ENTREPRENEURIAL ORIENTATION AND INTERNATIONAL
PERFORMANCE: THE MODERATING EFFECT OF
INTERNATIONAL ORIENTATION
by
E.M. Wiering
University of Groningen Faculty of Economics and Business
2
ENTREPRENEURIAL ORIENTATION AND INTERNATIONAL
PERFORMANCE: THE MODERATING EFFECT OF
INTERNATIONAL ORIENTATION
ABSTRACT: This study examines the influence of an entrepreneurial orientation (EO) on the international performance of SMEs. In addition, it investigates the moderating effect of an international orientation (IO) on the EO-international performance relationship. A survey study was conducted among 192 Dutch SMEs active in the manufacturing industry. The empirical study shows that an EO significantly and positively influences a firm’s international performance. Moreover, results show that the international performance can be further enhanced by pursuing an IO; firms simultaneously possessing a high EO and a high IO were found to have a greater international performance compared to firms who were less entrepreneurially and internationally oriented.
3
TABLE OF CONTENTS
1. INTRODUCTION ... 4
2. THEORY & HYPOTHESES ... 6
2.1 Entrepreneurial orientation and international performance ... 6
2.2 International orientation and international performance ... 8
3. METHODS ... 11
3.1 Sample and data collection ... 11
3.2 Variables ... 13 3.2.1 Independent variable ... 13 3.2.2 Moderating variable ... 14 3.2.3 Dependent variable ... 14 3.2.4 Control variables ... 15 4. RESULTS ... 16
5. DISCUSSION & CONCLUSION ... 20
5.1 Discussion & conclusion ... 20
5.2 Limitations and suggestions for future research ... 22
5.3 Managerial implications ... 23
REFERENCES ... 25
APPENDIX A – MANUFACTURING INDUSTRIES ... 30
4
1. INTRODUCTION
Due to globalization, Small and Medium-sized Enterprises (SMEs) increasingly have to deal with the international environment. Frishammar and Andersson (2009) emphasize that because of lower trade barriers and developments in for example communication and transportation it has become easier for SMEs to become active internationally. However, SMEs often have limited resources and therefore are potentially at a disadvantage compared to large firms (Calof, 1993). As SMEs account for the majority of the firms and employment (in 2010 99.8% of the firms in the EU were classified as SMEs and they provided 66.9% of the workers in the non-financial business – European Commission, 2011), it is important to investigate how SMEs can operate successfully in the international market.
In literature – particularly in the field of international business and international entrepreneurship – great attention has been paid to the internationalization of firms. In quite some studies the importance of the entrepreneur/top management is emphasized (e.g. Andersson, 2000; Miesenbock, 1988; Ruzzier, Hisrich, & Antoncic, 2006). This especially holds for SMEs. As the decision power in SMEs is in the hands of a few persons, management’s orientation has an effect on the firm’s orientation (Andersson & Florén, 2011). Hence the decisions they make might have a large impact on the firm’s internationalization (Nummela, Saarenketo, & Puumalainen, 2004) and performance (Hambrick, 1989). Therefore, to examine how SMEs can compete successfully in the international market, in this study the focus will be on the firm’s orientations.
5
Lumpkin & Dess, 2001; Wiklund, 1999); there are few empirical studies relating EO specifically to the international/export performance of the firm (Balabanis & Katsikea, 2003; Dimitratos, Lioukas, & Carter, 2004). Balabanis and Katsikea (2003) emphasize that export markets are likely to be more diverse, hostile, and dynamic compared to the home market and therefore assessing the EO-performance relationship in an international context is essential. Therefore, this study makes a contribution by relating EO specifically to the international performance of firms.
In addition, scholars focusing on the EO-(international) performance relationship mostly hypothesize a direct relationship between the two variables (e.g. Andersén, 2010; Frishammar & Andersson, 2009). As substantial variance across studies between the EO and performance correlation is found, it is likely that moderators play an important role in the size of the relationship (Rauch et al., 2009). However, according to Rauch et al. (2009), up till now the use of moderators is not emphasized sufficiently. Hence, this study seeks to fill a research gap by including a moderator in the EO-international performance relationship. Knight (2001) suggests to identify, besides an EO, other types of organizational orientations (for instance a general international orientation) that are potentially important for an SME’s international performance. So a possible moderator can be found in the second, relatively infant, concept: international orientation (IO). IO deals with whether a firm’s management has an international vision, is committed to internationalization, and whether the firm is proactive on international markets (Nummela et al., 2004). It is argued that having an IO is a prerequisite for early internationalization (Jantunen et al., 2008; Nummela et al., 2004). IO also has been related to the firm’s international performance. Nummela et al. (2004) consider IO to be a key factor contributing to a firm’s international performance. However, according to Jantunen et al. (2008) empirical research on the IO still is rather scant.
6
The hypotheses are tested on 192 Dutch exporting SMEs active in the manufacturing industry. Reason to opt for the manufacturing industry is that in international entrepreneurship research mainly focused on high technology firms. International entrepreneurship literature could therefore be enhanced by also investigating the more traditional industries (Zahra & George, 2002). Results show that having an EO positively influences the international performance of firms. Furthermore, IO is found to positively moderate the EO-international performance relationship.
This research is organized as follows. First, previous literature on the EO and IO concepts are discussed and are related to international performance. Based on the literature review hypotheses are formulated. Second, the research method will be addressed after which the results will be presented. This paper ends with a discussion and conclusion. In this part also the limitations, suggestions for future research and the managerial implications are discussed.
2. THEORY & HYPOTHESES
2.1 Entrepreneurial orientation and international performance
Based on the work of Miller (1983), Covin and Slevin (1991) were the first to introduce the EO concept. EO can be defined as the ‘processes, practices, and decision-making activities that lead to new entry’ (Lumpkin & Dess, 1996: 136). According to Miller (1983: 771) a firm is entrepreneurial when it ‘engages in product-market innovation, undertakes somewhat risky ventures, and is the first to come up with ‘’proactive’’ innovations, beating competitors to the punch’. Hence the dimensions of EO are: innovativeness, risk-taking, and proactiveness. This conceptualization has been used consistently in literature (Rauch et al., 2009).
7
either introducing new products or by entering a new market ahead of competition (Lumpkin & Dess, 2001; Lyon, Lumpkin, & Dess, 2000).
Taking the three dimensions together, having an EO might be very helpful in the current world. Nowadays the environment is changing rapidly, there is high (international) competition, and products get obsolete more quickly. Firms need to be able to anticipate this; therefore being innovative, proactive and risk-taking is necessary. First, firms need to seek out new opportunities continually (Rauch et al., 2009) and try to predict the customers’ needs in the future (Jantunen, Puumalainen, Saarenketo, & Kyläheiko, 2005). That is, being proactive. Second, innovativeness shows a willingness to depart from and look beyond the current state of art (Kimberly, 1981). When not changing operations continually, future profits are uncertain (Rauch et al., 2009). Third, as outcomes are often uncertain, companies need to be willing to take some risk. Entrepreneurial firms are able to recognize and exploit opportunities and this is argued to contribute to a sustainable competitive advantage (Ireland, Hitt, & Sirmon, 2003) as well as it forms the basis for wealth creation (Shane & Venkataraman, 2000). Therefore, in general it is assumed that a firm’s performance will be higher when a firms has a high EO. This is supported by a large amount of studies investigating the EO-performance relationship (e.g. Covin et al., 2006; Wiklund, 1999; Wiklund & Shepherd, 2003, 2005; Zahra, 1993; Zahra & Covin, 1995); though there are some studies that did not find a relationship (e.g. Andersén, 2010; Slater & Narver, 2000). Rauch et al. (2009), who conducted a meta-analysis of the EO-performance relationship, found the relationship to be moderately large. They confirm that firms can benefit from being entrepreneurially oriented.
8
international market (Mascarenhas, 1997). It may yield higher profits and in the end contribute to a superior international performance (Frishammar & Andersson, 2009).
Although theory suggests that EO is of great importance for a firm’s international performance, there are actually few studies relating EO to the international/export performance specifically (Balabanis & Katsikea, 2003; Dimitratos et al., 2004; Jantunen et al., 2005). The few scholars who have examined this relationship, show different results. Some find a positive relationship (e.g. Balabanis & Katsikea, 2003; Jantunen et al., 2005; Jantunen et al., 2008; Zahra & Garvis, 2000), others find only partial support (e.g. Dimitratos et al., 2004) or support for only one EO dimension (e.g. Frishammar & Andersson, 2009). However, overall it is expected that the higher a firm’s EO, the higher the performance of the firm. Hence the first hypothesis will be:
H1: Entrepreneurial orientation is positively related to the firm’s international performance.
2.2 International orientation and international performance
In addition to being entrepreneurially oriented, a firm must be willing to operate on foreign markets; it must have an international orientation. Namely, one should invest sufficient time and resources into the foreign market in order to increase the probability of success. In literature, different terms are used to refer to whether firms have an international outlook (e.g. international orientation, global orientation, global mindset, global vision) and in some cases the concepts are not completely consistent (Nummela et al., 2004). As in Moen (2002), in this study the terms are used as synonyms. Overall, an IO addresses the manager’s or firm’s positive attitude towards international affairs and the capability to adapt to other environments and cultures (van Bulck, 1979). More specifically, an IO reflects the manager’s international vision, the commitment to internationalization, and the proactiveness in international markets (Nummela et al., 2004).
According to Kedia and Mukherji (1999), the world requires companies to become more internationally oriented. Over the years, developments in technology in terms of communication and transportation have reduced barriers, and there is an increase in the globalization of markets and competition. Therefore, Kedia and Mukherji (1999) argue that an additional challenge for companies is to develop a global mindset; it enables a company to survive and grow.
9
2000). A positive mindset towards internationalization increases the likelihood of a firm being an exporter (Burpitt & Rondinelli, 1998; Harveston, Osborne, & Kedia, 2002). Moreover, an IO is often associated with early and rapid internationalization. Pla-Barber and Escribá-Esteve (2006) showed that a firm’s positive attitude towards an international strategy resulted in an accelerated internationalization process. Some scholars even argue that having an IO is a prerequisite for early internationalization (e.g. Knight, 2001; Townsend & Cairns, 2003). This is reflected in studies focused on born globals – firms that are international from inception (Oviatt & McDougall, 1994). According to Jantunen et al. (2008) almost all scholars seem to include the manager’s global mindset in their studies on born globals. Oviatt and McDougall (1995), for instance, investigated successful born globals. They described seven characteristics that were commonly related to its survival and growth. According to them, one of the most important characteristic is that these firms have a global vision from inception: ‘to be global one must first think globally’ (Oviatt & McDougall, 1995: 35). But not only for born globals it is important to have an IO. Moen (2002) compared four types of firms: ‘new and local’, ‘new and global’, ‘old and local’, and ‘old and global’ firms. Regarding IO, he found that both types of global firms were shown to have very similar characteristics: they have an international vision and are internationally proactive. Whereas both types of local firms differed from the global firms; they had significantly lower scores on IO (Moen, 2002). This indicates that having an IO is a fundamental condition for all types of firms that want to be active internationally.
10
order to strengthen their position, which is believed to positively contribute to the international performance. However, when looking at their empirical results, not always a significant positive relationship is found. Nummela et al. (2004) found IO to be positively related to financial international performance measures; though there was not a significant relationship with perceived performance measures. In addition, Jantunen et al. (2008) nearly found a significant positive relationship between an international growth orientation (a concept related to IO) and international performance. Even though there is not complete consistency in the results, scholars seem to agree that ‘long term international success is dependent on firms having an international orientation’ (Nummela 2011: 48).
11
expected to have a higher international performance compared to firms that have a lower IO. This results in the following hypothesis:
H2: IO will positively moderate the relationship between EO and international performance. Specifically, the EO-international performance relationship will be more positive at a high IO level than at a low IO level.
The conceptual model in figure 1 gives a clear summary of the concepts and hypotheses that are investigated.
FIGURE 1 Conceptual model
3. METHODS
3.1 Sample and data collection
12
The Orbis database was used to get an initial sample of Dutch companies. Firms had to meet several criteria in order to be selected for the sample. First, only SMEs were selected. Whether a firm can be classified as an SME is determined by its number of employees. In accordance with the EU definition, a firm is considered to be an SME when it has more than 9 but less than 250 employees (European Commission, 2011). Second, the firm needed to be an independent, Dutch owned company; subsidiaries of larger firms and/or firms owned by a foreign company were not included in the sample. Third, firms active in the manufacturing industry were selected. Based on the 2-digit NACE Rev. 2 codes, 22 different manufacturing industries were selected (see appendix A for the complete list). Lastly, as the purpose is to investigate the international performance of firms – like other scholars investigating the EO-international performance relationship (e.g. Balabanis & Katsikea, 2003; Dimitratos et al., 2004) – only SMEs were included that had international sales. However, as it was not possible to see in Orbis whether firms had international sales, this criteria was accounted for later on. This yielded a total of 6330 firms from the Orbis database. Of the 6330 firms, 1070 firms were randomly selected due to time constraints.
Of all the 1070 firms the email addresses and telephone numbers were collected through the companies’ websites. In addition, the website was the first approach to check whether or not firms exported. The first questionnaire was sent to the sample via email. One week after sending the first questionnaire, companies were approached by telephone. Via telephone it was made sure that companies wanted to participate in the survey and that they met the criteria regarding international sales. To encourage participation in the survey, respondents could receive a summary of the results as well as confidentiality of the responses was emphasized. Within the company, a single key informant was used in order to obtain the data. Two weeks after the telephone calls a reminder was sent to the firms that had not yet responded. In the end, a total of 257 fully completed questionnaires were received. This is a response rate of 24%. Companies that did not participate either did not want to participate or did not meet the criteria regarding international sales.
13
to the firms that had not yet filled out the second questionnaire. This yielded a total of 192 firms that also fully completed the second questionnaire; a response rate of 86%.
In order to minimize the occurrence of biases, precautions were taken and tests were done concerning common method variance and non-response bias. Common method variance may arise when data is collected from the same respondents at one point in time; especially when it concerns collecting data of the dependent and independent variables from one source simultaneously (Chang, van Witteloostuijn, & Eden, 2010). In order to minimize common method variance, some ex ante measures were taken in the research design. First, data was collected at different points in time. In the first questionnaire, data concerning the independent variables was collected. One month later the second questionnaire was taken; it contained information on the dependent variable. Second, different response formats and scale endpoints were used in the questionnaire to reduce commonalities; I made use of Likert scales (five-point and seven-(five-point; unipolar and bipolar) and open-ended questions. In addition, items of the dependent variable were reverse-scaled to prevent that respondents answered questions in a stereotyped manner.
Non-response bias occurs when respondents differ significantly from non-respondents and hence can be a threat when one wants to generalize the results to the population (Armstrong & Overton, 1977). To test whether non-response bias was an issue in this research, a t-test was conducted. I compared the respondents that filled out only the first questionnaire with the respondents that filled out both questionnaires on the following items: the ratio of export sales to total sales, the ratio of R&D expenditures to total sales, number of employees, number of export markets, number of years the firm exports. No significant differences were found between both groups and hence non-response bias does not seem to be an issue.
3.2 Variables
3.2.1 Independent variable
14
questions based on a seven-point Likert scale. To measure the extent to which a firm has an EO, as recommended by Rauch et al. (2009), a unidimensional approach was used. That is, for each firm the mean of the scores on the nine items was calculated (Cronbach’s alpha = 0.84). The higher the score, the higher the EO of the firm.
3.2.2 Moderating variable
The moderating variable is the firm’s international orientation. It is measured by making use of the novel operationalization of the IO developed by Nummela et al. (2004). They based their operationalization on a large amount of previous work and argue that their measure is a viable tool. The three components that are being measured are: international vision, commitment to internationalization, and proactiveness on international markets. In total, seven five-point Likert scale questions were used to capture the components of IO (1 = disagree totally, 5 = agree totally) (see appendix B). The IO scale was created by calculating the mean of all seven items for each firm (Cronbach’s alpha = 0.92). In addition, the moderator was calculated by using the procedure of Aiken and West (1991). First EO and IO were centered around the mean and after that the variables were multiplied.
3.2.3 Dependent variable
15
coded in the same direction. The mean of the scores on the four items was calculated to determine the firms’ overall international performance. As internal consistency was too low (Cronbach’s alpha = 0.64), item 2 was dropped from the international performance variable. Then the mean of the scores on the three items was used (Cronbach’s alpha = 0.79).
3.2.4 Control variables
To reduce the probability of spurious effects, control variables were included in the research. First, firm size was included as a control variable. As large firms tend to have more resources and can benefit from economies of scale, firm size is argued to positively influence the international performance of firms (Jantunen et al., 2005). Firm size was measured by the number of employees of the firm. Second, international experience is likely to affect a firm’s international performance (Johanson & Vahlne, 1977). This was measured by the number of years the company is active in the international market. A third control variable is the number
of countries the company is active in. Furthermore, previous literature identified the
importance of several transaction cost variables in the export performance research (e.g. Brouthers, 2002; He, Brouthers, & Filatotchev, 2013), therefore, in this research these variables also were included. The variables are asset specificity, export frequency, and external uncertainty. Asset specificity was measured as the firm’s expenditure on R&D as a percentage of total sales (in the last year). Export frequency was measured as the percentage of sales in the target market compared with total export sales for the firm. For external
uncertainty the four-item semantic differential scale of Shervani, Frazier, and Challagalla
16
distributor who takes title to our product and contacts buyers directly’. A value one (1) was assigned when the company used a hierarchical mode, a value zero (0) was assigned when the firm used a hybrid mode. Lastly, industry dummies were included to control for potential industry differences. Industries were classified into categories according to the first two digits of the NACE rev. 2 code. Dummy variables were created for the industries that represented at least 5% of the companies. This resulted in the following four industry dummy variables: Manufacture of food products (NACE rev. 2 code: 10); Manufacture of rubber and plastic products (NACE rev. 2 code: 22); Manufacture of fabricated metal products, except machinery and equipment (NACE rev. 2 code: 25); and Manufacture of machinery and equipment nec (NACE rev. 2 code: 28). A value one (1) was assigned to a firm when it was active in a specific industry, a value zero (0) was assigned when a firm was active in another industry.
4. RESULTS
The descriptive statistics and correlations are given in table 1. Firm size varies from 10 to 230, with a mean of 52. There is great variability between the firms regarding international experience and number of countries. On average, firms have 28 years of experience abroad, are active in 21 countries, and their most important export markets account for 31% of their total export sales. As firm size, international experience, number of countries, asset specificity, and export frequency were positively skewed, the variables were log-transformed; for export frequency a square root transformation was used. Furthermore, EO, international performance and external uncertainty were measured on a 1-to-7 scale, while IO was measured on a 1-to-5 scale. The mean of international performance (4.71) was slightly higher than the EO mean (4.08). Firms were not exposed to very high levels of external uncertainty (mean 3.65). On average, firms had a relatively high IO (3.46).
In the correlation matrix, some (strong) significant correlations among the variables can be found. However, multicollinearity does not seem to be a problem as the highest variance inflation factor (VIF) was 2.05. This is far below the threshold of 10 (Neter, Wasserman, & Kutner, 1989).
17
TABLE 1
Descriptive statistics and correlations
Variables Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1. Rubber/Plastic .09 .28 1 2. Metals .23 .42 -.17* 1 3. Machinery .20 .40 -.16* -.28** 1 4. Food .10 .30 -.10 -.18* -.17* 1 5. Hierarchical mode .66 .48 .15* .12 -.18* .06 1 6. Firm size a 52.21 44.22 -.16* -.07 .04 .20** -.02 1 7. International experience a 27.96 20.63 -.04 -.06 .06 -.05 -.12 .08 1 8. Number of countries a 21.05 20.76 -.07 -.19** .18* .08 -.26** .30** .44** 1 9. Asset specificity a 8.68 11.70 .05 -.04 .02 -.18* -.15* .04 -.14* .15* 1 10. Export frequency a 30.89 24.28 .08 -.09 -.02 .01 .12 .07 .01 .09 .16* 1 11. External uncertainty 3.65 1.00 -.03 -.02 .05 -.01 .06 -.08 -.07 -.19** -.07 -.06 1 12. Entrepreneurial orientation (EO) 4.08 1.00 .05 -.05 .01 -.07 -.15* .18* -.10 .21** .32** .15* -.16* 1 13. International orientation (IO) 3.46 1.00 -.10 -.10 .17* .09 -.22** .17* .24** .57** .26** .13 -.15* .32** 1 14. International performance 4.71 1.09 .04 .03 -.01 -.02 .13 .01 .06 .07 .07 .20** -.34** .22** .19** 1
18
performance of Dutch SMEs. Second, by multiplying EO by IO the moderating effect of IO on the EO-international performance relationship was investigated. The independent and moderating variable were mean-centered in order to minimize multicollinearity (Aiken & West, 1991). To test the hypotheses several models were included. Model 1 includes only the control variables. Model 2 shows the control variables and the EO variable. In the last model (model 3), the moderating effect is tested and therefore contains the control variables, EO, IO, and the moderating effect (EO x IO).
Table 2 displays the results of the hierarchical regression analysis. Model 1 shows the control variables and its influence on international performance. The regression was significant (p<.01) and significant relationships were found between several control variables and international performance, that is: hierarchical mode (p<.05), export frequency (p<.05), and external uncertainty (p<.01).
In model 2 the EO variable was included. The regression model was significant (p<.01). Furthermore, model 2 was tested for the change in R square resulting from adding EO into the regression; the explanatory power over the first model was significant (p<.01). EO shows a positive and significant relationship with international performance (p<.01). Hence, H1 is supported. Meaning that firms with a higher EO have the propensity to have a better international performance.
19
TABLE 2
Hierarchical regression analysis international performance
Variables Model 1 Model 2 Model 3
Intercept 5.16*** (.65) 5.29*** (.64) 5.59*** (.65) Control variables Rubber/Plastic .02 (.28) -.03 (.28) .03 (.28) Metals .09 (.20) .09 (.20) .12 (.20) Machinery .12 (.21) .14 (.20) .13 (.21) Food .00 (.28) .06 (.27) .04 (.28) Hierarchical mode .34** (.17) .39** (.17) .39** (.17)
Firm size (log) -.12
(.26)
-.22 (.25)
-.25 (.25) International experience (log) .20
(.26)
.32 (.26)
.23 (.26) Number of countries (log) .00
(.22)
-.09 (.22)
-.21 (.24) Asset specificity (log) .13
(.19) .02 (.20) -.05 (.20) Export frequency (sqrt) .08** (.04) .07** (.03) .07** (.03) External uncertainty -.36*** (.08) -.34*** (.08) -.34*** (.07) Independent variable
Entrepreneurial orientation (EO) .22*** (.08)
.20** (.08) Interaction
International orientation (IO) .20**
(.09) EO x IO .11* (.07) R square .17 .20 .23 R square change .17*** .03*** .03** F value 3.33*** 3.77*** 3.77***
20
FIGURE 2
Interaction effect of IO on the EO-international performance relationship
5. DISCUSSION & CONCLUSION
5.1 Discussion & conclusion
This study explored the relationship between EO and international performance as well as the moderating effect of IO on this relationship. The hypotheses were tested on 192 Dutch SMEs active in the manufacturing industry. With this research, I build on prior research that emphasizes the importance of doing research on EO in an international context (e.g. Balabanis & Katsikea, 2003) and that recommends to include moderators in the EO-performance relationship (e.g. Rauch et al., 2009). I first theorized that EO would have a positive influence on the international performance of SMEs. An EO enables a firm to recognize and exploit market opportunities and to quickly respond to changes in the foreign market. This might contribute to greater international performance (Frishammar & Andersson, 2009). Second, I argued that IO would positively moderate the EO-international performance relationship. Firms additionally having an IO could help further enhance a firm’s international performance. It makes sure that the firm’s focus is on the international market and that sufficient time and resources are spend there.
21
The results provide support for H1, arguing that there exists a positive correlation between EO and international performance. Firms pursuing an EO have higher international performance compared to firms with low levels of EO. This is consistent with prior research investigating the EO-performance relationship (e.g. Rauch et al., 2009) and research investigating the EO-international performance relationship (e.g. Balabanis & Katsikea, 2003; Jantunen et al., 2008). A possible explanation for the fact that an EO is beneficial for a firm in the international market is that these markets are often unpredictable and complex (Balabanis & Katsikea, 2003). These conditions make it necessary for a firm to quickly respond to the changes or unpredictable situations that occur in the foreign market. Accordingly, proactive and innovative behaviour is required as well as daring to take risks as the outcome is often uncertain. Entrepreneurially oriented firms are thus able to anticipate this. Also Slevin and Covin (1990) mention that in such an environment, being innovative, proactive, and risky is likely to lead to an increase in performance. Hence, for firms that aim to increase success in the international market, the implementation of an EO might be very valuable.
Furthermore, it is found that the international performance can be further enhanced by pursuing an IO. The results provide support for the interaction effect (H2), suggesting that IO positively moderates the relationship between EO and international performance. Prior studies (e.g. Nummela, 2011; Nummela et al., 2004) argued that IO would be an important factor contributing to the firm’s international success, however, empirical research on this subject is limited (Jantunen et al., 2008). This study confirms the idea that IO is important for a firm’s international performance. Taking the two concepts (EO and IO) together, this research shows that for manufacturing firms it can be beneficial – besides implementing an entrepreneurial culture – to focus on developing an IO. The joint effect can help firms to increase success in the international market.
22
context is essential (Balabanis & Katsikea, 2003) and that emphasize the scarcity of studies relating EO specifically to the international performance (Balabanis & Katsikea, 2003; Dimitratos et al., 2004). Second, this study builds on research that suggests to include moderators in the EO-performance relationship (Rauch et al., 2009) and studies that argue that empirical research on IO is scant (Jantunen et al., 2008). The results show that IO is an important moderator in the EO-international performance relationship. The joint effect of EO and IO can help better explain a firm’s success on the international market; firms simultaneously following an EO and an IO were found to have a greater international performance. To the best of my knowledge, this is the first study investigating the joint effect of EO and IO on the international performance.
5.2 Limitations and suggestions for future research
23
factors. I am aware that also environmental factors can influence a firm’s international performance. Hence, leaving out these factors could be seen as a limitation. Even though external uncertainty was included as a control variable, future studies could include more external factors that may affect a firm’s international performance. Sixth, the control variable external uncertainty has a lower reliability level as the Cronbach’s alpha is slightly below the commonly accepted 0.7. Furthermore, this is the first study investigating the influence of the interaction effect (EO x IO) on the international performance of SMEs. The interaction effect is shown to be significant; however, the relationship is not strongly significant (p=.10). The Netherlands is a small country and is highly dependent on foreign trade. It could be that an IO is a requirement for Dutch SMEs that want to increase their international success, but this does not necessarily apply to firms originating from other countries. More research is needed to determine further how strong the interaction effect in other countries is.
5.3 Managerial implications
24
25
REFERENCES
Aaby, N.E., & Slater, S.F. 1989. Management influences on export performance: a review of the empirical literature 1978-88. International Marketing Review, 6(4): 7-26.
Aiken, L.S., & West, S.G. 1991. Multiple regression: testing and interpreting interactions. Newbury Park, CA: Sage.
Andersén, J. 2010. A critical examination of the EO-performance relationship. International
Journal of Entrepreneurial Behaviour & Research, 16(4): 309-328.
Andersson, S. 2000. The internationalization of the firm from an entrepreneurial perspective.
International Studies of Management & Organization, 30(1): 63-92.
Andersson, S., & Florén, H. 2011. Differences in managerial behavior between small international and non-international firms. Journal of International Entrepreneurship, 9(3): 233-258.
Armstrong, J.S., & Overton, T.S. 1977. Estimating nonresponse bias in mail surveys. Journal
of Marketing Research, 14(3): 396-402.
Avlonitis, G.J., & Salavou, H.E. 2007. Entrepreneurial orientation of SMEs, product innovativeness, and performance. Journal of Business Research, 60(5): 566-575. Balabanis, G.I., & Katsikea, E.S. 2003. Being an entrepreneurial exporter: does it pay?
International Business Review, 12(2): 233-252.
Bello, D.C., & Gilliland, D.I. 1997. The effect of output controls, process controls, and flexibility on export channel performance. Journal of Marketing, 61(1): 22-38.
Brouthers, K.D. 2002. Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33(2): 203-221. Bulck, H.E.J.M.L. van. 1979. Global orientation as a determinant of international
marketing decision making. Doctoral dissertation, University of Georgia, Athens,
GA.
Burpitt, W.J., & Rondinelli, D.A. 1998. Export decision-making in small firms: the role of organizational learning. Journal of World Business, 33(1): 51-68.
Calof, J.L. 1993. The impact of size on internationalization. Journal of Small Business
Management, 31(4): 60-69.
26
Chang, S., Witteloostuijn, A. van, & Eden, L. 2010. From the editors: common method variance in international business research. Journal of International Business
Studies, 41(2): 178-184.
Chetty, S.K., & Hamilton, R.T. 1993. Firm-level determinants of export performance: a meta analysis. International Marketing Review, 10(3): 26-34.
Covin, J.G., & Slevin, D.P. 1989. Strategic management of small firms in hostile and benign environments. Strategic Management Journal, 10(1): 75-87.
Covin, J.G., & Slevin, D.P. 1991. A conceptual model of entrepreneurship as firm behavior.
Entrepreneurship Theory and Practice, 16(1): 7-25.
Covin, J.G., Green, K.M., & Slevin, D.P. 2006. Strategic process effects on the entrepreneurial orientation-sales growth rate relationship. Entrepreneurship Theory
and Practice, 30(1): 57-81.
Dimitratos, P., Lioukas, S., & Carter, S. 2004. The relationship between entrepreneurship and international performance: the importance of domestic environment. International
Business Review, 13(1): 19-41.
European Commission. 2011. Are EU SMEs recovering from the crisis? Annual report on
EU Small and Medium sized Enterprises 2010/2011. Rotterdam, Cambridge: Ecorys.
Fiorito, S.S., & LaForge, R.W. 1986. A marketing strategy analysis of small retailers.
American Journal of Small Business, 10(4): 7-17.
Frishammar, J., & Andersson, S. 2009. The overestimated role of strategic orientations for international performance in smaller firms. Journal of International Entrepreneurship, 7(1): 57-77.
Hambrick, D.C. 1989. Guest editor’s introduction: putting top managers back into the strategy picture. Strategic Management Journal, 10(Special Issue): 5-15.
Harveston, P.D., Kedia, B.L., & Davis, P.S. 2000. Internationalization of born global and gradual globalizing firms: the impact of the manager. Advances in Competitiveness
Research, 8(1): 92-99.
Harveston, P.D., Osborne, D., & Kedia, B.L. 2002. Examining the mental models of
entrepreneurs from born global and gradual globalizing firms. Paper presented at the
High Technology Small Firms Conference: University of Twente, Enschede, The Netherlands.
27
Ireland, R.D., Hitt, M.A., & Sirmon, D.G. 2003. A model of strategic entrepreneurship: the construct and its dimensions. Journal of Management, 29(6): 963-989.
Jantunen, A., Nummela, N., Puumalainen, K., & Saarenketo, S. 2008. Strategic orientations of born globals – do they really matter? Journal of World Business, 43(2): 158-170. Jantunen, A., Puumalainen, K., Saarenketo, S., & Kyläheiko, K. 2005. Entrepreneurial
orientation, dynamic capabilities and international performance. Journal of
International Entrepreneurship, 3(3): 223-243.
Johanson, J., & Vahlne, J.E. 1977. The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments. Journal of
International Business, 8(1): 23-32.
Kedia, B.L., & Mukherji, A. 1999. Global managers: developing a mindset for global competitiveness. Journal of World Business, 34(3): 230-251.
Kimberly, J.R. 1981. Managerial innovation. In P.C. Nystrom & W.H. Starbuck (Eds),
Handbook of organizational design, vol. 1: 84-104. New York: Oxford University
Press.
Klein, S., & Roth, V.J. 1990. Determinants of export channel structure: the effects of experience and psychic distance reconsidered. International Marketing Review, 7(5): 27-38.
Knight, G.A. 2001. Entrepreneurship and strategy in the international SME. Journal of
International Management, 7(3): 155-171.
Lieberman, M.B., & Montgomery, D.B. 1988. First mover advantages. Strategic
Management Journal, 9(Special issue: Strategy Content Research): 41-58.
Lumpkin, G.T., & Dess, G.G. 1996. Clarifying the entrepreneurial orientation construct and linking it to performance. The Academy of Management Review, 21(1): 135-172. Lumpkin, G.T., & Dess, G.G. 2001. Linking two dimensions of entrepreneurial orientation to
firm performance: the moderating role of environment and industry life cycle. Journal
of Business Venturing, 16(5): 429-451.
Lyon, D.W., Lumpkin, G.T., & Dess, G.G. 2000. Enhancing entrepreneurial orientation research: operationalizing and measuring a key strategic decision making process.
Journal of Management, 26(5): 1055-1085.
Mascarenhas, B. 1997. The order and size of entry into international markets. Journal of
Business Venturing, 12(4): 287-299.
Miesenbock, K.J. 1988. Small businesses and exporting: a literature review. International
28
Miller, D. 1983. The correlates of entrepreneurship in three types of firms. Management
Science, 29(7): 770-791.
Miller, D., & Friesen, P.H. 1978. Archetypes of strategy formulation. Management Science, 24(9): 921-933.
Moen, Ø. 2002. The born globals: a new generation of small European exporters.
International Marketing Review, 19(2): 156-175.
Neter, J., Wasserman, W., & Kutner, M.H. 1989. Applied linear regression models. Homewood, IL: Irwin.
Nummela, N. 2011. International growth of small and medium enterprises. New York: Routledge.
Nummela, N., Saarenketo, S., & Puumalainen, K. 2004. A global mindset – a prerequisite for successful internationalization? Canadian Journal of Administrative Sciences, 21(1): 51-64.
Oviatt, B.M., & McDougall, P.P. 1994. Toward a theory of international new ventures.
Journal of International Business Studies, 25(1): 45-64.
Oviatt, B.M., & McDougall, P.P. 1995. Global start-ups: entrepreneurs on a worldwide stage.
Academy of Management Executive, 9(2): 30-44.
Pla-Barber, J., & Escribá-Esteve, A. 2006. Accelerated internationalisation: evidence from a late investor country. International Marketing Review, 23(3): 255-278.
Rauch, A., Wiklund, J., Lumpkin, G.T., & Frese, M. 2009. Entrepreneurial orientation and business performance: an assessment of past research and suggestions for the future.
Entrepreneurship Theory & Practice, 33(3): 761-787.
Ruzzier, M., Hisrich, R.D., & Antoncic, B. 2006. SME internationalization research: past, present, and future. Journal of Small Business and Enterprise Development, 13(4): 476-497.
Shane, S., & Venkataraman, S. 2000. The promise of entrepreneurship as a field of research.
Academy of Management Review, 25(1): 217-236.
Shervani, T.A., Frazier, G., & Challagalla, G. 2007. The moderating influence of firm market power on the transaction cost economics model: an empirical test in a forward channel integration context. Strategic Management Journal, 28(6): 635-652.
Slater, S.F., & Narver, J.C. 2000. The positive effect of a market orientation on business profitability: a balanced replication. Journal of Business Research, 48(1): 69-73. Slevin, D.P., & Covin, J.G. 1990. Juggling entrepreneurial style and organizational structure.
29
Slevin, D.P., & Terjesen, S.A. 2011. Entrepreneurial orientation: reviewing three papers and implications for further theoretical and methodological development.
Entrepreneurship Theory & Practice, 35(5): 973-987.
Spender, J., & Grant, R.M. 1996. Knowledge and the firm: overview. Strategic Management
Journal, 17(Winter Special Issue): 5-9.
Townsend, P., & Cairns, L. 2003. Developing the global manager using a capability framework. Management Learning, 34(3): 313-327.
Venkatraman, N., & Ramanujam, V. 1987. Measurement of business economic performance: an examination of method convergence. Journal of Management, 13(1): 109-122. Wiklund, J. 1999. The sustainability of the entrepreneurial orientation-performance
relationship. Entrepreneurship Theory & Practice, 24(1): 37-48.
Wiklund, J., & Shepherd, D. 2003. Knowledge-based resources, entrepreneurial orientation, and the performance of small and medium-sized businesses. Strategic Management
Journal, 24(13): 1307-1314.
Wiklund, J., & Shepherd, D. 2005. Entrepreneurial orientation and small business performance: a configurational approach. Journal of Business Venturing, 20(1): 71-91.
Zahra, S.A. 1993. Environment, corporate entrepreneurship, and financial performance: a taxonomic approach. Journal of Business Venturing, 8(4): 319-340.
Zahra, S.A., & Covin, J.G. 1995. Contextual influences on the corporate entrepreneurship-performance relationship: a longitudinal analysis. Journal of Business Venturing, 10(1): 43-58.
Zahra, S.A., & Garvis, D.M. 2000. International corporate entrepreneurship and firm performance: the moderating effect of international environmental hostility. Journal
of Business Venturing, 15(5-6): 469-492.
Zahra, S.A., & George, G. 2002. International entrepreneurship: the current status of the field and future research agenda. In M. Hitt, D. Ireland, D. Sexton, & M. Camp (Eds.),
Strategic entrepreneurship: creating an integrated mindset: 255-288. Cambridge,
MA: Blackwell.
30
APPENDIX A – MANUFACTURING INDUSTRIES
NACE rev. 2 code
Manufacturing industry
10 Manufacture of food products 11 Manufacture of beverages
12 Manufacture of tobacco products 13 Manufacture of textiles
14 Manufacture of wearing apparel
15 Manufacture of leather and related products
16 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials
17 Manufacture of paper and paper products
19 Manufacture of coke and refined petroleum products 20 Manufacture of chemicals and chemical products
21 Manufacture of basic pharmaceutical products and pharmaceutical preparations
22 Manufacture of rubber and plastic products
23 Manufacture of other non-metallic mineral products 24 Manufacture of basic metals
25 Manufacture of fabricated metal products, except machinery and equipment
26 Manufacture of computer, electronic and optical products 27 Manufacture of electrical equipment
28 Manufacture of machinery and equipment n.e.c.
29 Manufacture of motor vehicles, trailers and semi-trailers 30 Manufacture of other transport equipment
31
APPENDIX B - MEASUREMENT SCALES
Entrepreneurial orientation
With regard to the activities of my firm, we generally... 1. Favor the marketing of tried and
tested products or services
1 2 3 4 5 6 7 Favor Research and Development, technological leadership innovations 2. Favor low risk projects (with normal
and certain rates of return)
1 2 3 4 5 6 7 Favor high risk projects (with high chances of very high return)
In general, we believe that owing to the nature of the external environments it is best to achieve the firm’s objectives via ...
3. Cautious and incremental behavior 1 2 3 4 5 6 7 Bold and wide-ranging acts
In dealing with its competitors in the marketplace, my firm ... 4. Typically responds to actions which
competitors initiate
1 2 3 4 5 6 7 Typically initiates actions to which competitors then respond
5. Is very seldom the first firm to introduce new products/services, administrative and/or operating technologies
1 2 3 4 5 6 7 Is very often the first firm to introduce new products/services, administrative and/or operating technologies
6. Typically seeks to avoid competitive clashes preferring a ‘live-and-let- live’ posture
1 2 3 4 5 6 7 Typically adopts a very competitive ‘beat-the-competitors’ posture
When confronted in the marketplace with decision making situations involving uncertainty, my firm typically adopts a …
7. Cautious. ‘wait and see’ posture in order to minimize the probability of making costly decisions
1 2 3 4 5 6 7 Bold, aggressive posture to maximize the probability of exploiting potential opportunities
How many new lines of products/services has your firm marketed in the past 5 years?
32
services 9. Changes in product or service lines
have usually been of a minor nature
1 2 3 4 5 6 7 Changes in products or service lines have usually been quite dramatic
International orientation
Disagree Agree totally totally 1. The founder/owner/manager of the company is willing to
take the company into international markets.
1 2 3 4 5
2. The growth we are aiming at can be achieved mainly through internationalization.
1 2 3 4 5
3. It is important for our company to internationalize rapidly. 1 2 3 4 5 4. The company’s management uses a lot of time in planning
international operations.
1 2 3 4 5
5. Internationalization is the only way to achieve our growth objectives.
1 2 3 4 5
6. The company’s management sees the whole world as one big marketplace.
1 2 3 4 5
7. We will have to internationalize in order to succeed in the future.
1 2 3 4 5
International performance
Please indicate whether you agree or disagree with the following statements regarding your most important export market.
During the last 3 years, our most important export market…
Strongly Strongly agree disagree
has been very profitable 1 2 3 4 5 6 7
has not achieved rapid sales growth 1 2 3 4 5 6 7
33
External uncertainty
Compared to other products in your industry, for your most important export market it is: Easy to monitor trends 1 2 3 4 5 6 7 Difficult to monitor trends Sales forecasts are accurate 1 2 3 4 5 6 7 Sales forecasts are inaccurate Easy to gauge competition 1 2 3 4 5 6 7 Difficult to gauge competition The market is well known to
us
