Abstract
Purpose
The combination of strategic orientation and digitalization for sustainable competitive advantage among small businesses is still not given much attention in the literature. Therefore, this study aims to understand the influence of strategic orientation on sustainable competitive advantage while mediating the relationship with digitalization.
Design/methodology/approach
This study used a cross-sectional design. This design helped collect data from 234 small businesses in Arusha city, Tanzania. Since the study used latent variables, structural equation modeling (SEM) was used to analyze relationships and conduct confirmatory factor analysis. Through bootstrapping confidence intervals, Hayes's Process was also used to test how digitalization mediates the relationship between strategic orientations and sustainable competitive advantage.
Findings
The strategic orientation attributes that include market orientation, entrepreneurial orientation and learning orientation were positively and significantly related to digitalization. Furthermore, the results on digitalization and sustainable competitive advantage show a significant positive relationship. Finally, digitalization was analyzed to mediate the relationship between strategic orientation, market orientation, entrepreneurial orientation, learning orientation and sustainable competitive advantage. Hence, all hypotheses were supported.
Research limitations/implications
This study adopted a cross-sectional design that helped to capture the quantitative information. In addition, the current study is limited to Tanzania's small businesses; thus, the findings cannot assure generalization of the conclusion to other countries because of the differences in social, cultural and technology across countries.
Originality/value
This study integrates the concepts of strategic orientation from the strategic management discipline and digitalization from a technology perspective. As a result, the study adds new knowledge about combining two aspects and determining whether they add value in terms of providing a sustainable competitive advantage. This knowledge comes from digitalization, which acts as a mediator between strategic orientation dimensions and a sustainable competitive advantage.
Keywords
Citation
Ismail, I.J. (2023), "I have to apply this strategy! Understanding the mediating effect of digitalization on strategic orientations and sustainable competitive advantage among small enterprises in Tanzania", Management Matters, Vol. 20 No. 1, pp. 53-73. https://doi.org/10.1108/MANM-01-2022-0019
Publisher
:Emerald Publishing Limited
Copyright © 2022, Ismail Juma Ismail
License
Published in Management Matters. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Introduction
Every manufacturer in the contemporary world is committed to sustainability (Rajak et al., 2019). Therefore, the process through which enterprises acquire and retain a sustainability has garnered considerable attention in the strategy literature (Amani and Ismail, 2022; Haseeb et al., 2019; Ismail, 2022; Papadas et al., 2019; Raj et al., 2020; Rajak et al., 2022; Yasa et al., 2020). Sustaining a competitive advantage helps enterprises outperform their competitors by producing superior or lower cost products and services, resulting in increased sales or profit margins. As a result, sustainable competitive advantage can be defined as an organization's ability to meet customer needs or provide them with the value they desire from products (Khorsheed et al., 2020). In other words, competitive advantage means outcomes related to activities performed effectively while also utilizing organizational strengths to provide value to customers that its competitors cannot provide (Sadq et al., 2019). Additionally, Kotler and Armstrong (2018) insisted that competitive advantage over competitors is achieved by providing greater consumer value either through lower pricing or by providing additional benefits that justify higher prices.
Various efforts have been made to enhance and sustain small businesses' sustainable competitive advantages, including identifying alternative strategies and competencies and developing skills through training (Arsawan et al., 2022; Eidizadeh et al., 2017). However, regardless of the efforts made, the sustainability of small business competitive advantages, particularly in developing nations, is questionable (Amani, 2022; Kharaishvili et al., 2018; Srinita, 2019). There is still a mismatch between what is delivered in the market and what the customers require. Several challenges are associated with this mismatch. These small enterprises face a genuine technology gap in the broadest sense. As a result, small enterprises generally do not meet sustained competitive edge standards.
Apart from that, small businesses in developing economies lack access to crucial resources like improved production equipment, materials and managerial expertise, as well as barriers to market entry, supplier and buyer strengths, and decision-making accuracy in the face of market competition (Ismail and Changalima, 2022; Lorenzo et al., 2018). On the other hand, as competition from items manufactured in the locations where these small businesses operate grows, so does competition from products imported from developed economies whose technology is thought to be superior to that of the emerging country.
Similar to other emerging nations, small businesses in Tanzania have not developed their competitive edge (Kapinga and Montero, 2017). The primary reasons for Tanzanian small enterprises' apparent lack of sustained competitive advantage are their lack of competitiveness, inadequate capital bases, lack of competency among business players and poor technology for commercializing innovative products. Therefore, it is vital to research dynamic issues affecting small businesses to solve today's dynamic business environment's problems and maintain a sustainable competitive advantage. However, most previous research on competitive advantages has focused on normative rather than strategic issues. As a result, the existing viewpoints on sustainable competitive advantage are deficient in dynamic components and are therefore largely suited to a static setting. The significance of strategies for sustainable competitive advantage can be traced back to a resource-based view (RBV). According to the RBV, strategic resources develop firm capabilities that can bring sustainable competitive advantages (Barney, 1991).
However, although prior studies have made significant contributions, the present literature has rarely addressed how various strategic orientations interact with technologies for superior outcomes (Hsu et al., 2014). This existing gap necessitates the development of a strong theoretical framework capable of elucidating the influence of strategic orientations and technological factors in business management to sustain competitive advantages. Therefore, involving digitalization as a mediator of the relationship between strategic orientation and sustainable competitive advantage raises new positive insight about how strategy may be integrated with other technological aspects to produce more beneficial outcomes, such as sustainable competitive advantages. From the growing body of academic research on digital transformation, it is clear that digitalization has a significant impact on all aspects of a business and can fundamentally alter how a company operates and provides value to its customers (Hinings et al., 2018). This means understanding the relationship between strategic orientation, digitalization and sustainable competitive advantages is critical for providing empirical evidence to support theoretical development.
On a practical level, the fundamental abilities associated with strategic orientation may enable the development of digitalization, resulting in the establishment of new online clients and the prototyping of new business concepts. This new knowledge is not only important to Tanzania and other developing countries but it is also important for the developed countries. This means that while strategic orientation aims to develop organizational cultures that foster entrepreneurial, marketing and learning orientation skills development Krzakiewicz and Cyfert (2019), digitalization goes beyond that by extending practical orientation skills into new ways of thinking about entrepreneurship itself, thereby providing another new way of incorporating technological issues into entrepreneurship theories for sustained competitive advantages.
Hence, the novelty of this study is to analyze the mediation effect of digitalization on the relationship between strategic orientations and sustainable competitive advantage. This objective is governed by three research questions: what is the influence of strategic orientations on the digitalization? What is the influence of digitalization on the sustainable competitive advantage and what is the mediating effect of digitalization on the relationship between strategic orientations and sustainable competitive advantage?
Theoretical review
Competitive advantage is a prominent topic of discussion in the literature on strategic management (Herden, 2020). There is a clear correlation between strategic management strategies and competitive advantage. This relationship is conceptually based on an awareness of the impact of management techniques as vehicles for raising the likelihood of small businesses practicing strategies that increase their chances of defeating their competitors. Various theories in strategic management have been associated with competitive advantages, depending on the needs and factors utilized to study them. This study adopted two dominating perspectives: RBV and knowledge-based view (KBV). The RBV advocates for competitive advantage based on organizations' assets, processes, capabilities, attributes and knowledge (Barney, 1991). If managed strategically and appropriately, these resources can enable a business to develop and implement initiatives that enhance its competitive advantages (Herden, 2020). Normally, the RBV is primarily adopted by the firms for achieving competitive advantage (Mathiyazhagan et al., 2021).
Since empirical evidence confirms that achieving a sustainable competitive advantage is a difficult goal for the majority of small businesses in developing countries, concerning the RBV, this study theoretically postulates that small businesses must simplify this situation through strategic orientation practices that offer several simplified options, such as the adoption of improved equipment and technology, providing experience and intelligence, planning and control. Additionally, adopting a strategic orientation enables small businesses to forecast the potential of available resources in response to internal and external changes in the business environment, including technological advancements such as digitalization as organizational capability, and thus encourages corporate behavior to be more oriented toward sustainable competitive advantages.
Apart from that, according to Grant (1996), one critical premise of the KBV is the fundamental idea of a corporation as a knowledge-integrating entity. The KBV reduces the number of resources required to give enterprises a competitive edge to a single item that satisfies all requisite qualities. Individuals in the organization must integrate and apply their knowledge to achieve a competitive advantage. As the process of integrating and applying strategic orientations becomes more aligned with the knowledge that is needed, the firm will be able to identify, analyze and solve problems by using additional resources, such as technologies, which can help the firm achieve sustainable competitive advantages more quickly. In general, the KBV provides a reasonable theoretical foundation for investigating how competitive advantage is generated, as it is associated with the successful utilization of complex resources, such as digital concerns. Therefore, capabilities (strategic orientations) provided by the practical application of knowledge can expedite the advancement of technology, resulting in sustainable competitive advantages.
Literature review and hypothesis development
Market orientation and digitalization
Market orientation prioritizes profitable production and the retention of customer value over all other objectives (Ismail, 2021). Market orientation is conceptualized as an organizational action that analyzes consumer behavior and needs and competitor strategies and then disseminates all market analysis data throughout the organization with a coordinated effort, with due consideration for time constraints and profit. One of the key arguments in the literature on market orientation and entrepreneurial innovation is whether the former promotes the latter or merely results in incremental product improvements due to shifting customer preferences. Despite this debate, an increasing body of research demonstrates the favorable relationship between market orientation and business innovation (Lewrick, 2009; Prifti and Alimehmeti, 2017; Zhou et al., 2005). Furthermore, these studies argue that adhering to market orientation principles positively improves the magnitude and efficacy of innovation initiatives. Hence, a strong market orientation is critical for the entrepreneur in today's diverse and dynamic digital environment.
According to Hair et al. (2012), the more digitally savvy a business becomes, the more information it can access about its customers and competitors and the more tools it has to process that information. On the other hand, nondigital enterprises usually do not have access to this level of information. As a result, if it is available, nonmarket-oriented firms will pass on it. Digital market-oriented businesses are the businesses that their competitors do not watch. This makes them able to analyze abundant information about competitors and customers.
Additionally, digital capabilities enable market-oriented businesses to be obsessed with obtaining, disseminating, evaluating and acting on knowledge. Apart from that, Hair et al. (2012) suggested that market orientation is important to a digital venture's success. They added that meeting customer demands is a critical issue for start-up businesses, especially when focusing on digitalization, which offers tremendous opportunities for sensing consumer demands and tracking entrepreneurs' strategies with innovation activities. Therefore, it can be hypothesized that
Market orientation has a significant impact on digitalization.
Entrepreneurial orientation and digitalization
Entrepreneurial orientation is a construct that has been extensively investigated in the realm of entrepreneurship and business innovation (Gupta and Wales, 2017; Shaher and Ali, 2020). According to Anderson et al. (2015) and Shaher and Ali (2020), entrepreneurial orientation is a strategic enterprise-level evaluation that sheds light on a company's processes, leadership attitudes and inherently entrepreneurial behaviors. One of the characteristics that the preceding conceptual definition of entrepreneurial orientation shares is an emphasis on innovation creation through different aspects, including digitalization, such as social media, digital platforms, digital users and Internet adoption. Its innovative potential allows the application of novel ideas and elements through ingenuity and trial and error, with a special emphasis on digitalizing product development, extended services and new procedures (Gupta and Wales, 2017; Shaher and Ali, 2020). Furthermore, as reported by Fan et al. (2021), there is a direct positive correlation between entrepreneurial orientation and social media platform use. Their study findings on entrepreneurial orientation, based on the RBV theory, indicated that entrepreneurial orientation is a vital factor for enterprises competing in a digital economy. The more entrepreneurial a business is, the more likely it is to be able to compete digitally in its industry. This is because entrepreneurialism is more open to accepting new technology and responding proactively to changing trends.
Additionally, a study by Dutot and Bergeron (2016) discovered a positive correlation between entrepreneurial orientation and social media use and recommended that businesses be proactive on social media platforms by offering new products to new markets in novel ways to increase customer interaction. A study by Quinton et al. (2018) also noted a positive relationship between entrepreneurial orientation and the digital economy and suggested that entrepreneurial orientations create an intangible resource that enables organizations to be uniquely competitive, as entrepreneurial attributes typically define managers' ability to innovate. Also, a study by Niemand et al. (2021) revealed a positive relationship between entrepreneurial orientation and digitalization by pointing out that nonentrepreneurial orientation activities delay digitalization, and it would be characterized by a “wait and see” posture with which businesses implement services and online features that have proven to be successful. From this literature review, it can be hypothesized that
Entrepreneurial orientation has a significant impact on digitalization.
Learning orientation and digitalization
Strategy-driven learning orientations present the means on how businesses acquire the skills and competencies required to achieve their business objectives and adjust their operating model or build new strategies to achieve them. A learning orientation imbues an organization with ideas that promote the acquisition, formation, distribution and use of relevant information. A higher degree of learning orientation shows a firm's overall structural learning, which includes the elimination of outmoded processes, grasp of new procedures and standards, and proactive application of new methods to ensure long-term competitive advantage (Meekaewkunchorn et al., 2021). As a result, it encourages an open and inventive culture within the organization and “out of the box” thinking (Meekaewkunchorn et al., 2021). This means that in today's business environments dependent on digitalization, learning orientation has risen to become one of the most important factors in the development of digital platforms that connect businesses with customers through the use of Internet social media applications. Even though there is not much research on the direct link between learning and digitalization, available research studies show that organizational learning helps with the successful implementation of different parts of digitalization.
A study by Gaurav and Indranil (2019) suggested that learning through experimentation enables organizations to obtain market information, which is critical for entrepreneurs when designing flexible business models that respond to market needs. Learning orientation as a viable strategic orientation can be a vital resource in developing an organization's strategy (Chung et al., 2015). Learning develops the capacity to address novel problems and enables innovation-driven economic performance by leveraging digitalization-specific processes such as cloud computing and e-business (Satalkina and Steiner, 2020). That is to say, learning procedures enable an organization to acquire knowledge about the market, its customers and competitors and assimilate and analyze the new market and entrepreneurial information to comprehend the industrial environment (Huang and Wang, 2011).
Apart from that, Nasution et al. (2011) emphasized that innovation is mostly the result of the learning orientation components, which they defined as information acquisition, processing, storage and recovery. Additionally, learning orientation is crucial to innovations such as digitalization, with outcomes varying dependent on the stage of the learning activity. Similarly, a study by Quinton et al. (2018) noted that a learning perspective is one of the complementary qualities that might assist businesses in thriving in the digital age. Therefore, it is hypothesized that
Learning orientation has a significant impact on digitalization.
Digitalization and sustainable competitive advantage
Under normal circumstances, digitalization in businesses is associated with increasing a firm's performance. The implication is that advantages presented by digital technology challenge traditional models of sustained competitive advantage (Koch and Windsperger, 2017). Although there are few studies on the influence of digitalization, most of the available studies done using the dimensions of digitalization and competitive advantages have shown a positive relationship with each other. Through digital platforms, businesses can be able to migrate away from traditional practices and conduct business through digital channels such as online marketing, the App Store, electronic transactions and online and smartphone purchases. Hence, digital platforms enhance business success (Qian Qiu and Mok Kim Man, 2021).
A study by Leão and da Silva (2021) has demonstrated a positive relationship between digital transformation and competitiveness among firms, primarily by examining competitive advantage items such as innovation, efficiency, cost reduction and value chains on specialization, governance and upgrading. Most businesses have developed websites in response to digital transformation to gain sustainable competitive advantages, and few new marketing strategies are signed off on without including social media in the mix. In other words, social media has become an important part of any digital strategy in this age of digitization (Magdalena, 2018).
On the other hand, Qian Qiu and Mok Kim Man (2021) suggested that the development of novel digital technologies can positively impact opportunities for new ventures and business transformation and hence enable businesses to keep up with shifting client needs, allowing them to function more efficiently in a competitive business environment that is always changing in reaction to technological breakthroughs for competitive advantage. Ojala et al. (2018) further posted that digital platforms enable the hosting of complementary offerings, of which different services given by digital platforms aid in the improvement and expansion of product offerings, which in turn aids in attracting new clients while saving time and effort in the pursuit of competitive advantages.
The digital economy differs from traditional economies in that geographical location no longer confers a competitive advantage and that the use of digital technologies, such as e-commerce platforms, cloud computing, mobile devices, social media, mobile applications, mobile devices and smart contracts, plays the primary role. These dimensions, which constitute digitalization, are important factors in accelerating competitive advantage development. This idea is supported by Nurova and Freze (2021), who stated that digitization is believed to be a critical aspect in building sustainable competitive advantages. Based on this review, it can be hypothesized that
Digitalization has a significant impact on sustainable competitive advantage.
The mediating effect of digitalization on strategic orientations and sustainable competitive advantages
According to Menguc and Auh (2005) and Serafim and Veríssimo (2021), a company's strategic orientation is defined by its strategic direction for instilling the appropriate behaviors that will lead to the company's continuous superior performance. Masa'deh et al. (2018) and Storey and Hughes (2013) argue that strategic orientation is critical because it directs firms to use organizational resources to pursue new market opportunities and exploit existing markets by investing in innovation.
Digitization is one of the most important strategic resources. This is because digitization improves efficiency and consistency, as well as accessibility, cost savings, knowledge sharing and timely response to clients (Magdalena, 2018). Furthermore, strategic orientation is regarded as a critical factor in a company's strategic positioning, particularly when acquiring opportunities such as digital technologies. This is because a company with a strong strategic orientation develops behaviors and attitudes that increase openness to new ideas like digitalization (Arias-Pérez et al., 2020; Quinton et al., 2018).
Under normal circumstances, businesses must anticipate future customer needs in order to create value through innovation (Kandampully, 2002). Therefore, businesses must have multiple strategic orientations that enable them to anticipate marketing behaviors associated with providing customers with superior value. Strategic orientation is the primary strategic apex of a company's efforts to be innovative and proactive (Covin and Slevin, 1989). For instance, Niemand et al. (2021) noted that, as digital technologies begin to replace conventional business models, entrepreneurial orientation is presently regarded as one of the most important initiatives for explaining digital technology. According to the study, entrepreneurial orientation is essential for achieving competitive advantages because it provides the means to integrate digitalization benefits into the firm. In addition, according to Davidson and Vaast (2010) and Hervé et al. (2020), orientation entails identifying, seizing and transforming value-creating opportunities. Thus, the values created are associated with the use of digital media and other forms of information and communication technology. On the other hand, while strategic orientation provides a solid capacity to perceive, seize and transform digital technology, digitalization is associated with a number of business performance-related benefits. It is possible to make the hypothesis that
Digitalization mediates the relationship between market orientations and sustainable competitive advantages.
Digitalization mediates the relationship between entrepreneurial orientations and sustainable competitive advantages.
Digitalization mediates the relationship between learning orientations and sustainable competitive advantages.
Methodology
Sampling and data collection
This is a cross-sectional study in which respondents were defined as small company owner-managers in Arusha city, Tanzania's northern zone. The study presented 240 structured surveys using the Google Forms platform, distributed to respondents through WhatsApp and Telegram. This study focused on digitalization, which is conducted mostly through digital platforms, so it was vital to identify business owners who use the Internet in their everyday operations. Additionally, the small business was supposed to be present and active on at least one social media network (it should post new content on a social media platform regularly, at least twice per week on Facebook, Instagram or Twitter). In this study, owner-managers were chosen as key respondents because they have the most information about their firm's environment, strategy and competitive advantages (Dutot and Bergeron, 2016). However, the study noted that six questionnaires were returned as invalid due to incorrect data provided by respondents. This process of data collection was done between June and September of 2021. To avoid ethical concerns, participants in this study were instructed to maintain their identity. Table 1 contains information about the respondents.
According to the findings in Table 1, the majority of small business owner-managers are males (132, 56.4%), the majority of them operate in the business area of craftsmanship (96, 41%) and the average capital investment is between 5 and 65 m Tanzanian shillings (Tshs), 181 (77.4%). Additionally, the findings suggest that 130 (55.5%) small business owner-managers have a bachelor's degree, indicating that they can combine strategic orientations and digitalization to achieve a sustainable competitive advantage.
Common method variance
In addition, Harman's single factor test was used to ensure that the data were free of common method bias. The presence of common method bias due to the prevalence of self-reported data in social sciences research may pose a major threat to the data's trustworthiness and may affect the study's outcomes (Conway and Lance, 2010). The result indicates that a single factor has a variance of 25.935%, which is less than 50%. So, it is safe to say that there is no common method bias in the data.
Measurement items and data analysis
The study adopted items from previous studies (Table 2) with minor modifications to reflect the size (a small business) and adjust to the Tanzanian context. First, market orientation (MO) was measured by items (MO1–MO7) from Idar et al. (2012), Kasim et al. (2018) and Pratono et al. (2019) while for entrepreneurial orientation (EO), the study adopted items (EO1–EO8) from Basco et al. (2020), Liu et al. (2002) and Pratono et al. (2019). On the other hand, the study adopted items (LO1–LO6) of learning orientation (LO) from Liu et al. (2002), Pratono et al. (2019) and Wang (2008), while items for digitalization (DG), the study items (DG1–DG8) were adopted from Abou-foul et al. (2021). Finally, the items (CA1–CA10) of sustainable competitive advantage (CA) were adopted from Haseeb et al. (2019), Khorsheed et al. (2020) and Pratono et al. (2019).
Also, this study used structural equation modeling (SEM) to analyze the relationships of multiple constructs based on hypothesized models. SEM is a multivariate technique that integrates the observed variables (measuring) and unobserved variables (latent) (Ryan, 2020; Smeda et al., 2018). In contrast, other classical linear modeling methods only measure the observed variables. In particular, SEM combines the simultaneous performance of diverse multivariate methods, for instance, factor analysis and regression analysis. On the other hand, this study used the PROCESS Macro mediation test to test the mediation effects of digitalization on the relationship between strategic orientation and sustainable competitive advantage.
Results and discussion
Confirmatory factor analysis and model fit
The findings in Table 3 indicate that all items have factor loadings above 0.5; hence, they were accepted and included in the path analysis (Kline, 2011). Also, the values in Table 4 fall within the threshold, which means that the predicted model fits perfectly.
Validity and reliability
The constructs' average variance extracted (AVE) values ranged between 0.528 and 0.672, whereas the construct reliability values ranged between 0.900 and 0.942. The findings give strong evidence for the presence of convergent validity given that AVE should be larger than or equal to 0.5 and less than construct reliability to demonstrate convergent validity. This suggests that the constructs explain a greater proportion of the variance in the construct indicators than the measurement error. As a result, the confirmatory factor analysis results support convergent validity. On the other hand, the study used Cronbach's alpha to determine internal consistency. This reliability coefficient shows how much responses to different items in a measure are the same (Kline, 2011). Additionally, construct reliability was employed to determine whether or not the individual items adequately represented their respective constructs. In all cases, a Cronbach's alpha and construct reliability result of 0.7 or higher was taken to mean that the instrument is reliable.
Discriminant validity
The criteria proposed by Baron and Kenny (1986) were used. First, the values of AVE must be greater than the values of maximum shared variance (MSV). This criterion was met as presented in Table 5. The second criterion requires the square roots of AVE to be larger than the values of the correlation of inner constructs. This was also met (Table 5). Based on these criteria, Table 5 results show that discriminant validity was reached.
Hypothesis testing
The study engaged in testing five hypotheses, all of which were supported (Table 6). The first hypothesis tested the relationship between MO and DG. The results revealed that MO has a significant positive relationship with DG (β = 0.624, p < 0.001). Therefore, hypothesis H1 was supported. This means that any attempt to increase MO will increase DG by a factor of 0.624 (62.4%). The study also found a significant positive relationship between EO and DG (β = 0.556, p < 0.001). This means the hypothesis H2 was supported. Hence, improving EO by one unit will increase DG by a factor of 0.556 (55.6%). Apart from that, the findings of this study show that LO significantly influences DG (β = 0.0.473, p = 0.004). Thus, H3 was supported. This suggests that increasing LO by one unit increases DG by a factor of 0.473 (47.3%). On the other hand, DG was positively and significantly related to CA by (β = 0.684, p = 0.002), suggesting that H4 was supported. It further means that when DG is increased by one unit, it increases CA by a factor of 0.684 (68.4%).
Testing of mediation effect
Andrew Hayes' process mediation criteria (Hayes, 2018) were used to assess the mediating effects of digitalization. As shown in Tables 7–9, all three dimensions of strategic orientation were separately tested based on their hypotheses. The bootstrap lower limit confidence interval (BootLLCI) and upper limit confidence interval (BootULCI) contained no zeros in the 95% confidence intervals. This justifies that digitalization is a significant mediator of the relationships. Specifically, results in Table 7 indicate that the BootLLCI is 0.2791, and the BootULCI is 0.5039. This means there is no zero value between the upper and lower limit. Hence, H5 was supported. This means that digitalization mediates the relationship between market orientation and sustainable competitive advantage.
Also, findings in Table 8 show that the BootLLCI is 0.1225 and the BootULCI is 0.3174. This means there are no zero values within the limit; therefore, it can be concluded that digitalization mediates the relationship between entrepreneurial orientation and sustainable competitive advantage. Hence, H6 was supported.
Finally, Table 9 revealed that H7 was supported. This is because BootLLCI is 0.1195, and BootULCI is 0.2797. This also means there are no zero scores between the limits. Therefore, digitalization was found to mediate the relationship between learning orientation and sustainable competitive advantage.
Discussion
This study examines the mediating effect of digitalization on the relationship between strategic orientation and the sustainable competitive advantage among small businesses. Justification for the study is based on current evidence that demonstrates that sustainable competitive advantage among small businesses is still an alarming challenge. If not properly addressed, it may result in a slowdown in performance indicators such as employment, taxation and increasing exit rates among small businesses. The study further argues against the current understanding that small businesses cannot use technologies because of the sector's small scale of operations in terms of capital and informality. Finally, with support from existing empirical studies and two dominant strategic management theories, RBV and KBV, the study establishes a theoretical foundation on the idea that small businesses and entrepreneurs who actively pursue strategic orientations as strategic resources are likely to develop a variety of behaviors that can increase their chances of meeting customer needs and hence improve performance. Aside from that, adopting digitalization as an organizational capability has a number of benefits, such as the ability to use digital technologies to add value to goods and services, market goods and services through digital channels, and adopt technology that allows businesses to connect customers and operational processes in a modern way.
Specifically, the study's findings indicate that market-oriented owner-managers design market strategies based on available digital channels such as the Internet, WhatsApp, Twitter and Instagram. These digital platforms have evolved into a necessary component of any organization and are no longer the exclusive domain of digital natives. Digital platforms are quickly becoming a competitive necessity and the foundation for creating new value and small businesses that ignore them risk falling behind. However, as a digital platform strategy, market orientation is still a challenging problem for most small businesses. Compared to large businesses with large capital bases, small businesses struggle to transform their activities to penetrate the online market digitally. To address this challenge, most small businesses are now implementing a variety of market orientation strategies, including orienting themselves about new digital changes in the market environment, holding frequent meetings to discuss online market trends and development and focusing on digital advertising as a necessary strategy for staying in touch with customers.
These strategies, which cover the behavioral components of customer orientation, competitor orientation and interfunctional coordination, are now digitalized to increase the visibility of the products and services offered to customers who are widely dispersed; thus, it may be difficult for small businesses to reach a large number of them without digital platforms. The connection between market orientation and digitalization is also documented by Hair et al. (2012), who noted that a well-defined market orientation entails outreach to the market. In the digital marketplace, where entrepreneurs of varying motivations and quality abound, the response of the entrepreneur to current market conditions must include attracting the market's attention. They maintain that the visibility provided by digital platforms in the marketplace is at least as critical to distinctiveness and success as a fundamentally strong service or product offering.
Similarly, entrepreneurial orientation characteristics like risk-taking, aggression and proactivity enable the adoption of novel business methods, resulting in the defeat of competitors in the market. Hence, possessing all of these characteristics may assist the firm in adopting technology that enhances its chances of succeeding versus competition. The findings align with Dutot and Bergeron (2016) and Fan et al. (2021), who noted that entrepreneurial orientation is a critical component to consider when it comes to businesses competing in the e-commerce business climate. Furthermore, in light of the features of innovativeness, it is projected that firms with higher entrepreneurial tendencies will be more inclined to adopt new technologies, such as social media. According to Fan et al. (2021), firms that adopt new or innovative technologies can do so because of entrepreneurial orientation components such as proactivity, risk-taking and innovativeness.
Additionally, learning orientation is positively related to digitalization. The justification is that learning orientation provides a mental set of minds that enables business owners to evaluate and recalibrate inputs and the outcomes, processes and policies required for adopting technology such as digitalization. So, learning orientation is seen by many as a key part of helping businesses gain a competitive edge and run more efficiently. This concurs with Mantok et al. (2019), who said that once businesses realize how important it is to be open to learning, they make sure their employees have access to new information and are encouraged to share their ideas on how to make business processes run more smoothly.
Finally, the findings of this study support the theoretical understanding developed in this study, which is that when enabling environments applied in strategic orientation are created for small businesses, there is a greater likelihood of developing proper digitalization within small businesses, which increases the likelihood of achieving sustainable competitive advantage over the long term. Specifically, the study findings revealed that digitalization is an important mediator between strategic orientation and sustainable competitive advantage. This is because the digitalization created by proper strategic orientation can result in proper technological assets like the Internet and information, which can offer entrepreneurial activity that can transfer an asset, service or major part of the business into digitally characterized items for competitive advantage. From the findings, it is clear that when owner-managers absorb the strategic orientation, they can develop digitalization, which influences them to achieve sustainable competitive advantage.
Conclusion
The current study is primarily concerned with finding the mediating effect of digitalization on the relationship between strategic orientations and sustainable competitive advantage. The findings of this study conclude that all three strategic orientations used, such as marketing, entrepreneurial and learning orientation, are significant factors for digitalization of business practices. Similarly, it was concluded that digitalization is a significant factor for sustainable competitive advantage. Finally, it was concluded that is a significant mediator of the relationship between strategic orientation and sustainable competitive advantage.
Practical implications
This study is one of few that have looked into the mediating effect of digitalization in the context of strategic orientations and sustainable competitive advantage. The findings indicate that investing in strategies increase the application of digital technologies which further increase the likelihood of achieving a sustainable competitive edge. Essentially, it is understood that customers are eager to continue purchasing products and are resistant to switching intentions if a company develops appropriate strategic actions that ensure the quality of the products and services offered. That is to say, business owner-managers must understand that a more thorough application of strategic orientations would encourage businesses to take advantage of technological opportunities that can contribute to the enhancement of a competitive advantage. To be more specific, the strong link between market orientation and digitalization means that owner-managers need to get better at using digital technologies to figure out what customers want and make products that meet those needs.
Second, businesses must improve their ability to develop entrepreneurial strategies in order to adopt digital technology, which will enable them to produce new products, connect with customers through digital platforms and exploit opportunities that can help them gain a competitive advantage. In a similar vein, businesses must increase the learning orientation of their employees by designing job tasks that encourage learning practices that are compatible with the current state of digital technology. In general, businesses must capitalize on training related to strategic orientations and digitalization in order for their employees to be able to manage all digitalized business activities and be capable of managing the business. Owner-managers must also recognize that the ability to maintain superior quality necessitates a continuous process of developing and implementing strategies that are compatible with dynamic business environments. Therefore, they must take advantage of skills development programs and training that improve their ability to identify strategic orientations and digital technologies that can help them produce quality products at competitive prices and increase their capacity to deliver high-quality products on time.
Theoretical implication
The findings support the RBV and KBV regarding the important of intangible resources in small businesses context. This is important because studying strategic orientation as strategic resources and digitalization as organizational capability is crucial for decision-making in small business management. Therefore, the study provides a theoretical explanation of the influence of strategic orientations on digitalization. Second, it contributes to the influence of digitalization on the sustainable competitive advantage and the mediating effect of digitalization on the relationship between strategic orientation and sustainable competitive advantage. Apart from that, few studies have demonstrated theoretical contribution using RBV and KBV in explaining strategic resources and organizational capabilities on sustainable competitive advantage. Therefore, this study extends the theoretical understanding of these prominent theories by including strategic orientations and digitalization as intangible resources not covered in those theories.
Specifically, the findings of this study add to the limited knowledge on the mediating effects of digitalization on the relationship between market, entrepreneurial and learning orientations and sustainable competitive advantage. Therefore, this study gives insights on how small businesses can benefits by digitalization through investing on the strategic orientations. Additionally, by bringing digitalization as the mediator in the relationship, this study contributes to the understanding that strategic orientations can meaningfully impact on the sustainable competitive advantage if related with other mediating factors such as digitalization.
Limitations of the study
Despite the substantial contribution made by this study to the body of knowledge, the following limitations provide a window of opportunity for future research in the same field or other relevant fields. First, a cross-sectional survey that captured the quantitative characteristics of the topic solely was the first step toward a more quantitative approach to the subject. Additionally, this study's respondents were small-business owner-managers who responded to the survey questions based on their perceptions. Also, the current study only looks at small businesses in Tanzania. Because of the different social, cultural and technological settings in other countries, the results cannot be applied to all of them.
Direction for future studies
The following recommendations for future research are made in light of the constraints mentioned above. To begin, a qualitative method is required to paint a lifelike image of the subject under research. Additionally, in future studies, this study will address small business owner-managers, including employees and other stakeholders. Second, in the same way, it is very important to compare small and large businesses in terms of their strategic orientation and digitalization. Furthermore, future research can examine the role of digitalization as a moderator of the relationship between strategic orientation and long-term competitive advantage in the marketplace. This is due to the fact that small businesses differ in their level of adoption of digitalization. In this way, by concentrating on the low and high levels of digitalization usage among small businesses, future studies can contribute to the knowledge gap on the importance of digitalization on the strengthening of the impact of strategic orientation on competitive advantage by focusing on low and high levels of digitalization usage among small businesses.
The characteristics of respondents
| Characteristics | Category | Frequency | % |
|---|---|---|---|
| Gender | Female | 102 | 43.6 |
| Male | 132 | 56.4 | |
| Total | 234 | 100 | |
| Business area | Restaurant | 49 | 20.1 |
| Service | 26 | 11.1 | |
| Fashion | 63 | 27.8 | |
| Craftsmanship | 96 | 41.0 | |
| Total | 234 | 100 | |
| Business experience | >21 years | 19 | 8.1 |
| 16–20 years | 21 | 8.9 | |
| 11–15 years | 30 | 12.8 | |
| 6–10 years | 99 | 42.3 | |
| 1–5 years | 65 | 27.1 | |
| Total | 234 | 100 | |
| Educational level | Postgraduate degree | 35 | 14.9 |
| Bachelor degree | 130 | 55.5 | |
| Diploma | 53 | 22.6 | |
| Certificate level | 16 | 7 | |
| Total | 234 | 100 | |
| Number of employees | 38–48 | 14 | 5.9 |
| 27–37 | 20 | 8.5 | |
| 16–26 | 76 | 32.5 | |
| 5–15 | 124 | 53.1 | |
| Total | 234 | 100 | |
| Average capital investment | 122–182 m Tshs | 21 | 8.9 |
| 51–121 m Tshs | 32 | 13.7 | |
| 5–65 m Tshs | 181 | 77.4 | |
| Total | 234 | 100 | |
Measurement items
| Construct | Items | References |
|---|---|---|
| Market orientation (MO) | MO1: My marketing strategy is very dedicated | Idar et al. (2012), Kasim et al. (2018) and Pratono et al. (2019) |
| MO2: My customer satisfaction is important | ||
| MO3: My firm put the hardest effort to know about the market environment | ||
| MO4: We have a meeting to discuss market trends and developments | ||
| MO5: It takes us forever to decide how to respond to our competitor's price changes | ||
| MO6: Advertisement is useful for the growth of my firm | ||
| MO7: My product offerings are well accepted compared to those of competitors | ||
| Entrepreneurial orientation (EO) | EO1: My firm is often the first business to introduce new products in markets | Basco et al. (2020), Liu et al. (2002) and Pratono et al. (2019) |
| EO2: My firm typically initiates movement to which competitors then respond | ||
| EO3: My company has often made dramatic changes to products and services | ||
| EO4: My company typically responds to the actions initiated by competitors | ||
| EO5: My company engages in investment projects with moderate risk | ||
| EO6: My firm minimizes the probability of making costly decisions | ||
| EO7: Relative to our competitors, our company has a higher propensity to take risks | ||
| EO8: Our company has a higher ability to identify customer needs and wants | ||
| Learning orientation (LO) | LO1: We have the managerial competence to absorb new knowledge | Liu et al. (2002), Pratono et al. (2019) and Wang (2008) |
| LO2: We can successfully integrate our existing knowledge with new information | ||
| LO3: We can learn new knowledge is the key to our competitive advantage | ||
| LO4: The basic values of this firm include learning as key to improvement | ||
| LO5: Learning in my firm is seen as necessary to guarantee firm survival | ||
| LO6: We are not afraid to reflect shared assumptions about our customers | ||
| Digitalization (DG) | DG1: We use digital technologies to understand our customers better | Abou-foul et al. (2021) |
| DG2: We market and sell our products and services through digital channels | ||
| DG3: We use digital channels to provide customer service | ||
| DG4: Technology allows us to link customer and operational processes in new ways | ||
| DG5: We have an integrated view of key operational and customer information | ||
| DG6: We use analytics to make better operational decisions | ||
| DG7: We use digital technologies to add value to our existing products and services | ||
| DG8: We have lunched new business model based on digital technologies | ||
| Sustainable competitive advantage (CA) | CA1: Our new products respect entrepreneurial social responsibility percepts | Haseeb et al. (2019), Khorsheed et al. (2020) and Pratono et al., (2019) |
| CA2: Our new products incorporate knowledge of environmental sustainability | ||
| CA3: Net profit margin of our organization increased | ||
| CA4: Return on investment of our organization increased | ||
| CA5: Profitability growth has been outstanding | ||
| CA6: Profitability has exceeded our competitors | ||
| CA7: Overall financial performance has exceeded competitors | ||
| CA8: My firm is superior to its competitors in terms of price and quality of services | ||
| CA9: My firm can offer high value to customers | ||
| CA10: My firm reduces the cost of functioning operations |
Validity and reliability test
| Construct | Items | Factor loadings | Cronbach's alpha | AVE | MSV | Construct reliability |
|---|---|---|---|---|---|---|
| Market orientation (MO) | MO1 | 0.876 | 0.745 | 0.580 | 0.372 | 0.905 |
| MO2 | 0.768 | |||||
| MO3 | 0.746 | |||||
| MO4 | 0.813 | |||||
| MO5 | 0.645 | |||||
| MO6 | 0.756 | |||||
| MO7 | 0.704 | |||||
| Entrepreneurial orientation (EO) | EO1 | 0.845 | 0.867 | 0.672 | 0.292 | 0.942 |
| EO2 | 0.685 | |||||
| EO3 | 0.746 | |||||
| EO4 | 0.875 | |||||
| EO5 | 0.765 | |||||
| EO6 | 0.896 | |||||
| EO7 | 0.876 | |||||
| EO8 | 0.846 | |||||
| Learning orientation (LO) | LO1 | 0.791 | 0.786 | 0.604 | 0.314 | 0.900 |
| LO2 | 0.756 | |||||
| LO3 | 0.673 | |||||
| LO4 | 0.634 | |||||
| LO5 | 0.856 | |||||
| LO6 | 0.917 | |||||
| Digitalization (DG) | DG1 | 0.785 | 0.749 | 0.561 | 0.384 | 0.910 |
| DG2 | 0.845 | |||||
| DG3 | 0.685 | |||||
| DG4 | 0.684 | |||||
| DG5 | 0.754 | |||||
| DG6 | 0.684 | |||||
| DG7 | 0.876 | |||||
| DG8 | 0.645 | |||||
| Sustainable competitive advantage (CA) | CA1 | 0.603 | 0.845 | 0.528 | 0.384 | 0.917 |
| CA2 | 0.895 | |||||
| CA3 | 0.764 | |||||
| CA4 | 0.624 | |||||
| CA5 | 0.745 | |||||
| CA6 | 0.709 | |||||
| CA7 | 0.853 | |||||
| CA8 | 0.604 | |||||
| CA9 | 0.761 | |||||
| CA10 | 0.643 |
The goodness of fit index for the structural model
| The goodness of fit index | Recommended value | Actual value | Comment |
|---|---|---|---|
| GFI | Close to 1 | 0.922 | Good |
| AGFI | Close to 1 | 0.904 | Good |
| NFI | Close to 1 | 0.901 | Good |
| IFI | Close to 1 | 0.952 | Good |
| TLI | Close to 1 | 0.911 | Good |
| CFI | Close to 1 | 0.952 | Good |
| X2/df | 1 ≤ X2/df ≤ 3 | 1.723 | Good |
| RMSEA | 0 ≤ RMSEA ≤ 0.1 | 0.056 | Good |
Discriminant validity
| Construct | CR | AVE | MSV | DG | MO | EO | LO | CA |
|---|---|---|---|---|---|---|---|---|
| DG | 0.910 | 0.561 | 0.384 | 0.749 | ||||
| MO | 0.905 | 0.580 | 0.372 | 0.250 | 0.761 | |||
| EO | 0.942 | 0.672 | 0.292 | 0.420 | 0.540 | 0.820 | ||
| LO | 0.900 | 0.604 | 0.314 | 0.480 | 0.520 | 0.330 | 0.777 | |
| CA | 0.917 | 0.528 | 0.384 | 0.620 | 0.610 | 0.340 | 0.560 | 0.727 |
Note(s): Italic diagonal line denotes the square roots of AVE
Hypothesis testing
| Hypothesis | Relationship | Coeff | SE | t-value | p-value | Decision |
|---|---|---|---|---|---|---|
| H1 | MO → DG | 0.624 | 0.053 | 11.773 | *** | Supported |
| H2 | EO → DG | 0.556 | 0.078 | 7.128 | *** | Supported |
| H3 | LO → DG | 0.473 | 0.132 | 3.583 | 0.004 | Supported |
| H4 | DG → CA | 0.684 | 0.119 | 5.747 | 0.002 | Supported |
Note(s): ***p < 0.001
Process mediation test for market orientation
| Relationship | Direct effect | SE | t-value | p-value | LLCI | ULCI |
|---|---|---|---|---|---|---|
| MO → CA | 0.3969 | 0.0614 | 6.4617 | *** | 0.2758 | 0.5180 |
| MO → DG | 0.3871 | 0.0673 | 5.7505 | *** | 0.2544 | 0.5198 |
| DG → CA | 0.3140 | 0.0783 | 4.0102 | *** | 0.1288 | 0.1409 |
| Relationship | Indirect effect | BootSE | BootLLCI | BootULCI |
|---|---|---|---|---|
| MO → DG → CA | 0.1215 | 0.0513 | 0.2791 | 0.5039 |
Note(s): ***p < 0.001
Process mediation test for entrepreneurial orientation
| Relationship | Direct effect | SE | t-value | p-value | LLCI | ULCI |
|---|---|---|---|---|---|---|
| EO → CA | 0.3258 | 0.0602 | 5.4098 | *** | 0.2071 | 0.4446 |
| EO → DG | 0.4547 | 0.0662 | 6.8637 | *** | 0.3241 | 0.5852 |
| DG → CA | 0.4704 | 0.0565 | 8.3275 | *** | 0.3590 | 0.5817 |
| Relationship | Indirect effect | BootSE | BootLLCI | BootULCI |
|---|---|---|---|---|
| MO → DG → CA | 0.2139 | 0.0491 | 0.1225 | 0.3174 |
Note(s): ***p < 0.001
Process mediation test for learning orientation
| Relationship | Direct effect | SE | t-value | p-value | LLCI | ULCI |
|---|---|---|---|---|---|---|
| LO → CA | 0.4348 | 0.0798 | 5.4474 | *** | 0.2775 | 0.5922 |
| LO → DG | 0.8948 | 0.0405 | 22.1134 | *** | 0.8150 | 0.9746 |
| DG → CA | 0.1269 | 0.0345 | 3.6782 | *** | 0.1200 | 0.2737 |
| Relationship | Indirect effect | BootSE | BootLLCI | BootULCI |
|---|---|---|---|---|
| LO → DG → CA | 0.1135 | 0.0773 | 0.1195 | 0.2797 |
Note(s): ***p < 0.001
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