Entrepreneurial orientation and social ties in transitional economies

Ngoc Luu, Liem Ngo

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 Entrepreneurial orientation and social ties in transitional economies

Abstract

Recent research suggests that entrepreneurial orientation (EO) has a more complex effect on

performance (i.e. non-linear instead of linear) than previously considered. We extend this view

by examining the non-linear effect of each individual dimension of EO (i.e. innovativeness,

proactiveness, and risk-taking) on firm performance in the context of a transitional, collectivist

economy. Drawing upon social capital theory, we also examine under which social capital

conditions (i.e., business and political ties) each dimension of EO is most effective. Using

survey data from 137 firms in Vietnam Top 500 Companies, this study shows that

innovativeness and proactiveness have inverted U-shaped relationships with firm performance,

while the effect of risk-taking on firm performance is also non-linear but in the form of

increasing returns. Findings also show that social capital from business ties differentially

moderates the effects of EO dimensions on performance. Similarly, social capital from political

ties has different moderating effects on the innovativeness-performance and proactiveness-

performance linkages. The findings urge managers of firms operating in transitional economies

to take the levels of social capital from business ties and political ties into consideration when

making their decision on which entrepreneurial strategy to pursue.

Keywords: entrepreneurial orientation; political ties; business ties; transitional economy.

1
Introduction

Research on entrepreneurial orientation in transitional economies has recently received

significant attention (Jiang et al., 2016, Bruton et al., 2008). As originally proposed by Miller

(1983), entrepreneurial orientation (EO) is defined as a firm’s strategic orientation combining

innovativeness, proactiveness, and risk-taking (Covin et al., 2006, Covin and Slevin, 1989).

Innovativeness refers to a firm’s tendency to engage in experimentation, support new ideas and

depart from established practices (Lumpkin and Dess, 2001). Proactiveness reflects a firm’s

propensity to act in anticipation of future demand to shape the environment and to act

aggressively towards rival firms in the pursuit of favorable business opportunities (Hansen et

al., 2011, Lumpkin and Dess, 2001). Risk-taking is a tendency to take bold actions such as

making investments in projects that have uncertain outcomes (Lumpkin and Dess, 2001).

The EO literature has called for further research on the effect of the individual dimensions

of EO on firm performance, because each sub-dimension has a different association with key

outcome variables (George, 2006). However, what remains unexamined is the effects of the

individual dimensions of EO on firm performance, especially in the context of transitional,

collectivist economies. Compared to developed economies, transitional, collectivist economies

offer a context with several unique characteristics. First, under a transitional economy setting,

firms have to face tremendous instability and underdevelopment in the institutional

environment as well as market environment. Such market volatility creates confusion, and

difficulties for firms to forecast future market demand and business environment. Therefore,

compared to developed economies, in transitional economies, the links between firms’ EO

strategies and their performance may follow more complex trajectories than simple, positive

ones (Lumpkin and Dess, 2001). Second, unlike individualist cultures, highly collectivist

cultures do not appreciate independence, competitiveness and individualism, which are

important facilitators for the performance of firms’ innovativeness strategies. Therefore,

2
collectivist values and norms may inhibit the performance of firms with certain levels of

innovativeness (Nguyen and Rose, 2009). Third, governments in transitional economies still

control a significant portion of scarce resources, which may constrain the effectiveness of

firms’ proactive practices (Sheng et al., 2011). The aforementioned distinctive characteristics

promote a need for further elaboration of the relationship between each EO dimension (i.e.

innovativeness, proactiveness and risk-taking) and performance in the context of transitional,

collectivist economies.

Being the second largest transitional economy after China in Asia with a highly

collectivist Eastern culture, Vietnam is one of the under-researched economies with respect to

entrepreneurship performance (De Jong et al., 2012). Vietnam offers an interesting research

context to provide creative and insightful explanations of the effects of EO dimensions on

business performance. Compared to other transitional, collectivist countries, Vietnam has a

highly active entrepreneurial environment and a relatively young market with more than 61%

of the population in the 15-54 age range, who are more willing to adopt entrepreneurial

initiatives (Welter et al., 2013). In Vietnam, the coexistence of socialist and market-based

capitalist systems, and the government’s control over resources, financing, and materials

distribution also create a distinctive environment for the performance effects of proactive,

innovative or risk-taking strategies (Shultz, 2012). Therefore, the first aim of this research is to

examine how each individual dimension of EO (innovativeness, proactiveness and risk-taking)

imposes its complex effect on firm performance in the context of a transitional, collectivist

economy.

In addition to providing an interesting context to investigate the performance effects of

EO dimensions, Vietnam with its long tradition of using social ties to conduct business is also

a potential setting to examine the role that social ties plays in the relationship between EO

dimensions and firm performance (Sheng et al., 2011, Li et al., 2006). Prior research on the

3
EO-performance relationship shows that the performance implication of EO is context-specific

(Wales et al., 2013a, Wiklund and Shepherd, 2005, Lumpkin and Dess, 2001), and the strategic

choices made by managers are most effective when they align with social capital embedded in

social ties (e.g., business and political ties) (Gao et al., 2017, Boso et al., 2013). Social capital

from business ties is built upon a firm’s informal social connections with various market

players (including suppliers, business buyers, and competitors), whereas social capital from

political ties is developed through a firm’s informal social connections with government

officials at various levels (e.g., city councils, national government, regulatory institutions)

(Dong et al., 2013, Acquaah, 2007). In transitional economies, social ties that coordinate

exchanges through informal, interpersonal social mechanisms (Granovetter, 1985) can act as

informal governance mechanisms, allowing firms to better approach government-controlled

resources and overcome the limits of weak institutional infrastructures (Xin and Pearce, 1996).

Therefore, social ties may influence the effects of innovative, proactive and risk-taking

practices on business performance. So, the second aim of the study is to investigate the

moderating role of social capital from business and political ties on the relationships between

the EO dimensions and firm performance.

By addressing the two aforementioned research purposes, our study makes several

contributions to the literature. First, it is among the first studies to examine the complex

performance outcome of individual EO dimension in the context of a transitional, collectivist

economy. The findings of this study are useful for calibrating our expectations about EO

dimensions. Prior research has only found linear effects of EO dimensions on firm

performance, except for a recent study by Wales et al. (2013b), who found the nonlinear effect

of the aggregated EO on firm performance in developed economies. In this study, we

demonstrate that in the context of a transitional, collectivist economy with different

institutional and cultural environments, expectation of such effects of EO dimensions is not

4
pertinent. Instead, three dimensions of EO, innovativeness, proactiveness and risk-taking, have

differential non-linear impacts on firm performance. Second, the current study enhances our

understanding of the role of social ties in the performance effects of entrepreneurial practices

in the context of transitional, collectivist economies. It clarifies how social capital from

business and political ties imposes important and differential moderating impacts on the link

between each EO dimension and firm performance. Our research also offers implications for

managers in transitional economies how they should consider social capital from political or

business ties their firms possess when they make decisions on innovativeness, proactiveness or

risk-taking strategies to pursue.

Theoretical background and hypothesis development

To answer the questions about how each dimension of EO influences firm performance

and how social capital from political and business ties moderates these influences, the

conceptual model is developed and displayed in Figure 1.

Main effects of innovativeness, proactiveness and risk-taking

The literature on entrepreneurship has identified and consistently used three dimensions

of EO: innovativeness, proactiveness and risk-taking (Hansen et al., 2011). Innovativeness

refers to a firm’s tendency to engage in experimentation, support new ideas and depart from

established practices (Lumpkin and Dess, 2001). Innovation in entrepreneurial firms is often

considered a vital factor to facilitate growth, increase profit potential, and enhance overall

market value (Cho and Pucik, 2005). Innovativeness can also develop firms’ capabilities when

it encourages the development of new organizational routines and unique approaches to

technologies, products, or processes (Kreiser et al., 2013). The introduction of new and

innovative products can enhance firms’ abilities to adapt to changing market conditions,

especially in transitional economies, achieve some sort of competitive advantage, and thereby

increase the firm performance (Hult et al., 2004). Furthermore, collectivism encourages and

5
facilitates mutual collaboration and achievement of incremental innovation goals (Choi and

Wu, 2009); therefore, firms engaging in innovation practices will be more likely to enhance

their performance in collectivist economies.

However, too much focus on innovativeness may be counterproductive to

entrepreneurial-oriented firms in transitional economies that embrace highly collectivist

cultural values and norms like Vietnam. At higher levels of innovativeness, the collectivist

culture may inhibit the effectiveness of new ideas and breakthrough innovations (Tiessen,

1997). In Vietnam, the collectivist culture does not motivate people to strive for recognition by

aiming for goals beyond the norms, which lowers creativity for radical innovation and the

benefits from such projects (Choi and Wu, 2009). These benefits may not reimburse the huge

costs incurred by highly innovative projects, which will impede the performance of Vietnamese

firms, which often possess limited budget and limited access to financial resources. Prior

research finds an inverted U-shaped relationship between collectivism and entrepreneurship in

that entrepreneurship declines when more collectivism is emphasized (Morris et al., 1994).

Furthermore, prior research also shows that mature products and trusted brands are more

effective and well accepted by customers in Vietnam where uncertainty avoidance is typically

high (Chen et al., 2012). As such being highly innovative may, beyond a certain point, have a

downturn effect and is more likely to dampen performance. Therefore, we hypothesize that:

Hypothesis 1: In a transitional, collectivist economy, innovativeness has an inverted U-shaped

association with firm performance

6
 Social capital
from political ties

Innovativeness −
∩

+ +
∩ Firm
Proactiveness Performance

+
−

Risk-taking +

Social capital
from business ties

Figure 1. Research model and hypotheses

Proactiveness reflects a firm’s propensity to act in anticipation of future demand to shape

the environment and act aggressively towards rival firms in the pursuit of favorable business

opportunities (Hansen et al., 2011, Lumpkin and Dess, 2001). Proactive firms aim to uncover

latent customer needs, especially constantly changing customer needs in transitional

economies, by working closely with lead users, which facilitates the development of new

innovations. They can achieve competitive superiority with their pursuance of “step ahead”

tactics and market leadership characteristics. Therefore, firms’ increasing involvement in

proactive activities will enhance their business performance.

However, a high level of proactiveness can backfire and negatively influence a firm’s

business performance for three reasons. First, collectivist cultures that emphasize collaboration

over competition (Triandis, 1995) not only discourage firms’ efforts to stand out, but may even

7
penalize firms acting over-competitively or over-aggressively towards others (Choi and Wu,

2009). Therefore, firms’ over-emphasis in proactive projects to conquer the market in

collectivistic cultures can become counter-productive and instead cause a decrease in business

performance. Second, according to institutional theory, the institutional system influences

organizations’ strategic posture and processes (Scott, 1995). Institutionally developed

countries with strong emphasis on performance orientation can offer important institutional

support for entrepreneurial activities, and enhance their performance (Semrau et al., 2016).

Meanwhile, in transitional economies, the coexistence and contradictions of the two

antagonistic ideologies, the socialist system and the capitalist system, may create market

unpredictability (Tang et al., 2008). Such market volatility creates confusion, stress and

difficulties for firms to act proactively in anticipation of future demand to shape the

environment. Therefore, when firms focus too much attention on leading the market, they may

overlook the constraint of two opposing systems, which reduces firms’ capability to

immediately adapt to institutional changes and negatively influences firm performance (Tang

et al., 2008). Third, in order to lead the market and overtake competitors, high levels of

proactiveness require an escalating commitment of resources, which may be difficult to access

in Vietnam. Indeed, accessibility to scarce resources (e.g., capital, infrastructure, subsidies) in

transitional, collectivist economies is a major challenge for highly proactive firms.

Governments in these economies still control a significant portion of scarce resources and play

a central role in devising industry development plans and regulatory policies (Sheng et al.,

2011). Such a formal institutional void may inhibit the performance of firms’ activities to shape

the environment due to significant costs that arise from increased uncertainty in obtaining

adequate resources. In this context, the costs and uncertainty associated with increases in

proactiveness may outweigh their potential benefits. Therefore, we hypothesize that:

8
Hypothesis 2: In a transitional, collectivist economy, proactiveness has an inverted U-shaped

association with firm performance

The EO literature refers to risk-taking as a tendency to take bold actions such as making

investments in projects that have uncertain outcomes (Lumpkin and Dess, 2001).

Entrepreneurial firms are more likely to venture into highly risk-taking initiatives that have

uncertain outcomes and a high likelihood of failure. Innovative initiatives are highly risky and

require substantial investment (Wiklund and Shepherd, 2005, Lumpkin and Dess, 2001). For

example, technology-based innovations are technologically risky and costly, while market-

based innovations are extremely risky on the market side because of the lack of ready

acceptance by mainstream customers (Zhou et al., 2005).

Different from innovativeness and proactiveness, risk-taking does not have an inverted

U-shaped effect on firm performance. Although increasing risk-taking is associated with

increasing likelihood of failure (Avlonitis et al., 2001), firms can gain strong benefits from

their risk-taking strategies, especially in the context of transitional, collectivist economies like

Vietnam. Risk-taking represents the willingness to commit resources to uncertain projects,

activities, and solutions out of the fear of missing out on an opportunity (Hughes and Morgan,

2007). With timely risk-taking, firms can increase strategic decision speed, avoid delay in

introducing innovations, and quickly seize the market opportunities to increase their business

performance (Hughes and Morgan, 2007). Especially, as a transitional economy, Vietnam

currently has rapid economic growth, and in such an economic environment, entrepreneurial

firms must be willing to take risks: “without risk-taking, however, the prospects for business

growth wane” (Ward, 1997, p.323). When firms commit to low-to-moderate risk-taking

activities, their performance will still improve but at a slow pace. They are benefiting from

low-risk projects, but these benefits only slightly reimburse the costs of missing business

opportunities offered by rapidly growing markets. Investing in risky projects enables firms to

9
yield high returns from taking advantage of the business opportunities (Masina, 2006).

Furthermore, Vietnam is characterized by its risk-averse culture which creates large costs to

commercialize new products (Chen et al., 2012). Therefore, according to entrepreneurship

hurdle effect, entrepreneurial firms need to opt for highly risky projects which can yield higher

payoffs if successful with the hope to reimburse the expected commercialization costs (Li et

al., 2006). This risk-averse culture only rewards firms that overcome their reluctance to invest

in highly risky projects to stand out and overtake their competitors. Therefore, the more risk-

taking activities a firm adopts, the more rapidly its business performance will increase.

Accordingly, we hypothesize that:

Hypothesis 3: In a transitional, collectivist economy, risk-taking has a positive, increasing

returns-to-scale association with firm performance such that this effect gets stronger with

higher levels of risk-taking.

Moderating effects of social capital from business ties and political ties

Recent studies on moderators of the EO-performance relationship focus attention on

social capital from social networks as potential contingencies that may enhance the wealth

creation potential of EO (Gao et al., 2017, Boso et al., 2013). The central proposition of social

capital theory is that relationship networks are valuable resources for firms, which provide

them with the collectivity-owned capital embedded within mutual acquaintance and obligations

(Nahapiet and Ghoshal, 1998). In this study, social capital from social ties is defined as the

sum of “the actual and potential resources embedded within, available through, and derived

from the network of relationships” possessed by a firm (Nahapiet and Ghoshal, 1998, p.243).

The literature on social capital has highlighted how social ties can create value for firms by

allowing access to and leveraging information and resources in relationships (Cheung et al.,

2010, Autry and Griffis, 2008), by promoting cooperative behaviors (Lawson et al., 2008,

Krause et al., 2007), and by creating a positive social climate whereby firms support each other

10
(Semrau et al., 2016, Stephan and Uhlaner, 2010). Furthermore, social capital also enhances

the quality, relevance and timeliness of the acquired information (Adler and Kwon, 2002). By

coordinating exchanges through informal, interpersonal mechanisms, social ties help firms

overcome the limits of weak institutional infrastructures (Boso et al., 2013, Xin and Pearce,

1996), to better forecast future demands and customer preferences (Adler and Kwon, 2002).

Therefore, in transitional economies characterized by turbulent circumstances as a consequence

of economic liberalization and transition towards market systems, social ties become a strategic

choice for firms in an effort to secure resources and deal with an uncertain environment (Sheng

et al., 2011). However, social capital from social ties may also cause some risks to the

performance effects of EO strategies. Establishing and maintaining social ties requires

considerable investments, which sometimes become a burden for firms with limited budgets,

especially in transitional, collectivist economies. Furthermore, access to too much information

and resources may create abundance and longer time to process, which slows down firms’

reaction to rapidly changing markets in transitional economies (Adler and Kwon, 2002, Hansen

and Research, 1998). While many EO firms in transitional, collectivist economies spend large

investments in building social ties with the hope to facilitate their performance, the potential

risks of social capital from social ties call for an examination into how social capital from social

ties, such as business and political ties, differentially moderates the performance effects of EO

strategies.

Social capital from business ties refers to market information and resources from a firm’s

informal social connections with various market players, including suppliers, business buyers,

and competitors, whereas social capital from political ties refers to regulatory information and

resources developed through a firm’s informal social connections with government officials at

various levels (e.g., city councils, national government, regulatory institutions) (Dong et al.,

2013, Acquaah, 2007). Social capital from political ties is imperative for the success of new

11
business ventures, especially in transitional, collectivist economies (e.g., Vietnam), where

regulatory resources and political legitimacy are sources of competitive advantage. In the

context of Vietnam, reforms in the political system have progressed at a much slower pace than

reforms in the economic system (Thayer, 2010), and “the incentive for entrepreneurs to

establish government relationships ultimately arises from state control of key resources” (De

Jong et al., 2012, p.324). Regulatory resources and political legitimacy acquired from social

ties will allow firms to develop effective strategies to shape the market and lead the

competition. Therefore, social capital from political ties will increase the effectiveness of these

strategies, and positively enhance their impact on firm performance.

Social capital from political ties has a positive effect on the link between risk-taking

activities and firm performance for two reasons. First, with high social capital from political

ties, firms may have access to key regulatory resources, especially unpublished market

intelligence, which allow firms to enhance their adaptability and performance of their risk-

taking activities. In transitional economies, “firms use political ties to help decode policies and

regulations as well as future development plans and priorities” that are likely to increase the

effectiveness of risk-taking activities (Dong et al., 2013, p.42). Second, because of the lack of

enforcement efficiency in transitional economies, firms with stronger political ties may rely on

exploiting the power of their government connections for supporting transactions and

minimizing unexpected returns from highly risky and uncertain projects. Therefore, we propose

that when social capital from political ties increases, the impact of risk-taking on firm

performance will become more positive or will be strengthened.

Furthermore, we expect that under increasing social capital from political ties condition,

the U-inverted association between proactiveness and firm performance will also be positively

influenced. With increasing social capital from political ties, the association between low-

moderate proactiveness and firm performance will be less positive. When firms have access to

12
large information and resources from political ties and only use a fraction of these on their low-

to-moderate proactive strategies, it may create redundancy and delay in decision making

process, which decreases the rate of increase in their firm performance. Increasing social capital

from political ties will be more beneficial to moderately to highly proactive firms. Crucial

access to important policy and aggregate industrial information, which is especially important

in the context of transitional economies like Vietnam, helps firms increase the performance of

their strong market-shaping strategies (Peng and Luo, 2000, Hillman et al., 1999). Therefore,

increasing social capital from political ties helps to weaken the negative effect of moderately

to highly proactive practices on firm performance.

On the other hand, we expect that under increasing social capital from political ties

condition, the U-inverted association between innovativeness and firm performance will be

negatively influenced. With increasing social capital from political ties, the association

between low-moderate innovativeness and firm performance will be more positive because

such ties can allow firms to get access to resources controlled by the government to better

innovate products, and increase the firm performance (Hult et al., 2004). On the other hand,

with increasing social capital from political ties, the effect of moderate-high levels of

innovativeness on performance will be more negative. Strong ties with government officials

result in firms’ obligations to conform to norms or rules set up by government officials. When

firms pursue moderate to high innovativeness strategies that aim at radical innovations beyond

the norms, the officials are likely to interfere with these strategies, which negatively influences

their performance (Wu, 2011). Furthermore, when managers pursue high levels of

innovativeness but mainly depend on government support, they will have fewer incentives to

improve innovation efficiency (Chen and Wu, 2011). Their highly innovative strategies are

also likely to be less effective because compared to incremental innovation, radical innovation

relies less on accessibility to regulatory resources and political legitimacy that are available

13
through political ties (Sheng et al., 2011). Therefore, given the substantial costs needed to

develop strong political ties, and the limited benefits gained from these ties to enhance the

performance of innovativeness strategies, increasing social capital from political ties will

negatively influence the effect of innovativeness on firm performance.

Hypothesis 4: In a transitional, collectivist economy, social capital from political ties

positively influences the associations between (a) risk-taking, (b) proactiveness and firm

performance while (c) negatively influences the association between innovativeness and firm

performance.

Over recent years, many businesses have recognized how social capital from business

ties with other firms, such as suppliers, buyers or competitors, allows them to achieve a distinct

competitive advantage and performance improvements (Dong et al., 2013, Yli‐Renko et al.,

2001, Peng and Luo, 2000). In transitional economies with underdeveloped market-supporting

institutions, being embedded in business ties emerges as an important strategic option to enable

firms to secure resources and deal with uncertainty (Sheng et al., 2011). Not all firms, however,

are affected by social capital from business ties to the same extent.

On one hand, social capital from business ties can positively influence the performance

effect of innovativeness by making the association between low-moderate innovativeness and

performance less positive and making the association between moderate-high innovativeness

and performance less negative. Business ties require considerable resources to maintain, and

when firms only use a fraction of the valuable information and resources from these ties on

their low-to-moderate innovation strategies, these resources will be wasted, which decreases

their firm performance. However, moderately and highly innovative firms can take full

advantage of managerial networks to quickly obtain market intelligence from collaborating

suppliers and competitors, thereby more effectively innovating their offerings and better

serving customers (Lusch and Brown, 1996). In addition, social capital from business ties also

14
positively influences the performance effect of risk-taking strategies. Prior research also shows

that in transitional economies where market information is precious, access to information and

resources from business ties helps a firm easily identify new market needs and quickly adapt

their products to market changes, increasing the likelihood of success of their risky projects.

Therefore, the positive and increasing returns-to-scale association between risk-taking and firm

performance will be intensified under increasing levels of social capital from business ties.

On the other hand, social capital from business ties negatively influences the U-inverted

association between proactiveness and firm performance. It makes the association between low

to moderate proactiveness and performance more positive by providing market information

and resources to proactively lead the competition. However, with increasing social capital from

business ties, the association between moderate to high proactiveness and performance

becomes more negative. The embeddedness perspective argues that established inter-

organizational relationships facilitate economic exchange, and constrain organizational change

since organizational capabilities fit an obsolete economic and social system (Dixon et al.,

2010). This is especially true in transitional economies, “where firms face transformation

challenges of magnitudes rarely seen elsewhere” (Dixon et al., 2010, p.420). Newman (2000)

claims that under condition of institutional upheaval as in transitional economies, firms more

embedded in business ties are less likely to undertake transformational change than firms less

embedded. These business ties create obligations among firms to help each other survive, even

if that means missing out on the opportunities for some firms, who might be positioned to take

advantage of them (Uzzi, 1997). These obligations will result in difficulties for proactive firms

when they aim to optimize market opportunities to outperform others and lead the market; thus,

their proactiveness strategies will be less effective in enhancing their firm performance.

Building on the above argument, we expect that social capital from business ties negatively

15
influences the effect of proactiveness on firm performance. Accordingly, we hypothesize the

following:

Hypothesis 5: In a transitional, collectivist economy, social capital from business ties

positively influences the associations between (a) innovativeness, (b) risk-taking and firm

performance while negatively influences the association between (c) proactiveness and firm

performance.

Data and methods

Research context

We selected firms in Vietnam to empirically examine our theoretical model. Vietnam, a

transitional, collectivist economy, presents a fascinating empirical setting to examine the

integration between strategic orientation and social capital theory. First, Vietnam is a

developing, transitional economy that lacks market-supporting institutions and strong

governance structures (Bonnet et al., 2017). In such a weakly regulated economy, interpersonal

ties cultivated by managers become essential for business success (Li et al., 2006, Peng and

Luo, 2000). Second, transitional, collectivist economies like Vietnam provide a favorable

platform for empirically examining the effects of strategic choice and social ties on firm

performance (Sheng et al., 2011, Li et al., 2006). As such, Vietnam represents a promising

emerging context for exploring the micro-macro link (De Jong et al., 2012, Peng and Luo,

2000). Third, Vietnam has the second highest economic growth rate after China over the last

decade (Meyer and Nguyen, 2005). Vietnam has a relatively young market with more than 61%

of the population in the 15-54 age range who are more willing to adopt entrepreneurial

initiatives (Welter et al., 2013). According to the 2016 Global Entrepreneurship Monitor report,

Vietnam also has an active entrepreneurial environment with the rate of adults perceiving the

opportunities for starting a new business ranking the 9th out of surveyed 60 countries and the

rate of adults currently being owner-manager of an established business ranking the 3rd out of

16
60 countries in 2015 (Ward, 1997). Therefore, Vietnam offers an interesting research context

to provide creative and insightful explanations of the effects of entrepreneurial strategies on

performance (Shultz, 2012).

Measures

We adopted all construct measures in this study from existing tested multi-item 7-point

Likert scales in previous research, if not otherwise indicated. As three dimensions of EO,

measurement items of innovativeness, proactiveness and risk-taking were drawn from existing

tested scales (Hansen et al., 2011, Covin and Slevin, 1989). The EO scale of Hansen et al.

(2011) originates from the Covin and Slevin (1989) scale; however, Hansen et al. (2011)

suggest eliminating item EO9 of the Covin and Slevin (1989) scale due to the high correlation

problem, leaving eight items for the final scale. Innovativeness and proactiveness were both

measured via three-item measures, while risk-taking was assessed via a two-item measure.

We adopted the measures of social capital from business and political ties from Acquaah

(2007). We measured firm performance with a six-item scale adapted from Langerak et al.

(2004). We asked key informants to assess firm performance with regard to revenue, sales

growth, market share, return on investment, profitability, and customer satisfaction relative to

the goals over the past year. According to earlier studies, perceptual performance measures

tend to be highly correlated with objective indicators, which supports their validity (Gruber et

al., 2010). Therefore, we examined the validity of the subjective performance measure by

comparing the corresponding items reported by managers with average stock prices over the

12 months as the objective performance measure for a subset of 31 firms. We found a

significant, positive correlation between the two measures (r=0.38, p < 0.05), thus providing

evidence for the validity of the subjective performance measure (Gruber et al., 2010). In testing

the hypotheses, we included several control variables such as firm size, firm age, key

informants’ self-reported degree of knowledge about the issues under study, and industries. We

17
measured firm size using the logarithm of the number of employees, and firm age by the

number of years the firm has been in operation.

Sample and data collection

Our sample includes firms from a business directory of the top 500 companies in

Vietnam, VNR500. We obtained data used in the analyses from multiple sources. Specifically,

we conducted surveys with senior managers of participating firms who provided information

about innovativeness, proactiveness, risk-taking, social capital from business ties, political ties,

and firm performance, while the market research firm provided us with their archival data on

firm age, sales volume, and ownership of these firms. This procedure helps to reduce common

method bias.

We prepared the measurement instrument in English and then had it translated from

English to Vietnamese and backwards by a bilingual researcher. We conducted five in-depth

interviews with managers who had at least three years of business experience in Vietnam to

assess informants’ understanding of the questionnaire items and their relevance. We revised

several questionnaire items on the basis of these responses to enhance their face validity and

clarity.

We recruited and trained interviewers from a reputable national market research firm to

conduct face-to-face on-site interviews. This method helps to generate more valid information

and reduce the problem of a low response rate in emerging economies (Mathies et al., 2016).

During the data collection process, we had an experienced research assistant travel to data

collection sites and monitor the fieldwork to bolster the integrity of and confidence in the data.

The data collection yielded responses from 137 firms, for a response rate of 27.4%. The

independent samples t-test found no significant differences between participating and non-

participating firms, thus indicating that nonresponse bias is not a significant concern in this

study.

18
 Of the key informants, 46% had marketing and sales executive titles, while 54% were

chief executive officers or general managers. Key informants had mean industry experience of

9.7 years and mean firm experience of 7.9 years. Of the 137 firms, 21.2% were from the

banking and finance industry, 13.1% food manufacturing, 13.2% retailing, 10.9% motor

vehicles manufacturing, 9.5% IT and telecommunication, 8% real estate, 6.6% electronics

manufacturing, 5.1% plastics manufacturing, 2.9% garment and textiles, and 9.5% others. The

firms represented in the sample had revenues (in Vietnamese dong; VND 20,000 = USD 1) of

lower than VND 49 billion (4.5%), VND 50 billion to VND 99 billion (5.8%), VND 100 billion

to VND 499 billion (20.4%), VND 500 billion to VND 999 billion (17.5%), and greater than

VND 1000 billion (51.8%). Ownership structures included state-owned (21.9%), and non-

state-owned (78.1%).

To control the common method bias, the study applied several procedural remedies

suggested by Podsakoff et al. (2003). First, respondents were assured of complete

confidentiality during data collection, given no implication about right or wrong answers, and

encouraged to answer as honestly as possible. Second, the study carefully constructed the

measurement items to avoid item ambiguity and complexity from the comprehension stage of

the response process (Podsakoff et al., 2003). In addition to procedural remedies, we employed

the marker-variable technique (Lindell and Whitney, 2001) to examine common method bias,

using firm ownership as a marker variable (rm =0.027, p=0.76). The mean change in

correlations of all constructs (ru – ra) when partialling out the effect of rm was 0.03, so common

method bias is not likely to be a serious concern in our study.

19
Empirical results

Reliability, validity and descriptive statistics

We conducted confirmatory factor analysis (CFA) for a thorough validation of the

measurement model. All variables are presented in Table 1, with their corresponding measures,

loadings, t-statistics, composite reliabilities (CRs), average variances extracted (AVEs), and fit

indices. The CFA results show a reasonable fit of the measurement model to the data, such that

the non-normed fit index (NNFI), comparative fit index (CFI) and incremental fit index (IFI)

all exceed 0.90 (2 = 224.82, d.f. = 155, root mean square error of approximation (RMSEA) =

0.058) (Gerbing and Anderson, 1992). The item loadings for all constructs ranged from 0.65

to 0.96, and their CRs exceeded the acceptable level of 0.70, indicating acceptable reliability

(Hair et al., 2011, Fornell and Larcker, 1981).

Table 1. Construct measurement and confirmatory factor analysisa,b

Loadings
Firm Performance CR= 0.95, AVE= 0.76
The following statements focus on how well your firm was performed on each of
the statements in relation to its goals over the past year. Please circle the number
in each statement that best reflects your views. (1 – Not at all, 7- Very much so)
Our firm has:
1. …met revenue goals. 0.87
2. … met sales growth goals 0.89
3. …met market share goals. 0.86
4. ...met return on investment goals. 0.90
5. ...met profitability goals. 0.91
6. …achieved customer satisfaction goals. 0.81
Innovativeness CR= 0.84, AVE= 0.64
1. In general, the top managers of my company favor:
(1) . . . a strong emphasis on the marketing of tried and true products or
services
(7) . . . a strong emphasis on R&D technology leadership and innovations 0.65
2. How many new lines of products or services has your company marketed
during the past 3 years?
(1) . . . no new lines or products or services
(7) . . . very many new lines of products and service 0.84
3. Changes in product or service lines have been:
(1) . . . mostly of a minor nature
(7) . . . quite dramatic 0.88

20
 Proactiveness CR= 0.85, AVE= 0.65
1. In dealing with its competition, my company:
(1) . . . typically responds to actions which competitors initiate
(7) . . . typically initiates actions to which competition then respond 0.87
2. In dealing with its competition, my company is . . . the first business to
introduce new products or services, administrative techniques, operating
technologies, etc.
(1) . . . seldom
(7) . . . very often 0.78
3. In dealing with its competition, my company:
(1) . . . typically seeks to avoid competitive clashes, preferring a “live-and-
let-live” posture.
(7) . . . typically adopts a very competitive, “undo-the-competition” posture. 0.77
Risk-taking CR= 0.94, AVE= 0.89
1. In general, the top managers of my company have a strong proclivity for:
(1) . . . low risk projects (with normal and certain rates of return)
(7) . . . high-risk projects (with chances of very high returns) 0.94
2. In general, the top managers of my company believe that:
(1) . . . owing to the nature of the environment, it is best to explore it
gradually via cautious, incremental behavior.
(7) . . . owing to the nature of the environment, bold, wide-ranging acts are
necessary to achieve the firm's objectives 0.94
Social capital from business ties CR= 0.91, AVE= 0.77
The relationships with top managers at other firms (suppliers, buyers, and
competitors) had benefited your firm through . . . (1- Very little, 7- Very
extensive)
1. . . . access to information that could be used to the firm’s advantage 0.84
2. . . . access to valuable resources 0.91
3. . . . acquisition and exploitation of knowledge from 2007 to 2010 0.87
Social capital from political ties CR= 0.96, AVE= 0.88
The relationships with government officials (central government, city, district)
had benefited our firm through . . . (1- Very little, 7- Very extensive)
1. . . . access to information that could be used to the firm’s advantage 0.94
2. . . . access to valuable resources 0.96
3. . . . acquisition and exploitation of knowledge from 2007 to 2010 0.92
a
Fit of measurement model: 𝜒 2 (155)=224.82, 𝜒 2 /df=1.45, CFI = 0.96, IFI=0.96, NNFI= 0.95, RMSEA=0.058
b
All estimates are significant at p<0.001

Table 1 also shows good results for the convergent validity of all constructs with AVEs

over 0.50 (Fornell and Larcker, 1981). Furthermore, Table 2 suggests that all square roots of

the AVEs were consistently larger than the off-diagonal construct correlations, indicating

satisfactory discriminant validity (Fornell and Larcker, 1981).

21
Table 2. Correlations

1 2 3 4 5 6
1 Firm performance 0.87
2 Innovativeness 0.38** 0.80
3 Proactiveness 0.41** 0.57** 0.81
4 Riskiness 0.38** 0.46** 0.69** 0.94
5 Social capital from 0.05 -0.06 -0.08 -0.11 0.94
political ties
6 Social capital from -0.02 -0.15 -0.16 -0.08 0.63** 0.88
business ties
Mean 5.23 5.06 4.70 4.52 4.88 5.28
SD 0.97 1.23 1.13 1.45 1.47 1.10
Notes: * p < 0.05, ** p<0.01; Diagonal elements represent the square root of the average variance extracted
(AVE).

Results

This study tests the hypotheses by using OLS-based hierarchical regression. Following

Homburg et al. (2011), we mean-centered all indicators of innovativeness, proactiveness, and

risk-taking, and then squared them to measure the quadratic terms to enable model convergence

and to facilitate the interpretation of the coefficients, without changing the form of the

relationship. Table 3 summarizes the results of the analysis. The control variables in Model 1

explained 12% of the variance and only the motor industry (β= -0.79, p<0.05) and the plastic

industry (β= -0.90, p<0.05) have significant effects on firm performance. After including the

linear terms of innovativeness, proactiveness, and risk-taking, Model 2 was significantly

improved, compared to Model 1 (∆R2=0.22, ∆F-value=13.53, p<0.001). Model 3, including the

quadratic terms of innovativeness, proactiveness and risk-taking, was further improved

compared to Model 2 (∆R2=0.09, ∆F-value=6.03, p<0.001). Model 3 supports Hypothesis 1

and Hypothesis 2 because both innovativeness and proactiveness have inverted U-shaped

associations with firm performance (innovativeness2-firm performance: β= -0.13, p<0.05;

proactiveness2-firm performance: β= -0.15, p<0.05). Furthermore, to examine whether risk-

taking has a positive, increasing returns-to-scale association with firm performance, we need

to test whether both the linear and squared terms of risk-taking are significantly positive in the

22
 model with firm performance as the dependent variable (Cohen et al., 2003). We found that

the linear term of risk-taking is positive, and significant (β=0.19, p<0.10), whereas the

quadratic term of risk-taking also has a positive and significant β-coefficient (β=0.19, p<0.01).

These results indicate that there is a positive and increasing returns-to-scales association

between risk-taking and firm performance, supporting Hypothesis 3 (Cohen et al., 2003).

Multicollinearity did not appear to pose a problem because all VIFs ranged from 1.09 to 2.73,

well below 10 (Mason and Perreault Jr, 1991).

Table 3. Hierarchical results

Model 1 Model 2 Model 3 Model 4

β t- p- β t- p- β t- p-value β t- p-
value value value value value value value
Main Effects
INO 0.19* 2.06 0.04 0.09 0.96 0.34 0.06 0.58 0.56
PRO 0.20+ 1.76 0.08 0.16 1.45 0.15 0.31** 2.63 0.01
RIS 0.20+ 1.85 0.07 0.19+ 1.92 0.06 0.15 1.50 0.14
H1: INO2 -0.13* -2.08 0.04 0.02 0.28 0.78
H2: PRO2 -0.15* -2.30 0.02 -0.29*** -4.22 0.00
H3: RIS2 0.19** 2.70 0.01 0.16* 2.17 0.03
Moderating
Effects
SCP 0.06 0.40 0.69
RIS x SCP 0.07 0.37 0.72
PRO x SCP -0.50* -2.43 0.02
INO x SCP 0.42* 2.14 0.03
H4a: RIS2 x SCP -0.09 -0.58 0.56
H4b:PRO2xSCP 0.58*** 4.49 0.00
H4c:INO2x SCP -0.50*** -4.05 0.00
SCB -0.12 -0.74 0.46
INO x SCB -0.18 -1.25 0.22
RIS x SCB -0.20 -1.04 0.30
PRO x SCB 0.27 1.35 0.18
H5a:INO2xSCB 0.34*** 3.28 0.00
H5b:RIS2 x SCB 0.25+ 1.69 0.09

23
H5c:PRO2xSCB -0.44*** -3.24 0.00
Control
Variables
Firm age 0.00 -0.36 0.72 0.00 0.34 0.74 0.00 0.33 0.75 0.00 0.25 0.80
+
Firm size 0.01 0.26 0.79 0.07 1.44 0.15 0.09 1.74 0.08 0.07 1.51 0.14
Informant
knowledge 0.12 1.27 0.21 0.08 0.93 0.36 0.10 1.24 0.22 0.09 1.21 0.23
Industries
Banking -0.39 -1.21 0.23 -0.24 -0.82 0.41 -0.24 -0.89 0.38 -0.06 -0.22 0.82
Food -0.77* -2.12 0.04 -0.89** -2.77 0.01 -1.02*** -3.29 0.00 -0.77** -2.55 0.01
Retailing -0.50 -1.35 0.18 -0.76* -2.34 0.02 -0.77* -2.43 0.02 -0.52+ -1.71 0.09
Vehicles -0.79* -2.14 0.03 -0.68* -2.08 0.04 -0.75* -2.43 0.02 -0.49 -1.62 0.11
IT -0.58 -1.53 0.13 -0.69* -2.06 0.04 -0.71* -2.23 0.03 -0.47 -1.48 0.14
Real estate -0.09 -0.23 0.82 0.05 0.15 0.88 -0.11 -0.33 0.74 0.17 0.52 0.60
Electronic -0.29 -0.68 0.50 -0.24 -0.65 0.52 -0.43 -1.19 0.24 -0.17 -0.50 0.62
Plastic -0.90* -1.97 0.05 -0.60 -1.48 0.14 -0.63 -1.55 0.12 -0.59 -1.47 0.14
Textiles 0.40 0.69 0.49 0.07 0.13 0.90 0.09 0.19 0.85 0.45 0.92 0.36
ΔR2 / Δ R2 0.12/0.12 0.34/0.22 0.43/0.09 0.56/0.13
F/ ΔF 1.34/1.34 4.11/13.53*** 4.86/6.03*** 4.17/2.32**
Notes: INO= Innovativeness, PRO= Proactiveness, RIS=Risk-taking; SCP = Social capital from political ties, SCB = Social
capital from business ties
N= 137, +p<0.10; *p < 0.05; **p < 0.01; ***p < 0.001

To examine the moderating roles of social capital from political and business ties for

Hypotheses 4 and 5, we added to Model 4 the moderators, social capital from political and

business ties, interaction terms between these moderators and innovativeness, proactiveness

and risk-taking, and the interaction terms between these moderators and the quadratic terms of

innovativeness, proactiveness and risk-taking. The results show that all hypotheses are

supported, except Hypothesis 4a. Social capital from political ties negatively moderates the

association between innovativeness and firm performance (β= -0.50, p<0.001), and positively

moderates the association between proactiveness and firm performance (β=0.58, p<0.001).

Social capital from business ties positively moderates both innovativeness-firm performance

(β=0.34, p<0.001), and risk-taking-firm performance (β=0.25, p<0.10) linkages, while

24
negatively influences the relationship between proactiveness and firm performance (β= -0.44,

p<0.001).

For robustness check, following Lind and Mehlum (2010), we used the Sasabuchi (1980)

test with joint null hypothesis testing to confirm the validity of curvilinear relationships. The

Sasabuchi test results confirm that the U-inverted association between proactiveness and firm

performance is significant (p<0.05) and the U-inverted association between innovativeness and

firm performance is also marginally significant (p<0.10).

Discussion and conclusion

Theoretical implications

The current study extends the literature of EO by investigating how its three dimensions,

innovativeness, proactiveness and risk-taking, have differential nonlinear impacts on firm

performance in the context of a transitional, collectivist economy, as illustrated in Figure 2.

Most previous research largely ignores the complex impacts of EO dimensions on firm

performance. Our findings show that innovativeness enhances firm performance to a certain

point beyond which this effect diminishes. In line with the extant literature, our findings

confirm that innovativeness is an important facilitator for business performance (Kreiser et al.,

2013, Cho and Pucik, 2005). However, our study extends the literature by demonstrating that

when innovativeness increases from moderate to high levels, too much concentration on

innovativeness will put firms in a constraining situation and limit business performance,

especially in the context of a collectivist culture like Vietnam (Tiessen, 1997).

Second, our findings also underscore the need to move beyond the simplistic linear

association between proactiveness and firm performance. Our study extends the extant

literature by demonstrating that too much proactiveness can turn to inhibit firm performance in

transitional economies. Entrepreneurial firms should keep in mind that proactiveness requires

25
large resource commitment to new product or service development, while in transitional

economies like Vietnam, the central government still controls resources, financing, investment

size, bank loans, etc. (Sheng et al., 2011). Therefore, with limited access to resources to pursue

their resource-consuming market-leading strategies, entrepreneurial firms should be aware that

too much concentration on proactiveness may become a burden for them and decrease their

business performance.
Firm Performance

Innovativeness Proactiveness Risk-taking

Figure 2. Main effects of innovativeness, proactiveness and risk-taking

Third, our study shows the positive and increasing returns-to-scale effect of risk-taking

on firm performance, which is specific to the context of transitional economies. We found that

risk-taking gives little rise to firm performance until a certain point where the relationship

between risk-taking and firm performance follows an increasing returns-to-scale trajectory. Our

findings are in line with the existing literature, which argues that a willingness to take risks and

challenge the existing order of business is necessary to secure firm performance. We suggest

that as risk-averse firms do little to seize customer and market opportunities in an age of rapid

change, the result would be weaker performance for them (Hughes and Morgan, 2007).

However, the incremental increase in firm performance is larger at high levels of risk-taking

than at its low levels. This result is an important extension to the literature which mainly

26
focuses on the negative outcome of high levels of risk-taking (Kreiser et al., 2013, Su et al.,

2011, Tang et al., 2008). Transitional economies like Vietnam offer their firms with high

volatility in the business environment in terms of demand uncertainty, competitive intensity,

and technological turbulence (Gao et al., 2007). Highly risk-taking firms should consider such

an uncertain environment rich for business opportunities. The more risk-taking activities they

engage in, the more business opportunities they can exploit and the higher the rate of business

goals they can achieve.

In addition to contributing to the entrepreneurship literature, our findings improve our

understanding of the role of social capital in entrepreneurial firms in the context of transitional

economies by demonstrating that social capital from political and business ties imposes

important and different moderating impacts on the links between EO dimensions and firm

performance. Figure 3a demonstrates that social capital from political ties negatively influences

the effect of innovativeness on firm performance by turning its U-shaped effect at low levels

of political ties into a U-inverted effect at high levels of political ties (Haans et al., 2015). Low

social capital from political ties seems to be useful for moderately to highly innovative firms.

Being free from political influence, these firms can effectively implement their innovative ideas

for better firm performance (Wu, 2011). We also suggest that high social capital from political

ties is beneficial in providing firms possessing low to moderate innovativeness with access to

resources often controlled by the government and support to enhance their performance

(Rosenbusch et al., 2011). However, to highly innovative firms, high political ties with the

restrictions and control by the government can become a barrier for them to implement their

ground-breaking ideas for superior firm performance (Wu, 2011).

In addition, the study offers an extension to the literature on the performance impact of

innovativeness. Figure 3b demonstrates how social capital from business ties positively

influences the U-inverted effect of innovativeness on firm performance (Haans et al., 2015).

27
Social capital from business ties does not appear to be useful for low-to-moderately innovative

firms, as strong business ties offer them an abundance of information that may be redundant

for their low-and-moderately innovative activities and cause confusion and waste of time to

process this information (Villena et al., 2011). Therefore, to firms with strong business ties,

low-and-moderate innovativeness is negatively associated with firm performance. However,

business ties appear to be more useful to moderate-to-highly innovative firms when they

provide these firms with a large quantity of information from different sources useful to

enhance the effectiveness of their innovative activities (Wu, 2011). Therefore, firms with high

social capital from business ties can increase performance when they increase innovativeness

from moderate to high levels.

(a) The moderating effect of social capital from (b) The moderating effect of social capital from
political ties on the link between innovativeness business ties on the link between innovativeness
and firm performance and firm performance

28
(c) The moderating effect of social capital from (d) The moderating effect of social capital from
political ties on the link between proactiveness business ties on the link between proactiveness
and firm performance and firm performance

(e) The moderating effect of social capital from business ties on the link between risk-taking and
firm performance
Figure 3. Moderating effects of social capital from political ties and business ties
The study also confirms the positive side of social capital from political ties in previous

research when it is found to impose such a significantly positive effect on the proactiveness-

performance link that it turns from a U-inverted curve to a U-shaped curve (Peng and Luo,

2000, Hillman et al., 1999), as demonstrated in Figure 3c. High social capital from political

ties is proved to be less beneficial to firms of low to moderate proactiveness. Political ties

require considerable resources to maintain, and when firms only use a fraction of the valuable

information and resources from political ties on their low to moderate proactive strategies,

these resources will be wasted which decreases their firm performance. Strong political ties are

more beneficial to moderately to highly proactive firms, because they allow firms to have

crucial access to important policy and aggregate industrial information (Peng and Luo, 2000,

Hillman et al., 1999), which is especially important in the context of transitional economies

like Vietnam. Therefore, firms with high social capital from political ties can have increasing

performance when they increase proactiveness from moderate to high levels.

The results of this study provide evidence for the negative side of social capital when we

found social capital from business ties to negatively influence the U-inverted effect of

29
proactiveness on performance. To firms that display high levels of proactiveness, strong

business ties with other firms are likely to put them in collective blindness, which will hinder

their pursuance of “step ahead” tactics (Autry and Griffis, 2008). Therefore, Figure 3d

demonstrates how social capital from business ties intensifies the negative effect of too much

proactiveness on firm performance. While social capital from political ties does not have a

significant impact on the link between risk-taking and firm performance, Figure 3e

demonstrates that social capital from business ties strengthens this link. In the context of

transitional economies, risk-taking activities always carry costs; however, business ties provide

these firms with access to rich information to reduce such costs of risk-taking activities (Lusch

and Brown, 1996). Therefore, social capital from business ties can increase the positive effect

of risk-taking on firm performance. The largely differential effects of social capital from

business and political ties on the link between each EO dimension and firm performance clearly

prove the need to disaggregate EO and examine its individual dimensions (George, 2006).

Managerial implications

From the findings about the effect of each EO dimension on firm performance and the

moderating roles of social capital from political and business ties in the context of a transitional

economy, our study issues a number of warnings for practitioners. First, our study confirms

that innovativeness is an important catalyst for business performance. However, firms need to

be careful not to over-focus on innovativeness, because when innovativeness reaches

moderately high levels, its impact on firm performance will take an undesirable twist. Limited

access to knowledge and resources in the context of transitional economies makes the costs of

high innovativeness outweigh its benefits, decreasing firm performance. To firms with low

political ties, it is advisable to pursue high levels of innovativeness; however, when firms

possess large social capital from ties with government officials, it is detrimental to heavily

focus on innovativeness. Such strong attachment creates restrictions and control by the

30
government which become a barrier for firms to implement their ground-breaking ideas for

superior firm performance. This warning is especially important for firms in transitional,

collectivist economies like Vietnam, where deficiencies in the formal institutional structure

urge firms to invest considerably in relationships with government officials in order to secure

regulatory resources and political legitimacy. On the other hand, firms that possess high social

capital from their ties with other businesses, such as suppliers, buyers, and competitors, should

be encouraged to pursue high levels of innovativeness. Strong business ties provide highly

innovative firms with information of high quality and quantity which can help them reverse the

harmful effect of high innovativeness on firm performance.

Second, managers in transitional economies should also invest in their proactive

strategies with caution, because they can reveal their detrimental side after reaching moderately

high levels. Firms with large social capital from business ties should navigate from heavily

investing in proactive strategies because strong business ties, especially in collectivist cultures,

constrain firms from proactively creating new market opportunities to lead the market and

overtake competitors. To firms that already focus heavily on proactiveness, they should develop

strong relationships with government officials to acquire more regulatory resources and

political legitimacy to mitigate the potential harmful effect of proactiveness. Finally, in the

context of transitional, collectivist economies, firms are encouraged to adopt risk-taking

strategies because rich opportunities offered in these economies can help firms make a dramatic

leap with their business performance. In particular, firms possessing large social capital from

business ties should be even more willing to take risks to lead the market, because resources

from business ties can allow them to decrease failure rates of risk-taking strategies and gain

even faster growth.

31
Limitations and conclusion

The generalizability of these findings should be considered in light of several limitations

of the current study. First, the operationalization of social capital in this study focuses only two

types of ties, political ties and business ties while some research has categorized business ties

into four specific types: ties with suppliers, ties with competitors, ties with customers, ties with

universities and highlighted their significance in firm innovation activities and outcomes (Wu,

2011). Additional research may extend the current study by examining whether these four types

of business ties have different moderating impacts on performance of EO dimensions. The

second limitation is that this research concentrates on direct political and business ties of focal

firms while relationships are embedded in a longer and potentially more complex network

entailing other relationships such as with buyers of buyers, or suppliers of suppliers, and the

like (Anderson et al., 1994). Therefore, it would be interesting if future studies could examine

the effects of wider network structures and relationships on the performance of firms’

entrepreneurial strategies. Third, the study relies on a cross-sectional data sample with one

respondent in each participating firm. Future research should include more respondents from

each participating firm to reduce the common method bias due to common sources (Podsakoff

et al., 2003). Finally, a future study can extend this research by investigating whether there is

any point upon which increasing risk-taking becomes detrimental to firm performance.

32
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