Surviving the Turbulence: A Dynamic Capabilities Perspective on Market Orientation and Business Performance of MSMEs

Abstract

Purpose: This study seeks to understand how market and technological turbulence shape and potentially moderate the relationship between market orientation and the business performance of micro, small, and medium enterprises (MSMEs).

Design/methodology/approach: The study employs a survey design. The respondents are owners or managers of MSMEs in Bali, a developing region in Indonesia. The primary data was analyzed using SEM-PLS. A robustness check was conducted by testing for non-linear effects and endogeneity.

Findings: This study shows that market orientation positively influences business performance. Market turbulence weakens this relationship, while technological turbulence strengthens it, although with a weak effect. Customer orientation and inter-functional coordination are essential for enhancing MSME performance in developing regions.

Research limitations: The cross-sectional design limits the ability to infer causal relationships. The absence of back translations from Indonesian to English and of a pilot test may reduce confidence in construct validity. This study used two different data collection methods, thus limiting the response rate calculation. The findings may have limited generalizability.

Practical implications: MSMEs need to regularly explore consumer needs in a cost-effective way and participate in exhibitions to interact directly with customers. They should also strengthen their resources to improve their ability to respond to market information.

Social implications: By adopting a market-oriented approach, MSMEs become more aware of consumer needs, enabling them to develop products and services that meet market demands, which, in turn, enhance business performance and employee welfare within the sector.

Originality/value: This study contributes to the literature on intangible capital by conceptualizing market orientation as an intangible dynamic capability under environmental turbulence. It integrates market and technological turbulence as moderating variables in the relationship between market orientation and the business performance of MSMEs. This perspective remains underexplored in prior studies, as it situates the analysis within the dynamic context of MSMEs in Bali as a developing region that has a strong dependence on tourism, which in turn exposes firms to high levels of environmental uncertainty. We extend the scope of research beyond the conventional focus on large firms and developed regions to MSMEs in developing regions. This study further advances dynamic capabilities theory by demonstrating that environmental turbulence does not uniformly enhance the effectiveness of market-oriented capabilities in resource-constrained MSMEs.