Achieving competitiveness through externally oriented capabilities : an empirical study of technology-based small firms

Abstract: Small firms are regarded as the growth engine of the European economy. They are a major source of employment, entrepreneurial spirit, and innovation. However, many small firms also fail or struggle to survive. A common reason is a lack of internal resources which reduces the ability of small firms to meet increasing competition and market fluctuations. Based on a resource-based view (RBV), this study pursues an argument that small firms with externally oriented capabilities can achieve competitiveness through gaining access to external resources. In particular, this study focuses on two distinct externally oriented capabilities; network capability which represents a firm's ability to utilize inter-firm collaboration for accessing external resources, competences and knowledge; and information and communication technology (ICT) capability denoting a firm's ability to strategically use ICT functions or applications for communication and collaboration. This study also highlights that the relationship between firm capabilities and competitiveness is complex and there is a need to consider two important components which may influence this relationship. First, the mediating role of entrepreneurial strategy is investigated as it can provide an explanation for how capabilities are transformed into competitiveness. Second, the moderating role of network structure is examined as it relates to the context necessities related to the proposed relationship. Thus, the purpose of this study is to develop and test a model to assess how externally oriented capabilities influence the competitiveness of small firms. This study includes qualitative data from three technology-based small firms and quantitative data from 291 technology-based small firms in Sweden. The results can be summarized in five points. First, network capability and ICT capability are two important externally oriented capabilities, which allow small firms to gain from external collaborations and reach competitiveness. Second, network capability and ICT capability have different roles for small firm competitiveness. Network capability holds a strategic value that can directly lead to competitive advantage, while ICT capability is necessary for small firms to avoid competitive disadvantage. Third, both capabilities facilitate the deployment of an entrepreneurial strategy through developing the small firm's potential to identify and exploit opportunities. Fourth, entrepreneurial strategy has a strong influence on firm performance, as it allows small firms to leverage its externally oriented capabilities. Finally, network structure influences the relation of capabilities on competitiveness indicating that small firms need to work with its externally oriented capabilities differently based on their situation. The study's results hold several implications for small firm management and for policymaking which is discussed at length in the final section.