Abstract

     How entrepreneurial orientation facilitates the identification of new opportunities in newly established ventures in emerging economies remains largely unexplored. Approaching entrepreneurial orientation as a second order latent construct, we examined the mediating role of opportunity recognition on new venture performance. Using a survey data from 316 SMEs, the results of the analysis in SmartPLS highlights that entrepreneurial orientation indirectly contributes to the performance of new ventures, where the relationship is partially mediated by opportunity recognition. The findings show that firms with high entrepreneurial orientation can identify and exploit new opportunities as well as enjoy superior performance.

Introduction

     Many emerging economies are confronted with immense challenges such as uncertain markets (Czakon et al. 2020; Yu et al. 2020), globalization (Fatima 2017), new market systems (Alvarez et al. 2015) and intense competition (Chari and Banalieva 2015). As compared to developed markets, new ventures suffer from a higher failure ratio due to institutional challenges. For instance, Wang and Chen (2010) argue that in China, more than 70% of newly established ventures fail in the first year. Another study by Parnell et al. (2015) reports 67% failure ratio of Chinese ventures in the first year while 85% in the first 10 years. Anwar and Ali Shah (2020) report that more than 50% of new ventures in Pakistan do not survive in the long run. These institutional challenges impinge on the growth of small and medium enterprises (SMEs) largely due to the liability of newness and smallness, which limits their ability to adapt rapidly to changing business conditions (Yu et al. 2020). Consequently, the ability of these firms to exploit new opportunities in order to survive the competition is impeded (Zhou and Li 2010; Chen et al. 2020). Thus, bringing to the fore the issue of performance and survival of newly established SMEs in emerging economies (Anwar and Ali Shah 2020; Yu et al. 2020; Guo et al. 2019a).

Conclusion

     Our research examined and tested predictions about the mediating role of opportunity recognition between EO and new venture performance in emerging markets. The study also examined the effect of opportunity recognition on venture performance. Even though we found empirical support for the derived hypotheses, this line of inquiry also opens an opportunity for theory building regarding which dimension of EO is more appropriate in opportunity recognition concerning newly born enterprises in emerging market settings.