Global Journal of Management and Business Research: E

Marketing
Volume 17 Issue 3 Version 1.0 Year 2017
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853

Competitive Strategy Orientation and Innovative Success:

Mediating Market Orientation a Study of Small-Medium
Enterprises
By Chalchissa Amentie Kero & Bertrand Sogbossi B.
Jimma Unversity and University of Abomey-Calavi
Abstract- In this paper, we investigate the mediating effects of market orientation in the
competitive strategy orientation - product innovative success relationship. Quantitative approach
was employed in the investigation. Instruments used to collect data was self-administered
questionnaires. Finally, a series of hypotheses are posited to explore the relationships of the
variables and to test the effects of mediator. A field survey administered to 425 workers of small
to medium enterprise in the manufacturing and services sector were used to gather the data. Out
of the 425 surveys sent, hypotheses were empirically tested using structural equation modelling
software’s AMOS to analysis regression and confirmatory factors of variables on a data set of
388participants.
The various hypotheses posited in the study were empirically tested and found to be
positively significant. According to the findings of this study shows that competitive orientation
has significant positive effect on products innovative success.
Keywords: market orientation, mediation, competitive strategy oriented, product innovative
success and small to medium enterprise.
GJMBR-E Classification: JEL Code: L10

CompetitiveStrategyOrientationandInnovativeSuccessMediatingMarketOrientationaStudyofSmallMediumEnterprises

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© 2017. Chalchissa Amentie Kero & Bertrand Sogbossi B. This is a research/review paper, distributed under the terms of the
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 Competitive Strategy Orientation and Innovative
Success: Mediating Market Orientation a Study
of Small-Medium Enterprises
Chalchissa Amentie Kero α & Bertrand Sogbossi B. σ

Abstract- In this paper, we investigate the mediating effects of

2017
market orientation in the competitive strategy orientation - I. Introduction
product innovative success relationship.Quantitative approach

Year
was employed in the investigation. Instruments used to collect he role of small and medium scale enterprises
data was self-administered questionnaires. Finally, a series of (SME) has been critical and the sector is
hypotheses are posited to explore the relationships of the considered as "backbone" of much of economies
variables and to test the effects of mediator. A field survey
75
(Wymengaet al.;2012).However, the sector of SME in the
administered to 425 workers of small to medium enterprise in developing countries faces many constraints such as

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
the manufacturing and services sector were used to gather the
the technological backwardness, and entrepreneurial
data. Out of the 425 surveys sent, hypotheseswere empirically
tested using structural equation modelling software’s AMOSto capabilities, unavailability informationand insufficient use
analysis regression and confirmatory factors of variables on a of information technology and poor product
data set of 388participants. quality.Consequently, the economic contribution of
The various hypotheses posited in the study were SMEs in the developing if far behind compared to
empirically tested and found to be positively developed countries (Altenburg and Eckhardt, 2006 ;
significant.According to the findings of this study shows that Asian Productivity Organization, 2011;Emine, 2012).
competitive orientation has significant positive effect on
products innovative success. Similarly, competitive orientation Though Ethiopian Government has tried to
has significant positive effect on market orientation. In create an environment that supports entrepreneurship
addition, market orientation has significant positive effect on since 1991, Micro, Small and Medium Enterprise
products innovative success. The index of mediation indicated (MSMEs) are still at their infancy stage regarding their
that product innovative success received only 48% of the economic contribution (Berihu, Abebaw and Biruk,
indirect effect from competitive oriented through MO, leaving 2014). Despite the efforts made by Ethiopian
52% unaccounted for. From this, it can be presumed that the government to support Micro and Small Enterprises,
balance of 52% may be accounted for by other mediating transition from Micro to Small and then to Medium
factors not considered in this study that necessitate further
Enterprises is rarely happening which makes the
investigation.
Here, potentially, market orientation partially onlooker to vacillate the success of the Micro and Small
mediates the path between competitive oriented and product Scale Enterprises development strategy (Berihu, Abebaw
innovative success. Therefore, it is advisable for future and Biruk, 2014; Amare and Raghurama,2017).
researchers to incorporate other external and internal factors Because the Growth and Transformation Plans (GTP I &
that can mediate the relationship between competitive II) of Ethiopia is seek to transform the economy toward
orientation and product innovative success. an industrialized economy and to increase per capita
Generally, we suggest the development of market income of its citizens by 2025. To this effect, the
orientation is an important strategy for the small to medium government has adopted policy focused on the
enterprises to achieve a high level of product innovative
development of the manufacturing sector through the
success. So that practically, owners/managers of SMEs
should focus on competitive oriented strategy and response use of industrial parks to attract Foreign Direct
(utilize) MO to improve their product innovative success Investment and to support SMEs (FDREMI, 2013).
(to increase sales volume and profits) in the short term. Targeting SMEs is important, as they are an engine for
Keywords: market orientation, mediation, competitive jobs creation and blooming of economy. With this
strategy oriented, product innovative success and small regard however, Ethiopia has not made significant
to medium enterprise. progress in pulling labor out of agriculture into more
productive and industrial jobs (FDREMI, 2013). The
Author α: Asst. professor Department of Management,Jimma University, share of employment in the manufacturing sector has
Ethiopia and PhD scholar at University of Abomey-calavi/Benin. changed only slightly and is virtually unchanged since
e-mails: [email protected], [email protected] 1999 at below 5% of total employment (World Bank
Author σ: Full professor Department of Management Sciences, Parakou Group, 2015).
University, Benin. e-mail: [email protected]

© 2017 Global Journals Inc. (US)

 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

Furthermore, the result of studies on small and financial success (sales volume and net profit growth)
medium enterprise in Ethiopia by Abebe, Million and (Erik, 2008, Fu, 2010,Mohammad, 2013; Theresia,
Ridgewell (2009) concluded the following problem in 2015). Product innovation is probably one of the most
SMEs; low profitability, the quality and range of products important processes for many firms as it influences the
produced were extremely low and majority of SMEs revenues and margins that a firm can achieve and it has
were entirely unaware of demand and did not attempt to a positive impact on firm value(e.g. on growth and
advertise their products. But also, the result of study on survival of individual firms)(Fu, 2010). One of the recent
innovation and barriers to innovation: small and medium best practice study showed that, among the best
enterprises in Ethiopia (Silashi, 2014) shows; lack of performing firms, 48% of sales are derived from new
cooperation (network ties), lack of competitive strategic products introduced in the last five years. Actually, there
orientation &market information, inadequate R&D were are lots of studies in the literature concerning product
obstacle to SMEs’ technological and product innovation innovation success. For instance, successful innovation
2017

success. can be achieved through an integrated development of

Consequently, different studies have suggested a firm’s business strategy and market positioning,
Year

that competitor orientation is critical for the long-term organization of work, technology and people (Ebru,
survival of the firm with higher level of innovative Fulya and Sinan, 2014).
76 success (Hakala, 2011; Herath and Rosli, 2014; Henri, Furthermore, several studies have shown that
2015). the use ofexternal informationaffect the competitive
A competitor orientation described as the ability strategy of firms and has a positive effect on the
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

and the will to identify, to analyze and to respond to successof new products (Atuahene-Gima, 1995; Ottum
competitors' actions (Kerin et al., 1990; Kohli and and Moore, 1997; Joshua, 2007). Effective market
Jaworski, 1990). This includes the identification and orientations has been identified as a sources of new
construction of competitive advantages in terms of knowledge (Erik et al.; 2008,Muhammad, 2010;
quality or specific functionalities, and allows the firm to Theresia, 2015), but many firms did not actively
position the new product well. Firms producing radical incorporate market information into their new products
innovations perform better than firms producing mainly (Ottum and Moore, 2007).
imitative innovations (Gatignon and Xuereb, 1997). In this study, to test the mediating effects of the
Another factor which characterizes the competitive market orientation in the competitive strategy and
position of a product is its cost (Porter ,2000).The lower product innovative success relationship, we examine the
the cost, the greater the potential for profits, either by relationship between (1) market orientation and
setting higher margins or by penetrating the market with competitive strategy, (2) competitive strategy and
a lower price which has positive effect on product product innovative success, and (3) market orientation
innovation success (Muhammad, 2010; Mohammad, and product innovative success.
2013). An additional problem has been that previous
Product innovation is the introduction of a good research on competitive strategy and market orientation
or service that is new or significantly improved with was mostly conducted in western/developed countries.
respect to its characteristics or intended uses (OECD, Recent studies have called for research of market
2005). Examples of product innovation by a business orientation in non-western or developing countries
might include a new product's invention; improvements settings. In particular, countries in transition to market-
in features, materials and components of an existing based economies are good candidates for market
product, the development of new product and other orientation research as customer sovereignty issues
aspects (OECD, 2005). become increasingly important (Gloria and Daniel, 2005,
While product innovation success measured by Erik, 2008).
various indicators, (Griffin and Page, 1993) identified 75 Therefore, the main objective of this study is to
different measures of new product success used by investigate the effects of competitive strategies on
academics or practitioners. Moreover, the research product innovation success: mediating market
force identified 75 different measures, experts have orientations of small to medium enterprises in context
found 16 common measures and these were of Ethiopia.
considered to be core success measure (Erik, 2008; Fu,
2010) and Product Development Management II. Literature Review and Conceptual
Association (PDMA) uses the 16 criteria.However, for Hypothesis Development
this study we have taken market and financial success.
Because of the financial and market share objectives a) MSMEs definition and enterprises characterization in
both were considered measures of commercial success Ethiopia
(Erik, 2008). Though Micro, Small and Medium Enterprises
Market success (its market share size in the (MSMEs) constitute the major share in terms of number
market, acceptance of new product by customers) and in Ethiopia, there is no consistently placed definition for
© 2017
1 Global Journals Inc. (US)
Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

the sub sector by different bodies. In 1997,the Ethiopian ‘Number of Employees’ has been taken to refer small
Ministry of Trade and Industry (MoTI) defined MSEs in enterprises with 6 to 30 workers in the context of study
terms of capital investment and on the bases of area Ethiopian definition.
establishment – micro enterprises are those small
b) Competitive strategy oriented, market orientation and
business enterprises with a paid-up capital of not
product innovative success
exceeding Ethiopian Birr (ETB) 20,000, and excluding
A competitor orientation can be defined as the
high tech consultancy firms and other high tech
ability and the will to identify, to analyze, and to respond
establishments. While small enterprises are those
to competitors' actions. This includes the identification
business enterprises with a paid-up capital of and not
and construction of competitive advantages in terms of
exceeding ETB 500,000, and excluding high tech
quality or specific functionalities, and allows the firm to
consultancy firms and other high tech establishments
position the new product well (Gatignon and Xuereb,
(MoTI and FeMSEDA,2004).However, it did not
1997). Such an orientation makes it possible for the firm

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incorporates othersattributes used by other countries
to understand "the short term strengths and weaknesses
and international organizations also it did not tell the size

Year
and the long term capabilities and strategies of both the
of the total asset for the MSE and did not differentiate
key current and key potential competitors" (Narver and
between manufacturing (industry) and services.
Slater 1990) and to react adequately.
As the revised definition in 2011, some of the 77
attributes used by other countries and international A competitor orientation is both proactive
organizations are addressed. In addition, the definition (when, for example, a firm is looking for a "highly

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
has segregated sectors as service and manufacturing. attractive market") and reactive (when it responds to a
However, there is still confusion among different competitor's action). In a study of innovation processes
governmental organizations (e.g. Ministry of Trade, in the computer industry, Xuereb (1993) shows that a
Central Statistics Agency, & Federal Micro and Small large number of new product developments starts in
Enterprises Development Agency (FeMSEDA) in response to a competitor's action and that product
defining MSEs (Amare and Raghurama, 2017). development is subject to the influence of competitors'
According to FeMSEDA, the classification of enterprises innovation processes. Competitors do not remain
into small, medium and large scale depends on a passive when confronted by a competitive innovation
number of variables such as level of employment, but react in order to maintain their relative position
turnover, capital investment, production capacity, level (Gatignon, Anderson and Helsen 1989, Robinson 1988).
of technology and subsector. Also, most successful innovative firms select certain
However, sinceit only focus on Micro and Small types of new products as a function of market
Enterprises, the new definition does not put any competitive characteristics (Cooper 1984). Following the
demarcation between Small and Medium; and Medium portfolio analysis literature, successful firms avoid the
and large Enterprises. Current definition considers "highly competitive markets" and prefer the "highly
human capital and asset as the main measures of micro attractive markets" characterized by a large market
and small enterprise to addresses the limitations of the potential, rapid growth, no dominant competitor, and a
old definition. Accordingly, the following scales are large number of customers (Cooper 1984).
referred to the classification of enterprises in the Consequently, a competitor orientation is required for
Ethiopian context. the commercial performance of innovations.
As Federal micro and small enterprises In a particular target market, a firm can adopt
development,establishment councils of ministers of innovation, quality enhancement or cost leadership
regulation No.201/2011: strategies. The competitive strategies adopted by a firm
Micro enterprises is enterpriseshaving a total reflect the positional advantages that the firm enjoys
capital excluding building cost not exceeding 50,000 Birr compared to its competitors (Gloria and Daniel, 2005).
in case of Service sector or not exceeding 100,000 Birr Atuahene-Gima (1995) found that market orientation has
in case of industrial and engages 5 workers including impacts that are more significant on incremental
owner and his family members and other employees. innovation than radical innovation, because the latter is
Small enterprises is enterprise having a total more likely to be a function of technological expertise.
capital excluding building cost 501,000 to 500,000 Birr Therefore, in this study product innovation strategy
in case of Service sector or 1001,000 Birr to 1,500,00 refers to those incremental product improvements or
Birr in case of industrial and engage workers 6 to 30 modifications that firms implement to satisfy changing
including owner and his family members and other customers’ needs and to differentiate themselves from
employees (FeMSEDA, 2011 cited in Negarit Gazeta, competitors. A quality enhancement strategy is
2011). considered to focus on enhancing and improving
Thus, there is no clear and agreed definition of product and/or service quality. In a cost leadership
a small firm. For the purposes of this study, the common strategy, firms typically attempt to gain competitive
criteria for both service and industrialdefinitionterm advantage by being the lowest cost producer.

© 2017 Global Journals Inc. (US)

 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

Different researchers have identified many implementation plans designed to achieve the goals of
different aspects of the strategy construct (Kerin et al., the strategy. To implement these plans, resources must
1990). In this study, strategy refers to the determination be allocated according to the needs of the business,
of the basic goals of the firm and identification of the particularly as they relate to customers and competitors.
long-term courses of action necessary to reach these In essence, the business strategy enables marketing
goals (Hofer and Schendel, 1978). In this usage, managers to know how to allocate resources to create
strategy focuses on the allocation of resources and the the marketing processes needed to implement the
development of organizational processes necessary to strategy (Day, 1994). As a result of these factors, the
achieve the competitive advantage of firm. As a result, development of a coherent business strategy is seen as
strategic competitive oriented is viewed as the process having a direct, positive impact on the development of
by which management analyses the environment, product innovation success. A firm has a cost
including competitive and customer-related factors and advantage if its cumulative cost of performing all value
2017

designs a strategy to achieve the firm's long-term goals activities is lower than competitor’s costs. Cost
(Day,1994). Firms that achieve this strategic ability are advantage leads to superior performance if the firm
Year

said to have established a coherent strategy (Day, provides an acceptable level of value to the buyer so
1994). Two commonly seen strategies are the that its cost advantage is not nullified by the need to
78 differentiation strategy and the cost leadership strategy charge a lower price than competitors are.
(Porter, 1980). The differentiation strategy requires Differentiation will lead to superior performance if the
producing and marketing a superior product appealing value perceived by the buyer exceeds the cost of
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

to relatively price-insensitive buyers. The value created differentiation (Porter, 1980). Furthermore, the focus
by this strategy stems from meeting customer needs strategy is considered the most suitable entry strategy
better than non-differentiated rivals. for small businesses because of resource constraints.
Competitive advantage for the differentiator Evidence for this contention is found in the Kodicara
arises from positioning the differentiated product to (2008) study that demonstrated that more small
select target markets who are willing to pay a premium businesses that followed a focus strategy achieved
for superior need satisfaction (Day and Wensley, 1994). higher growth than their counterparts that used other
In contrast, the cost leadership strategy focuses on strategiesalso stressed the usefulness of “niche”
achieving the lowest cost position within an industry. marketing as a successful growth strategy for small
This strategy is most effective where large groups of businesses.
price-sensitive customers exist, as this strategy's Market orientation is “the organizational culture
effectiveness depends on maximizing efficiencies that places the highest priority on the profitable creation
through investment in process technology (Day and and maintenance of superior value while considering the
Montgomery, 1994). Although the differentiator and cost interest of other key stakeholders” (Slater and Narver
leadership strategies are useful for theoretical purposes, 1995). Marketplace heterogeneities in customer
recent research (Day, 1990) has focused on the ability of preferences and product supply (Gloria and Daniel,
firms to adopt elements of both strategies at the same 2005) make the information about customers and
time. This is an important development, as Porter (1980) competitors more and more important for a company to
did not originally allow for this development. Firms survive and be superior in the market. Market orientation
attempting to implement both strategies were manifests in the abilities of a business to generate
stereotyped as 'stuckin-the-middle’ with the implication intelligence about customers and competitors, and to
being that they were doomed to underperform better- disseminate that intelligence widely throughout the
positioned rivals. To achieve success under this dual organization and to utilize the cooperation of all the
strategy the firm must create and maintain a large departments within the organization to create and
market share by differentiating products based on deliver customer value (Jaworski and Kohli 1993; Narver
process improvements that lead to real success and Slater 1990). As such, market orientation is a
advantages. Furthermore, these products must be valuable source of competitive advantage. A market
positioned appropriately, relative to competitor's orientation leads to the market oriented behaviors of
products and must be offered at competitive prices. acquiring, disseminating and responding to market
The formulation of a business strategy information (Langerak, Hultink and Robben,2004; Kirca
appropriate to the demands of the business, including et al. 2005; Gotteland and Boulé 2006; Erik,2008). It is
environmental factors, such as customer needs and the acquisition, disseminate; utilization of about both
competitor actions, as well as internal issues, such as current and future customer needs as well as factors
process improvements and quality initiatives, is that may influence those needs in different phases of
necessary to provide direction to the firm (Day, 1990; innovation processes (Hart et al.;1999; Erik,2008;Torsti
1994). Based on the strategic direction provided by a et al.; 2009). Knowledge and information are strategic
coherent business strategy, marketing managers can assets for the success of enterprises and nations
develop functional marketing strategies and worldwide. The utilization of, and access to, a versatile
© 2017
1 Global Journals Inc. (US)
Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

pool of information sources is necessary in developing method is an efficient approach to specify the
unique and novel ideas or inventions that differ conceptual framework empirically; are relatively
essentially from existing and already invented ones that inexpensive and are useful for describing the
help to improve innovative success of firms (Erik et al.; characteristics of a large number of small firms (Erik et
2008, Torsti et al.; 2009). However, how information is al.; 2007). For these reasons, direct questionnaires
utilized, as well as its nature and when it is collected distribution approach were employed for gathering data
(acquired) may affect the innovation success of in this study.
small firms.
b) Data Analysis
Although some researchers caution that
To test the relationships between various
focusing on customers and competitors can lead to
variables of competitive strategy oriented, market
inertia and can discourage groundbreaking innovations
orientationand innovative success, statistical technique
(Jaworski and Kohli, 1996), others agree that focusing
for hypothesis testing specifically, regression analysis

2017
on changing markets gives rise to fresh ideas and
and structural equation modeling (SEM) were used.
innovative solutions, and that market orientation is one

Year
Structural Equation Modeling (SEM) is the one of the
of the major factors distinguishing between successful
prominent method to fulfill the requirement of the
and unsuccessful innovations (Gloria and Daniel, 2005)
necessary for most of the researchers nowadays. This
and found, in general, that future-oriented firms were 79
method is performed to overcome the limitation of the
more innovative success.
previous method whereby are old version that initially
Vijande (2005) investigated the relationship

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
are false assumption. According to (Afthanorhan et
between market orientation and six dimensions of
al.;2014) this application is the integrating of regression
competitive strategy developed by Venkatraman:
analysis and exploratory factor analysis to ascertain
Aggressiveness, Analysis, Defensiveness, Futurity,
scholar provide surveys in a factual assumption. For an
Proactiveness and Riskiness. The study suggests the
example, some of the scholars often use the
acceptance of all of the above hypotheses except for
computation of mean for each variable to analyze their
the impact of market orientation to encourage taking
empirical research and of course totally violate the
risks in the organization (Muhammed, 2010). This result
assumption in which the mean of error should be zero.
indicates that market orientation is associated with risk
In the nature of social science, the type of
aversion. Organizational commitment to competitive
mediation effect is able to let the scholars identify the
analysis has been enhanced by innovations in products
strength of each mediator variables and competent to
and services (Vijande (2005). Using current and
capture an attention of scholars to implement particular
potential rivals as the frame of reference, competitor
method for their empirical study. In other words, type of
oriented firms seek to identify their own strengths,
mediator has become enjoyed for some researchers
weaknesses and capabilities. This approach will yield
nowadays since this skill probable to expand the
helpful insights into a firm’s relative standing in the
contribution of the research paper to present a good
marketplace and also lead the firm to emphasize
knowledge to the readers from a variety of fields and
product innovation success (Gloria and Daniel, 2005).
countries across the whole region. The founder namely
Therefore, it is posited that: Cohen allegation the strength of mediator variable is
Hypothesis 1: The higher level of competitive strategy relies on correlation of coefficient or square multiple
oriented firm is the higher product innovative success. correlation(R) in the model developed. A square
Hypothesis 2: The competitive strategy are positively multiple correlation is exist once this variable has been
affects market orientation in SMEs. exerted by other variables whereby independent or
Hypothesis 3: The market orientation positively affects exogenous variables. In particular, the result provided in
product innovative success mediator variable comes upon the independent variable
Hypothesis 4: The market orientation mediating the has a causal effect on the particular variables. In the
relationships between competitive strategy and accordance of Daniel Soper(2010), square multiple
product innovative success. correlations (R2) higher than 0.80 consider high
total variation.
III. Methodology
c) Sampling Technique and Sample Size
a) Research design and data collections method A multi stage clustering and stratified sampling
To test the posited hypotheses, a cross- were used for the survey. In the first stage, selected
sectional field study was used. For survey Quantitative region was selected conveniently, in second stage,
approach were used. Data were collected from four industry area/zone in region as representative of the
hundred twenty five workers of the selected small to SMEs in Ethiopia was selected. Accordingly, at the first
medium enterprises to test the hypothesis developed stage Oromia region has been selected. At the second
and model specification through self– administered stage, in Oromia region industrial zones (particularly,
questionnaires. Self-administered survey research Finfine area) have been selected as sample
© 2017 Global Journals Inc. (US)
 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

representative. The selection criteria of this area was assess the relationship between competitive strategy,
based on high density of small to medium enterprise market orientation and product innovative success of
location in Ethiopia. For this study, more than 386 firms. To develop the sample, the necessary parameters
respondents (workers) from small to medium considered are as follows;
enterprises were targeted as sample size that has been 1. Only firms with at least 6 to 30 employees;
determined by using the following formula (Saunders et 2. At least firms that had been in business for about
al.; 2000). three years; and
3. Firms within manufacturing and services
z 2 pq (1.96) 2 (.50)(.50) classifications.
n= = = 386 The justification of the above sample
E2 (.05) 2
parameters is as follows. First, to ensure a minimum
Where: operating structure, only firms with 6 or more employees
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n = adequate number of sample size with a given have been included based on small to medium firm
amount of confidence level (95% confidence level) definitions of Ethiopia(,FeMSEDA, 2011 cited in Negarit
Year

which is recommendable in social science. Gazeta ,2011). Fahy (2002), for example, argues that the
N = population size EO does not emphasize discrepancies between firm
80 Z = table value of the confidence level from normal sizes, as its main concern is resource-based rather than
distribution table monopoly-based (i.e., size-based) advantage. Second,
E = the researcher’s tolerable amount of error
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

only firms that had been in business for about 3 years

p= the probability of success (the proportion of the are included (Helfat, 2000; Fahy, 2002). Previous
study unit who may give adequate information) product innovation research studies have used three
q = the probability of failure (the proportion of the study years in order to proximate the sustainability of firm’s
unit who may not give adequate information) innovation success (Spanos and Lioukas, 2001).
Accordingly, 386 plus 10% in order to offset an Spanos and Lioukas argue that if researchers are going
anticipated low response or unresponded rate percent to pin-point the true sources of competitive advantage,
10% to 20% and to maximize the generalizability of the examining only single year measurements of success
results(Remenyi et al., 1998),totally 425 respondents may bias results. Finally, given the specific focus of the
were selected proportionally from both manufacturing sample frame, only those firms classified as operating in
and service sectors. This sample size is hoped to either a manufacturing or services industry are included.
generate the required information with relatively good Other organizations, such as agriculture, mining, public
precision for infinite or large populations (Saunders et administration, and community services are excluded
al.;2000).Also it is more than recommended size for due to their lack of relevance to this study. Also, the
applying statistics tools such as; factor analysis, AMOS, inclusion of both manufacturing (metal and wood) and
regression etc. (Julie, 2005; Field, 2013). services (hotels) are considered necessary to ensure an
adequate sample size and generalizability of the results
d) Sampling Frame
(Spanos and Lioukas, 2001).
A sample was drawn from both manufacturing
and services enterprises in order to derive new empirical IV. Empirical Results
insight into theory and to maximize the generalizability of
the results (Michalisin et al., 1997). The a) Reliability and validity tests of a construct
justification for selecting a sample of In this study, to test the reliability of the
manufacturing and services firms of various sizes is the constructs, Cronbach's alpha was used. One of the
fact that innovation theory, in general, is concerned most commonly used indicators of internal consistency
more with resource-based advantages than monopoly is Cronbach’s alpha coefficient (Juile, 2005). Reliability
power or specific industries within which resources may can be measured with Cronbach’s coefficient alpha
be applied (Fahy, 2002). Fahy (2002) argues that an which should surpass the .70 threshold
important research agenda within the RBV stream (Nunnally,1978,Field,2013).High Cronbach’s alphas
should be to investigate what types of resources are refer to patterns of high inter-correlations among the
associated with firm’s innovation success in different items in a scale, indicating that they constitute a
contexts. coherent whole in measuring a construct. However,
Furthermore, a primary purpose of this study is other scholars (Slater, 1995; Sekaran, 2000;
to generalize results beyond a particular industry or Muhammed, 2010) have suggested that Cronbach's
sector to the population of for-profit business firms alpha as low as .60 are acceptable for hypothesis
operating in markets that are not particularly regulated, testing.Moreover, inter item to total correlation values 0.3
protected, or controlled by government. In this study, or greater is acceptable for data analysis that indicates
the unit of analysis is the product innovation success. of the degree (strength) to which each item correlates
Specifically, the small firms in Ethiopia were surveyed to with the total score (Julie, 2005).

© 2017
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Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

In the current study the Cronbach alpha constructs , we checked the inter-item correlation for all
coefficient of all constructs are greater than 0.7 except the scale items by using the confirmatory factor
extra cluster ties 0.607 which exceed the 0.60 minimum analysis; the values of item to total correlation of all items
threshold and acceptable. This shows almost all are greater than 0.3 here indicated that the items have
constructs of current studies have good the internal strong inter-correlation with their constructs and then
consistency (inter--correlations) scale with the exception factor analysis is appropriate(Juile,2005; Field,2013).
of few extra cluster ties are acceptable for hypothesis Table 1 Displays each construct, item to total
testing. Furthermore, to obtain unidimensionality of correlation and its associated reliability coefficient.
Table 1: Construct Reliability
No. of Item to Total Chronbach Alpha
Constructs
Items Correlation (Reliability)

2017
Market orientation 12 0.824
Information acquisition 4 .494 0.707

Year
Information dissemination 4 .585 0,753
Information utilization 4 .471 0.743
Competitive strategy oriente 9 0.889
81
Differentiation 3 .558 0.760
Cost leadership 3 .630 0.743

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
Scope market 3 .619 0.818
Product Innovative Success 5 0.760
Market success 3 .469 0.872
Financial success 2 .495 0.865
Moreover, two statistical measures are also than 0.5 if sample is adequate (Hair et al., 2007; Pallant,
generated by SPSS to help assess the factorability of 2011; Field, 2005; Field, 2013) and to proceed with
the data (i.e. suitability of the dataset for factor analysis): factor analysis.
Bartlett’s test of sphericity should be significant For current study,the KMO test values for all of
(p<0.05) for the factor analysis to be considered the factors was greater than 0.6 and the Bartlett’s test
appropriate and Kaiser Meyer Olkin (KMO)measure of was significant (p=0.000)as mentioned in table 2,
sampling adequacy the value of KMO should be greater indicated that the data were suitable for factor analysis.
Table 2: Factor Analysis Test of KMO & Bartlett‘s Test of Sphericity and communalities
Bartlett‘s
KMO Communality
P-value Sig.
Market orientation .644
Information acquisition 0.703 .000 Sig 0.662
Information dissemination 0.710 .000 Sig 0.641
Information utilization 0.746 .000 Sig 0.63
Competitive strategy orientation 0.694
Differentiation 0.688 .000 Sig 0.68
Cost leadership 0.680 .000 Sig 0.67
Scope market 0.689 .000 Sig .733
Product Innovation Success 0.810
Market success 0.695 .000 Sig 0.818
Financial success 0.673 .000 Sig 0.80
Case processed summary N=388
For further communalities of constructs are The amount of variance in each variable that can be
calculated to check reliabilities of data. Communalities explained by the retained factors is represented by the
indicate the amount of variance in each variable that is communalities after extraction. Small values (average
accounted for. There are two communalities (initial <0.60 at cases >250) indicate variables that do not fit
communalities and extraction communalities). well with the factor solution, and should possibly be
Initial communalities are estimates of the dropped from the analysis.Average communality are
variance in each variable accounted for by all found by adding communality after extraction and
components or factors. Principal component analysis dividing by the numbers of communalities.
works on the initial assumption that all variance is The Kaiser Criterion is said to be reliable when:
common therefore, before the extraction the a) the averaged extracted communalitiesis at least more
communalities are all 1. After extraction some of the than .70 and when there are less than 30 variables, or b)
factors are disregarded and so some information is lost. the averaged extracted communalities is equal or above

© 2017 Global Journals Inc. (US)

 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

.60 and the sample size is above 250 cases items (indicators).Typically, loadings of 0.50 or greater
(Field, 2009, 2013). are considered to be very significant (Field, 2013). KMO
For current study, the communalities test values values >.60 indicated that the data were suitable for
for all of the factors was greater than 0.6 of the factor analysis. Then, Principal components analysis
recommended value as mentioned in table 2 above, explored the unidimensionality of each scale using an
indicated that the data were suitable for factor analysis. eigenvalue of 1.0 as the cutoff points (Field, 2013). Using
SPSS, all constructs have been forced into three factors
b) Convergent Validity
and rotated using the VARIMAX rotation method to
Factor loadings are significant and greater than
assess their loadings.
0.5 and Average Variance Extracted (AVE) for each of
Accordingly, as result of current final study in
the factors > 0.5 indicates good convergent validity
table-3 below shows; all of items have greater than 0.50
assumption.Carmines and Zeller (1979) and
load on their predicted construct that demonstrate a
Muhammed (2010, p.162) suggest that factor analysis
2017

higher degree of association betweenthe latent items

provides a suitable means to examine convergent
and that constructs; thus, convergent validity is
Year

validity. In factor analysis, loadings are used to detect

confirmed. For this data set, the evidence suggests
whether or not an item appropriately loads on its
support for convergent validity.
82 predicted construct. It shows the reliability of individual
Table 3: Convergent Validity based on loading factors on constructs (Using SPSS)
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

Predicted Constructs Indicators (Items) Loading

Acquisition 0.516
Market Orientation Dissemination 0.851
Utilization 0.654
Differentiation 0.777
Competitive
Cost Leadership 0.815
Orientation
Market scope 0.762
Level of customer acceptance of new product 0.926
Growth rate of product market share 0.919
Product Innovation
Success New product causes’ level of customer satisfaction 0.829
Growth rate of firms’ net profit 0.905
Growth rate of total sales 0.904
*all loadings are significant at the p<0.01
In addition, Average Variance Extracted (AVE) is Thus, acompelling demonstration of convergent
used as measure of convergent validity in AMOS validity would be an AVE of 0.5 or above (Nunnally
method.AVE was proposed by Fornell and Larker (1981) 1993; Gounaris and Dimitriadis, 2003).
as a measure of the shared or common variance in a The details of the current studies’results
Latent Variable (LV), the amount of variance that is areprovided in table 4 below. According to this data the
captured by the LV in relation to the amount of variance AVE of all latent variables are greater than 0.5
due to its measurement error (Dillon and Goldstein, (AVEs>0.5) that shows the convergent validity is good
1984;Gounaris and Dimitriadis, 2003). Their average (; Gounaris and Dimitriadis, 2003). In other word, there is
variance extracted(AVE) for X with indicators x1, no violation of convergent validity for this data.
x2,..., xn is
Table 4: Convergent Validity by Average Variance Extracted (Using AMOS)
LV Standardized Regression Weights
R2 AVE
Estimate(R)
Uti <--- MIP .633 .40
Diss <--- MIP .848 .72
MO Acqui <--- MIP .488 .24 .45
Scope <--- CO .779 .61
Cost <--- CO .882 .78
CO Diff <--- CO .751 .56 .65
MS <--- PIS .837 .70
PIS FS <--- PIS .845 .71 .50
MO-market orientation: Acqui-Acquisition, Uti-utilization, Diss-dissemination,
CO-competitive orientation : Diff-Differentiation, cost-cost leadership, scope- scope/focus
strategy
PIS-product innovation success : MS- Market success, FS-financial success

© 2017
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Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

Generally, by loading factors and AVE the constructs. For this, a construct must have more
convergent validity assumption is confirmed.All variance with its indicators than with other constructs of
predicted constructs’ factor loadings are significant and the model. It is when square root of AVE (√AVE) between
greater than 0.5 and the Average Variance Extracted each pair of factors greater than estimated correlation
(AVE) of MO that close to 0.5 and indicatesthat between those factors (√AVE>r) in other word AVE>r 2
approximately good convergent validity assumption is (Fornell and Larcker,1981;Gounaris and Dimitriadis,
achieved. 2003) it is the more recommended method.
So for this study to assess discriminant
c) Discriminant Validity
validity, Average variance extracted is used. The details
There are two methods used to assess
of the current studies’ results are provided in table 5
discriminant validity of data. One cross- factor loading
below. We assessed the discriminant validity of each
method that expected each of block of indicators load
construct by AMOS. The values of all of the average
higher on its respective latent variable than indicators for

2017
variance extracted in table 5 are greater than all
another latent variables (Churchill, 1991). If indicators
corresponding square of correlations. According to this

Year
has high correlations with other latent variables then the
data, the discriminate validity is good. In other word,
appropriateness of model may be reconsidered. This
there is no violation of discrimination validity.In general,
implies that if two or more constructs are unique, then
the overall evidence suggests the existence of 83
valid measures of each should not correlate too highly.
discriminant validity.
The other method is Average variance extracted

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
(AVE) also used to assess the discriminant validity of the
Table 5: Discriminant Validity (using AMOS)
Discriminant
Validity Factor Correlation Should be AVEs>r2 Discriminant
1 Correlations squared (r2) AVE1AVE2 Validity
2
MO <--> CO .675 .46 . 45 . 65 Established
MO <--> PIS .599 .36 . 45.50 Established
CO <--> PIS .574 .33 . 65.50 Established
Multicollinearity exists if there is a high variables as hypothesized from the literature review. The
correlation between independent variables when correlation results indicated a positive significant
regressed against each other i.e the correlation relationship between competitive strategy and market
coefficients are below the level considered to be orientation (r=0.56, p<0.05); market orientation and
serious/harmful, which is generally accepted as 0.80 or innovative product success(r=0.491, p<0.05);
higher as harmful (Field,2005). It was tested using competitive strategy and innovative product
tolerance value and Variance Inflation Factor (VIF) success(r=0.513, p<0.05) respectively. Table-6
(Field,2005). The results revealed tolerance values presents correlation between various constructs and
ranging from .645 and above which were supported by multicollinearity.
VIF values below 10. Thus, there is non-multicollinearity
among the study variables.
The Model Fit Indices shows the chi-square
result (χ²= 13.003, DF = 23, P= .952 ) is not significant
that indicates a good model fit (James, 2011). In
addition, the fit statistics for this model indicated a good
fit: χ²/df = .565; RMSEA = .000 that shows that exact fit
(Kaplan, 2000; James, 2011); GFI = .995; AGFI=.980;
NFI = .984; CFI = .997; IFI = .997; TLI=.991 all of them
are above the recommended 0.9. Also, the value of all
constructs’ squared multiple correlation are greater than
zero (R²>0.00). Therefore, that the model is goodness
fit is very well.
In general, from all of the validity and reliability
tests there is no violation of validity and reliability.
Therefore, the data is valid and reliable.
d) Correlations
A zero order correlation was conducted to test
whether or not associations existed between the study

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 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

Table 6: Correlation and multicollinearity

Collinearity
MO CO PIS
Tolerance VIF
1 .646 1.549
Market orientation (MO)
.560** 1 .683 1.464
Competitive orientation (CO)
.491** .513** 1
Product innovation success (PIS)
Mean 42.80 31.46 16.01
Standard Deviation 7.704 7.662 4.677
2017

***Correlation is significant at the p<0.01 (2-tailed), n=388

Year

e) Mediation Tests mediation effect. Therefore, we can analysis hypothesis-

To establish mediation, the following three 4that examines the effect of mediator (market
conditions must hold: First, the independent variable (IV) orientation)on the relationships between competitive
84
(tested at step1) must affect the mediator (M); second, strategy and product innovative success.Hence, to
the independent variable (tested at step2) must be determine the mediator effect of MO, the model is run
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

shown to affect the dependent variable (DV) and third, by SEM (AMOS). As the result, in regression equation
the mediator must affect the dependent variable.If effect without mediator the estimate of causal pathfrom
of independent variable (CO)on DV significantalso after competitive oriented to product innovation was
IV+M (eg.MO in this study) has significant, the positively significant (r=.30; p<.001).In addition, the
mediatorpartially mediates the relationship between effects of competitive oriented on market orientation
IVand DV but if effect of independent variable (CO)on were statistically positively significant (r=0.68,
DVnot significant and after IV+M has significant, the p<0.001).The path diagram of Figure 1 of the mediation
mediation fully mediates the relationship between model includes the standardized estimates(r) for the
IVand DV( Baron & Kenny,1986). When these causal paths for the indirect (r =.24, p<0.001) and
conditions for mediation proposed by Baron and Kenny direct (r=0.30, p<0.001) effects of CO on product
were examined, it appeared that the three conditions innovative success. Both estimated paths for the direct
were met. Testing mediation effect using SEM requires and indirect effectof CO on product innovative success
significant correlations between independent variable, were statistically significant but also the estimate of the
mediating variable, and the ultimate dependent variable direct effect (r=.39, p<0.001) of market orientation on
(Hair et al.2010).In the accordance of Baron & Kenny product innovation success statistically significant
which inherits the Sobel (1982) technique, indirect effect (Table7b. and Fig.1).The indirect (mediated) effect of
should be higher than direct effect to indicate the competitive orientation on product innovative success is
mediator effect is occurs in a structural modeling. .24. That is, due to the indirect (mediated) effect of
For current study as finding of regression competitive oriented on product innovative success that
weight of unstandardized (in tables 7b and 7c) shows shows when competitive oriented goes up by 1standard
that competitive orientation has significant positive deviation, product innovative success goes up by
(β=.262, p<0.001) direct effect on products innovative 0.24standard deviation. This is in addition to any direct
success. This when competitive oriented goes up by 1, (unmediated) effect that competitive orientation may
product innovative success approximately goes up by have on product innovative success.
0.26. So, this supports hypothesis-1 that the higher level Similarly, from (table7b) the unstandardized
of competitive strategy oriented firm is the higher estimate shows,the indirect (mediated) effect of
product innovative success. In addition, market competitive oriented on product innovative success is
orientation positively significantly (β=.76, p<0.001) .23. That is, due to the indirect (mediated) effect of
affects competitive strategy in SMEs. Similarly, market competitive oriented on product innovative success,
orientation positively significantly (β=.31, p<0.001) when competitive oriented goes up by 1, product
affects product innovative success. Additionally, innovative success goes up by 0.23. This is in addition
hypothesizes 2and3 are also supported.Overall, the to any direct (unmediated) effect that competitive
regression results support the conditions for mediation oriented may have on product innovative success.
to be realized. It can be concluded that market The total (direct and indirect) effect of
orientation mediates the relationship between competitive oriented on product innovative success is
competitive oriented on product innovative successes. .50. That is, due to both direct (unmediated) and indirect
Further analysis using AMOS, SEM was (mediated) effects of competitive oriented on product
performed to establish the significance level of the innovative success, when competitive oriented goes up

© 2017
1 Global Journals Inc. (US)
Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

by 1, product innovative success goes up by 0.50 (see accounted for by other mediating factors not considered
total effect table7b).All results of the test of mediation in this study that necessitate further investigation.
effect using SEM have significantcorrelations between Here after MO considered as mediator the
competitive oriented, market orientation (mediating effect of competitive oriented on product innovative
variable), and the product innovative success. This success still exist but in smaller magnitude, therefore,
finding supported by the recommendation of (Hair et potentially, market orientation partially mediates the path
al.2010). between competitive oriented and product innovative
Further, the results showed the index ratio of success. Therefore, hypothesis4 is supported. In
48% with partial mediation effect of market orientation, general, all of the hypothesizes were accepted as
suggesting that without market orientation, competitive follows:
orientedcould influence product innovative success in Hypothesis Findings Decision
SMEs.This statement is far from (Hair et al.; 2010, H1 Significant Accepted

2017
Eugenie, John and Laura, 2016) who stated that in case
of full mediation, the predictor variable loses its power to H2 Significant Accepted

Year
H3 Significant Accepted
influence the dependent variable except through a
H4 Significant Accepted
mediator.Despite a full mediation, the index of mediation /supported
indicated that product innovative success received only 85
48% of the indirect effect from competitive oriented Tables 7 Below Presents, the results of
through MO, leaving 52% unaccounted for. Therefore, it mediation conditions while Figure 1. Represents the

Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I
can be presumed that the balance of 52% may be structural model of the variables.

Figure 1: Structural regression model by AMOS(standardized estimates(r))

Table 7a: Standardized Effects (coefficients) (𝑟𝑟)

Standardized standardized standardized
indirect/Total
total effects direct effects indirect effects
CO→MO .68*** .69***
CO→PIS .56*** .30*** .27*** .27/.56=0.48
MO→PIS .39*** .39***

Table 7b: Unstandardized Effects (𝛽𝛽)

Unstandardized UnstandardizedDirect Unstandardized
Total Effects Effects Indirect Effects
CO→MO .76*** .76***
CO→PIS .50*** .26*** .23***
MO→PIS .31*** .31***
*** is significant at the p<0.001 (2-tailed), n=388

© 2017 Global Journals Inc. (US)

 Competitive Strategy Orientation and Innovative Success: Mediating Market Orientation a Study of Small-
Medium Enterprises

Table 7c: Regression Weights: (Group number 1 - Default model)

Maximum Likelihood Estimates
Regression Weights: (Group number 1 - Default model)
Estimate S.E. C.R. P
Market orientation <--- Competitive oriented .755 .061 12.415 ***
Product innovative success <--- Competitive oriented .262 .074 3.551 ***
Product innovative success <--- Market orientation .311 .072 4.331 ***
Diff <--- Competitive oriented 1.000
Cost <--- Competitive oriented 1.000
scope <--- Competitive oriented .953 .053 18.127 ***
FS <--- Product innovative success 1.000
2017

MS <--- Product innovative success 1.000

Uti <--- Market orientation 1.000
Year

Diss <--- Market orientation 1.000

Acqui <--- Market orientation .587 .068 8.634 ***
86 *** is significant at the p<0.001 (2-tailed), n=388
This study provides also important information
Global Journal of Management and Business Research ( E ) Volume XVII Issue III Version I

V. Conclusions, Implications and on SMEs for academic researchers working at higher

Limitations of the Study learning institutions and other researchers involved in
the business sector. However, the study has some
Following the foregone finding, that competitive
limitations and further suggestions for future
orientation has significant positive effect on products
researchers. As this study used a cross-sectional
innovative success. Similarly, competitive orientation
research design combined with a quantitative research
has significant positive effect on market orientation. In
approach, future researchers should employ a
addition, market orientation has significant positive
longitudinal method to compare any variations in the
effect on products innovative success and mediates the
results. Alternatively, qualitative studies could be
relationship competitive orientation and products
conducted to supplement the quantitative findings
innovative success.So, it can be concluded that market
because through methodological triangulation, it may be
orientation is pertinent to enhance product innovative
possible to gain a better understanding of the mediating
success.
effect of market orientation on competitive orientation
Furthermore, competitive orientation strategy
and product innovative success.The index of mediation
remains a fundamental factor for market orientation
indicated that product innovative success received only
since competitive oriented positively affects market
48% of the indirect effect from competitive oriented
orientation. The findings therefore contributes to the
through MO, leaving 52% unaccounted for. From this, it
existing literature on market orientation and product
can be presumed that the balance of 52% may be
innovative success by providing empirical evidence that
accounted for by other mediating factors not considered
market orientation is a powerful mediator in the
in this study that necessitate further
relationship between competitive orientation and
investigation.Therefore, it is advisable for future
product innovative success.
researchers to incorporate other external and internal
The practical implications of this study are that
factors that can mediate the relationship between
owner/manager of SMEs should focus on competitive
competitive orientation and product innovative success.
oriented strategy and response (utilize) MO to improve
Lastly, this study focused on service and manufacturing
their product innovative success (to increase sales
SMEs. Other studies might include other types of
volume and profits) in the short term. This can be
business.
achieved by utilizing well-gathered market information.
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