Market learning orientation, entrepreneurial orientation, innovation capability, trust and their impact on the performance of contract farming in Malaysia

Abstract

Contract farming (CF) is facing a number of issues which require farmers to change their traditional business approaches to strategic orientation (SO). In addition, innovation capability (IC) has been promoted as mechanism for growth and sustainability in various sectors. However, the study on the adoption of both SO and IC are still low. Previous studies have been done in manufacturing or technologyrelated sectors and towards large firms from the developed nations. Nevertheless, most studies have ignored the small and medium-sized firms in developing nations, particularly the agricultural sector. Motivated by this phenomenon, a better understanding on the adoption of SO and IC are provided in this study to fill the existing gap, using the Malaysia’s fruits and vegetables contract farming (FFV CF) as an analysis. Additionally, this study regards IC as mediator, while trust as moderator between SO and farm performance relationship. The relationship between SO-Trust-IC which are summarised as SOTI Model is one of the mechanisms to improve FFV CF performance in Malaysia. The quantitative method was employed and were guided according to the integration of Resource-Based View (RBV), Dynamic Capabilities view (DCV) and Commitment and Trust theory to achieve the objective of this study. 300 questionnaires were distributed to FFV CF and only 228 usable questionnaires were analysed and assessed using the Partial Least Square (PLS) technique. Finding shows that both SO of Market Learning Orientation (MLO) and Entrepreneurial Orientation (EO) were significant towards IC. IC was the only variable which gives positive and significant impact to farm performance and fully mediates the relationship between MLO, EO and farm performance while trust do not moderate the relationship of MLO, EO and IC. However, the direct effect of Trust to IC was substantial. Therefore, the study shows that MLO, EO, Trust and IC were important variables in influencing FFV CF performance in Malaysia. Besides, this study offers conclusive insights to various stakeholders, such as academician, practitioners and policy makers to engage in various strategies in enhancing the strategic business approach of FFV CFs. In summary, this study has concluded that the influence of SO of MLO, EO, Trust and IC towards farm performance in the context of FFV CF were significant, solidified by providing empirical evidence and suggestions for improvement, particularly to FFV CF and the agricultural sector as a whole.