Effect of organizational innovation as mediator in enhancing wholesale and retail small and medium enterprises’ performance

Abstract

In the fast-changing environment, Small and Medium Size Enterprises (SMEs) need to seize business opportunities and develop dynamic capabilities that produce high performance. Malaysia's wholesale and retail SMEs have suffered a severe decline in their business performance. Moreover, the sector's Gross Domestic Product (GDP) contribution is comparatively low compared to other sectors in Malaysia. In addition, the wholesale and retail sector also suffers heavily from low productivity. The present study has investigated the relationships between market orientation, entrepreneurial orientation, human resource management (HRM) practices, and organizational learning towards firm performance and organizational innovation. The current study also investigated the relationship between organizational innovation and firm performance. Likewise, the present study tested the mediating role of organizational innovation between market orientation, entrepreneurial orientation, HRM practices, and organizational learning towards organizational innovation. Hence, 201 responses were obtained from the owners/ managers of wholesale and retail SMEs in Malaysia. Data were analysed using Statistical Package for the Social Sciences (SPSS) and Partial Least Squares–Structural Equation Modelling (PLS-SEM). Thirteen hypotheses were tested in the study, and only ten of them were supported, and three hypotheses were not supported. The present study found a positive and significant relationship between entrepreneurial orientation, organizational learning, organizational innovation, and firm performance. However, market orientation and HRM practices were found to have no relationship with firm performance. A positive and significant relationship was found between market orientation, entrepreneurial orientation, HRM practices, and organizational learning towards organizational innovation. Besides that, organizational innovation mediates the relationship between market orientation, entrepreneurial orientation, organizational learning and firm performance. However, the study failed to provide empirical evidence for the mediating role of organizational innovation between HRM practices and firm performance. The study made significant contributions, especially for the owners/managers of wholesale and retail SMEs in Malaysia, by increasing their knowledge and awareness of appropriate strategies to improve organizational capabilities and how these strategies could foster an organizational innovation culture and increase firm performance. It also expands the current knowledge from the perspective of wholesale and retail SMEs in Malaysia. Thus, if the owners/managers of wholesale and retail SMEs in Malaysia could apply these strategies, they would enjoy superior firm performance and ensure business sustainability. Similarly, policymakers in Malaysia were provided recommendations to develop and establish policies to support the growth of wholesale and retail SMEs in Malaysia.