Entrepreneurial orientation and SME performance ...

Journal of Business Research 69 (2016) 1928–1932

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Journal of Business Research

Entrepreneurial orientation and SME performance across societal cultures: An international study☆ Thorsten Semrau a,⁎, Tina Ambos b, Sascha Kraus c a b c

University of Cologne, Albertus-Magnus-Platz, 50923 Köln, Germany Geneva School of Economics and Management (GSEM), University of Geneva, 40 Blvd. du Pont-d’Arve, CH-1211 Geneva 4 University of Liechtenstein, Fürst-Franz-Josef-Strasse, 9490 Vaduz, Liechtenstein

a r t i c l e

i n f o

Article history: Received 1 January 2015 Received in revised form 1 July 2015 Accepted 1 September 2015 Available online 21 October 2015 Keywords: Entrepreneurial orientation Performance National context Societal culture Multilevel analysis

a b s t r a c t The concept of entrepreneurial orientation (EO) is universally applicable, and many empirical studies report a positive relationship between EO and performance in different national contexts. Empirical research, however, scarcely addresses which country-level contingencies affect the EO–performance link. Building on two secondorder factors of societal culture—performance-based culture (PBC) and socially supportive culture (SSC)—the present study proposes and tests such a contingency framework. Using a data set of 1248 SMEs from seven national contexts, multilevel analyses show that PBC positively moderates the relationship between EO and performance, whereas SSC has no moderation effect. © 2015 Elsevier Inc. All rights reserved.

1. Introduction Entrepreneurial orientation (EO) is a firm-level phenomenon and a central concept of strategy-making (Covin & Slevin, 1991). In an environment where businesses must constantly seek new opportunities, EO—the extent to which a firm is entrepreneurial (as opposed to conservative) with respect to strategy-making and resource orchestration—is one of the few qualities that firms can sustainably rely on. Thus, decision makers in different contexts need to foster EO to create competitive advantage (Miller, 1983). Following this line of thinking, the association between EO and firm performance is the subject of several recent empirical studies (Rauch, Wiklund, Lumpkin, & Frese, 2009; Wales, Gupta, & Mousa, 2013). Understanding the performance implications of EO in a crossnational context is becoming more important than ever as firms internationalize and select acquisition targets or alliance partners globally rather than locally (Andersen & Buvik, 2002). Accordingly, several researchers stress the research potential of examining cultural differences as possible contingencies for the EO–performance link (e.g., Wales et al., 2013). Unfortunately, however, knowledge in this area remains scarce

☆ The authors thank Salem Samhoud and Jeroen Geelhoed from &samhoud for their great effort in the data collection and for their outstanding cooperation. ⁎ Corresponding author. E-mail addresses: [email protected] (T. Semrau), [email protected] (T. Ambos), [email protected] (Sascha Kraus).

http://dx.doi.org/10.1016/j.jbusres.2015.10.082 0148-2963/© 2015 Elsevier Inc. All rights reserved.

because recent meta-analyses that address national-context differences as a potential moderator of the EO–performance link (Rauch et al., 2009; Saeed, Yousafzai, & Engelen, 2014) are inconclusive. Additionally, the only primary study that addresses the relevance of cultural differences in the EO–performance link (Kreiser, Marino, Kuratko, & Weaver, 2013) focuses on just one dimension of societal culture. By focusing on small and medium-sized enterprises (SMEs), using a second-order conceptualization of societal culture (Stephan & Uhlaner, 2010), and employing a multilevel model (Klein & Kozlowski, 2000), this study seeks to contribute to expanding the knowledge on how culture may affect the EO–performance link. Addressing the relationship between EO and performance among SMEs seems useful because SMEs are particularly important for countries' economic development (Javalgi & Todd, 2011) and play an increasingly active role within the broader trend of internationalization (Kraus, Ambos, Eggers, & Cesinger, 2015; Lu & Beamish, 2001). Employing a second-order conceptualization of societal culture seems advisable because such an approach represents culture more completely than an approach focusing on particular primary dimensions (Stephan & Uhlaner, 2010). Finally, because EO resides at firm level and societal culture is a higher-level concept, an analytical technique accounting for a nested data structure may be necessary to capture the interaction between EO and societal culture (Autio, Pathak, & Wennberg, 2013). The present study posits a positive relationship between EO and SME performance across national contexts. Theoretical arguments further suggest that differences in the extent to which national societal cultures are a) performance-based and b) socially supportive explain

T. Semrau et al. / Journal of Business Research 69 (2016) 1928–1932

differences in the magnitude of the EO–performance link among SMEs across national contexts. Multilevel analyses using data on 1248 SMEs from seven countries test these lines of reasoning. 2. Theory and hypotheses 2.1. EO and SME performance According to Miller's (1983) as well as Covin and Slevin's (1991) original conceptualization, EO is a firm-level attribute that exists to the extent that innovativeness, risk-taking, and proactiveness are features of a firm's strategic posture. Jointly, the three sub-dimensions reflect the extent to which a firm is entrepreneurial (as opposed to conservative) in its decision-making styles and methods, products, services, and business practices (Covin & Lumpkin, 2011). The concept of EO seems universal in terms of applicability and validity across different types of firms and national contexts. Specifically, empirical studies using data from different types of firms and countries examine the effect of EO on various outcomes, finding the concept itself—as well as the measures to capture EO—valid and robust (Wales et al., 2013). As with previous findings regarding the cultural universality of EO as a concept, the literature contains considerable evidence that the relationship between EO and performance is universally positive. Specifically, recent meta-analyses (Rauch et al., 2009; Saeed et al., 2014) provide clear evidence that, regardless of firm characteristics and national context, firm performance profits from EO. The main argument underlying this observation is that firms adopting an entrepreneurial strategic posture (i.e., pursue new solutions and take risks because of their orientation toward innovation) will more likely generate and exploit new business opportunities and thus achieve superior performance (Covin & Lumpkin, 2011; Wiklund & Shepherd, 2005). Firms take considerable risk by exploring the unknown, move beyond triedand-true procedures and strategies, anticipate future demands, and aggressively position new products and services (Bouncken, Plüschke, Pesch, & Kraus, 2014). However, firms also establish the basis for staying ahead of competitors, creating first-mover advantages, and enjoying high-profit margins that derive from temporary monopoly-like status (Zahra & Covin, 1995). Consistent with these insights, the first hypothesis is as follows: H1. Across national contexts, EO relates positively to SME performance.

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value individual achievements and performance, encourage competitive behavior, and reward initiative-taking and innovation (House, Hanges, Javidan, Dorfman, & Gupta, 2004). In addition, these societies encourage and reward future orientation and endeavors for longerterm success by providing an institutional framework that supports stability and predictability, protects intellectual property, and facilitates growth-oriented investments (Stephan & Uhlaner, 2010; Thai & Turkina, 2014). SMEs with an entrepreneurial strategic posture proactively pursue new solutions and develop new products and services to stay ahead of competitors (Kraus, Rigtering, Hughes, & Hosman, 2012). Generally, such a strategic posture results in superior performance by creating a first-mover advantage and temporary monopoly-like status (Zahra & Covin, 1995). Performance benefits stemming from being first to market and having a temporary monopoly-like status, however, are likely to vary with PBC's prevalence in a national context. The performance potential relating to a proactive and innovative strategy varies with customers' appreciation of new and innovative solutions (Rogers, 1983). Specifically, performance potential increases with the number of early adopters willing to pay a premium for purchasing a new product early in the product's life cycle (Sundqvist, Frank, & Puumalainen, 2005). Adopting a strategic posture of proactiveness and innovation will thus pay off, particularly in national contexts with a high PBC, where customers value and appreciate initiative-taking and innovative solutions. Additionally, studies show that competitors and imitators that are second or even third to market may outperform the initial innovator if these imitators can easily copy the innovative product (Feeser & Willard, 1990). Thus, institutions that guarantee the protection of intellectual property rights and enforce legal claims are central to influencing innovators' ability to capture innovations' performance potential (López & Roberts, 2002). From this perspective, societal PBCs whose accompanying rules and laws provide a framework for effective protection of future-oriented investments and property rights (Stephan & Uhlaner, 2010) should help firms reap the performance potential that comes with an entrepreneurial strategic posture. These arguments suggest that PBC positively moderates the link between an entrepreneurial strategic posture and SME performance, such that EO has a more positive effect on SME performance in national contexts with strong rather than weak PBCs: H2a. PBC positively moderates the relationship between EO and SME performance.

2.2. Societal culture as a contingency factor Despite their tendency to agree on a universally positive main effect of EO on firm performance, researchers widely accept that a maineffect-only perspective provides an incomplete picture (Wiklund & Shepherd, 2005). In addition, researchers suggest that nationalcontext differences may potentially moderate the relationship between EO and performance (Wales et al., 2013). Consistent with this notion, this study posits that societal culture serves as a contingency for the EO–performance link among SMEs. Societal culture reflects what a society considers legitimate, thus affecting economic actors' behavior and the outcomes of this behavior (Hofstede, 1984). In line with this reasoning and building on established second-order factors of societal culture (Stephan & Uhlaner, 2010), the present study suggests that differences in the extent to which societies have PBCs and SSCs explain differences in the magnitude of the EO– performance link across national contexts. 2.2.1. Performance-based culture Societies with strong PBCs have cultural norms and practices that emphasize individualism, performance orientation, and future orientation (Stephan & Uhlaner, 2010). As such, high-PBC societies

2.2.2. Socially supportive culture (SSC) Characteristic for a society with an SSC are high levels of humane orientation and low levels of assertiveness. Such societies have high levels of national social capital—that is, they foster a positive social climate whereby people support each other (Stephan & Uhlaner, 2010; Thai & Turkina, 2014). People in this kind of culture have a collective identity and tend to rely on informal networks and public morality, with such a reliance leading to strong networks and a tolerance for failure (House et al., 2004). With these characteristics in mind, the study suggests that SSC also positively moderates the link between SMEs' EO and SME performance. Adopting an entrepreneurial strategic posture is resource intensive (Covin & Slevin, 1991). Significant resources—financial and otherwise— are necessary to proactively develop and market innovative ideas (Wiklund & Shepherd, 2005). Consequently, highly entrepreneurial firms should profit particularly from operating in a national context with a societal culture that is socially supportive, because informal networks and social capital provide access to external resources at attractive terms (Stam & Elfring, 2008). Additionally, firms with high EO will often face the adverse consequences of risk-taking and may incur losses or have to change course quickly. Thus, firms with high

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EO depend on stakeholders (e.g., collaborators, customers, and employees) who are willing to forgive occasional downturns and failure resulting from risky initiatives. Operating in a context with higher tolerance for failure—a characteristic of high-SSC societies—should thus increase chances of receiving the enduring support necessary to succeed with entrepreneurial endeavors. In short, theoretical arguments suggest that SSC positively moderates the relationship between EO and performance such that SME performance benefits more from EO when firms are operating in national contexts with high rather than low SSCs: H2b. SSC positively moderates the relationship between EO and SME performance.

3. Method 3.1. Sample This research uses data from seven countries: the US, the Netherlands, China, Malaysia, India, Germany, and Spain. Data collection took place through collaboration with local researchers and a large multinational market research company. Following earlier research (Carson, Madhok, & Wu, 2006; Ebers & Semrau, 2015), the present study examines data from SME senior managers as knowledgeable information sources. 1248 of these key informants agreed to participate and answered all questions. On average, respondents were 37 years old and had worked for their companies for 7 years. 30% of respondents were female. 3.2. Measures The draft questionnaire was in English. Independent translators translated the questionnaire into the appropriate language for each country. A procedure of back-translation, comparison, and adjustments where necessary ensured that questionnaires were equivalent across all languages (Brislin, 1980). 3.2.1. Firm-level dependent variable Performance research in international contexts indicates that in emerging markets (e.g., China or India in the sample), subjective measures of firm performance are typically more reliable than archival data (Hult et al., 2008), which firms in many countries do not have the obligation to disclose publicly. The present study thus relied on five items appearing in Wiklund and Shepherd (2005) to reflect the dependent variable. Respondents estimated on Likert-type scales ranging from 1 (“much better than competitors”) to 5 (“much worse than competitors”) their firms' gross margins, profits, cash flow, and sales and employment growth relative to competitors. Reverse-coding and combining the five items yielded a performance index (Cronbach's α = .83). 3.2.2. Firm-level independent variable A nine-item scale by Covin and Slevin (1989) reflects SMEs' EO. The scale comprised forced-choice items, with opposite statements anchoring a seven-point answering scale. A sample item is as follows: “In general, the top managers of my business unit have…” 1 (“a strong proclivity for low-risk projects”) to 7 (“a strong proclivity for high-risk projects”). Items load onto a single factor and thus represent a single index (Cronbach's α = .75). 3.2.3. Societal-level contingency variables To represent differences in PBC and SSC, the study follows Stephan and Uhlaner's (2010) measurement. Mean sum scales of GLOBE (House et al., 2004) cultural practice scores for performance orientation, future orientation, and uncertainty avoidance, together with reverse-

coded scores for power distance and in-group collectivism represent PBC. Similarly, mean sum scales of GLOBE cultural practices scores for humane orientation and the reverse-coded scores for assertiveness represent SSC. 3.2.4. Control variables At the firm level, analyses control for firm size in terms of number of employees and industry according to Standard Industrial Classification (SIC) codes. At the country level, this study follows Autio et al. (2013) in controlling for GDP per capita at purchasing power parity. 3.3. Assessing common method variance Several facts suggest that common method variance does not seriously affect our results. First, meta-analytical evidence on the relationship between EO and performance implies that analyzing the EO– performance link using self-report or archival data does not lead to significantly different results (Rauch et al., 2009). Additionally, common method variance—in the absence of true effects—is unlikely to generate significant effects in cross-level interaction analyses (Lai, Li, & Leung, 2013). Furthermore, results from Harman's one-factor test (Podsakoff & Organ, 1986), as well as a more sophisticated procedure comparing measurement models with and without a latent common method factor (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003), imply that common method variance is not a serious issue in the present study. 3.4. Analytical approach To reflect potential non-independence in the data, this study employed a multilevel approach (Klein & Kozlowski, 2000) to test the study hypotheses. Multilevel analyses let researchers unbiasedly test for cross-level interactions (Hofmann, 1997). To eliminate betweencountry variation in EO and enable a direct interpretation of crosslevel interaction effects, analyses centered EO within clusters (Aguinis, Gottfredson, & Culpepper, 2013). 4. Results Results from total and split sample analyses (Table 1) reveal positive correlations between EO and SME performance across all countries, which considerably vary across the national contexts in the study sample. Table 2 shows the results of multilevel analyses comprising the independent variable, moderators, and control variables that have significant relationships with either the independent or the dependent variable in the correlation analysis. (Results from correlation analyses are available from the authors upon request.) Model 1 provides support for hypothesis 1, which posits a positive link between EO and SME performance (γ = .37, p b .01). Model 2 shows significant variance in the EO–performance link across national

Table 1 Means, standard deviations, and correlations across national contexts.** PBC

Spain India China US Malaysia Germany Netherlands Total

3.6 3.8 3.9 3.9 4.0 4.1 4.2 3.9

⁎⁎ p b .01 (two-tailed).

SSC

3.3 4.4 4.3 3.8 4.5 3.3 3.8 3.9

EO

Performance

Mean

SD

Mean

SD

3.4 3.4 3.5 3.2 3.5 3.3 3.3 3.4

0.5 0.7 0.6 0.7 0.6 0.5 0.5 0.6

3.9 4.2 4.0 3.7 4.1 3.7 3.6 3.9

0.7 0.6 0.6 0.7 0.6 0.6 0.6 0.7

r

N

.23⁎⁎ .24⁎⁎ .45⁎⁎ .40⁎⁎ .44⁎⁎ .45⁎⁎ .39⁎⁎ .38⁎⁎

184 206 202 166 215 140 135 1248


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Table 2 Results from multilevel analyses. N(L1/L2) = 1248/7 Level 1

Level 2

Cross-level

Model 1 Firm size Agriculture Finance Services EO Intercept GDP PBC SSC EO ⁎ PBC EO ⁎ SSC Level 1—variance Level 2—variance Slope variance (EO) Deviance (FIML)

−0.00⁎⁎ 0.35⁎⁎ 0.09 −0.05 0.37⁎⁎ 3.90⁎⁎ −0.00⁎ −0.29 −0.09

0.33 0.00 2154.18

Model 2 (0.00) (0.10) (0.06) (0.04) (0.03) (0.02) (0.00) (0.16) (0.08)

−0.00⁎⁎ 0.34⁎⁎ 0.09 −0.05 0.38⁎⁎ 3.90⁎⁎ −0.00⁎ −0.30 −0.09

Model 3 (0.00) (0.10) (0.06) (0.04) (0.04) (0.02) (0.00) (0.16) (0.08)

0.33 0.00 0.00+ 2153.01

−0.00⁎⁎ 0.34⁎⁎ 0.09 −0.05 0.38⁎⁎ 3.90⁎⁎ −0.00⁎ −0.29 −0.09 0.44⁎

0.33 0.00 0.00 2143.74

Model 4 (0.00) (0.10) (0.06) (0.04) (0.03) (0.02) (0.00) (0.16) (0.08) (.16)

−0.00⁎⁎ 0.35⁎⁎ 0.09 −0.05 0.38⁎⁎ 3.90⁎⁎ −0.00⁎ −0.30 −0.09

(0.00) (0.10) (0.06) (0.04) (0.03) (0.02) (0.00) (0.16) (0.08)

−0.08

(0.07)

0.33 0.00 0.00+ 2151.92

Notes: FIML, full information maximum likelihood estimation; table shows gamma coefficients; standard errors in parentheses. + p b .10 (two-tailed). ⁎ p b .05 (two-tailed). ⁎⁎ p b .01 (two-tailed).

contexts, which suggests the examination of cross-level interaction effects (Aguinis et al., 2013). Model 3 shows that the interaction between EO and PBC is positive and significant (γ = .44, p b .05), thus lending support to hypothesis 2a. Model 3 further reveals that the interaction between EO and PBC explains the majority of the variance in the EO–performance link across national contexts. Consistent with this result, Model 4 provides no confirming evidence for hypothesis 2b (γ = −.08, p N .10). 5. Discussion and conclusion Consistent with previous research (Rauch et al., 2009), this study finds a positive relationship between EO and performance across countries. This link thus appears to be one of the few universal ones in management research. The strength of this positive association, however, varies considerably across national contexts, and cultural contingencies can explain significant variance in the EO–performance link. Particularly, analyses confirm that the relationship between EO and performance is significantly more positive in high-PBC societies than in low-PBC societies. In contrast, results fail to confirm a moderating effect of SSC. The positive effect of PBC on the EO–performance link supports two arguments: first, societal norms and practices influence societies' views on legitimate behavior, and second, societal acceptance and support is necessary for better economic performance (Hofstede, 1984). As such, this study complements previous work on how collective values and beliefs may influence the performance implications of certain economic actions (e.g., Batjargal, 2010). Because national contexts with strong PBCs offer institutional support for entrepreneurial activities, this finding is also consistent with the notion that in more institutionally developed countries, variations in performance result from a firm's strategic posture to a much greater extent than they do in countries with less developed institutional frameworks (Wan, 2005). Results show that SSC does not significantly affect the EO– performance link. Other studies find links between SSC and informal entrepreneurship (Thai & Turkina, 2014) and social entrepreneurship (Estrin, Mickiewicz, & Stephan, 2013). Potentially, therefore, high-SSC societies might be particularly supportive of entrepreneurial endeavors that strive less strongly to achieve economic profit and growth. Elaborating on how PBC and SSC affect the link between EO and performance, the present study contributes to a more complete picture of whether societal culture and EO interact in shaping firm performance. As such, this study also complements previous studies demonstrating

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