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Asia-Pacific Journal of Business Administration

Entrepreneurial competencies and SMEs’ growth: the mediating role of network

Shehnaz Tehseen, Farhad Uddin Ahmed, Zuhaib Hassan Qureshi, Mohammad Jasim Uddin,
Ramayah T.,
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Shehnaz Tehseen, Farhad Uddin Ahmed, Zuhaib Hassan Qureshi, Mohammad Jasim Uddin,
Ramayah T., (2019) "Entrepreneurial competencies and SMEs’ growth: the mediating role of
network competence", Asia-Pacific Journal of Business Administration,
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Mediating role
Entrepreneurial competencies and of network
SMEs’ growth: the mediating role competence

of network competence
Shehnaz Tehseen
Sunway University Business School, Sunway University, Bandar Sunway, Malaysia
Received 17 May 2018
Farhad Uddin Ahmed Revised 27 October 2018
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11 December 2018
International College of Technology, Cork, Ireland Accepted 15 December 2018
Zuhaib Hassan Qureshi
Universiti Kuala Lumpur – Universiti Kuala Lumpur Business School,
Kuala Lumpur, Malaysia
Mohammad Jasim Uddin
Sunway University Business School, Sunway University,
Bandar Sunway, Malaysia, and
Ramayah T.
School of Management, Universiti Sains Malaysia, Penang, Malaysia

Purpose – The purpose of this paper is twofold. First, to examine the influence of two dimensions of
entrepreneurial competencies, namely, strategic competency and ethical competency on the growth of small
and medium enterprises (SMEs); and second, to explore the role of network competence as a mediator among
these understudied variables.
Design/methodology/approach – The data for this study were collected from wholesale and retail-based
SMEs in Malaysia through a standard structured questionnaire. PLS–SEM approach was utilised to analyse
the data.
Findings – Although the findings did not reveal a direct effect of strategic and ethical competencies of
entrepreneurs on SMEs’ growth, these competences, however, were found to be influential in driving their
growth when network competence was used as a mediator.
Originality/value – The existence of a mediation effect between strategic and ethical competencies and
SMEs’ growth via network competence has provided insights which add new knowledge to the extant
entrepreneurship and SMEs’ performance literature.
Keywords Network competence, Entrepreneurial competencies, Ethical competence, SMEs’ growth,
Strategic competence
Paper type Research paper

Over the past two decades or more, a voluminous literature has documented the significance
of small and medium enterprises (SMEs) in the economic development of most countries
across the world (see Kraja and Osmani, 2015; Soomro and Aziz, 2015). SMEs are argued to
be critical in developing a culture of entrepreneurship, stimulating competition, producing
huge employment opportunities, enhancing the quality of human resources and opening
new opportunities for businesses (Karides, 2005; O’Regan and Ghobadian, 2004;
Weerakkody, 2013). SMEs are also directly linked with the economic well-being of their
entrepreneurs. Thus, firms’ growth and superior performance remain the priority of most
entrepreneurs (Rosli and Abdullah, 2015). Since SMEs are the key sources for
entrepreneurial ideas, which contribute to a nation’s competitiveness (Sidik, 2012; Suh Asia-Pacific Journal of Business
and Kim, 2014) and generate revenue for entrepreneurs, it is essential to focus on their © Emerald Publishing Limited
efficiencies, competitiveness and productivity (Rahman and Ramli, 2014; Rusconi, 2008; DOI 10.1108/APJBA-05-2018-0084
APJBA Weerakkody, 2013). This study therefore seeks to contribute to entrepreneurship and firm
performance literature by examining the determinants of SMEs’ growth. In particular,
we examined the influence of two dimensions of entrepreneurial competencies, namely,
strategic competency and ethical competency on the growth of SMEs and the mediating
roles of network competence in these understudied entrepreneurial competencies.
A number of studies have claimed that a lack of entrepreneurial competencies hinder
SMEs’ success (see Ahmad, 2007; Beaver and Jennings, 2005; Dulewicz and Higgs, 2000;
Ibrahim and Goodwin, 1986; Kiggundu, 2002; Longenecker et al., 1999; Tehseen and
Ramayah, 2015). This stream of literature has encouraged a small number of studies to
examine the effectiveness of different dimensions of entrepreneurial competencies with a
mixed conclusion (see Ahmad et al., 2011; Dubey and Ali, 2011; Mohammed et al., 2017). This
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divergence in the extant literature has resulted in tension. We argue that this tension is
derived from a lack of exploration of the indirect effect of entrepreneurial competencies.
In particular, prior studies predominantly have overlooked the mediating effect in the
relationship between strategic and ethical competencies on the growth of SMEs. Therefore,
our study also seeks to contribute to the literature by proposing a model where network
competence is used as a mediator. We argue that entrepreneurial competencies, especially
strategic and ethical competencies, influence more towards the business success when the
firms build their network competence to get other critical business resources such as
knowledge, technology and expertise. Thus, the role of network competence cannot be
neglected in achieving business growth (BG) both in local and international markets.
To date, researchers have examined different types of entrepreneurial competencies,
namely, conceptual competency, opportunity competency, personal competency, learning
competency, networking, strategic competency and ethical competency (see Man et al., 2002;
Nakhata, 2018; Osagie et al., 2016; Quagrainie, 2018; Stephen et al., 2017; Suhaimi et al., 2018;
Yusuff et al., 2016). However, consistent with Colombo and Grilli (2005), we argue that all skills
and expertise do not lead to a firm’s growth. We also argue that strategic competency and
ethical competency are the most critical competencies for entrepreneurs to ascertain their
firms’ growth. The strategic competencies enable an entrepreneur to better align with the
external business environment to attain BG in the long term (Aquilani et al., 2017; Goldman
and Scott, 2016; Hu et al., 2016; Sandada, 2015; Tafti et al., 2017). Likewise, ethical competency
is the second important independent variable examined in this study. Ethical practices among
entrepreneurs would pay off in the long run (Ahmad et al., 2010). Entrepreneurs who behave
ethically strongly believe that good ethics is the key for achieving their BG (Spence and
Rutherfoord, 2001). Thus, ethical behaviours assist in achieving the long-term BG (Barringer
and Ireland, 2019). Since both the entrepreneurial competencies, namely, strategic competency
and ethical competency significantly influence on the BG, therefore, these two competencies
have been studied as independent variables to predict the growth of SMEs.
Our investigation on the effectiveness of entrepreneurial competencies is confined to the
Malaysian context, particularly to its retail SMEs. Malaysia is striving towards achieving
the goal of transforming its economic status from a middle-income country to a developed
economy by 2020 (OECD, 2013). To achieve this goal, the country should encourage
entrepreneurial activities (Mokhtar, 2017). A pool of competent individuals is central to the
initiation of entrepreneurship (Mokhtar, 2017) and successful business operations. Similar to
other emerging countries, SMEs have been the key focus of the industrial policy agenda in
Malaysia owing to their strategic importance in the economic development (see Tajudin
et al., 2014). According to Aris (2006), SMEs in Malaysia contribute to the economy because
of their outputs and labour-intensive features. SMEs in Malaysia account for 99.2 per cent of
total businesses and provide employment to 56.4 per cent of its total workforce (EPU, 2010).
Since the early 1970s, Malaysian Governments have encouraged entrepreneurship through
the provisions of various policy initiatives (Mokhtar, 2017) considering its manifold
contributions to the national economy. However, government supports were not found to Mediating role
affect firms’ performance in Malaysia (Zainol and Daud, 2011). This implies that the success of network
and performance of Malaysian businesses depend on entrepreneurial resources. Malaysian competence
entrepreneurs may capitalise their entrepreneurial competencies to compensate for the lack
or ineffectiveness of institutional supports. To address the identified limitations in the
extant literature, our study is guided by the following research questions:
RQ1. What is the impact of strategic competency and ethical competency on
SMEs’ growth?
RQ2. To what extent does network competence mediate the relationship between
strategic and ethical competencies and SMEs’ growth?
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The rest of the paper is structured as follows. The next section provides a brief summary of
the literature regarding firms’ growth and entrepreneurial competencies. The following
section sets out and develops the conceptual framework of the study and hypotheses from a
review of pertinent literature. Then, we explain our research methodology and methods.
The study findings are reported afterwards in the subsequent section. The study concludes
with a discussion and contributions of our findings.

Literature review
Study context
The Malaysian wholesale and retail SMEs were used as the population of this study. Evidence
suggests that compared to other ASEAN members and more developed nations, Malaysian
SMEs are characterised by relatively low productivity, low business formation rates,
concentration of output and employment in a small number of firms and a high concentration
SMEs in the informal sectors (OECD, 2013). Muhammad et al. (2010) identified that the main
problems faced by SMEs are the lack of knowledge regarding branding, marketing techniques
and customer loyalty as well as the lack of good contacts with the international and national
enterprise. Alam (2010) observed social barriers as the main obstacles for SMEs in
achieving the competitive advantage. The ineffectiveness of government supports in SMEs’
performance was also evident in the literature (Zainol and Daud, 2011). There is also
inconsistency regarding the factors that are vital for the success of Malaysian SMEs (Ahmad,
2007). Given these idiosyncrasies, it is critical to know the determinants of SMEs’ growth for
both theory and policy. However, little empirical research has been conducted in the context of
Malaysian SMEs. Researchers thus called for studies to explore the effect of entrepreneurial
competencies, particularly strategic and ethical dimensions on the success of Malaysian SMEs
(Ahmad, 2007; Ahmad et al., 2012). To address this knowledge gap and respond to these
research calls, the present study constitutes the sample of 80 respondents who were the
entrepreneurs of SMEs in the wholesale and retail sector based in the two most urbanized
states of West Malaysia, namely, Selangor and Kuala Lumpur.

Firms’ growth
Firms’ growth patterns and determinants are most emphasised topic in the management
literature (Martins, 2016). Growth is critical for SMEs because growth decreases the
possibility of their closures (Rauch and Rijskik, 2013) and increases the chances of survival.
Firms’ growth typically result from an increased demand for products/services that lead to
an increase in sales and investment in additional factors of production so that firms can
respond to the new level of demand ( Janssen, 2009). Growth is an internal process
corresponding to the development of an enterprise and an increase in quality and/or
expansion (Penrose, 2006), change in size during a time span (Dobbs and Hamilton, 2007).
However, how SMEs grow, particularly what determines a typical SME growth remains an
APJBA under-researched topic in the literature (Lee, 2014; Wakkee et al., 2015). SMEs may grow
using different trajectories including “entering in new markets in the domestic or foreign
market, taking over another firm or achieving efficiency improvements” (Wakkee et al.,
2015, p. 171). Capability or competency may play a key role in SMEs’ growth and successful
pursuit of different growth paths. It is argued that a firm’s competitiveness results from its
ability to use internal resources combined with accessible external resources productively
(Barney, 1991; Prahalad and Hamel, 1990). In particular, capability or competency is of vital
importance in the productive use of both resources required for firms’ growth and
competitiveness. In practise, the terms “capability” and “competency” have been used
interchangeably (Ritter, 2006; Zerbini et al., 2007).
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Entrepreneurial competency
The term “competency” itself has long been used in the strategic management literature.
Entrepreneurial competencies are defined as the underlying characteristics such as traits,
motives, specific knowledge, social roles, skills and self-images that lead to the birth of a new
venture, its survival and growth (Bird, 1995). The entrepreneurial competencies have been
recognised as the underlying characteristics of entrepreneurs (Osman and Rahim, 2014) or
individuals which help them to accomplish tasks in a most benefiting way (Lazar and Paul,
2015). Individuals who start a business and add value to it through opportunity identification
and utilisation of resources usually possess entrepreneurial competencies (Bird, 1995). Highly
effective entrepreneurs grow their businesses through their competencies. The entrepreneurial
competencies are linked with growth and sustainability of enterprises (Baum et al., 2001;
Bird, 1995; Colombo and Grilli, 2005; Sajilan et al., 2016; Sajilan and Tehseen, 2015;
Owusu-Acheampong, 2014). This study thus aims to advance knowledge by considering
entrepreneurial competencies as predictors of SMEs’ growth. Researchers have identified
various aspects of entrepreneurial competencies across various sectors. These aspects include,
but are not limited to the following: strategic competencies, conceptual competencies,
opportunity competencies, personal competencies, learning competencies, ethical, familism,
leadership, marketing, management and relationship competencies (Ahmad, 2007; Man, 2001).
Several studies recommended to measure specific competencies across different industries
and sizes for increasing the generalisability of competency model (Ahmad et al., 2011;
Mitchelmore and Rowley, 2010; Salah et al., 2015). Given the limited research focusing on
strategic and ethical competencies as well as network competence, the scope of the present
study is confined to their assessment.
Network competence refers to a firm’s (or an individual) capability in developing a
relationship with suppliers, customers and other relevant organisations and deal effectively
among these stakeholders (Ritter, 1999; Ritter et al., 2002). The network capability of any
firm is a key source of superior performance (Dyer and Singh 1998; Ziggers and Henseler
2009). There are many ways to define network competence. For instance, it has been
considered as an ability of dyadic relationship between partners, while some others relate it
with various stakeholders underlying networks. Additionally, it has been referred to as
either capability or as a competence. This is because the firms are embedded in the networks
of professional relationships (Granovetter, 1985; Håkansson and Snehota 1989), including
customers, suppliers and strategic allies (Anderson et al., 1994; Walter et al., 2006). Salancik
and Pfeffer (1978) argued that the organisations indeed have to manage their relationships
with the external parties whom they depend directly or indirectly because the uncertain
actions of such external parties can insecure the survival and success of the organisations.
Firms strive to build the networks with other firms to have access to the required assets and
resources (Kogut and Singh, 1988; Nohria and Garcia-Pont, 1991; Salancik and Pfeffer, 1978).
It is difficult for a firm to achieve success alone, as success depends on the performances and
quality of relationships with other parties (Wilkinson and Young, 2002).
Theoretical background and hypotheses Mediating role
The theoretical framework of this study is developed based on the underlying principles of network
of resource-based view (RBV ) theory (Barney, 1991; Penrose, 1959). RBV maintains that competence
organisational capabilities that are valuable, unique and difficult to imitate result in
sustainable competitive advantage for firms (Barney, 1991). In particular, the proponents
of RBV have argued that unique competencies may affect firm’s performance if they fulfil
two conditions. First, the competencies should be valuable that allow the organisation to
overcome risks and develop opportunities. Second, not many organisations in a particular
competitive environment possess these competencies. This study claims that
entrepreneurial competencies such as strategic competency, ethical competency, as well
as network competence can be considered as valuable resources for SMEs. It is well
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documented that SMEs tend to be burdened by financial and/or human resources. SMEs
in developing/emerging countries also need to deal with many institutional difficulties.
However, the synergistic effect originates from these specific competencies of SMEs’
entrepreneurs may help them to compensate for financial, human resources and
institutional weaknesses in identifying and exploiting business opportunities
successfully, which in turn result in superior business performance. In addition, not all
the business owners possess these competencies and network competence. Therefore, the
success of many firms can be dependent on their entrepreneurial competencies and
networking capabilities. Using RBV as an underpinning theory and in line with studies of
Ahmad et al. (2018) and Mitchelmore et al. (2014), we thus argue that entrepreneurial
competencies, namely, strategic and ethical competencies as well as network competence
are the essential internal resources that lead to the growth of SMEs. A number of existing
studies have also related entrepreneurial competencies to RBV (Ahmad et al., 2018;
Tehseen and Ramayah, 2015; Tehseen et al., 2015).
Effect of strategic competency
Strategic competency refers to the ability of entrepreneurs to set, assess and execute
strategies for attaining the success of firms (Rahman et al., 2014). It involves the strategic
thinking of entrepreneurs which reflects their ability to develop strategic plans and future
vision by taking strategic actions (Stonehouse and Pemberton, 2002). Similarly, strategic
competency is related to the establishment, evaluation and execution of strategies for the
firm (Man et al., 2002). Sandada (2015) found that the environmental scanning and formal
strategic planning are important dimensions of strategic competency. The strategic
competency helps entrepreneurs’ efficient allocation and exploitation of valuable but
scarce resources. Moreover, this competency enables entrepreneurs to provide a pathway
between where their businesses exist currently and where they intend to take their
businesses in future (Hörisch et al., 2015). The strategic competency is instrumental in
dealing with turbulent market characterised by unpredictable customers’ demands and
expectations, which in turn may result in competitive advantage for firms (Hanson et al.,
2014; Simon et al., 2017). SMEs in emerging economies are facing huge uncertainties
stemming from their business environments (Luo and Child, 2015). Farooq and Abideen
(2015) concluded that SMEs need a strong strategic preparedness to face the uncertain
situations in the business environment. Thus, it is essential for SMEs to develop effective
strategies and execute them on right time to achieve long-term BG (Barringer and Ireland,
2019; Luo and Bu, 2018). A number of studies related the strategic competency of
entrepreneurs with the success and growth of businesses (Ahmad, 2007; Ahmad et al.,
2010; Kaur and Bains, 2013; Man, 2001; Rahman et al., 2014; Tehseen and Ramayah, 2015;
Wickramaratne et al., 2014). Thus, based on the above, the following hypothesis
is developed:
H1a. Strategic competency has a direct positive effect on SMEs’ growth.
APJBA Effect of ethical competency
Ethical competency refers the ability of individuals to show transparency and honesty in all
business dealings by telling truth and by admitting mistakes (Ahmad et al., 2011;
Ahmad, 2007). According to Nguyen et al. (2015), an extensive research has acknowledged the
impact of entrepreneur’s ethics on marketing practises. Ethical competencies of entrepreneurs
are related to their honesty, transparency and truthfulness in all business affairs. Thus, the
ethical dimension of entrepreneurial competencies may lead the BG by winning the trust of
the customers. By applying the ethical values and practises, businesses offer good quality of
products and services to their customers and retain them for the long term. This leads towards
the growth of firms’ businesses in local and international markets (Nguyen et al., 2015).
According to Orme and Ashton (2003), ethics is a major part of a competency framework and
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hence provides a foundation for successful business. An entrepreneur with this competency
usually offers products and services at reasonable prices and takes accountability for his or
her own actions. The people behave ethically when their actions ensure that these practises
and rules are applied in all situations of business in a consistent way (Orme and Ashton, 2003).
There is a growing awareness in the modern businesses that ethical practises provide the
good return in the long run of business (Zairi and Peters, 2002). Moreover, ethical behaviour
that a company portrays to public may affect its image and reputation ( Jones, 2001).
Although ethical practices are critical for firms irrespective of their size, they are even
more important in the case of SMEs in emerging economies. SMEs in emerging economies
are facing the difficulty of retaining their customers (Sok et al., 2016). To attain the BG, it is
essential for SMEs to retain their customers in the long term. Transparency in business
activities and other ethical practices would enable them to achieve superior performances
(Ahmad, 2007; Tehseen and Ramayah, 2015). A number of recent studies have established
the positive impact of ethical competency on BG (Kaur and Bains, 2013; Korsakiene and
Diskiene, 2015). Based on the above, we have formulated the following hypothesis:
H2a. Ethical competency has a direct positive impact on SMEs’ growth.

The mediating effect of network competence

Although most of the existing studies established positive impacts of entrepreneurial
competencies, particularly strategic competency (Ahmad, 2007; Irene, 2017; Minimol, 2017;
Stephen et al., 2017; Tamyez et al., 2017) and ethical competency (Ahmad, 2007; Irene, 2017;
Tamyez et al., 2017) on the performance of SMEs, the findings are not yet conclusive. The
inconclusive findings might be due to the existence of mediating effect in the relationships
between these competencies and SMEs’ growth. Given the inconclusive findings, we
examined the mediating effect of network competence in the relationship between strategic
and ethical competencies and the growth of SMEs.
While previous studies have documented the relationship between strategic
competency and BG, we seek to advance such prior scholarship by considering
network competence as a mediator between strategic competency and BG. Numerous
studies have assumed the relationship between the strategic and network competences
(Barringer and Ireland, 2019; Ritter and Gemünden, 2004). The rationale of such
assumption is that successful firms continuously engage in the environmental scanning
and develop strategies to deal with the environmental uncertainties. Hence,
entrepreneurial strategic competencies are crucial to formulate and execute long-term
strategies (Hambrick, 1982). Since the growth of businesses depends on their networking
with the external parties, we assume a positive relationship between the strategic
competency and network competence. This is because strategic competencies of
entrepreneurs depend on the resources such market information or knowledge that
entrepreneurs may attain from their networks. In other words, an entrepreneur would be
able to get timely market information only when he or she has developed strong Mediating role
relationships with the customers, suppliers and competitors. of network
Likewise, we do assume that the ethical competency has a relationship with the network competence
competence. This is because when ethical practices, e.g., fairness and transparency in
business dealings become the norm of a firm, winning and maintaining the trust of key
stakeholders, namely, financial institutions, customers, suppliers and distributors turn out
to be an easy task. It is argued that when entrepreneurs establish close and deep
relationships with customers, suppliers and other relevant parties then they may become
more fair and transparent in their business dealings to win and maintain the trust of other
people (Tehseen et al., 2018; Tehseen and Ramayah, 2015). Thus, they may able to maintain
the long-term relationships with the key parties in future due to their ethical competency.
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The development of network relationships with different actors has become an integral
component of business strategy in the twenty-first century, particularly in the case of SMEs.
Large firms can leverage available internal and external resources (which may not necessarily
include network partners) in their disposal to compete, grow and survive. For SMEs, access to
relevant stakeholders, namely, financial institutions for capital, suppliers, distributors and
customers involve building and maintain relationships with these actors. Hence, SMEs’
business strategies tend to focus on building network relationships to ascertain growth and
performance. Moreover, since the retail firms are mostly engaged in developing their strategic
competencies to have effective planning, their success depend on networking with the external
parties, including customers, suppliers and other relevant organisations. We thus assume a
positive relationship between the strategic competency and network competence.
In particular, since prior studies have considered the positive impact of ethical competency
and strategic competency of entrepreneurs on the growth of SMEs (Ahmad, 2007; Ahmad et al.,
2010; Kaur and Bains, 2013; Man, 2001; Tehseen and Ramayah, 2015), we predict that network
competence may act as a mediator in the relationship between the ethical competency and BG,
as well as in the relationship between the strategic competency and BG. Some recent studies
have shown the association between the strategic competencies with network competence
(Forkmann et al., 2018; Mu et al., 2017; Zakrzewska-Bielawska, 2018). Networks support the small
firms in gaining the valuable resources (Yli-Renko et al., 2001) and achieving the survivability
and growth by entering in the new markets (Lee et al., 2001). Behyan (2016) revealed that
external networks significantly contribute in enhancing the firm-level performance. Likewise,
Kheng and Minai (2016) found that entrepreneurs develop and maintain long-term relationship
with their suppliers, customers and friends. In addition, studies have highlighted the importance
of network competence in achieving the business success by coordinating various activities
and providing opportunities to learn about market and industry (Boso et al., 2013; Park and Luo,
2001). Thus, the abilities of the firms and entrepreneurs to develop strong network relationships
with key stakeholders are critical for superior performance and sustainable competitive
advantage (Ziggers and Henseler, 2009). Hence, we propose the following hypotheses:
H1b. Strategic competency has a direct positive effect on network competence.
H2b. Ethical competency has a direct positive effect on network competence.
H1c. Network competence mediates the relationship between strategic competency and
SMEs’ growth.
H2c. Network competence mediates the relationship between ethical competency and
SMEs’ growth.
H3. Network competence has a direct positive effect on SMEs’ growth.
The proposed conceptual framework of our study is shown in Figure 1. According to the
framework, the strategic and ethical competencies have been treated as independent

Network H1c, H2c, H3

Competence Business Growth

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Figure 1.
Research framework Notes: Exogenous constructs (SC, strategic competency; EC, ethical competency),
mediator (NC, network competence), and endogenous construct (BG, business growth)

variables and SMEs’ growth is treated as the dependent variable. The framework takes into
account the mediating role of network competence in the relationship between strategic
competency and BG as well as in the relationship between ethical competency and BG.
Because Ziggers and Henseler (2009) and Dyer and Singh (1998) argued that the firm’s
ability to develop networks is a key source for achieving success and competitive
advantage, this study intends to explore whether network competence influences the
success of businesses and thus it is drawn as a mechanism in the relationship between
strategic and ethical competencies and BG.

Methodology and methods

Data and sample
The population of our study derived from the wholesale and retail SME sector in Malaysia.
The literature around the Malaysian retail industry is abundant compared to its wholesale
industry. The Malaysian retail industry plays the main role in the economic progress of the
country. According to Bernama News (2013), in 2012, the Malaysian retail industry
contributed 13 per cent to the country’s GDP. By 2020, this industry was expected to
contribute RM156 bn to GDP and to create about half a million new jobs (Bernama News,
2013). The significance of the Malaysian retail industry is also evident in the Global Retail
Data Index as it ranked Malaysia among the top 30 emerging nations because of its retail
potential (Kearney, 2013). Therefore, we have drawn our population from the Malaysian
wholesale and retail SMEs involved in the perfume business.
Perfume is considered as a luxurious product that belongs to the category of cosmetic
products in Malaysia (Ministry of Health Malaysia, 2014). The Malaysian cosmetic
industry experiences an annual growth rate of approximately 13 per cent, and has been
one of the world’s leading industries (Eze et al., 2012). The compound annual growth rate
of perfume in Malaysia is around 4 per cent regarding volume and constant value (Azeema
et al., 2016). In Malaysia, the annual expenditure on cosmetic products is approximately
$500 m (Azeema et al., 2016) of which expenditures on perfume and toiletries have been
increasing over the past years. According to the US Department of Commerce (2016), there
are two categories of cosmetic and toiletries manufacturers in Malaysia: multinational
corporations and domestically owned entities. The local cosmetics and toiletries market is
valued about $800 m (Eze et al., 2012). In 2015, Malaysian domestic manufacturers
exported about $270 m worth of cosmetics and toiletries (US Department of Commerce,
2016). Given the strategic significance of the cosmetic and toiletries industry in Malaysia
and world trade, it is vital to develop an understanding of the factors that influence the Mediating role
competitiveness and growth of local perfume businesses for theory, policy and practice. of network
Since the competitiveness and growth of local perfume businesses in Malaysia yet to be competence
explored, our study sample thus consists of indigenous perfume business.

The survey
The present study constitutes the sample of 80 respondents who were the entrepreneurs of
sample firms from the two most urbanized states of West Malaysia, namely, Selangor
and Kuala Lumpur. The survey was administered during the last quarter of 2017, which
took more than two months to complete. Snowball sampling method was used to collect
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the data from target respondents from the area of Selangor (Taipan, USJ 9 and 10 Business
Centres) and Kuala Lumpur (Majid Jamek, Petaling Street and PWTC). For the purpose
of this study, only those entrepreneurs were targeted in survey who met the
following criteria:
• individuals who started up their own businesses and were actively engaged in the
management of their business;
• the business was of at least three years old with employees between 5 and 75; and
• individual that belonged to any of Malaysian ethnic groups (Malaysian Chinese,
Malay or Indian).
Consistent with SME Corporation (2018) Malaysia, SMEs were operationalised based on
the number of employees employed in our study. In Malaysia, 98.5 per cent of total
business establishments constitute SMEs (Haya and Juhaini, 2018). Based on size, the
Malaysian SMEs are divided into small, medium and microenterprises. Among 98.5
per cent of SMEs, 76.5 per cent are microenterprises, 21.2 per cent small and 2.3 per cent
medium-sized enterprises, respectively (SME Corporation, 2018). Microenterprises are
defined as those firms with a sales turnover of RM300,000 or employed less than five
employees. A firm with a sales turnover of not exceeding RM50 m, or number of full-time
employees not exceeding 200 are considered as SMEs in the Malaysian manufacturing
sector. For the services and other sectors, firms with sales turnover not exceeding
RM20 m, or number of full-time employees not exceeding 75 are considered as SMEs
(SME Corporation, 2018). The majority of entrepreneurs in the perfume industry belong to
either small- or medium-sized enterprises. Microenterprises were not under the scope of
this study.
The target respondents were contacted using social networks. The survey was
administered via a face-to-face interaction to increase the response rate and obtain complete
responses. Utilising the snowball sampling method, social network was used to have access
to target respondents. This sampling method was also adopted by many studies.
For example, Man (2001) conducted his pilot study by adopting this method in the context of
Hong Kong’s wholesale and retail SMEs. Due to a lack of complete list of perfume SMEs in
Malaysia, we could not obtain the information about the total number of perfume SMEs
operating in West Malaysia during the survey. Social contacts that we used helped us to
obtain information about 90 SMEs involved in the perfume business. Among the
90 respondents, 80 agreed to participate in the survey, yielding a response rate of
approximately 89 per cent. The remaining respondents were reluctant to participate in the
survey due to their very busy schedules.

The two domains of entrepreneurial competencies, namely, strategic competency and
ethical competency of entrepreneurs were investigated among target SMEs through the
APJBA standard questionnaire. The “strategic competency” was measured by four items that were
adapted from Man (2001) and Ahmad (2007) and its Cronbach’s α was found to be 0.669. The
“ethical competency” was measured by six items that were adapted from Ahmad (2007).
Nine items were used to measure the network competence by adapting Ritter et al. (2002).
The Cronbach’s α of ethical competency and network competence were found to be 0.892
and 0.747, respectively. In this study, SMEs’ growth was measured by four items by
adapting Chandler and Hanks (1993) and Ahmad (2007). And 0.697 was the Cronbach’s α of
BG. A five-point Likert scale was used to rate agreement or disagreement from 1 (strongly
disagree) to 5 (strongly agree) to assess the behaviours of entrepreneurs towards above
competencies, network competence and BG. The items used to measure the above variables
are shown in Table I.
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To examine the relationships among the main constructs by adopting the partial least
squares (PLS) technique, SmartPLS 3.2.4 was applied to evaluate the measurement model
and structural model. PLS analysis was selected because it can assess all paths

Variable Statements Items Codes

Strategic competency I identify long-term problems, issues, and Identification of SC1

(Ahmad, 2007; Man and opportunities long-term problems
Lau, 2000) I am aware of the projected directions of the Awareness of projected SC2
industry and how changes might influence my direction
I prioritize work in alignment with business Alignment with SC3
goals business goals
I redesign my business to better meet Redesigning business to SC4
long-term objectives and changes meet long-term goals
Ethical competency I always keep promises Promise keeping EC1
(Ahmad, 2007) I admit mistakes and tell the truth Telling truth EC2
I engage in fair, open and honest marketing Honest marketing EC3
practices practices
I try to be transparent and honest in business Transparency in EC4
dealings business dealings
I strive to be committed in offering goods and Commitment towards EC5
services at fair prices fair prices
I always take responsibility and be Taking actions’ EC6
accountable for own actions responsibility
Business growth (Ahmad, We have enough sales Sales BG1
2007; Chandler and We have good market share Market share BG2
Hanks, 1993) We have enough cash flow Cash flow BG3
We have a sufficient number of employees Number of employees BG4
Network competence We compare our partners in terms of their Comparison with NC1
(Ritter et al., 2002) technical knowledge partners
We evaluate the way the results of Evaluation of NC2
collaborations with each of our partners fit collaborative results
We initiate meetings and discussions among Meetings within firm NC3
those in our firm involved in relationships with regarding partners
our partners relationship
We coordinate the activities involved in Coordination of NC4
different relationships with our partners activities
We assign people to each relationship with our Assigning people to NC5
partners and assess their efforts which they build the relationship
Table I. put into relationships with partners with partners
Variables and We monitor the extent to which relationships Monitoring the extent of NC6
measurements with our partners work to our advantage the relationship
simultaneously and does not need a large sample size. The other reasons of using PLS–SEM Mediating role
were non-normal data, new relationships, and prediction oriented features of this of network
study (Hair et al., 2011, 2017). Additionally, G*power analysis is highly suggested in the PLS competence
literature to calculate the appropriate sample size (Hair et al., 2014, 2017). Therefore, we
have assessed the sample size using G*Power software, an extension of the previous
versions (Faul et al., 2007). Since, our PLS model involves the three predictors of the
BG, a minimum sample size of 77 was needed to create a power of 0.80 for our PLS model
with 0.15 of medium effect size (Hair et al., 2014, 2017). Thus, using 80 respondents, our PLS
model has met the minimum sample size requirement to generate the power of 0.80 with
medium effect size.
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Respondents and firm background

Regarding tenure, the average age of the majority of responding firms (65 per cent) were
between 6 and 10 years, while 35 per cent firms were less than six years old. Almost
two-third (60 per cent) of responding firms were small businesses, employed 5–30 employees
with an annual sales turnover between 300,000 and o3 m Malaysian ringgit. The
remaining (40 per cent) were medium-sized businesses, having 30–75 employees with an
annual sales turnover between 3 m and o20 m Malaysian Ringgit. All respondents were
the entrepreneurs of the target wholesale and retail SMEs. The respondents consisted of
41.3 per cent males and 57.5 per cent females. Most of the entrepreneurs were in the age
group of between 41 and 50 years (47.5 per cent). In terms of ethnicity, 37.5, 37.5 and
25.0 per cent of respondents were Malays, Chinese and Indians, respectively. The majority
of respondents hold an undergraduate degree (46.3 per cent).

Common method bias/variance tests

In recent years, the empirical research within entrepreneurship and organisational studies
have devoted much attention to the issue of common method bias or common method
variance (CMV ) that may bias the empirical analyses’ findings obtained in studies using the
same respondents as a source for collecting the data ( Jakobsen and Jensen, 2015; Tehseen
et al., 2017). Doty and Glick (1998) stated that CMV occurs by introducing the systematic
variance into the measures by the technique of measurement. Richardson et al. (2009) have
defined CMV as the systematic error variance shared among constructs that has been
measured with the same method or source. This systematic error variance can result in
common method bias, and bias the estimated relationships among measures and variables
(Campbell and Fiske, 1959; Jakobsen and Jensen, 2015). The issue of CMV has been
continuously provoking the attention among PLS researchers because it can lead towards
biases in any PLS study that has involved the survey method to collect data from the same
type of respondents while using the same type of Likert scale. Since our study involved the
survey method in which five-point Likert scale (same type of measuring scale) has been used
to collect data from SMEs’ entrepreneurs (the same type of respondents), CMV can occur
that can lead our study’s results bias and unreliable. Therefore, construct-level correction
(CLC) approach proposed by Chin et al. (2013) was used to control the CMV’s impacts after
obtaining the PLS estimates through the structural model’s analysis.

Data analysis
Assessment of measurement model
Table II reveals that all the outer loadings of items are above the minimum value of 0.4 to
0.8. The convergent validity of each construct is above the minimum value of 0.5. Similarly,
composite reliability is also above 0.6 for each construct.
APJBA Indicators’ outer AVEa (convergent CRb (composite
Variables Items loadings validity) reliability) ρ_Ac Cronbach’s α

Strategic SC1 0.781 0.502 0.799 0.688 0.669

competency SC2 0.739
SC3 0.567
SC4 0.728
Ethical EC1 0.745 0.640 0.914 0.913 0.892
competency EC2 0.731
EC3 0.788
EC4 0.866
EC5 0.777
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EC6 0.881
Business BG1 0.736 0.516 0.804 0.741 0.697
growth BG2 0.469
BG3 0.799
BG4 0.815
Network NC1 0.761 0.567 0.839 0.756 0.747
competence NC2 0.742
NC3 0.795
NC6 0.710
Notes: aAverage variance extracted (AVE) ¼ (Sum of the square of factor loadings)/((Sum of the square of
Table II. factor loadings)+(Sum of the error variances)); bcomposite reliability (CR) ¼ (Square of the sum of factor
Results of loadings)/((Square of the sum of factor loadings)+(Square of the sum of error variances)); cρ_A is called as true
measurement model reliability according to Hair et al. (2017)

The cross-loadings as shown in Table III do not reveal any multicollinearity issue. Likewise,
using the Fornell–Larcker criterion, the discriminant validity was proved as shown in
Table IV because the square root of average variance extracted (AVE) of each of the latent
variables is greater than its correlations with any other of the constructs of the model (Hair
et al., 2014, 2017).
Henseler et al. (2015) proposed the assessment of the correlations’ heterotrait–monotrait
ratio (HTMT) to determine the discriminant validity. This latest approach shows the


BG1 0.736 −0.133 0.282 0.080

BG2 0.469 0.081 0.080 −0.032
BG3 0.799 0.101 0.243 0.059
BG4 0.815 0.072 0.343 0.121
EC1 0.035 0.745 0.132 0.036
EC2 −0.011 0.731 0.047 −0.067
EC3 0.021 0.788 0.174 0.038
EC4 0.022 0.866 0.255 0.019
EC5 0.071 0.777 0.182 −0.030
EC6 −0.067 0.881 0.221 −0.076
NC1 0.263 0.192 0.761 0.388
NC2 0.297 0.186 0.742 0.253
NC3 0.346 0.250 0.795 0.251
NC6 0.180 0.058 0.710 0.318
SC1 0.100 0.050 0.275 0.781
SC2 0.117 0.109 0.331 0.739
Table III. SC3 −0.068 −0.170 0.229 0.567
Cross-loadings SC4 0.102 −0.088 0.291 0.728
estimation of the true correlation between two constructs. A threshold value of 0.90 for Mediating role
HTMT and confidence interval of the HTMT less than 1 have been proposed as the of network
threshold value for determining the discriminant validity through HTMT (Henseler et al., competence
2015). Table V shows that HTMT criterion has been fulfilled for our PLS model.
Thus, the above results lead to the satisfaction with the measurement model analysis due
to its adequate reliability, convergent validity and discriminant validity. The second stage
of analysis involves the structural model analysis and hypotheses testing.

Assessment of the structural model

A structural model was employed to examine the collinearity, the coefficient of
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determination (R2), path coefficients ( β), predictive relevance (Q2) and effect size ( f 2). The
values of variance inflation factor (VIF) were assessed to examine the collinearity issues.
The VIF value of EC was 1.076, SC was 1.210 and NC was 1.283. Since all VIF values were
found below the threshold of 5. Therefore, collinearity among the latent variables is not any
issue in the structural model, and we can continue evaluating the results’ report.
After assessing the VIF values, the bootstrapping was conducted with 500 resamples
using PLS 3.2.4 to get the standard path coefficients, t-values and standard errors to examine
the significance of hypothesised relationships (Hair et al., 2017). The mediation test was also
conducted on the basis of Hayes and Preacher’s (2014) concept that infers the indirect effect of
strategic competency and ethical competency on BG. This describes the path coefficient in the
mediation chain. Table VI and Figure 2 disclose the direct path coefficients for strategic


BG 0.718
EC 0.015 0.800 Table IV.
NC 0.367 0.238 0.753 Fornell–Larcker
SC 0.106 −0.011 0.402 0.708 criterion


EC 0.170 (0.125, 0.177)
NC 0.469 (0.266, 0.665) 0.253 (0.136, 0.385) Table V.
SC 0.229 (0.150, 0.254) 0.207 (0.138, 0.238) 0.561 (0.264, 0.801) HTMT criterion

Hypotheses β values SD t-statistics p-values Decision Mediation

H1a. SC → BG −0.060 0.175 0.343 0.732 Not supported

H1b. SC → NC 0.405 0.131 3.081*** 0.002 Supported
H1c. SC → NC → BG 0.166 0.087 1.908* 0.057 Supported Yes
H2a. EC → BG −0.084 0.166 0.507 0.612 Not supported
H2b. EC → NC 0.243 0.112 2.167** 0.031 Supported
H2c. EC → NC → BG 0.100 0.059 1.682* 0.093 Supported Yes
H3. NC → BG 0.411 0.143 2.871*** 0.004 Supported Table VI.
Notes: Critical t-values: *1.65 (significance level ¼ 10 per cent); **1.96 (significance level ¼ 5 per cent); and Hypotheses testing –
***2.57 (significance level ¼ 1 per cent) structural model
APJBA 0.761

0.742 NC3
0.220 0.795
0.405 NC
SC2 0.739
SC3 0.728

EC1 0.736
0.469 BG2
0.143 0.799
Figure 2.
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EC2 0.745 BG3

–0.084 0.815
Mediation path EC4

between NC and EC5
0.881 EC
entrepreneurial EC6

competencies on BS
Note: NC4 and NC5 were removed due to the low outer-loadings

competency construct and illustrates a negative and non-significant relationship with BG

( β ¼ −0.060, t ¼ 0.343). The second hypothesis indicates the positive and significant
relationship between strategic competency and network competence (β ¼ 0.405, t ¼ 3.081***).
However, the mediation between strategic competency, network competence and BG was
positive and significant ( β ¼ 0.166, t ¼ 1.908*). Thus, H1a was not supported but H1b and
H1c were supported. This means that there is a mediation effect between strategic
competency and BG via network competence.
The ethical competency construct showed a negative and non-significant relations with
BG (β ¼ −0.084, t ¼ 0.507). Therefore, H2a was also not supported. However, a positive and
significant relationship was found between ethical competency and network competence
( β ¼ 0.243, t ¼ 2.167**). Likewise, the mediation between ethical competency, network
competence and BG was positive and significant ( β ¼ 0.100, t ¼ 1.682*). Therefore, H2b and
H2c were supported. This indicates that there is a mediation effect between ethical
competency and BG via network competence. Finally, a positive relationship was found
between network competence and BG ( β ¼ 0.411, t ¼ 2.871***). With this analysis, the
tested H3 was supported.
The coefficient of determination (R2) was 0.143 for BG and 0.220 for network competence.
Cohen (1988) suggested that R2 values of 0.26 and 0.13 should be considered as substantial
and moderate, respectively; whereas, the R2 value of 0.02 should be considered as weak.
Thus, R2 values of both the endogenous constructs were found between moderate to
substantial because they were more than 0.13, indicating a moderate PLS model. To sum up,
the strategic competency and ethical competency variables and network competence
explained 14 per cent of the variance in BG. This suggests that 86 per cent of the variance in
BG was explained by the other unknown factors which were not been included in this study.
Then, we examined the effect size ( f 2). According to guidelines mentioned by Cohen
(1988), the values of f 2 effect size 0.02, 0.15 and 0.35 are considered as small, medium and
large effects of the exogenous constructs, respectively. Thus by following Cohen’s (1988)
guidelines, Table VII shows that ethical and strategic competencies do not have any effect

Constructs BG NC

Table VII. EC 0.008 0.076

The result of the f2 SC 0.003 0.210
effect sizes NC 0.154 na
on BG. However, network competence has the medium effect on BG. Likewise, ethical Mediating role
competency and strategic competency were also found to have small and medium to large of network
effect on network competence, respectively. competence
Hair et al. (2017) asserted that besides reporting values of R2, the predictive relevance
should by assessed using Q2 value should be included as well. The blindfolding procedure is
used to obtain the Q2 value that is applicable for the reflective measurement models (Hair
et al., 2017). Since both the endogenous constructs, namely, network competence and BG
were measured relatively, thus, their Q2 values were reported. In this study, the Q2 values of
the network competence and BG were 0.098 and 0.036, respectively, as shown in Table VIII
representing the medium predictive relevance for our PLS model (Cohen, 1988).
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PLS findings after the removal of CMV impacts

In order to control any significant impact of CMV from the study’s findings as well to
present more reliable results and conclusions. We have controlled the influence of CMV
using one of the MLMV techniques known as the CLC. The CLC approach is one of the
statistical remedies suggested by Chin et al. (2013) in order to remove any impact of CMV
from the PLS studies. The items of social desirability as shown in the Social Desirability
Scale were used to create the Marker variable in CLC approach as shown in Figure 3.
Fischer and Fick’s social desirability scale (Form X1):
(1) I like to gossip at times.

Constructs SSO SSE Q2 ( ¼ 1−SSE/SSO)

BG 320.000 308.553 0.036

EC 480.000 480.000 Table VIII.
NC 320.000 288.529 0.098 The result of the
SC 320.000 320.000 prediction values


0.217 0.751 NC2

Marker 1
Marker 3
0.339 NC
SC2 0.715
SC3 0.698


Marker 2

Marker 4 –0.262

EC2 0.779 BG3
0.778 –0.081
EC3 0.765 BG BG4
Figure 3.
CLC modelling
APJBA (2) There have been occasions when I took advantage of someone.
(3) I’m always willing to admit it when I make a mistake.
(4) I sometimes try to get even rather than forgive and forget.
(5) At times I have really insisted on having things my own way.
(6) I have never been irked when people expressed ideas very different from my own.
(7) I have never deliberately said something that hurt someone’s feelings (source:
Fischer and Fick, 1993, p. 421).
According to Fischer and Fick (1993), the seven items of social desirability could be
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used to detect the CMV in any study that employs the same type of respondents. Moreover,
Table IX reveals minimum difference in the values of R2 by using the CLC approach.
Likewise, Table X shows that path coefficients that were found to be significant or
non-significant in original PLS estimation remained also significant or non-significant even
in CLC estimation. This clearly indicates that CMV did not impact our study’s results, thus,
our study’s results are more reliable to draw conclusions and implications.

Discussion of findings and contributions

Since a negative relationship has been found between strategic competency and BG
( β ¼ −0.060, t ¼ 0.343), as well as between ethical competency and BG ( β ¼ −0.084,
t ¼ 0.507), we thereby reject H1a and H2a. These negative results were inconsistent with
Ahmad (2007). However, it should be noted that the results were not statistically significant.
The possible explanation of these negative impacts of entrepreneurial competencies,
namely, strategic competency and ethical competency is that the Malaysian wholesale and
retail SMEs are facing the huge turbulence in their business surroundings since 2014.
Therefore, it may be possible that these entrepreneurial competencies may strongly
influence BG in more stable business environments. However, the findings of H1b
( β ¼ 0.405, t ¼ 3.081***) and H2b ( β ¼ 0.243, t ¼ 2.167**) that were the new assumed

PLS estimation CLC estimation

Table IX. Endogenous constructs R2 Adjusted R2 R2 Adjusted R2
CLC estimation and
original PLS NC 0.220 0.200 0.256 0.227
estimation of R2 BG 0.143 0.110 0.200 0.157
values of NC and BG Notes: NC, network competence; BG, business growth

PLS estimation CLC estimation

Hypotheses β values t-statistics β values t-statistics Decision Mediation

H1a. SC → BG −0.060 0.343 −0.052 0.421 Not supported

H1b. SC → NC 0.405 3.081*** 0.339 2.566** Supported
H1c. SC → NC → BG 0.166 1.908* 0.146 1.968** Supported Yes
H2a. EC → BG −0.084 0.507 −0.081 0.673 Not supported
H2b. EC → NC 0.243 2.167** 0.222 2.175** Supported
Table X.
CLC estimation and H2c. EC → NC → BG 0.100 1.682* 0.096 2.013** Supported Yes
original PLS H3. NC → BG 0.411 2.871*** 0.430 3.546*** Supported
estimation of path Notes: Critical t-values: *1.65 (significance level ¼ 10 per cent); **1.96 (significance level ¼ 5 per cent); and
coefficients ***2.57 (significance level ¼ 1 per cent)
relationships in this study were found significant and positive. Thus, strategic competency Mediating role
has been found to have its positive relationship on network competence (H1b). This means of network
that Malaysian entrepreneurs’ strategic competency that is related to long-term plans and competence
formulation, as well as the execution of strategies, lead to the network competence of
entrepreneurs. This clearly indicates that the strategic competency of entrepreneurs enables
them to acquire critical resources by developing the long-term relationships with external
parties including customers, suppliers, competitors and other relevant organisations.
Similarly, the positive influence of ethical competency on network competence has
been revealed in this study (H2b). This was almost the new assumed relationship in this
study that was found positive and significant. This reveals that the ethical competency of
entrepreneurs leads to the network competence, the logic behind this relationship is that
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by acting in an ethical way, the entrepreneurs show transparency in their business

activities and offer products and services at fair prices, thus, their ethical business
activities result into the establishment of close and long-term relationships with the
customers, suppliers, competitors and other relevant parties. Moreover, the result of H3
revealed that network competence of the Malaysian wholesale and retail SMEs’
entrepreneurs positively and significantly impact their BG. This finding is consistent with
many other studies as well that have found the positive impact of network competence on
the BG of SMEs in various contexts ( β ¼ 0.411, t ¼ 2.871***). Thus, the positive
correlation as well as the significant results in H1b and H3 contributed towards the
mediation interaction between the strategic competency and BG (H1c) ( β ¼ 0.166,
t ¼ 1.908*). Likewise, the positive correlation as well as the significant results in H2b and
H3 also contributed towards the mediation interaction between the ethical competency
and BG (H2c) ( β ¼ 1.00, t ¼ 1.682*). Although the impacts of strategic competency and
ethical competency of entrepreneurs were not found to affect the growth of SMEs directly,
their indirect impacts have been established. Since the indirect effects have been
found significant, our study thus has provided the empirical evidence regarding the
“indirect-only mediation” (Hair et al., 2017) of the network competence in the relationship
between the strategic and ethical competencies and BG in the context of the Malaysian
wholesale and retail SMEs.
The contributions of our study are manifold. First, we contributed to the literature by
developing and testing a new empirical model that incorporate the mediation effect of
network competence in the relationship between strategic and ethical competencies and
SMEs’ growth. Our study contributed to the literature by revealing a mediation effect
between strategic and ethical competencies and SMEs’ growth via network competence.
Our findings provide support to those studies that established the significance of
entrepreneurial competencies in driving the growth of SMEs. The management structure
and independence of small firms put entrepreneurs in the most critical position in running
their businesses (Mitchelmore and Rowley, 2010). Consequently, growth and performance of
small businesses are dependent upon entrepreneurial competencies (Minai et al., 2014;
Mitchelmore and Rowley, 2010). However, the findings of our study contradict the assertion
of Hashim et al. (2018, p. 4) that the “relationship among entrepreneurial competencies and
small firm performance is questionable because of the inconsistent findings in the
literature”. We argue that inconsistent findings in the literature stem from a lack of studies
examining the indirect effect of entrepreneurial competencies on SMEs’ growth. Our
findings suggest that being competent is important, but not a sufficient precondition for
SMEs’ growth if entrepreneurs do not possess network competency. In particular, in the
context of Malaysian wholesale and retail-based SMEs, our findings highlight the utmost
importance of network competence for their growth.
Second, our findings on entrepreneurial competencies are also consistent with the
underlying principles of RBV theory. Intangible resources with valuable, rare and
APJBA imperfectly imitable features are argued to be instrumental for entrepreneurial success
and competitive advantage (Barney, 1991). The findings of our study extend this stream of
literature by demonstrating that entrepreneurial competencies as examined possess these
characteristics since they contribute to SMEs’ growth. In particular, our findings lend
support to the argument of RBV theorists that entrepreneurial competencies are valuable
resource of the firms (Barney, 1991) as they positively affect the growth of SMEs.
Entrepreneurial competencies can be considered as resource-based competencies
(see Lado et al., 1992). These authors further argued that for resource-based
competencies to generate competitive advantage, they must exhibit complex
relationships with other resources or capabilities of firms. In our study, strategic and
ethical competencies exhibited a complex relationship with other competencies in
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determining the growth of SMEs, thereby validating the conceptual work of Lado et al.
(1992). Consistent with a number of studies, we conclude that entrepreneurial
competencies, namely, network competence is the essential internal resource that leads
to the growth of SMEs (Ahmad et al., 2018; Mitchelmore et al., 2014). Our findings also
confirm the claim that business success and growth is dependent upon a few resources of
which entrepreneurial competencies are the most pivotal and strategically important
(Omar et al., 2016; Tehseen and Ramayah, 2015). Network competence is even more critical
strategic asset for SMEs in emerging economies. SMEs operating in emerging economies
are burdened by adverse economic conditions, lack of suitable government policies, weak
infrastructural facilities, higher operating costs and corruption (Abdullahi and Sulaiman,
2015; Hafeez et al., 2013; cited in Hashim et al., 2018). Leveraging network competence may
help them to compensate for these obstacles, which in turn result in their BG and
performance. In addition, our findings suggest that entrepreneurial competencies as
examined in this study are valuable, rare and imperfectly imitable resources, since not all
the business owners possess these competencies easily. Based on RBV, we argue that the
performances of SMEs could be differentiated based on their internal resources (Barney
1991; Crook et al., 2008; Ketchen et al., 2007), namely, their entrepreneurs’ competencies.
Finally, given the lack of knowledge on the determinants of SMEs’ growth in the
context of emerging economies, we contributed to the literature by addressing this
knowledge gap in the literature. Although the economic growth of emerging economies is
usually driven by SMEs, our theoretical understanding remains limited on how SMEs
compete and grow in turbulent but competitive business environments of emerging
economies (Bruton et al., 2008). The literature around SMEs’ growth is abundant in the
context of developed countries. However, theoretical knowledge around SMEs in
developed countries could not be easily applied and translated into the context of SMEs in
emerging economies (Sok et al., 2016). This is because the research on entrepreneurship
and small businesses is very unique due to its multidisciplinary approach (Grunhagen and
Mishra, 2008). In addition, SMEs in emerging economies are operating in different and less
favourable institutional environments compared to those in developed countries. Better
comprehension of the entrepreneurship and SMEs businesses in the context of emerging
economies is therefore of vital importance (Bruton et al., 2008; Sok et al., 2016) for policy
makers, academics and entrepreneurs and managers of SMEs. In particular,
understanding the direct and indirect effects of entrepreneurial competencies on the
growth of SMEs in the context of emerging economies is essential. Our study contributed
to the literature by establishing the critical role of entrepreneurial competencies, namely,
strategic competency, ethical competency and network competence in SMEs’ growth
when they are encountering uncertain business environments. More specifically, the
existence of indirect effects of strategic and ethical competencies, and direct influence of
network competence on SMEs’ growth has provided insights which add new knowledge to
the extant entrepreneurship and SMEs’ performance literature.
This study has some implications for policy makers. Understanding the components, Mediating role
dynamics and effects of entrepreneurial and managerial competency has important of network
economic, social and political implications (Newton, 2001, cited in Mitchelmore and competence
Rowley, 2010, p. 104). SMEs are argued to act as a shield to the economic shocks,
fluctuations (Hyder and Lussier, 2016), and critical to deal with unemployment problems,
poverty and income inequalities (Hashim et al., 2018). In the developing countries, on
average the contribution of SMEs to GDP is 70 and 95 per cent to the total employment
(Hashim et al., 2018). In Malaysia, SMEs account for 99.2 per cent of total businesses, and
provide employment to 56.4 per cent of its total workforce (EPU, 2010). However, it is well
documented that the failure rate of SMEs is very high. Given the strategic significance of
SMEs, policy makers are very concerned about circumventing their failure and promoting
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growth (Mitchelmore and Rowley, 2010). To address the high failure and promote growth
of SMEs, policy makers across the world provide various support measures.
Understanding the determinants of SMEs’ growth can help policy makers in designing
the new and/or modifying the exiting support measures. Our study has provided the
empirical evidence regarding the importance of network competence in the context of
Malaysian wholesale and retail industries. Therefore, Malaysian Government and policy
makers should initiate the specific training programs for the existing and new SMEs’
entrepreneurs to improve their network competence. The government needs to make
special arrangements which may include trade fairs and seminars on specific products/
services where SMEs’ entrepreneurs, suppliers and customers can be invited to facilitate
their relationships. The implications of our findings for practice should also be considered.
For instance, it has revealed the importance of network competence which may be one
among the possible solutions to managerial problems such as SMEs’ higher failure rates,
their low productivity, and low contributions towards country’s GDP and employment.
Through the development of network competence entrepreneurs/managers of SMEs can
benefit from the access to many critical resources, such as latest market information,
technology, customers’ needs, market trends and other knowledge.
Our study must be viewed in the light of a number of limitations. First, our study is
confined to a single country and thus our conclusion should be interpreted with caution.
A sample of 80 firms is relatively small that may not provide a deeper understanding of the
multifactor effect on SMEs’ growth. Evidence suggests that access to population in pursuit
of obtaining data is a challenging task in emerging country contexts. Our study is also
limited to the exploration of the effect of three entrepreneurial competencies on SMEs’
growth. Moreover, we have tested the validity of our model in context of only retail and
wholesale SMEs. These limitations result in a number of future recommendations for
researchers: multi-country study and large sample can be fruitful in testing the validity of
our model and increasing the generalisability of findings; it would be interesting to
investigate the mediating impacts of network competence among other dimensions of
entrepreneurial competencies (such as leadership, marketing, conceptual, personal, and
opportunity competencies) and BG; future studies should also investigate the specific
competencies essential for BG in other Malaysian sectors such as manufacturing, mining,
construction and agriculture; similarly, an investigation and comparison of various
entrepreneurial competencies across different Malaysian industries will also provide useful
insights for the BG; furthermore, the role of network competence should be deeply
investigated for the growth of Malaysian SMEs businesses both in local as well as in
international markets; the validity of empirical model developed in this study should be
tested across different Malaysian SMEs; and the empirical testing of the developed model
could provide some useful information in the context of SMEs owned by different cultural
groups (Indian, Chinese and Malaysians) and could reveal the influence of strategic
competency, ethical competency and network competence on BG of such SMEs.
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