future but EO firms never fear to take risks. To suit in proactiveness, Malaysian firms should take the task of monitoring the trends, and identifying the tomorrow needs of the existing customers.
They should also anticipate any changes that are demanded by the market, or problems that are emerging by which if they are properly evaluated, will lead to new venture creation opportunities. Through proactiveness, a firm not only identifies areas of changes but also becomes willing to act on the insights way before the competitor gets there. c. Risk taking Risk taking refers to the willingness to commit large resources amounts to projects in which the cost of failure may be high, or to projects which the out come is unknown (Tajeddini, Trueman & Larsen, 2006).
Firms that are not truly EO may freeze at such anticipation because businesses are expected to establish, grow and make profits. Understandably, risk taking is a risky business because the venture that one has heavily invested in may turn out to be a disappointment. On the other hand, the venture may turn out to be the most profitable business that any firm has ever come across, and this is what the EO firms seek. The strong-will of the EO is in venturing into the unknown and knowing that a fall may occur in the way but that at the end of the tunnel, there is a huge reward waiting.
Malaysian firms should be ready to invest in uncertainties, and strive to be strong in difficult times in the business for the sake of sustaining EO, which Madsen (2007) assures that it is beneficial in the long term. An entrepreneurship oriented firm is fearless towards taking risks, and always ready to search for, and manage situations that seem disorganized. Such a firm accepts risks and learns to avoid risks as well. In risk taking, an entrepreneurship oriented firm assumes that risks are just related with disorganized situations and are therefore non-insurable (Moen, Rahman, and Salleh (2004).
A firm undertaking a risk can assume a high level of debts, or commit large amounts of the resources of the firms to introducing new products, into newer or existing markets, and also through investing in newer technologies (Rauch, 2006). Any entrepreneurship venture should involve risk taking, whether it is undertaking innovativeness, proactiveness, or competitive aggressiveness. There are three kinds of risks that management and the organization face, and these are; - business risk taking in which the firm ventures into the unknown without predicting the chance of success.
This risk is associated with entering markets that have not been tested before, or committing the firm’s resources to unproven markets. Secondly, there is financial risk taking which involves the company borrowing heavily, or commits a large portion of its resources for the purpose of growing. In this context, risk refers to risk return or risk trade off which is common in financial analysis. Thirdly, personal risk refers to those risks assumed by an executive as the executive stands in favour of a strategic action course.
Executives who take such risks are at a position of influencing the course of the whole company. Their decisions can have a significant implication for their career in which it can be positive or negative. Risk taking is taking chances but it is fairer than gambling. Companies that are run well first of all investigate the consequences of the various available opportunities, and evaluate scenarios of any likely outcomes. For an effective risk taking process, the Malaysian firm need to strategize on researching and assessing risk factors for the sake of minimizing uncertainties.
Another way, is through using tried-and –true techniques and practices which have worked in other domains d. Autonomy Autonomy is an independent action by an individual or group that is aimed at producing a business concept, vision or goal, and carrying the purpose to the completion. Autonomy is the defining aspect of entrepreneurship as far as internal venture practices are concerned, in the corporate (Rauch, 2006). Autonomy should always be considered in terms of creating a competitive advantage, and also with having the customer in the mind.
The MO dimension departmental coordination is a major moderator of autonomy. The business should strive to develop its autonomy in which it guards its models and practices of which if the competitors knew, they might use it against the company’s benefit. Employees should be well supported and encouraged for the purpose of giving them a chance to develop their own ideas that can benefit the company (Monsen & Wayne, 2009). Most of the cooperative firms in Malaysia may become unsuccessful if autonomy is not considered.
Traditionally, the business environment is used to having the top level management steer every business process in the corporate such as the employees may feel inadequate to contribute ideas to the developmental projects of the firm. Top-down approach management does not encourage the entrepreneurial activity as entrepreneurs work well in autonomy. As matters of fact, most companies which perform well are those which allow the junior employees to contribute their ideas or participate in the decision making processes.
The bottom-up management approach is therefore the most suitable in ensuring that rigorous entrepreneurial activities are maintained. On the other hand, firms which discourage autonomy because of adhering to autocratic leadership models end up hindering the growth of the company through suppressing entrepreneurial activities. e. Competitive aggressiveness Competitive aggressiveness describes the efforts that the firm uses to outperform the industry rivals (Ho & Chung-Shing, 2008). Companies with an aggressive orientation are ready to battle with the competitors.
Competition involves practices like reducing prices for substitute products that are also produced by the competitor (Malaviya & Sternthal, 2009). Reducing prices however, does not indicate that the firm is making excess profits. If anything, the firm is sacrificing the profits for the sake of gaining the market share, which is a long lasting approach to sustain customers. Another way of aggressive competition is spending aggressively for the purpose of gaining manufacturing capacity, which will later reduce the production costs.
Additionally, a company can compete through imitating the successful business practices and techniques of the competitor. Firms in Malaysia can gain competitive advantage through creativity by looking for ways in which they can achieve resources from a wide set of external sources and also through resources combinations that support their market competitive positioning (Madsen, 2007). Strategic managers can apply competitive aggressiveness to fight the industry trends which threaten their survival of the firm or its market position.
In the fight to gain market share and obtain a competitive advantage, companies can use very crude means, and it is therefore necessary that in certain situations, a firm should be forceful in defending its competitive advantage. Competitive aggressiveness is necessary for the purpose of capitalizing on the market needs and new technologies. To overcome competition, companies can make preannouncements of the entry of new products and technology, and wait to see how customers and competitors will react (Rapp, Schillewaert & Wei Hao, 2008).
However, it is not all the time that competitive aggressiveness leads to competitive advantage. In some cases, ethical implications occur on the competing industry. This can result to a damaged reputation which can hinder customers from perpetual business with the firm. As a result, competitive aggressiveness needs to be done n moderation. The MO dimensions of competitor orientation and customer orientations should guide the competitive aggressiveness process. Departmental coordination should also be use for the purpose of information sharing and in discussing when things have gone overboard and thus requiring moderation.
Importance of Entrepreneurial Orientation to Firms Other than contribution to the successful performance of the firm, entrepreneurship is shown to contribute to the economic development of a country (Moen, Rahman, and Salleh (2004). This indicates that the cooperative firms in Malaysia have a chance to develop the country through sustained entrepreneurial activities. Madsen (2007) shows that with time, a change in EO whether increased or decreased is of importance to firms’ performances which is represented by the performance in relation to the competitors and the employment growth.
A firm that focuses on EO is more than likely to benefit in the long run. Frishmmar & Horte (2007) performed a study to examine the MO and EO relationships and their influence on performance and novel product development. The authors related each orientation to the firm’s performance as far as new product development is concerned. The study considered 224 manufacturing firms that were mid-size level, and multiple regressions used to test the research questions.
The findings revealed that there was a positive relationship between MO, innovativeness, and performance in new product development. However, risk taking and proactive dimensions did not show a similar relationship. Furthermore, there was no moderating effect from product characteristics and market environment features on the relationships. The authors concluded that to increase the firm’s performance in business development, then contradictory, as well as paradoxical capabilities need to be incorporated, because the different components of the EO impact new product development unequally.
A study by Zyl and Mathur-Helm (2007) attributes good performance of some tourism firms in South Africa to entrepreneurial leadership. According to the authors an entrepreneurial environment creates a favourable environment for business success. However, the components of entrepreneurship have varying effects on the firm’s performance and therefore call for a through study, so as to know how they can be applied on the business. Several scholars are attracted on studies that relate EO to the success of small and medium enterprises (SMEs) worldwide.
Considering that a strong positive correlation exists between EO and business performance, then it is necessary that developing countries like Malaysia incorporate EO in the firms. Lee (2004) however shows that larger firms are more likely to become more entrepreneurial oriented as compared to smaller firms. This is always as a result of limited finances and resources to invest in human capital (Fulford, & Rizzo, 2009). The Malaysian government solves this challenge by granting financial and fiscal support to small and middle size enterprises (Awang et al. , 2009).
This is because EO has been strongly linked to the economic growth of a country and developing countries are urged to support EO through providing favourable climates for the small and medium sized enterprises. Nevertheless Mohamed, Nor, Abdullah, and Jalil, (2007) postulate that the market place provides room for both small and large firms; the small firms benefit through higher minimum average costs, while the large firms benefit from low minimum average costs and efficiency in static production.
Dess and Lumpkin (2005) study shows that, the level at which the EO dimensions impart performance the firm can vary from one industry to another. High-tech firms are likely to benefit from innovative, proactiveness, and risk-taking strategies (Slater, Hult, Olson, 2007). Orlando, Barnett, Dwyer and Chadwick (2004) describe EO as a firm-level construct that is closely linked to strategic management in the decision making process. Entrepreneurship is not only an aspect of the small enterprises but more corporate firms are incorporating entrepreneurship in the organizations.
Zain and Hassan (1999) carry out a study in which they found out that corporate entrepreneurship tremendously influences the company’s growth, even in a business hostile environment. Moreover, corporate entrepreneurship is a multilevel factor in the organization and thus the authors suggest that managers should identify the enterprising employees and support them in for the sake of performance. As already mentioned, a firm’s EO is its capability to innovate, act autonomously, act proactively, and take risks and these occur especially when the firm is confronted with market opportunities.
Awang, et al. , (2009) affirms by stating that the EO dimensions are correlated ton environmental factors and the strategy making process. In this regard, MO acts as a moderator on the extent in which EO can push its dimensions for the purpose of performance in the current competitive business environment. Awang, et al. , (2009) asserts that entrepreneurship is important to a firm’s effectiveness and therefore EO can be used as a measurement of the firm’s competitive advantage. It is therefore necessary to explore the independent dimensions of EO and how each one of the m contributes to performance.
Moderating of the dimensions is important for the purpose of achieving the best weight of which if impacted will push the firm to the best performance amidst competitors and tough business climates. Dess and Lumpkin (2005), assert that the goals of corporate entrepreneurship are the pursuit and creation of new ventures, and strategic renewal. The environmental pressure in the current business environment has led to several ways in which business seeks to survive the business environment, and these strategies include acquisitions and mergers (Cabon-Dhersin, 2008). However, for cor
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