The mediating effects of innovation on the relationship of market orientation dimensions and ICT small and medium sized enterprises performance

Past research had shown that market orientation has a positive influence on the performance of large and small firms. However, little is known on the mediating effect of innovation on the relationship between market orientation and small firm performance. This study fills up the gap by investigating the relationship between the market orientation, innovation and business performance of SMEs in the ICT industry in Malaysia. Hypotheses on these relationships were presented. Market orientation was measured through three dimensions or construct namely; competitors orientation, customer orientation and inter-functional coordination. Innovation was measured on the scale of new product and services (defined as improved product extension, development of novel of unique product, service or processes or a new product line) and new method of marketing, introduced by the company with a new way to serve customer, while measurement of business performance was based on ROA (return of asset), sales growth, gross profit (before tax), profitability and overall perceived business success. The research data were obtained by means of mail survey directly to owner/manager respondents. There were 1000 SMEs ICT with MSC status business who were sent with the questionnaires and 272 or 27.2 percent of them responded. The analysis method of research used structural equation model (SEM) AMOS 6.0 and SPSS 16.0. The study contributed to the marketing literature by showing that market orientation and innovation lead to greater business performance. Market orientation does not affect business performance directly. However Innovation has a positive significant direct effect to business performance. Innovation also mediates the market orientation and business performance model relationship. Finding of this study, while contributing to the body of knowledge, will also assist the policy makers and the SMEs owners in their marketing effort and in fostering the innovation. Limitations and recommendations for future research were also discussed.