INVESTIGATING THE ENTREPRENEURIAL ORIENTATION, PERCEIVED ENVIRONMENTAL HOSTILITY DURING COVID-19 PANDEMIC, AND STRATEGY APPLICATION AMONG SAUDI ARABIAN SMES

Posted: January 5th, 2023

INVESTIGATING THE ENTREPRENEURIAL ORIENTATION, PERCEIVED ENVIRONMENTAL HOSTILITY DURING COVID-19 PANDEMIC, AND STRATEGY APPLICATION AMONG SAUDI ARABIAN SMES

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Abstract

Little is known about how Saudi small and medium-sized enterprises are responding to the unfolding covid-19 pandemic. This study assumes that when an economic crisis is unfolding, entrepreneurial Saudi SMEs perceive their environments as more hostile than their non-entrepreneurial counterparts. The perceived environmental hostility related to the covid-19 pandemic may drive these firms to select diverse strategies to weather the crisis and avoid winding up. A qualitative study involving 50 SMEs drawn from various settings in Saudi Arabia will help confirm these hypotheses. A hundred participants will fill in online questionnaires to provide insights into the linkage between entrepreneurial orientation, perceived environmental hostility presented by the crisis due to the coronavirus pandemic, and strategies employed by their firms during the pandemic. It is expected that the finding of this study will inform struggling SMEs in emerging economies on the best strategies to employ as they navigate the unfolding crisis due to the ongoing covid-19 pandemic. 

Investigating the Entrepreneurial Orientation, Perceived Environmental Hostility during covid-19 pandemic, and Strategy Application among Saudi Arabian SMEs

Introduction

The ongoing coronavirus pandemic presents serious challenges to the global society, as countries worldwide struggle with fatalities, high hospitalization levels, and scarce medical resources to attend to the global health crisis (Roberts 2020). The global economy is already experiencing a downturn whose end is unforeseeable even though vaccines are already being administered to protect populations against severe covid-19 and death (Bagchi et al. 2020; Nicola et al. 2020; Browdie 2021). Some governments provided safety cushions to businesses to prevent massive job losses and total closure of the enterprises (Sarkodie & Owusu 2020). However, government resources are being strained as the pandemic rages on with no predictable end in sight. Besides, governments have to balance between human safety and economic health when instituting containment measures, and firms have to adjust to these conditions to weather the pandemic (Austermann, Shen, & Slim 2020).     

Background of the Problem

Since covid-19 emerged in Wuhan, China early 2020, and spread rapidly around the world, small and medium-sized enterprises (SMEs) have been disrupted by measures instituted by countries worldwide to stem its spread (Long 2020). The global supply chains have broken down and the movement of goods from producers to consumers almost came to a halt (Ivanov & Das 2020). Global trade almost came to a halt as shipment of goods and people became restricted. In response, some governments provided financial buffers to struggling SMEs to help them honor payroll and rent obligations to prevent them from dismissing workers and being thrown out of their business premises (Thorgren & Williams 2020). Many SMEs have closed down and others becoming doubtful of reopening in the future, as the business environment, consumers, and markets change significantly (Thorgren & Williams 2020). It is unclear how SMEs in developing economies are linking entrepreneurial orientation, perceived environmental hostility and strategy to survive the pandemic.

Statement of the Problem

Small and medium-sized enterprises (SMEs) are the economic engines of most developing economies across the world where the corporate enterprise is yet to mature into the large multinationals in highly-developed economies (Eggers 2020). They contribute significantly to their countries’ economies while promoting growth, innovation and job creation at the local level (Mathkur 2019). Unfortunately, these enterprises are the worst hit by the economic crisis from the ongoing coronavirus across the world because of the lack of resources and smallness (Eggers 2020). In Saudi Arabia, SMEs constitute 99.41% of the private sector, contributing 28.7% of the country’s general domestic product (GDP) in 2018 (Alhawal, Nurunnabi & Al-Yousef 2020).  Despite their importance, SMEs in developing economies, like Saudi Arabia, have not been studied extensively during the ongoing coronavirus pandemic.

The growth of Saudi SMEs is propelled by the firm size, manager’s experience, network relationship, financing and training, which are likely to be influenced by the covid-19 pandemic (Rafiki 2019). Therefore, it remains unclear whether the Saudi SMEs have changed their business models and approaches to remain afloat or winding up. Similarly, information related to whether Saudi SMEs have embraced entrepreneurial orientation and responded to perceived environmental hostility within the country and around the world. Besides, there are no insights into the kind of strategies Saudi SME’s are applying to enhance their entrepreneurial orientation or circumvent the perceived environmental hostility during the ongoing pandemic. Therefore, struggling SME’s in Saudi Arabia have no local relevant information they can use to reinvent their business and build the resilience of handling similar pandemic-related crises in the future. This glaring gap is what this study wishes to address. Research Aim, Objectives and Questions

This study aims at determining the relationship between entrepreneurial orientation, perceived environmental hostility, and strategy in Saudi Arabian SMEs during the covid-19 pandemic. To this end, the objectives of the study are

1. To determine the entrepreneurial orientation of Saudi SMEs during the coronavirus pandemic
2. To determine how Saudi SMEs perceive environmental hostility during the coronavirus pandemic
3. To identify which strategies that Saudi SME’s have employed during the coronavirus pandemic
4. To relate entrepreneurial orientation, perceived environmental hostility and strategy for Saudi SMEs during the coronavirus pandemic

These objectives will facilitate the answering of the two research questions, which are:

1. How do Saudi entrepreneurial SMEs perceive environmental hostility during the ongoing coronavirus pandemic?
2. How does the perceived environmental hostility influence the strategies chosen by these SMEs?

Significance of the Study

There exists little information about how small and medium-sized enterprises in emerging and less-developed economies respond to crises emanating from global crises. Even less is known about how Saudi SMEs are responding to the crisis presented by the ongoing coronavirus pandemic. Many studies on the effect of crises on small and medium-sized enterprises have been conducted in the west, where economies are robust. However, during global crises, emerging and undeveloped economies suffer the most, meaning that the effects of SMEs may be worse than those in highly-developed economies of the west (Tang & Hull 2012). In this regard, conducting such as study in a country like Saudi Arabia, which is a developing economy with a starkly different culture from that of the west, is critical in understanding the effects of global crisis such as that caused by the ongoing coronavirus pandemic and the SMEs’ responses to ensure sustained productivity and survivability. The research questions target information related to the strategies employed by Saudi SMEs in response to the coronavirus pandemic. These questions target three concepts, namely entrepreneurial orientation, perceived environmental hostility, and strategies that the SMEs are applying during the coronavirus pandemic. Small and medium-sized enterprises survive in the business environment because of their versatility, ability to capture niche markets using their unique offerings and business models, and rapid adaptability to changing business environments (Lu et al. 2020; Thorgren & Williams 2020).  

Therefore, this study is expected to yield insights into how global crises affect SMEs in Saudi Arabia, which can be extrapolated to similar developing economies in the Persian Gulf region. It will also demonstrate the application of business and management theories in novel situations such as the one presented by the ongoing coronavirus pandemic.  Specifically, the strategic choice theory and contingency theory will be relied upon in this study to contextualize the relationship between entrepreneurial orientation, perceived environmental hostility, and strategies in Saudi SMEs.

This study will also add literature into the studies conducted in developing economies that are usually underrepresented in research activity. Ultimately, the insights from this study can be used by SMEs that are struggling to survive during the ongoing coronavirus pandemic and build their resilience against similar crises in the future.   

A Summary Critical Review of the Relevant Literature

Entrepreneurial Orientation in Perceived Hostile Environments

Entrepreneurial orientation has several definitions as revealed by literature. For instance, it the extent to which top business executives take business risks to promote change and innovation to gain a competitive advantage over rivals and compete aggressively in the marketplace (Tang & Hull 2012). According to Wales (2020) entrepreneurial orientation is a collection of the managerial philosophies, decision-making practices, and strategic actions at entrepreneurial firms employ. These three entrepreneurial orientation dimensions are captured in the risk-taking, proactiveness, and innovativeness undertaken by enterprises as a firm-level strategy (Wales 2020). In turn, many studies indicate that SMEs respond to crises in various ways when they encounter crises. For instance, Roper and Tapinos (2016) studied food companies in the United Kingdom during the great financial crisis and revealed that they engaged in green innovation due to its risky nature and the perceived environmental uncertainty. Similarly, Kottika et al. (2020) revealed that SMEs that survived the prolonged Greek economic crisis had entrepreneurs with personality traits and skills that fostered entrepreneurial orientation and used strategies that increased the quality of products and services, such as prudent financial management, including downsizing, extroversion, and aggressive marketing.  

Literature on entrepreneurial orientation indicates its usefulness in promoting organizational success during crises that presented hostile business environments. A hostile environment is characterized by the absence exploitable opportunities and an overly competitive, unforgiving and overpowering business climate with scarce resources and tight profit margins (Prajogo 2016). The manifestation and effects of hostile business environments are increasingly being documented because they are changing rapidly and influencing business operations. For instance, Tang and Hull (2012), after studying Chinese SMEs, revealed that they responded to competitiveness in the business environment using entrepreneurial orientation that differed according to environmental conditions. However, the response of the Chinese entrepreneurs differed from those of their western counterparts when encountering hostile competitive conditions. Notably, Chinese SMEs considered innovation too risky and cost control too conservative, thus resorting to marketing strategies as a middle-ground option, while the western peers boldly engage in innovativeness as a differencing strategy. Similarly, Mantok et al. (2019) revealed that competitor orientation promoted entrepreneurial orientation and organizational learning mediated the relationship between entrepreneurial orientation and the performance of Indian SMEs. Kristinae et al (2020) and Rezaei and Ortt (2018) who found that entrepreneurial orientation positively influenced marketing performance echoed this finding. Similarly, Kiyabo and Isaga (2020) found a positive correlation between entrepreneurial orientation and performance of SMEs in Tanzania, which was mediated by their competitive advantage. Therefore, Asyari (2021) advised that SME resilience and sustainability during the covid-19 pandemic can be promoted through entrepreneurial orientation and religiosity.

Business environments influence the responses of SMEs considering that they are more versatile and innovative due to their small size. Specifically, the firms’ perceptions of the environment influence the strategies adopted by a firm. In this regard, business environment may be perceived as normative based on the norms, beliefs, values and culture influencing the entrepreneurs’ interpretation (Tang & Hull 2012). It may also be cognitive, based on the knowledge ad skills of the people in the business space. In this regard, Kim et al. (2020) found that in the Chinese context, hostility, complexity and dynamism of the business environment promoted innovativeness among SMEs, inspiring them to acquire external knowledge. However, according to Cepel et al. (2020), Czech and Slovak entrepreneurs in the SME sector considered personal, financial and market risks as the largest risks before and during the coronavirus pandemic.

The covid-19 pandemic is an unfolding crisis that presented a hostile environment that influenced SME decisions and strategies. Thorgren and Williams (2020) noted that SMEs deferred investments, reduced expenses, slashed labor costs, and renegotiated contracts when faced with an unfolding crisis, such as the ongoing covid-19 pandemic. Ketchen Jr and Craighead (2020) revealed that supply chains during the ongoing crisis were disrupted thus presenting a hostile environment to SMEs. However, the authors arrived at a relationship between entrepreneurship, supply change and strategic management to help SMEs navigate through and survive the pandemic. Similarly, Yustian (2020) revealed that during the ongoing covid-19 pandemic, which presented an uncertain business environment, the success of SMEs in West Java was influenced by the business environment and entrepreneurial competence.

Organizational Strategies for Addressing Perceived Hostile Business Environments

Several studies have unearthed strategies that have helped SMEs navigate through crises. Regarding the strategies employed by SMEs during the covid-19 pandemic, Brown and Rocha (2020) revealed that Chinese SMEs undertook far less equity investments during the pandemic compared to their western counterparts because they considered the pandemic as creating a far more uncertain environment compared to the great financial crisis of 2008. However, Nofiani et al. (2021) revealed that the relationship between the performance of SMEs and entrepreneurial orientation was mediated by social networking and innovation, with the balance dimension strategy being superior compared to the combined dimension one. More importantly, Priyono, Moin and Putri (2020) revealed that Indonesian SMEs adopted different levels of digital transformation as strategies for navigating the covid-19 crisis based on their level of digital maturity, liquidity, and digital literacy. Likewise, according to Christa and Kristinae (2021), market orientation when synergized into relevant information through knowledge sharing and innovation yielded improved performance because companies could provide product that satisfied the changed needs of customers. Nonetheless, Juergensen, Guimón & Narula (2020) advised that long-term policy interventions that promoted the renewal and growth of SMEs during and after the covid-19 pandemic needed to focus on networking, internationalization and innovation.    

Tripathi (2019) revealed the challenges experienced by Saudi SMEs, which included overreliance on expatriate labor and government bailouts. These firms suffered from poor management, financial reporting, saudization, and a heavily regulatory burden in a rapidly changing and unpredictable business environment in the country resulting from the government’s pursuit of economic diversification. Elhassan, O.M., 2019) echoed similar sentiments when he revealed that Saudi SMEs faced financing hurdles due to poor record keeping, financial reporting, and funding standards, which was worsened by weal funding structures and lack of lending standards in the country.

Most entrepreneurship studies have been conducted in setting of businesses in western countries. These studies indicate that entrepreneurial enterprises tend to perceive crises optimistically (Tang & Hull 2012). Therefore, three hypotheses are developed for this study.

H1: When the covid-19 pandemic is considered, the Saudi SMEs develop a heightened perception of environmental hostility rather than an optimistic one similar to that of enterprises in western countries.

H2: In Saudi Arabia, crisis severity moderates the relationship between environmental orientation and perceived hostility.

H3: In Saudi Arabia, entrepreneurial orientation has a stronger moderating effect in the negative hostility and strategy relationship.     

Research Design and Methods

Research Approach

A qualitative research approach will be employed in this study. The qualitative approach is preferred over the quantitative one because of its ability to deliver in-depth insights about a phenomenon from individuals with the lived experience (Silverman 2020). In this regard, owners and employees of Saudi SMEs are living through the coronavirus pandemic phenomenon, which is devastating their businesses and work respectively. Besides, qualitative research can be conducted using strategies that conform to the public health guidelines of social distancing, avoidance of unnecessary travel and avoiding crowding. 

Research Strategy

The survey strategy will be employed in this study. The survey is preferred to observational and case studies because it can capture insights into an unfolding phenomenon from multiple sources and using a variety of data collection methods (Creswell & Poth, 2016). In this case, participants drawn from diverse industries and business sectors in Saudi Arabia will provide insights into the effects of the covid-19 pandemic on SMEs. 

Sampling and Data Collection

Primary data will be collected from 50 small and medium-sized enterprises operating in different business sectors in Saudi Arabia. The names and contacts of Saudi SMEs will be obtained from the publicly-available databases maintained by the Saudi Central Bank (SAMA) and the Ministry of Labor and Social Development. These firms will be drawn from the retail, manufacturing, technology, agriculture, hospitality industries, because they have demonstrated significant effects of the ongoing covid-19 pandemic (Donthu & Gustafsson 2020). Purposive sampling will be used to identify the firms in each business sector to ensure equal representation of all the sectors in which Saudi SMEs operate (Creswell & Poth 2016). After that, firms will be conveniently sampled from the pool of SME’s in each business sector to ensure that only accessible firms are samples that that they are representative of the diverse settings in the country including geographical diversity, and urban and rural settings in the country. Each sampled company will be asked to present two representatives as participants to the study, preferably owners or senior managers, after it consents to participating in the study, yielding 100 participants in total. The organizations’ entrepreneurial orientation will be assessed using the entrepreneurial orientation scale proposed by Miller (Gorostiaga et al. 2019; Tang & Hull 2012). The perceived environmental hostility will be assessed using Covin and Slevin’s perception scale, while organizational strategies will be identified using the approach used by Tang and Hull (2012). Questionnaires are the data collection tools in this study and will have items for each concept structured on a five-point Likert scale. For the entrepreneurial orientation (EO) and perceived environmental hostility, the five point Likert scale will range from 1=strongly disagree to 5=strongly agree. The questionnaires will be administered virtually to conform to the coronavirus pandemic health protocols. Specifically, questionnaires will be administered online through emails (Moises Jr 2020). The internal reliability of the data collection instrument will be assessed using Cronbach’s alpha (Tang & Hull 2012).

Ethical research conduct will be adhered to by requiring consent from each participant. The participants will be informed of the topic and purpose of the study before being assured that their information will be used for the study purposes only so that they can provide their informed consent (Resnik 2016). On the same vein, the participants will participate voluntarily and may exit the study at any point if they feel uncomfortable. Besides, the researcher will share the study findings with the firms presenting participants and insist that they do not coerce their employees to participate to ensure that the information collected is genuine and truthful (Resnik 2016). Similarly, the researcher will ensure that the personal information of the participants is kept confidential. Specifically, the researcher will ensure that the information that can be used to identify the participants is excluded from the questionnaires, and interview and focus group discussion transcripts

Data Analysis Procedures

Questionnaire data will be cleaned to remove missing and inaccurate data in which the responded makes more than one choice when only one is required. After that, the data will be coded and entered into SPSS, a computer program for analysis. Analysis of variance will be used to test the biases between the perceptions of the participants.  Exploratory factor analysis (EFA) will be performed on the three concepts will be performed and the Eigen values determined. 

Conclusion

This study is expected to explore an area that has received little research attention. Specifically, the aim of this study is to determine the relationship between entrepreneurial orientation, perceived environmental hostility, and strategy in Saudi Arabian SMEs during the covid-19 pandemic. The coronavirus pandemic is ongoing and its effects on businesses is still unfolding. Many SMEs have not experienced a similar crisis before, either because they have not existed for a long time or they have never encountered an economic crisis as large and far-reaching as this. Moreover, SMEs in developing economies like Saudi Arabia have been understudied generally because most studies have been conducted in western settings. In this regard, this study is critical for advancing knowledge about how SMEs in developing economies respond to crises with entrepreneurship and navigating through perceived environmental hostilities emanating for global crises of the magnitude of the coronavirus pandemic. 

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Appendix: Survey questions

Entrepreneurial orientation (based in a 5-point Likert Scale: 1=strongly disagree; 5=strongly agree)

1. Top managers in my company have invested in research and development during the ongoing covid-19 pandemic.
2. My company enhanced its marketing activities during the ongoing covid-19 pandemic.
3. The top managers in my company have promoted innovation of new products/services during the ongoing covid-19 pandemic.
4. My company has changed its organizational processes during the ongoing covid-19 pandemic.
5. My company closed down during the ongoing covid-19 pandemic.

Perceived environmental hostility (based in a 5-point Likert Scale: 1=strongly disagree; 5=strongly agree)

1. The environment is Saudi Arabia is very safe but have few threats to the survival and health of my company.
2. My firm can manipulate and control the business environment to its advantage.
3. The Saudi environment has many opportunities in marketing and investments.
4. The covid-19 pandemic has presented few threats to my company.
5. The covid-19 pandemic has increased business opportunities for my firm.

Strategies (based in a 5-point Likert Scale regard the frequency of use of these strategies/activities: 1=never; 5=very often)

1. Market segmentation
2. New marketing campaigns
3. New marketing techniques and methods
4. Competitive pricing
5. Cost reduction
6. Employee layoffs
7. New products
8. New business processes