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MUHAMMAD ANWAR
International Islamic University Islamabad
H.10, Islamabad (44000), Pakistan
m.anwar.ims@gmail.com
In the era of globalisation and dynamic market, firms look for competitive advantage and
survival using different sources and resources. Prior studies have indicated that Business
Model Innovation (BMI) is a core driver for firm’s survival and superior performance
especially in growing industries. However, the role of BMI has been discussed theoreti-
cally and exploratory while empirical studies are still lacking. Hence, this study examines
the importance of BMI in SME performance and the mediating role of competitive ad-
vantage. Data were collected through structured questionnaires using a sample size of 303
manufacturing SMEs operating in the emerging market of Pakistan. Hypotheses were
tested through Structural Equation Modelling (SEM) using AMOS.21. The results indicate
that BMI has a significant positive impact on competitive advantage and SME perfor-
mance. Competitive advantage partially mediates the relationship between BMI and SME
performance. Firms are required to create an effective business model to acquire com-
petitive advantage and superior financial performance. Implications for practice have been
discussed.
Introduction
In today era of competitive market and globalisation, industries undergo dramatic
changes (Kim and Min, 2015; Sun et al., 2016; Remane et al., 2017). Thus, firms
have started search for unique strategy and innovative tactics to survive in the
markets (Sun et al., 2016; Carayannis et al., 2014). In such circumstance, Business
Model Innovation (BMI) works as a core driver to gain competitiveness and
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superior performance (Carayannis et al., 2014; Kim and Min, 2015; Evans et al.,
2017; Cucculelli and Bettinelli, 2015). BMI is a recently emerged term and authors
have explained it with different concepts and dimensions. However, the core
theme of BMI links to firm’s competitive advantage and superior performance
(Casadesus-Masanell and Ricart, 2010; Zott and Amit, 2008; Kim and Min, 2015;
Ranjith, 2016; Evans et al., 2017). For instance, Teece (2017) recently defined
BMI as an architecture that demonstrates how a firm can create and deliver values
to customers. Simply, it refers to “how business operates and create values for
shareholders” (Cosenz and Noto, 2017). However, it should be noted that unlike
product and service innovation, BMI pertains to different innovative activities of a
firm such as process, structure, delivery and interaction that are performed to gain
sustainable competitive advantage and superior performance.
BMI is the arena that has received ample attention of recent scholars and
academia (Clauss, 2017; Futterer et al., 2017; Cosenz and Noto, 2017; Foss and
Saebi, 2017; Velu and Stiles, 2013). Many top management’s journals have given
opportunity to discuss BMI. However, empirical research on the outcomes of BMI
is still rare (Schneider and Spieth, 2013; Carayannis et al., 2015; Futterer et al.,
2017). Despite, it is doubtless that BMI plays a significant role in the achievement
of sustainable competitive advantage and superior financial performance in dy-
namic markets (Casadesus-Masanell and Ricart, 2010; Osterwalder et al., 2008).
Firms with proactive BM capture and generate higher value in dynamic markets as
compared to reactive BM (Hacklin et al., 2017).
This study addresses the concept of BMI towards competitive advantage and
performance of SMEs operating in the emerging market of Pakistan. In addition,
this study aims to provide ample evidence for supporting Resource-based View
Theory (RBVT) and Schumpeter (1934) theory of economic development. For
instance, it is scrutinised that BM significantly contributes to competitive advan-
tage of the firms operating in emerging markets (Ranjith, 2016). However, studies
have ignored to examine the mediating role of Porter (1980) competitive strategy
(differentiation and cost leadership strategy) and it is rare to find an empirical study
of this nature in SMEs. This study answers the questions “Does BMI influence
competitive advantage and SME performance? and Does competitive advantage
mediate the relationship?”. The findings are beneficial for owners and managers of
SME who are looking for competitive advantage and superior performance.
The first section of the study discusses about the key terms including BMI,
competitive advantage and SME performance. The next section discusses about
theoretical background followed by hypothesis development. In the last section,
methodology and data analysis have been discussed.
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BMI and SMEs Performance
Literature Review
Business model and business model innovation
Schumpeter (1934) differentiated among five types of innovations: innovation
about products, innovation about production’s methods, innovation about supply’s
sources, exploitation of innovative markets, and innovative ways to organise
business. However, scholars have deliberately merged all the types of innovation
into a single phenomenon that is called “Business Model”. Yet, no single definition
of BMI has been finalised (Zott et al., 2011). Scholars interpret BM with several
dimensions. For instance, Stewart and Zhao (2000, p. 290) defined BM as “How a
firm will make money” as well as Gambardella and McGahan (2010) defined “when
firms implement novel approaches to commercialise their underlying assets”.
Despite having a good BM, sometime well-established companies fail because
of dramatic changes in the external environment, competition and turbulent
markets (Schneider and Spieth, 2013). However, these rapid changes have a
significant influence on the existing resource, capabilities and values creation
process of the firms. For the purpose, firms have started search for new tactics to
gain competitive advantage (Schneider and Spieth, 2013). Thus, in response to
these challenges, the new approach “BMI” has emerged which demonstrates about
firm’s innovative actions simultaneously considering all internal and external
factors (Schneider and Spieth, 2013). Hence, it is argued that the BMI is recently
emerged term in BM that has received enough attention of the present day scholars
(Sanchez and Ricart, 2010; Ranjith, 2016; Trapp et al., 2017; Zhu et al., 2017).
Yet in many cases, authors have not defined BMI thoroughly, and they applied
idiosyncratic definition to suit to the specific study (Björkdahl and Holmén, 2013).
The terms BM and BMI are still use interchangeably in the literature. For instance,
Sanchez and Ricart (2010) suggested two types of BMI. One is “Isolated business
model” that focusses on entrance into new market by leveraging firm’s present
capabilities and resources to take the advantage of existing opportunity. The other
one is “Interactive business model ” that requires to combine, integrate and leverage
firm’s internal and external capabilities to create new business opportunity. The
present study interprets BMI with respect to Bucherer et al. (2012, p. 184) who
defined it as “the practice that purposefully changes the fundamental elements of a
firm and its business logic is called BMI” and Frankenberger et al. (2013, p. 253)
who defined BMI as “an innovative way how to generate and capture value”.
Competitive advantage
Strategy is typically defined as “a contingent plan of action intended to attain a
specific goal” (Casadesus-Masanell and Ricart, 2010). However, it is difficult to
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SME performance
There is no universal definition of firm’s performance. Scholars define it according
to their research’s objectives. In the case of SMEs, performance refers to the
“value” contributed to customers, owners and top managers (Porter, 1990). In
addition, Laitinen (2002, p. 66) defined firm’s performance as “the capability of an
entity/business/firm to generate results in predetermined dimensions in relation to
a target”. Typically, firm’s performance can be measured with Return on Assets
(ROA), Return on Equity (ROAE) and Return on Investment (ROI) when archived
data are available. However, in the case of SMEs, it is difficult to obtain financial
data (Dibrell et al., 2014), thus authors have suggested self-reported approach to
measure performance where SMEs are asked to rate their performance on the basis
of ROA, ROE, ROI, etc. for last three or five years compared with their major
competitors and industry rivals (Davis et al., 2010; Engelen et al., 2015; Semrau
et al., 2016).
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BMI and SMEs Performance
Underpinning theory
Despite discussed for more than two decades, theories development about BMI are
still rare (Tuncdogan et al., 2016; Foss and Saebi, 2017). The core theme of this
study is associated with competitive advantage and SME performance that (both)
can be incremented through BMI. However, BMI should not be mixed with
business strategy because business strategy is what that specifically focusses on
products and services while BMI underlines the firm’s core attributes that are akin
to change in product, structure, delivery and process (Zott and Amit, 2008).
For instance, Bashir and Verma (2017) suggested that BMI is a significant
predictor of competitive advantage (Porter’s competitive strategy). Firms that
create a unique BMI can achieve four times more return over those firms who
focus innovation associated to products and services only. Casadesus-Masanell
and Ricart (2010) suggested that the concept of strategy and BMI seem close but
there is difference between the two terms. Particularly the difference can be raised
when there are important contingences upon which well-formulated strategy must
be based. They further stated that BM denotes the logic of a firm, the way it drives
and how it creates value for stakeholders while strategy demonstrates the choice of
BM through which a firm will compete in the market.
This study again recalls that BMI has broad and vague concept. For instance,
Magretta defined BM as “the approach how business works”. Obviously, this idea
demonstrates how a firm earns money, how it recognises and generates values for
customers and how it captures profit from this value. Researchers have suggested
that BM supports firms to unlock the value creation process through potential
technological change in the market place (Desyllas and Sako, 2013; Gambardella
and McGahan, 2010). Going to the domain of the importance of BMI in firm’s
performance, Schumpeter (1934) argued that innovation happens due to “creative
destruction”. This phenomenon reflects the firm’s innovative ability to generate
useful output from destructive or useless resources. This marvel can be merged in
the notion of Cavalcante et al. (2011) who argued that BMI starts with new BM
creation which requires to remove, abandon or to close a business unit or area that
allied with old BM. This usually follows to extend the new BM or add core
processes to the old/present BM. Hence, this approach demonstrates the attributes
of firm to gain performance through expanding, adding and exploring alternative
processes or by gradually removing useless areas from the existing BM.
One of recent studies argue that BM research does not necessary need to have
“Theory on its own” but it can be understood through combining different theo-
retical mechanisms and stream of literature (Ritter and Lettl, 2017). In spite of the
fact that BMI has discussed in various contexts but the structured dimensions of
BMI are associated with the theme “gaining sustainable competitive advantage and
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BMI and SMEs Performance
Hypothesis Development
Business model innovation and firm performance
Firms with updated BM get superior performance over those firms who have
traditional BM (Cucculelli and Bettinelli, 2015). BMI is the practice of assimi-
lating a novel logic of doing business into an established firm to increase profit-
ability or to exploit newfangled business opportunities (Trapp et al., 2017). Firms
are now shifting from technological innovation towards BMI (Remane et al.,
2017) because an effective BMI offers high level of profitability and return to the
established ventures rather than traditional model (Arnold et al., 2016). It helps
firm to enhance ROE and significantly contributes to overall financial performance
(Bouncken and Fredrich, 2016). BMI has become an important factor for im-
proving performance of small firms operating in turbulent markets (Brannon and
Wiklund, 2016). New ventures may fail in high volatile market due to low per-
formance. But BMI supports new ventures to compete and survive in the dynamic
market for long term (Velu, 2015).
BMI is different than product innovation because BMI enables SMEs on the
spot when new opportunity in the form of new market appears. The exploitation of
new opportunity in turn may help firms to sustain performance (Velu and Stiles,
2013). BMI provides more significant financial performance in developing
economies as compared to other BM and activities (Gerdoçi et al., 2017). BMI is a
new logic to improve profitability of especially established ventures (Trapp et al.,
2017). For instance, a unique and effective BMI provides four times more return
over innovation that allied to only products and services (Bashir and Verma,
2017). Similarly, researches in this field have argued that SMEs with an effective
BMI perform over other firms (Carayannis et al., 2015; Kim and Min, 2015;
Karimi and Walter, 2016; Futterer et al., 2017; Carayannis et al., 2017). Therefore,
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follow the approach directly, thus firms are required to change the BM persistently
to gain more stable position over their competitors (Mitchell and Coles, 2003).
SMEs with updated and proactive BMI achieve higher value and capture great
attention of customers in dynamic markets as compared to a reactive BM (Hacklin
et al., 2017; Shahzad et al., 2017). The main drivers for firm’s sustainability and
values are the cost reduction, risk reduction, reputation, brand image, attractive-
ness for employees and innovative capabilities that can be covered by BMI
(Schaltegger et al., 2012). Firms operating in the emerging markets strive for
getting competiveness, in such market, BM is the choice that facilitates SMEs to
get competitive advantage (Bashir and Verma, 2017; Ranjith, 2016). Therefore,
having a novel BM create more customer values and stay competitive which in
turn lead to high performance and profitability (Teece, 2010). BMI enhances SME
performance with the help of refining differentiation and cost leadership strategy
(Haggège et al., 2017; Zott and Amit, 2008). It provides effective-centered solu-
tions by assembling resources that target customer’s change and demand prefer-
ence which in turn provide the advantage of rapid increase in market shares and
industry structure. Particularly SMEs operating in emerging markets are more
benefitted by BMI because of market volatility (Zhu et al., 2017). The notion of
BMI associated in the root of strategic flexibility and industry change which in
turn provide superior performance to SMEs (Djaja and Arief, 2015). Small firms
face a tough competition in turbulent markets. Thus they need to build an effective
BMI which facilitates their competitiveness and position in the market that results
in superior performance (Pellikka and Malinen, 2014).
BMI creates useful insights for strategic behavior of firms and helps firms to
organise the resources in the way to get higher performance. Thus, it is extensively
accepted especially by SMEs operating in emerging markets (Spieth et al., 2016).
It helps to form strategic actions that are required for getting competitive advan-
tage. Obviously this advantage in turn leads to gain higher performance
(Purkayastha and Sharma, 2016). There is a strong relationship between firm’s
capabilities, BMI and firm’s performance and it is true that BMI is closely linked
to firm’s strategic capabilities and results high performance (Pucci et al., 2017).
Thus, it is argued that BMI leads to gain sustainable competitive advantage
through different novel approaches which in turn lead to higher profitability and
success of SMEs. Therefore,
H4. Competitive advantage mediates the relationship between BMI and firm’s
performance.
Methodology
Sample and data
The purpose of the study is to examine the influence of BMI on SME performance
with mediating role of competitive advantage. Motivated by the fact that
manufacturing firms are more innovative, competitive, commoditised and more
concerned with strategic approaches related to products, services and structure
unlike services and trading firms (Kastalli and Van Looy, 2013). Thus, this study
selected manufacturing SMEs operating in the emerging market of Pakistan. Three
major cities of Pakistan: Rawalpindi, Islamabad and Peshawar were selected be-
cause most of the firms have their head offices in these regions. Registered firm
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lists were taken from Rawalpindi Chamber of Commerce and Industry (RCCI),
Islamabad Chamber of Commerce and Industry (ICCI) and Khyber Pakhtunkhwa
Chamber of Commerce and Industry (KPCCI), respectively. Total registered firms
with RCCI were 5817, ICCI were 3753 and KPCCI were 2072, registered firms
including manufacturing, trading and services. However, this research focussed
only on manufacturing firms specifically industries of chemical, pipes and fittings,
pharmaceutical, software, cosmetics and engineering. There were almost 1500
firms in the specific industries in these regions. Probability-based sampling method
was used and calculated the sample size of 303 firms.
Although, there is no single definition of SMEs, every country has its own
definition and scope of SMEs. Small and Medium Enterprises Development Au-
thority (SMEDA) established by Government of Pakistan is responsible for SME
policies, financing, training and other responsibilities. SMEDA defines SMEs as
“firms having employees up to maximum 250”. Hence, this study focussed firms
with maximum employees 20 to 250 as per SMEDA definition of SMEs. Self-
reported questionnaire was used to collect data from owners and top managers
because they are more responsible for strategic planning and performance of firms
(Tajeddini and Mueller, 2012). Total 600 questionnaires were distributed of which
200 among SMEs operating in Rawalpindi, 200 in Islamabad and 200 in Pesha-
war, respectively. One questionnaire was filled by each firm with request to be
filled by owners or surrogated managers. On return, 97 usable questionnaires from
Peshawar, 89 usable questionnaires from Rawalpindi and 117 usable ques-
tionnaires from Islamabad were received with response rate 48.5%, 44.5%, 58.5%,
respectively. Hence total 303 usable questionnaires were analysed with an effec-
tive response rate 50.5%.
firms have employees from 151 to 200 who participated in the study. Hundred and
twenty five firms were those who have started their operation since last 10 years,
94 firms were started operation since 11 to 20 years while 84 were those firms who
were working for more than 21 years. This indicates that the ratio of new firms
increasing in the emerging markets comparatively.
Measurement of variables
BMI has explained in different theoretical and exploratory concepts. However, as
discussed earlier that BMI should not be mixed with business strategy because
business strategy specifically focusses on products and services while BMI
underlines the firm’s core attributes that allied to bring newness in product,
structure, delivery and process (Zott and Amit, 2008). In addition, it is argued that
BMI has a significant influence on differentiation-based and cost leadership-based
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advantage (Bashir and Verma, 2017). To measure BMI, this study relied on six
items validated and tested by Karimi and Walter (2016). These measures focused
on different aspects of firm’s innovativeness such as product and service, delivery,
process and structure. However, the measures were slightly modified as per the
study requirement to suit to manufacturing firms. A sample item is “How many
new formal or informal arrangements for information exchange with your partners
have been created in the past three years?”. Five Likert scale was given to rate the
suitable option range as “no new arrangement 1 to 5 many new arrangements.
Competitive Advantage also refers as competitive strategy that includes differ-
entiation-based and cost-based advantage (Porter, 1980; Lechner and Gudmunds-
son, 2014). Differentiation-based competitive advantage focusses on offering
unique and differentiated products rather than those offered by competitors. Cost-
based advantage focusses on cost minimisation related to product and industry
(Porter, 1980). This study relied on eight items of which five items for differentiation
and three items for cost-based strategy that have validated and tested by Lee et al.
(2015). To measure differentiation advantage, the sample item is “We successfully
differentiate ourselves from others through effective design: brand, appearance,
feature, etc.” To measure cost-based advantage, a representative item is
“Manufacturing costs are lower than that of our competitors”. Five Likert scale was
given as the option that were range from strongly disagree 1 to strongly agree 5.
SME Performance can be measured with archive-based data and self-reported
survey. Where financial data are available, the authors measure performance with
proxies: ROE, ROI, etc. However, in the case of SMEs, it is difficult to obtain
financial data from firms (Dibrell et al., 2014). Thus, scholars use self-reported
approaches to measure SME performance. Prior studies have argued that there is a
significant association between archive-based and self-reported-performance
measures (Davis et al., 2010; Engelen et al., 2015). In addition, Semrau et al.
(2016) suggested that self-reported measures provide more fruitful and adequate
insights in emerging economies such as China, India, etc. Hence, this study used
self-reported approach to measure financial performance of the manufacturing firms.
Six items were used where respondents were asked to rate their firm’s performance
on the basis of ROE, return on sales, ROI, ROA, sales growth and net profitability
since last three years compared to major competitors. Five Likert scale was given
ranging from extremely declined 1 to extremely improved 5. These measures were
mostly cited in prior studies (Engelen et al., 2015; Semrau et al., 2016).
Control variables
In order to reduce spurious results, age and size of firms were controlled to test the
impact of BMI on SME performance with competitive advantage as mediator.
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BMI and SMEs Performance
Mason et al. (2015) recommended to control firm’s age and size in order to get
better results. Since this study was conducted in the specific industry i.e.,
manufacturing, so there was no need to control for nature of industry. Age and size
of firms were controlled towards competitive advantage and SME performance.
The overall results indicated that both the factors i.e., age and size of firms play a
significant role in the model. Similar results have derived in prior study that age
and size of firms have a significant impact on firm’s performance (Semrau et al.,
2016).
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drawn between the error terms of the redundancy items such as between e1 and e3,
e9 and e10, e12 and e13, e12 and e14 as well as between e17 and e19 to solve the
problem. Thus, in the second attempt, the results generated a good model fit
indicate that chisq/df value 2.294 is in the acceptable range (less than 3) suggested
by Tanaka (1993), Hu and Bentler (1999) and Hair et al. (2010). The values of
GFI ¼ 0.90, AGFI ¼ 0.86, CFI ¼ 0.95, TLI ¼ 0.95, NFI ¼ 0.92 indicated a
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BMI and SMEs Performance
good model fit as the values suggested to be above 0.90 (Hu and Bentler, 1999;
Hair et al., 2010). GFI above 0.80 is also considered acceptable as per Browne and
Cudeck (1993). RMR ¼ 0.012 and RMSEA ¼ 0.065 also generated a good
model fit as the values close to 0.05 indicate a good model fit (Hu and Bentler,
1999; Hair et al., 2010). MI values found in the accepted range 4–15 as per
recommendation of (Zainudin, 2014, Chap. 7). All the items were significantly
loaded (p < 0:001) on their respective constructs and almost all the items have
acceptable standardised factor loading (above 0.70). The factor loadings of the
items were presented in Table 3.
However, before testing the hypothesis using structural model, it has recom-
mended to test validity and reliability of the items and constructs (Barclay et al.,
1995). Thus, convergent validity, discriminant validity and composite reliability
were ensured in the study (see Table 3). Convergent validity indicated the ac-
cepted value for all the constructs (above 0.50) as recommended by Hu and
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Bentler (1999) and Hair et al. (2010). Discriminant validity also gave acceptable
values for all the constructs (above 0.70) as suggested by Hu and Bentler (1999)
and Hair et al. (2010). Moreover, it has also suggested that the discriminant
validity of the construct will be higher than the correlation values of the construct
with other constructs, this study met the condition (Hu and Bentler, 1999; Hair
et al., 2010). Composite reliability of each constructs has higher than 0.70 that has
accepted as per recommendation of Nunnally and Bernstein (1994). Thus, all the
criteria were met which allowed to test the hypothesis through structural model.
Correlation
Table 4 shows correlation among the study’s constructs. It gives the early support
to the hypothesis in the study. The relationship between BMI and SME perfor-
mance is positive (r ¼ 0:719), positive relationship was found between BMI and
competitive advantage (r ¼ 0:319) and also between competitive advantage and
SME performance (r ¼ 0:296). There is no multicollinearity issue in the study as
all the constructs have correlation values below 0.80 (Jalali et al., 2014).
Structural models
In order to gain more fruitful results for mediating role of competitive advantage,
this study performed separate structural model for each step. The first structural
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BMI and SMEs Performance
model (see Fig. 2) was performed to test the influence of BMI on SME perfor-
mance, second structural model (see Fig. 3) was performed for testing BMI in-
fluence on competitive advantage and the third structural model (see Fig. 4) was
tested the impact of competitive advantage on SME performance. Last, fourth
structural model (Fig. 5) was performed to check either competitive advantage
fully or partially mediates the relationship between BMI and SMEs performance.
In addition, to check mediating role in the framework, bootstrapping method was
followed that is recommend more than Sobel test (Zhao et al., 2010; Bryan et al.,
2013). Thus, the hypotheses were tested by performing bootstrapping 2000
(resampling), 95% bias-corrected confidence interval and using the p-value for a
two-tailed significance (*p, 0.05, **p, 0.01, ***p, 0.001).
Structural Model 1: This model was performed to check the impact of BMI on
SME performance and controlling for size and age of the firm (Fig. 2). The model
fits have shown in Table 5, indicate that the value in of chisq/df ¼ 2.80 is in the
acceptable range (less than 3) recommended by Hu and Bentler (1999) and Hair
et al. (2010). The values of GFI ¼ 0.91, AGFI ¼ 0.87, CFI ¼ 0.95, TLI ¼ 0.94,
NFI ¼ 0.93 indicated a good model fit as the values suggested to be above 0.90
(Bentler and Bonett, 1980; Tanaka, 1993; Hu and Bentler, 1999; Hair et al., 2010).
RMR ¼ 0.04 and RMSEA ¼ 0.078 also created a good model fit as the values
close to 0.05 specify a good model fit (Hu and Bentler, 1999; Hair et al., 2010).
The result related to hypothesis (see Table 6) indicated that BMI has a sig-
nificant influence on SME performance ( ¼ 0:619, p < 0:01) that accepted the
H1. Thus the first criteria of the mediation existence achieved.
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Models Chisq df Chisq/df GFI AGFI CFI TLI NFI RMR RMSEA
Measurement model 371.695 162 2.294 0.90 0.86 0.95 0.95 0.92 0.012 0.065
Structure Model 1
BMI ! FP 205.899 72 2.80 0.91 0.87 0.95 0.94 0.93 0.04 0.078
Structure Model 2
BMI ! CA 190.432 97 1.963 0.93 0.90 0.97 0.96 0.94 0.030 0.056
Structure Model 3
CA ! FP 255.044 98 2.602 0.90 0.87 0.96 0.95 0.93 0.028 0.073
Structure Model 4 439.301 197 2.230 0.89 0.85 0.95 0.94 0.91 0.029 0.064
Acceptable range* — — 1–3 >0.90 >0.80 >0.90 >0.90 >0.90 <0.09 <0.08
Structural Model 2: To check for the second criteria of mediation, this model was
performed to check the influence of BMI on competitive advantage (see Fig. 3).
The model fitness (see Table 5) was confirmed as chisq/df ¼ 2.602 found in the
accepted range (less than 3) recommended by Hu and Bentler (1999) and Hair
et al. (2010). The values of GFI ¼ 0.90, AGFI ¼ 0.87, CFI ¼ 0.96, TLI ¼ 0.95,
NFI ¼ 0.93 showed a good model fit as the values suggested to be above 0.90 and
close to 1 (Tanaka, 1993; Hu and Bentler, 1999; Hair et al., 2010). RMR ¼ 0.028
and RMSEA ¼ 0.073 also produced a good model fit as the values close to 0.05
indicate a good model fit (Hu and Bentler, 1999; Hair et al., 2010).
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BMI and SMEs Performance
Hypothesis p p p
H1. FP BMI 0.619 0.000
FP Size 0.135 0.000
FP Age 0.146 0.000
H2. CA BMI 0.414 0.000
CA Size 0.081 0.007
CA Age 0.039 0.081
H3. FP CA 0.194 0.000
FP Size 0.197 0.000
FP Age 0.168 0.000
The results (Table 6) indicated that BMI has a significant positive impact on
competitive advantage ( ¼ 0:414, p < 0:01) that supported H2 of the study.
Hence, the second condition for existence of mediation met.
Structural Model 3: To examine the impact of competitive advantage on SME
performance, the third structural model (see Fig. 4) was performed for being
checking the third criteria of mediation existence. The model fit (e.g., Table 5)
engendered accepted values as chisq/df ¼ 2.602 that is in the accepted range (less
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than 3) recommended by Hu and Bentler (1999) and Hair et al. (2010). The values
of GFI ¼ 0.91, AGFI ¼ 0.87, CFI ¼ 0.95, TLI ¼ 0.94, NFI ¼ 0.93 indicated a
good model fit as the values recommended to be close to 1 (Tanaka, 1993; Hu and
Bentler, 1999; Hair et al., 2010). RMR ¼ 0.04 and RMSEA ¼ 0.078 also pro-
duced a good model fit as the values close to 0.05 indicate a good model fit (Hu
and Bentler, 1999; Hair et al., 2010).
The results (Table 6) shown that competitive advantage has a significant in-
fluence on SME performance ( ¼ 0:194, p < 0:01) that supported H3 and met
the third condition of mediating role played by competitive advantage. Hence, all
the three models provided significant results and confirmed that competitive ad-
vantage mediates the relationship between BMI and SME performance.
Structural Model 4: This structural model (see Fig. 5) was performed to check
either competitive advantage fully or partially mediates the relationship between
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BMI and SMEs Performance
BMI and SME performance. Table 5 shows the model fitness as the value of chisq/
df ¼ 2.230 is in the acceptable range (less than 3) recommended by Hu and
Bentler (1999) and Hair et al. (2010). The values of GFI ¼ 0.89, AGFI ¼ 0.85,
CFI ¼ 0.95, TLI ¼ 0.94, NFI ¼ 0.91 showed a good model fit as the values
suggested to be above 0.90 (Bentler and Bonett, 1980; Tanaka, 1993; Hu and
Bentler, 1999; Hair et al., 2010). RMR ¼ 0.029 and RMSEA ¼ 0.064 also en-
gendered a good model fit as the values close to 0.05 indicate a good model fit (Hu
and Bentler, 1999; Hair et al., 2010).
The final results about hypothesis have shown in Table 7 that indicated the
indirect effect of BMI on SME performance is significant ( ¼ 0:026, p < 0:05)
while direct impact of BMI on SME performance also remained significant
( ¼ 0:450, p < 0:01) which indicated that competitive advantage partially me-
diated the relationship between BMI and SME performance. Hence, H4 of the
study partially supported in this study.
The total effect of BMI on SME performance (through competitive advantage)
is significant ( ¼ 0:477, p < 0:01) that is higher than the direct impact of BMI
on SME performance ( ¼ 0:450, p < 0:01). R 2 indicates that BMI through
competitive advantage explains 67% variance in SME performance.
Discussion
Although prior studies in the context of BMI have given more attention to the
theoretical and exploratory discussion over empirical evidences (Teece, 2010;
Sanchez and Ricart, 2010; Schneider and Spieth, 2013; DaSilva and Trkman,
2014; Foss and Saebi, 2017; Evans et al., 2017). The role of BMI in SME
performance is still remained elusive due to lack of empirical evidence. This study
empirically examines the role of BMI towards competitive advantage and SME
performance in an emerging market. In addition, this study makes additional
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M. Anwar
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BMI and SMEs Performance
Fourth, mediating role of competitive advantage between BMI and SME per-
formance examined and found partial mediating role. For instance, Spieth et al.
(2016) argued that BMI is concerned with strategic resources of firms, thus it
creates high performance for ventures operating in emerging markets. Pucci et al.
(2017) argued that BMI is closely linked to competitive advantage which results
higher performance. It is argued that competitive advantage partially mediates the
relationship between BMI and the financial performance of manufacturing SMEs
in Pakistan. Thus H4 of the study partially supported.
Managerial implications
This study provides implications for owners and managers of SMEs as well as for
policy makers. For instance, managers of SMEs and large firms, manufacturing,
trading or services, etc. seek competitive advantage and superior performance
using different resources and sources. This study suggests that BMI is the sig-
nificant driver that contributes significantly positively to firm’s performance and
competitive advantage. Owners and managers of SMEs especially in emerging
markets face countless challenges to compete in turbulent market. In such markets,
BMI is a key factor that significantly contributes to competitive advantage and
performance (Ranjith, 2016; Spieth et al., 2016; Zhu et al., 2017). Although,
SMEs from manufacturing sector invest lots of resources into tangible and risky
projects that may cause a big loss. Thus, owners and managers from
manufacturing sector are required to give considerable attention to BMI in order to
survive in the market. For instance, growth and position cannot gain through lots
of investment into technological development, tangible resources and risky and
long term projects, BMI gives alternative and easy approach to stay competitive
and survive over rival firms. The findings also reveal that large firms and matured
firms should not ignore the adaptation of BMI because it gives a significant
advantage to large (Karimi and Walter, 2016) in emerging markets. Owners and
managers of SMEs are required to observe deep into their business activities
related to products development, delivery, organisation structure, cost, processes
and procedure that all can come under the umbrella of BMI.
Underlining the important of the study for policy makers, this research suggests
for SMEDA to support SMEs in the context of innovation either through trainings
or seminars, so they may be able to build an effective BMI. For instance, SMEDA
is responsible for all the policies and survival of SMEs operating in Pakistan.
Thus, it should be benefitted to arrange special support programs to facilitate
SMEs regarding product development at lower cost. Similarly, government can
also advice SMEDA in this regard to initiate programs about BMI that has not yet
launched.
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M. Anwar
Conclusion
This study empirically tested the impact of BMI on competitive advantage and
performance of SMEs from manufacturing sector operating in the emerging
markets of Pakistan. Data were collected through structured questionnaires using
sample size of 303 firms and then analysed through AMOS.21. The results indi-
cate that BMI has a significant impact on competitive advantage and SME fi-
nancial performance. Competitive advantage partially mediates the relationship
between BMI and financial performance of SMEs. The results highlight that BMI
plays a significant role in the success and survival of SMEs operating in the
emerging market. Implications for practice have been discussed.
Appendix A
Business Model Innovation
How much of revenue from noncore products are generated through traditional
revenue sources such as circulation, display advertising, and classified operations?
Almost all 1 2 3 4 5 Almost none
How do you sell your noncore products?
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BMI and SMEs Performance
Existing sales force sells both core and noncore products. 1 2 3 4 5 Noncore
products are exclusively sold through digital media sales force.
How many new formal or informal arrangements for information exchange with
your partners have been created in the past 3 years?
No new arrangements 1 2 3 4 5 Very many new arrangements
In the last 3 years, have you changed your pricing structure for raw material, product and
services?
We have made no changes to our pricing structure. 12345 We have
completely changed our pricing structure.
Please compare the value propositions offered by your products/services now with
those offered 3 years ago.
They are pretty much the same 1 2 3 4 5 They are dramatically different
Please compare the cost structure of means employed to produce the noncore
products with that employed to produce the core products.
Cost structure for noncore product is much higher 1 2 3 4 5 Cost structure
for noncore products is much lower.
Competitive Advantage
1. Our new products and service development offer superior bene ts to customers
2. We make great efforts in building a strong brand name
3. We successfully differentiate ourselves from others through effective adver-
tising and promotional campaigns
4. We successfully differentiate ourselves from others through effective design
(ex. Brand & store identity)
5. We constantly offer overall differential advantage
6. Internal operation system has decreased the cost of our products
7. Manufacturing costs are lower than that of our competitors
8. We constantly offer low opening costs than our competitors.
SMEs Performance
1. Return on equity
2. Return on sales
3. Return on investment
4. Return on assets
5. Sales growth
6. Net profitability
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M. Anwar
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