Journal of Rural Studies xxx (xxxx) xxx–xxx

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Journal of Rural Studies

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The impact of entrepreneurs' environmental analysis strategy on

organizational performance
Samwel Macharia Chege1,∗, Daoping Wang2
Donlinks School of Economics and Management, University of Science and Technology Beijing, 30 Xueyuan Road, Haidian District, 100083, Beijing, China

ARTICLE INFO ABSTRACT

Keywords: The purpose of this paper is to assess the impact of entrepreneurial innovation strategies in environmental
Rural SMEs analysis and its impact on the performance of rural SMEs in developing countries, particularly in Kenya. The
Innovation strategy paper argues that improvements in rural SMEs through sustainable environmental analysis strategies can boost
Environmental analysis the performance of small firms in rural areas. A sample of 272 rural enterprises in Kenya was used as a fra-
Rural entrepreneurship
mework. Partial least squares regression and correlation models are used for content analysis. The results show a
Firm performance
nonsignificant influence of environmental instability on the performance of small firms in rural areas. However,
by incorporating entrepreneurial invention strategies into environmental scanning, the results indicate a positive
impact on the performance of rural SMEs. Entrepreneurs need to be aware of the importance of environmental
innovation strategies to cope with disturbances and dynamism of the environment underpinning the perfor-
mance of rural SMEs. The study suggests that policymakers need to create a conducive business environment
through entrepreneurship training and business incubation programs for rural SMEs. The results provide in-
formation on the environmental analysis strategy and innovation management theory in defining the future of
small business reengineering in rural areas.

1. Introduction capacities. Various empirical studies in different countries have shown

SMEs in rural areas are faced with a turbulent environment due to
the globalization of markets, the emergence of new players, and shorter
life cycles of technologies (Chege et al., 2019). Some researchers find
that in an ever-changing world, small and medium-sized enterprises
(SMEs) in rural regions are vulnerable due to inadequate resources and
capacities, especially in a developing country context (Abbas and ul
Hassan, 2017). Furthermore, some authors have tended to put all the
failures of rural SMEs at the expense of the unfavorable environment
and the adoption of offensive strategies (Turulja and Bajgoric, 2019).
For other researchers, these characteristics do not mean that rural SMEs
are systematically unable to read data from their environment and plan
their evolution (Apulu et al., 2011).
According to McCann and Ortega-Argile (McCann and Ortega-
Argilés, 2015), entrepreneurship and innovation processes in rural
areas are often less successful due to difficulty in modifying basic
characteristics such as structures, new technology, resources, and
the weakness of rural SMEs in terms of growth and development (Ataei
et al., 2019). This approach considers that the rural SMEs can actually
develop strategies outside the constraints imposed by the environ-
mental context, knowing that the rural SMEs, can turn its disadvantage
of small size into an asset (Agbim et al., 2014).
Recently, there is a continuous debate on how to create sustainable
rural development in developing countries through entrepreneurship in
rural areas. This article argues that environmental analysis strategies
for rural entrepreneurs should improve the survival rate of rural SMEs
(Ataei et al., 2019). Continuous environmental monitoring and analysis
provide early warnings, allowing firms to develop, strengthen or modify
their strategies (Abbas and ul Hassan, 2017). It also helps the company
restructure its internal configuration to avoid any disparity between
strategy, resources and the external environment (Turulja and Bajgoric,
2019). Accelerating globalization, changing customer needs, growing
competitiveness, and short technology life-cycle have generated a new
business environment with stiff competition for business survival

∗
Corresponding author.
E-mail addresses: samuelchege34@gmail.com (S.M. Chege), dpwang@ustb.edu.cn (D. Wang).
1
Research interests - Entrepreneurship, Technology transfer and innovation in SMEs, Enterprise Management and Rural Development, Contributed immensely
towards the study.
2
Research interests: Organization Management, Logistics Management, Information Management, Technology Innovation, Data Mining and Entrepreneurship.
Offered meaningful contribution towards the study.

https://doi.org/10.1016/j.jrurstud.2020.04.008
Received 5 April 2019; Received in revised form 6 April 2020; Accepted 14 April 2020
0743-0167/ © 2020 Elsevier Ltd. All rights reserved.

Please cite this article as: Samwel Macharia Chege and Daoping Wang, Journal of Rural Studies,
https://doi.org/10.1016/j.jrurstud.2020.04.008
S.M. Chege and D. Wang
(Chege et al., 2019). Rapid changes in the environment are making
current products and services obsolete (Bhatt et al., 2010). Conse-
quently, companies should constantly introduce new products and
services to eliminate obsolete ones, thereby increasing business com-
petitiveness and performance. The ability of rural SMEs to respond to
market pressures and changes is a key success factor in such environ-
ments (Chege et al., 2019).
Rural SMEs contribute significantly to socio-economic objectives
such as employment creation, export promotion, entrepreneurship and
industrial development (Chege et al., 2019). However, rural SMEs in
developing countries lack the ability to innovate and seize available
opportunities brought about by the ever-changing environment (Chege
et al., 2019). Achievement or failure in innovation depends on the
entrepreneur's determinations and initiatives towards business survival,
thus, environmental analysis is necessary but not sufficient reasons for
firm performance (Terziovski, 2010), (Li, 2001). Large companies get
more consideration than SMEs (Agbim et al., 2014). Environmental
changes have created uncertainty for SMEs than for large firms, as rural
SMEs have limited access to market information (Anning-Dorson,
2017). As customer needs and expectations continue to evolve, the
provision of enhanced products and services requires an ongoing re-
sponse to market demands and innovation efforts (Mazzanti, 2018). As
a result, the ability to innovate in a dynamic business environment is an
important factor in business competitiveness and success (Yunis et al.,
2018). Researchers have shown that environmental scrutiny is a
strategy that rural SMEs can use to align their goals with changes in
market demand and customer preferences. This analysis provides the
company's employees with a high understanding of environmental signs
(Turulja and Bajgoric, 2019).
The environmental analysis only does not directly lead to better
entrepreneurial performance, as performance can be affected by a
combination of factors (Mcadam et al., 2019). Nevertheless, environ-
mental scanning has been linked to faster response times and improved
firm performance (Li, 2001). The environmental analysis provides up-
to-date information and improves the ability of companies to adopt/
adjust new strategies in their operations (Agbim et al., 2014).
Thus, the intentions of this study are as follows. First, most previous
studies have assessed the impact of entrepreneurial characteristics on
internal or external organizational financial performance
(Sathaworawong et al., 2018) (Zulu-chisanga et al., 2016)– (Lee and
Tang, 2017) (Roberts, 2010), (Amin, 2015). However, this study at-
tempts to examine the impact of the entrepreneur's environmental
analysis strategy using internal and external environmental factors that
have been overlooked in the past. Second, most of the previous studies
have been conducted in different areas of developed countries while
this study focuses on rural SMEs in developing countries like Kenya.
Third, most previous studies have focused on large companies, while
this study focuses on rural SMEs in Kenya (Räisänen and Tuovinen,
2020). Furthermore, the previous study shows a sluggish growth rate
among SMEs at the startup stage that warrants an investigation in this
sector (Chege and Wang, 2019).
The paper tries to answer the following questions: Does en-
trepreneurs' environmental analysis strategy always lead to improved
performance of rural SMEs? What are external and internal environ-
mental forces that influence the strategy development of rural SMEs in
Kenya? What strategic measures do entrepreneurs take to address en-
vironmental forces influencing the performance of rural SMEs? Based
on previous studies, the paper argues that entrepreneurial environ-
mental analysis strategies in rural SMEs require diverse and tailored
solutions such as technology, product, process and market innovations
that are needed to address SME's needs in a sustainable way. The study
established that the integration of the entrepreneur's environmental
analysis strategy could improve understanding of rural SMEs' perfor-
mance challenges and help determine their underlying theoretical as-
sumptions that can provide information for future research in this field.
2
Journal of Rural Studies xxx (xxxx) xxx–xxx
The paper comprises six sections arranged as follows: Following this
introduction, the paper analyzes the literature based on contingency
theory in section 2. Research methodology and results analysis follow in
sections 3 and 4 respectively. Section 5 summarizes the study findings,
implications and opportunities for further research while the last sec-
tion draws a conclusion.
1.1. Literature review and hypothesis development
Entrepreneurship is the act of creating and developing a business to
generate profits (Bunyasi et al., 2014). It involves creating innovative
products or launching new strategies to solve societal challenges. Being
an entrepreneur means taking a risk and working long hours to pave
way for a successful venture (Bowen and Morris, 2019). Entrepreneurs'
innovation initiatives entail idea creation, invention, risk-taking pro-
pensity, the introduction of the new process, product or service in a new
market (Thornhill, 2006). Numerous studies have shown that SMEs in
remote rural areas are lagging behind in processing technology and
internet usage. As more and more businesses use the internet, rural
SMEs can be disadvantaged because of their slowness in using existing
technologies. The susceptibility of rural SMEs emphasizes the sig-
nificance of a unified approach to rural entrepreneurship development.
The definition of the business environment is related to everything
outside the organization: technology, nature of the product, customers
and competitors, political and economic environment (Robson, 2016).
Some authors define the environment as a set of physical and social
factors that can be useful in achieving a company's goals (Abbas and ul
Hassan, 2017). The definition of the environment can be divided into
three categories: the environment according to its attributes, the en-
vironment according to its objects and the environment according to
the perception of the members of the organization (Kipley et al., 2018).
Environmental turbulence refers to the incidence of unpredictability
and highly variable events occurring in a particular business environ-
ment (Abbas and ul Hassan, 2017), (Tsai and Yang, 2012). Environ-
mental turmoil can be viewed from three perspectives: market volatility
- the rate of change in customer mix or its preference for products and
services (Oginni and Adesanya, 2013)– (Zhang et al., 2015); Techno-
logical dynamics - the degree of change associated with processing
products and technologies in an integrated industry within an en-
terprise, or the speed of technological change in the industry (Tsai and
Yang, 2012); Competitive strength - degree of competition in the in-
dustry related to the activities of competing firms, including promo-
tional competition, price competition and newcomers (Zhang et al.,
2015).
Schumpeter (1942) believes that entrepreneurs are the main drivers
of economic change in job creation, competitive advantage, and diffu-
sion of innovation and spillovers of knowledge. While entrepreneurship
is not the only way to create jobs and increase the incomes of rural
residents, it is undoubtedly one of the best and most productive modes
of economic development in rural areas. Numerous studies have shown
that the main means of urban and rural economic development is the
creation of employment whose core mechanism is entrepreneurship
(Lumpkin and Dess, 2001). Rural entrepreneurship plays an important
role not only for business but also for the country's economic devel-
opment and firm competitive advantage (Saunila et al., 2014). Sandvik
(2003) views entrepreneurship as significant weapons for firms' com-
petitive advantage and market penetration in rural areas (Bakar and
Ahmad, 2010).
Internationally, different countries define SMEs depending on their
stages in economic growth. The frequently used principles in defining
SMEs comprise the staff numbers, investment, and sales volume. In
Kenya, the SMEs Act 2012 categories SMEs in terms of sector, employee
number, and value of the investment (Chege et al., 2019). SMEs are also
defined in terms of centralization of power where the leader is at the
origin of the formulation of the strategy or operational choices
S.M. Chege and D. Wang
accompanied by direct supervision, thus facilitating coordination be-
tween the different actors (Berisha and Pula, 2015)(Katua, 2014)
(Eskesen et al., 2014).
In this paper, entrepreneurs are persons who are achievement or-
ientated, have an internal locus of control, have a high-risk propensity,
work values and focus on opportunities for long-term planning (Hisrich
and Peters, 2004). Rural SMEs are defined as those enterprises located
in the countryside with the entrepreneurial potential of generating rural
development. Zimmerer and Scarborough (2008), views an en-
trepreneur as someone who makes a new venture under risk and un-
certainty with the aim of maximizing profits and business sustainability
in rural areas. Rural entrepreneurship provides balanced economic
development in all regions of any country by providing job opportu-
nities in rural areas, thus reducing rural-urban migration of rural
communities. The capability of the entrepreneur to create a competitive
environment for rural SMEs is significant in rural development.
1.2. The environment according to its attributes
Many authors have demonstrated that entrepreneurs seek to re-
spond to the environment when they recognize and interpret it (Tsai
and Yang, 2012), (Zhang et al., 2015). The environment has three main
levels, each of which affects the decisions that the company must make:
the macro environment, the meso environment, and the micro-
environment. The macro-environment specifies a set of external factors
that can affect the firm and its market. The macro deals with the overall
level of the environment, which can be divided into six categories:
demographics, economics, regulation, natural resources, technology,
and culture. The analysis allows companies to identify the main op-
portunities and threats (Agbim et al., 2014).
The microenvironment consists of buyer categories directly related to
the company. It acts as a vehicle enabling companies to act through
their strategies. It is made up of customers, distribution networks,
competitors, suppliers, and partners. Meso-environment is a concept
derived from the industrial economy to better understand how the
economic unit of the company adapts to the entire economy, taking into
account the existence of technologies, economic relations or organiza-
tion (Agbim et al., 2014), as shown in Fig. 1.
1.3. The concept of rural SMEs
Rurality stems from the heritage and way of life of society, which
considers itself a natural tradition. The rural area is a spatial area made
Fig. 1. SMEs environmental components.
3
Journal of Rural Studies xxx (xxxx) xxx–xxx
Fig. 2. The concept of Rural SMEs (Authors own elaboration).
up of culturally defined spaces whose natural and physical character-
istics take their meaning from human beings and other material arti-
facts. The rural population refers to those who live in rural areas or see
rural areas as their home. They are a community and are essential to
rural life. Rural development plans or decisions directly affect them
(Chigbu, 2013). Therefore, rural SMEs are those businesses located in
rural areas or villages. These SMEs contribute significantly to the
wellbeing of rural communities through job creation and rural devel-
opment (Kubičkova et al., 1996). Fig. 2 shows the interaction between
rural SMEs and internal and external environments.
2. Study theoretical framework
2.1. The contingency theory
Contingency theory proposes that organizational efficiency is gen-
erated by matching business characteristics to the eventualities that
reflect the conditions of the organization (Mcadam et al., 2019). This
theory is applicable in the absence of an established general theoretical
framework, which emphasizes context-based approaches based on
contingency adjustment rather than relying on one best way to manage
the firm (De Clercq and Thongpapanl, 2014). Organizations pursue to
advance their performance by improving the alignment of their defined
set of contingency variables to the dynamics of the external environ-
ment. The alignment process is seen as a continuous process, especially
in a rapidly changing business environment (De Clercq and
Thongpapanl, 2014).
Contingency theory postulates that a company's success can be
realized by mapping organizational strategic plans to unexpected
events, defined as variables that regulate the impact of entrepreneur
strategy on business performance (Agbim et al., 2014). The nature and
level of dynamic capabilities depend in part on the external environ-
ment. Turulja & Bajgoric (Turulja and Bajgoric, 2019) confirmed that
environmental dynamics influenced strategies by reducing the link
between organizational structure, strategic posture, and firm perfor-
mance. Therefore, environmental context is an important factor to
consider when analyzing a company's capabilities, as it provides a
clearer picture of how innovation can improve the performance of the
company (Zhu et al., 2018).
According to Mcadam et al. (2019), strategic alignment refers to the
general business activities and the degree to which technologies guide
S.M. Chege and D. Wang
the process of product design and development. Poor coordination of
SME environmental strategies may result in a lack of market and cus-
tomer concerns, resulting in failure to launch new product/service,
delays in marketing, increased technical errors with increased technical
cost due to mismanagement of resources and sluggish market agility
(Apulu et al., 2011).
In terms of innovation, the external environment plays an important
role, as it can encourage companies to be more or less innovative, de-
pending on their vitality. The theory of contingency is mainly focused
on the need for a flexible response from the company. Both hypotheses
are the basis of the theory of contingency. First, there is no better
structure or strategy, and second, no structure or strategy is as effective
under different environmental conditions (Calantone et al., 2003)
The concept of environmental contingency is based on the principle
that several organizational models are inherent to the environment in
order to obtain their resources. The organization must, therefore, be
binding for the structural adaptation, otherwise, the company will not
be able to seize the opportunity offered to this. For an organization, the
optimal structure depends on the external environment in which it
exists. There is a close relationship between environment, organiza-
tional strategy, and performance (Williams et al., 2016). For companies
to survive and maintain their performance in the increasing environ-
mental complexity and uncertainty, they need to increase their in-
novative strategies (Williams et al., 2016), (Schneider et al., 2016). This
suggests that organizations function much better when their priorities
are compatible with the market environment (Mcadam et al., 2019)
There are seven environmental turbulence factors that are generally
beyond the control of any company management and have been iden-
tified in the literature (Zhang et al., 2015). These include technological
turmoil, market intensity, and competition (Williamson and Lynch-
Wood, 2001) In addition, suppliers, product diversity, social factors,
and customer diversity have also been identified as factors of en-
vironmental turbulence. There is a clear link between efficiency, in-
novation, performance and customer relationship management in the
external environment (Turulja and Bajgoric, 2019).
The speed and change in technology are called technological tur-
moil. Research has shown that the capabilities of firms and industries
are fundamentally technology-dependent to ensure efficient operations
and preserve their competitive integrity (Turulja and Bajgoric, 2019),
(Zhang et al., 2015). Turbulence in markets and technologies tends to
redistribute opportunities, change industrial status and redistribute
power within and between industries (Williams et al., 2016). On the
other hand, organizations with relatively stable technologies tend to be
relatively poorly placed to use technology to gain a competitive ad-
vantage. The constant negligence of organizations in technological
change will affect their performance in providing products and services
to customers (Abbas and ul Hassan, 2017).
A conducive business environment enables smooth technology im-
plementation that culminates in enhanced firm performance. Interior
and exterior environmental alignments have a moderating influence on
firm performance (De Jong et al., 2011) (Raymond, 2012) (Chen et al.,
2014). According to Zahra (2011), the exterior environment impacts
businesses' invention strategies. Further, Li, Wong & Abdallah (Li and
Wong, 2003), (Abdallah, 2014) found that prior studies have con-
centrated only on environmental uncertainty or degree of change.
More-Rapid technology development and the quicker impact of new
technologies in virtually all aspects of the business environment cannot
be ignored. To keep up, entrepreneurs and workers alike should con-
tinuously be alert to potential new technologies that can be in-
corporated into their operations for effectiveness. Thus, necessitating
the need for SMEs to be innovative in order to generate new products,
processes, and markets. According to Mamun (Al, 2018), firms with a
high level of innovation have better performance compared to those
with a low level of innovation.
When global competition is increasingly fierce, the SME sector has
greater flexibility in the face of environmental change (Abbas and ul
4
Journal of Rural Studies xxx (xxxx) xxx–xxx
Hassan, 2017). At the edge of the economy, the level of innovation is
key to their success, growth, and survival. As a result, it becomes es-
sential to put in place a viable marketing innovation system and im-
prove service delivery. The existing literature indicates that SME effi-
ciency depends on the state of the environmental impact.
Environmental dynamics determine the achievement of SME objectives
and the overall performance of innovation. Thus, the study made the
following hypothesis:
H1. there is a positive relationship between the business environment,
entrepreneurs' innovativeness, and SME's performance.
2.2. Environment forces and analysis
The literature review provides an in-depth analysis of the links be-
tween environment and strategy, tools for environmental analysis and
explains why it is necessary to examine the influence of environmental
forces on strategy development and firm performance (Kang et al.,
2018). Ensley, Pearce, & Hmieleski (Ensley et al., 2006) define the
external environment as those factors beyond the control of the com-
pany's management and actions, internal processes and innovation
structure. They then subdivide the external environment into three
interdependent parts, a remote (macro) environment comprising poli-
tical, economic, social, technological, environmental and legal
(PESTEL) forces, a (micro) environmental environment consisting pri-
marily of companies offering similar products and services, including
the factors proposed by (Porter, 1980), that comprise customers, sup-
pliers, threats to new entrants, competition between alternative pro-
ducts and rivalry between companies, and operational environments
that impact on the firm success such as creditors, capacity to retain the
best employee, supplier, and competitive position.
Duncan, Spence, & Mummery (Duncan et al., 2005) argues that the
external environment is the place where the opportunities and threats
facing the organization arises. Bourgeois (1980) divides the external
environment into two categories, the general environment, consisting
of factors that indirectly affect the company and task environment that
includes elements that have a direct impact and create the greatest
uncertainty in the company. Various specialists such as Yanes-est et al.
(Yanes-est et al., 2018), associate performance with the external en-
vironmental adaptation of the organization and thus attempt to define
this relationship in terms of the influence of external forces on the di-
rection and response of the strategy. Turulja & Bajgoric (Turulja and
Bajgoric, 2019) therefore, argue that environmental uncertainty stems
from organizations' inability to predict their environment. Abbas &
Hassan (Abbas and ul Hassan, 2017) argue that experientially, the firms
aligning their strategies with the external environment have better
performance than those that fail to align.
Many external environmental analysis tools have been developed,
mainly the SWOT (Strengths, Weaknesses, Opportunities, and Threats)
and PESTEL strategic analysis tools. The PESTEL analysis offers a more
versatile and broader view of the macro-environment and SWOT ana-
lysis integrates PESTEL's results with specific microenvironmental
threats and opportunities in strategy improvement. Zhu et al. (2018),
consider that the most important strategic impact comes from the direct
competitive environment or sector. For this purpose, the 5 Forces tool
of Porter's (Porter, 1980) model that analyzes competition impact of
industry suppliers, customers, threats on new entrants and alternative
products. This strengthens the concept of a generic strategy of Porter's
(Porter, 1980) model on cost differentiation and target positioning.
Research on these environmental forces allows firms to gain a compe-
titive advantage and minimize threats unfavorable to their existence.
The complexity of the environment requires the relationship be-
tween its elements. The more frequent and important the changes, the
more complex the system becomes. As the number of actors increases
and the relationship between these actors is strong and interactive, the
system becomes more complex (Zahra, 2008). When the systems
S.M. Chege and D. Wang
Fig. 3. Entrepreneur strategies and environment-performance relationships.
interact, the complexity becomes even greater. These changes lead to
the enhancement of the system, which creates complications, such as
cause-and-effect interactions.
The environment creates uncertainty for entrepreneurs responsible
for identifying opportunities and threats, and the implementation of
strategic approaches aims to establish a good business-environment
relationship. Environmental uncertainty has been identified as an im-
portant environmental variable in the design of management informa-
tion systems. Govindarajan & Fisher (Govindarajan and Fisher, 1990)
defines environmental uncertainty as information that is devoid of
environmental factors associated with a particular decision-making si-
tuation and gives no indication of how environmental factors influence
the success or failure of a unit operational performance. Environmental
dynamism leads to a lack of models by reinforcing the unpredictability
of the environment, characterized by varying degrees of changes in the
environmental factors. Dynamic dimensions are characterized by pre-
dictable and/or unpredictable market and technological changes. En-
vironmental turbulence is used to refer to rapid change, which can be
political, economic, social, demographic or cultural. It's therefore pro-
posed that:
H2. business environment has a positive influence on firm innovation
and performance
2.3. Entrepreneur strategy and environment
The exploration of entrepreneur strategic behavior in a dynamic
environment focuses on three types of strategies: Reactive -are leaders
who favor solving problems when they occur rather than plan for them
in anticipating; Proactive strategies are used by leaders in those of
companies that innovate and anticipate change; active or intermediate
strategies, assume that the leader gradually adapts to change while
remaining cautious. Reactive strategies often concern SMEs that pro-
duce consumer goods, mature products, in contrast to proactive (of-
fensive) strategies, which concern SMEs operating in a fast-growing or
5
Journal of Rural Studies xxx (xxxx) xxx–xxx
turbulent market, products that are complex, high technology or high-
end as shown in Fig. 2.
Innovation is considered a fundamental activity of the en-
trepreneurial organization, where company directors focus on firm re-
search and development (R&D), new processes, products or new mar-
kets. Innovation is an important aspect of entrepreneurial orientation
because it reflects the firm's motivation to pursue new opportunities
that can be measured by flexibility in adapting and implementing new
processes. Entrepreneur pro-activeness is seen as the act of seeking new
opportunities, new products and eliminating obsolete operations stra-
tegically ahead of competitors (Wambugu and Gichira, 2015). En-
trepreneur's pro-activeness emphasis the significance of innovation in
the entrepreneurial process. An entrepreneur can take the first-mover
advantage by analyzing future changes in market demand, customers'
expectations, and the environment. When entrepreneurs actively par-
ticipate in shaping the business environment their enterprises have
higher chances of survival than those of passive spectators (Lumpkin
and Dess, 2001).
Risk-taking is the act of undertaking any activity that involves un-
certainty that follows entrepreneurial behavior such as investing
heavily in a venture with a higher likelihood of failure (Allah and
Nakhaie, 2011). Taking a calculated risk in business is associated with
the entrepreneurial capability to discern future uncertainties before
undertaking the risk. According to Li (2016), risk-taking orients the
business towards environmental screening and projections as opposed
to fear that paralyzes business continuity. Previous scholars advocate
for a combination of entrepreneurial innovation while undertaking
calculated risk (Lumpkin and Dess, 2001).
Specialists on the adequacy between strategy and environment ig-
nore the role of leaders who are nevertheless central actors in the for-
mulation and implementation of the strategy. To date, strategy spe-
cialists have been accustomed to formulating the hypothesis that the
strategy implemented by firms can succeed in achieving high perfor-
mance of the firm if it corresponds to the circumstances of the en-
vironment as shown in Fig. 3. From this point of view, the individual
S.M. Chege and D. Wang Journal of Rural Studies xxx (xxxx) xxx–xxx

characteristics of the leaders should correspond to the strategy that the Table 1
firm commits to implementing, in the same vein, Gupta & Sebastian Sample characteristics.
(Gupta and Sebastian, 2017) shows how the obsessions of the leaders Variable Number Percentage
are at the origin of the strategic behavior of their organization. Porter
(1980) pointed out that each business strategy involves different or- Gender
ganizational needs, so the work that executives perform differs ac-
Male 103 43
cording to the business strategy adopted. It's therefore, proposed that: Female 136 57
Age
H3. Entrepreneur's environmental analysis strategies have a positive
18–25 years 39 18
impact on firm performance 26–30 years 70 25
31–36 years 99 42
Above 37 years 31 15
3. Methodology Work experience
0–1 year 26 5
3.1. Sampling and research mechanism 1–2 years 36 10
3–4 years 85 40
5–6 years 92 45
The primary units of analysis of the study were the managers of Education level
rural SMEs in Tharaka-Nithi County, Kenya. The study area was se- Masters 12 3
lected as a result of the following reasons. Firstly, the county is located Bachelors 20 8
in the rural area, 117 miles from the Kenyan capital city with agri- Diploma 56 24
Secondary certificate 101 45
culture as a major economic activity. Most of the residents (98.2%)
Primary certificate 50 20
engage in crop farming and 80% of the county's landmass is arable. Registration
Second, the county lies in a semi-arid area with great potential due to Sole Proprietorship 44 15
the numerous rivers emanating from Mt. Kenya that can provide water Partnership 58 30
Limited company 35 10
for irrigation. Most of the SMEs engage in agribusiness related activ-
Groups/societies/Others 102 45
ities. Number of employees
To get measures of generalizability, the study used random sam- 1–5 97 45
pling to select agribusiness enterprises registered and licensed by the 6–10 94 37
County Government and funded by the Youth Enterprise Development 11–15 48 18
Sector category
Fund. The size of the sample is an important factor to ensure both the
Crop production 120 39
representativeness of the sample and its suitability for executing the Sand and ballast manufacturing 23 16
appropriate statistical tools. Previous studies have recommended var- Furniture and accessories 8 5
ious sample sizes and theories for determining an appropriate sample Printing and photocopying 38 14
Plastics and recycling 6 4
size (Guo et al., 2013), (Binu et al., 2014). However, sample-size re-
Construction materials (stone and glass) 8 5
quirements may vary according to the statistical analysis, and a variety Clothing and other textile products 7 5
of opinions observed in the literature, even when the same tools are Livestock production 16 7
applied. According to (Mugenda and Mugenda, 1999), a sample of Fishery 5 2
10–30% is good enough and when the elements in the sample are more Beekeeping 8 3
Total 239 100%
than 30. According to Israel (2012), studies with a large population can
use simplified formulae to achieve the desired sample size. A sample
size comprising 200–500 respondents is sufficient for high-impact stu- and Langfield-Smith, 1998). On innovation the study relied on the work
dies that use multiple linear regression or covariance analyses. The of (Govindarajan and Fisher, 1990), (Chenhall and Langfield-Smith,
researcher applied a random sampling procedure to select a sample of 1998), to operationalize three types of innovation namely; product
272 rural enterprises (Israel, 2012). (Bocquet et al., 2017), process (Bamber et al., 2017), and marketing
(Rahman and Post, 2012) through research and development. On firm
3.2. Questionnaire design and data collection performance, measures were altered from (Fazli et al., 2013), (Nickolas,
2018). Most of the variables were scored on a 5-point Likert scale (from
The study used a quantitative research design and a semi-structured “1” = strongly disagree to “5” = strongly agree), with high scores
questionnaire to gather the required data. The questionnaire was de- representing the higher ranking of the variables construct. The study
signed based on previous scholars (Mugenda and Mugenda, 1999), measured the respondents’ biodata such as age or gender using years or
(KothariResearch Methodology, 2004), (Babin and Carr, 2010). The dichotomous variable where 1 = male, 0 = female (Cooper and
researcher requested the help of one university professor, three doc- Schindler, 2003).
torate students, and three owners of SMEs to assess the structure and
variable constructs in the questionnaire. After receiving feedback and
guidance, the researcher made the necessary adjustments. The re- 3.4. The characteristics of sampled rural SMEs
searcher distributed 272 questionnaires, collected 247 out of which 239
were useable as shown in Table 1. Most SMEs (45%) had between one and five employees; enterprises
with six to 10 employees came next (37%). Most of the enterprises were
3.3. Measurements of variables in the manufacturing and agriculture sectors (65%) as shown in
Table 1.
To measure the study variables, the researcher modified various
variable constructs from prior studies to fit the study context as per the 4. Data analysis and results
conceptual framework shown in Fig. 4. The items on the environmental
factors were modified from different scholars (Clarkson et al., 2008), 4.1. Reliability and validity
(Rahman and Post, 2012). To formulate our question about the en-
trepreneur strategy, we relied on the work of previous scholars To analyze the data collected, the researcher used IBM SPSS
(Govindarajan and Fisher, 1990), (Porter and Kramer, 2011), (Chenhall (Statistical Package for the Social Sciences) version 21.0, which is

6
S.M. Chege and D. Wang Journal of Rural Studies xxx (xxxx) xxx–xxx

Fig. 4. Study conceptual framework.

appropriate for quantitative data analysis. Thus, the study used mul-
Table 2
tiple linear regression analysis to test the research hypotheses (Carver
Factor Analysis, Standard Estimates, and Coefficient Alpha (α).
and Nash, 2011), (Meyers et al., 2013). The variable constructs were
Variable Constructs and Indicator α Loading transformed into new variables for ease of analysis (Katou and
Budhwar, 2008). To determine the reliability and validity of the vari-
Innovativeness CR = .813, AVE = .541 .814
A. Product innovation ables, the study used Cronbach's alpha (α). The results show an alpha of
1. Introduction of new product .851 more than 0.7 across all study variable constructs. The study tested the
2. Technological newness in product .842 convergent validity to ascertain theoretical constructs and all 25 study's
3. Product differentiation .823 items loadings were higher than 0.7, thus, agreeable with established
B. Process innovation
1. Research and Development .804
study scales (Su et al., 2013) as shown in Table 2.
2. Use of New technology .713
3. New production materials .821 4.2. Correction analysis
C. Market innovation
1. Focus on a new idea and use of online applications in sales .832
2. Development of new market-promotion .855 The correlation matrix results (Table 3) show the relationship be-
3. New product or services marketed .812 tween all variable constructs. The result shows the introduction of new
Firm characteristics CR = .810, AVE = .574 .761 product and performance are positively significant (r = .53, p < .05).
1. Innovation orientation compared to competitors .782
Similarly, the use of new technology in a dynamic environment is po-
2. Internal and external networks while introducing new .766
products sitively significant with firm performance (r = .61, p < .01). Fur-
3. Competitive attitude and ability to a new market .725 thermore, the association between new technology and the introduction
D. Risk-taking CR = .784, AVE = .501 .702 of the new product is positively significant (r = 58, p < .05) as well as
1. Favorability of high-risk projects .718 product design configuration (r = .52, p < .05). The introduction of
2. First movers advantage .746
3. Firm structure involving uncertainty .710
new products and the use of new technology indicated positive sig-
Environment dynamism & complexity CR = .912, .857 nificant relationships with process innovation and performance
AVE = .701 (r = .63, p < .01), product innovation (r = .57, p < .05). Further-
1. The frequency of changes in marketing practices .881 more, the association between risk-taking, new technology, and product
2. Changes in technology .873
design shows a positive relationship where r = .62, p < .05 and
3. The rate of change in modes of production/service .857
4. The rate at which products/services are getting obsolete .801 r = 51, p < .05 respectively. However, most of the independent
5. Predictability of demand and taste of consumers .785 variables constructs are not positively associated with a firm perfor-
6. Predictability of actions of competitors .826 mance from the correlation analysis matrix. Other researchers support
Entrepreneur strategic behavior CR = .920, AVE = .756 .915 the outcomes of the correlation analysis and the results have no serious
1. Prospector/innovator in decision making .957
2. Analyzer/Defender effective and flexible in analyzing the .950
problem of multicollinearity (Alam, 2011). Thus, allowing for hier-
environment archical regression analysis.
3. Organizational Agility - understand the changes emanating .730
from its environment
4. Reactor - responds to pressure from its environment .867
4.3. Test of hypothesis
5. Motivation- strive for excellence in everything .823
Firm performance and sustainability CR = .871, .843 The study employed hierarchical regression analysis (HRA) by first
AVE = .654 adding the control variables and independent variables followed by the
1. Profitability of our company has increased over the last three .841
interaction terms. Variation inflation factor (VIF) was used to examine
years
2. Sales turnover has increased over the last three years .834 multicollinearity between variables when other variables are included
3. Our market share has increased over the last three years .806 in the regression model to allow the study to determine the extent of
4. Employees have increased over the last three years .815 changes in the variable. For the control and independent variables, the
VIF values range from 0.2 to 0.69. According to Pallant (2007), a VIF
value not less than 0.1 is sufficient for the model.

7
 S.M. Chege and D. Wang

Table 3
The results of correction Analysis.
Correlations 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

New product 1
New technology .638 1
Product design .574 .900 1

R&D process 1.0 .638 .574 1

New machines .411 .644 .716 .411 1
New methods .645 .989 .891 .645 .637 1

New market .814 .836 .813 .814 .677 .833 1

Sales volume .712 .769 .693 .712 .496 .778 .820 1
Online market .366 .574 .638 .366 .891 .568 .648 .442 1

Innovation ability .453 .710 .789 .453 .908 .702 .708 .546 .809 1
external network .366 .574 .638 .366 .891 .568 .648 .442 1.000 .809 1
Firm structure .254 .162 .146 .254 .104 .164 .258 .406 .093 .115 .093 1

8
Competitiveness .574 .900 1.000 .574 .716 .891 .813 .693 .638 .789 .638 .146 1
Risk taking .704 .449 .404 .704 .289 .454 .714 .760 .258 .319 .258 .361 .404 1
first mover .577 .368 .331 .577 .237 .372 .586 .828 .211 .261 .211 .440 .331 .820 1

customer demand .623 .632 .652 .623 .580 .630 .756 .897 .516 .639 .516 .441 .652 .705 .789 1
market pressure .458 .462 .476 .458 .557 .461 .609 .661 .598 .527 .598 .634 .476 .521 .584 .736 1
change in tech .534 .571 .596 .534 .615 .569 .678 .756 .548 .677 .548 .559 .596 .581 .639 .846 .880 1
stiff competition .645 .989 .891 .645 .637 1.000 .833 .778 .568 .702 .568 .164 .891 .454 .372 .630 .461 .569 1
supplier pressure .717 .685 .616 .717 .441 .692 .754 .855 .393 .486 .393 .510 .616 .682 .700 .812 .750 .840 .692 1
regulations .683 .716 .645 .683 .462 .724 .752 .843 .411 .509 .411 .544 .645 .645 .658 .791 .796 .854 .724 .947 1

Reactiveness .791 .505 .454 .791 .325 .510 .745 .755 .290 .358 .290 .620 .454 .772 .722 .722 .722 .725 .510 .805 .803 1
Strategy planning .664 .423 .381 .664 .273 .428 .674 .777 .243 .301 .243 .383 .381 .943 .870 .727 .537 .596 .428 .684 .646 .754 1
Analyzer ability .558 .827 .911 .558 .652 .819 .770 .694 .581 .719 .581 .335 .911 .431 .383 .666 .550 .641 .819 .648 .681 .529 .415 1
Agility drive .572 .600 .540 .572 .387 .607 .653 .811 .345 .426 .345 .647 .540 .625 .688 .794 .875 .906 .607 .903 .931 .808 .641 .610 1
experience .790 .660 .649 .790 .501 .661 .876 .924 .446 .552 .446 .397 .649 .863 .845 .887 .653 .749 .661 .817 .790 .836 .854 .654 .752 1

profit .601 .383 .345 .601 .247 .388 .610 .812 .220 .272 .220 .423 .345 .854 .960 .770 .569 .625 .388 .694 .653 .730 .906 .392 .673 .846 1
sales volume .846 .639 .610 .846 .563 .642 .895 .735 .562 .570 .562 .325 .610 .728 .610 .698 .613 .640 .642 .715 .696 .838 .690 .652 .620 .834 .632 1
expansion .979 .625 .562 .979 .402 .631 .813 .716 .359 .443 .359 .292 .562 .716 .593 .632 .476 .547 .631 .721 .690 .813 .677 .579 .588 .798 .616 .871 1
staff number .923 .691 .622 .923 .445 .698 .806 .714 .396 .490 .396 .235 .622 .650 .533 .616 .452 .533 .698 .737 .704 .731 .613 .596 .570 .756 .555 .798 .904 1
Journal of Rural Studies xxx (xxxx) xxx–xxx
S.M. Chege and D. Wang Journal of Rural Studies xxx (xxxx) xxx–xxx

Table 4
Hierarchical regression analysis results.
Variable construct Model 1 Model 2 Model 3 Model 4

β Ͳ β Ͳ β Ͳ β Ͳ

1. Reactiveness in decision making 0.542 3.645 0.514 −4.463 0.456 −3.629 0.572* −4.364
2. Analytical ability 0.453* 4.263 0.426* 5.825 0.518* 4.452 0.586* 4.513
3. Organizational agility 0.501 6.321 0.451 8.978 0.593 7.648 0.654* 8.934
4. Motivation & experience 0.553* 3.567 0.407* 3.651 0.645** 4.613 0.538* 3.874
5. Changes in technology 0.674** 8.461 0.658** 9.678 0.531** 7.645 0.661** 6.847
6. Changes in customer demand 0.605** 11.392 0.679** 10.231 0.647** 9.386 0.695** 10.365
7. Nature of competition 0.635 6.987 0.686 9.543 0.371 7.894
8. Changes in regulations 0.654** 8.352 0.593** 13.846 0.465** 2.871
9. Product innovation 0.625** 2.657 0.659** 2.874
10. Process innovation 0.673** 2.203 0.618** 2.783
11. Market innovation 0.595** 2.713 0.579** 2.895
12. Pro-activeness 17.264 0.532* 16.413
13. Risk taking 15.475 0.637 15.651
constant 3.452** 3.235** 3.603** 3.026**
R2 0.436 0.567 0.683 0.775
adjusted R2 0.409 0.519 0.641 0.693
Change in R2 0.435 0.503** 0.684** 0.648
F-test 2.871* 16.437** 14.652** 13.846**
Dependent variable-firm performance, **p. < 0.01, *p. < 0.05, ***p < 0.1

To confirm the study hypotheses, the researcher used a multiple
linear regression analysis where SME's performance as the dependent
variable and environmental factors, type of innovation and firm char-
acteristics as independent variables. The study used R2 to interpret the
goodness of fit of the regression model using the following equation
formulae:
Y= a+ 1XI + 2X 2 + 3X 3 + 4X 4
The test statistic used to test the hypotheses of the form. H0: β = 0,
H1: β ≠ 0. Where: β = Population correlation coefficient, H0 = Null
hypothesis, H1 = Alternate hypothesis, SE = Standard errors of least
squares estimators. The study used HRA to determine whether a single
variable has an influence on the association between two or more
variables and whether there is a separate direct effect of independent
variables on the dependent variable. Thus, the study used an equation
(1) for hypothesis testing as follows:

y= + 1 FRMX + 2 ENT + 3 ENTR + 4 FRMX. ENT

H1: Y = β0+β1 X1+ε
+ 5 ENTR . FRMX + 6 ENT . INN + (2)
H2: Y = β 0+ β 2 X2+ε

H3: Y = β 0+ β 3X3+ε y = 2.577 + 0.124 FRMX + 0.244ENT +

0.502INN + 0.024ENTR 0.133FRMX INN (3)
H4: Y = β 0+ β 4X4+ε
The study followed four steps to test the implication of the inter-
Where action and individual direct effect. First, the addition of the innovation
variables (new product, new technology, product design, R&D process,
Y = Firm Performance which is the dependent variable new and online market). Second, the effects of firm characteristics
β0 = Constant (innovative ability, external network, firm structure, competitiveness,
βi = Coefficient of Xi for i = 1, 2, 3,4. risk-taking, and first-mover advantage) were included followed by the
X1 = Firm characteristics (FRMX) effects of environmental factors (customer demand, market pressure,
X2 = Environmental factors (ENT) and changes in technology, stiff competition, and supplier pressure and
X3 = Innovation drive (INN) government regulations). Finally, the four-step involved the product
X4 = Entrepreneur strategies (ENTR) terms of entrepreneur strategies and environmental factors in relation
a = Least squares estimates of the intercept, to firm performances. Consequently, the researcher separated the esti-
b = Least squares estimates of the regression coefficient for X, mations of the regression model to determine comprehensively the
ε = Error term. contribution of each variable construct using R2. The HRA results in
Table 4 show a progressive increase of R2 from the first to the fourth
The variables constructs were abridged into groups to create the model. Similarly, change in R2 increased significantly in Model 4, when
variables providers characteristics, forms of transfer, resource avail- the aspects of pro-activeness and risk-taking were included, demon-
ability, demand environmental factors, recipient's absorptive capacity strating the significance of the two innovation initiatives on firm per-
and SMEs performance (Rawlings and Dickey, 1998). The regression formance. However, the introduction of environmental factors in model
analysis results indicate that the variables fitted adequately within the 4 explained a moderate increase in R2 showing the minimum con-
model estimated. To test the hypotheses developed, a t-test was used. tribution to the difference in firm performance.
These associations were tested at the α = 0.05 significance level. The P The interaction terms (Table 4) of innovativeness (product, process
values which were computed in the analysis process were reflected in and market innovations) are positively and significantly related to rural
H0. Therefore, if P, was less than 0.05, the null hypothesis was to be SMEs' performance (p < .01). The findings support the first hypothesis
rejected in favor of the alternate hypothesis. The t-test was computed as (H1) that an entrepreneur's innovativeness under a dynamic business
follows: environment influences the performance of rural SMEs. Thus innova-
i 0 tion requires the improvement of unique ideas, fresh strategies, creative
t= processes, and new methods of operation which enhance competitive
SE
advantages, by providing high-quality products or services as well as

9
S.M. Chege and D. Wang
Table 5
Summary of hypothesis testing.
No. Hypothesis
H1 There is a positive relationship between entrepreneurs' innovativeness and firm performance
H2 the business environment has a positive influence on firm innovation and performance
H3 Entrepreneur's environmental analysis strategies have a positive impact on firm performance
superior products (Amin, 2015). Similarly, the interactive term be-
tween pro-activeness explained the positive significant relationship that
shows the importance of environmental forecasting before making de-
cisions. This infers that proactive enterprises have the probability of
being market leaders (first-mover advantage) especially in complex
environmental conditions (Lumpkin and Dess, 2001). Furthermore, the
entrepreneur's risk-taking propensity shows a significant relationship
that supports the finding of Turulja & Bajgoric (Turulja and Bajgoric,
2019), on innovation and environmental turbulence. Thus, enterprises
willing to take the risk have an opportunity for high returns. However,
taking business risks require careful evaluation by entrepreneurs
through market intelligence and global trends (Alam, 2011).
Regarding the impact of environmental factors on rural SME's per-
formance, the results show a nonsignificant relationship (P > .01),
thus the second hypothesis (H2) was not supported. This indicates that
environmental factors alone have no impact on rural SME's perfor-
mance and that effective environmental screening could help en-
trepreneurs to adopt new techniques and inventive ideas, there is no
indication to verify how environmental conditions contribute to rural
SME's performance. In this regard, the entrepreneurial propensity of the
owner-manager moderates the relationship between business environ-
mental factors and firm performance. Strategy specialists and practi-
tioners believe that strategies tend to focus on creating linkages be-
tween businesses and the environment, and the uncertainties they
entail (Abbas and ul Hassan, 2017). Whether it is a reasonable planning
process or an emergency, strategic development must manage the or-
ganic relationship between the organization and its external business
environment to ensure adaptability. Therefore, it is the organization's
responsibility to establish environmental forces analysis framework in
the external environment in order to take advantage of emerging op-
portunities and/or proactively mitigate threats that may negatively
impact the business activities (Turulja and Bajgoric, 2019). This ex-
ternal environment analysis informs the evaluation process of the
strategy currently adopted and modifies or generates and selects new
policy choices as needed. The strategic challenge of survival and com-
petitive positioning is to vigorously ensure the coherence of the com-
pany's strategy and to meet the needs of external environmental forces
by expanding its internal resource capabilities, including culture,
structure, processes and resource allocation (Zhang et al., 2015). Most
companies seeking to understand the forces of the external environment
strive to anticipate changes and turbulence, which in turn inform the
development of either a strategic intent, planning or emergent strategy.
The control variables concerning the entrepreneur's environmental
analysis strategy in terms of reactiveness in decision making, analytical
ability, organizational agility, and motivational drive, the results in-
dicate a significant positive relationship with firm performance
(p < .05) which supports the third hypothesis (H3). Thus, an appro-
priate structure for an entrepreneurial organization includes partici-
patory decision-making, minimal structural levels, smooth channels of
communication, R&D, clear procedures, and marketing activities
(Amin, 2015). Entrepreneur innovative strategies manifest itself
through major factors of production as follows: First, product innova-
tion by exploiting new ideas enables entrepreneurs to make product
innovation that provides a variety of choice for products with a cus-
tomer focus and facilitate the process of re-engineering and improving
the internal operation of the business process (Langley et al., 2005)
(Langley et al., 2005) (Oke et al., 2007). Effective PESTEL analysis
10
Journal of Rural Studies xxx (xxxx) xxx–xxx
β T. stat P value Decision
.618 2.871 P < .01 supported
.532 16.437 P > .01 Not supported
.637 14.652 P < .01 supported
offers a more versatile and broader view of the macro-environment and
SWOT analysis integrates PESTEL's results with specific microenviron-
mental threats and opportunities in strategy improvement. En-
trepreneurs undertake continual market innovation through state-of-
the-art marketing tools or use of the internet that enables them to reach
their potential customers across the globe ahead of their rivals
(Carbonell and Rodriguez, 2006).
To determine the model fit, the coefficient of determination of the
dependent variables and independent variables, firm characteristics
explain an R2 of 0.43 (43%) while environmental factors explained an
R2 = .56 (56%) of the variance on firm performance. The inclusion of
innovation dimensions (product, process and market innovations), the
model explains R2 = .68 (68%) of the variance. Furthermore, adding
the aspects of pro-activeness and risk-taking in relation to interaction
terms, the model explains R2 = .77 (77%) of the variance. The HRA
results facilitated a test of the hypothesis as indicated in Table 5.
5. Discussion
According to the World Bank (2015) report, SME's competitiveness
is considered an engine of economic growth and expansion. Previous
studies on the role of SMEs in economic growth, employment creation,
and poverty alleviation have shown the importance of SMEs in coun-
tries' social-economic growth (Hassan and Mohamed, 2015), (Muriithi,
2017). This paper examined the influence of entrepreneurs' environ-
mental analysis strategy on the performance of rural SMEs in Kenya.
The study used contingency theory which emphasizes context-based
approaches based on conditional adjustment rather than relying on one
best way to manage the firm (De Clercq and Thongpapanl, 2014).
Contingency provides significant insights into how entrepreneurs can
utilize their innovative strategy for effective environmental analyses
that enhance firm performance (Agbim et al., 2014). The entrepreneur's
capability to navigate through uncertainty, threats and risk tolerance
determines the survival of rural SMEs in the contemporarily competi-
tive environment (Calantone et al., 2003). Entrepreneur's innovative
strategy refers to the owner or manager's ability to turn ideas into ac-
tions (Thornhill, 2006). Contingency theory postulates that the com-
pany's success can be realized by mapping organizational strategic
plans to unexpected events, defined as variables that regulate the im-
pact of entrepreneur strategy on business performance (Agbim et al.,
2014), (Mcadam et al., 2019).
The results of HRA in Table 4 show the direct positive relationship
between entrepreneur innovativeness in the development and in-
troduction of a new product (β = .659, p < .01), process (β = .618,
p < .01), and market (β = .579, p < .01) and firm performance. The
finding was in agreement with a study conducted by Calantone et al.
(2003), (Ar and Baki, 2011) that show the importance of strategic en-
vironmental analysis in relation to product and process innovation
which supports the (H1) first study hypothesis (p < 0.01). To survive
and flourish in competitive environs, both SMEs and large firms de-
velop innovative strategies to navigate through the commercial en-
vironment controlled by globalization, stiff competition, and business
innovation insurgency (Pilinkiene et al., 2013). Entrepreneur pro-ac-
tiveness is seen as the act of seeking new opportunities, new products,
eliminating obsolete operations strategically ahead of competitors
(Wambugu and Gichira, 2015). Entrepreneur proactive behavior and
environmental changes should go hand in hand to guarantee firm
S.M. Chege and D. Wang
sustainability. Proactive enterprises outperform their rivals by aggres-
sively seeking opportunities for new products, processes, and markets.
Thus, entrepreneur pro-activeness acts as a strategic weapon for com-
petitive advantage (ZAHRA and DAS, 1993).
Regarding the second hypothesis (H2) concerning whether business
environmental features influence firm innovation and performance. The
findings show low moderating effects of environmental factors and firm
performance (β = .371, P > 0.05) which does not support H2. In this
regard, effective environmental screening could help entrepreneurs
adopt new techniques and inventive ideas. The entrepreneurial in-
itiatives of the owner-manager in analyzing environmental condition
determines the success or failure of the business rather than the en-
vironment itself. In other words, entrepreneurship brings about change
in the environment. Firm failure depends on the nature of the prevailing
business risks. This could be attributable to managerial capability in
understanding the market uncertainty brought about by globalization.
Taking calculated risk coupled with market intelligence would be sig-
nificant under a turbulent business environment. The pressure brought
by globalization and environmental changes in relation to firm per-
formance might be risky (Alam, 2011). Therefore, thorough environ-
mental feasibility is essential. Entrepreneurs with a low level of risk-
taking propensity in the volatile environment cannot be able to sustain
a competitive age against forward-looking competitors (Covin and
Slevin, 1991). Thus, entrepreneurs should take brave strategic calcu-
lated risk decisions in order to remain relevant. Furthermore, risk-
taking propensity has shown a positive relationship on firm perfor-
mance in a dynamic environment rather than in a stable environment
(Agbim et al., 2014), (Mcadam et al., 2019).
Regarding the third hypothesis (H3), the result indicates a positive
significant link between an entrepreneur's environmental analysis
strategies and firm performance (β = .465, P < 0.01) thus, supporting
H3. Researchers found that firm operational and commercial activities
are influenced by the external and internal environmental factors and
that managers determine these factors through environmental scanning
(Baba et al., 2017), (Zhang et al., 2015). Ideally, rural SMEs should
continually monitor their environment to determine potential changes
in the business environment (Tsai and Yang, 2012). Taking the en-
vironment into account as a positive variable in the strategic decision-
making process is essential for small and large businesses. Turulja &
Bajgoric (Turulja and Bajgoric, 2019) argues that the environment is a
major aspect of strategic analysis. According to Zhang (Zhang and
Duan, 2010), environmental factors determine the opportunities
available and threats that pose a risk to the business. Therefore, the role
of entrepreneurs is to analyze the environment, identify opportunities
and organize resources to take advantage of the prevailing firm op-
portunities (Chege et al., 2019). Despite the fact that innovation is as-
sociated with superior performance, many scholars argue that innova-
tion is useful only when the cost-benefit analysis favors the firm.
According to Simpson (Simpson et al., 2006), innovation is capital in-
tensive and requires a thorough calculated risk to guarantee firm per-
formance. Thus, progressive innovation undertaking would be useful in
advancing firm improvement and performance sustainability (Lim and
Anderson, 2016). Therefore, firms operating under a complex en-
vironment should focus on high levels of innovativeness, pro-active-
ness, and quantified levels of risk-taking based on market intelligence
and global projections.
5.1. Managerial implications
Contingency theory proposes that the effectiveness of the organi-
zation can be affected by environmental factors beyond the organiza-
tion's overall control, and thus affect the overall performance and in-
novation capabilities of the organization. However, while the
relationship between entrepreneurial innovation strategy and business
performance is conducted through an effective environmental scanning,
11
Journal of Rural Studies xxx (xxxx) xxx–xxx
it improves the knowledge system of contingency theory. This article
provides insights for strategic managers regarding environmental ana-
lysis and how such practices may provide support to optimize the
performance of rural SMEs. Managers and policy‐makers are particu-
larly encouraged to understand the importance of environmental ana-
lysis in order to attain optimal firm profit since this study revealed
positive relationships between internal and external environment on
the performance of rural SMEs. Therefore, managers may utilize such
information to resolve the practical dilemmas by prioritizing environ-
mental screening productively. Management might achieve positive
outcomes in their firm performance by engaging the stakeholders and
by emphasizing their interests such as focusing on employee‐related
environmental challenges that can be addressed by involving an em-
ployee in environmental practices.
In addition, this article provides a comprehensive approach to ex-
plain effective environmental scanning capabilities and their impact on
the overall performance of rural SMEs. For practitioners, the findings in
this paper can serve as a guide for all stakeholders, including policy-
makers, relevant administrations, individual organizations, and pro-
fessionals. The results of this research can improve firm innovation and
performance by reducing interference in the external environment,
whether market turbulence or technical factors. As a result, rural SMEs
can use the results of this study to understand the potential impact of
environmental factors on customer relationship management, perfor-
mance, and innovation. For scholars, this study is important because it
can be used as a basis for integrating other environmental factors to
study the regulatory impact of environmental turbulence on other
manufacturing or service industries for the purpose of comparative
analysis between sectors. Entrepreneurs' should continuously focus on
environmental analysis that can dynamically optimize the performance
of rural SMEs in today's competitive business world.
6. Conclusion and future research directions
Entrepreneur initiative brings new trade opportunities and compe-
titive strategies for business growth and survival. World Bank estimates
600 million jobs by the year 2020 and SMEs will generate over 60% of
those jobs (Bank, 2016). To meet this global objective, rural SMEs re-
quire constant renewal in line with the prevailing dynamic environ-
ment. The main purpose of this study was to determine the influence of
entrepreneur environmental analysis strategy on the performance of
rural SMEs in developing countries, Kenyan. The findings confirm that
entrepreneur environmental analysis strategy is paramount in ensuring
firms’ performance sustainability. However, the business environment
alone shows the nonsignificant impact on firm performance revealing
the importance of effective environmental screening by entrepreneurs
in adopting new techniques to align their business strategy under tur-
bulence environment. Entrepreneurs need to be aware of the im-
portance of environmental innovation strategies to cope with dis-
turbances and dynamism of the environment.
Nevertheless, this study had limitations in sample size, geographic
location and targeted rural SMEs, which could be expanded in the fu-
ture, by taking the following factors into account. First, the sample size
was limited to 272 managers of rural SMEs in a developing country, and
further work could be done on a larger sample scale to validate current
results in a broader way. The study highlighted only rural SME in the
agribusiness sector in Kenya and the scope can be expanded by col-
lecting data from urban-based SMEs. A study could be done on the
impact of an entrepreneur's environmental analysis strategy by in-
corporating the moderating factors given that this study did not assess
the impact of moderating factors. In addition, it is recommended that
researchers conduct multidimensional longitudinal studies within SMEs
to ensure the importance of environmental analysis practices around
the world and to provide more theoretical support. This study provides
multidimensional information on strategic management to support
S.M. Chege and D. Wang
entrepreneurs' innovation in environmental analysis and engage sta-
keholders in such practices to dynamically improve rural SMEs' per-
formance.
The results of this paper are useful in the advancement of knowl-
edge in entrepreneurship and offer a theoretical foundation to examine
business success factors. The findings provide information necessary to
empower entrepreneurs to improve their environmental analysis stra-
tegies that optimize rural SME's competitive advantages. Moreover, the
results give insight into existing theories, strategic planners and con-
tributes to business management practices in both developed and de-
veloping countries and offer an opportunity for further research.
CRediT authorship contribution statement
Samwel Macharia Chege: Conceptualization, Methodology,
Investigation, Software, Data curation, Writing - original draft, Writing
- review & editing. Daoping Wang: Conceptualization, Visualization,
Supervision, Validation.
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://
doi.org/10.1016/j.jrurstud.2020.04.008.
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