Effect of Market Orientation on Small Business Performance in Small Town in Malaysia - Case Study Example

EFFECT OF MARKET ORIENTATION ON SMALL BUSINESS PERORMANCE IN SMALL TOWN IN MALAYSIA Name: Institution Introduction Small and medium sized business plays a major role in the growth of Malaysian economy. For an extended period of time, a large portion of business in the Malaysian economy has come up, thanks to SMEs. According to the Small and Medium Industries Development Corporation, small business forms a subsector of SMEs in Malaysia and it contributes in employment as well as greater production. Since a major role is played by small business in the Malaysian economy, it is therefore necessary to understand why some firms succeed and some fail in the business environment of Malaysia. A small business becomes successful only when goods and services are purchased by customers at profitable terms. Nonetheless, this can only be achieved through healthy relationship with their customers through prioritization of customer satisfaction and providing value through goods and services. Like their bigger counterparts, small businesses are also guided by some logistics of what the organization is, and what should be done to earn profits. According to Kotler (1994), the concept of marketing is an operational strategy that provides an overall standpoint to all members of the organization. He insists that this concept rests on four pillars: customer needs, target market, coordinated marketing and profitability. This study carries out an investigation to confirm the market orientation concept and its impact on the performance of small business. Literature review Marketing practitioners and experts have for more than three decades argued that business performance is directly affected by market performance (Slater and Narver, 1994). Since a positive relationship between market orientation and firm practice exists in large firms, it is observed that the market orientation strategy is vital in the study of small businesses. According to Kohli and Jaworski (1990), marketing concept is a direct consequence of implementation of marketing philosophy. Many scholars for a long time have researched on the concept of market and have also tried to define it. For instance, McNamara (1972) defined it as “a philosophy of business management based upon a firm-wide acceptance of the need for customer orientation, profit orientation and identified the vital role of marketing in communicating the needs to all the players within the corporate sector”. Marketing concept is also defined as an expression that a firm regards the need of consumers in the process of buying and selling of products and services (Houston, 1986). Marketing concept came into play for the first time in the early 1950s, and since then it has been regarded as a backbone of modern marketing environment. Slater and Narver (1994) argue that the marketing concept together with the concept of market orientation have been vital factors of marketing practices for several decades. Owing to the fundamental importance attached to these factors, a number of studies have attempted to define them and explore their implementation and application in business. This implies that both early and modern day researchers in strategic management and marketing attributed great importance to this concept. The concept of marketing evolved over the course of time to reproduce a viewpoint of conducting business that can be regarded as the basics of a triumphant organization’s culture (Hunt & Morgan, 1995). While considerable research on the marketing concept has been established in major organizations, only in the late 1990s was the importance of this concept in small businesses addressed in Malaysia. Many researchers have attempted to examine the relationship between market orientation and business performance in large firms; nonetheless, a growing number of studies have begun to recognize the accomplishment of marketing concept in SMEs. Hogarth-Scott et al. (1996) argued that market orientation may play a major of minor role on performance of a business depending on environmental provisions such as competitive intensity and market turbulence. In response to McNamara (1972), Hunt and Morgan (1995) realized that a market orientation leads to superior performance because it provides a merging focus for the projects and efforts of individuals and departments within an organization. They also found out that market orientation affects both sales growth and return on investments. The finding further indicated that a positive effect of market orientation on sales growth will double the profits on condition that the cost of capital is less than return on investments. Many studies conducted earlier reveal that there is a positive relationship between firm performance and market orientation in large firms (Slater and Naver, 1994; Jaworski and Kohli, 1993; Kohli and Jaworski 1990). However, the number of studies that have been conducted to examine the influences of market orientation on small businesses is very low. Pelham (2000) carried out research on the impact of market orientation on business performance in SMEs. His study revealed that there is a positive relation between market orientation and marketing effectiveness in small and medium size organizations. He posited that market orientation provided small businesses with competitive advantage over large businesses. Methodology The theoretical framework identifies the four key variables which will be used to develop the fundamental relationship between business performance and market orientation. Performance of small business in the dependent variable and market orientation is split into three independent variables: customer orientation; competitor orientation and inter coordination. After carefully considering all the independent and dependent variables, the following hypotheses were developed to test the experimental findings. The first hypothesis is that there is a major connection between the three components of market orientation and performance of a small business. The second hypothesis is that the three independent variables (competitor orientation, customer orientation and inter functional coordination) play a major role in small firm performance. A field survey method was used to collect data and questionnaires were given out to owners of small businesses operating in Petaling Jaya town in the outskirts of Kuala Lumpur. A total of 72 small firms were visited out of which 55 completed questionnaires were received. The questionnaire items were developed and adapted as follow: business performance (4 items) and market orientation (15 items). Data analysis and results The results obtained from the questionnaires indicate that the performance in small businesses has a positive relationship with the three independent variables of market orientation: competitor orientation, market orientation and inter functional coordination. Also, the three aspects of market orientation are major predictors of small business performance. Conclusion and recommendations From the findings, it is clear that market orientation plays a major role in success of a small business. It is crucial for a small firm to augment its market orientation by engaging in developing opportunities which could be utilized effectively to satisfy the ever changing needs and wants of customers. While there are many studies that have been conducted on the relationship between market orientation and business performance in large firms, limited research has been done on the same relationship in small firms. This study left out the effect of market orientation return on investment and customer retention. Therefore more research need to be done in future to address the above mentioned issues. Bibliography Houston, F. (1986): The marketing concept: what it is and what it is not. Journal of Marketing, 50 (4), p81-7 Hunt D. & Morgan M. (1995): The comparative advantage theory of competition: Journal of Marketing, 59 (4), p1-15. Jaworski J. & Kohli A. (1993): Market orientation: antecedents and consequences: Journal of Marketing, 57 (3), p53-70. Kohli A. & Jaworski J. (1990): Market orientation: the construct, research propositions, and managerial implications: Journal of Marketing, 54 (4), p1-18. Kotler, P. (1980). Principle of Marketing (4th Ed.): Englewood Cliffs, NJ: Prentice Hall. McNamara P. (1972): The present status of the marketing concept: Journal of Marketing, 36 (1), p50-7. Pelham M. (2000): Market orientation and other potential influences on performance in small & medium sized manufacturing firms: Journal of Small Business Management, p38, 48-67. Slater S. & Narver J. (1995): Market orientation and the learning organization: Journal of Marketing, 59 (7), p63-74. Read More