Quality performance of SMEs in a developing economy: direct and indirect effects of service innovation and entrepreneurial orientation

Abstract

Purpose – The purpose of this paper is to examine how innovation and entrepreneurial orientation (EO) affect organizational performance on quality in Asian small enterprise context. Design/methodology/approach – Drawing from the strategic management literature, we hypothesize and test the direct and indirect relationship between EO, innovation and quality performance in the context of small information technology (IT) firms in an Asian economy. Data analyses follow standard procedures for testing direct and mediating effects. Findings – Findings indicate a significant direct and indirect positive relationship between EO dimensions and three types of innovation and quality performance. Innovation mediates in the relationship of EO with quality performance. Research limitations/implications – The paper adds resource-based view and dynamic capabilities theories to extant strategic management literature. Poor representation of women-owned small firms in the study resulting from low participation of females in the IT business sector is a limitation which needs to be addressed in the future, as it hinders a clearer understanding of the perspectives of women business owners. Practical implications – The paper contributes to managerial practice by underscoring the need for owner-managers of small enterprises to pursue EO-focused and innovation enhancement strategies in an integrated manner. Originality/value – An integrated model of EO, innovation and performance, tested in small IT service firms in the context of a developing economy. Context does matter. The combination of a developing country context and the significance of IT enhance the contextual contribution of the paper.