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International Journal of Business and Social Science

Vol. 5, No. 6(1); May 2014

The Effect of Entrepreneurial Orientation and Competitive Advantage on SMEs’
Growth: A Structural Equation Modeling Study
Thongvanh Sirivanh
Sasiwemon Sukkabot
Faculty of Management Sciences
Prince of Songkla University
Hatyai, Songkla 90110
Thailand
Meta Sateeraroj
Rajamangala University of Technology Isan
Office of Academic Promotion and Registration
Nakhon Ratchasima
Thailand

Abstract
The aim of this research is to analyze factors affecting on SMEs’ growth and to develop the Structural Equation
Modeling (SEM) of SMEs’ growth. The samples sized consist331 entrepreneurs in Lao PDR, instrument of research was the questionnaires 5 levels of Likert Rating Scale, the variables were Entrepreneurial Orientation,
Competitive Advantages and SMEs’ growth. The result of this research were as follow: The factors
Entrepreneurial Orientation has positively affecting on Competitive Advantages and the factors Competitive
Advantages and Entrepreneurial Orientation has positively affecting towards SME’s growth with statistical significance. Keywords: Small and medium enterprises (SMEs), SMEs’ Growth, Entrepreneurial Orientation, Competitive
Advantages, Structural Equation Modeling (SEM).

Introduction
Small and medium enterprises (SMEs) play an increasingly important for market growth domestically and abroad, driving sustainable growth in the trading, production and service sectors through attracting investments. SMEs also play an important role in maintaining a healthy balance in the economy and are main job creators in society
(Directory of Outstanding ASEAN SMEs, 2011; Law on the promotion of SMEs, 2012)
SMEs are important at both the national and international levels. For Lao PDR, the importance of SMEs is not exceptional. They form a core part of economic growth, driving a strong economic development in the country through manufacturing and commercial sector development. Investments in SMEs generate employment and income opportunities for the Lao people; thus, improving living standards in the country. Such improvements are crucial for industrialization and modernization in the country (9th Party Congress Resolution,2011,p.71). In addition, SMEs constitute important sources of new knowledge for innovation towards increasing value adding and maximizing the use of natural resources for improving goods manufacturing and service development (small and medium enterprise development strategy until 2010: SMEs Promotion and Development Office, 2009, p.1;
Deresky, 2000, p.15).
Based on existing literature, we found that business development of SME entrepreneurs in Laos PDR have faced a number of problems and challenges in terms of stiff competition in both domestic and foreign markets. SMEs have suffered from skilled labor shortage; thus, they find it difficult to undertake quality improvement and innovation. Government’s regulations are not yet sufficiently enabling for SMEs’ growth. Public sector and SMEs sector linkages are still weak; market and financial resource access is low.
189

© Center for Promoting Ideas, USA

www.ijbssnet.com

All above challenges and constraints reduce SMEs’ competitiveness (Kyophilavong, 2008, p. 191; Quang&
Thavisay,1999, p. 6; Southiseng & Walsh, 2010, pp. 57-58)
The above mentioned problems and changing environments in which small and medium enterprises operate; especially in order to be able to improve SMEs’ growth, it is necessary to investigate mechanisms and factors which are important for SMEs’ growth. Such investigations are important for developing a structural equation modeling which is appropriate for SMEs development conditions and promotion in Lao PDR.

Research Objectives
Therefore, this study are :
 To investigate factors which are important determinants of small and medium enterprise growth.
 To develop a structural equation modeling involving factors influencing small and medium enterprise growth.

Scope of Research
This study is framed within the following scope:
Conceptual framework: The conceptual thinking used in this study is framed within firm growth theories of
Murphy (1996), resource-based views (RBV) of Barney (1991, pp.101-102), entrepreneurial orientation concepts was developed by Miller (1983) as comprising three dimensions; innovativeness, proactiveness and risk taking and the competitive advantage theory of Michael E. Porter (1985, pp.12-14).
Study site: The study is conducted based on data collected from small and medium enterprise owners in Lao
PDR.

Literature Review
Entrepreneurial Orientation
Entrepreneurial orientation is a significant contributor to a business success; the business operation success is related with both internal and external environment factors. The external environment factors include economic and social conditions, political and technological factors. The internal environment factors include entrepreneurial management which consists of a level of emphasis placed on strategic orientation, resources orientation, management structure entrepreneurial culture development, reward philosophy, and the entrepreneurial orientation is related with personal characteristics of the entrepreneurs (Isalam, 2011).The entrepreneurial orientation consists of attitudes towards business innovativeness, proactiveness in business operation and risk taking (Miller, 1983; Lumpkin., &Dess, 1996, p.137; GÜrbÜz., & Aykol, 2009; Kuratko & Hodgetts, 2004,p.
130).
Li, et al, (2009) studied relationships between entrepreneurial orientation and entrepreneurial performance of 165 enterprises in Taiwan based on primary data collected through a questionnaire. The level of influence of each independent variable on the enterprise performance is measured in a Likert scale of five. The independent variables include entrepreneurial orientation, innovativeness, proactiveness and risk taking. The dependent variable is the enterprise growth. The study found that the model has a high level of goodness of fit with chiSquare=72.05, df=40, chi-Square/df=1.8 GFI=0.932, NFI=0.975, CFI=0.989, RMSR=0.0124. Considering the hypotheses, it was found that entrepreneurial orientation is positively related to growth; p0.95
AGFI>0.95
CFI>0.95
RMR0.5 (Fornell and Larcker, 1981; Hair., et al. 2010, p.
695) as shown in the following table.
Variables
Entrepreneurial Orientation
Competitive Advantage
Growth’s SMEs

CR
0.80
0.78
0.82

AVE
0.66
0.64
0.61

3. Structural Equation Model (SEM)
Test results of the structural equation model (SEM) showing the effects of determinants of SMEs’ growth showed that a majority of the values indicate a high level of consistency of the model. That is, the empirical results support the structural equation model as shown in the following table.
Statistics
χ2
Model
16.51
Good Fit (Hair, 2010, 762)

df

χ2/df

11

1.50
.95

CFI
0.981
>.95

RMSEA
0.039

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