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The Complementary Effects of Market Orientation and Entrepreneurial Orientation on Profitability in Small Businesses*

Authors


  • *

    The authors would like to gratefully acknowledge the Entrepreneurship Management Center (EMC) and the Business Faculty Development Grant Program, both at San Diego State University for their generous support of this research program.

  • William E. Baker is professor of marketing at San Diego State University. His research interests lie primarily in advertising effectiveness, new product success, organizational learning, and market orientation. He has published in leading scholarly journals including the Journal of Product and Innovation Management, Journal of the Academy of Marketing Science, the Journal of Consumer Psychology, the Journal of Advertising, Psychology and Marketing, and the Journal of Market Focused Management.

  • James M. Sinkula is John L. Beckley professor of marketing at the University of Vermont's School of Business Administration. His research interests lie primarily in the areas of organizational learning, market orientation, product innovation, and organizational performance. He has published in the leading scholarly journals, including the Journal of Product and Innovation Management, Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Business Research, Journal of Advertising Research, Journal of Market Focused Management, Journal of Business and Industrial Marketing, Journal of International Marketing and others.

William E. Baker, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182. E-mail: william.baker@sdsu.edu.

Abstract

Market orientation (MO) and entrepreneurial orientation (EO) are correlated, but distinct constructs. MO reflects the degree to which firms' strategic market planning is driven by customer and competitor intelligence. Entrepreneurial orientation reflects the degree to which firms' growth objectives are driven by the identification and exploitation of untapped market opportunities. When modeled separately, research has reported direct effects of both constructs on firm profitability. When modeled simultaneously, however, the direct effect of EO has disappeared. This has led some scholars to postulate that EO is an antecedent of MO. The results of this study contradict this presumption and suggest that EO and MO complement one another, at least in small businesses, to boost profitability. The major difference between this and previous studies is the inclusion of innovation success, which captures an indirect effect of EO on profitability. At least in small firms, the results suggest that EO complements MO by instilling an opportunistic culture that impacts the quality and quantity of firms' innovations.

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