Forces Driving SMEs' Innovative Performance: Entrepreneurial Orientation and Basic Absorptive Capacity

This study focuses on the role played by entrepreneurial orientation (EO) and absorptive capacity (ACAP) in an SME firm's innovative performance. This study proposes that the relationship between EO and innovative performance becomes more substantial when the levels of ACAP are high. Using ordinary least squares (OLS)-regression analyses, 120 owners and managers of footwear industry in Cibaduyut-Indonesia were asked to complete the questionnaires. Surprisingly, even though the EO concept and ACAP have received a great deal of scholarly attention recently, little research has gone into approaching the interaction between the two. EO, which equates to a firm's strategic posture in terms of proactiveness, risk-taking, and innovativeness, is considered to be of instrumental importance (Covin and Slevin 1991). EO competencies are important for the innovativeness of firms because EO is associated with a process of experimenting with new things, a willingness to seize new products, new markets, and new opportunities, and a firm's propensity for undertaking risky ventures (Lumpkin and Dess, 1996). However, its benefits may take years to come to fruition, depending on the circumstances under which it occurs (Wiklund and Shepherd 2005). This study also addresses the importance of ACAP in generating an SME's external knowledge. ACAP is thought to be an important competency for valuing, acquiring, and assimilating knowledge and eventually transforming it into new products or processes (Todorova and Durisin 2007). Unlike previous ACAP studies, the authors propose that prior knowledge relates to a firm's ability to recognize and value knowledge as a "basic absorptive capacity" (BACAP). Then, a firm's ability to acquire, assimilate, and implement the new knowledge is signed as "extended capacity" (EXCAP). Due to a lack of attention to either BACAP or EXCAP, firms can fail to obtain the optimum benefits of knowledge. Thus the distinction between the two could help firms to recognize the importance of both capabilities. This study has advanced the prior studies with several contributions. Firstly, the lack of a universal outcome for EO posture (Kreiser, Marino, Kuratko, and Weaver 2013) prompts the authors to return for this theory to a basic study of EO performance. Secondly, the authors also advance the research on ACAP by empirically validating the distinction between BACAP and EXCAP. The result of this study shows a curvilinear pattern (U-shaped) for the influence of EO on innovation. Then, BACAP can strengthen innovative performance.