1. Introduction
Over the years, a variety of policies and programs have been put forth by governments across the globe to enhance economic sustainability, the standard of living as well as economic growth [
1,
2,
3]. Governments, irrespective of countries, are engaged to determine regional and local factors which influence entrepreneurship. This is because, in the current knowledge-based economy, entrepreneurship has become one of the most significant drivers of sustainable economic growth and development Doh and Kim [
4]. Despite having a substantial contribution of SMEs (results of entrepreneurship) to GDP, economic growth and sustainable development goals, there is a high failure ratio of ventures across the globe [
5]. Studies, in this perspective, have been discussed a variety of determinants which may affect success for example, [
6,
7] and failure of SMEs [
8,
9]. Due to the lack of resources and capabilities, SMEs need not only financial support but also equally required non-financial support to survive in the turbulent markets. Studies have been ignored the role of Government Financial Support (GFS) and Non-Financial Support (GFNS) in term of firm financial performance and Sustainable Competitive Position (SCP) Joo and Suh, [
10]. This study aims to check if government support indirectly influences firm financial performance through SCP.
The proposed study is vital for several reasons, especially in the third world countries SMEs market. For instance, the failure ratio of SMEs in emerging economies is reported higher than in developed economies. Mainly, newly established ventures are unknown to markets, they spent tremendous amount of money on building the relationship with customers and suppliers. Though, many firms do not give sufficient time to strengthen ties with government and political bodies. In results, these firms (especially newly born) are not capable of surviving for a long run and they quite off. Moreover, the market conditions in emerging economies are unfavorable and institutional support is also fragile [
5]. Hence, SMEs in the regions often look for external supports and sources to ensure their survival and to avoid failure. There is a significant rationale for government support in SMEs innovativeness as the supportive programs and actions enable and empower SMEs to move forward [
11,
12]. Hence, the building relationship with government and political bodies is not only essential for newly established ventures to acquire useful resources but equally essential for established SMEs. We argue that both the hard support (financial) and soft support (advisory) by government are essential for smooth running of operation.
Though, a variety of support services are provided by governments for SMEs survival including provision for targeted business services, quality support, technical, immediate, management skills enhancement, cutting administration costs, building ties with external bodies, financial incentives, financial assistance, foreign market entry and legal framework reinforcement Wilson [
11]. Although, a majority of SMEs in emerging economies receive lack of government incentive and services which may hinder their survival and growth [
13,
14]. Government support, in such regions is essential to gain a competitive position. For instance, in emerging economies, a majority of valuable resources are possessed by a government Pruthi and Wright [
15]. Quality of government can facilitate economic growth of a firm not only by providing tangible public goods such as infrastructure, machinery and other physical resources but also offering financial incentives, cutting transaction costs and quick approval of foreign direct investment [
16]. As aforementioned that survival of business sector need hard and soft support of government in emerging and developing economies. It is also acknowledged in the literature that a firm, with strong ties, is more able to gain rare resources and SCP as compared to a firm with a weak network with government and political bodies. In other words, in emerging economies, firms who receive strong support from the government can better perform over the other firms Guan et al. [
17].
Thus, there is a substantial need to study the role of GFS and GNFS in the success of SMEs. As posited by Resource Base View (RBV) theory, firms’ internal and external, tangible and intangible resources enable them to gain a competitive position and higher profitability over their major competitors Barney [
18]. Similarly, social network theory also demonstrates that building a connection with external bodies such as political and financial institutions and so forth can upsurge access to valuable resources which in turn enhance the firm’s position and empower profitability Burt [
19]. This study, based on the RBV theory and social network theory, is an attempt to assess how government support (financial and non-financial) can influence a firm competitive position and profitability.
4. Measures
Government Financial Support: A firm can get financial support from various institutions including internal funds, angel investors, banks and financial institutions and so forth. However, in many countries, governments have taken responsibility of financial support to facilitate new and established ventures. In the present study, we deem GFS in term of financial resources available, growth and operation of the firm. The measures of financial sources available for ventures were obtained from a prior study by Zamberi Ahmad and Xavier [
41]. However, the items are slightly modified according to the study and culture. Six items were used to measure GFS of which a sample item is “In my country, there are sufficient government financial subsidies available for new and growing firms.” Though the items were already validated and tested in emerging economies, we checked different types of validity and reliability of the items to ensure the final results.
Government Non-Financial Support: Non-financial supports are referred to the supports other than money which is available for ventures growth, promotion and survival. In many countries, ventures can get non-financial support from the government because SMEs can contribute a major portion to GDP. The present study used seven items to measure GNFS which are adapted from a prior study of Zamberi Ahmad and Xavier [
41] and slightly modified. A sample item is “In my country, government policies (e.g., public procurement) consistently favor new and established firms.”
Sustainable Competitive Position: A variety of dimensions can indicate a sustainable competitive position of a firm. However, the majority of studies have agreed upon the proxy suggested by Porter (1980). For instance, porter [
33] suggested two strategies which enable a firm to gain a competitive position in the industry and market. The cost-based competitive position where firms reduce different types of financial costs and differentiation based competitive position where firms offer unique products and services. This research relied on Porter’s approaches to assess a sustainable competitive position of the firms. Total 8 items adopted from Su, Guo and Sun [
42] were used of which 4 items were for cost-based and 4 were for differentiation based competitive position.
SMEs Performance: In the case of large firms, financial data can be easily accessed from annual reports, stock exchange and banks and so forth. However, SMEs do not publish their financial data to the public, hence it is difficult to measure SMEs performance based on the financial statement. Researchers, in this perspective, are recommended a self-reported approach to measure SMEs performance for example [
34,
41]. In the present study, we used 8 items for SMEs performance adopted from the prior studies of yang, Ishtiaq and Anwar [
7] and Anwar [
41]. The respondents were asked how they rate their firm performance based on return on equity, return on assets and market growth compared to their major competitors since last three years.
GFS and GNFS were measured using 5 points Likert scale ranging from strongly disagree 1 to strongly agree 5. Firm performance was assigned 5 Likert scales ranging from extremely declined 1 to extremely improved 5.
Control Variables
For the purpose to reduce spurious results, we tested the model in the presence of several control variables; such as the age of firm, size of the firm, nature of the industry and educational background of top management. In order to get more useful insights, we executed group difference analysis in AMOS for nature of the industry—a categorical variable. After comparing each group with one another (e.g., manufacturing 1, trading 2 and services 3), we found no significant difference in the results. Hence, the industry was dropped to be controlled as variable were not significant for our model. However, size, age and education have a significant influence on SMEs performance while the only significant influence of size was found towards SCP in a structural model.
6. Discussion
This study examined the influence of GFS and GNFS on SMEs performance with a mediating role of SCP. Unlike other studies where more emphasis has given to developed economies, moreover, the only direct influence of government support toward performance has been assessed. This study checked the mediating role of SCP between GFS, GNF and firm performance. The study collected empirical evidence from SMEs operating in the emerging market of Pakistan to test the model. The findings of this research give strong support to resource base view theory of Barney [
18] who argued that firms with strong resources and capabilities gain an SCP in a turbulent market. However, prior studies have often ignored to test government support as resource base view theory in emerging markets. Moreover, this study also builds arguments for social network theory which indicates a firm connection with external bodies (businesses, government and financial institutions) to gain a competitive position and superior performance. To summarize the theoretical contribution of this research, we argue that this study presents ample evidence for resource base view and social network theory by examining the undiscussed zone for example, government support in rarely discussed markets.
Our findings show that GFS and GNFS have a significant influence on firm performance which supports H1 and H2 of the research. In the line with Clement and Hansen [
12] who argued that government financial incentive enables firms to boost its operational performance and expand their business to gain a higher return. Similarly, Wei and Liu [
23] pointed out that investment by government in different R & D projects and industries can enhance innovative performance and profitability of SMEs in emerging economies. Unlike Guan and Yam [
29] who claimed that government financial incentive does not significantly related to SMEs performance in the emerging market of China, our results strongly favor Zhang et al. [
47] who scrutinized a significant positive influence of government subsidies and supports on firm performance.
We found that both GFS and GNFS significantly contribute to a firm SCP in emerging markets and thus supported H3 and H4 of the research. Similar to the findings of Doh and Kim [
4] who indicated that both for example, government financial and non-financial incentives can significantly enhance the competitive position of a firm. Similarly, Fajnzylber et al. [
27] claimed that government support in term of credit, tax and loan access can facilitate a firm to achieve SCP in a turbulent market. Additionally, Mustar and Laredo [
30] also argued that GFS can increase a firm innovativeness and reputation in a market. To summarize, our findings strongly support the arguments of Ma and Gao [
31] who suggested that both financial and non-financial incentive by the government can improve innovativeness of business sectors which in turn help to gain an unbeatable position in the markets.
Our findings indicate a significant positive influence of SCP on firm performance which supported H5 of the study. Our findings are consistent with Yang, Ishtiaq and Anwar [
7] who scrutinized that a firm competitive position can boost its performance in the turbulent market. As claimed by Schrettle et al. [
48], a sustainable position or sustainability is deemed a significant driver to enhance a firm performance in future both in developed and developing economies. We hereby suggest that a firm with a competitive position can show monopoly in the markets which in turn gives high sales as compared to those firms who have no such position.
We found that SCP can partially mediate the relationship between GFS and firm performance as well as partially mediates the relationship between GNFS and firm performance—hereby partially supported H6 and H7 of the research. Our findings partially support Pergelova and Angulo-Ruiz [
39] who claimed that GFS and GNFS have a significant direct influence on competitive advantage and indirect influence on firm performance. Moreover, Ding and Wu, [
4] also argued that the relationship between the government supports or connection and firm performance can be mediated through firm internal capabilities including opportunity recognition. Based on the findings of this research, we scrutinized that SCP only partially mediates the relationship between government support and firm performance in the emerging market of Pakistan.
6.1. Implications for Practices
The present research has several implications for owners, top managers and policymakers. Our findings confirm that government support (financial and non-financial) ensure SCP and can boost the performance of SMEs. A firm with a small size and lack of resources can get the advantage of government support to expand its business operation. Many firms especially SMEs have a lack of financial resources, hence government financial incentives can be used for the development of new product, new services and technological adaptation to survive in the markets. Sustainability of a firm, however, considered to boost the performance in an environment where many alternatives exist. The same can be applied in emerging economies such as Pakistan where markets conditions are unstable and competition is at their peak. Moreover, government advisory service can help SMEs to enter into new markets or obtain the necessary information about market trends. In spite of the fact that SMEs are spending enough time and resources to gain a competitive position, we hereby suggest less risky and convenient ways to gain a SCP which in turn help in high profitability.
We suggest a few implications for managers of SMEs who face a big challenge to gain the SCP. We recommend building strong ties with government and political bodies. Building such kinds of relationship will enable them to acquire more useful resource easily. As aforementioned that governments have control over resources especially in emerging economies. Thus, this study suggests owners and top management team of SMEs to build new connections with political bodies as well as expand the existing ties. Unlike large firms and more stable firms, ventures in emerging economies can configure their survival through government facilitation. Hence, they are advised not to break ties with government bodies but are recommended to strengthen such network. As pointed by Anwar [
40], many firms in the initial stage fail in Pakistan due to lack of resources. Hence, support from government will enable them to avoid financial shocks and expand their business easily. Since, Pakistan has many features in common with other emerging and developed economies. So, the implications are useful for owners and managers of SMEs operating in other neighbor countries including China and India and so forth.
We suggest government organizations and responsible bodies such as SMEDA to formulate their strategies in order to enhance the growth and survival of SMEs. For instance, a higher failure ratio of new ventures is pointed out in an emerging market, hence responsible authorities are advised to facilitate the firms which in turn can contribute to GDP and economic development. Additionally, it is argued that SMEs can contribute more than 40% to GDP, so their support will not be underestimated in any case. The implications are not only limited to the emerging economies, developed economies can also apply similar applications to enhance the growth of their small firms.
6.2. Limitations and Future Research
The present study has several significant implications in the current era but it is not free of limitations that should be addressed in future studies. The present study tested the model in the emerging market of Pakistan which may not be deemed a good representative of the whole world. Hence, more evidence can be collected from other emerging markets and developed economies to gain more useful insights. Though, we tested only financial and non-financial support of government towards SCP and SMEs performance, however, other factors such as financial institutions can also affect the performance. Bamgbade, Kamaruddeen and Nawi [
49] suggested that market culture can mediate the relationship between government support and corporate sustainability. It is important to examine how market conditions can affect the relationship between GFS, GNFS and SCP. We focused on only SMEs, future researchers can collect data from large firms if they can get help from the government to gain an SCP and superior profitability.