Explicating the inter-relationship of Entrepreneurial Orientation, Environmental Dynamism and Dynamic Capabilities on Competitive Advantage of Small- and Medium-sized firms in an emerging market context

Abstract

More than five-decade old entrepreneurship literature suggests a positive relationship between entrepreneurial orientation and firm performance in developed economies context. For universality of this relationship, there is a need to examine the effect of entrepreneurial orientation on competitive advantage in emerging markets context especially where there is high environmental dynamism and in SMEs context. In this setting, this research examines the effect of entrepreneurial orientation on competitive advantage, the effect of environmental dynamism on competitive advantage, and the influence of environmental dynamism on relationship between entrepreneurial orientation and competitive advantage. While deepening the understanding of these relationships, an exhaustive, comprehensive literature review of entrepreneurship and strategy research field in this thesis found that prior studies consider external factors only, thus neglecting the effect of internal firm-level characteristics. Analogous to this, the resource-based view proclaims that firms’ ability to achieve sustainable competitive advantage in rapidly-changing environment lies in the knowledge-based, higher-order internal firm assets that serve as basis for firms to develop dynamic capabilities. This thesis argues that this debate is still emerging, and hence, the study in this thesis empirically asserts that when SMEs develop and build assets on the basis of their defining characteristics, they augment their competitive strength. This thesis also investigates the nature of SME dynamic capabilities and presents their unique operationalization taking into consideration the defining characteristics of SMEs which are embedded in their culture of adhocracy. Moreover, this thesis empirically examines the collective intervention and the mediation effects of dynamic capabilities on the relationship between entrepreneurial orientation and competitive advantage. The empirical findings from sample of 248 Indian SMEs demonstrated that: a) an entrepreneurial orientation positively contributes to SME competitive advantage, b) environmental dynamism negatively affects SMEs’ competitive advantage but positively moderates the relationship between entrepreneurial orientation and competitive advantage c) dynamic capabilities have positive effect on SMEs’ competitive advantage, and d) dynamic capabilities do not have mediation (or, intervening) effect on the relationship between entrepreneurial orientation and competitive advantage. Based on these results, this thesis contributes to both strategy and entrepreneurship literatures by offering a conceptual and empirical path in form of an integrative model to enhance SMEs’ competitive advantage when SMEs utilise a combination of series of external and internal competencies to form and evolve.