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© 2016. Jinku Lu & Gong Zhang. This is a research/review paper, distributed under the terms of the Creative Commons Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

The Effect of Customer Orientation and Entrepreneurial Orientation on Performance of SMEs: Comparison between Chinese and South Korean SMEs

By Jinku Lu & Gong Zhang Pusan National University

Abstract- The basic research, which reveal the business results although were influenced by the Strategic orientation. The main subjects of the research is the developed country, such as company of America and Europe. Conversely, for the Asian countries, the research is not sufficient, especially, China and South Korea. Also the research of Small-and Medium-sized Enterprises (SMEs) are inadequate. Because of these reason, the research chose the SMEs as the main research subject. The majority of the basic research, which is the customer orientation as the background, divide into two concepts, business orientation and the SMEs of China and South Korea.

Keywords: customer orientation, entrepreneurial orientation, SMEs, firm performance.

GJMBR-A Classification: JEL Code: L26

TheEffectofCustomerOrientationandEntrepreneurialOrientationonPerformanceofSMEsComparisonbetweenChineseandSouthKoreanSMEs

Strictly as per the compliance and regulations of:

Global Journal of Management and Business Research: AAdministration and ManagementVolume 16 Issue 12 Version 1.0 Year 2016 Type: Double Blind Peer Reviewed International Research JournalPublisher: Global Journals Inc. (USA)Online ISSN: 2249-4588 & Print ISSN: 0975-5853

The Effect of Customer Orientation and Entrepreneurial Orientation on Performance of

SMEs: Comparison between Chinese and South Korean SMEs

Jinku Lu α & Gong Zhang σ

Abstract- The basic research, which reveal the business results although were influenced by the Strategic orientation. The main subjects of the research is the developed country, such as company of America and Europe. Conversely, for the Asian countries, the research is not sufficient, especially, China and South Korea. Also the research of Small-and Medium-sized Enterprises (SMEs) are inadequate. Because of these reason, the research chose the SMEs as the main research subject. The majority of the basic research, which is the customer orientation as the background, divide into two concepts, business orientation and the SMEs of China and South Korea.

This paper reveals the SMEs of 207 firms of China and 191 firms of South Korea. As a result, the customer orientation and the entrepreneurial orientation have a positive influence on the SMEs whereas the extent of the entrepreneurial innovativeness make no difference on the orientation. Keywords: customer orientation, entrepreneurial orientation, SMEs, firm performance.

I. Introduction

oth marketing and strategic management literatures focus on strategic orientations and explore their relationship with firm performance.

The strategic orientation represents a firm's management ideology and strategy which will influence a firm's behaviors and commitments to outperform rival companies (Gatignon and Xuereb, 1995; Naver and Slater, 1990). Researchers proposed market orientation (Kohli and Jaworski, 1990; Narver and Slater, 1990), customer orientation (Narver and Slater, 1990, Appiah-Adu and Singh, 1998), entrepreneurial orientation (Covin and Slevin, 1989; Miller, 1983), technology orientation (Gatignon and Xuereb, 1997; Slater, Hult, and Olson, 2007), innovation orientation (Manu, 1992; Manu and Sriram, 1994) and so on.

Kohli and Jaworski (1990) proposed that market orientation (MO) is an organization-wide function of acknowledging and disseminating market intelligence which focuses on the current and future customer's needs and wants. At the same time, Narver and Slater (1990) viewed market orientation as an organization business culture which is devoted to effectively and Author α σ: Pusan National University. e-mail: [email protected]

efficiently serve customers for superior business performance. Customer orientation (CO) is a core subordinate concept of market orientation, which is firstly conceptualized by Kohli and Jaworski (1990) from an organizational behavior perspective. But scholars did not analysis the sub-dimensions of customer orientation. Both Kohli and Jaworski (1990) and Naver and Slater (1990) emphasize the customer focus in their studies. Kohli and Jaworski (1990) regarded the customer focus as one pillar of marketing concept. Naver and Slater (1990) conceptualized customer orientation as the sufficient understanding of target customers in order to serve them effectively. On the basis of previous studies, this paper proposes two subordinate concepts of customer orientation: customer focus and customer response. Studies have investigated the influence of customer orientation on firm's innovation and performance. Most research approve of the positive relationship between customer orientation and firm performance. While many studies focus on companies in American and European countries. Recently, scholars turn their eyes to firms in developing countries. Asikhia (2010) found a significant and positive relationship between customer orientation and firm performance in Nigeria. It is necessary to further investigate the customer orientation-performance relationship in developing countries.

Entrepreneurial orientation (EO), which stresses the key role of top managers or executives in the decision making processes, stems from the entrepreneurship concept. Miller (1983) characterizes the entrepreneurial firm firstly by innovativeness, proactiveness, and risk-taking. Basing on Miller (1983)'s study, Covin and Slevin (1989) developed a nine-item scale to measure three dimensions of entrepreneurial orientation, and conducted their study on American firms. Besides Miller (1983)'s three dimension construct, Lumpkin and Dess (1996) advanced two additional dimensions (autonomy and competitive aggressive-ness), which are adopted by few researchers. Most studies support the positive relationship between entrepreneurial orientation and firm performance based on studies of firms in developed countries.

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Small enterprises, which can increase employment and serve the niche market neglected by large companies, are important components in national economies (Tajeddini, Elg, and Trueman, 2013). Most literatures in strategic management and marketing department focus on how large national companies, multinational enterprises have superior performance, relatively pay less attention to small businesses. How small enterprises with liabilities of smallness perform in a small market? Which factors will influence their performance?

Both Chinese and South Korean government support small enterprises in order to stimulate the economy and increase employment. Chinese government enacted the Law of the P.R.C. on Promotion of Small and Medium-sized Enterprises in 2002 and Several Opinions of the State Council on Further Promoting the Development of Small- and Medium-sized Enterprises (NO. 36) in 2009. The South Korea government enacted the Fundamental Law of Small-and Medium-sized Enterprises (SMEs) in 2014. Most studies on strategic orientations focus on firms in America and European countries. China, which attracts many scholars' attention, is one of the big and fast developing transition economies. Compared to China, South Korea is a small country with a dramatic history of economic development. Therefore, this paper intends to investigate the relationship between strategic orientations (customer orientation and entrepreneurial orientation) and the performance of small enterprises in China and South Korea.

In the first place this paper intends to investigate the impact of customer orientation and entrepreneurial orientation on the performance of small enterprises. Secondly, this paper compares the strategic orientation-performance relationship between Chinese and South Korean small enterprises in order to find out the differences. This paper also proposes two subordinate concepts of customer orientation based on previous studies. In order to investigate the relationship between two strategic orientations (customer orientation and entrepreneurial orientation) and the performance of small enterprises, this paper proposes two subordinate concepts of customer orientation, and conducts the questionnaire on small enterprises in China and South Korea separately. Based on 207 questionnaires of Chinese small enterprises and 191 questionnaires of South Korean small enterprises, this paper tested the reliability and validity, and used the regression analysis to investigate the relationships.

There are six chapters in this thesis. The first chapter serves as an introduction, which includes the research background, research goal as well as the methodology. The second chapter is the literature review which presents the previous studies on the customer orientation and entrepreneurial orientation. Chapter three advances the conceptual model and

hypotheses. Chapter four advances the research methodology. Chapter five provides a detail analysis of the relationship between two strategic orientations (customer orientation and entrepreneurial orientation) and firm performance. Chapter six concludes major findings of this thesis, points out some limitations of the present research and puts forward implications for further research.

II. Literature Review

a) Customer Orientation

According to Appian-Adu and Singh (1998), the customer orientation is basically a business philosophy or a strategy which roots on the marketing concept. As a cornerstone of marketing department, the marketing concept, which was introduced in the 1950s, represents an organization's management philosophy or purpose that coordinates all corporate functions to satisfy customers' needs and wants (Felton, 1959; McNamara, 1972; Slater and Narver, 1998). Based on the marketing concept, Kohli and Jaworski (1990) concluded three core pillars of marketing concept (customer focus, coordinated marketing, and profitability) and proposed the definition of market orientation.

From the perspective of organizational behavior, Kohli and Jaworski (1990)

conceptualized

market orientation (MO) as the organization-wide generation, dissemination of and responsiveness to market intelligence pertaining to current and future customer needs and wants. This is consistent with three core pillars of marketing concept that not only focus on customers' needs and preferences, also stress the commitment to market intelligence in order to make profits. At the same time, Narver and Slater (1990) defined the market orientation from an organization culture perspective. As an important component of market orientation, Narver and Slater (1990) defined customer orientation as the sufficient understanding of target buyers to be able to continuously create superior value for them. A customer orientation suggests that a firm requires a long-term focus on customers' needs and preferences (Cano et al., 2004; Narver and Slater, 1990).

Most scholars stressed that satisfying customers is essential to the success of a business (Drucker, 1954; Levitt, 1960; McKitterick, 1957). A customer-focus is to acknowledge and meet the customers' needs and wants (Kohli and Jaworski, 1990). Shapiro (1988) proposed that a firm disseminates the information of customers throughout the organization and processes of decision-making to satisfy customer needs

and wants. To serve customer needs sufficiently,

firms seek to improve the value of products and services they provided, and continually access to customers for new market information. Ruekert (1992) defined customer orientation as 'the degree to which the

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business unit obtains and uses information from customers, develops a strategy by being responsive to customers' needs and wants'.

According to the above mentioned studies, this paper concludes that the customer orientation (CO) is a philosophy or a strategy of an organization that stresses the long-run customer focus and commitments to implement this ideology (Appian-Adu and Singh, 1998; Kohli and Jaworski, 1990; Narver and Slater, 1990; Rueker, 1992).

The customer orientation is different from market orientation. Narver and Slater (1990) identified the customer orientation as one of three behavioral components of market orientation. Kohli and Jaworski (1990), who stressed the generation, dissemination of and responsiveness to market intelligence, argued that market intelligence is a broader, more strategic concerns than customer orientation and consists of exogenous market factors (e.g. competition) that influences the customers' current and future needs. Regardless of differences, customer orientation is the core of market orientation and reflects the ideology of customer focus (Ingenbleek et al., 2013; Kohli and Jaworski, 1990; Narver and Slater, 1990).

In order to enhance previous studies, Jaworski and Kohli (1993) advanced the antecedents and consequences of market orientation. Based on conceptualization of the three components of market orientation, they classified three categories of antecedents (top management, interdepartmental dynamics, and organizational systems) and three types of consequences (employees, environment, and business performance). Consistent with Jaworski and Kohli (1993), Kirca, Jayachandran, and Bearden (2005) proposed that the same three broad kinds of antecedents. While they organized four categories of market orientation consequences: organizational performance, innovation consequences, customer consequences, and employee consequences.

As an important research subject, many studies aimed at investigating the impact of market orientation on organization performance (Table 2.1). Some researchers find a positive relationship between market orientation and firm performance (Kumar et al., 1998; Narver and Slater, 1990; Slater and Narver, 2000), despite that some researchers do not share the same conclusion (Greenley, 1995a; Han et al., 1998). Studies, which do not support the positive relationship, adopt a non-U.S. sample or the objective performance measures, such as return on assets, market share.

Previous studies also identified the moderators and mediators of the MO-performance relationship. Some studies proposes that several moderators may affect this relationship, such as market turbulence, competitive hostility, and supplier power (Kumar et al., 1998; Slater and Narver, 1994). Besides, Han et al. (1998) suggested that an organization's innovativeness

mediates the MO-performance relationship. Hult et al. (2005) advanced that organizational responsiveness is a mediator of the MO-performance relationship.

Some literatures theoretically and empirically focus on the relationship between customer orientation and firm performance. Appian-Adu and Singh (1998) studied the CO-performance relationship of small- and medium-sized enterprises (SMEs) in the UK and found that a customer orientation has a positive effect on SMEs' performance. Asikhia (2010) found a significant and positive CO-performance relationship in the Nigerian SMEs. Compared to competitor orientation, Zhou et al. (2007) concluded that a customer orientation performed better in munificent markets that have favorable local business environment and avaliable resources.

While some researchers have different opinions. Gatignon and Xuereb (1997) advanced that the influence of customer orientation on the innovation performance will decreases when market uncertainty decreases. Voss and Voss (2000) found a negative relationship between a customer orientation and performance in nonprofit theater industry.

b) Entrepreneurial Orientation The entrepreneur concept, which was very

limited in the initial stage, can be traced to the 1500s (Cunningham and Lischeron, 1991). After explorations by entrepreneurial organizations in social and economic context, entrepreneurship was proposed to describe the behaviors of entrepreneurs and individual traits. But there is a lack of a universally accepted definition of entrepreneurship in most studies, which focused on small samples and did not adopt time-tested analytical methods in the early stage (Cooper and Dunklberg, 1986; Low and Macmillan, 1988).

Mintzberg (1973) classified three strategy-making modes (the entrepreneurial mode, adaptive mode, and planning mode) and investigated the linkage between decision-making process and strategy formation. According to Mintzberg (1973)'s study, the entrepreneurial mode emphasizes the role of powerful chief executives who take risks to search for opportunities on the behalf of organizations. Miller (1983) explicitly proposed that an entrepreneurial firm is characterized by innovativeness, risk-taking, and pro-activeness. Covin and Slevin (1989) developed a nine-item scale to measure the entrepreneurial strategic orientation which involves risk-taking, innovativeness and pro-activeness, and empirically test the entrepreneurial orientation on American companies.

Following their opinions, Lumpkin and Dess

(1996) identified the entrepreneurial orientation as decision-making processes and functions of an organization. The entrepreneurial orientation is a function or a perspective that engages in an organization's activities and culture (Dess and Lumpkin,


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2005). Most researchers agree that the entrepreneurial orientation is an organization's strategic orientation, involving entrepreneurial perspective and decision-making process (Wiklund and Shepherd, 2005; Covin et al., 2006).

Miller (1983) classified three dimensions of entrepreneurial orientation: innovativeness, pro-activeness, and risk-taking. Innovation, the creative development of new products and markets, was firstly proposed by Schumpeter to describe the entrepreneurial functions (Kreiser et al., 2002). Innovativeness refers to 'the tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, service, or technological processes' (Lumpkin and Dess, 1996, p.142). Dess and Lumpkin (2005) suggested that there are many different forms of innovation, such as technological innovativeness, product-market innovativeness, and administrative innovativeness. Innovativeness involves the processes and minds of developing new products, services and creating new market and customer needs. This emphasis is the core element of entrepreneurship, representing the dynamic function of corporations. It brings opportunities when firms make efforts to develop novel solutions, and also comes with risks.

Risk-taking refers to 'the degree to which managers are willing to make large and risky resources commitments' (Miller and Friesen, 1998, p.932). Uncertainty, which occurs in the changing external environment and internal organization, is a threat to success and comes with potential risks. Dess and Lumpkin (2005) proposed three types of risk-taking that corporation and entrepreneurs may confront, namely business risk-taking, financial risk-taking, and personal risk-taking. Entrepreneurs will follow routines or find alternatives to deal with risks. Entrepreneurs tend to perceive business environment more positively and are likely to take risks (Busenitz, 1999; Palich and Bagby, 1995).

Pro-activeness refers to 'an opportunity seeking, forward- looking perspective involving new products or services ahead of the competition and acting in anticipation of future demand to create change and shape the environment' (Lumpkin and Dess, 2001, p.431). Previous studies proposed two main aspects of pro-activeness actions to recognize the changes and seize opportunities. Another is that a corporation forward-looking mind is essential to entrepreneurs who want to out-perform and beat rivals. Compared to innovativeness and risk-taking, proactiveness received less attention from prior researchers (Kreiser et al., 2002).

Lumpkin and Dess (1996) proposed two additional dimensions: autonomy and competitive aggressiveness. Autonomy refers to 'the independent action of an individual or a team in bringing forth an idea

or a vision and carrying it through to competition' (Lumpkin and Dess, 1996). Mintzberg (1973) proposed the important role of top executives in the corporation strategy-making process, in which top managers have the authority and autonomy to sufficiently make decisions and increase growth. The strong leadership and unity of minds represents one kinds of autonomy (Shrivastava and Grant, 1985). In contrast to this top-down approach, lower level members can also form new ideas, initiate alternatives which can be transferred through the whole organization (Hart, 1992; Bourgeois and Brodwin, 1984). This kind of autonomy comes from the 'bottom-up' functions. The autonomy encourages all members to initiate entrepreneurial activities.

Competitive aggressiveness refers to 'a firm's propensity to directly and intensely challenge its competitors to achieve entry or improve position to outperform industry rivals' (Lumpkin and Dess, 1996). A competitive aggressive posture, which presents the mind of competition and positivity, is essential to the survival of corporations (Porter, 1985). Lumpkin and Dess (1996) advanced that the responsive and reactive actions characterize an organization's competitive aggressiveness. Competitive aggressiveness may not lead to competitive advantage, but it is critical to keep a competitive mind for firms. In the long run, entrepreneurial firms that aggressively enhance competence and vigorously exploit market opportunities may be inclined to achieve above average performance (Dess and Lumpkin, 2005).

Previous research are consistent with the uni-dimensional conceptualization of entrepreneurial orientation. The two important dimensions of entrepreneurial orientation proposed by Lumpkin and Dess (1996) were empirically tested and supported by several researchers. But, according to Wales et al. (2011)'s study, about 80% of entrepreneurial orientation literatures adopt Miller (1983)'s three dimension construction.

As shown in table 2.3, the antecedents and consequences of entrepreneurial orientation were firstly investigated. In order to study the key role of entrepreneurial orientation, scholars examined the antecedents and focused on top executives, other strategic orientations and environmental variables (Wales et al., 2011). Previous studies also investigated other factors, such as organization structure and resources (Madsen, 2007; Wiklund and Shepherd, 2005).

The consequences that comprise organization performance (profitability, growth), innovation, organization resources and networking also received researchers’ attention (Smart & Conant, 1994; Wales et al., 2011). Studies have confirmed that the entrepreneurial orientation positively influence corporation performance (Lee et al., 2001; Lumpkin and Dess, 1996; Wiklund and Shepherd, 2005). Studies

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firstly used a single industry (manufacturing) to test the entrepreneurial orientation- performance relationship, then chose a broader industry context. Covin and Slevin (1989) developed a nine-item scale to measure the entrepreneurial orientation and find that entrepreneurial orientation have a positively impact on firm performance in hostile environment. Wiklund (1999) proposed a positive relationship between small firm performance and entrepreneurial orientation. But researcheres also noticed that most studies were taken on a developed country context, such as America, European countries. As suggested by Lumpkin and Dess (1996), environment is an important factor that influences the entrepreneurial orientation and firm performance relationship. Tang et al. (2008) investigated Chinese ventures and found an inverted U-shape relationship between entrepreneurial orientation and performance. Also, Moreno and Casillas (2008) found that the direct influence of entrepreneurial orientation on firm growth is not significant in Spanish SMEs.

Moderator and mediators are important research subjects in the entrepreneurial orientation research (Wales et al., 2011). Studies have investigated the moderator variables, such as culture, environment, networking, which influence the relationship between entrepreneurial orientation and its consequences. Strategic management researchers also pay considerable attention to the mediator variables (Hitt et al., 2004). Scholars identified several mediators, namely networking, organizational structures, organizational learning. For instance, Stam and Elfring (2008) suggested that network ties of software companies mediate the entrepreneurial orientation-performance relationship.

c) Customer Orientation and Entrepreneurial Orientation Customer orientation is an ideology that

focuses on how to acknowledge and satisfy customers’ needs and wants. Entrepreneurial orientation stresses not only on proactively acting to opportunities and risks, and also on the innovativeness character of entrepreneurs. Customer orientation and entrepreneurial orientation both include the ideology and processes of seeking market opportunities. Baker and Sinkula (2009) proposed that both orientations have a learning construct. Firms can generate and disseminate market knowledge through the whole organization and functions. However, the needs and preferences of customers which a customer orientation focuses primarily on are parts of market information. Other market factors, such as rivals, technology, industry policy, also can influence the success of an organization. A firm with an entrepreneurial orientation can take risks, actively acknowledge and respond to market opportunities. Therefore, there may be a complementary effect of customer orientation and entrepreneurial orientation (Baker and Sinkula, 2009).

Grinstein (2008) proposed that studies can investigate the combinations of different strategic orientations to find out how different strategic orientations utilized simultaneously by an organization influence performance or other consequences. It is still remain unknown for researchers and managers that to what extent customer orientation or entrepreneurial orientation influences firm performance, or whether it is necessary for a small enterprise to have both customer orientation and entrepreneurial orientation, and how an organization balances the effect of different orientations, such as customer orientation and entrepreneurial orientation (Eggers et al., 2013). Some studies suggest a trade-off between different orientations that have impact on innovation and firm performance (Bhuian et al., 2005; Eggers et al, 2013; Hortinha et al., 2011). Hortinha et al. (2011) advanced that due to limited resources, firms have to choose one orientation over another. Eggers et al. (2013) proposed that customer orientation is a responsive construct, and pointed that SMEs will have a higher growth if they have a high entrepreneurial orientation and a low customer orientation.

Besides the correlation between entrepreneurial orientation and customer orientation, some authors suggest that customer orientation has no correlation with entrepreneurial orientation. Li et al. (2006) advanced that both market orientation and entrepreneurial orientation are subordinate concepts of strategic orientation. Some studies propose that market orientation is negatively related to innovativeness, and entrepreneurial orientation has a positive effect.

Previous research have tested the relationship between customer orientation, entrepreneurial orientation and firm performance (Baker and Sinkula, 2009; Chen and Hsu, 2013; Eggers et al, 2013; Tajeddini, 2010). But the results are mixed. Kaya and Seyrek (2005) proposed that in different market environment, one orientation may be more effective than others.

III. The Conceptual Model and Hypotheses

a) The Conceptual Model Strategic orientations represent an

organization's management ideology and strategy that could influence an organization's behavior and performance (Gatignon and Xuereb, 1995; Narver and Slater, 1990). Customer orientation stresses how to acknowledge and satisfy customers' needs and wants. Entrepreneurial orientation, which stresses the critical role of top managers, concerns the proactiveness, innovativeness, and risk-taking character of an organization.

Grinstein (2008) advanced that studies can investigate the combinations of different strategic


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orientations to find out how different strategic orientations are utilized simultaneously by an organization influences performance. Baker and Sinkula (2009) proposed that there may a complementary effect of strategic orientations. Horthinha et al. (2011) and Eggers (2013) proposed that due to limited resources, firms have to choose one orientation over another.

Based on those studies, this paper intends to find out the extent customer orientation or entrepreneurial orientation influences firm performance, and how an organization balances different strategic orientations (customer orientation and entrepreneurial orientation). Therefore, this paper investigates the customer orientation-performance relationship and entrepreneurial orientation-performance relationship simultaneously.

Kohli and Jaworski (1990) conceptualized customer orientation from the perspective of

organizational behavior; from an organization culture perspective, Narver and Slater (1990) defined customer orientation as the sufficient understanding of target customers to be able to continuously create superior value. Appian-Adu and Singh (1998) advanced that customer orientation includes a cultural attitude to serve customers' needs and the implementation of this ideology. Nakata and Zhu (2006) proposed that the acknowledgement of customer needs and corporation responsiveness are included in the customer orientation concept. Based on their studies, this paper propoes two subordinate concepts of customer orientation. Customer focus, which stresses the cultural attitude toward customers, involves the understanding of customers' needs and wants. Customer response, which stresses the implementation of the customer focus strategy, means an organization’s functions of acknowledging and satisfying customers' needs and wants efficiently.

Table 3.1: Customer orientation

Based on Miller (1983)'s three dimensions construct of entrepreneurial orientation, Lumpkin and Dess (1996) proposed two additional dimensions: autonomy and competitive aggressiveness. While Wales et al. (2011) advanced that about 80% studies on entrepreneurial orientation adopt Miller (1983)'s three dimensions construct. Therefore, this paper adopts Miller (1983)'s three dimensions to investigate the impact of entrepreneurial orientation on performance of small enterprise.

This paper conducts the survey on both Chinese and South Korean small enterprises to find out the differences between the two countries.

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Figure 1: The Conceptual Model

b) Hypotheses i. Customer Orientation and Performance of Small

Enterprise Small enterprises with limited resources serve a

relatively certain group of customers in a small local market (Tajeddini et al., 2013). Eggers, et al. (2013) found that SMEs with scare financial resources tend to be more customer oriented. Due to the scarcity of resources, it will be difficult and costly to change their main services or locations. Such certain group of customers and local market, which are the main source of market information and revenue, are critical to small enterprises. Small enterprises can develop and differentiate products or services to meet the needs of the niche markets which are neglected by large companies. They also can devote their full attention to serve a group of customers that can remain stable and loyal. Because of the limited scale of market, small enterprises can react instantly to the change of markets and needs of customers. Besides, small enterprises also have a limited number of employees. This means a simple internal organization structure and a relatively cohesive culture.

Customer orientation, as an organization management strategy, are widely accepted by businessmen (Appian-Adu and Singh, 1998; Nakata and Zhu, 2006). Customer orientation that stresses the sufficient understanding of customers needs and the complementation of such ideology is consistent with the main purpose of small businesses. In view of the cultural attitude toward customers, small enterprises with few employees have a simple organization structure and cohesive culture, thus it is easy to introduce and share

collectively a customer focus ideology. From the perspective of organizational behavior, small enterprises can jointly devote their limited resources and attentions to serve the needs of target customers. A small enterprise with a customer orientation will focus on their current and future customers’ needs and find out how to serve customers efficiently.

Previous studies empirically investigated the relationship between market orientation and firm performance. Most studies support a positive relationship between market orientation and firm performance (Kumar et al., 1998; Narver and Slater, 1990; Slater and Narver, 1994). Therefore, as the core component of market orientation, the customer orientation is positively related to the firm performance (Appiah-Adu and Singh, 1998; Asikhia, 2010; Zhou et al., 2007).

Collectively, small enterprise with customer orientation focuses on their current customers and intends to find out how to satisfy their customers efficiently. In a limited local market, a customer emphasis will improve a small enterprise's incomes and may attract new customers. H-1: Customer orientation is positively related to the performance of small enterprises. H-1a: Customer focus is positively related to the performance of small enterprises. H1-1b: Customer response is positively related to the performance of small enterprises.


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ii. Entrepreneurial Orientation and Performance of Small Enterprise

Entrepreneurial orientation refers to the organization decision- making process and practices (Lumpkin and Dess, 1996; Wiklund and Shepherd, 2005). As an organization strategic orientation, entrepreneurial orientation emphasizes the role of top managers or executives in the decision-making processes and management practices. Owners or managers of small enterprises have the power to make decisions independently, control employees and daily business operations. It is easy for a small enterprise that has a powerful owner or manager to share and conduct a common perspective.

Most studies followed Miller's (1983) proposition and adopted three dimensions construction of entrepreneurial orientation. The innovativeness dimension of entrepreneurial orientation refers to the organizational function and minds of developing new ideas, creative processes, and novel products or services (Lumpkin and Dess, 1996). Small enterprises that serve a certain group of customers have to maintain current customer group and attract potential customers in order to make more profits. A tendency to encourage innovation can make small business more flexible and provide new market opportunities. Risk-taking is connected to the risky actions taken by executives (Miller and Friesen, 1978). Small enterprises with limited resources have less motivation to risk losing businesses to increase sales. But, they have to take risks when they encounter uncertain environment. Owners or mangers of small enterprises need to shoulder responsibilities and take actions to solve problems. Proactiveness comprises an opportunity seeking mind and a competition mind (Knight, 1997; Lumpkin and Dess, 2001). In a small market, it is critical for firms to survive in competition. Small enterprise has to serve and acknowledge customer needs in order to maintain and attract customers. In changing market, opportunities provide an access to success for firms who want to outperform their rivals. Trying to seize opportunities, small enterprise needs to move actively.

Previous research proposed a positive relationship between entrepreneurial orientation and firm performance (Lee et al., 2001; Lumpkin and Dess, 1996; Madsen, 2007; Smart and Conant, 1994). For example, Madsen (2007) concluded that entrepreneurial orientation has a positive effect on SME’s performance in long run. Kraus (2013) investigated 310 Austrian service firms and found a significant positive relationship between entrepreneurial orientation and firm performance.

In conclusion, small enterprises with powerful owners or managers can easily conduct the entrepreneurial orientation in daily business. Innovativeness, pro-activeness and risk-taking

dimension of entrepreneurial orientation is positively related to the performance of small enterprise.

H-2: Entrepreneurial orientation is positively related to the performance of small enterprises.

H-2a: Proactiveness is positively related to the performance the of small enterprises.

H-2b: Innovativness is positively related to the performance of small enterprises.

H-2c: Risk-taking is positively related to the performance of small enterprises.

IV. Methodology

a) Sample and Data Collection In order to support the development of

medium/small/micro enterprises, Chinese government enacted the Several Opinions of the State Council on Further Promoting the Development of Small- and Medium-sized Enterprises in 2009. In 2011, the Ministry of Industry and Information Technology of PRC, National Bureau of Statistics, National Development and Reform Commission and the Ministry of Finance enacted the Notice on Classification Standard of Medium/Small/ Micro-sized Enterprise (NO.75). According to this document, medium/small/micro-sized enterprises are classified on two scales-employee size and revenue. In retail industry, small enterprises are classified with employee size from 10 to 50; micro enterprises are classified with employee size under 10. In catering industry, small enterprises are classified with employee size from 10 to 100; micro enterprises are classified with employee size under 10. In other industries which are not listed, small enterprises are classified with employee size from 10 to 100; micro enterprises are classified with employee size under 10. This paper adopts this classification standard and defines small enterprises as enterprise with the employee size which is less than 100 employees.

This paper focuses on small enterprises in retail, catering and other industries. In this paper, retailers refer to small enterprises including small marts, bookstores, groceries, clothing stores, stationers; small enterprises in catering industry refer to restaurant, coffee shop, noshery; small enterprises in other industry including barbershops, internet cafes, small clinics, inns, garages and so on.

A questionnaire was designed to collect the data of Chinese and South Korean small enterprises respectively. The questionnaires used in this paper were originally composed in English. Chinese and Korean version were translated in light of the English version to ensure its accuracy and reliability. The final instrument was tested within a group of twelve Pusan National University students to test whether the questions are clearly phrased. A few modifications were made to improve the questionnaire quality. The questionnaire is

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designed to ask for owners/managers' perception on organizational variables (the nature or extent of customer orientation, entrepreneurial orientation and business performance). This data was collected using a five-point scale (1= strongly disagree to 5 = strongly agree) indicating varying degrees of agreement to statements about these variables.

This paper adopts both online and offline channels to investigate. The questionnaire research was conducted from August 3 to September 20, 2016. In sum, 223 questionnaires from Chinese enterprises and 200 questionnaires from Korean enterprises are collected. In this paper, 207 questionnaires of Chinese small enterprises and 191 questionnaires of South Korean small enterprises were chosen to analyze the relationship between strategic orientations and the performance of small enterprises by using the SPSS 23.

b) Variables and Measures

Customer Orientation (CO): This paper developed two subordinate concepts (customer focus and customer response) based on studies on customer orientation. Each dimension has 4 items (Appendix A) which were developed by Narver and Slater (1990), and Tajeddini et al. (2013). Narver and Slater (1990) firstly advances the items about customer orientation; Tajeddini et al. (2013) syntheses 9 items based on Ashill et al. (2005), Berthon et al. (2004), Deshapande et al. (1993), and Pelham (1999) ‘s studies, which were developed to investigate respondents’ perceptions regarding customer orientation concept.

Entrepreneurial Orientation (EO): This paper adopts Miller (1983)’s three dimensions construction of entrepreneurial orientation. Covin and Slevin (1989) firstly developed a nine-item scale to measure the entrepreneurial strategic orientation. Altinay and Wang (2011) proposed the entrepreneurial orientation scale for small business. This paper adopts their works to measure each dimension of entrepreneurial orientation (Appendix A).

Performance of Small Enterprises (Performance): The performance of small enterprise is measured by subjective and objective measures. Objective performance measures have less bias and assess the financial performance of an organization (Stam and Elfring, 2008). But it is difficult to obtain; especially in the context of small and micro enterprises, financial data may be not reliable (Baum et al., 2000; Stam and Elfing, 2008). Subjective performance measures are widely used to assess nonfinancial data of an organization, and are more accessible than objective measures (Dess and Robinson, 1984; Stam and Elfing, 2008). Rauch et al. (2009) proposed three ways to measure small business performance: perceived financial performance, perceived nonfinancial performance, and archival financial performance. Wiklund (1999) advanced that

both growth and financial performance should be considered to measure the firm performance. Because of difficulties to obtain objective measures, this paper adopts three items to measure performance of small enterprises: perceived profit growth, perceived sale growth, and performance of last 3 years (Appendix A). Control Variables: Firm size and age may affect the influence of environmental and organizational factors on firm performance (Kraus, 2013). Therefore, this paper measures the firm size by the number of employees, the firm age by the business logarithm. For obtaining a heterogeneous sample, different industries are selected.


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Table 4.1: Questions of Customer Orientation, Entrepreneurial Orientation, Firm Performance, Performance

V.

Analysis and Results

a)

Summary of Questionnaires

Table 5.1 shows the number of small enterprises which were categorized in industries, firm size, firm age, and nationality. The total number of Chinese small enterprises investigated is 207; the total number of South Korean small enterprises investigated is 191. The number of small enterprises in Chinese retail, catering, and other industry are 69, 76, and 62, which accounts for 33.33%, 36.72%, and 29.95% respectively; the number of small enterprises in South Korean retail,

catering, and other industry is 65, 70, and 56, which accounts for 34.03%, 36.65%, and 29.32% respectively. The percentage of Chinese enterprises investigated with less than 10 employees is 71%; the percentage of South Korean enterprises is 70.68%. The percentage of Chinese enterprises investigated less than 5-year is 63.7%; the percentage of South Korean enterprises operated less than 5-year is 54.45%.

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Table 5.1: Summary of Questionnaires

b)

Reliability and Validity

i.

Reliability Analysis

Table 5.2: Reliability Statistics (China and South Korea)

The reliability analysis of this paper was

conducted by using Cronbach's coefficient alpha. Nunnally (1994) advanced that a scale should be regarded as reliable when the Cronbach's coefficient alpha is bigger than 0.7. As shown in Table 5.2, the Cronbach's coefficient alpha of Chinese sample ranges from 0.716 to 0.818; the Cronbach's coefficient alpha of Korean sample ranges from 0.721 to 0.812. Both are bigger than 0.700.

ii. Validity Analysis This paper adopts the Kaiser-Meyer-Olkin

(KMO) measure to test validity. Kaiser (1974) proposed that the value of KMO measure between 0.5 and 0.7 are mediocre, value between 0.7 and 0.8 are good, values between 0.8 and 0.9 are great. The KMO measures of Chinese sample are 0.888, the KMO measures of Korean samples are 0.878. Both KMO values are great.


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Table 5.3 and 5.4 show the rotated structure matrixes of Chinese and South Korean sample

respectively. The principal component analysis (PCA) of Chinese sample shows that the eigenvalues are greater than 1.0, which explains 35.507%, 10.281%, 5.505%, 5.266%, and 5.030% of the total variance. In South Korean sample, the eigenvalues are greater than 1.0, which explains 34.649%, 10.251%, 5.330%, 5.056%, and 4.821% of the total variance. The cumulative percentages of Chinese and South Korean sample are 61.859% and 60.107% respectively.

Table 5.3: Rotated Structure Matrixes of Chinese Sample

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Table 5.4: Rotated Structure Matrixes of South Korean Sample

c)

Correlation Analysis

The Pearson's product-moment correlation was used to test the correlations of strategic orientations (customer orientation and entrepreneurial orientation) and firm performance. The correlations between two subordinate concepts of customer orientation and performance of Chinese enterprises are 0.549 and 0.601; the correlations between three dimensions of entrepreneurial orientation and performance of Chinese enterprises are 0.588, 0.441, and 0.354.


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Table 5.5: Pearson Correlation for Main variables (China)

*p＜0.1, **p＜0.05, ***p＜0.01

Table 5.6: Pearson Correlation for Main variables (South Korea)

*p＜0.1, **p＜0.05, ***p＜0.01

The correlations between two subordinate concepts of customer orientation and performance of South Korean enterprises is 0.565 and 0.616; the correlations between three dimensions of entrepreneurial orientation and performance of South Korean enterprises is 0.578, 0.429, and 0.340.

d) Regression Analysis This paper adopts the linear regression analysis

to test the relationship between strategic orientations (customer orientation and entrepreneurial orientation) and performance of small enterprises.

Table 5.7: Regression Analysis Results (China)

*p＜0.1, **p＜0.05, ***p＜0.01

According to table 5.7, R＾2 of Chinese sample equals to 0.452, and means that approximate 45.2% of variance of performance of Chinese small enterprise can be described. Beta values for customer focus and customer response are 0.322 and 0.307 respectively. Beta values for proactiveness, innovativeness, and risk-taking dimension of entrepreneurial orientation are 0.210, 0.037, and 0.134 respectively.

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Table 5.8: Regression Analysis Results (South Korea)

*p＜0.1, **p＜0.05, ***p＜0.01

According to table 5.8, R＾2 of South Korean sample equals to 0.461, and means that approximate 46.1% of variance of performance of South Korean small enterprise can be described. Beta values for customer focus and customer response are 0.324 and 0.318 respectively. Beta values for proactiveness, innovativeness, and risk-taking dimension of entrepreneurial orientation are 0.231, 0.032, and 0.153 respectively.

e) Hypotheses Results The results of above analysis confirm that both

customer orientation and entrepreneurial orientation have a significant and positive effect on the

performance of small enterprise in China and South Korea. Hypothesis 1 and Hypothesis 2 are supported.

In Chinese and South Korean sample, both two subordinate concepts of customer orientation are positively related to the performance of small enterprise; Hypothesis 1a and Hypothesis 1b are supported. The proactiveness and risk-taking dimension of entrepreneurial orientation is positively related to the performance of small enterprises; the innovativeness dimension of entrepreneurial orientation has no significant effect on the performance of small enterprise. Hypothesis 2a and Hypothesis 2c are supported; while Hypothesis 2b is not supported.

Table 5.9: Hypotheses Results

VI. Conclusion

a) Summary This paper aims to investigate the relationship

between strategic orientations (customer orientation and entrepreneurial orientation) and the performance of small enterprises, and conducts research on Chinese and South Korean small enterprises to find out the differences of this relationship between the two countries. Customer orientation, as a core dimension of market orientation, was proposed from organizational culture and behavior perspectives (Kohli and Jaworski, 1990; Naver and Slater, 1990). According to prior studies, the core concept of customer orientation is

customer focus, which focuses on acknowledging and satisfying customer's needs and wants. From an organizational behavior perspective, customer response means to implement the ideology of customer focus. Entrepreneurial orientation stemmed from entrepreneurship has three dimensions, namely proactiveness, innovativeness, and risk-taking.

Previous studies proposed the positive relationship between strategic orientations and firm performance. This paper investigates these two strategic orientations jointly based on the survey of the Chinese and South Korean small enterprises, and proposes seven hypotheses. In small local market, a small enterprise with scarce resources has to devote


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their vigor and resources to satisfy their customers in order to achieve superior performance. That is consistent with customer orientation. Entrepreneurial orientation emphasizes the key role of owners or managers in responding proactively to market change, decision making process and risk-taking. But, it is hard for small enterprise to make risky decisions and devote their resources to uncertain future. Eggers, et al., (2013) advanced that the less financial resources a small- and medium-sized enterprise has, the more it will focus on customer needs and preferences in order to succuss. With limited resources, firms have to focus primarily on one strategic orientation (Horinha, Lages and Lages, 2011; Kaya and Seyrek, 2005). This paper considers the customer orientation and entrepreneurial orientation simultaneously and investigates their impact on the performance of small enterprises.

Based on questionnaires conducted in China and South Korea, this paper tested the relationship between strategic orientations (customer orientation and entrepreneurial orientation) and the performance of small enterprise respectively. The customer orientation and entrepreneurial orientation are positively related to the performance of small enterprise both in Chinese and South Korean samples. The customer focus and customer response are positively related to small firm performance. The proactviveness and risk-taking dimension of entrepreneurial orienation have a significant positive effect on the performance of small enterprises.

While innovativeness dimension of entrepreneurial orientation has no significant impact on the performance of small enterprises in both Chinese and South Korean samples. Due to liability of smallness, small enterprises may have not enough resources to devote to innovation. Small enterprises which focus more on customer orientation may have less motivation to continuously develop new and creative processes, provide novel products or services.

b) Implications and Limitations For small enterprises, owners or managers

should focus primarily on the needs and preferences of their customers, and serve customers efficiently in order to have a superior performance. A entrepreneurial orientation, which is characterized by proactiveness, innovativeness, and risk-taking, has a positive effect on the performance of small enterprises. Small enterprises with entrepreneurial orientation can proactively act to market uncertainty and take risks. While it is unnecessary for small enterprises to continuously develop new and creative processes, provide novel products or services.

This research also has several limitations. First, this paper adopts a small sample of Chinese and South Korean enterprises. Further studies can adopt a large sample and conduct on more transition economies.

Second, because of difficulties to obtain objective measurement data, this paper adopts subjective indicators of firm performance. Rauch et al. (2009) proposed three ways to measure small business performance: perceived financial performance, perceived non-financial performance, and archival financial performance. Wiklund (1999) proposed that both growth and financial performance should be considered to measure firm performance. Further studies should consider both objective and subjective performance indicators. Third, this paper investigates the relationship between strategic orientations and the performance of small enterprises. But there is a need to investigate mediators or moderators of this relationship and the interplay of different strategic orientations.

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Appendix a

1. Customer orientation (Narver & Slater, 1990; Tajeddini et al., 2013)

1. 1 Customer focus

Q1. Our business views customer primarily as a source of revenue for the business.

Q2. Our business views customer primarily as providing an opportunity to serve needs and wants.

Q3. Our business views customer primarily as co-partners in the development of unique, customized products and services.

Q4. Our business views customer primarily as a source of market information to develop our business.

1.2 Customer response

Q5. We understand customer needs and look for ways to offer customers more value.

Q6. A reputation for good service is stressed in my business.

Q7. We determine our objectives on the basis of customer satisfaction.

Q8. We handle customers’ complaints well.

2. Entrepreneurial orientation (Covin & Slevin, 1989; Altinay & Wang, 2011)

2.1 Pro-activeness

Q9. Our business undertakes market research in order to identify market opportunities.

Q10. Our business often leads the competition.

Q11. Our business is proactive in the marketplace in order to

achieve our business objectives.

Q12. In dealing with competitors, our business typically initiates actions quicker than other competitors.

2.2 Innovativeness

Q13. In the past 3 years, our business has marketed a large variety of new products or services. Q14. In the past 3 years, our business has introduced novel products or services.

Q15. Our business constantly introduces new products/services in order to serve new customers/markets.

Q16. We are willing to try new ways of doing things and seek unusual,

novel solutions.

2.3 Risk-taking

Q17. Our business has a tendency to take on highly risky projects with chances of very high returns.

Q18. Our business often takes bold, wide-ranging actions to achieve business objectives.

Q19. When confronted with decision-making situation involving uncertainty, our business typically adopts a bold, aggressive posture to maximize the profitability of exploiting potential opportunities.

3. Performance (Rauch et al., 2009; Wiklund, 1999)

Q20. We achieved our goal of profit

growth in last year.

Q21. We achieved our goal of sale growth in last year.

Q22. We are satisfy with our performance of last 3 years

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