Strategic orientation and its role in linking human capital with the performance of small and medium enterprises in Indonesia

Abstract

Purpose This study aims to investigate the ways that human capital influences the strategic orientation variables entrepreneurial orientation (EO) and market orientation (MO), which ultimately leverage the firm performance of small and medium enterprises (SMEs) in Indonesia. Design/methodology/approach This study used a quantitative method with a total of 274 SMEs in the Regency of Gresik, East Java, Indonesia, as the observable population. Furthermore, the identified samples obtained through the random sampling technique were determined using the Slovin formula with 163 SMEs used for analysis. As the means of analysis, this study used a statistical approach by using PLS-SEM statistics from SmartPLS software. This analytical tool has been proven to be a robust statistical tool that has been used in many marketing studies. Findings This study found that human capital is a key determinant of EO and MO as strategic orientations of SMEs. Furthermore, this study highlighted that SMEs’ strategic orientations (i.e. EO and MO) provide a valuable thrust that leverages firm performance. Moreover, the role of human capital in leveraging firm performance was found to be significant with the role of the joint effect of EO and MO as mediator. This implies that human capital is not solely a single determinant that leverages SMEs’ performance. Research limitations/implications There are few aspects of limitations in this research that could be enhanced by other scholars in the discipline of entrepreneurship. First, the strategic orientation concept being indicated by EO and MO had yet to provide a comprehensive view of strategic orientation. Second, this research used samples that represent the traditional furniture cluster in East Java and had yet to explore other clusters such as food processing and services cluster which may be relevant to the context of SMEs in Indonesia. Practical implications As a practical implication, this study would benefit policymakers in Indonesia, such as the Ministry for Cooperatives and SMEs to provide assistance to SMEs to progressively nurture capacity-building through formal and informal education to leverage human capital. Moreover, it could benefit other relevant businesses, such as national banks in Indonesia whose interests are significant, especially in providing financial access to SMEs in Indonesia. Social implications The social implication of this research lay the focus on the suggestion by which SMEs must be able to optimize their capabilities by enhancing levels of human capital particularly for traditionally managed SMEs. The ability to survive external pressures for would be able to contribute to the social well-being of their society as many people are dependent heavily in the operation of the SMEs. Originality/value The significance of this study is twofold. Although the use of human capital as a determinant of firm performance has been discussed in the literature, few studies to date has sought to predict human capital with EO and MO as mediators of firm performance. Furthermore, the joint impact of EO and MO as a strategic orientation needs to be holistically explored and explained, particularly in an emerging economy context.

From Market Insight to Business Triumph: Unraveling the Role of Market Orientation in Enhancing MSMEs Performance

“…This is consistent with the research conducted by Ahmad et al (2020), which states that there is a positive influence of market orientation on performance. Several other studies have also found similar results, indicating a relationship between market orientation and business performance (Buli, 2017;Iqbal et al, 2023;Kocak et al, 2017;Mamun et al, 2018). However, a study conducted by Dionysus & Arifin (2020) found that market orientation does not affect the performance of MSMEs.…”

Inventiveness as a Driver of Small and Medium-Sized Business Profitability in South Africa: A Quantile Regression Method

“…Regression models using heavy-tailed distributions are prevalent. The presumption of uniformly and separately dispersed errors is relaxed in quantile regression, thereby estimating values for various points on a distribution (Iqbal et al, 2023). Stretching the assumption acknowledges the variability in the businesses chosen for this analysis; the influence of inventiveness on company profitability may depend on firm size and growth.…”

Islamic Entrepreneurial Marketing Orientation Among Islamic University Students

“…Yadav and Bansal (2020) suggested in their study that the study of entrepreneurial marketing should also be developed in developing countries. However, existing studies still focus on MSME (micro small and medium) actors (Becherer et al, 2012;Jones et al, 2013;Abdullah et al, 2015;Kowalik et al, 2022;Sun & Lee, 2022;Alqahtani et al, 2022;Deku et al, 2023;Iqbal et al, 2023;Zahara et al, 2023) (Sari et al, 2023). No study has been found from an Islamic perspective.…”