Toward Greater Understanding of the Relationship Between Entrepreneurial Orientation and International Performance.

Author:Chen, Yen-Chun
Position:RESEARCH ARTICLE - Report

1 Introduction

Entrepreneurial orientation (EO) is a central concept within the management discipline that has received a vast amount of theoretical attention in an effort to explain why certain firms achieve a superior competitive advantage (Covin and Slevin 1989; Lumpkin and Dess 1996; Zahra et al. 2006). Many studies have also investigated the relationship between EO and performance (e.g., Atuahene-Gima and Ko 2001; Wiklund and Shepherd 2003, 2005), with widespread empirical support for the notion that EO improves business performance (c.f., Rauch et al. 2009). Recently, globalization and the rapid growth of international trade and investment activities have led to increased attention being paid to the importance of EO in enhancing firm competitiveness in international markets (Brouthers et al. 2015; De Clercq et al. 2014).

However, these studies mainly focus on investigating the possible moderating effects on the EO-international performance outcomes links, with limited research into mediating influences in the links (c.f., Table 1). For example, Deligianni et al. (2016) and Brouthers et al. (2015) center on assessing the moderating effects of decision-making rationality and strategic alliances on the relationship between EO and international performance respectively. Scholars also point out that the causal mechanisms in EO-performance outcomes links have mostly supposed rather than explicitly investigated in previous studies (Wales et al. 2013; Wiklund and Shepherd 2011). There is limited research attention toward identification of the casual mechanisms through which EO affects international performance. Insights on how and why EO improves international performance are very rare in the extant literature. This not only impedes the managerial understanding of how firms can be more competitive than their rivals in the global marketplace by capitalizing on EO but also constraints theory development in the EO literature (Wales 2016).

EO is a key facet of a firm's philosophy on how to conduct business through an ingrained set of values and beliefs that direct the firm's entrepreneurial decisions, actions, and behaviors to reach desirable performance (Anderson et al. 2015; Atuahene-Gima and Ko 2001; Zhou et al. 2010;). It involves the management of the firm's resource portfolio, including the variety of tangible and intangible entities available to the firm (Madhavaram and Hunt 2008). Advocates of the resource-based view (RBV) argue that EO principally acts as a valuable and rare firm resource; its potential value lies in generating superior business performance (Chen et al. 2012). Sirmon et al. (2007) propose that competitive advantage arises from an effective resource management process, and thus merely possessing valuable and rare resources does not ensure the establishment of competitive advantage. A firm's resource management process may result in different performance outcomes for firms possessing similar resources and confronting similar competitive environments (Sirmon et al. 2007; Zott 2003). In other words, firms need to engage in the effective conversion of resources into capabilities and in turn exploit market opportunities (Day 1994). While EO as a resource cannot directly influence performance, it is important for firms to focus on the resource management process in assessing the EO-business performance relationship. In this regard, only if a firm engages in appropriate activities to implement an EO can it yield superior competitive advantage and firm performance.

This study therefore aims to make several contributions to the existing literature. First, compared to those operating in domestic markets, firm operation in international markets is more complicated and difficult due to the psychic and familiarity disparities in terms of business practices and routines, cultures, and institutional systems, among others (Cavusgil et al. 2016; Morgan et al. 2012). Thus, it is imperative for firms to identify and develop valuable resources to overcome the liability of foreignness, thereby enhancing their international competitiveness (Hult 2012). This study seeks to enhance our understanding of the performance implications of EO in the context of the global marketplace by using data from Taiwanese electronics firms, providing compelling evidence that the adoption of EO is an effective means to improve international competitiveness.

Second, building on the RBV and its resource management process extension, this study develops a theory-based model and empirically demonstrates how EO influences international performance through the following linkages: resource portfolio [right arrow] resource bundles [right arrow] opportunity exploitation [right arrow] organizational performance (Sirmon et al. 2007), thereby resolving current deficiencies in the existing literature. Importantly, a lack of understanding of these linkages limits practitioners in terms of managing and evaluating how their endeavors affect entrepreneurial activities. As noted earlier, the existing literature has paid very limited attention to investigations of the internal process. Hence, instead of examining the moderating effects on the relationship between EO and international performance, this study focuses on the intervening role of knowledge creation capability on the EO-international performance link. When knowledge is widely recognized as the most significant resource of the firm (Grant 1996), firms gain superiority in exploiting opportunities by taking action in terms of resource combination or reconfiguration (i.e., knowledge creation of the firm) to make use of EO, which leads to improved international performance. Further, according to the Ansoff matrix (1957), there are two directions for firms to think about growth opportunities: product and market development. Based on this, the current study proposes two distinct opportunity exploitation related constructs--international venturing and new product development (NPD) decision-making flexibility--to serve as intervening mechanisms that link knowledge creation to international performance.

Finally, practitioners often falsely believe that the implementation of EO is a luxury only firms in high growth markets with plentiful financial capital can pursue (Wiklund and Shepherd 2005). This study seeks to debunk this myth by offering theoretical insights and empirical evidence that EO is useful for firms to ease resource and environmental constraints. We further aim to provide specific guidance for managing entrepreneurial activities.

The remainder of this paper is as follows. First, the conceptual model and hypothesis development are demonstrated. Second, we explain the research methodology and present the analytical results. Finally, we detail and discuss the findings, including theoretical and managerial implications.

2 Conceptual Model Development

2.1 Overview

The resource theory contributes to our understanding of how firms acquire, manage, and utilize various resources to achieve desirable competitive advantage and positions (Barney 1991; Eisenhardt and Martin 2000; Sirmon et al. 2007). However, scholars indicate that resources alone are impossible to create superior competitive advantages and organizational performance (DeSarbo et al. 2007; Sirmon and Hitt 2003). Rather, resource management is more important for firms than how many resources they own (Day 1994; Sirmon et al. 2007). Given the same resources and competitive market conditions, different resource management actions will lead to quite different performance outcome metrics (Zott 2003). Taking these notions into account, firms need to engage in effective integration and deployment of resource bundles (Sirmon and Hitt 2003; Sirmon et al. 2007).

Given that resource bundles represents the process used to integrate resources to form firm capabilities (Sirmon et al. 2007), knowledge creation is the core of building bundles (Madhavaram and Hunt 2008; Sirmon and Hitt, 2003). Among the various resources a firm processes, knowledge is widely recognized as the most critical, especially in uncertain environments (De Luca and Atuahene-Gima 2007; Grant 1996; Nonaka et al. 2000). It is difficult for firms to achieve effective capability development without having a knowledge advantage (Chen et al. 2017; Murray et al. 2011). Superior knowledge creation helps firms improve the processes of making incremental improvements to extant capabilities, extending existing capabilities, and generating new knowledge (Atuahene-Gima 2005; Chen et al. 2012). Researchers suggests that knowledge creation is a core-value creating capability associated with continuous growth opportunities and ultimate survival (Grant 1996; Smith et al. 2005), relying on organizational members' ability to exchange and combine extant information, knowledge, and ideas (Kogut and Zander 1992; Smith et al. 2005). However, the knowledge creation process is difficult and costly due to knowledge stickiness (De Luca and Atuahene-Gima 2007; Jean et al. 2012). Given a firm as a knowledge-creating entity, the knowledge creation process is the most imperative resource bundling activity--the core of exploiting market opportunities and gaining strategic advantage (Kogut and Zander 1992; Nonaka et al. 2000; Shu et al. 2012; Sirmon et al. 2007). As such, the knowledge creation process involves the exchange and combination of various tacit and explicit knowledge assets within a firm (Nonaka 1994) and is significantly determined by a firm's decision-making styles, practices, and approaches (Li et al. 2009; Nahapiet and Ghoshal 1998; Nonaka et al. 2000; Shu et al. 2012).

In addition, EO represents the specific entrepreneurial aspects of a firm's decision-making styles, practices, and approaches (Lumpkin and Dess 1996). Such an orientation stresses active industry change and the creation of new markets (Covin and Slevin 1991; Schindehutte et al. 2008). Entrepreneurial-oriented...

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