MARKET ORIENTATION AND BUSINESS PERFORMANCE: EMPIRICAL EVIDENCE FROM SMALL AND MEDIUM ENTERPRISES IN SOMALIA

Transcription

1 MARKET ORIENTATION AND BUSINESS PERFORMANCE: EMPIRICAL EVIDENCE FROM SMALL AND MEDIUM ENTERPRISES IN SOMALIA Ali Yassin Sheikh Ali (PhD) Faculty of Economics, SIMAD University, Mogadishu, Somalia ( Abstract This study explore the impact of market dimensions and performance of Small and Medium enterprises in Somalia; the dimensions of Independent variable consists three behavioral characteristics as the literature suggests: Customer Orientation: understanding the potential customer needs in order to create an added value for him on a continuance basis. Competitor Orientation: knowing the strength and weaknesses as well as capabilities and strategies of key competitors. Inter Functional Coordination: coordinating use of the firm resources for creating high added value to target customers. by distributing 102 questionnaires to SMEs located in Mogadishu, Somalia which registered before five years under the service firms in federal Ministry of Commerce and industry; only 81 usable questionnaire were received and analyzed using SPSS.20. The results of data analyzed shows that Inter-functional dimension (β=0.631, p<0.001) had the highest contribution towards SMEs Performance, followed by customer (β=0.220, p<0.001). However. the Competitor has any contributor toward SMEs Performance. Finally, discussion, conclusion and implications of the study are further explicated. Keywords: market, customer, competitive, performance, SMEs, Somalia 242

2 1. INTRODUCTION In Somalia, since the collapse of central government in (1991), many businesses started to boom up fast especially service industry. These businesses were facing an environment which is dynamic, changeable, and essential, as well as an intensive competition. These circumstances and many others compel the organizations to adopt certain business concepts, policies, and practices in order to attain their goals and to get prominent results. Among those business concepts is market. The market concept has been debated regularly over the last decade. Plentiful studies of market and organizational capabilities in this field have been published. It has become the essential theoretical notion of modern marketing management and strategic management (Hou, 2008). Given the complications facing majority of many developing countries such as Malaysian businesses in terms of innovating successfully, depicted by the country s incapability to create global products/brands amid the state of emphasis in innovation and development of innovation capabilities by the respective powers (Tajudin & Musa, 2012). Market advances organizational capabilities such as innovation, collaboration, creativity, leadership and adaptability. As mediating variables, all these variables combined to improve marketing performance with a conceptual model in which organizational capabilities play mediating roles in the relationship between market and marketing performance (Tukamuhabwa, Eyaa & Derek) In many studies on market it is indicated that convincing evidence exists that market has a positive effect on firm performance. And it is investigated the mediating effect of organizational capabilities between the internal market and marketing performance (Hou, 2008). In this study market will be characterized by customer outcome, innovation outcome, employee sensing and company performance. 0n the other hand, Organizational performance contains the definite output or outcomes of an organization as measured against its anticipated outputs or goals and objectives (Hooshmand & Dehafarin, 2012). The purpose of the study is to investigate the impact of market on business performance of small & medium entrepreneurs in Mogadishu Somalia. 243

3 2. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT A number of researches have been examined the association between market and business performance, several of them have supported an association between market and performance but most of these studies were conducted in western countries and Asia. In this study behavioral theory will the most applicable theory to determine the relationship of these variables, According to the behavioral theory of Narver and Slater (1990), market consists of three behavioral components: customer, competitor and inter functional coordination and two decision criteria including profit objective and long term focus. Narver and Slater (1990) defined market as the organization culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business. Narver and Slater (1990) also postulated that market has three components namely: customer, which involves understanding target customers and effectively deploying the skills and resources of the firm to satisfy customer by creating superior value; competitor getting all business functions working together to provide superior value. There are numerous conceptual and empirical studies on the market construct in the extant literature ( Appiah-Adu & Ranchhod, 1998; Mahmoud et al.,2010). These works span from both developed (Ozer et al., 2006; Low et al., 2007) and developing (Hinson et al., 2008; Mahmoud et al., 2010) economies. The central argument of the developed and developing countries studies reveals the essential role that market plays in an organization s marketing activities in achieving superior performance in its chosen markets. Furthermore, literature on the impact of market on firm performance has revealed mixed discoveries in the developed and developing countries studies (Dwairi et al.,2007). Studies conducted in the United States have demonstrated the positive effect of market on performance whereas a mixed blessing of market is reported among UK and other developing countries studies (Beamish et al., 1993; Pitt et al, 1996). In the Context of Small and Median Sized enterprises, adopting a market-orientated strategy is posited as a way of successfully managing the impact of changes in the SME domain. However, the 244

4 application of market- and its research models, which were developed for large-scale firms, may have different meanings in an SME context (Blankson et al., 2006). Most studies on these issue suggested that the relationship between market and Business performance is still very strong and considerable in the context of small and medium enterprises. In Iran, Hajipour and Ghanavati (2011), suggested that small and medium-sized manufacturing firms in Iran that aware of the importance of market and its influence on customer performance leads to a better performance, Meaning that Market has significant positive effect on the performance of SMEs in Iran. In Africa, Also (Mahmoud, 2011) demonstrated that when applied by an SME, market will positively influence its level of performance in business. That is the higher the level of market, the greater the level of performance in Ghanaian SMEs. Most studies on these Issue Suggested that the relationship between market and Business performance is still very strong and considerable in the context of small and medium enterprises. market has three components namely: customer, which involves understanding target customers and effectively deploying the skills and resources of the firm to satisfy customer by creating superior value; competitor, which has to do with creating superior value through understanding the principal competitors short-term strength and weaknesses and long-term capabilities and strategies; and inter-functional coordination, which involves getting all business functions working together to provide superior value. Several decades after the advent of the marketing concept, there are indications that practitioners are acknowledging the responsibility of a market as reaching beyond the scope of the marketing department alone. In field interviews with several enterprises, senior management often has noted that various departments being cognizant of the market intelligence was not sufficient and that coordinated effort among various functions was instrumental in the firm's responsiveness to customer needs (Kohli & Jaworski 1990). thus the following hypothesis were developed based on the literature review. 245

5 H1: There is a positive and significant relationship between customer and business performance. H2: There is a positive and significant relationship between competitor and business performance. H3: There is a positive and significant relationship between inter-functional and business performance. 3. METHODOLOGY 3.1: Research Design The current study tries to explain the relationship the market (Independent Variable) and business performance (Dependent variable). the market were measured by Customer Orientation, Competitor Orientation and Inter-functional Coordination as cited from Narver and Slater (1990). furthermore; Business performance were measured by financial and non financial measurements. The target sample were 102 Small and medium enterprises in Mogadishu registered by Ministry of commerce under service companies. only 81 usable questionnaires were received from the companies which represents about 79 % response rate.. The questionnaire used for the current study was adapted from a previous research under the name of the relationship of market and business performance through innovation in auto parts and accessory by Kuntonbutr, S, 2013 and it was divided into four parts. first part was customer and it consisted of six questions, the second part focused on competitors and it consisted of four questions the third part focused on inter-functional and it counterbid six questions the last part focused on business performance and was also contain six questions. 3.2: Reliability test A reliability test conducted to assess the internal consist of the items collected by respondents using Cronbach s alpha. A variable is reliable and internally consistent when the alpha is.70 and above (Hair, Black, Babin, & Anderson, 2010). All the Cronbach s alpha scores for the variables were greater than.70 except one the highest alpha was obtained by business performance (α=.816), inter-functional was the afterward variable showing (α=.810), customer was third (α=.809), and competitor lowest alpha score among variables (α=.662). 246

6 Table 1: Reliability test Variables No of items Cronbach Alpha customer Competitor inter-functional business performance FINDINGS AND DISCUSSION 4.1: Profile of the respondent The findings in Table 1. this indicate that that male respondents percentage were 92.6% and female respondents were 7.4% and also indicate that the age respondent. Thus, this result indicates that the second majority of the respondents are aged among. (20-29) and their percentage were 32.1%. Therefore, this implies that most first respondents were (30-39) and their percentage was 48.1%. While third age respondents were between (40-49) and their percentage were 18.5%. therefore the last age respondents were between (above 50) and their percentage were 1.2%. Education: those who attended diploma level represent 3.7 %., percentage of bachelor degree holder s was % and master level of respondents were 37.0% Company existence: the first company existence level over 10 years and their percentage were 46.9% and the second respondents were 1-5 years and their percentage were 32.1%.while the third part of respondents were 6-10 years and their respondents were 21.0%. Table 2: Demographic Profile Variable Frequency Percent Gender Male Female Total Age above Total Level of education Diploma Bachelor Master % 247

7 How long have your company been existence over 10 years Total % 4.2: Zero order correlation Bavriate Correlation was used to test the relationship between predictors and criterion variable; the result obtained from the analyze shows that there is significance Positive relationship between all variables. As shown in the table3. customer had significant relationship with competitive (r =.460, p=0.01), Inter-functional (r=0.502; P=0.03) and Business Performance(r=0.666; P=0.000). Also competitive have significant correlation with Interfunctional (r=0.484' P=.000) and Business Performance(r=0.406; P=0.000). furthermore; the correlation table show that there is significant positive relationship between Inter-functional and Business performance (r=0.665). Table 3: Zero order correlation between all variables Variable Customer 1 Competitor Inter-functional Business Performance

8 4.3: Hypothesis test The current study establishes three hypotheses to test the relationship between customer, Competitor, Inter-functional and Business performance; to test the hypothesis regression analysis was done and as shown in table 4. it indicated that among these independent variables mentioned above, Inter-functional had the most important influence on business performance (β=.631), followed by customer (β =.220) while the competitor have no impact on business performance (β = -.115) The rigorousness of Multicollinearity measured with variance inflation factor (VIF) showed that there was no Multicollinearity issues among the variables for all the numbers in VIF were all under 3 as shown in table 4 Table 4: Regression Analysis Variables Beta T sig Tolerance VIF Remarks Customer H1: Accepted Competitor H2: Rejected Inter-functional H3: Accepted R.693 R Square.480 F change

9 4. DISCUSSION AND CONCLUSION The propose of the study was to examine if market dimension have any impact on the performance of small and medium entrepreneurs exist in Somali; data was collected using from 81 registered companies under the Ministry of commerce; data was analyzed using Statistical Package for Social Science (SPSS) Version 20.0, the study developed three hypotheses to test the impact of market dimensions on business performance. The main objective of the current study was to test the relationship between Somali SMEs market, Customer, competitor and Inter-functional with business performance. The current study revealed existence of relationship between the three dimensions of Independent variable with business performance. this findings are in line with literature such as the study of Slater (1990) which conducted within a single industry suggesting that market is related to return on assets (ROA). also Jaworski and Kohli (1990) found that market is positively related to overall firm performance. It is widely known that a number of studies having as a starting point the studies of the above-mentioned scholars were undertaken in order to test the relationship between the market and business performance. Deshpande et al. (1993) empirically investigated this relationship in Japan. It has been found that the association between market and sales, profitability, ROA and overall performance. This study is confirmation of previous study which hypothesized relationships among the impact of market on business performance, the current study gives additional support for the importance of a market and business performance. The results obtained from this study indicate that coordinating of using the firm resources for creating high added value to target customers had an effect to the Small and medium enterprises in Somalia So that the CEOs of SMES companies in Mogadishu have to develop an appropriate marketoriented strategy for their companies which will enhance the performance of their companies into a higher and more positive level specially Inter Functional Coordination. 250

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