Entrepreneurial Orientation and Entrepreneurial Competency of
Small and Medium Enterprises
Endi Sarwoko and Iva Nurdiana Nurfarida
Department of Management, Fakultas Ekonomika dan Bisnis, Universitas Kanjuruhan, Malang, Indonesia
Keywords: Entrepreneurial Competence, Entrepreneurship Orientation, SME Performance.
Abstract: Small and medium enterprises (SMEs) proved able to contribute to the economy that is the ability to absorb
labor and contribution to GDP. But the growth of SMEs still faces problems, including market access,
market information, market expansion, diversification, and innovation. To overcome the problems of SMEs,
need to be studied the role of individual factors as business actors include the competence and
entrepreneurship orientation. The purpose of this research is to analyze the role of individual factors, namely
entrepreneurship competence and entrepreneurship orientation toward SME performance. This advanced
research is developed with a focus on entrepreneurial competence as an antecedent of the entrepreneurial
orientation and its effect on the performance of SMEs. Using research approach of explanatory research.
The study was conducted on 80 SMEs in Malang City, Indonesia. The analysis is done with Path Analysis
to test the direct and indirect influence between the variables on the performance of SMEs. The results
showed entrepreneurial competence as a mediating variable of influence of entrepreneurial orientation on
the performance of SMEs. The results of this study indicate that the entrepreneurial orientation can be
achieved if the entrepreneur has entrepreneurial competence.
1 INTRODUCTION
Sensus Ekonomi Tahun 2016 shows East Java
ranked first in terms of SMEs amounting to
4,608,754 business units or 17.5% of total national
SMEs. The number of workers in the SME sector,
East Java is the highest province of absorbing
employment in the SME sector is 11,042,066 people
or 20.6% of the SME sector workforce compared to
the provinces in Indonesia (Badan Pusat Statitik
Indonesia, 2017).
In Malang City from 11,779 units SMEs it turns
out that only 27 business units are able to penetrate
export markets and 25 businesses that have the
potential to export and have a mainstay product.
Surely, this problem needs to be answered by
knowing the determinants of growth of SMEs. So
the results of this study are expected to contribute to
the government in this case the Department of
Cooperatives and SMEs in formulating policy
development of SMEs.
Research on the determinants of the growth of
SMEs can be classified into three factors, namely
individual factors (individual characteristics,
competencies), organizational factors (strategy,
organizational characteristics), and environment
(Zhou and Wit, 2009). While the classic problems
faced by SMEs are marketing issues, including
market access, market information, market
expansion, diversification, and innovation, it is
necessary to improve the entrepreneurial orientation
of SME owners/managers. The entrepreneurial
orientation deals with the psychometric aspects seen
from its innovation, its proactive nature and the
courage to take risks
The performance of SMEs is determined by the
characteristics of entrepreneurship and
entrepreneurial competence (Sarwoko, 2013).
Further research proves that entrepreneurial
competence will determine the business strategy that
ultimately affect the performance of SMEs
(Sarwoko, 2014). These findings indicate the
importance of individual factors as a determinant of
the SMEs performance. Limitations of the study
have not considered the entrepreneurial orientation,
that is innovative, proactive and courage to take
risks in running the business as a factor that also
contribute to the performance of SMEs.
Previous research has shown that small business
growth is determined by several factors. The
Sarwoko, E. and Nurfarida, I.
Entrepreneurial Orientation and Entrepreneurial Competency of Small and Medium Enterprises.
In Proceedings of the Annual Conference on Social Sciences and Humanities (ANCOSH 2018) - Revitalization of Local Wisdom in Global and Competitive Era, pages 527-530
ISBN: 978-989-758-343-8
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
527

determinants of small-business growth can be
classified into 3 dimensions: individual,
organization, and environment (Zhou and Wit,
2009), organizational resource factors, corporate
competence, organizational culture, and structure
(Covin and Slevin, 1991), competency factors for
individuals in entrepreneurial processes (Li, 2009),
owner/manager characteristic factors and strategies
(Nimalathasan, 2008; Sarwoko, 2013).
Research on the determinants of the SMEs
performance can be classified into three factors,
namely individual factors (individual characteristics,
competencies), organizational factors (strategy,
organizational characteristics), and environment
(Zhou and Wit, 2009). While the classic problems
faced by SMEs are marketing issues, including
market access, market information, market
expansion, diversification, and innovation, it is
necessary to improve the entrepreneurial orientation
of SME owners/managers.
1.1 Entrepreneurial Competency and
SMEs Performance
Baum (2001) defines entrepreneurial competence as
an individual characteristic such as the knowledge,
skills, and/or abilities required to perform a
particular job. Kiggundu (2002) expresses
entrepreneurial competence as a whole of
entrepreneurial attributes such as attitudes, beliefs,
knowledge, skills, abilities, personality, skills and
behavioral trends necessary to sustain and succeed
the business.
The ability (competence) owned by
owner/managers affects the growth of the company.
This competency is divided into two:
 Personal competency. It is a combination of
educational background from the
owner/manager, experience, personal
character, and motivation.
 Operational competency. Is an activity carried
out by the owner / manager in leading and
running his business.
Core competencies (technical skills, managerial
skills, social skills, human relations skills) positively
affect an entrepreneur's success (Kiggundu, 2002).
Baum et al. (2001) found that general competence
(organizational skills, opportunities skills) had no
significant effect on business growth, but had an
indirect positive impact through competitive
strategies on business growth.
The success of the business is influenced by the
skill and ability/competence of the owner/manager.
Understanding the role of entrepreneurs provides a
better insight into what competencies are required by
employers to ensure business survival and business
success (Akhmad, 2010).
H1: the stronger the competence of
entrepreneurship, the more the performance of
SMEs
1.2 Entrepreneurial Orientation and
SMEs Performance
The entrepreneurial orientation involves the
willingness to innovate, take risks, take independent
action, and be more proactive and aggressive than
competitors against new market opportunities
(Lumpkin and Dess, 1996). There are five
dimensions of entrepreneurial orientation, including
innovation, risk-taking, proactive, aggressiveness,
and autonomy as suggested by Lumpkin and Dess
(1990). Given the importance of entrepreneurship to
corporate performance, entrepreneurship orientation
can be an important measure of how companies are
managing to find and exploit market opportunities.
The typical conceptualization of
entrepreneurship orientation includes three
dimensions: proactive, risk-taking, and innovation
(Covin and Slevin, 1990).
H2: the stronger the entrepreneurship orientation,
the more performance SMEs
1.3 Entrepreneurial Competency and
Entrepreneurial Orientation
Entrepreneurial competencies of the owner/manager
are positively related to the entrepreneurial
orientation and its dimensions (Wickramaratne et al.,
2014). Critical factors of achieving the
entrepreneurial success outward look toward future,
strategic focus and intentional postures.
Entrepreneurs make decisions about their
entrepreneurial action depend on the judgments of
their competencies.
H3: orientation of entrepreneurship as a
mediation of the influence of entrepreneurial
competence in the performance of SMEs.
2 METHOD
The study was conducted on SMEs in Malang City,
Indonesia, by taking samples of 80
owners/managers.
ANCOSH 2018 - Annual Conference on Social Sciences and Humanities
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The variables in the study are entrepreneurial
competence, entrepreneurship orientation and SME
performance
 Entrepreneurial competency. Entrepreneurship
competence is measured using conceptual
competency indicators, opportunity,
relationship, learning, and personal.
 Entrepreneurial orientation. Entrepreneurial
orientation is measured by innovation,
proactive, and risk-taking indicators.
 SMEs performance. Measurement of SMEs
performance using 3 indicators namely sales
growth, profit, and capital.
Methods of data collection using questionnaires,
designed in the form of a closed questionnaire using
a Likert Scale 5-point. A data analysis technique
used to answer the problem formulation in this
research is Path Analysis.
3 RESULT AND DISCUSSION
The study was conducted on the owners / managers
of SMEs with the following characteristics:
Table 1: Descriptive statistics.
Characteristics
Number
%
Age
< 30
9
11.3%
30 – 40
46
57.5%
> 40
25
31.3%
Experience
< 5
8
10%
5 – 10
40
50%
> 10
32
40%
Table 1 shows that SME owners / managers are
over 30 years of age, and have been in business for
more than 5 years, reflecting owners / managers who
have chosen the profession as an entrepreneur and
have sufficient experience as an entrepreneur.
3.1 Regression Result
The result of regression analysis between
entrepreneurship competence and entrepreneurship
orientation with SME performance is as follows:
Table 2: Regression result.
Variable
Performance
(Model 1)
Entrepreneurial
Orientation
(Model 2)
Entrepreneurial
competency
0.450
***
(0.000)
0.812
***
(0.000)
Entrepreneurial
orientation
0.437
***
(0.000
Note: *** Significance level p<0.01
Based on the analysis results in table 2, we can
describe the path analysis model as follows:
Figure 1: Path analysis model.
The model of path analysis shows that each
direct causal path that is entrepreneurial competence
to business performance, as well as an indirect
causal path that is entrepreneurial competence in
business performance through entrepreneurship
orientation significant relationship.
3.2 Entrepreneurial Competency and
SMEs Performance
The results show that entrepreneurial competency
has a significant effect on performance, hence the
hypothesis (H1) which states that the higher the
competence of entrepreneur then the higher the
performance of SMEs is proven. This finding is in
line with Akhmad (2010), Kiggundu (2002), and
Sarwoko (2013) that entrepreneurial competence
influences SMEs performance.
The performance of SMEs can be enhanced
through enhancing entrepreneurial competence,
including conceptual, opportunity, relationship
learning, and personal competencies. An
entrepreneur must have the ability of the concept
and ability to read market opportunities to be able to
compete. In addition, it needs to be increased also
Entrepreneurial Orientation and Entrepreneurial Competency of Small and Medium Enterprises
529

the ability to build a good network with suppliers
and customers.
3.3 Entrepreneurial Orientation and
SMEs Performance
The orientation of entrepreneurship has a significant
effect on performance, this hypothesis (H1) which
states that the higher the entrepreneurship
orientation, the higher the performance of SMEs is
proven. This finding is in line with Wickramaratne
et al. (2014) that the orientation of entrepreneurship
affects business performance.
An entrepreneur in order to succeed then must
innovate in every aspect because of increasingly
fierce business competition, in addition must dare to
take the business risk to get biggest profit
opportunities.
3.4 Entrepreneurial Competency and
SMEs Performance Mediated
Entrepreneurial Orientation
Analysis of the indirect effect of entrepreneurial
competence in the performance of SMEs shows that
entrepreneurship orientation is a mediating variable
of influence of entrepreneurial competence in the
performance of SMEs, thus the hypothesis (H3) are
proven.
The result of the analysis shows that
entrepreneurial competence has an effect on the
performance of SMEs that are mediated by
entrepreneurship orientation, meaning that the
stronger entrepreneurial competence will lead to the
improvement of entrepreneurship orientation, then
the high entrepreneurship orientation will cause the
higher performance of SMEs. Therefore,
entrepreneurship orientation is a mediation of the
relationship between competences of
entrepreneurship with the performance of SMEs.
4 CONCLUSIONS
The result of the research shows that the
improvement of entrepreneurship competence will
have a direct impact to the improvement of SME's
performance, besides the improvement of
entrepreneurship competence also able to increase
entrepreneurship orientation, and further
improvement of entrepreneurship orientation will
determine the performance of SMEs. This means to
improve the performance of SMEs then the key
factor is the need to increase the entrepreneurial
competence of the owners / managers of SMEs.
Subsequent research can develop research by
exploring factors affecting entrepreneurial
competence, e.g. individual characteristics including
education and business experience.
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