Market Orientation and Manufacturing Firm’s Performance The Mediating Effects of Competitive Advantage

Abstract

This study analyzed the effect of market orientation on the performance of manufacturing firms operating in selected Ethiopian industrial parks, using competitive advantage as an intervening variable. The study adopted a pragmatic worldview. An explanatory research design was employed. A mixed-research approach was applied. Data for this study was collected both from primary and secondary sources. The target population of the study was employees of manufacturing firms operating in selected industrial parks in Ethiopia. To select the respondents for the study, a non-probability sampling technique was employed. The sample size was determined to be 382 respondents. The scales for data collection were purified and validated using Confirmatory Factor Analysis (CFA). Structural Equation Modeling (SEM) was used to test the study’s hypothesis. The findings of the study revealed that market orientation has a positive and significant effect on both competitive advantage (β = 0737, p<0.001) and firm performance (β = 0.515, p<0.001), respectively. Moreover, competitive advantage is associated positively and significantly (β = 0.46, p<0.001) with firm performance. Consequently, market orientation has both a direct and indirect effect through competitive advantage on a firm's performance. This reveals that competitive advantage played a partial mediating role in the relationship between market orientation and firm performance. The finding corroborates that market orientation contributes to competitive advantage by providing relevant market information, which enables firms to create differentiated products, charge affordable prices due to low cost advantages, and increase firm responsiveness, which finally contributes to a firm's success. Therefore, it is possible to conclude that being market-oriented enables firms to better understand current and latent customer needs, which enables them to develop better solutions and gain a sustainable competitive advantage in a competitive market that enhances firm performance. Thus, this study suggested that to ensure the sustainability of the manufacturing firms operating in industrial parks they need to focus on proactive market information and place emphasis on areas where the country has a competitive advantage. This enhances their competitiveness by nurturing product differentiation or enhancing quality, attaining cost advantage, and being responsive to their customers.