Received: 28 January 2020 Revised: 9 February 2020 Accepted: 9 March 2020

DOI: 10.1002/pa.2125

ACADEMIC PAPER

Entrepreneurial orientation and generic competitive

strategies for emerging SMEs: Financial and nonfinancial
performance perspective

Muhammad Anwar1 | Syed Z. A. Shah2

1
College of Economics and Management,
Beijing University of Technology, Beijing, In the competitive markets, business ventures have not only emphasized financial
China
performance but nonfinancial performance has also become the need of the day due to
2
Faculty of Management Sciences,
International Islamic University, Islamabad, its significant role in increasing customers. However, minor attention is given to the rela-
Pakistan tionship between entrepreneurial orientation, business strategy and nonfinancial perfor-

Correspondence mance of emerging small and medium enterprises (SMEs). This study scrutinizes the
Muhammad Anwar, College of Economics and effect of each dimension of entrepreneurial orientation (i.e., innovativeness, risk-taking,
Management, Beijing University of
Technology, Beijing, China. and proactiveness) and each of generic competitive strategies (i.e., differentiation and
Email: [email protected] cost leadership) on the performance (financial and nonfinancial) of emerging SMEs. We
Funding information surveyed 373 SMEs operating in Pakistan through a structured questionnaire. For the
Higher Education Commision, Pakistan data analysis and hypotheses testing, we used AMOS.21. The findings display that inno-
vativeness, proactiveness, and risk-taking significantly improve financial performance
while insignificantly impact nonfinancial performance. Differentiation and cost leader-
ship strategies significantly spur financial as well as nonfinancial performance of SMEs.
This study advises that top managers of SMEs in the emerging economies need to main-
tain a focus on entrepreneurial activities and formulate unique competitive strategies to
attain higher performance. This research further recommends policymakers to initiate
entrepreneurship programs for SMEs to configure entrepreneurial posture of the busi-
nessmen. Further recommendations have stated.

1 | I N T RO DU CT I O N performance, for example, financial performance and nonfinancial

performance (De Clercq & Rius, 2007; Wiklund & Shepherd, 2003).
Due to globalization, entrepreneurial orientation (EO) has received Also, both financial performance and nonfinancial performance have
considerable attention of researchers and academia over the last two been assessed (Keh, Nguyen, & Ng, 2007) but the results are still frag-
decades (Iqbal & Malik, 2019; Kraus, Rigtering, Hughes, & Hosman, mented. More precisely, there are big shortfalls and several limitations
2012; Shah & Bhutta, 2013) and the relationship between EO and in the previous studies. For instance, studies have not distinguished
small and medium enterprises (SMEs) performance has been discussed between the importance of EO in financial performance and non-
broadly in developed (Martin & Javalgi, 2016; Soininen, Martikainen, financial performance; most studies often mix both the aspects with-
Puumalainen, & Kyläheiko, 2012) and developing countries (Boso, out adequately focusing on either. Moreover, many studies have
Story, & Cadogan, 2013; Jiang, Liu, Fey, & Jiang, 2018). Again, several focused on manufacturing SMEs while service and trading industry
meta-analyses have revealed a significant relationship between EO have received minor consideration. Additionally, it appears that while
and SMEs' performance (e.g., Rauch, Wiklund, Lumpkin, & Frese, the role of EO in venture performance has been adequately debated
2009; Saeed, Yousafzai, & Engelen, 2014). A plethora of research has in the developed economies including United States and Europe; the
discussed the role of EO in financial performance (Anwar, Khan, & relationship has rarely been explored in emerging economies despite
Khan, 2018; Jiang et al., 2018; Rezaei & Ortt, 2018) and also in mixed the crucial role of SMEs in these economies (Bhutta & Ali Shah, 2015;

J Public Affairs. 2020;e2125. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1 of 17
https://doi.org/10.1002/pa.2125
2 of 17 ANWAR AND SHAH

Reijonen, Hirvonen, Nagy, Laukkanen, & Gabrielsson, 2015). Espe- (e.g., Masood, Farooq, & Hussain, 2016). Hence, the discoveries of
cially SME firms in the emerging market Pakistan have rarely been this homework are claimed to be correspondingly imperative for other
touched in this perspective (Anwar, Khan, & Khan, 2018; Bhutta & Ali evolving and developed economies. Policy makers in Pakistan can ini-
Shah, 2015). The existing research plugs the gap and unleashes the tiate special programs for SMEs to enhance the entrepreneurial abili-
importance of EO in financial and nonfinancial performance of ties of the businessmen. This study addresses the theme of recourse
manufacturing, trading and services SMEs in an emerging market, base view theory (RBVT) to highlight the importance of firm's entre-
Pakistan. Notably, prior studies have claimed that only EO is not suffi- preneurial activities and competitive strategy toward SMEs perfor-
cient to gain a superior performance. SMEs must have unique strategy mance. The findings of the study beneficiate owners, managers, and
in addition to EO in order to constitute their endurance in the tempes- policy makers responsible for firm's performance. This research dis-
tuous markets (Brenes, Montoya, & Ciravegna, 2014; Teti, Perrini, & closes how a venture's internal capabilities, for example, EO and strat-
Tirapelle, 2014; Yuliansyah, Rammal, & Rose, 2016). Though, previous egy can relief ventures to gain a sustainable competitive advantage
literature has discussed a variety of strategies but Porter's (1980) which is the central theme of RBVT. This study also gives new insights
strategy is generally rated as the most essential tool for SMEs success. in this nature through experimental evidence obtained from the enter-
As argued by Linton and Kask (2017) that EO and Porter's generic prises working in the developing marketplace. Using EO and strategy
competitive strategy (GCS) have become fundamental paradigms can help owners and managers to invest in more suitable and stable
within recent entrepreneurship and strategic management research. projects rather than uncertain and high risk projects. However, infor-
Thus, both are necessary, and complementary, for the upgrading mation in the milieu of financial and nonfinancial outputs is still elu-
enterprises performance. Following any one of them without the sive and fragmented which need to be discussed.
other does not produce desired results. Hence, the second gap that is
filled by this work is to dissect the protagonist of generic competitive
strategy in financial and nonfinancial performance of SMEs. 2 | THEORETICAL BACKGROUND
Examining the role of EO and competitive strategy is significant for
several reasons. First, small firms persistently try to achieve competi- 2.1 | Entrepreneurial orientation
tiveness and superior performance over their competitors. One of the
possible sources to achieve this goal is either to develop unique prod- EO has not yet received a single definition, different researchers have
ucts or innovation processes (Palmer, Wright, & Powers, 2015) which is explained this concept differently (Lechner & Gudmundsson, 2014).
not possible unless a firm develops high EO and a unique strategy. A EO's theory was simplified in the early attempt by Miller (1983, p
competitive strategy is considered a key element of SMEs success in 770) who opined that “EO highlights as hostile product-market inno-
the dynamic markets (Javalgi, Gross, Benoy Joseph, & Granot, 2011; vation, risky projects, and a tendency to find innovations that prevent
Mokaya, 2012). Executives, owners and top managers need unique the competition.” The theory was further expanded in the literature
strategies and entrepreneurial activities to compete in the market and defined as “EO as the processes, structures and behavior of a firm
(Anwar, Shah, & Khan, 2018). Second, SMEs are often anxious with characterized by innovativeness, risk taking and proactiveness”
entrepreneurial activities as well as distinctiveness of policies because (Lechner & Gudmundsson, 2014; Lumpkin & Dess, 1996).
of their relative small size and lack of resources. Thus, SMEs provide Later Lumpkin and Dess (1996) added two extra dimensions;
more appropriate environment of EO that may not be necessarily autonomy and competitive aggressiveness. Many studies have been
offered by large firms (Sahut & Peris-Ortiz, 2014). For instance, more based on five dimensions (Lechner & Gudmundsson, 2014; Wiklund &
than 50% of SMEs nosedive due to privation of resources and skills. Shepherd, 2005) while others have preferred to confine themselves
Hereafter, they need alternative sources, for example, EO and strategy to only three major dimensions; innovativeness, risk taking and
to avoid the great loss (Anwar et al., 2018). Third, previous studies have proactiveness (Anwar, Khan, & Khan, 2018; Shirokova, Bogatyreva,
over-emphasized financial performance of SMEs while nonfinancial Beliaeva, & Puffer, 2016). In 2009, Rauch and colleagues all con-
performance, despite its apparent importance, remains virtually ducted a meta-analysis of 160 studies and argued that three dimen-
touched. It is claimed that a firm first gains nonfinancial performance in sions of EO; innovativeness, risk taking and proactiveness provide
a saturated market which in turn helps it to improve financial perfor- complete picture of EO. Hence, the present study relied on three
mance (Hernaus, Peji
c Bach, & Bosilj Vukši
c, 2012). dimensions. Moreover, we have already included GSC in our model,
This study does not only help Pakistani firms but its impact will so in order to avoid overlapping, for parsimonious reason, we skipped
also be felt on the country's economy that relies heavily on SMEs. For the additional dimensions (autonomy and competitive aggressiveness)
instance, Pakistan has geographical advantages in term of trade and from our model.
more than 95% of businesses are SMEs (Akhtar, Ismail, Hussain, &
Umair-ur-Rehman, 2015). Due to the location, Pakistan country has
many topographies in conjoint with other developing and developed 2.1.1 | Innovativeness
economies (Anwar, 2018). For instance, from business perspective,
Pakistan has opened trade with the emerging markets such as China It indicates the firm's predisposition to engage and sustenance new
and Turkey and with developed markets such as France and Russia philosophies through imaginative methods, process and investigation
ANWAR AND SHAH 3 of 17

that clue to the improvement of new and unique technologies, prod- Firms with competencies of inimitable resources, value creating
uct and services. Innovation means creating new value (Drucker & strategies and grip on market influence have more opportunities to
Noel, 1986). attain superior performance. It is crucial for ventures to value their EO
properties through evolving employee reward system and attractive
marketing capability (Pratono & Mahmood, 2015). More precisely, the
2.1.2 | Risk taking theory suggests that sustainable competitive advantage can be gained
especially through internal capabilities of firms as compared to exter-
The willingness of owner, executive and top manager in relation to nal capabilities (Barney, 1991; Ortega, 2010). Recourse Base View
risky projects and commitments of which some may fail doubtlessly (RBV) theory provides the underlying foundation for the progress of
(Miller & Friesen, 1978). our research model in the framework of EO and GCS as these factors
are deemed to be SMEs' internal capabilities to show better perfor-
mance and survive in markets. In addition, these factors constitute
2.1.3 | Proactiveness firms' attribute towards worthy practices to frame unique strategy in
order to secure effectiveness and efficiency that is the theme of
First and fast searching opportunities (new or associated with existed RBVT. In the same vein, prior studies have attached considerable
operation) (Lumpkin & Dess, 1996). We believe it is the talent to read importance to EO and GCS in the context of gaining competitive
the market trends and events, and to act appropriately according to improvement and greater performance based on the characteristics of
perceived changes expected to ascend in near future. RBVT (Acquaah & Agyapong, 2015; Brouthers, Nakos, & Dimitratos,
2015; Pratono & Mahmood, 2015; Santos-Vijande, López-Sánchez, &
Trespalacios, 2012). RBV theory has also fascinated much attention in
2.2 | Generic competitive strategy the strategic management studies. Many authors have discussed the
theory in the studies of EO and firm performance (Jin & Cho, 2018).
Porter (1980) suggested four strategies; cost leadership, differentia- Studies have given more emphasize to dynamic and adaptive capabili-
tion, cost focus, and differentiation focus. Differentiation strategy ties as theoretical underpinning of RBVT when discussing the path
(DS) and cost leadership strategy (CLS) strategies are the strategic between EO and performance (Oly Ndubisi & Agarwal, 2014). It is
weapons and define the supreme lucidity of competitive advantage. believed that the dimensions of EO provide a clearer picture of the
While the focus strategy is not a standalone and is nothing by itself, it firms' activities, which are carried out for a satisfactory position and
is something superfluous that firms add to other strategies by making performance (Morgan, Anokhin, & Wincent, 2016).
deep search about their customer or markets. It is related to slender Moreover, it is also argued that RBVT supports firms to gain
markets which may not give above average performance (Porter, competitive advantage by using two types of capabilities which
1985, p. 15). CLS means when a firm competes in a market on the named dynamic capabilities and adaptive capabilities (Day, 2014).
basis of cost and price, when firm tries to reduce its cost related to Dynamic capabilities help ventures to achieve sustainable competi-
material, operation, and wages etc. (Porter, 1980). DS denotes the tive advantage using internal skills and knowledge to respond to
growth of unique products and services, new structure, and processes, external market change on time (Day, 2014). In this context, firm's
that is, provide new kinds of product and services that may be per- innovative behavior may be considered a core resource to react to
ceived by customers as new (Porter, 1980). The two strategies; DS the change. In addition, through innovative activities a firm can
and CLS are deemed crucial in the achievement of superior perfor- respond effectively to external challenge (Dai & Liu, 2015). Adaptive
mance (Lechner & Gudmundsson, 2014). Porter's competitive strategy capabilities demonstrate the firm's proactive behavior, that is, first
is still regarded as a key component to secure competitive position mover action before competitor or industry rivals do (Day, 2014).
and superior performance (Salavou, 2015). While a numerous studies Proactiveness pertains to the benefits of moving ahead of competi-
have discussed the importance of different strategies, Porter's com- tors. Because proactive firms enter into new market earlier and set
petitive strategy remains effective in theorizing and explaining practi- their position as well as seize the initial profit of market (Jalali,
cal contexts in Europe and Asia. Majority of strategic management Jaafar, & Ramayah, 2014). Thus both of the capabilities are merged
researchers believe in Porter's competitive strategy as a key to a firm in firms' internal resources and characteristics that we interpret as
performance (Acquaah, 2011; Lechner & Gudmundsson, 2014). In an entrepreneurial posture, competitive strategies lead firm toward
emerging market like Pakistan, both the strategies are significant to higher performance that is the theme of RBVT suggested by Barney
configure a firm profitability (Anwar, 2018). Gaining a competitive (1991) that venture internal resources, and capabilities have higher
position is essential for business sector because it can provide several influence on performance as compared to external resources. We
advantages (Schulz & Flanigan, 2016). Hence, the present study is hope to come up with evidence to show that EO and competitive
confined to only DS and CLS as competitive strategies. strategy are complementary factors that can enhance the success
RBVT covers all the unique resources; tangible and intangible that and survival of SMEs operating in a turbulent market. In the true
are possessed by a firm which facilitate to implement value creating spirit of RBVT, EO, and strategy cannot and should not be perceived
strategy to gain effectiveness and efficiency (Barney, 1991). as mutually exclusive tools for improving firm's performance.
4 of 17 ANWAR AND SHAH

3 | HYPOTHESES DEVELOPMENT 3.2 | Risk taking and SMEs performance

3.1 | Innovativeness and SMEs performance In today's dynamic and competitive environment, SMEs need to pay
attention to persistent change and entrepreneurial activities. In such
One of the most crucial strategies of top management is to be innova- competitive environment, laziness, risk aversion, and rigid firms would
tive because it can significantly improve a firm performance not be well fitted (Kantur, 2016). Firms intending to enter into new
(Adomako, 2017). Innovativeness demonstrates firm's efforts to sea- markets have to be risk takers because risk averse behavior leads the
rch new opportunities, problem solution through creativity, techno- firm to lose market shares and also causes to miss competitive posi-
logical leadership, and research & development that lead new or tioning (Porter, 1980). Businesses of all sizes, small or large, undertake
unique products and processes (Dess & Lumpkin, 2005). Though all of a degree of risk; it will be impractical to think in terms of “absolutely
the dimensions of EO have positive association with firm's perfor- no risk policy” (Lumpkin & Dess, 1996). Risk takers are able to
mance but innovation is the feature which keeps firms unique in achieve higher innovative performance in a turbulent market
market and industry and has most pronounced impact on SMEs (García-Granero, Llopis, Fernández-Mesa, & Alegre, 2015). Risk tak-
performance (Oly Ndubisi & Iftikhar, 2012). Innovativeness shows a ing is essential for managers to compete in a dynamic market and to
fundamental role in the performance of different kinds of firms includ- respond to the threats of rivals and competitors. It is argued that risk
ing high technological (Lomberg, Urbig, Stöckmann, Marino, & taking can configure a firm's success in a new and matured market
Dickson, 2017). Innovativeness is an essential strategy for a firm (Hoskisson, Chirico, Zyung, & Gambeta, 2017). But risk taking activi-
because it can provide internal and external competitive advantage, ties seem particularly daunting and demanding to small firms. Never-
which in turn configures firm performance (Liu & Huang, 2018). Inno- theless, high investment in dangerous projects might root big loss
vative activities are not only considered crucial for competitiveness of for small business, but ultimately these risky projects can bring about
SMEs but also play a significant role in the success and performance higher SMEs performance and competitive edge (Lumpkin & Dess,
of Pakistani SMEs (Anwar, 2018). 1996). To earn profits, a firm performs a variety of activities includ-
Innovative firms derive help from their organizational resources ing new product development, which need risk consideration and
in order to access new resources, capabilities, and networking that risk governance (Salavati, Tuyserkani, Mousavi, Falahi, & Abdi,
respond to potential opportunities, volatility, and challenges in the 2016). To spur firms' performance, managers should not ignore to
environment which results superior performance (Dai & Liu, 2015; take risk regarding investment decisions (Martin, Washburn, Makri, &
Jalali et al., 2014). Innovative strategy works as a piston and has Gomez-Mejia, 2015). In general SMEs often enhance their financial
crucial impact on SMEs financial, social, and environmental perfor- performance and profitability through managing different types of
mance (Ezzi & Jarboui, 2016). Particularly in manufacturing firms, risk (Florio & Leoni, 2017).
innovation plays the role of “bridge” between competitive strate- Markets conditions in emerging economies are reportedly uncer-
gies and performance (Bayraktar, Hancerliogullari, Cetinguc, & tain and less stable. Hence, entrepreneurial firms operating in such
Calisir, 2017). When organizations modify their products and ser- regions are more likely to take risk to face the uncertainty to acquire
vices according to altering demands and turbulent environment, profit (Kreiser & Davis, 2010). In the turbulent environment, managers
the outcomes can lead to sustainable competitive advantage and having high risk taking behaviors significantly improve their firms
per-
higher profit margin (Hornsby, Kuratko, & Zahra, 2002) and it is the formance as compared to low risk takers (Pratono, 2018). Previous
only dimension of EO that significantly contributes to manufactur- studies have revealed that SMEs performance can be gained through
ca, Topal, & Kaya, 2012). Organization with high inno-
ing SMEs (Ag ca et al., 2012; Aktan & Bulut, 2008). We pro-
risk taking activities (Ag
vative capabilities can over perform others in term of product pose the hypothesis:
development and process (Ezzi & Jarboui, 2016). Several studies
found that there is significant positive relationship between inno- Hypothesis 3 Risk taking is positively related to financial performance
vativeness and financial performance and nonfinancial performance of Emerging SMEs.
(Aktan & Bulut, 2008; Dai, Maksimov, Gilbert, & Fernhaber, 2014;
Ezzi & Jarboui, 2016). A recent study also claimed that innovative- Hypothesis 4 Risk taking is positively related to SMEs nonfinancial per-
ness is the significant predictor of firm performance (Rezaei & Ortt, formance of Emerging SMEs.
2018). SMEs enhance their financial and operational performance
through innovative practices (Expósito & Sanchis-Llopis, 2019).
Hence we propose the hypothesis; 3.3 | Proactiveness and SMEs performance

Hypothesis 1 Innovativeness is positively related to financial perfor- This feature of EO illustrates the “fast and first” searching about new
mance of Emerging SMEs. products, services, and new markets which helps firms to get to a
strong position and gain competitive advantage (Porter, 1980). Thus,
Hypothesis 2 Innovativeness is positively related to nonfinancial proactive firms build competitive advantage by pursuing customers'
performance of Emerging SMEs. demands, markets, and by charging higher prices. Firms with proactive
ANWAR AND SHAH 5 of 17

approach produce new products and services ahead of their competi- position in the turbulent market that is essential for high market
tors and rivals for the purpose to grasp future demands (Jalali et al., performance. SMEs pursuing DS generate higher value over firms
2014). Proactiveness has displayed significance association with per- pursuing only CLS (Oyewobi et al., 2015; Teti et al., 2014). So we
formance of manufacturing SMEs (A
gca et al., 2012) and it is the most hypothesize:
important dimension of EO in the success of SMEs (Akhtar et al.,
2015). In a competitive market such as China, proactive managers Hypothesis 7 Differentiation strategy is positively related to financial
reduce the environmental pressure, eliminate barriers to trade and performance of Emerging SMEs.
attenuate the competition, which in turn benefit their firms' perfor-
mance (Gao, Ge, Lang, & Xu, 2018). Proactiveness should be encour- Hypothesis 8 Differentiation strategy is positively related to non-
aged among top management team to configure market performance financial performance of Emerging SMEs.
in the turbulent market (Leischnig & Geigenmüller, 2018). Firms posit
various strategies to scan the market opportunities for better
outcomes. In this situation, proactive managers can help to recognize 3.5 | Cost leadership strategy and SMEs
and exploit more favorable opportunities that in turn can spur market performance
performance (Woodside, 2014). In a situation of high-market intelli-
gence sensitivity, the firms that are more proactive achieve superior CLS focuses on the reduction of various costs related to material, sup-
performance over competitors and rival firms (Chen & Hsu, 2013). plies, operational expenses, wages, labor cost, advertising expense,
Prior literature provides ample evidence that there is positive connec- and other input costs, thus firms produce products and services at
tion between proactiveness and SMEs performance (Aktan & Bulut, lesser prices, enabling their customers to buy their products in larger
2008; Dai et al., 2014; Rezaei & Ortt, 2018). Therefore, the present quantities—in turn leading to higher profit margin (Acquaah, 2011;
study proposes the hypothesis: Hitt, Ireland, Sirmon, & Trahms, 2011; Porter, 1985). CLS is connected
to process innovation, economies of scale, and design for manufactur-
Hypothesis 5 Proactiveness is positively related to financial perfor- ing to lower cost (Allen & Helms, 2006). SMEs must reduce their costs
mance of Emerging SMEs. related to operation, material, advertising, and production as they
have lack of financial resources. In the results (e.g., reduction of
Hypothesis 6 Proactiveness is positively related to nonfinancial perfor- various costs), they will able to improve their value and financial per-
mance of Emerging SMEs. formance (Soltanizadeh, Abdul Rasid, Mottaghi Golshan, & Wan Ismail,
2016). In strategic planning, firms must consider CLS as it can stimu-
late firms' operational activities efficiently that in turn benefits firms
3.4 | Differentiation strategy and SMEs performance (Lorenzo, Rubio, & Garcés, 2018).
performance CLS is not only beneficial for large corporations but also provides
the same benefits to SMEs if they can take the advantage by minimiz-
Prior literature suggested that SMEs are interested in information ing cost and economies of scale (Porter, 1980). It helps firms to
about their competitors and customers to differentiate their products enhance and improve their financial success (Oyewobi et al., 2015).
and services to achieve positioning in the markets (Keh et al., 2007). Similarly, it has been confirmed that CLS has significant influence on
Firms differentiate their products, improve their innovation process SMEs' overall performance (Olson & Slater, 2002). Hence, the present
and strengthen their brands when entering into a new territory. These study proposes hypothesis:
activities are aimed at earning higher profit and gaining competitive
placing over competitors and rivals (Brenes et al., 2014). Hypothesis 9 Cost leadership strategy is positively related to financial
There is a debate between the two schools of thoughts: one gives performance of Emerging SMEs.
value to pursuing DS while the other favors CLS. For example, some
studies argue that only DS improves firms' performance directly (Teti Hypothesis 10 Cost leadership strategy is positively related to non-
et al., 2014; Yuliansyah et al., 2016) while other studies suggest the financial performance of Emerging SMEs.
importance for CLS (Oyewobi, Windapo, & James, 2015; Allen &
Helms, 2006). In fact, both CLS and DS improve SME's performance.
However, DS makes SMEs more able to sustain present-day perfor- 4 | METHODOLOGY
mance in future than does CLS. But it is noteworthy that DS has
strong association with unstable performance and systematic risk 4.1 | Sample, data, and population
(Banker, Mashruwala, & Tripathy, 2014). According to Porter (1980),
differentiating products and services from competitors and industry For this study, we surveyed SMEs working in the two major cities,
rivals can give benefit of high profitability and a long term survival. that is, Rawalpindi (Industrial city) and Islamabad (capital of Pakistan)
Moreover, Hitt, Carnes, and Xu (2016) describe that differential strat- of the emerging country Pakistan. The registered firms' lists were
egy of business firms enable them to sort a maintainable competitive taken from Islamabad and Rawalpindi chamber of commerce, which
6 of 17 ANWAR AND SHAH

have 4,000 and 5,408 registered firms respectively. Hence, the total 5 = extremely improved. Table 4 shows the measurement of financial
number of the businesses is 9,408. These firms are engaged in performance and nonfinancial performance.
manufacturing, services and trading business. 373 SMEs were
selected on probability based formula (confidence level = 95%, confi-
dence interval = 5, total population = 9,408) and following simple ran- 4.2.2 | Independent variables
dom sampling technique.
Self-reported questionnaires were used to collect data from Entrepreneurial orientation has three dimensions, that is, innovative-
SMEs. To get higher response rate and more valid information, we ness, risk taking and proactiveness. Total 17 items were used for
assured the top managers that the data are confidential. We distrib- assessing EO of which 6 items for innovativeness, 7 for risk taking,
uted a total of 700 questionnaires (one to each firm) of which and 4 for proactiveness presented in Table 4. The items were adopted
387 were received back, a few questionnaires had been incorrectly from previous studies of Aktan and Bulut (2008) and Bhutta and Ali
filled and did not fulfill the criteria of the study, so these were Shah (2015). These items are also frequently tested in entrepreneur-
excluded from final analysis. Total 373 usable responses were ana- ship literatures.
lyzed to test the hypothesis. Response rate of 53.3% was achieved. Generic competitive strategy normally has two types; DS and
The questionnaires were asked to be filled by owners, executives, and CLS. This study used eight items for assessing GCS presented in
top managers of the SMEs because they have more familiar with Table 4 of which five items relate to DS and three items to CLS.
operational activities of their business (Anwar, 2018). However, some- The items were adopted from prior studies such as Anwar, Khan,
time owners ask their financial and others managers to act on their and Khan (2018) and Kaya (2015) often tested in strategic
behalf (authorized by them) (Hornsby et al., 2002). Hence, we management studies.
included all such questionnaires in the survey that had been com-
pleted by owners or their designated managers.
4.2.3 | Instruments/scale used

4.2 | Measurement of variables All the variables have been measured using 5 point Likert Scale.
The independent variables measured using the scale showing strongly
4.2.1 | Dependent variables disagree = 1 to strongly agree = 5. Measurement of new venture
performance was also based on 5 point Likert scale but rating showed
This research used SMEs performance as dependent variable and 1 = extremely declined to 5 = extremely improved in relation to firm's
relied on self-reported measures because of several reasons: own performance in the past.

1 SMEs are not required to publish nor agree to publish their financial
data and accounting information publicly (Anwar, 2018). TABLE 1 Profile of the firms
2 A lot of earlier studies have established that there is significant
Description Frequency Percentage of total
association between archived based financial data measures and
self-reported based performance measure (Engelen, Gupta, Owners/managers

Strenger, & Brettel, 2015; Venkatraman & Ramanujam, 1986). 1 Owners 109 29.22
a
3 Self-reported performance measurement provides better result 2 Managers 264 70.78
over archived based data in emerging markets such as China and Age of firm
India etc. (Semrau, Ambos, & Kraus, 2016). 1 Less than10 years 121 32.4
4 In addition, several studies have recommended self-reported mea- 2 11–20 years 139 37.3
sures in entrepreneurship and strategy research (Danso, Adomako, 3 21 and above years 113 30.3
Damoah, & Uddin, 2016; Deligianni, Dimitratos, Petrou, & Aharoni, Nature of industry
2016; Parnell, Long, & Lester, 2015).
1 Manufacturing 152 40.8
2 Trading 129 34.6
To measure financial performance, we trusted on the preceding
3 Services 92 24.7
studies Danso et al. (2016) and Charoensukmongkol (2016). We listed
Size of firms
six areas, six relating to financial performance (e.g., return on assets,
1 20–50 employees 129 34.6
return on equity and return on investment) and four relating to non-
financial performance (improvement in customer satisfaction, 2 51–100 employees 174 46.6

employees' satisfaction, product quality, and service quality) in the 3 101–250 employees 70 18.8

questionnaire. Respondents were asked to rate their firm's perfor- Total firms/N 373 100
mance relative to their major competitors, or industry, over the last a
We asked those top managers who were responsible for firm's
3 years on the given options such as 1 = extremely declined to performance and surrogated by owners to look for firm's activities.
ANWAR AND SHAH 7 of 17

TABLE 2 Descriptive statistics

Variables Items Mean SD Skewness Kurtosis
Innovativeness 4 3.745 0.461 0.235 0.316
Risk-taking 5 3.709 0.484 0.011 0.165
Proactivness 3 3.783 0.499 0.439 0.316
Differ. strategy 4 3.811 0.396 −0.125 1.635
Cost strategy 3 3.824 0.424 −0.400 1.284
Financial performance 6 3.832 0.462 −0.065 0.207
Nonfinancial performance 3 3.749 0.451 0.318 1.288

4.3 | Control variables The values for skewness range from (−0.065 to −0.400) and values
for kurtosis range from (0.207 to 1.635) were found to be in the
Size and age of firms play significant role in the affiliation between accepted range ±2 (George & Mallery, 2010) showed in Table 2. All
strategies and SMEs performance (Anwar, 2018; Teti et al., 2014). the variables have Mean value greater than 3. SD values range from
The survival and sustainability of a firm is lower when it is small and 0.470 to 0.49 for all the variables.
young (Lechner & Gudmundsson, 2014).
In our model, we controlled venture size, firm age, and industry.
Since SMEs size and SMEs age might be correlated (the longer a firm 5.1 | Confirmatory factor analysis
stays on the market, the bigger it might become), we drew covariance
between these control variables. However, as industry is a categorical We checked the measurement model fitness by using CFA and then
variable, we completed a group difference analysis in AMOS. We structural model with the help of AMOS.24 software. CFA using
paralleled all cases against only manufacturing industry (test 1), all maximum likelihood estimation was performed for the measure-
cases against trading industry (test 2), and finally all cases against ser- ment models, that is, validity and reliability of the constructs as well
vices industry. Although producing some differences in relationships, as to determine the constructs unidimensionality and then struc-
there were no statistically significant differences between all the tural model for the purpose of checking the hypotheses. All the
models. We interpret it as industry as a control factor has no influence items displayed significant (p < .001) regression weights towards
on our model. For parsimoniousness reason, we dropped this variable their relative constructs (see Table 3). Model fitness as shown in
from further analysis (otherwise we should have designed four Table 5 was found in the accepted range Good of Fit Index
models). (GFI) = 0.91, Confirmative Fit Index (CFI) = 0.97, Adjusted Good-
ness of Fit Index (AGFI) = 0.90, Tucker-Lewis Index (TLI) = 0.97,
Normed Fit Index (NFI) = 0.92, Root Mean Squar Residual
4.4 | Profile of the firms (RMR) = 0.010, Root-Mean-Square Error of Approximation
(RMSEA) = 0.038, and P CLOSE >0.10 as per criteria of prior stud-
Table 1 shows descriptive statistics of the study, 109 owners agreed ies (Browne & Cudeck, 1993;Hair et al., 2010; Hu & Bentler, 1999).
to participate in the study. The number is lower than managers χ 2/df = 1.535 indicates a good value as recommended value is less
because in Pakistan, majority of owners ask their managers to attend than 3 (Hair et al., 2010). Hence, the model fits values in respect of
to such tasks on their behalf, 264 senior managers participated in the GFI, AGFI, CFI, TLI, NFI for measurement were found in good
study, 121 firms with 32.4% of total sample had started operation less range, as these values were close to 1 as well as greater than 0.90
than 10 years, 139 firms with 37.3% age 11–20 years while 113 with (Deligianni et al., 2016; Hu & Bentler, 1999) whereas GFI value
30.3% firms had started their operation earlier than 21 years. One greater than 0.80 also suggested good model fit (Browne & Cudeck,
hundred and fifty two firms with 40.8% of the total sample were 1993; Deligianni et al., 2016; Hu & Bentler, 1999). In this study,
manufacturing firms, 129 firms with 34.6% were trading while 92 firms average variance extracted (AVE) for each of the factors exceeding
were from services sector. One hundred and twenty nine firms with 0.50 indicates good convergent validity in the study. The results of
34.6% have employees from 20 to 50, 174 firms have employees AVE values are presented in Table 4. Similarly, discriminant validity
51 to 100 while 70 firms with 18% were those firms which have (DV) calculated by taking square root of each of the AVE of latent
employees up to 250. variables and all the values are greater than 0.70, indicating good
DV (Hair et al., 2010; Hu & Bentler, 1999). Values for DV showed
parallel to correlation which is greater than value of the highest
5 | A N A L Y S I S A N D RE S U L T S standardized correlation coefficient of the construct with other
factors which indicate that factors have good DV (Chen, Wang,
Data were passed through several stages. We tested data normality Nevo, Benitez-Amado, & Kou, 2015; Hair et al., 2010). Table 4 also
that is necessary for AMOS based confirmatory factor analysis (CFA). shows composite reliability (CR) and correltation among the study
8 of 17 ANWAR AND SHAH

TABLE 3 Items and standardized loading

Item no. Description Factor loading

Innovativeness
inn1 My firm frequently tries out new ideas 0.687a
inn2 My firm is creative in its methods of operation Dropped
inn3 My firm seeks out new ways to do things 0.717a
inn4 My firm's emphasis on developing new products 0.729a
inn5 My firm's is spending on new product development activities 0.744a
inn6 My firm invests in the development of proprietary technologies Dropped
Risk taking
rt1 Relative to our competitors, my firm has higher propensity to take risks 0.838a
rt2 My firm has shown a great deal of tolerance for high risk projects Dropped
rt3 In general, we are bold, aggressive posture in order to maximize the probability of Dropped
exploiting potential when faced with uncertainty
rt4 Most people in my firm are willing to take risks 0.740a
rt5 My firm supports many small and experimental projects realizing that some 0.669a
will undoubtedly fail
rt6 The term “risk taker” is considered a positive attribute for me 0.903a
rt7 We encourage to take calculated risks with new ideas around here 0.787a
Proactiveness
pa1 We typically initiates actions to which competitors then respond 0.820a
pa2 In dealing with its competitors, my firm has a strong tendency to be ahead of Dropped
other competitors in introducing novel idea or products
pa3 Is very often the first firm to introduce new products/ services operating 0.823a
technologies, etc.
pa4 My firm shapes the environment by introducing new products, technologies, 0.757a
administrative techniques than merely react
Differentiation strategy
ds1 We create customer value through services supporting the products 0.702a
ds2 We advertising at low price than competitors Dropped
ds3 We take advantage of selling product with higher price than in the market. 0.833a
ds4 We creating special product or brand image 0.863a
ds5 We adapting products to changing needs of customers 0.846a
Cost leadership strategy
cs1 We work with lowest costs as a result of gaining efficiency of activities 0.698a
cs2 We try to gain cost advantage in supply of raw material. 0.814a
cs3 We gaining economies of scale 0.833a
Financial performance
fp1 Profitability 0.704a
fp2 Return on investment 0.827a
fp3 Return on assets 0.831a
fp4 Return on equity 0.828a
fp5 Sale growth 0.714a
fp6 Cash flow 0.707a
Nonfinancial performance
np1 Customer satisfaction 0.968a
np2 Employees satisfaction Dropped
np3 Product/service quality 0.848a
np4 Employee loyalty 0.693a

Note: The italics items are dropped because of unacceptable factor loading.
a
p value less than .001.
ANWAR AND SHAH 9 of 17

TABLE 4 Mean, SD, correlation, and validity

Variables CR AVE 1 2 3 4 5 6 7
1 Innovativeness 0.811 0.52 0.720
2 Risk-taking 0.892 0.63 0.388 0.79
3 Proactiveness 0.842 0.51 0.596 0.424 0.72
4 Differ. strategy 0.886 0.66 0.267 0.307 0.285 0.81
5 Cost strategy 0.826 0.61 0.431 0.393 0.411 0.258 0.78
6 Financial performance 0.897 0.59 0.675 0.478 0.656 0.341 0.490 0.77
7 Nonfinancial performance 0.879 0.71 0.297 0.228 0.288 0.278 0.525 0.256 0.84

Note: The bold values show discriminant validity. AVE is calculated as square of each item loaded on the respective construct and then take average of the
squared value. Discriminant Validity has shown in bold as parallel to correlation value and calculated after taking square root of AVE. CR, composite reliability.

variables. CR of each of the construct is above than 0.80 which significant difference between the groups (p = .17) which is greater
indicates good reliability as it is above than 0.70 (Nunnally & Bern- than 0.05. Hence, our study ensured safety from this threat.
stein, 1994).

5.5 | Structural model

5.2 | Correlation
In the structural model, we tested the hypotheses (see Figure 1).
We used SPSS to test the correlation coefficients between the con- Table 5 shows the fitness values for structural model as
structs that are shown in Table 4 which provide initial support for GFI = 0.88, AGFI = 0.86, CFI = 0.94, TLI = 0.93, NFI = 0.88,
hypothesis. All the constructs have positive relationship and there is RMR = 0.045, RMSEA = 0.050, and P CLOSE >0.10 acceptable
no multicollinearity issue because none of value is above 0.80 (Jalali (Hair et al., 2010; Hu & Bentler, 1999). CMIN/DF for structural
et al., 2014). model is (1.939) that is acceptable as per previous studies as it is
recommended that the value 1 to 3 indicate good model fit (Hair
et al., 2010).
5.3 | Common method biases The results indicate (see Table 6) significant positive associa-
tion of innovativeness with financial performance (β = .281,
Common method biases (CMB) may happen when scholars use self- p < .001) thus supported H1. However, the relationship of innova-
reported questionnaires for data collection (Podsakoff & Organ, tion with nonfinancial performance was found to be insignificant
1986). To test CMB, we followed previous studies (Kraus et al., positive (β = .018, p > .05) that did not support H2. We found a
2012; Li, Huang, & Tsai, 2009; Chen & Hsu, 2013) who used significant positive influence of risk taking on financial perfor-
Harman's single factor fest. We included all the items of EO, GCS, mance (β = .10, p < .05) supporting H3 but insignificant negative
financial performance, and nonfinancial performance in exploratory with nonfinancial performance (β = −.02, p > .05) that did not sup-
factor analysis and assessed in SPSS.22. No factor gained a majority port the H4. The influence of proactiveness is significant positive
of the variance in the study variables and the first factor explained on financial performance (β = .380, p < .001) and favored H5 but
only 31.01% of the total variance. Hence, CMB was not found to insignificant positive on nonfinancial performance (β = .031,
be a problem in the study. In addition, a common latent factor was p > .05) not supporting H6. Thus, the influence of EO on SMEs
created in a measurement model to check for CMB. We found a financial performance found significant positive but insignificant
significant relationship between hypothesized measurement items on nonfinancial performance.
and their respective latent factors. Hence, we argue that there is no The coefficient path showed that DS has significant positive
threat of CMB in this study. influence on financial performance (β = .081, p < .05) and supported
H7 and also found significant positive influence on nonfinancial per-
formance (β = .094, p < .05) that supported H8. The value for CLS
5.4 | Nonresponse bias shows significant positive relationship with financial performance
(β = .115, p < .05) as well as significant positive with nonfinancial
In order to check if there is any problem of nonresponse bias in the performance (β = .352, p < .001) which favored the proposed H9 and
data set, we compared the results of early responses (those who pro- H10 respectively.
vided their feedback immediately) and late responses (those who have The R2 values for the study describe that 55% of variance in
been notified via reminder). After comparing the results of the groups financial performance and 29% of variance in nonfinancial perfor-
(early and late) through an independent t test, we did not find any mance explained by the EO and GCS. The study argued that the
10 of 17 ANWAR AND SHAH

FIGURE 1 Structural Model

dimensions of EO and GCS have importance for financial performance 6 | DI SCU SSION
over nonfinancial performance in the emerging market.
The two control variables, that is, age and size of SMEs were Several studies have scrutinized that EO and GCS contribute posi-
tested in the model to minimize spurious results. The impact of age on tively toward SMEs' performance. This study subsidizes to the
financial performance is significant positive (CR = 3.6, p > .001) but existing literature in concerned field by scrutinizing the impact of
insignificant positive on nonfinancial performance (CR = 0.16, p > .05). each of the dimensions of EO (innovativeness, risk taking, and
Size of firms has significant positive influence on financial perfor- proactiveness) and each of the GCS dimensions (DS and CLS) on
mance (CR = 2.8, p < .01) and also significant positive on nonfinancial SMEs' financial performance and nonfinancial performance. In
performance (CR = 2.7, p < .01). We dropped the only control variable order to add newfangled empirical evidence, the present study was
“nature of industry” after we conducted analysis in AMOS for group conducted in manufacturing, trading and services sectors operating
difference and found no significant role of industry. in an Asian country. The study supports RBVT in respect to firm's
ANWAR AND SHAH 11 of 17

internal capabilities that play significant role in the achievement of changing demand and markets thus enjoy high competitive advantage
superior performance. and generate superior profitability. Innovative firms enter into mar-
The results revealed that SMEs with innovative behavior enjoy ket with new and innovative products earlier than contestants enter
high financial performance. Hence, this study provides strong support and thus snatch the market profit and earning on earlier base (Lii &
for H1. Consistent with previous studies, where Hornsby et al., 2002 Kuo, 2016). Our results are also in line of prior studies conducted in
revealed that SMEs that engage in innovative operation respond to emerging markets and found significant positive path between inno-
vativeness and financial performance (Aktan & Bulut, 2008; Dai
et al., 2014).
TABLE 5 Models fitness
However, this study showed that innovativeness has insignificant
Measurement Structural Acceptable positive relationship with nonfinancial performance of firms and
Fitness criteria model model rangea
hence H2 was not supported in the study. But not surprisingly, Sahut
CMIN 503.488 750.325 - and Peris-Ortiz (2014) suggested in the special issue that SMEs, unlike
DF 328 387 - larger firms, may actually experience negative results from innovation.
CMIN/DF 1.535 1.939 1–3b They point out that noninnovative firms survive longer in market and
GFI 0.91 0.88 >0.90 are more successful than innovative ones. Chen and Hsu (2013) have
AGFI 0.90 0.86 >0.80 recommended that innovation does not always guarantee significant
CFI 0.97 0.94 >0.95 improvement in nonfinancial performance of SMEs.

TLI 0.97 0.93 >0.95 The findings related to risk taking in the study favored the pro-
posed H3 and did not favor the H4. Danso et al. (2016) concluded
NFI 0.92 0.88 >0.80c
that risk taking contributes significantly positively to SME's financial
RMR 0.010 0.045 <0.09
performance in emerging economies. Consistent with meta-analysis
RMSEA 0.038 0.050 <0.08d
by Rauch et al. (2009) found that risk taking dimension of EO has
P CLOSE >0.10 >0.10 >0.05
weak relationship with SMEs performance. Our results strongly favor
Note: Fitness indexes for measurement model and structured model has Perez-Luno, Wiklund, and Cabrera (2011) who proffered that innova-
shown in the Table 6, the first section of the table shows the model fit
tiveness and proactiveness have positive relationship with SMEs per-
indexes measurement model followed by model fitness for structured
formance while risk taking is moderated by environmental dynamics.
model.
Abbreviations: AGFI, Adjusted Goodness of Fit Index; CFI, Confirmative Hence, results of the present study show that risk taking has insignifi-
Fit Index; DF, degree of freedom; GFI, Good of Fit Index; NFI, Normed Fit cant positive impact on financial performance but insignificant nega-
Index; RMR, Root Mean Square Residual; RMSEA, Root-Mean-Square tive on nonfinancial performance. The link of risk taking with SMEs
Error of Approximation; TLI, Tucker-Lewis Index.
a performance is less apparent and the relationship between risk taking
The thresholds listed in the table right side (accepted range) suggested by
Hair, Anderson, Babin, and Black (2010), p. 654 and Hu and activities and performance varies because firms engage in risky activi-
Bentler (1999). ties and thus some projects may fail while others may succeed in the
b
Normally the value is recommend from 1 to 3 is good fit but sometimes long run (McGrath, 2001). Although SMEs must take risks to seize
1 to 5 also permissible.
c new opportunities and enter into new markets but too much risk tak-
Bentler and Bonett (1980) recommended that greater than 0.80 can be
accepted. ing can cause big losses in uncertain markets. Hence, it is advisable for
d
RMSEA value <0.05 good fit; 0.05–0.10 moderate; >0.10 bad. SME firms to take only moderate risks in order to avoid irrecoverable

TABLE 6 Structural model results

Dep. variables
H Indep. variables Estimate SE CR p Remarks
H1 Fin Perform <— Innovativeness 0.281 0.059 4.757 .000 Supported
H2 Non Fin Per <— Innovativeness 0.018 0.053 0.337 .736 Not supported
H3 Fin Perform <— Risk taking 0.100 0.049 2.027 .043 Supported
H4 Non Fin Per <— Risk taking −0.020 0.047 −0.422 .673 Not-supported
H5 Fin Perform <— Proactiveness 0.380 0.089 4.262 .000 Supported
H6 Non Fin Per <— Proactiveness 0.031 0.077 0.406 .685 Not-supported
H7 Fin Perform <— Diff strategy 0.081 0.035 2.284 .022 Supported
H8 Non Fin Per <— Diff strategy 0.094 0.035 2.705 .007 Supported
H9 Fin Perform <— Cost strategy 0.115 0.043 2.694 .007 Supported
H10 Non Fin Per <— Cost strategy 0.352 0.046 7.707 .000 Supported

Abbreviations: CR, Critical Ratio; Fin Perform, Financial Performance; H, Hypothesis; Non Fin Per, Nonfinancial Performance; SE, Standard Errors.
12 of 17 ANWAR AND SHAH

financial losses and remain safe from unexpected shocks (Dai et al., Vijande et al., 2012; Yuliansyah et al., 2016). Similarly, our study scru-
2014). In addition, our results support the findings of Zhao, Seibert, tinized that CLS is very vital for SMEs financial performance thus it
and Lumpkin (2010) that risk taking propensity is not significantly supported H9 as claimed in prior studies (Oyewobi et al., 2015; Por-
related to entrepreneurial performance. ter, 1985). Firms that reduce different costs, related to suppliers,
This study supported H5 that proactiveness significantly contrib- material expense, operation expenses, and marketing expenses have
utes to financial performance but an insignificant positive influence ultimate impact on their financial performance because customers
on nonfinancial performance that did not support H6. In line with pre- perceive that the products have lower price as compared to other rival
vious studies, this study argued that firm with proactive behavior firms and competitors and they prefer to purchase in bulk (Hitt et al.,
builds competitive advantage by steering customers' demands, new 2011, Acquaah, 2011). Similarly we got the findings according to our
markets and charges higher price on offering products and services prediction that DS and CLS are significantly positively related to non-
(Jalali et al., 2014). In comparison of other dimensions of EO, financial performance of firms and thus supported H8 and H10. Prieto
proactiveness brings greater positive change in SMEs financial perfor- and Revilla (2006) concluded that customer satisfaction
mance which supports the finding of Akhtar et al. (2015) revealed that (e.g., nonfinancial performance) can be achieved through offering
proactiveness is the most significant factor for the victory of Pakistani unique products similar to their choice and especially on lower price
SMEs as compare to other dimensions of EO. Hence the present than competitors. Consistent to empirical study, Batista, de Oliveira
study confirmed the proposed H5 that proactiveness positively Lisboa, Augusto, and de Almeida (2016) scrutinized that DS and CLS
related to enterprises financial performance (Aktan & Bulut, 2008; have significantly positively related to nonfinancial performance of
Chen & Hsu, 2013; Dai et al., 2014). We found unexpected result for firms. Hence, this study concludes that GCS plays significant role in
H6. However, prior study of Dai et al. (2014) suggested that proactive financial performance and nonfinancial performance of Pakistani
behavior provides advantage but high proactiveness needs resources. enterprises.
Chen and Hsu (2013) scrutinized that proactiveness may support
firms to secure satisfactory profit but too much proactiveness may
cause to lose customer satisfaction because firms with too much pro- 6.1 | Contributions of the study
active behavior focus on new products but do not investigate cus-
tomer demands and market trends which results in declining market The conceptual model and hypotheses of the study are presented in a
performance. simplified yet comprehensive manner contributing effectively to the
Hence, in the context of EO, findings of the study are consistent exiting literature on EO, GCS, SMEs performance, and RBV theory. As
with prior studies where Mokaya (2012) said that firms with entrepre- posited by the RBV theory, a firm's internal capabilities are more use-
neurial activities such as innovativeness, risk taking and proactiveness ful for its performance as compared to its external capabilities. We
enjoy higher performance in the field of profitability, growth and effi- consider EO and the strategy as internal capabilities of a firm which,
ciency. Semrau et al. (2016) suggested that the impact of the dimen- as confirmed in this research, boost its performance. The study
sion of EO varies across countries. This study results are also in the strengthens the existing literature on EO and GCS through collecting
line of meta-analysis as we found that the dimensions of corporate empirical information from emerging ventures. We found that EO and
entrepreneurship have positive relationship with subjective and objec- GCS are the significant drivers of SMEs' success in emerging
tive performance (Bierwerth, Schwens, Isidor, & Kabst, 2015). Thus economies.
we highlight the findings related to EO outputs as crucial for financial In addition, this study examined the influence of each dimension
performance while weaker importance for nonfinancial performance of EO on financial performance and nonfinancial performance of
in the emerging market Pakistan. However, it will not be proper to SMEs to gain more fruitful insights. Findings of this research reveal
infer that EO should completely disregard nonfinancial performance that the dimensions of EO have significant influence on financial per-
of a firm. While this will perhaps lead to a fresh set of discussions formance but insignificant influence on nonfinancial performance. We
(deserving of a separate research study), it can be argued that non- claim the new insights that all the dimensions of EO are more impor-
financial performance of a firm cannot be independent of, or at vari- tant for financial performance as compared to nonfinancial perfor-
ance with, its financial performance. mance in emerging economies. The exception here is GCS that
GCS matters particularly for small firms and both of the strate- significantly positively contributes to both financial performance and
gies, that is, DS and CLS have significant positive impact on SMEs nonfinancial performance of SMEs. Business industry in emerging
financial performance (Lechner & Gudmundsson, 2014). The findings markets face a tough competition and especially small firms are unable
of the study supported H7 that DS will be positively related to firm to survive for long time. The present study explores the useful insights
financial performance. The results of study are similar to the findings for managers to give enough attention to their internal resources such
of Lechner and Gudmundsson (2014) suggested that DS is the most as EO and strategy rather than engage in highly risky and uncertain
appropriate strategy for small firms because it requires less invest- projects. A firm in the initial stage is unable to access all the resources
ment and can be achieved and accessed easily by small firms. Our required for growth. Hence, we advise SMEs to give due attention to
results revealed that DS enhances SMEs financial performance as the convenient strategies to move ahead of competitors. Further, this
scrutinized in the previous studies (Oyewobi et al., 2015; Santos- study puts forward an argument that there is no significant difference
ANWAR AND SHAH 13 of 17

between the importance of EO and GCS among manufacturing, trad- and strategies can give alternative opportunities to enhance
ing, and services ventures trading in the developing market Pakistan. performance.
Researchers and scholars can explore new ideas and gap in the
respective fields that have not yet been explored by prior studies.
6.3 | Limitations and direction for future scholars

6.2 | Policy implications Similar to other research, this study has also some constraints that
may need to be reflected in future research such as data and target
This study suggests several useful suggestions that are beneficial for population as we considered only one emerging market. The pre-
owners, managers, and policy makers concerned with SMEs. On prac- sent study tested for the direct impact of the dimensions of EO
tical perspective, the most significant managerial implication of the and GCS on financial performance and nonfinancial performance,
study is that SME firms need to develop unique GCS within their while previous scholars have also extracted that the relationship
departments to enhance financial performance and nonfinancial per- between EO and SMEs performance can be affected by several
formance as well as to compete in dynamic markets. Similarly, firms factors. For example, Kantur (2016) depicted that strategic entre-
have to create entrepreneurial environment to enhance performance, preneurship (SE) plays a full mediating role between EO-financial
particularly financial performance. Both factors help firms to have bal- performance and nonfinancial performance in emerging markets,
anced investment in different products development activities and that is, this can be extended as that is SE mediate between GCS
may avoid huge investment in risky projects to ensure their sustained and SMEs performance? Similarly some other studies have same
performance. It is noteworthy for enterprises operating in emerging findings that the relationship of EO and financial performance can
markets that EO and GCS are not only helpful in obtaining superior be exaggerated by awareness formation (Li et al., 2009) by strate-
financial performance but also provide support in improving non- gic alliances (Brouthers et al., 2015) and by others moderator and
financial performance. Similarly, responsible managers of the enter- mediators (Rauch et al., 2009). In addition, Chryssochoidis, Dous-
prises operating in developed markets seeing for better financial ios, and Tzokas (2016) resulted that competitive strategy does not
performance and nonfinancial performance may give due attention to directly improve performance but some internal capabilities medi-
DS and CLS. More precisely, Pakistani ventures require to pay greater ate the relationship. Hence future research may be conducted to
attention to GCS followed by EO to enhance and survive. The findings check the relationship between EO and GCS with some other pos-
help Government and SMEDA (Small and Medium Enterprises Devel- sible factors such as financial capabilities and executive and
opment Authority) to figure their policies and initiate programs for owners' characteristic as moderators that may play a significant
growth and sustainability of SMEs and should not ignore the role of role. Because if a firm aims to follow entrepreneurial activities and
SMEs in the country's economic growth. differential product development approaches, it may need financial
As discussed earlier, Pakistan encompasses features of other support to formulate it. In addition, the study is accompanied in an
emerging and developed markets. The findings of this study help evolving market, comparative study may be conducted to obtain
other countries to modify their strategies for the enhancement of beneficial results about the importance of EO and GCS toward
SMEs growth to configure the survival of industrial sector. For financial performance and nonfinancial performance.
instance, there is a high failure ratio in business industry worldwide
and many firms are unable to stay for long time. We argue that a
firm's internal capabilities should be strengthened to respond the 7 | CONC LU SION
unexpected shocks and external market forces. This study confirms
that EO is more crucial for the improvement of financial performance Steered by RBV theory, this study climaxes the importance of EO and
than nonfinancial performance. Due to resource constraint, many GCS toward financial performance and nonfinancial performance of
firms are failed in the initial stage in developed and developing econo- SMEs operating in an emerging arcade. The hypothesized relationship
mies. This research gives an opportunity to the newly established ven- was tested with AMOS.21 on the evidence collected through struc-
tures to adopt less expensive tactics for gaining financial performance tured questionnaire from 373 SMEs operating in the emerging
and nonfinancial performance. Moreover, The EO and competitive market Pakistan. This study argued that the dimension of EO has
advantage are very crucial for SMEs success due to lack of support significant positive relationship with financial performance of SMEs
and unfavorable market conditions. but insignificant with nonfinancial performance of firms. The conclu-
SMEs sector is considered the most significant factor for sions of the study advise executives, owners and top managers to give
economic growth and development across the globe. It also helps due attention to each of the GCS followed by EO. To gain financial
in reduction of poverty by providing employment. This research performance and nonfinancial performance, firm has not only to build
facilitates and encourages SMEs to adopt innovative ideas and unique GCS but also to give proper attention to entrepreneurial activi-
novel approaches in order to boost the propensity of the society. ties within the firm. Notably, GCS play significant role in achievement
For instance, poor and less supported societies in emerging econo- of financial performance and nonfinancial performance of firms oper-
mies are often unable to start business on a large scale. Hence, EO ating in the emerging market Pakistan.
14 of 17 ANWAR AND SHAH

ACKNOWLEDGEMEN TS Bentler, P. M., & Bonett, D. G. (1980). Significance tests and goodness of
We are thankful to HEC for supporting the research project. We also fit in the analysis of covariance structures. Psychological Bulletin, 88
(3), 588.
thank owners and managers of SMEs who participated in the survey.
Bhutta, N. T., & Ali Shah, S. Z. (2015). Do behavioural biases impact corpo-
The research is supported and funded by Higher Education Commis- rate entrepreneurship, agency cost and firm performance: Evidence
sion Pakistan under the project of the “National Research Support Pro- from developed and developing economies? Pakistan Journal of Com-
gram for Universities” (NRPU). Number IIUI/ORIC/HEC- merce & Social Sciences, 9(3), 761–798.
Bierwerth, M., Schwens, C., Isidor, R., & Kabst, R. (2015). Corporate entre-
NRPU/1571/2017-5832.
preneurship and performance: A meta-analysis. Small Business Econom-
ics, 45(2), 255–278.
ORCID Boso, N., Story, V. M., & Cadogan, J. W. (2013). Entrepreneurial orienta-
Muhammad Anwar https://orcid.org/0000-0002-2685-4747 tion, market orientation, network ties, and performance: Study of
entrepreneurial firms in a developing economy. Journal of Business
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ANWAR AND SHAH 17 of 17

AUTHOR BIOGRAPHI ES
How to cite this article: Anwar M, Shah SZA. Entrepreneurial

Muhammad Anwar is currently working as a research scholar at orientation and generic competitive strategies for emerging

Beijing University of Technology China. His research area includes SMEs: Financial and nonfinancial performance perspective.

competitive strategy, international entrepreneurship, business J Public Affairs. 2020;e2125. https://doi.org/10.1002/pa.2125

model innovation and behavioral finance, etc. He has published

several papers in this nature.

Dr. Syed Zulfiqar Ali Shah is Deputy Dean & Chairman of Higher
studies and research at Faculty of Management Sciences, Interna-
tional Islamic UniversityIslamabad Pakistan. He has published
more than 50 research papers in the field of corporate finance,
firm performance and efficiency, behavioral finance and corporate
entrepreneurship, etc.