American Journal of Industrial and Business Management, 2012, 2, 153-159 Published Online October 2012 ( 153
Relationship between Entrepreneurial Orientation, Firm
Resources, SME Branding and Firm’s Performance: Is
Innovation the Missing Link?
Muhammad Haroon Hafeez, Mohd Noor Mohd Shariff, Halim Bin Mad Lazim
College of Business, Universiti Utar a Malaysia, Sint ok, Malaysia.
Received July 1st, 2012; revised July 30th, 2012; accepted August 29th, 2012
Innovation is regarded as an engine for driving economic growth. Innovation is considered equally important for the
large enterprises as well as the Small and Medium Enterprises (SMEs). Role of innovation becomes of even greater
importance in the context of the business environment of developing countries such as Pakistan, where most of the
SMEs do not embrace rigorous innovation and at the same time there is lack of sufficient external support to encourage
innovation. It has been discussed that despite of healthy economic contribution to Pakistan’s Economy, SMEs are fac-
ing a low growth trap. Innovation can come up as a potential solution specifically for Pak istani SMEs and generally for
SMEs in developing countries in other parts of the world. This paper reviews the literature in a thorough manner in a
bid to build a novel conceptual framework proposing that innovation has causal linkages with entrepreneurial orienta-
tion, firm resources, branding and firm performance. On the basis of literature review, four thoughtful research proposi-
tions have been presented in this paper. The proposed framework can lead to very useful insights as it proposes that
branding may lead to innovation as opposed to generally believed concept of innovation leading to branding. This paper
is built on the underpinning theories like Resource Based View, Dynamic Capabilities Perspective, and Theory of Eco-
nomic Development. This paper also provides useful implications for the entrepreneurs as well as external institutions
responsible for ensuring higher extent of innovation in SMEs in Pakistan.
Keywords: Entrepreneurial Orientation; Firm Resources; SME Branding; Innovation; SMEs in Pakistan
1. Introduction
SMEs are considered as the spine of Pakistan Economy
as they are playing a significant role in generating em-
ployment opportunities, poverty reduction and thus con-
tributing towards creation of better standards of living.
SMEs represent more than 95 percent of Pakistani busi-
ness enterprises and therefore account for employment of
nearly 80 percent of non-agricultural/industrial labor
force in Pakistan. According to [1] SMEs contributed 30
percent of gross domestic product (GDP) in 2010-2011.
The critical importance of SMEs can be further empha-
sized by the fact that the real GDP of Pakistan rose only
by 2.4 percent in 2010-2011, SMEs delivered much
needed assistance. Small and Medium Enterprises De-
velopment Authority (SMEDA) approved 28 new SME
projects worth Rs. 2.8 billion in 2010-2011. Thus, it is
appropriate to argue that SMEs can significantly sustain
and increase business performance even in the times of
economic instability and turbulence. The term “SME”
was coined by the European Commission for the firms
employing lesser than 250 employees [2].
SMEs have been defined by various institutions in
Pakistan in a different manner as shown in Table 1.
Reference [3] argued that although SMEs are driving
the economy of Pakistan if viewed from a cumulative
perspective, yet a more analytical insight reveals that a
large number of Pakistani SMEs are experiencing dismal
growth and are battling for survival of their businesses.
This argument is authenticated from the factual evi-
dences that less than 20 percent of SMEs are operating
for lesser than four years and less than 05 percent of
SMEs are doing business for more than 25 years.
This scenario is worth investigating in order to come
up with potential vision to avoid rapid failures and busi-
ness shutdowns. A look at Table 2 shows that the per-
formance of small scale manufacturing firms in recent
decade was quite dismal compared to previous decades.
There is no shortage of entrepreneurial intent and de-
sire to succeed, financial problems can be sought out by
SME bank and other micro finance banks, human talent
Copyright © 2012 SciRes. AJIBM
Relationship between Entrepreneurial Orientation, Firm Resources, SME Branding and Firm’s Performance:
Is Innovation the Missing Link?
Table 1. SMEs definitions by various institutions in Pakistan.
Institution Small Medium
Small and Medium Enterpri s e
Development Authority (SMEDA) 10 - 35 Employees or Productive
assets of Rs.2 - 20 million 36 - 99 Employees or Productive assets of
Rs. 20 - 40 million
SME Bank Total Assets of Rs.20 million Total Assets of Rs.100 million
State Bank of Pakistan
(SME Prudential
An entity, ideally not being a public limited company, which does not employee more
than 250 persons (manufacturing) and 50 persons (trade/services) and also fulfills one
of the following criteria:
1) A trade/services concern with total assets at cost excluding land and buildings up to Rs.50 million;
2) A manufacturing concern with total assets at cost excluding land and building up to Rs.100 million.
Any concern (trade, services or manufacturing) with net sales not exceeding Rs.300 million as
per latest financial statements.
Sindh Industries
Department Entity engaged in handicrafts or manufacturing of consumer or producer goods with
fixed capital investment up to Rs.10 million including land & building
Punjab Industries
Department Fixed assets with Rs.10 million excluding cost of land
Source: Small and Medium Enterprises D evelopment Authority (SMEDA ) .
Table 2. Growth performanc e of small scale manufacturing
in Pakistan: A decade-wise comparison.
Years Growth Performance of SME Manufacturing in Pakistan
1981-1990 8.4%
1991-2000 7.8%
2001-2010 4.6%
Source: Ministry of Finance, 2011.
is available, networking alliances are there in the clu sters
such as Fan Manufacturing (Gujranwala), Cutlery (Wa-
zirabad), Blue Pottery (Multan), Furniture (Chiniot),
Sports & Surgical (Sialkot). SME branding though, is in
its inception, yet it is evid ent in case of ind ustries such as
fan manufacturing and in case of few sports and surgical
firms. In this regard the big question to ponder is that
what the missing link is. The answer probably lies in
adoption of innovation, as most of the above mentioned
clusters are labor intensiv e and thus rely on less efficient
technologies and older ways of executing administrative
and marketing tasks. With regards to innovation both
technical and non technical dimensions of innovation are
important. Bringing technological innovation is not
enough, innovation regarding introducing new products
(product innovation), managing the employees and car-
rying the everyday tasks (managerial or administrative
innovation), looking for new customers, seeking new
ways to position and promote the products and services
(Market and Marketing innovations) are also equally
important for superior performance in SMEs [4].
In the recent Economic Survey of Pakistan [5] the
emphasis is on enhancing the orientation and intensity of
innovation in order to achieve higher firm performance
and growth. Reference [6] identified lack of initiativ e and
capability to embrace new technology as substantial
causes that hamper the growth performance of SMEs in
Pakistan. Reference [7] described deficiency of firms’
ability and government assistance for innovation as
causes of poor business performance. SMEs cannot af-
ford to bear all costs of technology adoption and innova-
tion by themselves. In this regard they require active
support from the government. Role of technology parks
and incubation centers is crucial for techno logy adoption
and innovation. In th is regard, Finlan d can be quoted as a
success story. It has more than 18 technology incubators
located in various science parks in different parts of the
country. According to [8] Finland has been ranked
among 03 most innovative countries with an innovation
performance score of 9.50. In Pakistan, there are only 03
well established technology parks/incubation centers.
Although Ministry of Science and Technology (MoST)
in collaboration with SMEDA and other research insti-
tutes, is undertaking positive steps to develop and pro-
mote technology parks, the substantial outcomes are yet
to be witnessed as Pakistan lies almost at the bottom of
the list of most innovative countries. Pakistan with an
innovation performance index score of 3.13 has been
ranked 77th among 82 countries [8].
2. Conceptual Framework and Literature
The theoretical base of this paper is founded by review-
ing the literature. In the literature, causal linkages have
been identified among entrepreneurial orientation, firm re-
sources, SME branding, innovation and firm performance.
Figure 1 elaborates all the linkages in a sequential m anner.
This figure shows that Innovation is an outcome vari-
able of Entrepreneurial Orientation, Firm Resources and
SME Branding. Subsequently Innovation leads towards
Firm performance. The rationale for the linkages shown
in the Figure 1 is grounded in the literature as discussed
in the following part.
Copyright © 2012 SciRes. AJIBM
Relationship between Entrepreneurial Orientation, Firm Resources, SME Branding and Firm’s Performance:
Is Innovation the Missing Link? 155
Firm Resour ces Innovation
SME Bra n d ing
Figure 1. Conceptual framework.
2.1. Linkage between Entrepreneurial
Orientation and Innovation
Entrepreneurial Orientation can inhibit or foster Innova-
tion process. Several studies have stressed upon the ties
between entrepreneurial orientation and innovation [9-
14]. Reference [15] argues that entrepreneurship in itself
is a pragmatic manner leading towards innovation and
new venture establishment by assuming higher risks and
rewards associated with the new venture. According to
[16,17] entrepreneurial orientation refers to the tendency
of a firm to indulge in innovative, proactive and risk
prone ventures. In the light of literature it can be argued
with confidence that innovation is a function of entre-
preneurial orientation. Similarly the literature asserts a
significant relationship between Entrepreneurial Orienta-
tion and firm performance [18]. Entrepreneurial Orienta-
tion is considered as a behavioral procedure that operates
at firm level. If entrepreneurial orientation is prone to-
wards innovation, there is a greater likelihood that the
firm would embrace and manage innovation in more ef-
fective manner as compared to those firms where entre-
preneurs are less innov ative and risk aversive; resu ltantly
perform better than the competitors.
2.2. Linkage between Firm Resources and
Innovation cannot be achieved in isolation. Researchers
have thoroughly investigated the interaction among firm
resources and the extent to which it can manage innova-
tion. Resource based view (RBV) is a significant and
most cited theoretical foundation in this context. While
elaborating resource based view, [19] emphasizes the
significance and role of firm’s unique resources and dis-
tinct competencies in determining the magnitude of
firm’s capacity to manage innovation. Reference [20]
extended resource based view by formulating dynamic
capabilities perspective which gives importance to those
organizational processes which employ organizational
resources. Thus, dynamic capabilities perspective states
that what really matters is how efficiently and effectively
the critical resources are employed by the various proc-
esses taking place at different levels within the firm.
Reference [21] regards critical resources as highly in-
strumental in gaining differential advantage and higher
firm performance. Critical resources may refer to finan-
cial resources, human resources and n etworking allian ces
[18]. SMEs that are financially constrained face difficul-
ties in pursing innovation. Whereas, those SMEs which
enjoy sound financial health can afford experimentation
and follow innovative procedures more rigorously [22,
23]. Reference [24] signifies the importance of human
capital for products and process improvements leading
ultimately towards higher performance. There are nu-
merous studies that have stressed on the contribution of
human capital towards venture creation, survival, devel-
opment and growth of firms [25-27]. Reference [26] has
also highlighted the prominence of networking resources
in knowledge sharing and technology transfers that en-
able the firms towards innovative products and proc-
2.3. Linkage between SME Branding and
Branding is generally believed as a business of large
corporate firms. Because of their resources and economic
power, they have been considered as more suited to the
phenomenon of branding. Thus, branding in SMEs have
been largely neglected by marketing and branding gurus
such as Philip Kotler, David Aaker, Kevin lane Keller
and Jean Noel Kapferer. Their footsteps were followed
by fellow researchers in the field of brand management.
Hence, the conceptualization of Branding in SMEs could
not nourish till the start of new millennium.
Branding in SMEs became the subject of academic in-
terest since the beginning of past decade when [28]
coined the term “SME Branding”. There exist only a few
noteworthy researches in this area [28-33]. The signifi-
cance of branding in the perspective of SMEs is multi-
farious. Branding can assist SMEs in building corporate
image [34], achieving superior performance [35], pursuit
of innovative process and ev entually reaping competitive
advantage [36]. According to [37] branding creates the
room for rigorous technological up gradation and inno-
vation. Furthermore, the focus on brands and branding
activities accelerates the pace of introduction of innova-
tive products that are highly competitive and hard to
imitate thus enables the firm to achieve long lasting
growth [28]. Hence, brand ing activities can have a multi-
plier effect on SMEs’ innovation led firm performance.
2.4. Linkage between Innovation and Firm
Innovation refers to the ability of a firm to commercialize
Copyright © 2012 SciRes. AJIBM
Relationship between Entrepreneurial Orientation, Firm Resources, SME Branding and Firm’s Performance:
Is Innovation the Missing Link?
its invention [38]. The linkage between innovation and
firm performance is quite evident from the past and cur-
rent literature [39-42]. Innovation is regarded as a crucial
element for business growth and a critical factor for at-
taining long serving differential advantage [43,44]. Re-
searchers have clearly argued in favor of innovation for
higher firm performance by stating that disregarding in-
novation can lead to business demise [37,45]. In the con-
text of SMEs innovation refers to seeking novel ways of
doing business, looking for introduction of differentiated
products in order to grasp the marketing and economic
benefits such as higher profits, market share and sustain-
able competitive advantage [46]. In the perspective of
SMEs, [4] identified five types of innovations (Product
or Service, Market development, Marketing, Process
technology and Administrative innovations). According
to [47] innovation can be internal, cooperative or external
as far as its mode is concerned. Internal innovation refers
to firm’s self-reliance on its sources and competencies.
Cooperative innovation means that the firm employs its
own as well as its networks’ resources and competencies.
External innovation indicates that the firm is not capable
of organic innovation and it depends upon innovation
supported by external environment that may include the
assistance from government agencies and firms’ supply
chain partners. Furthermore, it has been found in the lit-
erature that firms that are more prone to innovation per-
form higher as compared to those who resist innovation
[48-50]. In the light of above mentioned studies it is ap-
propriate to say that in this fast paced age of globaliza-
tion and hyper competition, innovation is the way for-
ward for the en trepreneurs wh o want their businesses not
only to surviv e but also to exhibit sustained growth.
3. Research Methodology
In this paper a conceptual framework has been proposed
whereby innovation mediates the linkage between Entre-
preneurial Orientation, Firm Resources, SME Branding
and Firm Performance. The methodology adopted for
this paper is conceptual modeling to present a novel
framework which can combine the significant predictors
of firm performance in SMEs. To build this conceptual
model we have analyzed several secondary data sources
in detail. A thorough literature review of more than 100
conceptual and Research papers written by prominent
researchers in the field of Entrepreneurship, Innovation
and Brand Management has been conducted. Special
emphasis has been given to studies conducted in the
context of SMEs. Literature review takes in to account
the scholarly sources from 1934 to 2012. In addition to
scholarly articles, other data sources employed in this
study include: Highly cited Books, Conference Proceed-
ings and working papers in the field of Entrepreneurial
Branding and Innovation Research. These sources have
been reviewed to have a comprehensive insight of any
potential gaps in the previous studies. Furthermore, Pub-
lications by Small and Medium Enterprise Development
Authority of Pakistan (SMEDA), Publications of Minis-
try of Finance (MOF), Government of Pakistan, News
Articles from credible sources have been reviewed to stu-
dy the current state of growth performance, firms’ re-
sourcefulness, innovation and branding practices in SMEs
in Pakistan. Moreover, information from official websites
of various national and international research agencies a n d
institutes have been reviewed to present the interesting
findings with reference to issues discussed in the p aper.
On the basis of aforementioned literature review, a
new conceptual framework/model has been proposed
which proposes the following Research Propositions
RP1: Innovation mediates the relation ship between En-
trepreneurial Orientation and Firm Performance;
RP2: Innovation mediates the relationship between
Firm Resources and Firm Performance;
RP3: Innovation mediates the relationship between
SME Branding and Firm Performance;
RP4: Innovation mediates the relation ship between En-
trepreneurial Orientation, Firm Resources, SME Brand-
ing and Firm Performance.
4. Discussion, Conclusion and Implications
This paper attempts to describe the catalytic role of in-
novation in improving firm performance in SMEs in
Pakistan. As discussed in the introductory section of the
paper, the performance of SMEs in last Pakistan in last
decade has been quite dismal. In comparison with
(1981-2000), the performance has declined and stagnated.
So there is a dire need to come up with dynamic meas-
ures. Innovation can be one of those dynamic measures
that can spark growth and enable firms to break the status
quo and leapfrog towards superior performance. Thus,
the paper sheds light on the significance of innovation in
SMEs by reviewing the past and recent relevan t literature
that discusses the linkage between innovation and firm
performance. It also proposes a theoretical framework
where innovation mediates the relationship between en-
trepreneurial orientation, firm resources, SME Branding
and firm perf ormance. I nno v ation is q uite a d aun ting task
as it depends on certain pre-requisite conditions. Small
and medium firms’ propensity and ability to innovate
depends upon the entrepreneurs’ orientation towards risk
taking and innovativeness. Entrepreneurs are largely re-
sponsible for shaping the culture of their firms by the
positive orientation towards innovation that may enable
Copyright © 2012 SciRes. AJIBM
Relationship between Entrepreneurial Orientation, Firm Resources, SME Branding and Firm’s Performance:
Is Innovation the Missing Link? 157
them to identify and avail the attractive market opportu-
nities [51]. It also rests largely upon firms’ critical re-
sources as discussed in resource based view (RBV)
[19,52]. Moreover firms’ orientation towards branding
can lead the firms towards rigorous innovation in a bid to
retain the existing and attract the new customers, thus
expanding the overall customer base, increasing the
market share and achieving high growth performance. It
can be considered as the major contribution of the pro-
posed framework because it contradicts with the well
established view presented by [53,54] who asserted that
innovation serves as a platform for launching branding
activities. The framework supports the view proposed by
[28] that preexistence of branding practices can also
serve as a launching pad for aggressive pursuit of inno-
vation. It would be very interesting to empirically test
this proposition. If proven, this proposition would lead
the firms in pursuit of Brand led innovation excellence
strategy. Thus, the emphasis on branding processes in
SMEs would increase, which would serve not only the
SMEs but also the society at large. This new strategy
would ultimately contribute towards the economic
growth of the countries depending largely on the per-
formance of their SMEs.
In Pakistan, the establishment of SMEDA proved to b e
a landmark for the promotion of SMEs. Subsequently
SME bank was established to help small and medium
firms regarding financing problems. SMEDA was in-
strumental in developing a comprehen sive SME po licy in
2006-2007 [55]. As far as usefulness of policy is con-
cerned, there is no denial, but it is yet to be i mplemented
as documented. In order to meet the financing needs of
entrepreneurs there is a dire need of more micro finance
banks and venture capital firms. To promote innovation,
government must provide required socio-technological
support to the entr epreneur s so that they can take innova-
tive measures with more confidence. More technology
parks, business incubation centers and advisory cells
must be established in future in this regard. Furthermore
entrepreneurs also need to lessen the emphasis on tradi-
tional and older ways of operating businesses; reliance
on existing and commodity type products should also be
minimized. They should embrace new technologies to
improve their existing business processes and should
invest in branding activities to foster product innovation
[28], in addition innovation practices should also be em-
braced in managerial and marketing activ ities [4 ] in ord er
to achieve highly sustainable competitive advantage and
superior firm performance.
5. Future Research
This paper proposes a significant framework which can
be empirically tested in different countries especially the
developing countries; and across different industries in
order to generalize the findings. It would be very inter-
esting to study the differences in entrepreneurial orienta-
tions, critical firm resources, branding strategies and in-
novation practices among SMEs and to analyze their
impact on firms’ performance. Furthermore, longitudinal
studies in this regard can make invaluable contribution in
the academic literature regarding brand management and
innovation practices in SMEs. Future researchers can
also look for exploring the empirical relationship be-
tween Branding and Innovation in SMEs; therefore the
framework in this paper tries to lead the researchers to-
wards a new path for re-examining this important linkage
and possibly building a new theory.
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Is Innovation the Missing Link?
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