*ENTREPRENEURSHIP AND PERFORMANCE: A RESOURCE-BASED
VIEW APPROACH
Dewi Izzwi binti Abdul Manan
[email protected]
Abstract
Resource-based view’s scholars and researchers champion the idea that strategic resources lead
to a firm’s sustained competitive advantage and performance. Resource-based view is important
to be studied in the context of entrepreneurship because resources were seen as among the most
vital ingredients for describing entrepreneurship in utilizing opportunities and overcoming
threats created by the market. Hence, this paper aims at discussing the contributions of
entrepreneurial resources and capabilities towards the firms’ performance in Malaysia. Firms in
batik industry are chosen as the context of the study to see what and how resources and
capabilities aid these firms to perform.
Keywords: entrepreneurship, resource, capability, performance, batik
Introduction
What makes entrepreneurial firms perform better than non-entrepreneurial firms? For decades,
the question seems to be going around in the entrepreneurship discussion. The discussion is
important because by identifying the reasons behind entrepreneurial firms’ success, it may be
used to help other firms no matter in which industry or country to achieve favorable
performance. According to Dollinger (1999), entrepreneurial performance can be looked from
two perspectives that are industrial organization and resource-based view.
Industrial organization discusses firms’ performance from the industry point of view. That is, by
understanding the forces of industry, positioning decisions can be made as to gain competitive
advantage and to avoid undesirable loss (David, 2005). One of the prominent gurus of this view
is Michael E. Porter where he so far comes out with the Five Forces Model as guideline for
competitive analysis and thus determining the attractiveness of an industry. According to him, in
analyzing the forces of industry which are the bargaining power of suppliers, bargaining power
of buyers, potential new entrants, potential product substitutions and the intensity of current
rivalries, a firm can position itself in a certain industry and formulate its strategies either using
cost leadership or differentiation to achieve competitive advantage and thus high performance
(Porter, 1980; 1985).
However, with more studies conducted over the years, researchers began to feel discontent about
performance issue because industry structure may not be the major determinant of firms’
performance after all. This is due to the fact that there are empirical studies that found either
industry variables do not have significant impact on performance such as profit or firms’ internal
variables explain performance variance more than industry variables. For example, Spanos,
Zaralis and Lioukas (2004) found that industry variables including concentration and growth do
not have significant impact on profit and that it explains only 6.7% of profit variance. Also,
Maranto-Vargas and Rangel (2007) found that 66% of small-medium enterprises’ performance
was obtained from the internal resources compared to only 33% is the result of external factors.
These results in effect push the attention of scholars and practitioners towards other theories such
as resource-based view theory.
This paper is written to discuss entrepreneurship from the perspective of resource-based view.
Based on the core idea of RBV that strategic resources and capabilities which are valuable, rare,
inimitable and non-substitutable creates sustainable competitive advantage, this paper provides
further understanding on how entrepreneurial firms create competitive advantage and high
performance through resources and capabilities. Batik industry is chosen because of its
importance towards Malaysian economy. Batik business contributes to Malaysian tourism
revenue, and improves the economy of rural residents through the opening of job opportunities
and thus may provide a venue for entrepreneurs to create wealth. Furthermore, with so many
textiles and crafts coming in from other countries like China, India, Thailand and Indonesia that
affects changes in Malaysian taste and fashion, there are still batik firms that able to perform
well and stay competitive. And the reason for this may be because of roles played by resources
and capabilities.
Entrepreneurship and Resource
Entrepreneurship has long been accepted as one of the drivers of economic growth. A crosscountry research done by the Global Entrepreneurship Monitor (2000) found that
entrepreneurship is strongly associated with economic growth with correlation above 0.7
(Kaplan, 2003: p.15). Even in a definition by Adnan (2005: p.14) – which defines
entrepreneurship as a “process of creating and expanding businesses that collectively form a
force for national development and societal prosperity” – highlights the significant of
entrepreneurship towards economy. Due to the importance of entrepreneurship, researchers and
practitioners are so keen in finding a conclusive description of entrepreneurship including the
reasons for its success. And in between these studies, quite a number include resources in the
description of entrepreneurship. For example, Chandler (1997: p.46) describe entrepreneur as the
person who allocate available resources in an organization as a whole. Covin and Slevin (1991)
describe entrepreneurialism as a resource consuming posture. Morris, Lewis and Sexton (1994:
p.26) defined entrepreneurship as a process activity involving inputs such as resources that can
produce outcomes. Solymossy (1998) defined entrepreneurial firms as either new or existing
firm that embarks upon creating new and innovative products or services, presenting unique and
valuable combinations of resources in an uncertain and ambiguous environment. Smart and
Conant (1994) defined entrepreneurship as a dynamic goal-oriented process whereby an
individual combines creative thinking to identify marketplace needs and new opportunities with
the ability to manage, secure resources and adapt to the environment to achieve desired results
while assuming some portion of risk for the venture. And Harrison (2003) defined
entrepreneurship as the creation of new business involving opportunity recognition or creation,
assembling resources to pursue the opportunity, and managing activities that bring a new venture
into existence.
Thus, either at individual or firm level; or from trait or process perspective, resources were seen
as an important constituent in describing entrepreneurship. For this reason, it is very enriching to
discuss entrepreneurship from resource-based view approach.
Resource-Based View
The thinking of resources as important ingredients for firms’ performance has actually begun
much earlier but it was the work of Penrose in 1959 that discuss the role of resources better. In
her book, she point out that a firm is actually a “collection of productive resources” and the
services produced by these resources are the source of uniqueness that differentiate between each
individual firms (Penrose, 1959: 24). Unfortunately Penrose’s work and thus the issue of
performance as a function of resource did not attract attention of many scholars until the paper
written by Wernerfelt in 1984. Since then till today, more studies about resource are conducted
and the work of Penrose is revisited (Lockett and Thompson, 2004; Kor and Mahoney, 2004;
Rugman and Verbeke, 2004; Lockett, 2005; Augier and Teece, 2007).
Resource-based view looks at the internal factors that are the resources and capabilities of an
entrepreneurial firm as the explanation for performance. What is a resource? According to
Wernerfelt (1984), productive resource can be anything that contributes to the strengths and
weakness of a firm. Later, based on Daft (1983), Barney (1991) defined resources in more detail
as assets, capabilities, organizational processes, firm attributes, information, knowledge and
others controlled by a firm that enable the firm to conceive of an implement strategies that
improve its efficiency and effectiveness. Amit and Schoemaker (1993) defined resources as
stocks of available factors that are owned or controlled by the firm. There are variety
classifications of resources. Some studies merely classified resources into tangible and intangible
(e.g. Harvey, 2004, Itami and Roehl, 1987). Barney (1991) classified resources into physical,
human and organizational resource. Grant (1991) and Dollinger (1999) classified resources into
physical, reputational, organizational, financial, intellectual and human, and technological
resources. Hall (1992) further classified intangible resources into intangible assets and intangible
skills. Intangible assets include organizational, intellectual property, and reputational assets.
Intangible skills are the capabilities of a firm. Hence, under RBV, a firm’s resource includes both
assets and capabilities (Galbreath, 2005). Adopting Hall’s (1992, 1993) categorization, studies
then classified resources into tangible resources, intangible assets, and intangible skills or
capabilities (Galbreath, 2005). This later categorization is the most widely used because it has
been tested in previous studies (Galbreath, 2005; Fahy, 2002).
Resource-based theory is developed based on two assumptions: resource heterogeneity and
resource immobility (Barney, 1991; Rumelt, 1997; Wernerfelt, 1984; Dollinger, 1999). Based on
these assumptions, scholars and researchers investigated what makes a resource helps an
entrepreneurial firm not only achieving but also sustaining competitive advantage and thus
attaining high performance. As a result, Barney (1991) proposed four attributes of strategic
resource: valuable, rare, inimitable and non-substitutable. Dierickx and Cool (1989) identified
that the characteristics of critical resource are non-tradable, non-imitable and non-substitutable.
Similarly, Grant (1991) describes the four resources characteristics that determine sustainable
competitive advantage are durability, transparency, transferability and replicability. Peteraf
(1993) also supports theoretically the conditions for sustained competitive advantage which are
resource heterogeneity, imperfect resource immobility, ex-post limits to competition and ex-ante
limits to competition. Later, Fahy (2000, 2001) classified the characteristics of key resources into
value, barrier to duplication and appropriability.
Resource-based scholars describe valuable resource as the resource that allows entrepreneurial
firms to seize opportunities and defuse threats (Barney, 1991; 1995; Michalisin, 1996), enable
the firm to create and implement strategies in order to improve its effectiveness and efficiency
(Barney, 1991) and able to satisfy customers’ needs (Fahy, 2001). Valuable resource however
cannot put an entrepreneurial firm in competitive advantage position for long period due to the
changes in the environment (Itami and Roehl, 1987). That is, the changes in customer tastes,
industry structure and technology may make the value of a particular resource or capability
lessens (Barney, 1995).
Rare is the second attribute of a strategic resource. A resource is rare when it is not commonly
owned or available by firms in an industry (Barney, 1991; Dolinger, 1999). According to Grünig
and Kühn (2005), the rarity of resources is determined by two: whether the resource can be
bought in factor markets and whether the resource needs to be closely integrated into the
company. Like valuable resource, the advantages provided by a rare resource are also
provisional. This is because changes in environment might make rare resource become common
or be replaced with other similar resources. That’s why it is important for a resource to not only
be valuable and rare but also inimitable and non-substitutable so that any competitive advantage
gained can be prolonged (Barney, 1991; 1995).
Inimitable simply means cannot be copied. Black and Boal (1994) explained that inimitability is
due to imperfect information and the high cost needed to create the resource or combination of
resources. Imperfect information arise for the inability of competitors to determine which
resource, at what level, and in combination with which other resource creates the particular
competitive advantage for a firm that they want to emulate. The reason for this is that
competitive advantage and performance may not be subjected from one particular resource but
from the result of interdependence, social relationship or interconnectedness between resources
(Barney, 1991; Dierickx and Cool, 1989), which make the relationship difficult to be interpreted.
This type of isolation mechanism is known as causal ambiguity (Dierickx and Cool, 1989) or
social complexity (Barney, 1991). Causal ambiguity may come in two forms: characteristics
ambiguity where the significance of the characteristic itself is difficult to comprehend (like tacit
knowledge), and linkage ambiguity (or complex relation) where managers themselves find it
difficult to explain which activities and processes for linkage that create the advantage (Johnson,
Scholes and Whittington, 2006; Fernández, Montes and Vázquez, 2000). By failing to identify
the link, imitation cannot be done. Unfortunately, while causal ambiguity prevents imitation by
rivals, it also creates difficulty for the firm having the resource. This is because the firm’s
entrepreneur also needs the information to understand the cause and effect in order to manage the
resource so that advantage can be sustained. If such information is not available, then causal
ambiguity does not guarantee that the firm able to maintain its competitive advantage (Reed and
DeFillippi, 1990).
High imitation cost also prevents imitation (Black and Boal, 1994). A firm’s strategic resource
may not be developed in a short period. The development process may take years where trial and
error were done and lessons were taken over that period. Imitator firms need to trace back those
years to learn how that particular resource provides advantage, which is not only costly but also
time consuming. This type of imitation barrier is called time compression diseconomies
(Dierickx and Cool, 1989). In addition, strategic resources need to be maintained to prevent asset
erosion (Dierickx and Cool, 1989), and the maintenance cost further increases the cost of
imitation. But, inimitability is a function of time and money (Dierickx and Cool, 1989), and thus
given sufficient time and money, competitors will be able to imitate those resources. Therefore,
strategic resource needs to be characterized by the final attribute: non-substitutable.
According to Barney (1991), non-substitutable resource means there is no strategically
equivalent valuable resources that are themselves either not rare or imitable. Substitute comes
from two forms: similar resource, and different resource but producing the same outcome
(Barney, 1991). If a resource cannot be replaced by either form, the resource is considered as
non-substitutable.
Empirically, a recent study conducted by Ainuddin, Beamish, Hulland and Rouse (2007)
supported resource-based view argument where they found that resource which are characterized
by valuable, rare, inimitable and non-substitutable had a positive effect on the performance of
international joint ventures in Malaysia. The following section will discuss the types of
entrepreneurial resources and capabilities against the strategic attributes explained before.
Strategic resource and capability is characterized by the four attributes: valuable, rare, inimitable
and non-substitutable.
Tangible Resource
Tangible resources are the organizational assets that can be seen, touched, and/or quantified
(Harrison, 2003). Proponents of resource-based view collectively agreed that tangible resource
as a whole is not the source of sustained competitive advantage of a firm. Clulow, Gerstman and
Barry (2003) wrote that while tangible resources valuable, they cannot be the key resources
because they are casually explicit and hence easily duplicated. Interestingly, while quite a
number of literatures supported that tangible resources are not the source of long term
performance, Galbreath (2005) and Fahy (2002) found that tangible resources still play role in
achieving competitive advantage. As Miller and Shamsie (1996) wrote, even though most
concrete facilities are easily imitable, their value relies on their role within and their links to an
integrated system whose synergy is hard to duplicate. Three of the most common tangible
resources discussed are physical, financial and technology.
Physical resources include all tangible properties used for production and administration such as
plant and equipment, natural resources and location (Dolinger, 1999) and even transportation
vehicle (Closs and Thompson, 1992). Physical resources are valuable for batik firms. For
example, if business location is situated in the city where both local and foreign customers
frequently visit, it is easier for a batik producer to penetrate the market. If the location is situated
in the area of cheap cost, a batik producer able to attract customers through low price products
without compromise quality. Equipments are valuable because they support batik drawing,
coloring, dyeing, boiling and drying. Unfortunately, physical resources cannot guarantee batik
firms to maintain their competitive advantage and high performance. This is because all firms in
batik industry able to access to the same physical resources, which make them not rare and easily
copied. Once those resources become less rare, substitutability is irrelevant (Tvorik and
McGivern, 1997).
Financial resources are the funds supporting business operations. Financial resource is important
for batik firms because it is used to purchase raw materials, marketing activities, research and
development, and equipment and technological acquisition. Financial resource also will enable
batik firms to solve resource problems of people, machines and materials (Jenster and Husey,
2001) and implement costly or risky strategies that have high prospective return (Yang and Fu,
2007). Financial resource is not rare. This is because there are financial supports provided from
government agencies like MARA and banks like SME Bank, which provides special allocation
for batik and craft entrepreneurs. And if funds are not obtained from loan, personal savings may
be enough. Money however is not inimitable and non-substitutable, which make money not the
source of sustained competitive advantage. However, according to Dollinger (1999), the
management of financial resource can be the source of sustained competitive advantage. This is
because managing financial resource requires human competencies; and human capital as will
discuss later is valuable, rare, inimitable and irreplaceable. With a good management, financial
resource can be managed effectively and efficiently. Besides management, positive goodwill
with the financial institution also may provide competitive advantage for a batik firm. This is
because the firm may be able to borrow larger amount of money (Balakrishnan and Fox, 1993)
and the process of getting a loan will be much easier. A study conducted by Schlemmer and
Webb (2006) found that financial resource is positively and significantly related to financial
performance. Campello (2006) however cautions that debt taking or bank loan should be taken
moderately in order to gain high performance as high indebtedness leads to underperformance.
Therefore, financial resource, which is the management and goodwill with financial institution,
can be the source of sustained competitive advantage for a batik firm.
Proposition 1:
Financial resource has a positive relationship with firms’ sustained performance
Technology resource is the machines and computers together with its applications used in
business operations. Technology in batik firms is valuable because it helps the firms to minimize
labor effort and be more efficient. Ultrasound machine for example could be used to remove wax
(Stoyel, 2007). Computers are used for designs record keeping and design creation (Ab. Kareem,
2007). Similar to physical resources, machineries and computers are available in the market
which can be accessed equally by all batik firms. Therefore, these technology resources are not
rare. However, lack of financial resource might be disadvantageous and thus preventing many
firms from buying it. Therefore, firms with strong financial position may be able to buy
expensive and quality machines and computers, which enable them to create different strategies,
products and services, and eventually sustained competitive advantage and above-average
performance. Unfortunately, while financial resource may be a factor determining technology
acquisition, poor firms can still use labor as the substitute for technology. However, even though
technology resource does not fulfill all of the strategic criteria, those batik firms using machines
and computers are more competitive because they can produce larger quantity in a shorter time
and have lower rejecting cost (KamaroZaman, 2001) Does technology helps firm’s performance?
Studies conducted by Mukhopadhyay, Lerch and Mangal (1997) and Mukhopadhyay, Rajiv,
Srinivasan (1997) found that computerization improves labor productivity and quality. As quality
is an important ingredient for performance, it can be concluded here that technology resource has
a positive impact on performance. Therefore, technological resource, which is the mechanization
and computerization, may provide sustained performance to a batik firm.
Proposition 2:
Technological resource has a positive relationship with firm’s sustained performance
Intangible Resources
Intangible resources are the soft resources consisting of knowledge or information (Fernández,
Montes and Vázquez, 2000). Compared to tangible resources, intangible resources hold more
favorable impression by resource-based scholars as the determinant of a firm’s competitive
advantage and performance (Barney, 1991; Michalisin, Smith and Kline, 1997; Prahalad and
Hamel, 1990; Fernández, Montes and Vázquez, 2000). This is because most studies agree that
intangible resources, which include reputational, organizational and human, are valuable, rare,
inimitable and non-substitutable.
Reputation indicates a firm’s products, jobs, strategies and prospects to the public against other
competing firms (Fombrun and Shanley, 1990). Reputation is also the perception of the people in
a firm’s environment on the firm’s past actions (Weigelt and Camerer, 1988; Dollinger, 1999).
Rindova et al (2005) found that organizational reputation is based on quality and prominence. In
batik industry, good reputation might accrue from new and creative designs using high quality
materials. Batik firms with high quality products can be projected through the achievement of
quality certification such as MS692. Prominence also illustrates a firm’s good reputation and can
be achieved through the appearance in the media such as the newspaper (e.g. Khalid martabatkan
batik, October 31, 2007; Norainon, Januari 27, 2008; Fariza, Ogos 26, 2007). Reputation is
valuable because it opens up more opportunities and makes a firm’s operation more efficient and
effective (Dowling, 2001); influence borrowing ration (Vicente-Lorente, 2001) which them
enables the firm to have higher financial resource through debt to cater business needs and
activities (Balakrishnan and Fox, 1993); and able to attract more investors (Brown and Kirchoff,
1997). Strong product reputations are uncommon, which make it rare and that firms controlling
this asset tend to gain competitive advantage (Aaker, 1996). Furthermore, since reputation needs
to be analyzed against other firms within the same industry, only few firms were given top credit
and thus make it a rare resource (Carter and Ruefli, 2006). Reputation is inimitable because it
takes time to be formed (Dowling, 2001) and is based on track record (Clulow, Gerstmand and
Barry, 2003). It is inimitable because the drivers of reputation drivers embedded inside an
organization which associates with high degree of causal ambiguity (Roberts and Dowling, 1997,
2002). Since reputation is the perceptions of multiple stakeholders of a firm, it represents
collective and complex interactions of publics’ opinions and observations which are difficult to
copy. As for replacing reputation, in investigating signaling variables, Dewally and Ederington
(2006) unable to find any substitute for reputation. Empirically, many studies found the positive
impact contributed by positive reputation on firm’s performance (Lopez, 2006; Carmeli and
Tishler, 2005; Galbreath, 2005; Roberts and Dowling, 2002; Srivastavas et al, 1997; Deephouse,
1997; Hall, 1991). Therefore, it is suggested here that product and firm’s reputation can provide
sustained performance for a batik firm.
Proposition 3:
Reputation has positive relationship with firm’s sustained performance
Human in business organization are the people in an organization – workers, managers and
owners. But it is the knowledge and expertise within the people in an organization that is actually
the asset (Lank, 1997). Human resource includes the training, experience, judgment, intelligence,
relationships and insights of managers and workers (Barney, 1991). Since the batik industry
produces products with attractive designs, human capital is a prime candidate for potentially
rent-producing resources (Maijoor and Witteloostuijn, 1996). Skilled workers are the ones with
chanting skill to design motif (Wan Hashim, 1996). Possessing skilled workers can be
considered as rare resource because they are difficult to get and to retain (Ab Kareem, 2007). In
addition, the design knowledge that the skilled worker has is accumulated from experience which
is not documented (Khairul Aidil Azlin, 2007) and thus make it difficult to imitate over a short
period of time. Furthermore, not all skilled and knowledgeable workers can fit into all type of
working condition. Therefore, if a batik producer able to hire and retain skilled workers whom
are contend to work in that particular firm, the human resource can be its strategic asset due to its
specificity and rarity (Marchington, Carroll and Boxall, 2003). Skilled workers also difficult to
be substituted. Any technology exist is created to aid production efficiency, but creativity and the
motif design still lay in the hand of skilled workers. Besides workers, leadership and top
management team also repeatedly mentioned as strategic resources. This is because the team
comprises of individuals with unique sets of skills and a unique perspective (Harrison, 2003).
Therefore, it is possible to say here that having human resource especially with the skill,
knowledge and experience can be considered as strategic assets according to resource based view
definition since it is valuable, rare, difficult to imitate and substitute (Amit and Shoemarker,
1993). Hence, human resource, which is the skills, knowledge and experience, is suggested able
to provide sustained performance for a batik firm.
Proposition 4:
Human has a positive relationship with firm’s sustained performance
Organizational resource like other intangible resources is another possible source of sustained
competitive advantage. This is because organizational resource comprises of many elements such
as networks, structure, human resource practices and culture (Galbreath, 2005) – and this
‘bundle’ of resource is valuable, rare, inimitable and non-substitutable. There may be no best
structure, human resource practices and culture because each firms structures, creates cultures
and practices fit to the needs and strategies of the firm itself. In other words, organizational
resources may be firm specific (Galbreath and Galvin, 2004). Due to the specificity nature, it
may not be easily applied in other firm or else the value obtained from the specificity would be
less. Organizational resources are rare because they have to be generated within the firm itself
and cannot be purchased from the open market. Organizational resources also difficult to imitate
because the process of developing structure, practices and culture are done over a long period
(Galbreath, 2005, Dierickx and Cool, 1989), and contracts and networks are formed based on the
partners’ trust and synergy, which are developed over a long time. In a study, Galbreath and
Galvin (2004) found that organizational asset is positively related to firms’ performance.
Therefore, organizational resource is also postulated to affect a batik firm’s performance.
Proposition 5:
Organizational has a positive relationship with firm’s sustained performance
Entrepreneurial Capabilities
Besides tangible and intangible resources, resource-based view also included capabilities as the
internally generated resource that can be the source of competitive advantage allowing an
entrepreneurial firm to gain above-average performance (Fahy, 2001; 2002). Capability is define
as the ability to coordinate and exploit resources (Amit and Schoemaker, 1993; Acquaah and
Chi, 2007; Ethiraj, Kale, Krishnan and Singh, 2005; Newbert, Gopalakrishnan and Kirchoff,
2007). While there are many kinds of capability such as technological and management
capability, this paper focuses only on the entrepreneurial capabilities.
What are entrepreneurial capabilities? Danny Miller defined entrepreneurial firms as ‘one that
engages in product-market innovation, undertakes somewhat risky ventures, and is the first to
come up with proactive innovations, beating competitors to the punch’ (Miller, 1983: 771).
Since then, many entrepreneurial papers are written and collectively agreed that innovativeness,
proactiveness and risk taking are the elements of entrepreneurial firm (e.g. Covin and Slevin,
1991; Zahra and Covin, 1995; Matsuno, Mentzer and Özsimer, 2002; Griffith, Noble and Chen,
2006; Chow, 2006; Covin, Green and Slevin, 2006; Naldi et al, 2007). Innovativeness refers to
the capability of creating new products, services and processes using resources such as financial,
technology and human; proactiveness is the capability to compete aggressively either by taking
initiative actions or by responding to competitors’ moves; and risk-taking is the capability to
assess business and financial risk and willing to make resource investment in uncertain
situations. However, there is another element of entrepreneurship that is frequently mentioned in
entrepreneurship literature, which is opportunity recognition. That is, entrepreneurial firms are
capable of recognizing opportunities (e.g. Stevenson and Jarillo, 1990; Shane and
Venkataraman, 2000; Brown, Davidsson and Wiklund, 2001; Baron, 2006). Opportunity
recognition refers to the capability of identifying prospects which may provides favorable
returns that others do not see. Thus, entrepreneurial capabilities are the ability to coordinate and
exploit resources through opportunity recognition, innovativeness, proactiveness and risk taking.
Entrepreneurial capabilities can be the source of sustainable competitive advantage because they
are valuable, rare, inimitable and non-substitutable. Entrepreneurial capabilities are valuable
because through opportunity recognition for example, a batik firm able to identify prospects in
the market such color and design in the latest trend that others don’t see and thus able to create
strategies different from other and grab the rent. Entrepreneurial capabilities are rare because
they are not equally available to all firms (Penrose, 1959) and thus may be not many batik firms
possessing them. Entrepreneurial capabilities also inimitable because they cannot be purchased
from the market and need to be developed over a long time (Lee, Lee and Pennings, 2001),
involves the interaction and integration of individuals and other resources like financial within a
firm (Fahy, 2002; Fernández, Montes and Vázquez, 2000), and created through accumulated
knowledge and learning, creativity and experimentations (Lumpkin, Hills and Shrader, 2004).
Entrepreneurial capabilities also cannot be substitute because they reside in human capital. While
the advancement of technology may be able to substitute human’s physical effort and some
cognitive thinking, the process of opportunity recognition, innovation, proactiveness, and risk
taking are too complex and not easily codified, and therefore difficult to be programmed and
therefore to be substituted.
As for empirical studies, even though there are exceptional studies that found entrepreneurial
capabilities to have no relationship with performance (Hughes and Morgan, 2007; Matsuno,
Mentzer and Özsimer, 2002; Sapienza and Grimm, 1997), most papers agreed that
entrepreneurial capabilities influence organization performance significantly (e.g. Keh, Nguyen
and Ng, 2007; Covin, Green and Slevin, 2006; Mostafa, Wheeler and Jones, 2005; Dimitratos,
Lioukas and Carter, 2004; Ibeh, 2003). Therefore,
Proposition 6:
Entrepreneurial capabilities have a positive relationship with firm’s sustained performance
As entrepreneurial capabilities are the ability to deploy resources, resources are seen as important
in determining successful of entrepreneurship (Brown and Kirchoff, 1997; Aloulou and Fayolle,
2005; Hayton, 2005; Muhanna, 2006). In addition, entrepreneurial capabilities are needed to
convert resources controlled or owned into competitive advantage (Newbert, Gopalakrishnan and
Kirchoff, 2007). Therefore, it is expected that there is a link between resource and capabilities.
Proposition 7:
Entrepreneurial resources are positively related to entrepreneurial capabilities
Performance
Resource-based view argues that resources that are valuable, rare, inimitable and nonsubstitutable lead to sustained competitive advantage (Barney, 1991; 1995; 2001). However,
measuring competitive advantage is quite difficult and therefore the presence of competitive
advantage is normally inferred from sustained periods of above-average performance (Rouse and
Daellenbach, 1999). This assumption is widely used by many studies such as in Newbert,
Gopalakrishnan and Kirchoff, (2007) and Chatterjee and Wernerfelt, (1991). So, it can be argued
here that the above-average performance may be used instead of using competitive advantage as
performance measurement. Barney (1986) defines above-normal return as the generated value
more than cost. Since normal return refers to return just large enough to survive (Barney, 1986),
above-normal return can be interpreted as profit (Littlechild, 1981). For this reason, one of the
performance measurements for this paper is profit. Since sales is related to profit measurement, it
is included as one of the performance measures too. In addition, according to Coulter (2003) two
objectives of entrepreneurship are growth and profit. Therefore, the last performance variable is
growth. Hence, this paper measure performance based on sales, profit and growth.
Conclusion
It is concluded here that in facing competition, batik entrepreneurial firms may be able to
perform by having resources and deploying these resources through entrepreneurial capabilities.
However, only those resources and capabilities that are valuable, rare, inimitable and nonsubstitutable lead to performance. In the appendix, Diagram 1 shows a proposed conceptual
framework illustrates the above discussion and Table 2 summarizes the attributes of resources
and capabilities for batik firms.
Appendix
Diagram 1: Proposed Conceptual Framework
Strategic Entrepreneurial Resource:
1. Financial
2. Technological
3. Reputation
4. Human
5. Organization
Propositions 1 to 5
Proposition 7
Performance
Strategic Entrepreneurial Capabilities:
1. Opportunity recognition
2. Innovativeness
3. Proactiveness
4. Risk taking
Proposition 6
Table 1: Summary of Attributes Resources and Entrepreneurial Capabilities
Tangible
Physical
Financial
Technological
Intangible
Reputation
Human
Organizational
Capabilities Opportunity
recognition
Innovative
Proactive
Risk taking
Valuable
Rare
Inimitable
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Maybe
Yes
Yes
Yes
Yes
No
No
No
Yes
Yes
Yes
Yes
Nonsubstitutable
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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