Int. J. Entrepreneurship and Small Business, Vol. 24, No.

2, 2015 187

SME alliance performance: the impacts of alliance

entrepreneurship, entrepreneurial orientation, and
intellectual capital

Kambeiz Talebi, Arash Rezazadeh* and

Amer Dehghan Najmabadi
Faculty of Entrepreneurship,
University of Tehran,
Tehran, Iran
Email: ktalebi@ut.ac.ir
Email: a.rezazadeh@ut.ac.ir
Email: amerdehghan@ut.ac.ir
*Corresponding author

Abstract: This study highlights the fulfilment of firms’ entrepreneurship

promises through building alliances. In this regard, the impact of alliance
entrepreneurship on small and medium sized enterprises’ (SMEs) performance
was investigated. Extending entrepreneurship into the domain of alliances, we
found that there are some major factors affecting the relationship between
alliance entrepreneurship and SME performance. Alliance partners’
entrepreneurial orientation and protecting their intellectual capital were
considered as the two most important factors. Since alliances between SMEs
are common in industries affiliated to automobile manufacturing, we attempted
to assess alliances among Iranian auto parts manufacturing SMEs. According to
the data gathered from 81 SMEs which had established alliances, we concluded
that SMEs’ alliance entrepreneurship has a significant positive impact on their
performance. Furthermore, SMEs’ entrepreneurial orientation mediates the
relationship between alliance entrepreneurship and performance as well as the
relationship between intellectual capital and performance.

Keywords: alliance entrepreneurship; pre-alliance formation factors;

post-alliance formation factors; SME performance; entrepreneurial orientation;
intellectual capital.

Reference to this paper should be made as follows: Talebi, K., Rezazadeh, A.

and Najmabadi, A.D. (2015) ‘SME alliance performance: the impacts of
alliance entrepreneurship, entrepreneurial orientation, and intellectual capital’,
Int. J. Entrepreneurship and Small Business, Vol. 24, No. 2, pp.187–207.

Biographical notes: Kambeiz Talebi is an Associate Professor at Faculty of

Entrepreneurship, University of Tehran, Iran. His research interests are
entrepreneurship strategy and small and medium venture management. He had
done a number of international projects on SME and entrepreneurship strategy
with Unido and ILO. He currently works on ‘Entrepreneurial management
skills development among business units in agriculture industrial cluster’.

Copyright © 2015 Inderscience Enterprises Ltd.

188 K. Talebi et al.

Arash Rezazadeh is currently a Research Scholar at Faculty of

Entrepreneurship, University of Tehran, Iran. He had published several
research papers in international journals such as: Journal of Community
Positive Practices. His expertise involves data analysis through structural
equation modelling (SEM), particularly partial least squares (PLS) that led him
to publish a book in 2013 on PLS-SEM. His main research interests include
firms’ cooperative strategies, alliance entrepreneurship, entrepreneurial
orientation, firm performance, and SME management. He also has a dream of
introducing the third generation of SEM techniques.

Amer Dehghan Najmabadi is a PhD candidate in Faculty of Entrepreneurship,

University of Tehran, Iran. He is currently researching and preparing a book on
the intellectual capital. His research interests are intellectual capital,
entrepreneurship, entrepreneurial orientation, social capital, and employee
empowerment.

1 Introduction

The theme of coopetition in business networks that refers to simultaneous collaboration

and competition between enterprises is considered as a matter of challenge for
researchers who study about organisations’ competitive strategies. Alliances as one of
these major strategies, has attracted great attention of scholars. Pointing out that how
firms decide to form alliance with their competitors and which obstacles and restricting
factors are they faced with, is a field that has been recently considered by a wide range of
scholars and practitioners (e.g., Brekalo et al., 2013; Lok and Willmott, 2014; Zhang and
Frazier, 2011). In particular, reviewing the alliance literature reveals that studying about
this strategy is common in the field of small and medium sized enterprises (SMEs).
Regarding the increased need of businesses to specialise more, large firms are impelled to
build alliances with networks of small businesses (Dana et al., 2001). Small-scale firms,
on the other hand, find it beneficial to develop relationships with larger firms through
approaches like alliances in order to compete against large companies (Dana et al., 2008).
As entrepreneurship is commonly studied in SME literature, new phenomena such as
cooperative entrepreneurship or symbiotic entrepreneurship are developed by scholars
highlighting the smaller firms’ strategies to enter the value chains of larger enterprises, to
the benefit of both sides (Etemad et al., 2001). Accordingly, the alliance entrepreneurship
(AE) as a new concept in the literature can create a new route for further studies. Firm’s
inclination towards engaging in alliances has become an incentive for researchers to
study in this field (e.g., Albers et al., 2013; Skalholt and Thune, 2013). However, few
scholars have undertaken research to study about alliances among SMEs considering the
momentous concept of entrepreneurship. Thereby, this article attempts to bridge the gap
in SME literature between alliance strategy and entrepreneurship.
In addition to the theoretical perspective, and from a practical view, regarding the
prominence of industry in the countries’ economic development, a major concern of
governments is to support domestic manufacturing and services industries. Towards this,
particular facilities are granted to the domestic manufacturers in some countries in order
to reduce the need for importing products from overseas markets. Industry along with
mines and agriculture approximately include all manufacturing activities of countries and
 SME alliance performance 189

plays critical role in their economic advancement. To this effect, automotive

manufacturing industry enjoys a particular importance among other industries. This
industry, due to its role and importance in countries’ advancement, needs to study from
various perspectives covering new concepts. Thereby, AE in automotive manufacturing
industry was assessed in this research. Granted that cooperation of two companies within
the framework of alliances may reduce costs in core sections such as design, marketing,
sales, etc. (Brekalo et al., 2013; Ireland et al., 2002), encouraging organisations to close
collaborations besides competitions may lead to flourish automotive manufacturing
industries and subsequently economic advancement in this field. The results of this
research provide the managers of enterprises with comprehensive information and
applied package concerning how they can form optimum and appropriate alliances. The
fact that they may confronted with which obstacles and restrictions for forming
appropriate alliance and which strategies must be formed within the firm to enable it to
control domestic conditions upon alliance is formed, and how managers may improve
performance of the firm by eliminating conflicts and disputes, is considered as an
important issue and concern of enterprises’ owners in competitive environment of the
current century.

2 Theoretical basis of research and hypotheses development

2.1 Alliance entrepreneurship

A review on the literature indicates that coopetition strategies can be developed through
various ways. For instance, depending on the number of activities in the value chain in
one hand, and the number of partners in the other, types of coopetition can be simple
dyadic, complex dyadic, simple network, and complex network (Dana et al., 2013).
Another categorisation of coopetition practices may classify different forms into
consortiums, clusters, joint ventures, etc. Building alliances as one of these cooperative
strategies, has increasingly been considered in the view of different fields such as
organisational studies (Lok and Willmott, 2014), sociology (Morillas et al., 2012), human
resources (Belcourt and McBey, 2010), political sciences (Armitage and Nye, 2012), and
globalisation (Brydon and Dana, 2011). Alliance for enterprises refers to a collaboration
relationship between at least two enterprises which is used for transferring knowledge
and technology, risk contribution, decreasing costs and in general, overcoming
hindrances to enterprises (Albers et al., 2013; Culpan, 2009; Das and Teng, 2000).
Forming an alliance is one of the most important decisions of firms for accessing
resources, improving learning and finally achieving the more competitive advantage
through cooperation with each other in different fields (Ireland et al., 2002). A strategic
alliance refers to a collaboration agreement between two or more firms built to fulfil
mutually compatible objectives or to resolve joint problems through continuous
interactions in a determined period of time (Das and Teng, 1998; Ireland et al, 2002).
According to Skalholt and Thune (2013), the main reasons for building alliances are
changes in environmental conditions in terms of competition intensity, high economic
uncertainty, and rapid technological changes. Hereupon, in today’s competitive business
environment, two entities that collaborate, serve their needs better compared with
operating separately and it may be resulted in making great value added.
190 K. Talebi et al.

AE as a collective strategy is pursued by firms who seek the improvement of their

entrepreneurial performance through sharing resources. It should be considered as a kind
of symbiotic entrepreneurship, because the latter sufficiently considers the relationship
between two entities within which neither side can achieve their own or mutual purposes
without the sustained contribution of the other (Dana and Mallet, 2014).
AE occurs while the alliance objectives are in line with entrepreneurial factors among
two or more enterprises. Sarkar et al. (2001) considered AE from the viewpoint of social
networks and defined this phenomenon as a type of collaboration agreement that the
enterprises proceed to do so in order to make relationship with each other to identify and
exploit entrepreneurial opportunities and subsequently creating value. Khalid and Larimo
(2012) define AE concept as an entrepreneurial activity through which active creation
and development of strategic networks for the enterprises will be possible to achieve
strategic goals.

2.2 SME alliance performance

An excessive alliance performance determines the achievement of partners’ mutual

objectives resulting in positive outcomes for them (Abdel-Latif and Schmitz, 2010;
Glaister and Buckley, 1998). The success in this collaboration agreement contributes to
positive tangible and intangible outcomes such as market development, increasing
incomes and cost reduction which ultimately results in creating values (Cravens et al.,
2000; Kale et al., 2002).Thanks to the removal of government-imposed handicaps, small
firms now have access to customers, suppliers, and collaborators enabling them to take
part in symbiotic networks throughout the globe (Wright and Dana, 2003). Accordingly,
the decision to commence export in order to fulfil internationalisation, has taken by many
small firms (Dana et al., 2009). As a result, forming alliances among SMEs has become
more commonplace and hence, performance is proved to be a proper subject of study in
SME alliance literature. SME alliance performance will be deemed extraordinary when it
contributes to partners’ growth. The owners of SMEs need outright recognition of their
status for making a pertinent decision to build alliances. Performance as an appropriate
criterion for evaluating efficiency and effectiveness of the alliance in a particular period
of time is recognised via some signs in the market, customer and extent of income
(Ariño, 2003). Measuring of firms’ performance is not a simple matter and needs
gathering comprehensive information (Covin and Slevin, 1990; Pangarkar, 2003).
However, a large number of researchers have discussed performance measurement, since
it is the most appropriate criterion for assessing enterprises’ status. Some scholars
believed that the analysis of financial statements and other accounting reports serves as a
common method for SMEs’ performance measurement. However, such customary
methods may not be appropriate to benchmark the quality of alliances. The success of
alliances may not be appeared in a short time and some measures such as development of
a new product may need more time to be evaluated. A review on the previous studies
indicates that there is failure in unanimity of votes as to the manner of appropriate
measurement of alliance performance (Ariño, 2003; Christoffersen, 2013). Objective
measures such as the increase in sales, profits and shareholders’ equity capital versus
subjective measures such as development of new products and customer’s satisfaction are
each applied from separate viewpoints for evaluation of the alliance success. On the other
hand, in a large number of researches (e.g., Christoffersen et al., 2014; Glaister and
 SME alliance performance 191

Buckley, 1998; Lee, 2007), subjective measures have been used along with the objective
ones to benchmark the alliance performance.

2.3 Intellectual capital

Nowadays, intellectual capital (IC) management plays an undeniable role on the success
of firms in future lines of competitive markets. In the current economy who is facing
knowledge-based competitions, the knowledge and ICs of a firm are considered as its key
competitive advantages (Chang and Chen, 2012; De-Castro et al., 2011; Santos et al.,
2010). Knowledge-based economy is an economy in which knowledge and intangible
assets are considered as driving factors of production (Massa and Testa, 2009). The IC is
a type of capital arising from staffs, managers, leaders, supervisors, chief executive
officers and in general manpower of the firm. IC is viewed from a resource-based theory
and is also considered as a strategic source (Zeghal and Maaloul, 2010). In general, the
IC is known as a set of knowledge-based assets allocated to a firm. Different models
relating to the IC were presented from various viewpoints of scholars (e.g., Bontis, 1998;
Edvinsson and Malone, 1997; Moon and Kym, 2006). Bontis (1998) indicated three types
of IC as human capital, structural capital, and customer capital. Human capital refers to
individual knowledge extent that staffs of a firm enjoy. This capital lies in knowledge and
skills carried by employees who use them in order to render professional services (Stwart,
2006). The structural capital as all inhuman assets of a firm is used for meeting the
requirements of the market. The structural capital also indicates the structures and
processes available in a firm as applied by the staffs and through which they apply their
knowledge and skills. Finally, the customer capital means all knowledge included in
relationships of a company with its environment including customers, suppliers, research
and development agencies, etc.

2.4 Entrepreneurial orientation

Entrepreneurial orientation (EO) is a concept considered in corporate entrepreneurship
which was introduced by Miller (1983). Lots of scholars in the field of entrepreneurship
claim that the organisations effectively achieve their goals with a strong EO (Dess and
Lumpkin, 2005; Naldi et al., 2007). EO which is reflected in several organisational
aspects including innovativeness, risk taking and proactiveness, is considered as an
important determinant of firms’ growth (Lumpkin and Dess, 1996). Innovativeness as the
first dimension of EO refers to a firm’s willingness to engage in creative activities and
processes via introducing new products/services as well as technological leadership and
R&D in developing new mechanisms (Keh et al., 2007; Lumpkin and Dess, 2001). Risk
taking means implementing activities without relying on specific and full knowledge
about the probable results. While large firms, in general, avoid taking risks, smaller firms
find this beneficial as they enjoy more flexibility in choosing how to adapt to new
conditions in order to survive and excel (Farsi et al., 2013). Proactivenessas the third
dimension of EO pertains to firms’ capability of forecasting future market demands
leading them to proceed ahead of competitors (Wiklund and Shepherd, 2005). The
improvement in the situation of firms’ innovativeness, risk taking and proactiveness, can
contribute to their entrepreneurial performance enhancement (Su et al., 2011).
192 K. Talebi et al.

2.5 AE and performance

In line with many scholars, collective practices between entrepreneurs lead to major
benefits for partners (Arend, 2009; Dana et al., 2013). Accordingly, firms have found
collaborative agreements advantageous to bolster their entrepreneurial situation. In this
regard, prolific studies have undertaken to investigate the relationship between SMEs’
alliances and their performance from various perspectives (e.g., Flatten et al., 2011; Lee,
2007). Cravens et al. (2000) by assessing alliance performance through balanced
scorecards method, stated the dynamism and complexity of enterprises environment as
the main factor for leading them to build alliances. They believed that the balanced
scorecard method comprising four categories of financial, managerial, physical and
technological measures is proved to be an appropriate tool for performance assessment.
Pansiri (2007) by assessing the effect of characteristics of alliance partners on alliance
performance found that the liability and assurance created between partners have positive
influences on alliance performance enhancement by increasing their market contribution
and proficiency, subsequently bringing them satisfaction. In particular, about the effect of
AE on firm performance, Khalid and Larimo’s (2012) findings revealed a positive and
significant relationship between these two constructs. Moreover, Sarkar et al. (2001)
found that AE with a focus on proactiveness, leads to superior firm market performance
especially for small firms.

H1 AE has a positive effect on SME performance.

2.6 AE and EO
Entrepreneurship has always been considered as an important matter of concern to
organisations especially small firms, as the recognition and exploitation of new
entrepreneurial opportunities facilitates their growth. Therefore, one of the most
challenging issues for enterprises’ managers is their decisions to improve their firms’
entrepreneurial status. Granted that EO is considered as a key concept in entrepreneurship
literature (Covin and Lumpkin, 2011; Lumpkin and Dess, 1996; Miller, 1983) and it is
critical for evaluating entrepreneurial performance (Pirela, 2007; Shaw et al., 2005),
managers try to improve their enterprises’ EO. Accordingly, a lot of them find the
alliance strategy beneficial to this purpose. In this regard, some studies have been
conducted concerning alliances by emphasising on EO (e.g., Franco and Haase, 2013;
Marino et al., 2002; Pirela, 2007). In these researches, it is discussed that firms can boost
their EO in terms of innovativeness, risk taking and proactiveness through forming
alliances and sharing their resources. In fact, an SME itself may have no possibility to
improve its EO status in all three dimensions due to its limited resources, and this spurs
SMEs to build alliances with other firms.

H2 SMEs’ AE has a positive effect on their EO.

 SME alliance performance 193

2.7 IC, EO, and performance

Nowadays, due to the rapidly changing environment of SMEs in a global context, they
are forced to follow entrepreneurial processes in order to survive and grow (Shepherd
et al., 2009). To do this, SMEs must provide conditions that an entrepreneurial
atmosphere rule over the enterprise so that employees could be able to take part in
entrepreneurial activities individually and jointly in groups in order to create more
competitive advantages for their organisation and subsequently enhance performance
(Kraus et al., 2012). Since employees play an essential role in SMEs’ success, their skills,
knowledge, and experiences must be particularly considered as precious ICs which firms
do need them to survive and develop in such intensely competitive markets. IC can
positively affect firms’ performance in terms of return on equity (ROE), return on assets,
revenue growth, and employee productivity (Phusavat et al., 2011). Moreover, SMEs
depend strongly upon their all knowledge stocks utilising for competitive advantage, in
order to pursue innovativeness, engage in risky projects, and to create a first-mover
advantage. Hence, SMEs’ IC is the driving force influencing their EO.
H3 IC has a positive effect on the EO.
H4 IC has a positive effect on the performance.

2.8 EO and performance

The relationship between SMEs’ EO and performance is assessed in various studies thus
far. The results of these practices indicate that the existence of entrepreneurial tendencies
and motives which cause a firm to operate more entrepreneurial, has fundamental role on
its high performance (Kreiser and Davis, 2010; Runyan et al., 2008; Tang et al., 2008;
Wang and Zhang, 2008). According to Jones (2005), entrepreneurial activities may
reform and improve firms’ performance by utilising social capitals. Thus, in a
competitive environment, firms which emphasise on entrepreneurial activities are more
likely to have a better performance. Firms’ rich EO contributes to their high performance
via recognising external opportunities as well as the development of new goods and
services (Jones, 2005). In fact, firms can overcome business challenges through
innovativeness, risk taking, and proactiveness preparing themselves for a competitive and
complex environment.
H5 EO has a positive effect on the performance.

3 Theoretical framework

According to the objectives of the research, i.e., the assessment of the effects of AE, EO
and IC on SME performance together with the other hypotheses of the research derived
from literature review, the theoretical framework (Figure 1) is designed.
194 K. Talebi et al.

Figure 1 Hypothesised research model

Alliance H2 (+) Entrepreneurial

entrepreneurship orientation

H1 (+)
H5 (+)
H3 (+)

Intellectual capital SME performance

H4 (+)

4 Research method and results

4.1 Sampling and data collection

Based on the theoretical model presented in Figure 1, five hypotheses were derived from
literature review. We used data collected by questionnaires for testing these hypotheses.
Regarding the large number of alliances between SMEs in Iran’s auto parts
manufacturing industry, the study focuses on this industry and the research population
consists of owners, managers, and chief executive officers (CEO) of those SMEs since
they have the required competencies to deal with strategic issues of the firm. An initial
random sample of 150 SMEs was selected regarding the transparent reports of their
performance. After removing SMEs that are no longer in alliances, the final sample
remained with 81 SME resulting in the distribution of 412 questionnaires. We attempted
to distribute the questionnaires in core areas of SMEs including planning and evaluation,
sales, finance, marketing, IT, and human resource management in order to capture
various points of views and cover all aspects of a firm dealing with the alliance functions.
A response rate of 77% led to the collection of the data applied for the analysis. A
detailed statistics about surveyed persons revealed that a majority of them served as
CEOs, most of their firms’ ages were 5–10 years, building 2–5 alliances was mostly
occurred, and finally most of their firms had 100–150 employees. Table 1 provides
information about the detailed composition of the sample.
Table 1 Descriptive summary of the characteristics of sample

Number of alliances formed thus far Firm age

1–2 32% Younger than 5 years 16%
2–5 51% 5–10 years 56%
More than 5 17% More than 10 years 28%
Number of employees Position of surveyed person
1–50 21% Owner 11%
50–100 24% Manager 33%
100–150 36% CEO 56%
More than 150 employees 19%
 SME alliance performance 195

4.2 Measurement
Our survey instrument comprises four sections each with items related to four constructs,
i.e., AE, EO, IC, and SME performance. The first section of our measurement instrument
contains 31 items for measuring AE under two dimensions of pre-alliance formation
factors and post-alliance formation factors. Pre-alliance formation factors in our
instrument are considered in five sub-factors including: similarities between partners with
eight items adapted from Kale et al. (2002) and Saxton (1997), prior experience with four
items derived from Saxton (1997) and Simonin (1999), partner reputation by three items
developed from Dollinger et al. (1997) and Arend (2009), Complementarity in terms of
resources and skills via two items adapted from Dussauge et al. (2004) and Nielsen
(2007), and finally sharing risk in terms of relational, performance, and country risk by
three items developed from Das and Teng (1998, 2000). Post-alliance formation factors
are also considered in our instrument under three dimensions: first, knowledge and skills
sharing via four items generated from Shu et al. (2014) and Simonin (2004), secondly,
protecting IC by three items originating in Baughn et al. (1997) and Simonin (2004), and
finally commitment to continued collaboration in terms of trust, future formal and
informal cooperation, and firms’ survival through four items adapted from Saxton (1997),
Bengtsson and Kock (1999), and Gulati (1998). The second part of our questionnaire
focuses on SMEs’ EO with totally 12 items. Six items for innovativeness and three items
for risk-taking (Covin and Slevin, 1989) that Covin and Wales (2012) pointed out, and
finally, three items related to proactiveness adapted from Lumpkin and Dess (2001). The
third section of the study instrument includes ten items for measuring IC under three
dimensions of human capital, structural capital, and customer capital. Accordingly,
human capital was measured via four items adopted from Hudson (1993). Structural
capital and customer capital each was assessed by three items developed from Bontis
(1998). Eventually, the fourth part of our questionnaire is connected to SME alliance
performance construct and in line with most frequent factors applied by scholars, it
contains three sub-factors, i.e., accounting measures, alliance stability, and subjective
measures. Accounting or financial measures in our scale comprises four items in terms of
sales growth, return on investment (ROI), ROE, and operating profit margin adopted
from Flatten et al. (2011) and Christoffersen et al. (2014). Stability as the second
performance factor, signifies the operational measures of an alliance. Then, in our
instrument, following Ariño (2003) and Christoffersen et al. (2014), we measured
stability via three items relating to the longevity of alliances, contract changes, and
survival. Finally, the subjective measures factor in terms of goal fulfilment and partners’
overall satisfaction (Christoffersen, 2013; Gudergan et al., 2012) was measured by three
items. All measures use a five-point Likert-type response scale helping to capture a broad
enough response format and sufficient variance and covariance (Noar, 2003).
Additionally, all items are reflectively specified because we treated the latent constructs
as giving rise to their observable indicators (Diamantopoulos and Siguaw, 2006).

4.3 Data analysis and findings

For our data analysis, we applied structural equation modelling (SEM) and a
component-based approach. SEM as a comprehensive and flexible multivariate analysis
approach has some dominant advantages such as latent variable estimation, measurement
error accounting, precise assessment of structural relationships between variables, and
196 K. Talebi et al.

generally, testing complex hypothesised models through a sufficient method (Byrne,

2013; Jaros et al., 1993). In particular, we applied partial least squares (PLS) approach
(Lohmöller, 1989; Wold, 1974) due to its capabilities in calculating models with small
sample sizes sufficiently, non-normal data, and also ensuring convergence (Ringle et al.,
2012). Smart PLS 2.0 software (Ringle et al., 2005) was used to conduct the modelling
process and test our hypotheses shown in Figure 1. The procedure of analysing data
through PLS approach was accomplished in two sections of measurement model and
structure model.

4.4 Measurement model assessment

Before assessing the relationships between constructs in structural model section, we first
conducted four measurement models in order to capture reliability and validity. Although
proceeding the whole model including the four constructs and their relationships also
resulted in the estimation of both reliability and validity with their respective criteria,
conducting four measurement models separately each in hierarchical modes, led to obtain
more accurate results. Smart PLS 2.0 software was used for assessing measurement
models in terms of reliability and validity. In addition, a confirmatory factor analysis
(CFA) through PLS (Agarwal and Karahanna, 2000) was applied to assess the adequacy
of measurement models more accurately. Thus, item reliability (Rivard and Huff, 1988),
internal consistency (Cronbach, 1951; Peterson, 1994), convergent and discriminant
validity (Fornell and Larcker, 1981), and CFA were assessed through data analysis.

4.4.1 Reliability assessment

Factor loadings between latent variables and their respective indicators were assessed for
checking item reliability. According to the results of four conducted models, all loadings
were significantly higher than 0.4 (Hulland, 1999) indicating sufficient item reliability.
Furthermore, internal consistency was evaluated via calculating two criteria, i.e., alpha
Cronbach values and composite reliability (CR). The results of first-order constructs
showed that Cronbach’s alpha and CR values were greater than cut-off of 0.7 (Nunnally,
1978) implying the acceptable internal consistency:

4.4.2 Construct validity assessment

In this section, we establish the adequacy of construct validation in terms of convergent
and discriminant validity. In line with Fornell and Bookstein (1982), the mean-squared
loadings for each first-order construct as the average variance extracted (AVE) values
were used to address the convergent validity. As shown previously in Table 2, all AVEs
are above the threshold 0.5 (Hulland, 1999) representing an adequate level of convergent
validity. For assessing discriminant validity, as recommended by Fornell and Larcker
(1981), we compared the total variance shared between each first-order latent variable via
their square roots of AVEs and the correlations between first-order constructs. A
sufficient discriminant validity is obtained as the former values are greater than the latter
ones. According to Table 3, constructs’ square roots of AVEs (diagonal elements of the
matrix) are significantly higher than the correlations between constructs (lower left
off-diagonal elements of the matrix) in the corresponding rows and columns, indicating
adequate discriminant validity.
 SME alliance performance 197

Table 2 Reliability assessment

Variables Items Alpha CR AVE R2 Mean S.D.

Pre-alliance formation factors
Partners’ similarities 8 0.74 0.78 0.62 0.40 4.12 0.21
Prior experience 4 0.81 0.88 0.66 0.53 4.32 0.17
Partner reputation 3 0.84 0.89 0.59 0.41 4.30 0.28
Complementarity 2 0.80 0.83 0.69 0.23 4.11 0.31
Risk sharing 3 0.79 0.81 0.71 0.31 4.18 0.29
Post-alliance formation factors
Knowledge and skills 4 0.77 0.79 0.60 0.50 3.96 0.20
sharing
Protecting intellectual capital 3 0.82 0.89 0.63 0.44 3.89 0.15
Commitment to collaboration 4 0.80 0.85 0.71 0.32 4.08 0.38
Entrepreneurial orientation
Innovativeness 6 0.83 0.91 0.62 0.64 4.12 0.14
Risk-taking 3 0.84 0.90 0.66 0.64 2.21 0.46
Proactiveness 3 0.72 0.81 0.58 0.70 4.19 0.38
Intellectual capital
Human capital 4 0.75 0.82 0.73 0.71 4.24 0.42
Structural capital 3 0.83 0.86 0.70 0.76 4.13 0.49
Customer capital 3 0.84 0.89 0.75 0.73 4.09 0.31
SME alliance performance
Accounting measures 4 0.78 0.84 0.71 0.71 4.17 0.11
Alliance stability 3 0.76 0.85 0.68 0.79 4.15 0.28
Subjective measures 2 0.85 0.92 0.69 0.54 4.02 0.26

4.4.3 Confirmatory factor analysis

Since SEM takes a confirmatory rather than an exploratory approach to the data analysis
(Byrne, 2013), conducting CFA as a powerful statistical tool for path analysis (Jackson
et al., 2009) generates advantageous results about testing priori hypotheses regarding the
relations between latent variables. Adopting PLS analysis procedure (Chin, 1998;
Henseler et al., 2009), scholars applying PLS approach often avoid conducting CFA for
analysing data. However, regarding the benefits of CFA, we performed this technique
following Agarwal and Karahanna (2000) to capture and compare factor loadings for
each construct’s indicators and cross loadings provided by a factor weighting scheme in
PLS algorithm command. The results shown in the Appendix reveal that first, all factor
loadings between items and their respective constructs except for one item of the
partners’ similarities construct (PS7: 0.66) and one item of the innovativeness (IN5: 0.64)
are higher than 0.7 (Tenenhaus et al., 2005) and secondly, factor loadings were
remarkably greater than relative cross loadings implying the adequacy of measurement
models.
 198

Table 3

Variables PS PE PR CO RS KS IC CTC IN RT PRO HC SC CC AM AS SM

PS 0.79
PE 0.34 0.81
K. Talebi et al.

PR 0.28 0.19 0.77

CO 0.30 0.25 0.31 0.83
RS 0.16 0.29 0.34 0.28 0.84
Discriminant validity

KS 0.18 0.31 0.16 0.31 0.19 0.78

IC 0.29 0.10 0.31 0.27 0.28 0.17 0.79
CTC 0.40 0.23 0.26 0.18 0.11 0.29 0.34 0.84
IN 0.18 0.36 0.47 0.13 0.16 0.25 0.32 0.32 0.79
RT 0.29 0.18 0.25 0.24 0.19 0.16 0.14 0.15 0.28 0.81
PRO 0.31 0.11 0.37 0.27 0.41 0.14 0.28 0.19 0.18 0.19 0.76
HC 0.41 0.24 0.21 0.31 0.17 0.20 0.41 0.27 0.29 0.38 0.27 0.85
SC 0.28 0.28 0.17 0.51 0.22 0.19 0.17 0.37 0.31 0.31 0.31 0.19 0.84
CC 0.21 0.21 0.27 0.15 0.37 0.24 0.18 0.14 0.39 0.29 0.30 0.30 0.41 0.87
AM 0.25 0.19 0.26 0.27 0.28 0.33 0.36 0.29 0.17 0.41 0.42 0.32 0.29 0.18 0.84
AS 0.15 0.16 0.19 0.29 0.18 0.39 0.29 0.35 0.11 0.20 0.28 0.18 0.21 0.11 0.10 0.83
SM 0.11 0.19 0.16 0.23 0.15 0.16 0.11 0.31 0.10 0.42 0.30 0.17 0.15 0.32 0.14 0.26 0.83
Notes: PS: partners’ similarities, PE: prior experience, PR: partner reputation, CO: complementarity, RS: risk sharing, KS: knowledge and skills
sharing, IC: protecting intellectual capital, CTC: commitment to collaboration, IN: innovativeness, RT: risk-taking, PRO: proactiveness,
HC: human capital, SC: structural capital, CC: customer capital, AM: accounting measures, AS: alliance stability, SM: subjective measures.
 SME alliance performance 199

4.5 Structural model assessment

After ensuring the sufficiency of measurement models, in the next step, we focused on
evaluating the structural model. Before testing our five hypothesis, we estimated R2
values regarding the importance of reporting this criterion in employing PLS (Hulland,
1999) and also Stone-Geisser’s (Q2) values (Geisser, 1975; Stone, 1974) for capturing our
model’s capability to predict. Table 4 displays the results of these two criteria for two
second-order endogenous constructs, i.e., EO and SME performance. Besides, R2 values
for the first-order endogenous latent variables were mentioned previously in Table 2.
Chin (1998) asserts that R2 values of 0.67, 0.33, and 0.19 in PLS illustrate the substantial,
moderate, and weak inner path model structures. Based on the results from Table 2 and
Table 5, all R2s except for two pre-alliance formation factors, i.e., complementarity and
risk sharing and one Post-alliance formation factor, i.e., commitment to collaboration
with R2 values of 0.23, 0.31, and 0.32 respectively, are greater than the moderate
threshold of 0.33. Furthermore, as shown in Table 4, Q2 values are greater than 0.35 that
is suggested by Henseler et al. (2009) representing large predictive relevance of an
endogenous latent variable. Thus, the adequacy of structural model was confirmed from
the results of the two criteria R2 and Q2 values.
Table 4 The assessment of structural model

Endogenous Path
Hypotheses T-values Coefficients f2 R2 Q2
constructs from
H2 EO AE 9.62 0.51* 0.40 0.63 0.37
H3 EO IC 6.25 0.37* 0.21
H1 SP AE 5.48 0.32* 0.15 0.72 0.41
H4 SP IC 6.18 0.28* 0.14
H5 SP EO 6.91 0.35* 0.22
Notes: *p < 0.001
EO: entrepreneurial orientation, SP: SME performance, AE: alliance
entrepreneurship, IC: intellectual capital.
After proceeding with structural model evaluation, we tested our hypothesis: H1-H5. In
line with Henseler et al. (2009), we evaluated path coefficients in terms of sign,
magnitude, and significance as well as the effect sizes (f2 values) proposed by Cohen
(1988) in order to assess the structural model. As depicted in Table 4 and Figure 2, all of
our hypotheses are confirmed at the 0.001 level of significance, due to their respective
t-values resulted from a bootstrapping technique in Smart PLS 2. Thus, the theoretically
assumed influences highlighted in H1 to H5, were all confirmed. Furthermore, the
positive directions of each hypothesis were established due to the positive path
correlations. Additionally, the magnitude of inner paths also evaluated via the effect
sizes. Cohen’s f2 values of 0.02, 0.15, and 0.35 signify weak, moderate and substantial
effects, respectively (Cohen, 1988; Henseler et al., 2009). Correspondingly, all f2 values
as shown in Table 4, except for H4 with 0.14, are equal or greater than 0.15 representing
sufficiency of the structural model. Therefore, a very substantial relation between AE and
EO, two nearly strong relations between IC-EO and EO-SP, and finally two moderate
relationships between AE-SP and IC-SP were concluded.
200 K. Talebi et al.

In addition to the investigation of direct effects in our model, the analysis of

mediating effects revealed that SME’s EO mediates the relationship between AE and
performance as well as the relationship between IC and performance. Regarding the sum
of the direct and indirect effects, the total effects of the two endogenous constructs, i.e.,
AE and IC on SME performance were assessed respectively. Thus, first, the standardised
direct link between SMEs’ AE and their performance was 0.32 while the indirect link
was 0.51*0.35 = 0.18 resulting in a total effect of 0.50 (0.32 + 0.18). Accordingly, the
z-value proposed by the Sobel (1982) test was 5.05, p < 0.001. Secondly, regarding the
direct effect of IC on SME performance with a standardised coefficient of 0.28, plus the
indirect path between these two involving EO as a mediator with a coefficient of 0.13
(0.37*0.35), the total effect of IC on SME performance was 0.41 (0.28 + 0.13). Besides,
the Sobel’s z-value was 4.21, p < 0.001. Therefore, based on the t-values of paths relating
to mediating effects and z-values derived from the Sobel test, EO play a mediating role in
the relationship between AE and SME performance, as well as the relationship between
IC and SME performance.

Figure 2 Research model with path coefficients and significance level

0.51* EO
AE (0.27)
0.32*

0.35*
0.37*

0.28* SP
IC (0.79)

Notes: *p < 0.001

AE: alliance entrepreneurship; IC: intellectual capital; EO: entrepreneurial
orientation; SP: SME performance.

5 Discussion and conclusions

In this study, we highlighted several major factors contributing to alliance partners’

performance enhancement including AE (Khalid and Larimo, 2012), IC (Kraus et al.,
2012), and EO (Fang et al., 2008). Paying attention to these factors in decision-making
processes, partners can modify their internal atmosphere towards facilitating innovative
entrepreneurial activities consequently boost their performance. SMEs, in particular, can
benefit from enhancement in these fields regarding their sharp flexibility in structural
changes and adapting to the environmental dynamics. In this regard, reviewing the
alliance literature in the domain of entrepreneurship, we developed a theoretical
framework underlining five hypotheses about the relationships between four main
constructs, i.e., AE and IC as two exogenous variables, SME performance as the main
endogenous variable, and EO as a mediator.
Confirming the first and second hypotheses, we concluded that SMEs’ AE has a
positive impact on their both EO and performance. In fact, increasing cooperation among
small firms through building alliances enhances their entrepreneurial situation in terms of
 SME alliance performance 201

innovativeness, risk-taking, and proactiveness, consequently improves their performance.

The effective utilisation of shared resources and transforming knowledge among alliance
partners with dominant advantages like costs reduction may lead to performance
enhancement for alliance partners. In this regard, Sarkar et al. (2001) highlighted AE
advantages in exploitation of entrepreneurial opportunities, consequently value creation
and performance development. Similarly, Pansiri (2007), and Khalid and Larimo’s
(2012) findings confirm the respective influence of alliances on partners’ performance.
Based on the third and fourth hypotheses, protecting IC of alliance partners is
positively related to both their EO and performance. Past researches confirm the positive
relationship between firms’ IC, in particular, its dimensions relating to employees’
tie-ups through their social networks and innovation, resulting in their performance
improvement. Concerning the intangible assets and trying to develop them will guide
SMEs towards accomplishing entrepreneurial functions leading to a high performance.
These are consistent with Hormiga and Batista’s (2011) as well as Phusavat et al.’s
(2011) findings that highlight IC as a potential resource for gaining competitive
advantages.
Our findings derived from the confirmation of H5 imply a positive impact of SMEs’
EO on their performance. In other words, the more EO an SME has, the higher
performance it enjoys. This finding is consistent with a wide range of studies (e.g., Fang
et al., 2008; Kreiser and Davis, 2010) as well as Jones’ (2005) who considers firms’ EO
as a lever to enhance their performance through recognising entrepreneurial opportunities
as well as developing new products/services.
To wrap it up, as an overall conclusion of our hypotheses, we concluded that SMEs as
alliance partners should follow entrepreneurship through their collaboration. To this, EO
of these firms is a proper criterion for evaluation. The extent to which alliance partners
reinforce innovativeness, risk-taking, and proactiveness determines the fulfilment of their
promise of entrepreneurship through alliance agreements. Furthermore, complying with
several regulations is imperative to retain the success of alliance. Protecting partners’ IC
as one of the most important regulations contributes to preserve key competitive
advantages for alliance partners and builds trust among them facilitating mutual goal
achievement.

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 SME alliance performance 207

Appendix

Table A1 PLS confirmatory factor analysis

1st-order Items
constructs PS1 PS2 PS3 PS4 PS5 PS6 PS7 PS8
PS 0.77 0.81 0.79 0.83 0.80 0.75 0.66 0.82
PE1 PE2 PE3 PE4
PE 0.76 0.75 0.80 0.89
PR1 PR2 PR3
PR 0.76 0.93 0.83
CO1 CO2
CO 0.84 0.81
RS1 RS2 RS3
RS 0.77 0.75 0.80
KS1 KS2 KS3 KS4
KS 0.88 0.92 0.73 0.74
IC1 IC2 IC3
IC 0.84 0.80 0.71
CTC1 CTC2 CTC3 CTC4
CTC 0.91 0.86 0.88 0.92
IN1 IN2 IN3 IN4 IN5 IN6
IN 0.89 0.72 0.83 0.80 0.64 0.83
RT1 RT2 RT3
RT 0.91 0.79 0.78
PRO1 PRO2 PRO3
PRO 0.84 0.89 0.76
HC1 HC2 HC3 HC4
HC 0.78 0.93 0.86 0.79
SC1 SC2 SC3
SC 0.87 0.79 0.81
CC1 CC2 CC3
CC 0.86 0.81 0.77
AM1 AM2 AM3
AM 0.79 0.84 0.79
AS1 AS2 AS3
AS 0.90 0.83 0.81
SM1 SM2
SM 0.77 0.84