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Article

Relationship between Entrepreneurial Orientation and Business Performance among Malay-Owned SMEs in Malaysia: A PLS Analysis

by
Syed Shah Alam
1,*,
Mohd Fairuz Md Salleh
1,
Mohammad Masukujjaman
2,*,
Mohammed Emad Al-Shaikh
3,
Nurkhalida Makmor
4 and
Zafir Khan Mohamed Makhbul
1
1
Graduate School of Business, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia
2
Department of Business Administration, Northern University Bangladesh, Dhaka 1205, Bangladesh
3
College of Business Administration, Imam Abdulrahman bin Faisal University, Dammam 34212, Saudi Arabia
4
Faculty of Business Management & Professional Studies, Management & Science University, Shah Alam 40100, Malaysia
*
Authors to whom correspondence should be addressed.
Sustainability 2022, 14(10), 6308; https://doi.org/10.3390/su14106308
Submission received: 16 April 2022 / Revised: 16 May 2022 / Accepted: 17 May 2022 / Published: 22 May 2022
(This article belongs to the Topic Recent Advances and Applications in Partial Least Squares Structural Equation Modeling (PLS-SEM))
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Abstract

:
Entrepreneurship has become a key part of economies, and having an entrepreneurial orientation for SMEs is essential for success. EO and dimensions may differ in different cultures and different countries, thus a cross-cultural validation is suggested by the existing literature, which is lacking Malaysian perspectives. The objective of this study is to examine the relationships between entrepreneurial orientation (EO) and business performances of Malay-based SMEs in Malaysia and used the Partial Least Square (PLS) approach for data analysis. The research model for this study was drawn from the literature on entrepreneurship. This study identified five entrepreneurial orientations and tested hypotheses on which EO has a significant influence on business performance with empirical data from a sample of 407 Malay-based SMEs in Malaysia. The PLS regression analysis shows that risk-taking, proactiveness, innovativeness, and achievement factors are the significant elements of entrepreneurship orientation. Nevertheless, one independent variable, i.e., autonomy does not exhibit any relationship. This study offers a significant contribution to the current literature by empirically analyzing the link between the subcomponent of EO and business performance, specifically in the Malaysian SME sector, which has not been explored comprehensively. The paper’s interesting findings can serve to remind entrepreneurs that they cannot neglect the element of EO in their activities, particularly the success of the business. The research could be useful for policymakers to obtain some ideas and develop policies to help SMEs in Malaysia. Specifically, to enhance the performance in the SMEs sectors, the government should enforce easy to use, consistent, and standardized policies in all SMEs sectors and for all other stakeholders in boosting these sectors.

1. Introduction

Entrepreneurship has become a key part of economies, and having an entrepreneurial orientation is essential for success [1]. Lumpkin and Dess [2] defined entrepreneurial orientation (EO) as the process, practices, and decision-making activities that lead to new entry [2]. According to Lumpkin and Des’s entrepreneurial decision-making practices, methods and styles are portraying due firm’s strategic orientation. Another researcher similarly described that the above are closely related to the strategic decision-making process and strategic management [3]. Decision-making activities, practices, and strategic orientations reflect directions of behaviors chosen by entrepreneurs. Lumpkin and Dess [2] also refer to entrepreneurial orientations as entrepreneurial behaviors. Based on those definitions, entrepreneurial orientations can be described as the directions of actions and practices which project a firm’s strategic movement for the future.
Research on entrepreneurial orientation has remarkably grown in the international business research arena. Entrepreneurial orientation has also been the basis for several studies in many countries. Runyan et al. [4] studied the USA and China. Zhai et al. [5] studied China. Keh et al. [6] studied Singapore. Sapienza, De Clercq, and Sandberg [7] studied Belgium. Galbreath et al. [8] studied Italy. Rezeai and Ortt [9] studied the Netherlands. These researchers suggested that EO and dimensions may differ in different cultures and different countries. Companies operating within a certain country’s borders will not always operate in the same way as companies in other countries. [8]. Researchers also suggested that models that may be developed in one country must be examined in another country. It can be argued EO is relevant to the study of entrepreneurship and EO has unique characteristics so cross-cultural validation might be better for further research [10,11]. From this point of view, we studied Malay-based SMEs in Malaysia.
Small and medium-sized firms (SMEs) play a substantial and crucial role in the economic growth of many nations across the world, particularly in developing economies. Globalization has lowered economies of scale, increasing the growth potential for SMEs [12]. Small and medium-sized enterprises (SMEs) in developing countries must contend with dynamic, ever-changing, and less established institutional environments. Due to their size and lack of industrial possibilities, SMEs in underdeveloped countries rely heavily on informal, social, and political connections. In order to deal with these ordeals, SME owners’ leadership orientation, which refers to their entrepreneurial orientation techniques, acts as a prelude to effective company performance [13].
Several recent studies have emphasized the need for more study into the interdependence between strategic orientations and other explanatory factors of entrepreneurial performance [14]. Small and medium-sized enterprises (SMEs) performance refer to the results of their business activity. According to Abebe’s [15] study, small and medium-sized enterprises (SMEs) with a strong entrepreneurial orientation are more likely to succeed. Specifically, Hakala [16] proposes a “complimentary approach” to studying strategic orientations, focusing on the links between them and the patterns they produce.
The Malaysian economy relies heavily on small and medium-sized businesses (SMEs), which account for 38 percent of the country’s GDP or more than MYR 500 billion (GDP) [17]. Around 97.2 percent of Malaysia’s businesses are small and medium-sized enterprises (SMEs), and they employ close to 70 percent of the country’s workers [17]. The Malaysian government pays particular attention to local businesses through programs such as the Bumiputera Enterprise Enhancement Program (BEEP) and the Tunas Usahawan Belia Bumiputera Program (TUBE), which aim to generate jobs and increase exports. This sector has a high number of entrepreneurs, fueled by the government’s many incentives and Malaysia’s position.
Malays are the predominant race among the multi-racial country in Malaysia. Chinese and Indians are the other two races. Malays are not very skillful as they join in business later, are not capable of surviving, and do not have much experience [18]. During British colonial rule in Malaysia, British rulers favored the Chinese community to enter the mainstream of Malaysian business and economy [18]. As a result, Malays are now lagging behind. People of Chinese descent are now controlling the Malaysian economy and business. This has resulted in a huge disparity between Malay and Chinese in the areas of education, entrepreneurship, and employment [18]. However, there must be a particular research focus on their business performance and possible factors. A few studies were conducted on entrepreneurial orientation and firm performance from a Malaysian perspective. Malaysian researchers conducted similar research on micro-enterprises [19] and on the retail industry [20]; however, they ignored the Malay origin entrepreneurs. To meet Malaysia’s vision to uplift the Malaysian people to the mainstream, it is essential to know how entrepreneurial orientation relates to their business performance. Here, there are research gaps to explore. This research, therefore, seeks to fill that gap by examining the relationship between EO and the firm performance of Malay-based SMEs in Malaysia. With this, present research enriches the EO and SME literature by contributing specific insight (Malay origin case) which will be helpful for other nations in predicting their under-nourished segment of people.
The remainder of the article is organized as follows: The next part reviews existing research on the association between entrepreneurial orientation and SME success and section third develop our study’s hypothesis. A description of how we collected the data and operationalized our construct measurements can be found in the fourth section. Section 5 presents our study’s findings and Section 6 discusses the results. The Section 7 is dedicated to discussing the limits of our findings and recommending additional study directions. Section 8 brings an end to the investigation.

2. Literature Review

2.1. Dimensions of Entrepreneurial Orientation

According to the research on entrepreneurial orientation by Okhomina [21] and Rauch and Frese [22] entrepreneurs are proactive, risk-taking, competitive, and innovative compared to non-entrepreneurs. In the literature, EO has been operationalized in various ways. Wiklund [23] described entrepreneurial orientation in general as:
“… points to a number of actions that can be regarded as entrepreneurial, i.e., the development of new products and markets, proactive behavior, risk-taking, the start-up of new organizations and the growth of an existing organization”.
Researchers tried to identify the dimensions of EO. According to Herani and Andersen [24], Lumpkin and Dess [25], Lumpkin and Erdogan [26], Weaver et al. [27], and Awang et al. [28] proactiveness, innovativeness, risk-taking, competitiveness, and autonomy are the most popular EO used by the researchers. Although there are different views on which dimensions are more relevant and whether EO is unidimensional or not, proactiveness, risk-taking, and innovativeness are accepted by scholars as the most important and relevant dimensions [29]. As reported by Weaver et al. [27], the four dimensions, i.e., autonomy, proactiveness, innovativeness, and risk-taking, have been adapted by numerous research scholars such as Covin and Slevin [30], Knight [31], Dess, Lumpkin, and Covin [32], and Dickson and Weaver [33]. Due to the competitive and independent nature of entrepreneurs, Lumpkin and Dess [2] introduced five important dimensions of EO competitive aggressiveness, proactiveness, risk-taking, innovativeness, and autonomy.
Moreover, some researchers view competitive aggressiveness and proactiveness are similar. For example, Okhomina [21] and Venkatraman [34] stated that “pro-activeness refers to the processes aimed at anticipating and acting on future needs by seeking new opportunities, introducing new products and brands ahead of the competition, and strategically eliminating operations that were in the mature or declining stages of the life cycle.” Next, Kotler et al. [35] noticed that to continue success in business entrepreneurs search for new opportunities by introducing new brands and products in competitive markets.
Further, as reported by Okhomina [21], Schumpeter’s [36] theory of “creative destruction” suitably describes the head-to-head rivalry between firms as an “incessant race to get and keep ahead of one another”. In a highly competitive market, leading firms are aggressively being pursued by existing competitors and unforeseen challenges that seek new ways to outdo them in terms of satisfying customers [37]. Aggressively seeking new ways reflects both proactiveness and competitive aggressiveness. Covin and Slevin [30] also described proactiveness as competing aggressively with other firms [27]. For that reason, this present study excluded competitive aggressiveness from the five dimensions of entrepreneurial orientations identified by Lumpkin and Dess [2].
With regard to associations between the dimensions, some researchers considered EO as a unidimensional concept [30,38]. These researchers suggested combining these four dimensions. Other scholars argue that EO dimensions are independent of each other [2,39]. The argument behind this is that all these four dimensions are performed independently and differently. Moreover, these researchers stated that in different situations SMEs may take risks in some situations, and in other situations cautious to take the risk. Some researchers provided empirical and theoretical support and shows that EO dimensions each other vary independently [2,40,41]. Based on the above discussion, this research used four EO dimensions: risk-taking, innovativeness, proactiveness, and autonomy.
Krauss et al. [42] also have identified achievement orientation as another orientation construct that affects business performance. In the present study, achievement orientation is included as another orientation factor along with four-other factors; autonomy, innovativeness, risk-taking, and proactiveness complying with the scholars discussed above.

2.2. Relationships between Entrepreneurial Orientation and Business Performance

Entrepreneurial orientations are always treated as an independent variable of firm performance. This is because performance is treated as a measure of firm success or achievement and is believed by research scholars [30,43] to be due to the strategic orientations (entrepreneurial orientation) of firms.
Previous researchers such as Covin and Slevin [44], Kreiser et al. [39], Lumpkin and Dess [2], Wiklund and Shepherd [45], and Lumpkin and Dess [25], examined the relationships between entrepreneurial orientation on firm performance and found that EO significantly improves business performance. Some other researchers such as Coulthard [46], Madsen [47], Keh et al. [6], Chow [48], and Jantunen et al. [49], identified a positive relationship between EO and business performance in the developed countries and the large-scale organizations. Whereas all research focused on the entrepreneurial orientation of established organizations, still there is a dearth of research on SMEs specifically Malay-based SMEs in Malaysia.

3. Research Framework and Hypotheses

Based on the previous literature and our research objective, this research proposed a conceptual framework in Figure 1. In this conceptual framework, EO is treated as the independent variable, and firms’ performance is considered the dependent variable.

3.1. Autonomy

The word autonomy is related to the freedom of doing actions by a particular individual or group. It represents the independency of given boundaries as per the industry norms within which the concerned person or group has no restrictions from the organization [2]. Autonomy is not only meant as a sovereign act but also signifies the ability to exercise individuals’ ideas and efforts to implement them [50]. According to Davis [51] autonomy is in two modes; autocratic and generative where both modes ensure independent actions but generative is process-oriented sharing ideas while autocratic is individualistic applying autonomy. There is an obvious relationship existed between autonomy and organizational performance. “The higher level of autonomy will produce higher organizational performance” quoted by Baba and Elumalai, [52] in conjunction with the various related studies throughout the world. In Ghana, it was found as one of the factors which hindered organizational change [53] whereas in the case of Australia it is revealed that autonomy was rated as the most important factor to improve firm performance. From the study in the Asian region, Xu, [54] studied in China where he found that gross output was positively influenced by managerial autonomy, and in Japan [55] it is reported that among workers in the financial institution, whereby autonomy was one of the factors which motivated increase in employee knowledge which in turn contributed to increased organizational performance while the similar result was found in another study by Eriksson and Thunberg [56] amongst ICT based SMEs in Sri Lanka. It suggests that there was a positive relationship existed between autonomy and sales growth and employee growth where he pointed out autonomy had the highest strength in the relationship among other factors.
On the contrary, in the context of SMEs scenarios might be an anomaly as the owner of SMEs who is autonomous and likes to drive employees with his ideas and vision and is reluctant to delegate authority properly. In the same way, Kasumawardhani [57], an Indonesian researcher who studied SMEs in central Java, found no positive relationship between autonomy and organizational performance in Indonesia. Thereby, he suggests that offering autonomy can lead to job satisfaction for the employees but in some cases, autonomy might hamper the achievement of goals if the independent spirit and freedom of action of employees are not taken into account with the factors like leader’s characteristics and stages of firm’s development.
H1: 
Autonomy is positively related to business performance.

3.2. Risk-Taking and Its Relationship with Business Performance

Risk is the probability that there is a chance of obtaining less than the expectation [58], which is deemed as inevitable for entrepreneurs when conducting any business. Historically it is embedded with entrepreneurship ever since the term entrepreneurship was first coined by Cantillon in the 1980s [59,60,61]. Successful entrepreneurs are those who are ready to take present ambiguity for future prospects [62] but risk must be judgmental and calculated [63]. A study in Australia found that risk-taking that involved taking calculated risks had a positive impact on firm performance, but taking risks that were considered daring actions were considered detrimental to firm performance [46]. Davis [51] found a positive relationship between two aspects which is supported partially by Kreiser et al. [39]. Kreiser in his study showed organizations adopting a modest level of risk-taking were the highest performers when compared with their counterparts who assume very high or very low levels of this dimension. Rauch et al. [45] found a positive relationship but the intensity of the relationship was less than the other factors of EO. On the other hand, Naldi et al. [64] and Sebora, Lee, and Sukasame [65] found a negative relationship. The reason explains the negativity is that in the case of SMEs the owners try to keep control their business with family fund as well as through involvement of family members. Additionally, the culture of risk aversion could be a reasoning factor.
H2: 
Risk-taking orientation is positively related to business performance.

3.3. Proactiveness

Proactiveness can be regarded as a pre-responsive behavior of an individual forecasting future new opportunities or challenges. As per Rauch et al., [45] proactiveness in business is “an opportunity-seeking, forward-looking perspective characterized by the introduction of new products and services ahead of the competition and acting in anticipation of future demand”. It is a market leader behavior other than follower [2] in which identifying and evaluating new opportunities and monitoring market trends are involved [66] to seize new markets and to be well advanced compared to the competitors.
The relationship between organizational performance and proactiveness among firms are found in the different study and no study observed to be negative so far. However, on which level it is important is debatable. Proactiveness at early growth stages exposed a positive effect on organizational performance [62], and this association prolongs as the venture ages. As venture ages, the higher is the impact of proactiveness on business performance [2]. The highest strength of correlation between proactiveness and organizational performance was found when compared with other EO dimensions [39,62].
H3: 
Proactiveness orientation is positively related to business performance.

3.4. Innovativeness

Innovation is better known as creativity [67] and creativity is “the application of a person’s mental ability and curiosity to discover something new”. Where there is no creativity there would be no force to be innovative [68]. So, creativity is the source of better innovation. Simultaneously, the organization that fails to innovate will expire in the long run [63]. Innovation can be categorized into four classes, i.e., creation of a new product/service, expansion (extension), replication (duplication) of an existing product or service line, and synthesis with the combination of existing and new processes [69].
Innovation as an element of EO has been found in positive correlation with the business performance [33,39,40,45,56] and contributes to a particular firm moving one step ahead of rivals by its practice in all sorts of business even in the SMEs also [70]. In the context of Greek SMEs, innovation was identified to have a significant effect on business performance [71] while Malaysian SMEs were found to be the same among 182 SMEs in the manufacturing sector [72].
H4: 
Innovativeness orientation is positively related to business performance.

3.5. Achievements

A motive or need for achievement is a desire to do well to achieve a sense of personal accomplishment [73]. Achievement orientation has been taken as one of the EO factors as individuals with a high need for achievement perform better with non-routine tasks and take responsibility for their performance [42]. McClelland [73] stated that owners with strong achievement orientation lead to growth and success in the business. According to Koop et al. [74], Rauch and Frese [75], and Spencer and Spencer [76] success of a firm depend on owners’ achievement orientation. According to Krauss et al. [42], it is observed that achievement orientation has a significant relationship with the firm’s performance. Miner et al. [77], in a longitudinal study, found their measure of achievement motivation to significantly predict firm performance (i.e., growth in number of employees, sales growth, and entrepreneur annual income).
H5: 
Achievement orientation is positively related to business performance.

4. Research Design

In this research, Malay-based SMEs were chosen to test the empirical model. Data analysis techniques, respondents’ profiles, and measurements are discussed below.

4.1. Survey Design and Sampling

A cross-sectional approach was used to test the hypothetical relationships among Malay-based SMEs in Malaysia. To focus on SMEs, the respondents were found from MARA (Majlis Amanah Rakyat) and sent 1000 emails to obtain acceptance from SME owners. More than 50% of the Malaysian population are Malay. So, Malay people were chosen as the respondents for this study. The sample size was calculated using G-Power software with a 95% confidence level for the two-tailed test [78]. As per [79], with a power of 0.85 (power in behavioral and social science should be greater than 0.80) and an effect size of 0.20, a minimum sample size of 89 participants with five predictor variables was necessary for this study. Furthermore, Reinartz et al. [80] recommended that the sample size in the SEM study should be a minimum of 100 participants. Altogether 443 respondents agreed to participate in this research. Researchers personally visited the company and collected data from them. A total of 36 respondents were discarded due to at least one section missing response and finally, 407 cases were then accepted and analyzed. Data was collected within March to September 2021. Since the sample size issue is a potential source of problems, this study utilized a total of 407 samples. The targeted respondents were the owner of the SMEs as the owner makes all decisions in all aspects of business and this projecting EO should be clearer.
More than 50% of respondents were male compared to their female counterparts. Age groups between 41 and 50 are found to respond to our questionnaire and 66 of them are married. Out of 407 respondents, 237 of them involved in business for more than four years and they have less than 8 employees.
The equations of the research model are as follows:
Y = β0 + β1×1 + β2X2 + β3X3 + β4X4 + β5X5 + ϵi
where Y is the business performance (dependent variable); β0 is the regression coefficient (constant); β1, β2, β3… are the regression beta values; and X1 = autonomy orientation, X2 = risk taking orientation, X3 = proactiveness orientation, X4 = innovativeness orientation, X5 = achievement orientation, and ϵi = error or residual (Equation (1)).

4.2. Measurement

Entrepreneurial orientation dimensions that are employed in this research were adapted from Awang et al. [28] study. Awang et al. study adapted these items from Lumpkin and Des’s [2] study. The dimensions were risk-taking, proactiveness, autonomy, and innovativeness with a total of 12 items. Five-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree) was mentioned in the questionnaire. Achievement orientation was measured with scales from Kohli et al. [81] and Chien and Hung [82]. All items were modified for this research. All respondents were needed to agree or disagree with the statements related to an entrepreneurial orientation that best describes their reaction.
Most researchers prefer subjective measures to examine business performance for SMEs. Researchers suggested that subjective measures can be an effective way to examine the business performance of SMEs [83]. Managers of SMEs are always very reluctant to provide financial data to outsiders. The subjective method is used as it is supported by other researchers [84,85,86]. Out of seven items, a total of six items of business performance ranging from 1 (substantially decrease) and 5 (substantially increase) were adopted and modified for this research from Schalk’s [87] study.
Autonomy
The firm administrator gives a unique idea and made a success out of it.
The firm enables the passing of entrepreneurial ideas generated by members of firms to manage.
The firm administrators don’t take ideas generated by members of firms and make their own decisions.
The firm administrators are driven by the vision to establish their realm.
The firm autonomy orientation gives a positive result to the firm performance
Proactiveness
The firm takes responsibility and does whatever it takes to ensure an entrepreneurial venture produces a successful outcome.
The firm’s pro-activeness involves insistence, flexibility, and readiness to assume responsibility for failure.
This firm enables us to anticipate future needs and take opportunities.
This firm capitalizes on opportunities to gain benefit.
This proactive orientation made influenced the firm performance.
Risk-Taking
The firm involves in errors a certain degree of risk and speculation.
Firms always avoid taking a risk when the risk is unavoidable.
The risk taken by the firms is predictable.
The risk taken is calculated in the failure of the firms.
The risk-taking orientation of the firm influence the performance of the company.
Innovativeness
This firm’s environment follows the shape of the latest market.
This firm comes out with new ideas for the product, services, administration, or technological processes.
The new idea applied to this firm is relevant to the firm, market, and environment.
The new idea from the firm can be cultured to all the staff and administration
Innovativeness of the company gives positive results to the firm performance.

4.3. Data Analysis Technique

To test the hypothetical model this research applied PLS-SEM (partial least square structural equation modeling). Ringle et al. [88] suggested assessing causal relationships through a path model. The PLS path modeling technique is considered one of the general techniques measured by different indicators. According to Compeau et al. [89], both PLS and principal component factors analysis use the component base technique. According to Henseler et al. [80], researchers in management systems, strategic management, and marketing areas used this PLS technique. Research in e-bidding used the PLS-SEM technique to examine the willingness [90]. Aibinu et al. [91], also used the PLS-SEM approach in developing organizational justice modeling and another study assessed the causal relationship between cost overrun and construction resources. In entrepreneurship researchers such as Ferreira et al. [92] also applied the PLS-SEM technique. In HRM practices Triguero-Sanchez et al. [93] study used this PLS-SEM approach. To test the path modeling this research applied Smart-PLS3.0 statistical software. The main intention to use the Smart PLS technique in this research is to identify construct validity and finally assess a path model.

4.3.1. Measuring Construct Validity and Discriminant Validity

In this research construct validity was considered to test internal consistency. To examine the construct validity of the restrained construct’s composite reliability (CR) score, average variance extracted (AVE) and Cronbach’s alpha tests were used. Discriminant validity and convergent validity results can be seen in Table 1. According to Fornell and Larcker [94], the AVE score should be higher than 0.5. In this research, we can see the AVE values are higher than 0.5, which indicates met the criteria of the acceptable range of convergent validity [80,94,95]. The off-diagonal value of the √AVE is greater than the squared correlation with other constructs, which ultimately met the adequate standard of discriminant validity [80,94].
Additionally, the HTMT value was found to be superior to Fornell–Larcker in a variety of scenarios [96]. If the HTMT value is more than 0.85/0.90, it has a discriminant validity problem [96]. The findings of this study are below the 0.90 criterion (Table 2). According to these investigations, the validity of the data appears to be satisfactory.

4.3.2. Reliability

According to Zhang et al. [97], for assessing survey scales and instruments the most common method used is internal consistency reliability. Cronbach’s alpha and composite reliability (CR) are the most common methods used to assess reliability. The CR value can be varied between 0 and 1. In any model, the CR value should be higher than 0.7 [98]. Nunnally [99] also suggested that Cronbach’s alpha value should be equal to 0.7 or higher. Wong and Cheung [100] argued that if the value is higher than 0.7, the data is fall into the highly acceptable range. Based on the above discussion it can be summarized that the Cronbach’s alpha and CR value should be higher than 0.7. Table 1 shows that all Cronbach’s alpha and CR values are higher than 0.7, which indicates acceptable evidence of sufficient convergent validity and reliability.

4.3.3. Structural Model

The structural model was evaluated by assessing path co-efficient, the explaining power of the model, and explained variance. Figure 2 has shown the path co-efficient value with PLS results. Explained variable tested based on the R2 value of the endogenous variable. According to research R2 value is weak when the value is 0.02, moderate when the value is 0.13 and value is substantial when the value is equal and higher than 0.26. Figure 1 in this research shows the R2 value of an endogenous variable (performance) is 0.531, which indicates that the endogenous construct explains 50% of the variance. It is higher than the value of 0.26, which means the model is considered very satisfactory.
In this research GoF is the global criterion of the goodness of fit used to assess the performance of the path model in both structural and measurement models. GoF (0 ≤ GoF ≤ 1) index is obtained as a geometric mean of the average communality index and average R2 value. According to Ringle et al. [101] based on the commonality indexes and R2 values calculated with the average communality index average R2 value was calculated as 0.5013 and 0.531, respectively. Thus,
GoF = Communality   ×   R 2 = 0.531 × 0.5031 = 0.516
In this study, the GoF value obtained was 0.516 which is higher than the accepted value of 0.36 for huge effect sizes of R2. To compare with the baseline value suggested by Akter et al. [98] where GoFsmall = 0.1, GoFmedium = 0.25, and GoFlarge = 0.36. The result of this GoF value confirms that PLS path modeling has explaining power is substantial. Based on the guideline by Wetzel et al. [102] for the adequate support of GoF, it has also been reported that this PLS model is valid globally.

5. Hypotheses Discussion

According to Adams et al. [103], the validation of the hypothetically assumed relationship between variables was identified from the PLS path coefficients, structural model. A causal relationship can be interpreted based on the standardized beta coefficient of ordinary least square regressions. Table 3 shows the path coefficients and t-value of each exogenous construct.
PLS regression results show that autonomy is not a significant predictor of business performance (beta = 0.033; t-value 0.865 significant at p > 0.05). However, this finding is contrary to the findings by Bavon, [53], Xu, [54], Izumi and Ayse, [55] who studied large industries. Further, in the case of SME study, the Sri Lankan study by Eriksson and Thunberg [56] also supports the previous study not only finding a relationship but also having the highest strength in the relationship between autonomy and business performance among other factors. However, the findings by Kasumawardhani [57] and Baba and Elumalai [52], who studied from the perspective of Indonesia and Malaysia, respectively confirms present study’s outcome and suggested that autonomy might hamper in achievement of goal if independent spirit and freedom of action of employees are not taken in to account which reassures that autonomy is not an important factor in influencing business performance of Malay-based SMEs in Malaysia.
Consistent with the study of Davis, [51] the research found that risk-taking was positively and significantly related to business performance. This study also confirmed other studies such as Coulthard [46] found that risk-taking is important (beta = 0.1343; t-value 2.535 significant p-values = 0.05) rejecting the finding by Naldi et al. [64] and Sebora et al. [65] who showed a negative relationship. Taking risks keeps an entrepreneur in thinking of new approaches and allows striving which in return helps him put on the right track of performance. Research shows that it is important for the company owner or manager to tackle risk in the business [63]. These results are also supported by findings by other researchers [39].
From the third proposition (Hypothesis 3), this study found a significant positive relationship (β = 0.089; t-value 1.965 significant p-values = 0.05) between proactiveness and business performance complying with all the studies so far, such relevant to this. Nevertheless, the strength of the relationship varied over the study. The study by Kreiser et al. [39] and Hughes and Morgan, [62] found the highest strength of correlation between proactiveness and organizational performance compared with other EO dimensions which are the differences in the present study showing a lower strength among others. The possible reasons could be the maturity of the business. Proactiveness at early growth stages exposed a positive effect on organizational performance [62], and this association prolongs as the venture ages. As venture ages, the higher is the impact of proactiveness on business performance [2]. Most of the Malay-based SMEs started following the success of Chinese-based SMEs in Malaysia which indicates an early stage of maturity of Malay-based SMEs. Yet, this research confirms the previous studies.
Based on the study results shown in the PLS regression value that innovativeness is significantly and positively related to the business performance of Malay-based firms in Malaysia. The significant relationship results (β = 0.143; t-value 2.944 significant p-value = 0.01) authenticating the findings of the study by Kreiser et al. [39], Rauch et al. [45], Davis [51], Hughes and Morgan [62], Coulthard [46], and Kasumawardhani [57] based on other than SMEs. In the context of SMEs, the study based in Greece [71] and even in Malaysia [52,72] another such study innovation was identified to have a significant effect on business performance while this study accentuates the same with an addition on the strength of the relationship is found to be moderate.
In accordance with the study by Koop et al. [74], Rauch and Frese [75], and Spencer and Spencer [76], the study results show that achievement orientation is significantly and positively (β = 0.352; t-value 6.921 significant p-value = 0.01) correlated to the business performance among Malaysia-based SMEs in Malaysia. Furthermore, the result is also supported by the study by Krauss et al. [42] where he showed achievement is an important factor as individuals with a high need for achievement perform better with non-routine tasks and take responsibility for their performance. Conversely, this result did not match with the claim of an insignificant relationship in another study in Malaysia by Poon et al. [104]. It is worth mentioning that achievement orientation was observed to be the strongest in terms of significance among all the dimensions tested in this study.

6. Limitations and Recommendations for Future Research

Situational and time constraints were the main limitations of this research. Respondents for this study were chosen from Klang Valley only. It is recommended, that future researchers should choose wider geographical areas for generalizing our study results. This study also was only based on the respondents from Malay. In terms of EO and motivation, the cross-cultural study should be used in future research which will investigate the differences between Malays and other races. It is also important to examine the similarities and dissimilarities characteristics of different nationalities, sizes, and industries that could also be conducted in further research.
Cross-country and cross-cultural empirical research could be appropriate to verify our research results. Furthermore, similar research can also be replicated based on business life cycles such as introductory, growth, or matured levels of SMEs. Similarly, to obtain a deeper understanding of entrepreneurship orientation the research scope could also be extended with the different intensity of various dimensions, i.e., mild, medium, and strong levels of autonomy, risk, innovativeness, proactiveness, learning, and achievements. Future research should also need to examine the relationship between religion, education, race and gender, and firms’ performance. To verify the current study results, it is suggested to examine the cross-section on a larger platform could be applied. Moreover, other models could be used to clarify the relationship between entrepreneurship orientation toward business performance. Future inquiries could also be influenced by this one by examining the mediating and moderating effect between entrepreneurial orientation and business performance of SMEs’ employing a more sophisticated method.

7. Implications

7.1. Implications for Research

This study presents preparatory research based on racial classification and strictly on Malay-based SMEs. Our research provides numerous key contributions to the EO literature. First, our research adds to a better knowledge of the performance implications of EO as well as a deeper comprehension of a sub-component of the EO—performance connection. It has been demonstrated that a combination of the multiple sub-components of EO can result in improved performance, in a manner similar to the study conducted by Linton and Kask [105]. We discovered that the major sub-components in our study were risk-taking, proactivity, innovativeness, and achievement. These sub-components differed from the sub-components shown to be significant by Lee and Chong [20] in the context of Malaysian manufacturing in their study. Second, this research contributes to Malaysian SME literature by investigating EO on the Malay (local people) who are relatively behind in controlling Malaysia’s business sectors. Third, our result found inconsistent results such as autonomy is found as insignificant where the new variable achievement orientation significantly to predict organizational performance. This demonstrates that the statistical relevance of EO sub-components varies based on the sample of data and industry. Fourth, most research focuses on developed financial markets, and little is known about SMEs in developing or emerging economies such as Malaysia. The current work makes a significant contribution to closing this gap in the literature. Early studies by Vu [106] indicated the association of the EO dimension with SMEs’ success in devolving economies, and Shah and Ahmed [107] for LDCs.

7.2. Implications for Practice

The use of Malay-based SMEs as a sample in this study provides evidence that the EO construct is valid and relevant in the organizational context of any type of SMEs as well as larger firms; in other words, the EO concept is not only for larger firms, as widely reported in the literature. The study comes up with five significant indicators of entrepreneurship orientation of Malay-owned SMEs. Government agencies such as Matrade, MARA, and other government agencies should create better awareness regarding the benefits of starting a revised thinking on orientation factors to improve entrepreneurs’ businesses more profitable and risk-free. Arranging seminars or campaigns to make them educated on these issues would be a better one. Moreover, all government agencies should closely work with all SMEs in Malaysia and need to identify the problem and also need take necessary policies to rectify them.
It is also suggested to enhance the probability of performance in the SMEs sectors, the government should enforce handy, consistent, and standardized policies in all SMEs sectors and all other stakeholders in boosting these sectors.

8. Conclusions

In conclusion, it is interesting that the findings of this study which is used the PLS approach to test the relationships between EO and business performance and make it clear that EO significantly leads to the business performance of Malay-based SMEs in Malaysia. The PLS regression analysis shows that risk-taking, proactiveness, innovation, and achievement factors are the significant elements of entrepreneurship orientation. Nevertheless, one independent variable, i.e., autonomy, does not exhibit any relationship. The highest strength in the relationship was found in the achievement factor while the lowest was found in proactiveness. This investigation implies that EO is the main driver for SME performance; that all dimensions of EO are not compulsory to value or consider for business performance. This study purely gives us an idea about the assessment of EO on enhancing organizational performance in the SME sector. As the Malaysian government has emphasized the growth of small businesses, an understanding of the influence of entrepreneurship orientation on the business performance of SMEs is invaluable.

Author Contributions

Conceptualization, S.S.A., M.M. and M.F.M.S.; methodology, S.S.A.; software, M.M.; validation, S.S.A., Z.K.M.M. and M.M.; resources, N.M.; writing—original draft preparation, S.S.A., M.E.A.-S., M.F.M.S. and N.M.; writing—review and editing, S.S.A., M.M. and M.E.A.-S.; project administration, S.S.A. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the Graduate School of Business, Universiti Kebangsaan Malaysia, Grant Number GSB-2021-007 & GSB-2021-019. And APC was funded by the same grant.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

The data that support the findings of this study are available from the corresponding authors (S.S.A) upon reasonable request.

Conflicts of Interest

The authors declare no conflict of interest.

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Sustainability 14 06308 g001 550
Figure 1. Conceptual Framework.
Figure 1. Conceptual Framework.
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Figure 2. The path coefficient value. * Significant at 0.05 level and ** Significant at 0.01 level.
Figure 2. The path coefficient value. * Significant at 0.05 level and ** Significant at 0.01 level.
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Table
Table 1. Correlation of latent variables and square roots of AVE.
Table 1. Correlation of latent variables and square roots of AVE.
VariablesPerformanceAutonomyRisk-TakingProactivenessInnovativenessAchievementAVECronbach’s Alpha
Performance0.728 0.5310.8215
Autonomy0.4960.813 0.66110.8719
Risk taking0.520.5140.726 0.52790.7362
Proactiveness0.5030.5350.4990.737 0.54420.778
Innovativeness0.5210.4200.54080.4450.769 0.59260.8282
Achievement0.6290.5370.49020.5380.4450.8130.66110.8156
In Table bold elements, the square root of AVE.
Table
Table 2. Heterotrait–Monotrait (HTMT).
Table 2. Heterotrait–Monotrait (HTMT).
VariablesPerformanceAutonomyRisk-TakingProactivenessInnovativenessAchievement
Performance
Autonomy0.694
Risk taking0.6800.714
Proactiveness0.6640.7410.672
Innovativeness0.7220.5960.7320.649
Achievement0.7780.7110.6340.6520.589
Table
Table 3. Results of hypotheses testing.
Table 3. Results of hypotheses testing.
HypothesesPath Coefficient (β)t-ValueSignificance
Autonomy Performance0.0330.865087Not Significant
Risk-taking Performance0.1342.535752 **Significant
Proactiveness Performance0.0891.965510 *Significant
Innovativeness Performance 0.1432.944450 **Significant
Achievement Performance0.3526.920889 **Significant
* Significant at 0.05, ** Significant at 0.01.
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Alam, S.S.; Md Salleh, M.F.; Masukujjaman, M.; Al-Shaikh, M.E.; Makmor, N.; Makhbul, Z.K.M. Relationship between Entrepreneurial Orientation and Business Performance among Malay-Owned SMEs in Malaysia: A PLS Analysis. Sustainability 2022, 14, 6308. https://doi.org/10.3390/su14106308

AMA Style

Alam SS, Md Salleh MF, Masukujjaman M, Al-Shaikh ME, Makmor N, Makhbul ZKM. Relationship between Entrepreneurial Orientation and Business Performance among Malay-Owned SMEs in Malaysia: A PLS Analysis. Sustainability. 2022; 14(10):6308. https://doi.org/10.3390/su14106308

Chicago/Turabian Style

Alam, Syed Shah, Mohd Fairuz Md Salleh, Mohammad Masukujjaman, Mohammed Emad Al-Shaikh, Nurkhalida Makmor, and Zafir Khan Mohamed Makhbul. 2022. "Relationship between Entrepreneurial Orientation and Business Performance among Malay-Owned SMEs in Malaysia: A PLS Analysis" Sustainability 14, no. 10: 6308. https://doi.org/10.3390/su14106308

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