Managerial Capabilities and Market Orientation in Mediating
Entrepreneurial Orientation with Business Performance of Coffee
Processing SMEs in Pupuan
Made Putri Ariasih, Ni Nyoman Kerti Yasa, Ketut Rahyuda, I G. A. K. Giantari
and
Ketut Adi Ananta Shantika
Faculty of Economics and Business, Udayana University, Bali, Indonesia
Keywords: Entrepreneurial Orientation, Managerial Capabilities, Market Orientation, Business Performance, Coffee
Processing.
Abstract: Role analysis as well as the influence of managerial capabilities and market orientation in mediating
entrepreneurial orientation with business performance on coffee processing SMEs in Pupuan and explaining
the role of managerial capabilities and market orientation in mediating entrepreneurial orientation with
business performance on coffee processing SMEs in Pupuan is the purpose of this study. The data of this
research were collected through questionnaire method by using samples of 52 owners and managers in 26
units of coffee processing SMEs in Pupuan. Partial Least Square statistical analysis tool is used in this study
and then tests the mediation effect. The result of this research concludes that managerial capabilities and
market orientation have a positive and significant influence and act as partial mediator between
entrepreneurial orientation and business performance. The results also provide suggestions to continuously
improve high entrepreneurial attitude with managerial capabilities and market orientation for SMEs to be
able to improve business performance.
1 INTRODUCTION
National economic growth is largely determined by
the dynamics of the economy in areas sustained by
small and medium sized economic activities, i.e.
Small and Medium Enterprises (SMEs). SMEs play
important roles in the regional and national
economic and contribute substantial contributions in
terms of increasing employment, reducing
unemployment and distributing development
outcomes throughout Indonesia (Nur et al., 2014).
Therefore, SMEs have a very strategic role. The
sustainability of an SME is certainly illustrated in its
business performance. SMEs that have huge
potential for export are coffee processing SMEs in
Pupuan District, Tabanan Regency, Bali. However,
this potential is not necessarily able to improve the
performance of SMEs business. At this time SMEs
processing coffee in Pupuan experienced problems
related to weak performance caused by problems in
managerial and marketing aspects.
Suci (2009) states business performance as a
series of work functions of a company within a
certain period of time, which is reflected as the
achievement of success or as a failure. Sales growth,
asset growth and profit growth are used to measure
business performance, especially the performance of
small and medium business enterprises. The
importance of the role of entrepreneurial orientation
and its positive influence on business performance is
explained in several entrepreneurial researches e.g.
Andersen (2010); Nur et al. (2014); Umar (2014)
and Tricahyadinata et al. (2015). The study of
Hughes & Morgan (2007) and Frank et al. (2010)
show that entrepreneurial orientation indicators
provide a significant negative relationship to
business performance.
The development of entrepreneurial orientation
of SMEs is highly determined also by the
managerial capabilities of the SMEs entrepreneurs
themselves. The result of empirical study on the
influence of managerial capabilities has been stated
by Suci (2009), Maupa (2004) and Degravel (2011)
which shows entrepreneurial orientation gives
positive and significant influence on managerial
capabilities. In other researches, it is stated that the
350
Ariasih, M., Yasa, N., Rahyuda, K., Giantari, I. and Shantika, K.
Managerial Capabilities and Market Orientation in Mediating Entrepreneurial Orientation with Business Performance of Coffee Processing SMEs in Pupuan.
DOI: 10.5220/0008493003500356
In Proceedings of the 7th International Conference on Entrepreneurship and Business Management (ICEBM Untar 2018), pages 350-356
ISBN: 978-989-758-363-6
Copyright
c
2019 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
influence of managerial capabilities to the
performance is not significant, i.e. in research of Lo
(2012), Umar (2014) and Nuret al. (2014). The study
of Mithas et al. (2011) indicates that managerial
capabilities have an important role in developing the
company's capabilities. In addition, on the results of
the study Umar (2014) and Nur et al., (2014)
indicates managerial capabilities that are capable of
mediating well between the entrepreneurial
orientation of business performance.
Market orientation is defined as the
superior value created for the buyer to achieve
higher business performance over competitors
(Narver and Slater, 1990). The market orientation
consists of 3 indicators formed from the constructs,
i.e.: customer orientation, competitor orientation and
interfunctional coordination (Prakorsa, 2005).
Previous researches which show negative relation
between entrepreneurship orientation to business
performance are by Hassim et al. (2011); Affendy et
al. (2015); Matsuno et al., (2002); Pramesti and
Giantari (2016); Amin et al., (2016) found in the
results of their researches that there is influence of
mediation between entrepreneurial orientation to
business performance of SMEs.
Therefore, the research on strategy management
aims to identify the role of managerial capabilities
and market orientation in mediating entrepreneurial
orientation and business performance of coffee
processing SMEs in Pupuan. The study also creates
a hypothesis of relation between variables and tests
every hypothesis. Finally, we will discuss the
implications of the findings in this study.
2 RESEARCH HYPOTHESIS
Relations between Entrepreneurial Orientation
with Business Performance.
High entrepreneurial orientation will provide the
ability to gain new business opportunities that
directly affects the company's earnings, which
ultimately impact business performance positively
(Keh et al., 2007). Research from Kreiser et al.,
(2002) demonstrates that indicators i.e. innovative,
proactive and risk-taking are capable of improving
performance in a company. Research from Nur et al.
(2014) and Hassim et al., (2011) also shows that the
relations between entrepreneurial orientations with
business performance have a positive and significant
relation. Hence, hypothesis 1 can be stated as
follows:
H1: The entrepreneurial orientation has a positive
and significant impact on business
performance.
Relations of Entrepreneurial Orientation with
Managerial Capabilities.
Entrepreneurship is a personal incentive to be able to
acquire, manage and utilize existing resources. It
will certainly encourage the increase in managerial
capabilities which is more defined as the
identification and control of self (Suci, 2009).
Researches by Maupa (2004) and Degravel (2011)
mention the same results where entrepreneurial
orientation has a significantly positive impact on its
relations with managerial capabilities. Thus,
hypothesis 2 can be stated as follows:
H2: The entrepreneurial orientation has a positive
and significant influence on managerial
capabilities.
Relations between Entrepreneurial Orientation
with Market Orientation.
Gima and Ko (2001) states that companies which
aim to achieve better performance should be able to
apply entrepreneurial orientation by considering
market share, market entry and product quality
(Gima and Ko, 2001). Previous research by Riana
(2010) suggests that entrepreneurial orientation is an
important indicator in improving market orientation
proactively. Previous researches on the relations
between entrepreneurial orientation and market
orientation which has a significant positive impact
are discussed by Vitale et al., (2002); Nur et al.,
(2014) and Pramesti and Giantari (2016). Therefore,
from the description above, hypothesis 3 can be
stated as follows:
H3: The entrepreneurial orientation has a positive
and significant impact on market orientation.
Relations between Managerial Capabilities with
Business Performance.
Ability is a strong foundation to improve the
business performance of a company by doing self-
positioning according to the company's perspective
(Degravel, 2011). The research by Suci (2009)
shows that through good communication skills,
appropriate problem solving, ability to manage
pressure and time and ability to motivate others will
be able to improve business performance.
Researches by Mithas et al., (2011) and Emadzade et
al., (2012) also show that managerial ability is able
to positively and significantly influence business
Managerial Capabilities and Market Orientation in Mediating Entrepreneurial Orientation with Business Performance of Coffee Processing
SMEs in Pupuan
351
performance. Thus, the hypothesis 4 proposed in this
study is as follows:
H4: Managerial capabilities have a positive and
significant impact on business performance.
Relations between Market Orientation with
Business Performance.
A good business performance is strongly influenced
and emphasized by the application of market
orientations. The implementation of customer
orientation, competitor orientation and inter-
functional coordination significantly affects the
improvement of business performance (Prakosa,
2005). Jaworski and Kohli (1990) stated marketing
of a company puts more of an emphasis on market
orientation in improving business performance.
Researches from Riana (2010), Nur et al., (2014),
Umar (2014) and Pramesti and Giantari (2016)
indicated that market orientation has a positive
significant relationship to improving business
performance. Hence, according to the results of
previous researches, it can be stated hypothesis 5 in
this study as follows.
H5: Market orientation has a positive and significant
impact on business performance.
Relations of Managerial Capabilities Mediates
Entrepreneurial Orientation with Business
Performance.
Managerial capabilities are very important in a
business. A strong managerial base of planning,
operational capability and good communication can
improve business performance (Latif, 2002). An
entrepreneurial orientation based on effective
managerial skills is usually able to improve business
performance in Small and Medium Enterprises
(Neshamba, 2006). Previous research results from
Duygulu and Kurgun (2009); Suci (2009) and
Degravel (2011) also showed that entrepreneurial
orientation has a positive and significant impact on
business performance. Based on the previous
empirical study above, hypothesis 6 can be proposed
as follows:
H6: The entrepreneurial orientation has a positive
and significant impact on business performance
through managerial capabilities.
Relations of Market Orientation Mediates the
Entrepreneurial Orientation with Business
Performance.
Entrepreneurial activities and marketing activities
can be integrated to drive innovation within the
company aimed at improving the business
performance Gima et.al (2001). Olson (2010) stated
an important concept in running an entrepreneurial
orientation which aims to improve business
performance is to be based on a strong market
orientation. The previous empirical studies which
proves that there is an indirect relationship between
business performance where market orientation as a
mediating variable are researches from Idar et al.
(2012), Amin et al. (2016), Pramesti & Giantari
(2016) and Benito et al. (2007). Therefore, based on
empirical studies above, hypothesis 7 can be
proposed as follows:
H7: The entrepreneurial orientation has a positive
and significant impact on business performance
through market orientation.
From the description above of the literature
hypotheses and research hypotheses, the concept of
research framework is presented as shown below.
Figure 1: Conceptual Framework of Research.
3 RESEARCH METHOD
The research is categorized as an explanatory
research which sees the relation between
entrepreneurial orientation variables, managerial
capabilities and market orientation on business
performance. The data were collected by using
survey method which is considered as the most
appropriate or cross-sectional because it is very
suitable to test the research hypothesis with data
obtained at certain time range. The research is
located in Pupuan District, Tabanan Regency. There
we studied 26 units of coffee processing SMEs in
Pupuan as population as well as owners and
managers in coffee processing SMEs in Pupuan
which has been established for at least 3 years, so
there were 52 respondents. SPSS 22.0 and Partial
Least Square (PLS) are used because only small
numbers of sample are studied.
4 RESULTS
Based on the survey, the results indicate that 73.07%
coffee processing SMEs in Pupuan has been
ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar
352
established for 1-10 years with 1-5 workers. The
workers in coffee processing SMEs in Pupuan
(maximum 5 people) are dominated by male workers
by 80.8 % with the age of 38-47 years old, and the
highest education they have are at high school level.
The results of the seven hypotheses showed a
positive and significant influence. The test results
are shown in Table 1 and Table 2 for the test of
mediation effect. The result of the analysis on the
influence of entrepreneurial orientation shows
significant positive impact to business performance
as evidenced by the significance value of 0,038
<0,05; hence hypothesis H1 is accepted, where
entrepreneurial orientation gives significant positive
impact to acceptable business performance.
The hypothesis that mentions the fact that
entrepreneurial orientation has a positive significant
effect on managerial capabilities and entrepreneurial
orientation has a significant positive effect on
market orientation shows the same significance
value of 0.000 <0.05, therefore it is proven that
hypotheses H2 and H3 are acceptable.
Table 1: Path Coefficients.
Constructs
Original
Sample
t Statistics
p
Values
R
emarks
Entrepreneurial
orientation (X)
Business
performance (Y
3
)
0,292 2,081 0,038
A
ccepted
Entrepreneurial
orientation (X)
Managerial
capabilities (Y
1
)
0,770 12,283 0,000
A
ccepted
Entrepreneurial
orientation (X)
Market orientation
(Y
2
)
0,737 8,543 0,000
A
ccepted
Managerial
capabilities (Y2)
Business
performance (Y
3
)
0,299 2,241 0,025
A
ccepted
Market orientation
(Y2) Business
performance (Y
3
)
0,382 2,838 0,005
A
ccepted
The relation of managerial capabilities to
business performance is indicated by the
significance value of 0.025 <0.05 i.e. 0.025, thus the
hypothesis H4 is accepted. Likewise with H5
hypothesis that states the relation of market
orientation to business performance is indicated by
the significance value of 0.005 <0.05 s, thus
hypothesis H5 can be considered as significant or
acceptable.
Table 2: Indirect Effects.
Construct
Original
Sample
t Statistics p Values Remark
Entrepreneurial
orientation (X)
Business
performance
(Y
3
)
0,512 5,353 0,038 Accepted
The effect of indirect relation between
entrepreneurial orientation and business
performance shows significant positive result with
coefficient value 0,512. The t-statistics
5,353>critical t-value 1.96, which indicates the
entrepreneurial orientation has indirect relation or
through significant positive mediation variables on
business performance through managerial
capabilities variables and market orientation
variables. Hence, H6 and H7 are proven and
acceptable.
Table 3: Mediation Effect of Managerial Capabilities Test.
Indirects Effect 0,770*0,299
(Entrepreneurial orientation Managerial
capabilities = 0,770;
Managerial capabilities Business performance =
0,299)
0,230
Direct Effect Before Entering Mediating
Variable
(Entrepreneurial orientation Business
performance=0,544)
0,544
Total Effects
Variance Accounted For Method (VAF) = Indirect
Effect/Total Effect = 0,230/0,774
0,774
0,3
Table 3 shows the managerial capabilities of
mediating the relation between entrepreneurial
orientation and business performance score 0.3 or 30
percent and indicates that managerial capabilities as
the partial mediator. This form of partial mediator
explains that managerial capabilities is not the only
mediator of entrepreneurial orientation’s relationship
with business performance of coffee processing
SMEs in Pupuan but there are other mediator
factors.
Table 4 shows the result of calculations of
mediation test on market orientation where market
orientation is the partial mediator between relations
of the entrepreneurial orientation and business
performance which results to 0.34 or 34 percent.
This result illustrates that market orientation only
Managerial Capabilities and Market Orientation in Mediating Entrepreneurial Orientation with Business Performance of Coffee Processing
SMEs in Pupuan
353
mediates the relation between entrepreneurial
orientation partially, and business performance is
one of the few factors that mediate the relation
between entrepreneurial orientation with the
performance business of coffee processing SMEs in
Pupuan.
Table 4: Mediation Effect of Market Orientation Test.
Indirects Effect 0,737*0,382
(Entrepreneurial orientation Market orientation=
0,737;
Market orientation Business performance =
0,382)
0,282
Direct Effect Before Entering Mediating
Variable
(Entrepreneurial orientation Business
performance =0,544)
0,544
Total Effects
Variance Accounted For Method (VAF) = Indirect
Effect/Total Effect = 0,282/0,826
0,826
0,34
5 DISCUSSION AND
CONCLUSION
The entrepreneurial orientation has a positive and
significant impact on business performance. It
means the higher the innovation, proactive and risk-
taking values applied by the owners and managers of
coffee processing SMEs in Pupuan, the more
business performance will increase in coffee
processing SMEs. It also supports researches from
Kreiser et al. (2002); Nur et al., (2014) and Hassim
et al., (2011).
The entrepreneurial orientation gives positive
and significant influence to managerial capabilities.
It means the higher the values of entrepreneurship
orientation applied by the owners and managers of
coffee processing SMEs in Pupuan, the higher the
managerial capabilities of owners and managers of
coffee processing SMEs in Pupuan. This also
supports previous researches conducted by Suci
(2009 ); Maupa (2004) and Degravel (2011).
The entrepreneurial orientation gives positive
and significant influences to market orientation. It
means the better the innovative, proactive and bold
values of implementing the market orientation of
coffee processing SMEs in Pupuan, the more market
orientation of coffee processing SMEs in Pupuan.
This is also supportive of previous researches by
Nur et al., (2014); Vitale et al., (2002) and Pramesti
and Giantari (2016).
Managerial capabilities give positive and
significant influence to business performance. It
implies the better the values of managerial
capabilities in communication, determining personal
decisions, motivating employees, and managing
problems properly applied by the owners and
managers of coffee processing SMEs in Pupuan, the
higher the business performance of coffee
processing SMEs in Pupuan. It also supports the
research conducted by Mithas et al., (2011), Sacred
(2009), Degravel (2011), Emadzade et al., (2012).
Market orientation has a significant positive
impact on business performance. This indicates that
the better the values of customer orientation, to
competitors and inter-functional coordination
applied by the owners and managers of coffee
processing SMEs in Pupuan, the higher the business
performance of coffee processing SMEs in Pupuan.
It also supports researches conducted by Nur et al.
(2014), Umar (2014) and Pramesti and Giantari
(2016).
The managerial capabilities show the skill to
mediate partially. Through managerial capabilities,
the relation of entrepreneurial orientation has a
significant positive impact on business performance.
This indicates that the higher the innovative,
proactive and risk-taking values applied by the
owners and managers of coffee processing SMEs in
Pupuan through direct or mediated managerial
capabilities, the higher the business performance of
coffee processing SMEs in Pupuan. It supports the
research conducted by Latif (2002); Duygulu and
Kurgun (2009) and Degravel (2011).
The market orientation indicates being able to
mediate partially. Through market orientation, the
relation of entrepreneurial orientation provides a
positive and significant impact on business
performance. It indicates that the higher the
innovative, proactive and risk-taking values applied
by the owners and managers of coffee processing
SMEs in Pupuan through direct or mediated market
orientation, the higher the business performance of
coffee processing SMEs in Pupuan. It also supports
the research conducted by Benito et al., (2007),
Osman et al., (2011), Amin et al., (2016), Pramesti
and Giantari (2016).
6 LIMITATIONS AND FUTURE
RESEARCH
The study also has limitations where this research is
ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar
354
only done in a certain time point (cross sectional),
while the environment can change at any time
dynamically, and the scope of research is only done
on coffee processing SMEs located in Pupuan
District, Tabanan Regency. Hence the results of this
study cannot be generalized to coffee processing
SMEs outside Pupuan District.
According to the results of the research that has
been obtained, suggestions that can be given to SME
owners and managers to focus more and emphasize
these dominant indicators without forgetting to
improve weak indicators in order to improve overall
business performance. Efforts to support the
development of coffee processing SMEs in Pupuan
District must include synergies and proactive actions
between local government and community in
Pupuan District in particular as this is the key to
success in improving business performance.
Second, the advice for academics is that future
research needs to be considered to use other
constructs, i.e. the skill of technological innovation
that can mediate the relationship between
entrepreneurial orientation and business
performance. In addition, enterpreneurial orientation
can be positioned as the mediation between
managerial capabilities and business performance.
Future research may also extend research orientation
within a wider range of populations and conduct
research on different types of SMEs in other areas;
hence the findings of this study may be different
than those in other areas.
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