Entrepreneurial orientation, dynamic capabilities and SMEs performance in Saudi Arabia

Abstract

The study aims to explore the role of entrepreneurial orientation coupled with three dynamic capabilities in enhancing the performance of small and medium-sized enterprises (SMEs) in Saudi Arabia. In order to achieve this aim, three main objectives have been set, firstly, to examine separately the relationship between innovativeness, proactiveness, and risk-taking on dynamic capabilities. Secondly, to investigate the direct influence of Dynamic Capability (DC) dimensions on firm performance. Finally, to examine the mediating role of explorative, exploitative, reconfiguration capabilities on the relationship between EO and firm performance.

The study adopts a positivist philosophy, a deductive approach with a quantitative method, and uses a questionnaire to gather data from Saudi SMEs. This study has conducted an extensive literature review to evaluate the taxonomy of EO and firm performance and identify relevant measurements items of EO dimensions, explorative capabilities, exploitive capabilities, reconfiguration capabilities, and firm performance. Before proceeding to examine the hypotheses, the study followed several data examination processes. These are reliability and validity tests of the constructs, and measurement model tests by confirmatory factor analysis. Once confirmed the reliability and validity issues of the measurement model, the study addressed structural equation model test to analyse the proposed hypotheses with an actual sample size 392 of SMEs with a response rate of 50%. To examine the conceptual model, the study used SEM with Warp PLS 6 statistical package for eliciting the causal relationships among the constructs. The findings indicate that the entrepreneurial orientation, exploring, exploiting, and reconfiguration capabilities jointly have a positive effect on performance. However, the findings show that dynamic capability only partially mediates the respective effects of entrepreneurial orientation on performance. These results provide convincing support for the importance of dynamic capability in enhancing firm performance. The study contributes to the body of knowledge by providing a better understanding the nature of the relationship between EO and firm performance through DC. The study suggests that SMEs need to allocate their investments in resources and capabilities to attain a competitive advantage. The empirical findings will be of interest to managers and practitioners in SMEs, helping them to utilise their resources and capabilities effectively.