ENTREPRENEURIAL ORIENTATION AND FIRM PERFORMANCE: THE STUDY OF SMALL AND MEDIUM BUSINESS IN COTONOU, BENIN REPUBLIC.
A Research Proposal for Post-Doctoral Fellowship at the African School of Economics for the Study of the Entrepreneurs and Firm Performance.
Eniola Anthony Abiodun
Abstract
Entrepreneurs and SMEs assume a critical part in economic expansion and income upturn in Cotonou, Benin Republic. Despite that, SMEs has been placed in a susceptible position due to increasing business competition and their performance has been affected as a result of limited resources and level of Entrepreneurial orientation. Patently, their achievement in reacting to the difficulties of the business environment relies upon, in extraordinary component, on their method of engaging in entrepreneurial behaviours. As such, Entrepreneurial Orientation (EO) that is organisational-level entrepreneurial behaviour has been identified in preceding studies as affecting firm performance. Be that as it may, different analysis has been unable to substantiate a significant relationship between EO and firm performance that shows that EO might, a minimum of generally, cause superior performance. Within the context of SMEs in Benin Republic, hitherto, there is no significant study of EO and its relationship with performance, particularly in the agriculture, manufacturing and trade and commerce industry in Cotonou. Thus, the primary aim of this research is to empirically explore the relationship between the EO and firm performance of Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. To address the research questions, the study will focus on, as analysed in the literature, which EO dimensions have been expressed by Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou?, How are EO dimensions demonstrated by Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou? And Which EO dimensions affecting the Benin Republic SMEs performance in the agriculture, manufacturing and trade and commerce industry in Cotonou? The study will combine qualitative and quantitative research methods and at the same time applying SEM-PLS and multiple regressions for analysis. By integrating both linearity and non-linearity for analysis, quantitative and qualitative methods, will give the researcher to supply a rich, profound and complete clarification in examining the research questions. This study will be among the first in EO, at least in Benin Republic, to combine qualitative and quantitative research methods and at the same time applying structural equation modelling (SEM) and multiple regressions for analysis. Besides, it is a concept that EO has a multidimensional nature, implying that each dimension of EO, that is autonomy, innovativeness, risk-taking, proactiveness and competitive aggressiveness can vary independently. The study will confirm that a sample of Republic Benin SMEs from agriculture, manufacturing, trade and commerce industry in Cotonou adopted the five EO dimensions identified in the literature. The study’s empirical findings will provide the basis for recommendations for SMEs in enhancing their EO, and for policy-makers to design entrepreneurship support programs and initiatives for SMEs.
The Problem
SMEs in Benin Republic have the potential to contribute significantly to the economy having benefited from a relatively stable political and macroeconomic situation. Moreover, government-owned enterprises have been privatized rooted in the assumptions that economic growth can be achieved through an increase of private sector activity and output and with the believe that the private sector represent rare cases of how entrepreneurship can contribute to economic development. However, entrepreneurs and SMEs in Benin remain underdeveloped and lag in competitiveness and the broad-based economic activity that is critical to promote economic diversification and modernization. More so, SMEs need to work out and put into action their strategy by engaging in entrepreneurial behaviours if, to be extant, continue to live and succeed in an enterprising business environment. Entrepreneurial orientation (EO) has been adjudged as one preeminent notion of strategy-making in strategic management and entrepreneurship literature. Likewise, in preceding studies, EO has been analysed theoretically and experimentally in impacting firm performance. Consequently, it is anticipated that adopting EO, Benin Republic SMEs may be enhanced, especially given that they are generally recognized to have asset and resource restrictions.
However, past review on EO indicates that preceding research could not demonstrate a significant and positive relationship between EO and firm performance. The very fact that many studies discovered almost no relationship between EO and firm performance indicates that further research of this relationship is essential. Moreover, hitherto, there is no significant study of EO and its relationship with performance, especially in the agriculture, manufacturing and trade and commerce industry in Cotonou. EO-firm performance relationship model findings have been left up in the air, coupled with the dearth of experimental investigation of this relationship within the context of Benin-Republic SMEs, hence empirical explore of EO and SME performance relationship.
Objectives
The main aim of the study is to explore experimentally the relationship between EO and firm performance of Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. The following objectives are intended to be achieved by the study:
1. To explore experimentally whether the EO dimensions identified in the literature have been demonstrated by Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou.
2. To provide a better understanding of the entrepreneurial activities of Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou in expressing each EO dimension.
3. To empirically examine the contribution of each dimension of EO to the performance of Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou.
4. To provide recommendations for SMEs and policy- makers on how EO adoption can enhance the performance of SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. This study’s findings are also used to suggest directions for future research on EO.
Research Questions
Based on the research objectives stated above, this study addresses three research questions:
1. Which EO dimensions, as identified in the literature, have been demonstrated by Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou?
2. How EO dimensions are expressed by Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou?
3. Which EO dimensions influence the performance of Benin-Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou?
Background to the Problem
Practitioners and scholars have long believed that entrepreneurship can affect an economy. However, earlier studies in the area of entrepreneurship have focused on examining the traits and behaviours of individual entrepreneurs (Cole, 1946; Collins & Moore, 1964; Hartman, 1959; Schumpeter, 1942). Later, building on the work of Miller and Friesen (1982b) and Miller (1983), research in entrepreneurship has considerably shifted to investigating entrepreneurship from an organisational perspective. In fact, as cited in Sembhi (2002), viewing entrepreneurship from an organisational perspective appears to be consistent with the views of Schumpeter who posits that entrepreneurship will eventually be dominated by organisations that are capable of devoting or allocating more resources to entrepreneurial activities/initiatives. Schumpeter (1942) also suggests that firms should increase their entrepreneurial activity because entrepreneurially-driven economic activity leads to higher levels of income and this in turn will benefit the economy as a whole. Since then, scholars continue to argue that entrepreneurship can impact an economy by increasing productivity, improving best practices, creating new industries, and enhancing international competitiveness (Wennekers & Thurik, 1999).
In Benin republic, SMEs account for more than 95% of the total number of enterprises in the informal sector. They contributed more than 75% of the country Gross Domestic Product in 2013. Furthermore, SMEs in the agriculture industry, in particular, contributed around 35 percent of the Country’s GDP and 80 percent of export income which is acknowledged as one of the major contributors to the Benin economy as this industry has great potential to contribute to both domestic and international trade. As a labour intensive industry, it can provide a significant number of jobs. Likewise, manufacturing contributed 13.6% and services 52.5% respectively in 2005
After a long period of political instability and a state-controlled economy, Benin in December 1990 adopted a new Constitution that established democracy, the rule of law and political freedoms, as well as the right of free enterprise. The entrepreneurial environment gradually benefited from a relatively stable political and macroeconomic situation since 2006, leading to the country being presented as a model of democracy in Africa. However, despite this success, Benin lags in competitiveness and still lacks the broad-based economic activity that is critical to reducing poverty. The poor quality of physical and legal infrastructure, exacerbated by the government’s inefficiency in delivering public goods, is serious impediments to long-term economic development. Nevertheless, SMEs, particularly in the agriculture, trade and commerce industry, showed superior survival ability in poverty reduction and sustainable development compared with relatively larger-scale enterprises. This may partly be because the majority of SMEs rely more on local materials and less on imports. The SME play an important role in the sectors and will continue to play an important role at all levels of social and economic life in the country. Thus, this sector should therefore be the object of special attention both from the government and from its development partners.
Despite their contributions to the nation’s economy, increasing business competition has placed Benin SMEs in the agriculture, manufacturing and trade and commerce industry in a vulnerable position. They have to prepare themselves to face an increasingly competitive world with limited capital, physical and knowledge resources. Undoubtedly, their success in responding to business environments challenges depends, in great part, on their strategy for engaging in entrepreneurial behaviours.
In order to better explain organisational behaviour, numerous theories have been developed and discussed in the past decades. Given the existing internal and external factors of small and medium businesses, this research will be built on the theory of the resource-based view of the firm.
According to the resource-based theory, firm or organisation resources can be important factors of sustainable competitive advantage and superior organisation performance only if they possess certain unique characteristics (Barney, 1991). This theory holds that organisations secure high profits when they possess resources and capabilities that are firm-specific, rare, durable, and difficult to imitate or substitute (Amit & Schoemaker, 1993; Barney, 1990; Lippman & Rumelt, 1982; Peteraf, 1993).
Entrepreneurship has been considered as a principal driving force for firms ’productivity and growth (Aloulou & Fayolle 2005) that leads to substantial benefits for the economy (van Praag & Versloot 2007). Conceptual and empirical evidence has suggested that entrepreneurial activities could strengthen and enhance the performance of enterprises, particularly SMEs (Covin, Green & Slevin 2006).
A key concept of entrepreneurship that has become a focus of scholarly attention is entrepreneurial orientation (EO): that is, organisational-level entrepreneurial activity (Covin & Slevin 1991; Kreiser, Marino & Weaver 2002; Covin & Lumpkin 2011; Covin & Wales 2012). EO refers to the strategy-making process that provides organisations with a basis for entrepreneurial decisions and action (Lumpkin & Dess1996; Wiklund & Shepherd 2003; Rauch et al. 2009). EO is “a key ingredient for organisational success” (Lumpkin & Dess 1996, p151), and has been found to lead to higher performance (Zahra & Covin 1995; Wiklund & Shepherd 2003). In other words, firms are likely to benefit from pursuing and adopting EO (Wiklund & Shepherd 2005).
Miller (1983) was the first to propose the operationalisation of the EO construct as comprising a firm’s innovativeness, risk-taking and proactiveness. Lumpkin and Dess (1996) later proposed two additional dimensions that are critical to describe an entrepreneurial firm: autonomy and competitive aggressiveness. Hence, a firm’s entrepreneurial orientation refers to its propensity to act autonomously, engage in innovation, perform risk-taking activities and react proactively and aggressively to outperform competitors in the marketplace (Lumpkin & Dess 1996).
Arguments among researchers exist about the extent to which EO dimensions need to be present for a firm to be considered entrepreneurial. Miller (1983) suggested that only firms that possess all EO dimensions to a similar extent should be considered as entrepreneurial. In contrast, Lumpkin and Dess (1996) argued that any firms that engage in an effective combination of EO dimensions can be considered as entrepreneurial. This implies that to become an entrepreneurial firm, it is not necessary for all five EO dimensions to coexist (Chow 2006). As EO is a multidimensional concept, the effect of each of its dimensions on firm performance can be observed independently (Lumpkin & Dess 1996).
Entrepreneurship research so far has focused on EO in the context of large companies, rather than SMEs (Aloulou & Fayolle 2005; Frishammar & Andersson 2009). However, Rauch et al. (2009), who conducted a meta-analysis of EO studies, suggested that the influence of EO on performance is more obvious in small firms. The rationale is that while EO adoption is typically examined through top management (Covin & Slevin 1989), in small firms the owner-manager who leads the firm greatly influences its culture and entrepreneurial manner. Previous studies (e.g., Dess, Lumpkin & Covin 1997; Knight 2000) also suggested that SMEs with an EO are more likely to perform better than those that lack such an orientation. Given the specific nature of SMEs, there is a need to investigate how they adopt and implement EO in relation to their performance, as this may differ from the ways EO is implemented in larger firms.
A large number of empirical studies have reported that EO has a positive effect on firm performance (e.g., Wiklund & Shepherd 2003; Keh, Nguyen & Ng 2007; Li, Huang & Tsai 2009). However, other researchers (e.g., Covin, Slevin & Schultz 1994; Slater & Narver 2000; Lee, Lee & Pennings 2001; Hughes & Morgan 2007) were unable to identify a positive and significant relationship between EO and firm performance. These mixed findings indicate that EO may, but not always, lead to superior performance (Kusumawardhani, McCarthy & Perera 2009).
There may be some reasons for these inconsistent findings. Different research methodologies, research designs and sample selection are some of the factors that might contribute to the different results (Rauch et al. 2009). Firms being examined at different stages of development might also contribute to contradictory findings, as these firms face different conditions and needs (Hughes & Morgan 2007).
Many studies have employed the EO measures previously developed in the United States. Runyan et al. (2012) posited that while EO is well-established in strategy and entrepreneurship research in the United States, nonetheless it is in its infancy in non-US business settings. Also, an examination of the literature reveals that the majority of EO- firm performance relationship studies have been conducted in developed (‘western’) countries, particularly in the US and in European Union countries, in which institutional development is well established (Kreiser, Marino & Weaver 2002; Rauch et al. 2009; Hansen et al. 2011). Hence, their findings may not be applicable to firms in emerging economies, such as in Indonesia, where the institutional and business environment may be vastly different. This argument is supported by Gamage and Wickramasinghe (2012, p525) who asserted that “the western entrepreneurship paradigm does not draw on the deep-rooted settings in society and culture of many developing countries”. Although two of the previous papers, Kreiser et al. (2010) and Hansen et al. (2011), included Indonesia in their sample, neither investigated the relationship between EO and firm performance. Kreiser et al. (2010) studied the impact of national culture on two EO dimensions: risk-taking and proactiveness, whereas Hansen et al.’s (2011) research focused on the cross-national validity of the EO scale.
While Knight (1997a) and Thomas and Mueller (2000) argued that certain dimensions of EO may differ across countries, Naldi et al. (2007) suggested that national culture may affect EO adoption. Other entrepreneurship scholars (e.g., Kreiser et al. 2010; Shinnar, Giacomin & Janssen 2012) posited that various dimensions of cultural values are one of the principal determinants of entrepreneurial behaviour and activity. Likewise, a meta-analysis conducted by Rauch et al. (2009) supported the argument that the EO-performance relationship is stronger on some continents than on others. Nonetheless, some entrepreneurship scholars (e.g., Zahra, Jennings & Kuratko 1999; Hayton, George & Zahra 2002) have advised that the way culture affects entrepreneurial behaviour is largely unexplored. This study of EO in Benin SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou, therefore, is an attempt to examine the implementation of EO in a different institutional setting beyond the traditional contexts of the US and the European Union.
Research Design and Methodology
This study investigated SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou, Benin Republic. The agriculture, manufacturing and trade and commerce industry has been selected for this study as it represents a resource-intensive and labour-intensive industry. Furthermore, the trade and commerce industry, particularly in the province of Cotonou, makes significant contributions to the nation’s economy and job creation.
The population for this study was Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. The justification for selecting the Cotonou as the basis for the study is based on the importance of her economy within the region which in the decade had contributed significantly to the Benin economy. Also, to a certain extent, the characteristics of her Trade and Commerce based companies are slightly different from the other region in Benin; thus, this warrants a study to be conducted exclusively. The respondents will be the owners/managers of SMEs in the agriculture, manufacturing and trade and commerce industry, as they were considered as those who have the most comprehensive knowledge about the organisation’s characteristics, strategy and performance, including EO adoption in their firms (Otero-Neira, Lindman & Fernández 2009).
This study attempted to investigate the influence of EO on the performance of Benin republic SMEs in Cotonou. A mixed-methods study incorporating both quantitative and qualitative methods was found to be an appropriate approach to achieve the best results in addressing the research questions. The use of mixed methods research allows the researcher to provide generalisation of data derived from a quantitative approach; at the same time, it facilitates the researcher’s generation of thick and rich data from qualitative methods (Teddlie & Tashakkori 2009). The research design for this study consisted of two phases: quantitative methods in Phase One and qualitative methods in Phase Two.
In Phase One, a total of 250 questionnaires will be distributed face-to-face to owners/managers of SMEs Benin republic in the manufacturing and trade and commerce industry in Cotonou. The quantitative data will be analysed using explanatory factor analysis (EFA), confirmatory factor analysis (CFA) and structural equation modeling (SEM).
In Phase Two, twenty-five of the SME owners/managers who responded to Phase One will be selected for in-depth semi-structured interviews. In order to have a comprehensive picture of SMEs in the industries, interviews will also be carried out with buyers and representatives from government agencies, a trade association and a financial institution. Content analysis will be used to analyse this qualitative data.
Expected Results
Research Objectives, Research Questions and Gaps that would be addressed by this Study
Research Objectives Research Questions Gaps to be Addressed
To empirically investigate whether the EO dimensions identified in the literature have been demonstrated by Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. Which EO dimensions, as identified in the literature, have been demonstrated by Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou? Lack of empirical evidence of the dimensionality of EO demonstration in SMEs and in the cross-national context, particularly in Benin Republic.
To provide a better understanding of the entrepreneurial activities of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou in implementing each EO dimension. How are EO dimensions expressed by Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou? Lack of understanding of the expression of EO dimensions in Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou.
To empirically examine the contribution of each dimension of EO in the performance of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. Which EO dimensions influence the performance of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou? Inconsistent findings of EO – firm performance relationship model.
Inadequate empirical evidence of EO-firm performance model for Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou.
The contributions of this study consist of four perspectives: theoretical, empirical, practical and policy. From the theoretical perspective, this study enhances the understanding of the EO concept within the context of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou, despite the cultural differences between Benin Republic and the western countries where most EO studies have been conducted. It is expected that the behaviour of the SMEs sampled in this study in implementing some EO dimensions, such as autonomy, innovativeness and competitive aggressiveness, would be different from the behaviours that have been reported in the literature. Therefore, some management theories, particularly entrepreneurship theory that have been developed in the western world or developed countries would be adapted when they are applied in other cultures or in emerging countries, such as Benin-Republic.
Empirically, this study is considered as the first attempt to understand the implementation of the EO dimensions within Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. This study further explores whether or not EO contributed to the performance of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou. By employing mixed-methods research (quantitative and qualitative methods) to address the research questions and using both SEM and Regression analysis, this study provides a relatively new approach in EO studies, which have been previously dominated by quantitative research. This approach allows the researcher to use the strengths of each method to compensate for the weaknesses of the other. By doing so, the outcomes of this study not only can be generalised but also can provide more information about the subject being studied.
From a practical perspective, this study offers new insights for owners/managers of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou to reinforce entrepreneurial spirit and develop entrepreneurial behaviour in formulating their firms’ strategy to achieve a competitive advantage despite their resource limitations. This can be accomplished by adopting EO in the forms of providing autonomy, engaging in innovation, undertaking risky ventures and being proactive and aggressive in competition in the marketplace.
In terms of policy implications, this study provides an effective foundation for Benin-Republic policy-makers to develop a strategy to support entrepreneurial activities and, in turn, the performance of Benin Republic SMEs in the agriculture, manufacturing and trade and commerce industry in Cotonou.
Project Timeline:
Throughout project continue review of current literature, intense background research
April- Visiting the site for the collection of data
May – August analysis of statistical data from the site
June – October writing and revising of report
July – December prep for conferences and publications
Task description Project Months
Jan Feb Mar Apr May Jun July Aug Sept. Oct. Nov Dec.
continue review of current literature, intense background research × × × × × × × × × × × ×
Visiting the site for the collection of data ×
analysis of statistical data from the site × × × ×
writing and revising of report × × × ×
Prep for conferences and publications × × × × ×