International Journal of Business and Economics, 2018, Vol. 17, No.

3, 213-237

Relationship between Market Orientation, Entrepreneurial

Orientation, and Firm Performance in Thai SMEs:
The Mediating Role of Marketing Capabilities
Laddawan Lekmat
School of Business, University of the Thai Chamber of Commerce, Thailand

Christopher Selvarajah
Swinburne Business School, Faculty of Business and Law, Mail H23, Swinburne
University, Australia

Chandana Hewege*
Swinburne Business School, Faculty of Business and Law, Mail H23, Swinburne
University, Australia

Abstract
This research investigates the firm performance predictors of Thai SMEs, examining the
relationships among market orientation (MO), entrepreneurial orientation (EO), and firm
performance (FP) through a sample of 405 SMEs operating in the service and retail industries.
Specifically, we test the mediation effects on the relationships between MO, EO, and FP by
marketing capabilities. Results indicate that MO has both direct and indirect impacts on FP,
whereas EO has only a significant indirect impact on FP through the mediation of marketing
capabilities. EO can predict MO, while marketing capabilities can predict marketing
performance through financial outcomes. This study does provide evidence for best practice
for SMEs in that MO and EO as constructs may not contribute to superior performance,
organizations may require organizational capability resources, such as marketing capabilities,
to attain superior business results.
Keywords: market orientation; entrepreneurial orientation; marketing capabilities; firm
performance; SMEs; Thailand
JEL classification: L25; L26; M31

1. Introduction

Small- and medium-sized enterprises (SMEs) play an important role in economic

Received May 10, 2018, revised August 6, 2018, accepted September 27, 2018.
*
Correspondence to: Swinburne Business School, Faculty of Business and Law, Mail H23, Swinburne
University, P.O. Box 218, Hawthorn, Melbourne, Australia 3122. E-mail: [email protected].
214 International Journal of Business and Economics

growth, innovation, and job creation, because they dominate global economies in
terms of employment creation and number of firms (Katua, 2014). They represent
over 95% of all companies around the world and account for about 50% of value-
added and 60%-70% of total employment in most countries (International Trade
Centre, 2015). Thus, SMEs’ impact on the economic future of a nation cannot be
understated, thus bringing forth increasing attention among governments,
policymakers, and researchers (International Trade Centre, 2015). According to
Gellynck et al. (2012), supportive policy changes have the potential to offer growth
opportunities for innovative SMEs. Small firms have the potential competitive
advantage to grow as they are close to their customers and can implement a market-
oriented approach (Kajalo and Lindblom, 2015). SMEs have greater flexibility and
are able to respond “to market changes in a much more agile way than large firms”
(Gellynck et al., 2012).
Many countries (e.g. Australia, U.S., UK, South Korea, India, and China) have
recently focused on innovation strategies as new engines of domestic economic
growth. Thailand also has launched a new policy to transform its economic structure
into becoming a value-based and innovation-driven economy. It aims to change from
producing commodities to value-added goods and services and from a production-
based to a service-based economy. Based on gross domestic product (GDP), the Thai
economy has grown consistently between 7% and 8% annually over the period 1957-
1993. However, from 1994 onwards, its GDP growth rate has decreased to between
3% to 5% per year, with many believing that the country has slid into the so-called
Middle-Income Trap (Jimenez et al., 2012; Jitsuchon, 2012; Phasuk and Wann,
2013).1 This implies that the country cannot develop its economy further to become a
higher-income country, based on the World Bank’s (2015b) gross national income
(GNI) measurements. The ideal solution for Thailand to spring out of the Middle-
Income Trap is to move up the economic value chain from labor-intensive to
technology-intensive and service industries (Neill et al., 2014). To this end, Johnson
et al. (2008), for example, illustrate how Taiwan is able to compete in the global
market with its advanced, technology-intensive, information technology (IT) products.
To enable such a policy, the Thai government generally focuses on promoting
technology, creativity, and innovation in targeted industries, but given SMEs’
prominence in the economy, the target upon this industry sector is rather critical.
The rest of the paper is structured as follows. It begins with SMEs’ contribution
to the Thai economy, followed by the literature review on topics incorporating the
entrepreneurial orientation (EO)-firm performance nexus, the market orientation
(MO)-firm performance nexus, and marketing capabilities as the mediating construct.
This is followed by the hypotheses’ development, the conceptual model, research
method, analysis, and results. Finally, the study highlights the conclusions herein and
their contribution to the literature, as well as implications for practice, limitations, and
recommendation for future study.
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 215

2. SMEs’ Contribution to Thailand’s Economic Growth

In Thailand, SMEs are a very important part of the economy as they comprise
the majority of companies and are the main sources of job creation. They represent
99.73% of all enterprises and 80.30% of total employment (The OSMEP, 2015). Of
the SMEs, small enterprises comprise the highest proportion of all enterprises at
72.83%. Regarding employment by sector, the service and retail sectors contribute
76.34% of overall employment, of which the service sector has the highest proportion
at 44.77% of employment, followed by the retail sector at 31.57% of employment. In
financial terms, SMEs contribute to 39.6% of GDP, of which small enterprises
account for 27.8% and medium enterprises account for 11.8%. The SMEs’ overall
export contribution to the Thai economy is relatively high at 26.25% of total export
value. The service sector is the most significant contributor to the Thai economy at
38.8% of total GDP.
Though they have strong potential to contribute to national growth, due to growth
in competition and dramatic changes in consumer needs, Thai SMEs face difficulties
of remaining in their markets and surviving (International Trade Centre, 2015;
Sakolnakorn, 2010). In this paper we assert that in order to stay competitive and
relevant, SMEs can benefit from the development of market opportunities by
embracing market-oriented (MO) and entrepreneurial-oriented (EO) strategies
(Gellynck et al., 2012; Kajalo and Lindblom, 2015; Neill et al., 2014). Both MO and
EO strategies are known to generate improved firm performance (Baker and Sinkula,
2009; Lekmat and Chelliah, 2014). However, as mentioned earlier, more empirical
research is necessary to support a direct relationship between MO and EO with firm
performance. We shall test these two measurement constructs in the context of
Thailand.

3. Entrepreneurship Orientation – Firm Performance Nexus

The extant literature presents inconclusive evidence that entrepreneurship

dimensions are direct antecedents of a company’s performance, either from financial,
marketing viewpoints or from other standards, particularly in developing Asian
countries (Mthanti and Ojah, 2017; Gruber-Muecke and Hofer, 2015; Kajalo and
Lindblom, 2015). Linton and Kask (2017) associate EO configurations of risk-taking,
proactiveness, and innovativeness with a high-performance competitive strategy
among 67 small firms in Sweden. They find two ideal types of competitive strategies
associated with high firm performance: a differentiation strategy associated with
innovativeness and proactiveness and a mixed strategy associated with risk aversion,
reactiveness, and low innovations. Mthanti and Ojah (2017), however, report that
most studies on the entrepreneurship-growth performance nexus base their research
on entry density when testing the EO’s effect on economic growth. In their study of
93 countries over the period 1980-2008, they apply macro-level aggregated EO, risk-
taking, innovativeness, and proactiveness and find EO to be positively correlated with
economic growth, across all levels of development. This study suggests that nations
216 International Journal of Business and Economics

seeking to influence economic growth should foster entry of high EO firms and those
with superior EO behaviors in existing firms.
Entrepreneurial orientation (EO) as a positive uni-dimensional determinant of
firm performance has received substantial attention among scholars in the
entrepreneurship literature in the last two decades (Gruber-Muecke and Hofer, 2015;
Kajalo and Lindblom, 2015; Linton and Kask, 2017), as it captures unique
combinations of firm characteristics, comprising risk-taking, innovation, and
proactiveness (Covin and Slevin, 1989; Javalgi and Todd, 2011). Lumpkin and Dess
(1996) suggest that EO is a multidimensional construct, adding autonomy and
competitive aggressiveness to its concept. In support of Covin and Slevin’s (1989)
argument, empirical findings confirm that unidimensional EO “provide[s] more
precise explanations of entrepreneurship as a firm-level phenomenon as well as
greater insights into the relationship of entrepreneurial orientation and performance”
(Kollmann and Stockmann, 2008).
Since EO supports firms to enhance their marketing performances by offering
innovative products in developing markets that fulfill customers’ latent needs
(Gruber-Muecke and Hofer, 2015), studies widely suggest that EO tends to have
positive business outcomes for a firm. Toward this end, Wu and Lin (2018) illustrate
the importance of developing a culture of innovation orientation in firms in order to
offer superior products that effectively satisfy customer needs, thus enhancing firm
performance. One may argue a higher level of EO results in a firm’s strong innovative
capability, leading to higher marketing performance. However, a large amount of
empirical research has focused on the direct link between EO and its consequences,
while neglecting the indirect effect of EO on a firm’s rents (Lekmat and Chelliah,
2011; Madsen et al., 2007). Likewise, EO studies do not generally consider how
internal firm characteristics moderate and mediate the EO-FP association (Wiklund
and Shephard, 2005; Kajalo and Lindblom, 2015; Lekmat and Chelliah, 2014). Zahra
(1991) points out that results of the EO-FP link should be taken with caution. Some
studies report that not all EO endeavors lead to improved performance (Hart, 1992;
Soininen et al., 2012; Yu et al., 2016). Financial and non-financial measures can be
useful in assessing EO performance at different points in time (Carton and Hofer,
2006). Non-financial dimensions may also lead to financial performance and vice
versa (Gentry and Shen, 2010; Lekmat and Chelliah, 2011; Venkatraman and
Ramanujam, 1986). Prior research reports that financial and non-financial measures
complement each other, thus influencing a firm to invest in its future growth (Gentry
and Shen, 2010). Thus, this study measures EO’s contribution to firm performance
through a firm’s marketing performance and financial performance.

4. Marketing Orientation – Firm Performance Nexus

Market orientation (MO) refers to a firm’s ability to create customer value based
on customer and competitor intelligence (Kajalo and Lindblom, 2015; Ngo and
O’Cass, 2012). The strategy literature considers MO as a critical concept to increase
performance (Yu et al., 2016). Through some case studies, De Villiers and Coleman
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 217

(2017) show the importance of developing marketing competencies, capabilities, and

capacities within the firm so as to achieve superior performance. Gellynck et al. (2012)
argue that MO can lead to increased profitability. On the other hand, entrepreneurial
orientation (EO) is also a firm’s ability to pursue new opportunities (Wiklund and
Shepherd, 2005; Yu et al., 2016).
While MO is viewed as a basis of marketing thought (Kirca et al., 2005), it is
also an organizational process under which a firm acquires and utilizes market-based
information and disseminates it throughout the organization (Yu et al., 2016). A firm
that uses MO can attain a competitive advantage and higher business performance
(Gruber-Muecke and Hofer, 2015). Scholars widely recognize two conceptualizations
of MO developed by Narver and Slater (1990) and Kohli and Jaworski (1990) (Kajalo
and Lindblom, 2015). Narver and Slater (1990) define the MO concept as an
organizational culture that cultivates the required behaviors for superior customer
value and then leads to higher firm performance. Narver and Slater (1990) suggest
three key behavioral elements of MO: customer orientation, competitor orientation,
and inter-functional coordination. In contrast, Kohli and Jaworski (1990) describe the
MO concept as a behavioral viewpoint that constitutes three main aspects: market
intelligence generation, dissemination, and responsiveness to market information.
Although there is increasing empirical evidence from both the U.S. and Europe that
suggests MO to be positively related to firm performance, such an association
according to Gruber-Muecke and Hofer (2015) “is mediated by a number of variables
such as strategy, economic volatility, supplier relationship and innovation” (p. 561).
Mediation effects are important in establishing the link between MO and firm
performance and thus require further investigation. This paper shall address both the
unidimensional and multidimensional approaches in order to study EO-MO and EO-
FP relationships in the context of SMEs in Thailand. This paper considers the
multidimensional viewpoint of EO-MO and EO-FP and these relationships’ mediating
influences.

5. Marketing Capabilities as the Mediating Construct

As the most comprehensive marketing leadership study conducted with in-depth

contributions from over 350 CEOs, CMOs, and thought leaders, Marketing2020
identifies building marketing capabilities as the most important strategic lever to drive
a competitive advantage (De Swaan Arons, 2015). Increasing convergent forces, such
as digital marketing, globalization, and consumer expectations, tend to reiterate the
importance of marketing capabilities as an important driver of firm performance. Thus,
the importance of knowing how a firm’s marketing function leads to better firm
performance has never been greater.
Marketing capabilities refer to an improvement in the internal organizational
processes designed to achieve firm growth. This is achieved through a sharper focus
on the utilization of “shared knowledge, skills and resources of a company to meet the
market needs, increase value to its goods and services, adjust to market environments,
exploit market opportunities and confront competitive pressures” (Kajalo and
218 International Journal of Business and Economics

Lindblom, 2015). Moreover, marketing capabilities can be enhancing good marketing

processes and practices through an effective implementation of marketing mix,
research, and management (Merrillees et al., 2011). Empirical research findings
(Kajalo and Lindblom, 2015; Perez-Cabanero et al., 2012; Shin and Aiken, 2012)
confirm the positive impact that marketing capabilities have on firm performance and
that marketing capabilities can positively increase a firm’s overall outcomes.
Moreover, according to Neil et al. (2014), the role of marketing capabilities and its
influence on firm performance have been adequately explored in the western,
developed country context, but more research needs to look at developing countries.
In the following section, a brief discussion based on the arguments already provided
will form the thrust of the hypotheses developed herein.

6. Hypotheses’ Development

EO and Marketing Capabilities

EO and marketing capabilities are the performance antecedents of firms (Martin
and Javalgi, 2016). EO is a firm-level concept that focuses primarily on the direct
relationship between EO and performance, but there is a lack of research on the link
between organizational capabilities and EO (Madsen et al., 2007). In response, Kajalo
and Lindblom (2015) study the relationship between EO and marketing capabilities
and find that EO positively correlates to superior marketing capabilities. Chen et al.’s
(2012) findings support that EO can increase two organizational value-creating
capabilities in terms of exploitative and exploratory competencies. Martin and Javalgi
(2016) demonstrate how the relation between a firm’s EO and marketing capabilities
can achieve superior performance than the simple relation between EO and firm
performance. Through a study covering under-developed countries such as Fiji et al.
(2014) find a positive relationship between EO and marketing capabilities. Therefore,
we formulate the following hypothesis.

Hypothesis 1. In Thai SMEs, entrepreneurship orientation (EO) positively relates to

marketing capabilities to enhance firm performance.

MO and Marketing Capabilities

Kajalo and Lindblom (2015) suggest that though MO supports firm performance,
it is more likely to support smaller retailers at developing effective marketing
processes, focusing on their strategy and paying greater attention to store-level
marketing mix. Similarly, Ngo and O’Cass (2012) claim that when smaller firms
implement MO, they have a greater opportunity of developing their marketing
capabilities. Moreover, in their study of SMEs Gellynck et al. (2012) find that firms
with higher market-orientation levels tend to have distinctive marketing capabilities,
particularly marketing management processes. Based on this understanding, we set up
the next hypothesis for testing.

Hypothesis 2. In Thai SMEs, marketing orientation (MO) positively correlates to

marketing capabilities to enhance firm performance.
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 219

EO-MO Nexus
There is generally limited research on MO and EO concepts as related to service
and retailing sectors (Kajalo and Lindblom, 2015; Liao et al., 2011). Specifically, very
few studies address these sectors from the context of Asia (Lekmat and Chelliah,
2014).
Kajalo and Lindblom (2015) point out that uni-dimensional studies of “MO and
EO alone are not sufficient to generate improved results”. Ngo and O’Cass (2012)
claim that “MO should complement with other firm resources and capabilities” which,
in turn, contributes to improved firm performance. Murrey et al. (2011) find that
marketing capabilities mediate the link between MO and performance. Similarly,
there are also studies that do not find a significant association between EO and firm
performance (Soininen et al., 2012; Yu et al., 2016). Overall, there is no definitive
study linking MO to EO as firm performance measures. We address this here and offer
the following hypothesis to be tested.

Hypothesis 3. In Thai SMEs, marketing orientation (MO) positively correlates to

entrepreneurship orientation (EO) to enhance firm performance.

Marketing Capabilities (MC) and Firm Performance

The impacts of both strategic orientations, EO and MO, on business performance
for retail firms are critical issues requiring further research, because the two alone are
not enough to promote strong business performance (Kajalo and Lindblom, 2015; Ngo
and O’Cass, 2012; Shin and Aiken, 2012). A firm can only enhance its competitive
advantage and profitability through the use of MO and EO when developing its
marketing capabilities (Kajalo and Lindblom, 2015; Lin et al., 2015; Ngo and O’Cass,
2012; Shin and Aiken, 2012). Therefore, marketing capabilities play a critical driving
role for implementing (1) financial performance measures and (2) marketing
performance with regard to activities and opportunities that can transform
organizational capability into better customer satisfaction and profitability. This study
thus proposes that marketing capabilities can enhance a firm’s outcomes in two
different performance measures: marketing and finance. Hence, we formulate the
following hypotheses for testing.

Hypothesis 4. In Thai SMEs, marketing capabilities positively correlate to financial

performance.

Hypothesis 5. In Thai SMEs, marketing capabilities positively correlate to market

performance.

Relationship between Entrepreneurship Orientation (EO), Market Orientation (MO),

and Firm Performance in Thai SMEs
It appears that empirical studies on the relationship between these four variables;
EO, MO, MC, and FP, are still limited. However, some scholars highlight the need to
consider the complementary effects of both EO and MO on market capabilities and
performance (Kajalo and Lindblom, 2015). While previous studies consider partial
relationships between these variables, others examine the association between MO,
220 International Journal of Business and Economics

EO, and performance, but do not include market capabilities in their models
(Gonzalez-Benito et al., 2009; Gruber-Muecke and Hofer, 2015; Kajalo and Lindblom,
2015; Todorovic and Ma, 2008; Yu et al., 2016). Likewise, some studies analyze only
one type of strategic orientation, either MO or EO on performance (Jimenez-Jimenez
et al., 2008; Kwon, 2010; Ndubisi and Iftikhar, 2012; Huhtata et al., 2014). The
existing evidence is not completely consistent and even sometimes reports a non-
significant relationship (Huhtata et al., 2014). Therefore, it is difficult to compare the
influences of EO and MO on firm performance. As a result, it is not possible to
conclude whether their impacts on firm performance are exclusive directly or
indirectly, i.e. through their positive impact on market capabilities. Clarifying these
complex relationships would benefit not only academia, but also practitioners, as it
would help them to know how to cultivate market capabilities and performance. The
appendix presents a review of prior literature on EO, MO, marketing capabilities, and
firm performance.
This paper thus looks to fill the research gap in the literature. Particularly, we
aim to empirically study the relationship between EO, MO, market capabilities, and
firm performance in a single model. In addition, we employ multiple measures of
performance, including financial and non-financial indicators. Given that the extant
literature suggests that the EO-MO relationship to firm performance is both
multidimentional and uni-dimentional, and that marketing capabilities are viewed as
a mediating construct in this relationship, we put forward the following hypothesis for
testing.

Hypothesis 6. In Thai SMEs, the positive relationships for MO-firm performance,

EO-firm performance, finance performance, and marketing performance are mediated
by marketing capabilities.

7. Conceptual Model

Based on the set of hypothetical relationships described above, we present the

conceptual model of the study as follows (Figure 1). We test this model with empirical
data and explain this process in the next section.

8. Research Methodology

Given the importance of SME development to the prosperity of the Thai

economy, this paper explores the SME performance dynamics as they impact the retail,
wholesale, and service sectors. Rooted in objective research paradigm, this research
applies a survey-based quantitative technique. Survey questionnaires were distributed
to CEOs and marketing managers of 600 SMEs. In total, 435 questionnaires were
returned of which 405 were usable, producing a response rate of 68%. These SMEs
represent several retail/wholesale and service industries located across all regions of
Thailand. Table 1 lists the respondent characteristics.
Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 221

Figure 1. Conceptual Model of the Study

Table 1. Demographic Characteristics of the Respondents (N = 405)

Description %
Gender of respondents
Male 30.6
Female 69.4
Age of respondents
35 years or less 29.4
36-45 years 26.4
46-55 years 31.1
Over 55 years 13.1
Position of respondents
President/Owner 31.1
MD 49.1
Manager 19.8
Firm age
0-5 15.5
6-10 23.7
11-20 43.0
> 20 17.8
Firm size
0-15 71.1
16-25 12.8
26-50 9.6
51-200 5.7
Business type
Service 55.3
Retail/Wholesale 44.7
Industry classification of firms
Agricultural Product 16.0
Apparel 32.9
Consumer Products 10.6
Food and Beverage 14.4
Gems and Jewelry 6.4
Hotel 10.3
Health and Beauty Products 9.4
222 International Journal of Business and Economics

We evaluate non-response bias by dividing the respondents into early and late
respondents. We then perform the t-test procedure on market capabilities and firm
performance variables and find no significant difference ( p  0.5 ). Therefore, the
non-response bias does not indicate a problem in the dataset responses.
Measures
All items are measured on a five-point Likert scale, with the items measuring
MO adopted from Kajalo and Lindblom (2015) based on Narver and Slater (1990)
and Kohli et al. (1990) scales since “both had been previously tested and found to
have acceptable measurement properties, particularly for developing economies”
(Gruber-Muecke and Hofer, 2015). The items comprise three behavioral perspectives,
mainly involving customer orientation, competitor orientation, and coordination
among departments.
The items for EO are developed based on the items from Covin and Slevin (1989)
and Kajalo and Lindblom (2015). The items consist of three dimensions, primarily
relating to the top management’s decision making and action towards product/market
innovation, risk-taking, and proactiveness. The items for marketing capabilities are
adopted from Kajalo and Lindblom (2015). To capture different characteristics of firm
performance, the items for financial and marketing aspects are adapted from Carton
and Hofer (2006), Kajalo and Lindblom (2015), and Lekmat and Chelliah (2014).

9. Analysis and Results

We employ structural equation modeling (SEM) to test the proposed theoretical

model where factor analysis and multiple regression are combined in a single
statistical procedure (Hair et al., 2006). We use a two-step SEM approach following
the suggestions of Anderson and Gerbing (1988). First, confirmatory factor analysis
(CFA) assesses the validity of the measurement models and the discriminant validity
of each construct. Second, we utilize a structural model to test the hypotheses.
Measurement Model Analyses
We conduct confirmatory factor analysis (CFA) to evaluate the reliability, the
convergent validity, and the discriminant validity of the constructs. We then assess
the reliability of each construct by Cronbach’s alpha. All constructs exceed the
suggested level of 0.70 (ranging from 0.75 to 0.84), signifying that the constructs have
acceptable internal consistency as shown in Table 2. In addition, all factor loadings
are statistically significant at p  0.01 and range from a low of 0.51 to a high of 0.93,
supporting convergent validity as seen in Table 2.
We evalute discriminant validity for each construct following Fornell and
Larcker (1981). We examine the average variance extracted (AVE) and show that the
AVE scores of all concepts ranging from 0.64 to 0.83 are higher than 0.50 (see Table
3). This confirms discriminant validity between the constructs (Tajeddini, 2010).
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 223

Table 2. Construct Measures and Validity Measurement

Constructs and Measures Std. loadings

F1: Market orientation1 (   0.77 )
(MO1) We are able to respond rapidly to our competitors’ actionsa
(MO2) Our competitive activities are driven by creating customer satisfaction 0.51
(MO3) We frequently assess customer satisfaction 0.78
(MO4) We actively assess our competitors’ behavior 0.63
(MO5) We coordinate all our functions to maximize customer satisfaction 0.65
F2: Entrepreneurial orientation1 (   0.77 )
(EO1) We are willing to take great risks to achieve growth 0.71
(EO2) We constantly introduce new products and services to achieve growth 0.74
(EO3) We constantly try to stay ahead of our competitors to achieve growth 0.66
F3: Market capabilities1 (   0.75 )
(MC1) Ability to create and manage close customer relationships 0.62
(MC2) Ability to enhance assortments with new successful products 0.77
(MC3) Ability to set attractive retail prices 0.73
F4: Financial performance2 (   0.84 )
(FP1) Sales growth 0.87
(FP2) Profitability level (ROA) 0.93
(FP3) Cash flow 0.64
(FP4) Profit margin 0.63
F5: Marketing performance2 (   0.83 )
(MP1) Level of customer satisfaction 0.69
(MP2) Sales volume 0.84
(MP3) Market share 0.80
(MP4) Customer loyalty 0.71
Notes: 1Please indicate how much you agree and disagree with each of the following statements. Five-point
scale with 1 = “strongly disagree” to 5 = “strongly agree” as scale anchors; 2please indicate how well your
firm has performed compared to your competitors. Five-point scale with 1 = “very low” to 5 “very high.”
a
Item deleted during the scale validation process.

Table 3. Descriptive Statistics and Correlations

Mean SD Alpha AVE 1 2 3 4 5

1. MO 4.27 0.50 0.77 0.64 1
2. EO 4.39 0.55 0.77 0.83 0.57** 1
3. MktCap 4.38 0.47 0.75 0.81 0.43** 0.53** 1
**
4. Finance 3.73 0.64 0.84 0.77 0.18 0.23** 0.27** 1
** **
5. Marketing 4.08 0.52 0.83 0.76 0.35 0.36 0.35** 0.61** 1
** Correlation is significant at the 0.01 level (2-tailed).

Testing of Hypotheses
Following the establishment of measurement models, we now evaluate a full
structural equation model, finding that it does not fit the data,  2 (6)  312.82 ,
p  0.00 , CMIN DF  52.14 , RMSEA  0.36 , GFI  0.80 , and CFI  0.46 . An
assessment of the modification indices based on theory validation proposes that
224 International Journal of Business and Economics

adding structural paths from ‘entrepreneurial orientation’ to ‘market orientation’,

‘market orientation’ to ‘marketing performance’, and ‘financial performance’ to
‘marketing performance’ could improve the model,  2 (3)  3.09 , p  0.38 ,
CMIN DF  1.03 , RMSEA  0.01 , GFI  0.99 , and CFI  1.00 . Thus, the
adjusted model presented in Figure 2 is considered acceptable.
Figure 2. Final Model of EO, MO, MC, and Performance

Note: * significant at p  0.05 , ** significant at p  0.01 , ***significant at p  0.001 .

The arrows with supportive  coefficients shown at the center of each link in
Figure 2 demonstrate that all hypotheses are supported (also see Table 3). This result
shows that EO positively correlates to marketing capabilities (   0.52 , p  0.001 ),
thereby supporting H1. In addition, MO has a positive effect on marketing capabilities
(   0.24 , p  0.001 ), thereby supporting H2. Interestingly, EO has a strong impact
on MO (   0.73 , p  0.001 ), suggesting that entrepreneurial orientation measures
have a strong influence on the marketing orientation behaviors of the firm.
Furthermore, marketing capabilities positively correlate with financial performance
(   0.35 , p  0.001 ) and marketing performance (   0.12 , p  0.001 ), thereby
supporting H4 and H5. Thus, given the significant relationships between marketing
capabilities and MO, EO, and financial and marketing performances, as illustrated in
the model fit in Figure 2, we can establish that marketing capabilities mediate between
the SME constructs. This thus supports H6, for the mediating role of marketing
capabilities in SME performance dynamics in Thailand.
Beyond the hypothesized model, the findings suggest MO has a weak effect on
marketing performance (   0.25 , p  0.001 ) and financial performance has a
strong effect on marketing performance (   0.63 , p  0.001 ). This study does not
support a direct relationship between EO and FP, which is similar to Kajalo and
Lindblom (2015) who find that the EO-FP relationship is mediated by marketing
capabilities. Such a mediation relationship seems to vary across prior studies, because
scholars focus mainly on the direct association between EO and FP with little attention
on investigating the indirect performance influence of EO. Lastly, the R 2 values
indicate that the model explains 53% of MO and marketing capabilities and 12% and
61% of financial and marketing performances, respectively.
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 225

The findings of this research suggest that marketing capabilities can be viewed
as the link between ‘MO and performance.’ This reaffirms the results of prior studies
(e.g. Kajalo and Lindblom, 2015; Murray et al., 2011; Ngo and O’Cass, 2012). Kajalo
and Lindblom (2015) argue that “the relationship between MO and performance
cannot be treated in isolation from marketing capabilities.” Thus, MO is required to
complement marketing capabilities to improve business outcomes. Moreover, this
study highlights the importance of the indirect effect of EO on performance. It
suggests that EO increases performance through marketing capabilities. Therefore, it
is essential to include marketing capabilities as an internal performance gauge when
investigating the association between EO and firm performance (Kajalo and Lindblom,
2015)
Table 4. EO, MO, and Firm Performance Supporting the Hypotheses

Hypotheses Testing Status

Hypothesis 1. In Thai SMEs, entrepreneurship orientation   0.52 , p  0.001 High support

(EO) positively correlates to marketing capabilities to
enhance firm performance.
Hypothesis 2. In Thai SMEs, marketing orientation (MO)   0.24 , p  0.001 Support
positively correlates to marketing capabilities to enhance
firm performance.
Hypothesis 3. In Thai SMEs, marketing orientation (MO)   0.73 , p  0.001 Very high
positively correlates to entrepreneurship orientation (EO) to support
enhance firm performance.
Hypothesis 4. In Thai SMEs, marketing capabilities (MC)   0.35 , p  0.001 Support
positively correlate to financial performance (FP).
Hypothesis 5. In Thai SMEs, marketing capabilities (MC)   0.12 , p  0.001 Support
positively correlate to market performance (MP).
Hypothesis 6. In Thai SMEs, the positive relationships for  2 (3)  3.09 , Support
MO-firm performance, EO-firm performance, finance p  0.38 ,
performance, and marketing performance are mediated by CMIN DF  1.03 ,
marketing capabilities. RMSEA  0.01 ,
GFI  0.99 and
CFI  1.00

Based on the indirect impact of EO on MO via marketing capabilities, this study

suggests that EO is highly influential in promoting superior MO, which in return has
effective marketing capabilities. The results support the argument of Shin and Aiken
(2012), stating that “these orientations are not mutually exclusive and that it is
common for firms to engage in multiple sets of these strategic behaviors
simultaneously.” Since the literature supports these orientations as distinct constructs,
further research is needed to determine the different instruments and paths of
relationships between these important concepts.
The findings lastly demonstrate that marketing capabilities have both direct and
indirect impacts (through financial performance) on marketing performance. This
226 International Journal of Business and Economics

study hence suggests that an emphasis on the multidimensional performance measures

would provide a clearer understanding of MO-performance and EO–performance
relationships (Lekmat, 2009).

9. Conclusion

The findings of this study suggest that both MO and EO, as uni-dimensional
constructs, do improve SME performance, particularly in finance and marketing both
directly and indirectly via marketing capabilities. This paper provides new insights
into the MO-performance and EO-performance relationships among retail and service
SMEs in Thailand. Thailand as an emerging economy is highly dependent upon SME
growth. Though findings on the relationships between firm performance indices are
mixed and in some way formative, this paper suggests that the two specific strategic
orientations, EO and MO, could assist a firm at improving its allocation of critical
resources and capabilities, thus enhancing overall SME performance in Thailand.
Contribution to the Literature
This paper fills a research gap in the literature by inspecting the effects of MO
and EO on firm performance among Thailand’s SMEs in the service and retail sectors.
The results of this research provide substantial contributions to the literature as
follows. First, this study shows that MO impacts firm performance directly and
indirectly through marketing capabilities. The direct impact of MO on performance is
supported by other studies such as Gruber-Muecke (2015), Kwon (2010), and Yu et
al. (2016). However, the finding of this paper runs contrary to the results of Kajalo
and Lindblom (2015), who suggest that MO does not directly affect business
performance in small firms. Furthermore, Murray et al. (2011) also report that MO
has no direct influence on profitability. As a result of this contradiction, this study
argues that MO may not always contribute to superior performance and may require
organizational capability resources to attain superior business outcomes (Kajalo and
Lindblom, 2015; Kwon, 2010; Ngo and O’Cass, 2012). This research thus highlights
the indirect effect of MO on performance via market capabilities and argues that
marketing capabilities can act as the link between MO and performance. It is therefore
important to note that MO requires marketing capabilities as complementary
resources to enhance higher performance of SMEs (Ngo and O’Cass, 2012).
Second, this study indicates that EO only has an indirect impact on firm
performance. The finding is in line with previous studies (e.g. Lekmat and Chelliah,
2014). Thus, it is vital to highlight the indirect influence of EO on performance since
empirical studies have emphasized largely on the direct association between EO and
performance rather than investigating the indirect performance effect of EO. This
paper suggests that EO improves performance through marketing capabilities, and this
is supported by other studies (e.g. Kajalo and Lindblom, 2015; Neill et al., 2014).
Therefore, it is important to include the internal organizational process, particularly
marketing capabilities, when exploring the consequence of EO on the performances
of SMEs (Kajalo and Lindblom, 2015).
It is important to note that EO can influence MO, which, in return, impacts
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 227

marketing capabilities. The finding of this research supports the argument of studies
where EO is likely to correlate, but is different from MO (Abebe, 2014). Abebe (2014)
claims that MO focuses on customer and competitor intelligence, whereas EO
emphasizes on untapped market opportunities. Consequently, firms can engage in
these strategic behaviors consecutively, which in turn contribute to a high level of
market resources and strong marketing competences (Ngo and O’Cass, 2012; Shin
and Aiken, 2012). Therefore, this study argues that EO acts as a stimulus to influence
the relationship between MO and market capabilities.
Finally, it is interesting to highlight that marketing capabilities have both direct
and indirect effects (through financial performance) on marketing performance.
Hence, financial and non-financial aspects can be valuable when assessing the firm
performance implications at different points in time (Carton and Hofer, 2006).
Organizations that have higher marketing competence are likely to attain a higher
level of financial outcome and also positive non-financial outcomes than
organizations that are lower in marketing competence. Marketing competence is
considered as one of the fundamentals for market performance (e.g. customer
satisfaction, market expansion, and market growth) since higher profit, return on sales,
and working capital can make significant influences on the realization of market goals
(Gunday et al., 2011; Tahseen, 2012).
Implications for Practice
This paper also provides some managerial contributions. First, to improve
organizational performance, SMEs should consider both strategic components,
including marketing activities as well as opportunity pursuing behavior. In addition,
this study suggests that focusing only on MO or EO or even on MO and EO alone
may not be enough, but instead may require integrative organizational processes to
fully achieve superior performance. Specifically, when marketing capabilities are
enhanced, superior financial and marketing performance may be attained.
Consequently, it is vital to search for new opportunities and thereby interpret and
understand the markets to create distinctive value. Being proactive and risk taking
would help firms to understand the capabilities of both key current and potential
competitors and to use resources for providing better value for customers. An effective
use of marketing processes involving marketing mix components and strategy would
reveal the value creation effects of MO and EO. Therefore, firms are recommended
to consider each element of strategic orientation individually - namely, market and
entrepreneurial orientations - and assess the core capabilities together with marketing
capabilities.
Limitations and Recommendations for Further Study
The following are some limitations of the study. First, the sample of this study
includes SMEs in the retail and service sectors. It is therefore recommended that future
research should be conducted covering other business fields and national settings in
which the business environment and culture are different from developing countries.
Previous research has found that the influence of EO on performance may be different
in different environment conditions (eg., Lekmat and Chelliah, 2011; Wiklund and
Shephard, 2005). Moreover, future research may want to consider a longitudinal study
228 International Journal of Business and Economics

to examine how MO and EO enable to provide strategic benefits to SMEs in a longer

period of time. A long-term orientation is required to explore how MO and EO
strategically influence the link between both strategic orientations and SME
performance, particularly for retail and service sectors over time. Furthermore,
qualitative empirical research would provide an in-depth understanding of the
association between MO, EO, and performance in the context of small firms.

Notes

1. According to the World Bank (2015), low-income countries are those with a gross national income
(GNI) per capita of US$1,045 or less in 2014; lower-middle-income countries are those with a GNI
per capita of US$1,046-$4,125; upper-middle-income countries are those with a GNI per capita of
US$4,126-12,735; and higher-income countries are those with a GNI per capita of US$12,736 or more.

Appendix

Table A. Review of Prior Literature on EO, MO, Marketing Capabilities, and Performance

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings

Todorovic & Ma Conceptual - EO Using - EO and MO - A pioneer

(2008) argument (innovativeness, Hofstede’s data are correlated study that
development of risk-taking, and for triangulation themselves and considers the
the relationship proactiveness) purposes in directly related effect of the
between EO and - MO (customer comparison to FP in western MO-EO
MO and their and competitor between 5 cultures. correlation on
antecedents and orientations, and developed - Both EO and FP and suggests
consequences on inter-functional countries with MO are related they must both
FP in two coordination) highest GDP and to FP in be
different cultural - FP 5 developing developing simultaneously
contexts. - Cultural countries with countries. maximized in
contexts lowest GDP - Entrepreneurial order to gain
(individualism/c firms in maximum effect
ollectivism and collectivist on FP.
uncertainty cultures face - A pioneer
avoidance) lean resource. study that
environments examines the
and thus attain role of
lower EO-MO multicultural
correlation and perspective and
lower FP. resource on MO-
EO-FP
relationship.
- Expands the
scope of the
study to non-
western
countries.
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 229

Table A. (Cont’d)

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings
Jiménez- Empirical study - MO Survey - Both MO and - Highlights the
Jimenez et al. of the (intelligence (n = 744) of OR affect significant effect
(2008) relationship of generation, Spanish innovation. of strategic
MO, intelligence companies - There is no orientations
organizational dissemination, (cover all firm direct link (MO, OR, but
learning (OR), and sizes, across between MO not including
innovation, and responsiveness) various and OR on FP. EO) on FP when
FP. - OR industries) - The impact of another factor
- FP (share MO and OR on (innovation) is
market, FP is completely included.
profitability, mediated by
productivity, and innovation.
customer
satisfaction)
Gonzalez-Benito Empirical - MO Survey - There is a - Highlights the
et al. (2009) evidence about (intelligence (n = 183) of strong relationship
the relationships generation, Spanish relationship between EO and
between EO, intelligence companies between EO and MO. A higher
MO, and FP. dissemination, (cover all firm MO. degree of EO
and sizes, across - Each implies a higher
responsiveness), various orientation degree of MO.
- EO industries) impacts on FP. - Highlights the
(innovativeness, - There is a joint role of EO
risk-taking, positive and MO on FP
proactiveness), interaction effect and suggests that
- FP of EO and MO they share
(profitability, on both financial common
market response, operational elements and
market position aspects (with the consequently
value, and new exception of facilitate each
product success) market position other’s
value). implementation.
- MO moderates - Categorizes FP
the relationship into both
between EO and financial (short-
FP (only for term scope) and
operational operational
performance aspects (long-
measures). term scope).
Kwon (2010) Empirically - MO (customer Survey - MO impacts - Highlights the
examines the and competitor (n = 168) of performance. stronger effect
effects of MO on orientations, and Korean MNC - There is a of MO on FP
FP, the inter-functional subsidiaries positive effect of when other
interaction coordination), operating in the interaction of factors
effects of MO - Technology emerging MO and (technology
and technology advantages countries (China technology advantages and
advantages on - Network and India) advantages on network
FP interaction relationships foreign relationships)
effects of MO, - FP (i.e. sales subsidiaries’ are included.
and network volume, sales performance. - Emphasis on
relationships on growth, sales - There is a the multiple
FP. profitability, positive effect of criteria of FP
market share, the interaction of measures.
and success of MO and network - Pioneer study
market entry) relationships on of MO in the
foreign context of MNC
subsidiaries’ subsidiaries in
performance. emerging
countries.
230 International Journal of Business and Economics

Table A. (Cont’d)

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings

Shin & Aiken Empirically - Strategic Survey - All orientations - Pioneer study
(2012) investigates the orientations (n = 198) impact FP arguing that MC
impact of (learning, Korean Top 500 through MC (as is needed
strategic technology, firms in terms of a full or partial between
orientations on customer, and sales (across mediator). strategic
FP and the links competitor), various - MC has a orientation and
between - MC (marketing industries) direct effect on FP.
strategic planning and FP. - Recognizes the
orientations on implementation need for firms to
FP via ability) engage in
marketing - FP (customer multiple sets of
capability (MC). satisfaction, strategic
market behaviors
effectiveness, simultaneously
and profitability) (but no MO &
EO are
included).
- Extends
geographic study
to an Asian
country
(majority
research in this
field comes from
western
countries).

Gellynck et al. Analyzes MO of - MO Survey - 4 clusters are - Addresses MO

(2012) SMEs by (intelligence (n = 118) SMEs classified with and MC in
assessing MC. generation, (traditional food significantly SMEs.
intelligence producers) in the different MC; - Adds 3
dissemination, EU (i.e. firms are variables
and Hungary, marketed connected to
responsiveness) Belgium, and oriented when innovativeness
- MC (market Italy) they have good into MC.
research, market marketing - Identifies the
strategy, management critical points of
planning & capabilities. marketing
implementation, activities.
control & - Categorizes
evaluation, and firms into
innovativeness) market oriented,
intermediate
market oriented,
less market
oriented, and not
market oriented.
- Addresses MO
can lead to better
performance.
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 231

Table A. (Cont’d)

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings

Perez-Cabanero Empirically - MC (market Survey - MC for product - Addresses

et al. (2012) investigates the planning, (n = 391) of differentiation different MC
impact of product Spanish family has a positive have different
different MC on differentiation, firms impact on impacts on
various market (manufacturing stakeholders’ various
measures of FP. information, FSMEs) satisfaction measures of FP.
communication, while other MC - Emphasis on
and pricing) (marketing the multiple
- FP (financial: planning and criteria of FP
PBIT, NOPAT, pricing) have a measures
ROA, and gross positive impact (financial and
operating on financial non-financial
margin; performance. criteria).
stakeholder - Suggests the
satisfaction: MC-FP
customer and relationship
employee should be
satisfaction, and considered
firm’s mediating
contribution to variables such as
society and its strategic
environment) orientations.

Ndubisi & Empirically - EO (risk- Survey - EO is - Highlights the

Iftikhar (2012) investigates the taking, (n = 124) significantly direct and
relationship proactiveness, Pakistani SMEs associated with indirect effects
between EO, and autonomy), (service sector) innovation and of EO on
innovation, and - Innovation quality performance.
FP. - FP (quality performance.
performance) - Innovation is
directly related
to performance
and mediates the
EO-FP
relationship.

Huhtata et al. Empirically - MO (customer Survey - Innovation - Highlights the

(2014) examines the and competitor (n = 202) capability fully mediating role
relationship orientations, and Finnish mediates the FP of innovation
between MO, inter-functional companies effects on MO capability on
innovation coordination) (cover all firm during an individual MO
capability, and - Innovation sizes, across economic upturn and that the FP
FP. capability various whereas the relationship
- FP (relative industries) mediation is varies along the
profit, ROI, and only partial economic cycle.
ROA) during a
downturn.
232 International Journal of Business and Economics

Table A. (Cont’d)

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings

Kajalo & Empirically - MO (customer Survey - MO indirectly - Addresses MC

Lindblom (2015) investigates the and competitor (n = 258) of affects as a link
impact of MO orientations, and Finnish small performance via between MO-FP
and EO on FP inter-functional non-food retail MC. and EO-FP.
and the links coordination), stores - EO has both - Highlights the
between MO - EO direct and need for studies
and EO on BP (innovativeness, indirect impacts in small
via MC. risk-taking, and on FP. retailers.
proactiveness) - MC has a - Only one study
- MC (i.e. strong impact on analyzes EO,
customer FP. MO, MC, and
relationship FP in a single
management, model.
assortment
planning, and
pricing)
- FP (sales,
profitability, and
financial
success)

Gruber-Muecke Empirically - MO (customer Survey - MO and EO - New insights

& Hofer (2015) examines the and competitor (n = 170) of are positively into the MO-
relationship orientations, and Austrian related to FP. EO-FP
between MO, inter-functional manufacturing relationship in
EO, and coordination), firms from emerging
international FP. - EO various markets.
(innovativeness, industries - Highlights
proactiveness international FP.
and risk
behavior, and
management
professionalizati
on)
- FP (financial
and growth
measures i.e.
profitability,
employee
growth, and
market share)
 Laddawan Lekmat, Christopher Selvarajah, and Chandana Hewege 233

Table A. (Cont’d)

Author(s) Theory/model Key variables Survey Factors/major Value added

overview findings

Lin et al. (2015) Empirically - MO Survey - The MO and - Highlights the

examines the (intelligence (n = 137) of FP nexus is importance of
impact of MC on generation, Taiwanese firms confirmed. MC as an object
MO and FP intelligence (cover all firm - The impact of for improving
relationship. dissemination, sizes, across MC on FP is FP by creating
and various partially MO.
responsiveness), industries) supported. - Suggests the
- MC - MO and MC complementary
(component and are positively of MO and MC
architectural related. will drive
competence) - There is a greater
- FP (market complementary performance.
knowledge effect existing
creation, among MO,
customer MC, and FP.
satisfaction, and
profit
performance)

Yu et al. (2016) Empirically - IoT capability Survey - Neither EO nor - Highlights the
examines the and alliance (n = 207) of MO have mediating effect
mediating effect - EO Chinese high- significant of other
of IoT capability (innovativeness, tech firms effects on variables (but
and alliance on risk-taking, and product and not including
EO and MO and proactiveness) process MC) on EO-FP
innovations. - MO (customer innovations. and MO-FP
and competitor - IoT capability relationships.
orientations, and and alliance
inter-functional mediate the links
coordination) between EO and
- Innovation innovations as
(product and well as between
process) MO and
innovations

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