Entrepreneurial Orientation and SMEs Efficiency With Government Financial and Non-Financial Incentives as Moderators

Abstract

Entrepreneurship drives economic growth in the modern knowledge-based economy. Furthermore, entrepreneurial orientation (EO) and small and medium-sized enterprises (SMEs) Efficiency, combined with government financial and non-financial incentives, play a vital role in fostering the growth of SMEs. Therefore, this study aims to investigate the impact of EO with government incentives as moderators on SMEs efficiency from the perspective of Pakistan. The primary data were collected from 412 top-level managers of SMEs across three cities. A structural equation modeling was used for analysis. Results showed that risk-taking, innovativeness, and proactiveness had a positive and significant impact on SMEs efficiency, and autonomy had a negative and significant impact. It was found that government financial incentives had a significant positive moderating impact on risk-taking, proactiveness, and competitive aggressiveness. Moreover, government non-financial incentives as a moderating variable positively and significantly influenced risk-taking, proactiveness, innovativeness, and competitive aggressiveness. The positive and significant impact of government financial incentives on risk-taking, proactiveness, and competitive aggressiveness emphasizes the potential to amplify SMEs efficiency and growth through enhanced promotion of such incentives. Governments should deliberate on delivering more targeted financial support to encourage entrepreneurial activities. Complementary to this, government non-financial incentives positively and significantly influenced key entrepreneurial factors such as risk-taking, proactiveness, innovativeness, and competitive aggressiveness. Consequently, augmenting SMEs efficiency and competitiveness can be achieved by implementing non-financial incentives such as mentorship programs, technological access, and market insights.

Keywords

entrepreneurial orientation SMEs efficiency Pakistan government incentives structural equation modeling

Introduction

Small and medium enterprises (SMEs) are widely regarded as the economy’s powerhouse (Karmaker et al., 2023). SMEs constitute 90% of the total enterprises, providing 78% of employment for non-agriculture human resources and contributing to the gross domestic product by approximately 40% (SBP-report 2022). SMEs mainly contribute to export earnings, industrial productivity and sustainable growth in Pakistan (Rasheed et al., 2022). SMEs have a share of 25% of the total exports of Pakistan, and nearly 3.2 million people are engaged in this sector (Ahmad, 2022). Small and Medium Development Authority is a government institution that encourages the development of SME sectors in Pakistan (Bhatti et al., 2020; Chughtai & Alam, 2014).

Most SMEs in developing economies already work in a complex business environment, adversely influencing their growth and performance due to the lack of financial and non-financial resources and entrepreneurial skills (Yoshino & Taghizadeh Hesary, 2016). By the end of 2020, the outbreak of the Covid-19 epidemic delivered a blow to the SME sector of Pakistan, which constitutes a substantial 90% of the nation’s business landscape (Seth et al., 2020). The pandemic has adversely influenced Pakistan’s economy, especially SMEs, resulting in a negative growth rate of 0.4%, leading to the closure of numerous sole-business SMEs. (UNDP, 2020). In this situation, the SMEs lose not only their customers but also their laborers due to low efficiency. A significant proportion of businesses (83%) lacked the necessary efficiency to tackle this alarming situation (Shafi et al., 2020), and as a result, the majority of (95%) SMEs have reduced their operations (Seth et al., 2020).

In the recent knowledge-based economy, entrepreneurship has been considered a vital motive for substantial economic growth and development (Doh & Kim, 2014). Among the strategies, entrepreneurial orientation (EO) and culture are essential for SMEs survival in the market (Buccieri et al., 2020). Entrepreneurs exploit their entrepreneurial skills and techniques to encounter external challenges and threats (Jiang et al., 2018). The growth and development of SMEs can be associated with the EO’s dimensions (Shah & Ahmad, 2019). This study used government non-financial incentives with government financial incentives to investigate their moderating role on entrepreneurial orientation’s dimensions and SMEs efficiency. Due to insufficient resources and capability, SMEs require financial and non-financial support (Joo & Suh 2017). In developing countries, SMEs tend to face a higher failure rate than developed ones. Often, newly established SMEs lack market awareness and invest heavily in customer and supplier relationships while neglecting to build strong ties with government institutions. The market conditions in these countries are unfavorable, making government support of both financial and non-financial incentives crucial for their survival (Anwar et al., 2018).

Some studies indicated that EO indirectly impacted the SMEs performance because their association is affected by several moderators, such as competitive intensity and environmental dynamism (Tajeddini & Mueller, 2019). Moreover, Tajeddini and Mueller (2019) investigated the impact of entrepreneurial orientation on financial firm performance and explored how a dynamic environment moderated the relationship between entrepreneurial orientation and performance. In addition to this, Presutti and Odorici (2019) investigated the Impact of International Markets and New Digital Technologies on Business Innovation in Emerging Markets and took a nuanced approach by not assuming that Market Orientation (MO) and Entrepreneurial Orientation (EO) are generic resources that always have a positive influence on firms’ performances. Instead, it seeks to investigate the contingent factors that may come into play, such as social and business networks, as well as the accumulated entrepreneurial experience, which can shape the impact of MO and EO on firm performance. Onwe et al. (2020) studied the impact of environmental hostility on the relationship between EO and firm performance. By exploring how external factors, such as the business environment’s hostility, influenced the EO-firm performance relationship, the study provided insights into the dynamics that affect small firms’ success in Nigeria (Nakku et al., 2020). Moreover, Saberi and Hamdan (2019) investigated how government support programs (GSPs) influenced the relationships among the dimensions of EO (Giuggioli & Pellegrini) and performance within agro-based small- and medium-sized enterprises (SMEs) in a developing economy. By analyzing the impact of GSPs on EO dimensions and their subsequent effect on the performance of agro-based SMEs, the study aims to provide valuable insights into the role of government support in fostering entrepreneurial activities and enhancing the overall performance of SMEs in the agriculture sector. Similarly, Khattak and Shah (2021) worked on the association between the traditional theory of EO and SMEs efficiency is affected by the moderator: Government financial incentives in Pakistan’s perspective. However, the study of Khattak and Shah (2021) failed to include government financial incentives as a moderator in the relationship between the three dimensions of EO (autonomy, competitive aggressiveness, and competitive energy) as well as government non-financial incentives as moderator on the EO’s six dimensions (innovativeness, risk-taking, proactiveness competitive aggressiveness, autonomy and competitive energy and SMEs efficiency. Moreover, the focus remained on the macroeconomic indicators. It implies that there is still limited knowledge available about how the government financial and non-financial incentives affect the SMEs efficiency based on the primary level data collected. In addition, using the Structural Equation Modeling (SEM) quantitatively assesses the strength and significance of relationships between variables. This allows researchers to determine the magnitude of the effects of variables on each other, providing more robust and objective results. SEM empowers researchers to explore mediation and moderation effects, facilitating a more profound understanding of the underlying mechanisms and conditional relationships among variables (Tajeddini & Mueller, 2019).

This study addresses critical gaps identified in previous research. First, prior studies overlooked incorporating the government financial incentives as a moderator over the association of three dimensions: autonomy, competitive aggressiveness and competitive energy of entrepreneurial orientation and SMEs efficiency. Second, the influence of the government’s non-financial incentives as a moderator on the six dimensions of EO and SMEs efficiency has been overlooked. As a result, there is a lack of understanding of how these six dimensions of EO influence SMEs efficiency when considering government financial and non-financial incentives as moderating variables. This study aims to bridge these gaps by focusing on the context of Pakistan. Our objectives are twofold: firstly, to investigate the direct impact of EO’s dimensions on SMEs efficiency, and secondly, to explore the impact of EO on SMEs efficiency with government incentives, including both financial and non-financial, as moderators. This approach fills a significant gap in the existing literature and offers novel insights by highlighting the critical role government incentives play in enhancing SME efficiency through EO. The importance of this research lies in its potential to guide policymakers, business leaders, and entrepreneurs toward more effective incentive designs that promote SME productivity and success, thereby contributing significantly to the field. By providing a nicety understanding of these dynamics within Pakistan’s emerging market context, the study sets a foundation for future research and offers valuable implications for practicing managers in SMEs with an entrepreneurial orientation. This comprehensive investigation aims to enrich the knowledge surrounding EO, government incentives, and SME efficiency, significantly contributing to academic research and practical applications in the field.

The rest of the research article is organized as follows: Section 2 provides the theoretical foundation, explaining key concepts and theories supporting the research phenomenon. Section 3 presents the research hypotheses established based on existing literature. In section 4, we outline our research design, covering aspects like the sample, data collection, variables, measurements, and tools for data analysis. Section 5 presents the empirical findings and engages in discussions. The last part of the research encompasses the conclusion and implications, which summarize the findings, discuss their implications, acknowledge limitations, and suggest directions for future research.

Theoretical Foundation

Concept Definition

SMEs Efficiency

SMEs efficiency refers to using minimum input to earn maximum output (Khattak & Shah, 2021). Commonly, efficiency and performance in the business world are regarded as incredibly alike; however, they are slightly distinct from one another (Khattak & Shah, 2021). For paradigm, to know about the financial performance, managers are inquired regarding falling or boosting their profitability, sales, as well as returns over assets, investments, and equity (Songling et al., 2018). To understand the efficiency of SMEs, managers are asked how firms use the least amount of resources to acquire the highest yields in terms of profit, sales, and returns (Khattak & Shah, 2020).

Entrepreneurial Orientation’s Dimensions

Entrepreneurial orientation is regarded as a firm-level approach that encompasses an organization’s decision-making, strategy-building practices, and strategic behavior entrepreneurially (Wales, 2016). Thus, entrepreneurial orientation is a firm-level decision-making propensity toward entrepreneurial activities (Covin & Wales, 2012). Miller (1983) has recognized three dimensions of entrepreneurial orientation: innovativeness, risk-taking, and proactiveness. Innovativeness is the capability to sustain novel business ideas, practices, and creativity in forming a product (Gupta & Wales, 2017). It involves the innovative R & D process to develop new products, services and technology (Hwang et al., 2020). Risk-taking involves greater risk-oriented business activities through the probability of higher profit and making sound financial decisions in an unfavorable and risky business environment (Lomberg et al., 2017). Risk-taking refers to the behavioral aspects of entrepreneurship. It can also be described as a firm having an entrepreneurial culture, making decisions and taking actions based on non-sufficient information (Hossain & Azmi, 2020). Proactiveness involves forecasting and finding novel opportunities to counter future market orders and initiating novel products and technologies in front of competitive opponents (W. Chen & Wang, 2020). It refers to analyzing and interpreting marketplace trends and events and properly adopting their novel product according to identified variations expected to rise soon (Khattak & Shah, 2021).

Lumpkin and Dess (1996) identified two additional dimensions: competitive aggressiveness and autonomy. Competitive aggressiveness is the reaction of enterprises to acquire competitive benefits in the marketplace (Shah & Ahmad, 2019). Autonomy refers to the sovereign individual’s actions and teams bringing visions and realizing them to an end (Lumpkin & Dess, 1996). Autonomous behavior is usually identified at the individual level and in project teams (Martens et al., 2018). This refers to actions taken that are sovereign from organizational constraints. Soriano et al. (2012) added another dimension to entrepreneurial orientation: competitive energy. Furthermore, the main features of competitive energy are aggressive position and hard work to overcome competitive opponents’ plans and actions (Shah & Ahmad, 2019). This refers to the concentration and exertion of business ventures to prevail over their competitors in the marketplace and is featured by a competitive posture and a dynamic counter to rivals’ actions (Soriano et al., 2012).

Government Financial Incentives

The government financial incentives refer to the financial funds and assistance afforded by the federal and provincial governments that assist the operational performance of SMEs (Khattak & Shah, 2021). The finance-oriented incentives the state administration offers include discounted development fees, tax-discounted incentives, loans at discounted interest rates, and rebates (Diyana & Abidin, 2013). The government incentives program helps eliminate the financial stress and non-financial issues that carry on their operations and amplifies the entrepreneurial skills of SMEs (Nakku et al., 2020). It is found that government financial incentives improved Chinese firms’ performance in Germany (Holtbrügge & Berning, 2018). It also significantly influenced enterprises’ productivity and efficiency (Z. Chen et al., 2019).

Government Non-Financial Incentives

The non-financial incentives provided by the government include human resource trainings, industrial infrastructure and facilities, technology advancement and capabilities, skill development, and organizational newness (Sharifuddin & Aziz, 2019). Non-financial support refers to the ability to organize programs like schooling on entrepreneurship, training seminars, market research information, business counseling windows, and arranging trade expos and missions for SMEs (Pergelova & Angulo-Ruiz, 2014).

Theory Support

Resource-Based View Theory

The resource-based view theory (RBV) supports this research phenomenon. This theory explains the vital function of both tangible and intangible resources for superior performance and profit of SMEs (Khattak & Shah, 2021). Tangible resources refer to physical resources, containing finances and technology, while intangible resources are non-physical, containing human capital and accumulated organizational knowledge. Yin and Yu (2022) highlighted that when individuals or organizations engage in scientific knowledge search related to environmentally friendly practices (green knowledge), it leads to the creation of exploitative digital green knowledge. The management of financial and non-financial resources by the firm’s managers is explained within the framework of the resource-based view theory (Okeyo et al., 2016). The resource-based view theory, along with these arguments, regards a firm’s resources as a basic aspect in the presence of entrepreneurial motions (Shah & Ahmad, 2019). The RBV theory proposes that internal and external resources have a significant impact on performance (Barney, 1991). In this study, using the concept of RBV theory, the researchers take six dimensions of entrepreneurial orientation, government non-financial incentives as intangible resources, and government financial incentives like tangible resources that boost SMEs efficiency.

Research Hypothesis

Direct Impact of EO’s Dimensions

Direct Impact of Innovativeness

Khattak and Shah (2021) indicated that the innovativeness propensity of EO with SMEs efficiency is positively and significantly related. From Pakistan’s perspective, Shah et al. (2023) concluded that novelty in the product and services leads to a perfect differentiation strategy which is positively and significantly associated with SMEs performance. Wang et al. (2020) explored in their empirical analysis that innovativeness has a direct and enormous impact on the efficiency and profitability of SMEs. Brimah (2020) found that EO’s innovativeness is related to efficiency, growth, and profitability. Sankowska (2016) found that innovativeness improves SMEs efficiency, leading to higher profits than their competitors. However, some authors evaluated the connection of innovativeness propensity with financial performance as affirmative but non-significant. Shah and Ahmad (2019) found that innovativeness is non-significantly associated with SMEs financial performance. Similarly, Jin et al. (2018) stated that innovativeness has a positive but insignificant influence on the SMEs financial performance. From the above literature review, the following hypothesis has been developed:

H₁: Innovativeness has an affirmative and significant association with SMEs efficiency.

Direct Impact of Risk-Taking on SMEs Efficiency

The general idea about risk-taking and SMEs efficiency is that the greater the risk-taking capacity of SMEs, the superior will be the SMEs competence and efficiency (Khattak & Shah, 2021). Brimah (2020) evaluated that the linkage between risk-taking and SMEs efficiency is affirmative and significant. Entrepreneurs with high risk-taking behavior will improve the firm’s efficiency more than those who take a low risk (Ibrahim & Abu, 2020). Anwar and Shah (2021) explored risk-taking’s affirmative and significant relationship with SME performance. Similarly, Jin et al. (2018) evaluated an affirmative and significant impact of risk-taking on SMEs performance.

However, some studies reported that risk-taking, efficiency, and financial performance are insignificantly associated. Khattak and Shah (2021) developed a relationship between the traditional theory of entrepreneurship and SMEs efficiency and found that risk-taking slightly influences SMEs efficiency. Similarly, other studies found that the linkage of risk-taking with a firm’s performance is insignificant in Malaysia (Loong Lee et al., 2019). Some studies explored the negative association between risk-taking and financial performance (Rezaei & Ortt, 2018). Furthermore, a study in the transition economy found that risk-taking and firm performance association are non-significant (Luu & Ngo, 2019). Here, we hypothesize that:

H₂: Risk-taking has an affirmative and significant association with SMEs efficiency.

Direct Impact of Proactiveness on SMEs Efficiency

The study conducted by Brimah (2020) concluded that proactiveness had a direct and significant impact on SMEs efficiency. Similarly, Shah et al. (2023) concluded that proactiveness was a positive and significant predictor of SMEs performance. Proactiveness improves the firm’s performance (Yang & Meyer, 2019) and gains competitive benefits to get new opportunities (Okangi, 2019). The above literature indicates that proactiveness and SMEs efficiency are positively and significantly associated. From the above literature review, the following hypothesis has been developed:

H₃: Proactiveness has an affirmative and significant association with SMEs efficiency.

Direct Impact of Competitive Aggressiveness on SMEs Efficiency

Brimah (2020) concluded that competitive aggressiveness is affirmatively and significantly related to the banking sector’s efficiency. Martens et al. (2018) identified that competitive aggressiveness has an affirmative and significant influence on the efficiency of the project, which is necessary for the project’s success. On the other hand, Shah and Ahmad (2019), who explored the association between the modern theory of entrepreneurial orientation and SMEs financial performance in Pakistan, pointed out that entrepreneur competitive aggressiveness has an affirmative but minor impact on SMEs financial performance. The above discussion shows an affirmative and significant association between competitive aggressiveness and SMEs efficiency. Based on the discussion, it is hypothesized that:

H₄: Competitive aggressiveness has an affirmative and significant association with SMEs efficiency

Direct Impact of Autonomy on SMEs Efficiency

Some studies explored that autonomy is affirmatively and significantly related to SMEs efficiency. Martens et al. (2018) explored the connection of five dimensions of entrepreneurial orientation with project success, finding that autonomy and project success are affirmatively and significantly associated. A study by Maldonado-Guzman et al. (2017) found that autonomy had a direct and affirmative influence over financial performance. While others concluded that autonomy was insignificantly related to firms’ financial performance and efficiency (Dzulkarnain et al., 2014). Brimah (2020) stated that the association between autonomy and efficiency is positive but insignificant. Similarly, Shah and Ahmad (2019) found in their study that autonomy and SMEs financial performance are insignificantly and positively associated. Based on the above discussion, autonomy has a significant positive association with SMEs efficiency. From the above literature review, the following hypothesis has been developed:

H₅: Autonomy has an affirmative and significant association with SMEs efficiency.

Direct Impact of Competitive Energy on SMEs Efficiency

The scholars who recognized the sixth dimension of entrepreneurial orientation are Soriano et al. (2012) and Mason et al. (2015), who concluded that competitive energy positively and significantly influenced the firm’s performance. Shah and Ahmad (2019) found that the linkage between competitive energy and SMEs performance was affirmative but insignificant. The previous literature pointed out that competitive energy and SME efficiency are positively associated. From the above literature review, the following hypothesis has been developed:

H₆: Competitive energy has an affirmative and significant association with SMEs efficiency.

Moderating Impact

Moderating Impact of Government Financial Incentives

GFI on Innovativeness and SMEs efficiency: In China’s emerging economy, various studies explored the influence of entrepreneurial orientation over financial performance, which should be moderated by government financial incentives (Shu et al., 2019). According to Shu et al. (2019), all business activities related to innovativeness affected the firm’s efficiency because of the government’s deficient financial support. Khattak and Shah (2021) explored that government financial incentives as a moderator have an affirmative but insignificant influence over innovativeness and SMEs efficiency connection in the context of Pakistan. The above discussion identified that government financial incentives have an affirmative and significant influence over innovativeness and SMEs efficiency, so the following hypothesis was developed.

H₇: Government financial incentives positively moderate the association between innovativeness and SMEs efficiency.

GFI on risk-taking and SMEs efficiency: Khattak and Shah (2021) explored that the presence of government financial incentives as a moderating agent has affirmatively and significantly enhanced the link of risk-taking with SMEs efficiency in the context of Pakistan. In the case of risk-taking, firms may take the risk for more profitable projects in the presence of efficient financial support (Shu et al., 2019). They cannot take higher risks due to the lack of financial support, which shows the firm’s lower efficiency. The financial grants provided by the government assist SMEs in meeting the capital and liquidity that are necessary for high-risk investments (Begenau, 2020). Therefore, it can be concluded that government financial incentives have affirmatively and significantly moderated the association of risk-taking and SMEs efficiency in the emerging market. So, considering the above discussion, the following hypothesis was established.

H₈: Government financial incentives positively moderate the association between risk-taking and SMEs efficiency.

GFI on proactiveness and SMEs efficiency: Government financial support may also affect Proactiveness and efficiency association. Khattak and Shah (2021) explored that the presence of government financial incentives as a moderating agent has affirmatively and significantly enhanced the link of proactiveness with SMEs efficiency in the context of Pakistan. SMEs managers often miss important opportunities because they have limited financial resources (Khattak & Hassan, 2019); therefore, proper financial resources are vital for utilizing opportunities before their competitors in the dynamic market (Khan et al., 2019). From the above literature, it was identified that government financial incentives have affirmative and significant association with proactiveness and SMEs efficiency in the context of Pakistan.

H₉: Government financial incentives positively moderate the association between proactiveness and SMEs efficiency.

GFI on competitive aggressiveness and SMEs efficiency: Firms can employ a competitive strategy for expanding their business in new foreign markets if the government financial support program is available (Boso et al., 2016). On the other aspect, Nakku et al. (2020) concluded that the government financial support program has negatively moderated the association between competitive aggressiveness and SMEs financial performance. Financial support makes it possible to successfully implement aggressive and competitive practices among SMEs in Turkey (Bayraktar et al., 2009). From the previous literature, it was identified that government financial incentives have an affirmative and significant influence over the association of competitive aggressiveness and SMEs efficiency. So, in light of the above discussion, the following hypothesis was established.

H₁₀: Government financial incentives positively moderate the association between competitive aggressiveness and SMEs efficiency.

GFI on autonomy and SMEs efficiency: According to Doh and Kim (2014), through financial support, autonomous initiative has significant as well as affirmative moderated influence over the performance of firms. Rupeika-Apoga and Danovi (2015) revealed that those SMEs with the elevated intensity of sovereignty are more expected to be capable of boosting their performance if they use financial support provided by government programs. On the other aspect, Nakku et al. (2020) concluded that the government financial support program has negatively moderated the association between autonomy and SMEs financial performance. From the literature, it was explored that government financial incentives have an affirmative and significant impact on the association of autonomy and SMEs efficiency. Thus, the following hypothesis was established in light of the above discussion.

H₁₁: Government financial incentives positively moderate the association between autonomy and SMEs efficiency.

GFI on competitive energy and SMEs efficiency: The earlier literature revealed that Khattak and Shah (2021) government financial support strengthens the association between the five EO’s dimensions and the firm’s performance. Thus, government financial incentives were expected to strengthen the relationship between competitive energy and SMEs efficiency. From the above discussion, the following hypothesis has been developed.

H₁₂: Government financial incentives positively moderate the association between competitive energy and SMEs efficiency.

Moderating Impact of Government Non-Financial Incentives

GNFI on Innovativeness and SMEs efficiency: Entrepreneurs can enhance SMEs performance by utilizing the non-financial support and incentives offered by the government (Nakku et al., 2020). Non-financial incentives from the government, similar to financial ones, are essential for enhancing the efficiency of SMEs (Figure 1). The majority of women entrepreneurs operate their business activities conventionally; therefore, the government of Pakistan makes efforts to assist women entrepreneurs by adopting digital technology in business (Hussain et al., 2023). In coordination with the universities on product innovation and online training, the government has improved the SMEs performance (Noya et al., 2023). The government and higher authorities provide entrepreneurial education opportunities, including seminars, exposure and business practices to build innovative entrepreneurship, leading to better economic efficiency and development (Ramadani et al., 2022). Firm managers can build the managerial skillfulness needed to form the latest product novel product to target the marketplace segment by taking training seminars and business advisory services (Børing, 2017). Training is essential to creativity, improving the firm’s innovativeness (Birdi, 2016). The government non-financial support has affirmatively and significantly moderated the association between innovativeness and financial performance (Nakku et al., 2020). In the light of the above discussion, the following hypothesis was established.

H₁₃: Government non-financial incentives positively moderate the association between innovativeness and SMEs efficiency.

Figure 1.

Theoretical model.

GNFI on risk-taking and SMEs efficiency:Nakku et al. (2020) suggested that government non-financial support has affirmatively and significantly moderated the association between risk-taking and financial performance. The non-financial support program constructs the business ability and builds up the risk management efficiency of entrepreneurs (Miles et al., 2017). A proper training program assists the employee in the firm and develops their capability to combat the new challenges, risks and issues of the organization (Saeidi et al., 2021). From the previous literature, it was identified that government non-financial incentives have affirmatively and significantly affected the relationship between risk-taking and SMEs efficiency in the context of Pakistan. Hence, the following hypothesis was established in light of the above discussion.

H₁₄: Government non-financial incentives positively moderate the association between risk-taking and SMEs efficiency.

GNFI on proactiveness and SMEs efficiency: Government non-financial support has positively and significantly influenced the relationship between proactiveness and financial performance (Nakku et al., 2020). The SMEs who improved their skills and techniques through non-financial support may also be revealed to be more opportunity-driven aspects of entrepreneurship (Naldi et al., 2015). A training program can improve a firm’s proactiveness capability (Strauss & Parker, 2018). From the previous literature, it was revealed that government non-financial incentives have affirmatively and significantly strengthened the association between proactiveness and SMEs efficiency in the context of Pakistan. Therefore, the following hypothesis was established in light of the above discussion.

H₁₅: Government non-financial incentives positively moderate the association between proactiveness and SMEs efficiency.

GNFI on competitive aggressiveness and SMEs efficiency: According to (Nakku et al., 2020), government non-financial support programs enhanced the interlink of competitive aggressiveness and financial performance. The competitive behavior may be improved by utilizing the abilities developed by the non-financial support program (Rotger et al., 2012). The operational competency of firms can be advanced by utilizing the additional information provided by industry and commerce advisors to establish a rapid response to aggressive behavior. So, in light of the above discussion, the following hypothesis has been established.

H₁₆: Government non-financial incentives positively moderate the association between competitive aggressiveness and SMEs efficiency.

GNFI on autonomy and SMEs efficiency: SMEs can enhance their competitive position by engaging in sovereign actions and taking advantage of opportunities by actively participating in non-financial support programs (Grande et al., 2011). Similarly, non-financial support provides a high level of autonomy (Pratono, 2018). According to (Nakku et al., 2020), government non-financial support programs have a negative and non-significant influence on the autonomy and long-term financial performance association. In light of the above, the following hypothesis was established.

H₁₇: Government non-financial incentives positively moderate the association between autonomy and SMEs efficiency.

GNFI on competitive energy and SMEs efficiency: The government’s non-financial support strengthens the association between the five dimensions of entrepreneurial orientation and the firm’s performance. So, government non-financial incentives were predicted to strengthen the relationship between competitive energy and SMEs efficiency. Therefore, the following hypotheses have been developed.

H₁₈: Government non-financial incentives positively moderate the association between competitive energy and SMEs efficiency.

Research Design

Samples and Data Collection

A survey was organized to collect the primary data from the SMEs sector of Pakistan. In the context of Pakistan, an enterprise with an employment capacity of 20 to 250 was regarded as a Small and Medium Enterprise. SMEs provide a business environment with an entrepreneurial-oriented culture (Asemokha et al., 2019). Therefore, the respondents in this research were top-level managers of SMEs because they have sufficient information and experience in managerial activities. Yamane (1967) presented a statistical formula to compute the sample size for research investigation, which has been widely used by several studies (Ullah et al., 2021; Yaseen, Saqib et al., 2023; Zulfiqar et al., 2021). The research employed the Yamane formula to calculate the sample size. The confidence level is 95%, and the error term is 5% (Yaseen, Ahmad et al., 2023). The total sample size for the study was 400 respondents who were SMEs top-level managers with enough information and experience in business and entrepreneurial activities (Rahman, Tabash et al., 2022). The executive managers’ responses to accept or deny the study’s hypothesis were collected through a questionnaire. Therefore, for data collection, six hundred questionnaires were distributed in the SMEs of Peshawar, Islamabad, and Rawalpindi (200 per city) using convenient sampling, and four hundred and twelve responses were received. Convenient sampling was used because the complete firms were not available and due to the shortage of time. Peshawar, Islamabad and Rawalpindi SMEs were selected for the data collection because their head offices are in their economic zones.

Variables and Measurements

The definition of entrepreneurial orientation was not specific because of their dimensions: proactiveness, innovativeness, and risk-taking (Khattak & Shah, 2021; Miller, 1983). Some studies considered five dimensions and added two new dimensions to EO: autonomy and competitive aggressiveness (Lumpkin & Dess, 1996; Soriano et al., 2012). Some researchers considered that competitive energy was the sixth dimension of entrepreneurial orientation (Alhajeri, 2012; Shah & Ahmad, 2019; Ramadani et al., 2022). In this study, six dimensions of entrepreneurial orientation were taken to advance our understanding, as used by one study mentioned in Table 1 (Shah & Ahmad, 2019). The items related to innovativeness, risk-taking, proactiveness, competitive aggressiveness, autonomy, and competitive energy were adopted from Khattak and Shah (2021), Li et al. (2021), and Nakku et al. (2020). Government financial incentives refer to the financial resources provided by the government to utilize for the operational purposes of SMEs. For the measurement of government financial incentives, four questions were utilized, which were used by Songling et al. (2018). Government non-financial incentives refer to the non-financial resources that the government provides. There was a total of seven questions regarding non-financial incentives. In addition, the items related to government non-financial incentives were adopted (Nakku et al., 2020). Efficiency means that at low cost, the firm can achieve higher yields in terms of profit, sales, and return. Six items were adopted to measure SMEs efficiency (Khattak & Shah, 2021). The efficiency and performance are slightly different terms. Most studies explored the EO and performance relationship, while few studies are available on the EO and SMEs efficiency. The items of each variable and there are given below.

Table 1.

Study Variables.

Variables’ items		Source
Innovativeness
INNO1	My firm frequently tries out new ideas.	Khattak and Shah (2021)
INNO2	My firm is creative in its methods of operation.
INNO3	My firm seeks out new ways to do things.
INNO4	My firm’s emphasis on developing new products.
INNO5	My firm’s is spending on new product development activities.
INNO6	My firm invests in the development of proprietary technologies.
Risk taking
RT1	Relative to our competitors, my firm has higher propensity to take risks.	Khattak and Shah (2021)
RT2	My firm has shown a great deal of tolerance for high-risk projects.
RT3	In general, we have bold, aggressive posture in order to maximize the probability of exploiting potential when faced with uncertainty.
RT4	Most people in my firm are willing to take risks.
RT5	My firm supports many small and experimental projects realizing that some will undoubtedly fail.
RT6	The term “risk taker” is considered a positive attribute for me.
RT7	We encourage to take calculated risks with new ideas around here.
Pro-activeness
PRO1	We typically initiate actions to which competitors then respond.	Khattak and Shah (2021)
PRO2	In dealing with its competitors, my firm has a strong tendency to be ahead of other competitors in introducing novel idea or products.
PRO3	Is very often the first firm to introduce new products/services operating technologies, etc.
PRO4	My firm shapes the environment by introducing new products, technologies, administrative techniques than merely react.
PRO5	We take the lead before competitors follow
PRO6	Our firm is not overwhelmed by new circumstances
Competitive aggressiveness
CA1	In our firm, we initiate market actions to which competitors respond.	Nakku et al. (2020)
CA2	In our firm, we enhance our competitive position by taking lead steps to achieve competitive goals in target markets.
CA3	In our firm, we react to competitors’ actions with wide-ranging actions that are necessary to achieve the firm’s objectives.
CA4	We inspire the practice of “undo-the-competitor” attitude	Li et al. (2021)
CA5	We encourage taking advantage of our competitor’s weakness.
CA6	Our firm is ready to be unconventional rather than rely on traditional methods of competing.
Autonomy
AU1	In our firm, we encourage employees in our firm to act independently to carry out business ideas from beginning to completion.	Nakku et al. (2020)
AU2	In our firm, employees have access to all vital information needed to carry out their tasks.
AU3	In our firm, employees are given freedom and independence to decide on their own on how to go about doing their tasks.
AU4	The manager or owner of this firm upholds strong dominant authority.	Li et al. (2021)
AU5	We inspire employees to make decision in innovation.
AU6	Our firm grants little freedom for both individuals and teamwork
Competitive energy
CE1	Attitude of the staff: greater personal commitment.	(Soriano et al. (2012))
CE2	Attitude of the staff: dedication to tasks
CE3	Attitude of the staff: working overtime
CE4	Attitude of the staff: working on weekends and holidays
Government financial incentives
GFI1	Our government provides sufficient debt funding to growing firms	Khattak and Shah (2021), Soriano et al. (2012)
GFI2	In my country, there are sufficient government subsidies for growing firms
GFI3	We access sufficient government funding available from private individuals (other than founders) and businesses
GFI4	The government encourages venture capitalist funding to provide finance to growing enterprises
Government non-financial incentives
GNFI1	There are potential agents and distributors in international markets to facilitate our business operations.	Nakku et al. (2020)
GNFI2	The Microfinance policy supports my firm’s business operations.
GNFI3	The SMEDA policy objectives are relevant to my firm’s business operations.
GNFI4	My firm utilizes the one-stop business advice center services provided by SMEDA.
GNFI5	Employees in my firm regularly attend export training seminars on E-commerce.
GNFI6	There is adequate non-financial assistance in Pakistan to aid SMEs.
GNFI7	This firm utilizes services from a local trade advisor.
SMEs efficiency
EFF1	Reaching the venture financial goals	Khattak and Shah (2021)
EFF2	The venture margin
EFF3	Market growth
EFF4	Return on assets (ROA)
EFF5	Return on sales
EFF6	Return on investment

Source. Literature review.

A 5-point Likert scale was used to assess the factors. The executive managers were requested to pick only one point among five points from 1 to 5 (where 1 denotes “Strongly Disagree” and 5 denotes “Strongly Agree”). However, SMEs efficiency was measured on a scale of 1 to 5 (where 1 denotes “Extremely decline” and 5 denotes “Extremely improved”).

Data Analysis Tools

A structural equation model was employed to confirm the research hypotheses through STATA version 12, as this technique was also used by Shah and Ahmad (2019). It has the ability to test complex associations among variables and test a set of hypotheses (West et al., 2023). In this model, EO’s dimensions were explanatory variables, government financial and non-financial incentives were moderators, and SMEs efficiency was explained variable. Cronbach’s alpha was calculated using SPSS version-26 to confirm the reliability of each variable’s items used in the questionnaire.

Empirical Findings and Discussion

Reliability and Validity Test of the Questionnaire

Table 2 of descriptive indicates the smallest mean value was 3.469 for government financial incentives, and the highest value was 4.264 for competitive aggressiveness. While standard deviation values range from minimum value = 0.586 for proactiveness and maximum value = 1.248 for government financial incentives. Moreover, it has been reported that skewness and kurtosis values come in the acceptable reign (+2 and −2), which authenticate the assumption of normality. Variance Inflation factors (VIF < 10) indicate no multicollinearity problem exists between explanatory variables. The reliability value of innovativeness is 0.838, risk-taking is 0.853, proactiveness is 0.759, competitive aggressiveness is 0.815, autonomy is 0.724, competitive energy is 0.804, government financial incentives is 0.889, government non-financial incentives is 0.876, low-cost strategy is 0.888, and SMEs efficiency is 0.930, confirming that data for each variable are highly reliable (Dong et al., 2023; Table 1).

Table 2.

Descriptive Statistics.

Variables	VIF	Mean	SD	Skewness	Kurtosis	α-value
Innovativeness	1.448	4.073	0.794	−0.553	−0.537	.838
Risk-taking	2.327	4.110	0.688	−0.839	0.040	.853
Pro-activeness	1.170	4.152	0.586	−0.888	0.168	.759
Competitive aggressiveness	2.582	4.264	0.700	−1.122	0.418	.815
Autonomy	1.688	4.235	0.714	−0.860	0.298	.724
Competitive energy	2.712	4.060	0.677	−0.950	0.231	.804
GFI	3.339	3.469	1.248	−0.610	−0.907	.889
GNFI	4.198	3.870	1.008	−0.791	−0.311	.876
SMEs efficiency	–	3.952	0.745	−0.792	0.192	.930

Source. Field survey, 2022.

Note. N = 412; GFI = government financial incentives; GNFI = government non-financial incentives.

Direct Impact of EO’s Dimensions on SMEs Efficiency

The hypotheses forecast that each EO’s dimensions are affirmatively and significantly linked with SMEs efficiency. To check the research investigation predictions, the structural equation model was tested through STATA, in which SMEs efficiency was explained variable while EO’s dimensions and Government incentives were explanatory variables (Figure 2). The findings reported in Table 3 indicated that innovativeness ( $β = 0.173, p = 0.000$ ), risk-taking ( $β = 0.211, p = 0.000$ ), and proactiveness $(β = 0.106, p = 0.014)$ were affirmative and significant influence over SMEs efficiency, so H₁, H₂ andH₃ were accepted. Autonomy $(β = - 0.282, p = 0.000)$ was significant but had a negative relationship with SMEs efficiency; thus, the H₅ was rejected. Competitive aggressiveness $(β = 0.059, p = 0.122) and$ competitive energy $(β = 0.060, p = 0.212)$ had non-significantly associated with SMEs efficiency; thus, H₄ and H₆ were denied. In addition, government financial incentives and non-financial incentives were affirmatively and significantly related to SMEs efficiency. The value of R-squared showed that 59.5% change in the dependent variable is due to the changes in independent variables (Table 3).

Table 3.

Regression Analysis.

Dependent variable		Independent variables	Beta estimate	Z-value	p-value	Confidence interval (95%)
EFF	←	INNO	0.173	4.95	.000	0.104↔0.242
EFF	←	RT	0.211	4.28	.000	0.114↔0.308
EFF	←	PRO	0.106	2.47	.014	0.022↔0.191
EFF	←	CA	0.059	1.55	.122	−0.015↔0.133
EFF	←	AU	−0.282	−6.74	.000	−0.364↔0.200
EFF	←	CE	0.060	1.25	.212	−0.034↔0.154
EFF	←	GFI	0.252	7.65	.000	0.187↔0.316
EFF	←	GNFI	0.167	4.33	.000	0.077↔0.257
					R-squared
					.595

Source. Field survey, 2022.

Note. N = 412; EFF=SME’s efficiency INNO=innovativeness, RT=risk taking PRO=pro-activeness, CA=competitive aggressiveness, AU=autonomy, CE=Competitive energy, GFI= government financial incentives &GNFI=government non-financial incentives.

Figure 2.

Regression analysis.

Moderator Analysis

Moderator Analysis of Government Financial Incentives

Results reported in Table 4 show that the interaction term of innovativeness and government financial incentives $(β = 0.023, p = 0.022$ ) has a significant and positive impact on SMEs efficiency; thus H₇ is accepted, which predicts that government financial incentives have a positive moderating impact on the connection of innovativeness and SMEs efficiency (Figure 3). The interaction term of risk-taking and government financial incentives $(β = 0.030, p = 0.018)$ , has a significant impact on SMEs efficiency. Hence, H₈ was accepted, which predicts that government financial incentives have strengthened the association between risk-taking and SMEs efficiency. Similarly, the interaction term of proactiveness and government financial Incentives $(β = 0.034, p = 0.014)$ was significant. Therefore, H₉ was accepted, which states that government financial incentives strengthened the linkage of proactiveness and SMEs efficiency. Furthermore, the interaction term of competitive aggressiveness and government financial incentives $(β = 0.062, p = 0.000)$ significantly and positively influenced the SMEs efficiency. Therefore, H₁₀ was accepted, which states that government financial incentives have strengthened the linkage of competitive aggressiveness and SMEs efficiency.

Table 4.

Regression Analysis with GFI as Moderator.

Dependent variable	Independent variable	Beta estimate	Z-value	p-value	Confidence interval (95%)
EFF	INNO	0.100	2.34	.019	0.016↔0.184
EFF	RT	0.064	1.05	.292	−0.055↔0.185
EFF	PRO	0.006	0.10	.919	−0.115↔0.128
EFF	CA	−0.044	−1,78	.433	−0.155↔0.066
EFF	AU	−0.069	−0.67	.501	−0.272↔0.133
EFF	CE	0.156	1.81	.070	−0.012↔0.326
EFF	GFI	0.039	0.31	.753	−0.205↔0.284
Interaction terms
EFF	INNO×GFI	0.023	2.29	.022	0.003↔0.044
EFF	RT×GFI	0.030	2.37	.018	0.005↔0.055
EFF	PRO×GFI	0.034	2.46	.014	0.006↔0.061
EFF	CA×GFI	0.062	4.32	.000	0.034↔0.091
EFF	AU×GFI	−0.053	−1.86	.063	−0.109↔0.002
EFF	CE×GFI	−0.021	−0.91	.362	−0.069↔0.025
R-squared
0.657

Source: Field survey, 2022.

Note. N = 412.

Figure 3.

Regression analysis with GFI as moderator.

The interaction term of autonomy and government financial incentives $(β = - 0.053, p = 0.063)$ has a non-significant and negative impact on the SMEs efficiency, so H₁₁ was rejected, which states that government financial incentives strengthened the linkage of autonomy and SMEs efficiency. Furthermore, government financial incentives significantly impacted on the association between competitive energy and SMEs efficiency, as indicated by the interaction term of competitive energy and government financial incentives $(β = - 0.021, p = 0.362)$ . Therefore, H₁₂ was rejected, which predicts that government financial incentives have strengthened the linkage of competitive energy and SMEs efficiency. The value of R-squared value indicated that the 65.7% change in the dependent variable is due to the changes in independent variables.

Moderator Analysis of Government Non-Financial Incentives

Results in Table 5 indicate the impact of the moderator on the association between explanatory variable and explained variables. The interaction term of innovativeness and government non-financial incentives $(β = 0.026, p = 0.006)$ has a significant and positive impact on the SMEs efficiency, so H₁₃ was accepted, which states that the connection of innovativeness with SMEs efficiency has strengthened by government non-financial incentives. The interaction term of risk-taking and government non-financial incentives $(β = 0.047, p = 0.000)$ is significantly and positively associated with SMEs efficiency, so H₁₄ was accepted, which states that the linkage of risk-taking and SMEs efficiency has strengthened with government non-financial incentives. The interaction term of proactiveness and government non-financial incentives $(β = 0.018, p = 0.043)$ has significantly and positively related with SMEs efficiency, so H₁₅ was accepted, which stated that government non-financial incentives strengthened the connection of proactiveness and SMEs efficiency (Figure 4). Similarly, the interaction term of competitive aggressiveness and government non-financial incentives $(β = 0.030, p = 0.049)$ is significantly and positively associated with SMEs efficiency, so H₁₆ was accepted, which predicted that government non-financial incentives strengthened the link between competitive aggressiveness and SMEs efficiency.

Table 5.

Regression Analysis with GNFI as Moderator.

Dependent variable	Independent variable	Beta estimate	Z-value	p-value	Confidence interval (95%)
EFF ←	INNO	0.075	1.73	.083	−0.009↔0.161
EFF ←	RT	−0.025	−0.44	.660	−0.138↔0.087
EFF ←	PRO	0.108	2.33	.020	0.017↔0.200
EFF ←	CA	0.192	3.21	.001	0.074↔0.309
EFF ←	AU	−0.212	−1.43	.154	−0.504↔0.079
EFF ←	CE	−0.085	−1.05	.293	−0.244↔0.073
EFF ←	GNFI	0.009	0.05	.958	−0.335↔0.353
Interaction terms
EFF ←	INNO×GNFI	0.026	2.74	.006	0.007↔0.044
EFF ←	RT×GNFI	0.047	4.04	.000	0.024↔0.069
EFF ←	PRO×GNFI	0.018	2.03	.043	0.000↔0.036
EFF ←	CA×GNFI	0.030	1.97	.049	0.000↔0.061
EFF ←	AU×GNFI	−0.023	−0.61	.539	−0.097↔0.050
EFF ←	CE×GNFI	0.003	0.19	.850	−0.034↔0.041
R-squared
0.662

Source. Field survey, 2022.

Note. N = 412.

Figure 4.

Regression analysis with GNFI as moderator.

The interaction term of autonomy and government non-financial incentives $(β = - 0.023, p = 0.539)$ has an insignificant and negative relationship with SMEs efficiency, so H₁₇ was rejected, which stated that government non-financial incentives positively moderated the association between autonomy and SMEs efficiency. Furthermore, the interaction term of competitive energy and government non-financial incentives was positive but insignificant $(β = 0.003, p = 0.850)$ , so H₁₈ was rejected, which stated that government non-financial incentives positively moderated the relationship between competitive energy and SMEs efficiency. The R-squared value indicated that 66.2% change is due to the changes in the independent variables.

Discussion

SMEs efficiency is a complicated and major problem for all top-level SMEs managers and the government. SMEs have a scarcity of funds, inadequacy of entrepreneurial skills, and insufficient employee proper training, resulting in high uncertainty. This insecurity makes the decision-making process more obscure than any other moment. In this fast-changing business atmosphere, it is challenging for SMEs to use their resources wisely and make well-informed managerial decisions by using all accessible information better than market rivals to maintain efficiency. In such a complex situation, entrepreneurial orientations and government financial and non-financial incentives are vital in managerial decisions to boost efficiency in SMEs.

The findings of this research investigation substantiate that SMEs with a prominent level of entrepreneurial orientation would have an optimal level of efficiency than those with a poor level of entrepreneurial orientation. However, each dimension of entrepreneurial orientation may not usually be suitable for SMEs efficiency. This finding is similar to the study by Khattak and Shah (2021), who reported that not all the dimensions of EO were favorable. The research study also provides the EO’s dimensions and SMEs efficiency with government financial and non-financial incentives as moderating variables.

Direct Impact of EO’s Dimensions on SMEs Efficiency

The empirical findings of this research investigation suggest that innovativeness has a significant and affirmative influence on SMEs efficiency. The result is consistent with the study by Khattak and Shah (2021), who reported an affirmative and significant association between the innovativeness and efficiency of SMEs. The basis of innovativeness is specific knowledge, skills, and experience (Wang & Wang, 2012), which implies that managers innovate work behavior in the workplace, idea generation, idea promotion, and idea realization to solve problems or promote a novel idea (Carmeli et al., 2013). The use of new technology in marketing may assist the entrepreneur in accessing potential customers and maximizing sales and customers (Mohd Ali et al., 2020). To enhance export performance SMEs managers need to produce innovative products and utilize new innovative production technologies and techniques (Ringo et al., 2023). The findings of this investigation confirm the dynamic theory that innovativeness has a dynamic ability that improves the operational and financial efficiency of SMEs.

The empirical analysis of this research investigation indicated that risk-taking had an affirmative and significant influence over SMEs efficiency. These empirical results are supported by Anwar and Shah (2021), who reported that risk-taking was significantly and positively linked with the efficiency of SMEs. A firm operating in uncertainty takes risks at a higher level than those operating in a stable environment to elevate its performance (Shafique & Saeed, 2020). The manager takes risks to exploit opportunities and differentiate their product and services, enhancing the firm’s performance (Hossain & Azmi, 2020). The risk-taking propensity of EO encourages managers to participate in the China-Pakistan Economic Corridor (CPEC; Shah et al., 2023). SMEs managers or owners take risks to obtain benefits from the export/ import arising from CPEC, leading to SMEs’ higher efficiency. If a business organization invests its resources in more risky opportunities, it can lead to the highest position in the market (Yazdanpanah et al., 2023).

The findings of this research indicated that EO’s proactiveness has an affirmative and significant influence over SMEs efficiency. The findings are in line with the results of Anwar and Shah (2021) and Khattak and Shah (2021), who explored that proactiveness has a significant and direct impact on SMEs performance and efficiency. Firms with proactive behavior strengthen their competitive position by finding consumer demands and new markets and charging higher prices on offering products and services (Jalali et al., 2014). Proactiveness refers to a tracking mechanism through which managers can detect opportunities and market changes (Maldonado-Guzman et al., 2017). The proactive nature of SMEs managers plays a significant role in their participation in the CPEC project (Shah et al., 2023), where the project generates numerous business opportunities (Kanwal et al., 2019). SMEs managers with a proactive nature have utilized the opportunities created by the CPEC project, which boosts the SMEs efficiency.

Competitive aggressiveness has a non-significant and positive relationship with SMEs efficiency. The results are supported by Shah and Ahmad (2019) and Dzulkarnain et al. (2014), who reported that there is an affirmative and non-significant influence of competitive aggressiveness over SMEs performance. The relationship between competitive aggressiveness and the performance of SMEs is controversial because some scholars stated that the influence of competitive aggressiveness has a significant and positive influence on firm’s performance (Mason et al., 2015), while others stated that it has a negative influence on firm’s performance (Musa et al., 2014). In the context of Pakistan, the majority of SMEs lack financial resources (Shah & Ahmad, 2019). Due to the shortage of financial resources, competitive aggressiveness had a non-significant influence on SMEs efficiency. Competitive aggressiveness does not notably impact encouraging SMEs to engage in the business opportunities emerging from CPEC (Shah et al., 2023).

The research results reported that autonomy has a significant and negative association with the efficiency of SMEs. The results are verified by Lechner and Gudmundsson (2014), who stated that autonomy was negatively associated with SMEs performance. The results of this study are also consistent with the findings reported by Uddin et al. (2014), who stated that autonomy and SMEs performance are negatively associated in such a way that the majority of small business enterprises whose employees’ skills and qualifications are not sufficient as well as at standard level as compared to large businesses, therefore they are not capable of treating the adverse situation appear every day in the organization. The limited skills and qualifications of SME managers often result in them making less effective financial and non-financial decisions independently, leading to reduced SME efficiency. SME managers frequently rely on government intervention to manage their businesses in the current complex business environment.

The results showed that competitive energy has a non-significant and positive relationship with the efficiency of SMEs. The findings are supported by Shah and Ahmad (2019), who reported that competitive energy was non-significantly associated with a firm’s performance. Competitive energy was insignificantly correlated with entrepreneurship (Augusto Felício et al., 2012), which means that this factor is less important in enhancing the efficiency of SMEs. The lack of significant impact from competitive energy, due to the COVID-19 pandemic, has led to a perception of job insecurity among SME employees. This perception negatively influences their attitudes and behaviors in the workplace (Camilleri, 2021). About 71% of SMEs either reduced their staff or working hours (Aftab et al., 2021). Therefore, due to such reasons of insecurity, competitive energy did not enhance SMEs efficiency.

Moderating Role of Government Financial Incentives

The results reported that government financial incentives have an affirmative and significant moderating influence over the association of innovativeness and efficiency of SMEs. The findings are in the line of investigation evaluated by Shu et al. (2019) and Nakku et al. (2020), who stated that government support affirmatively and significantly moderated the linkage between innovativeness and firm’s performance. The availability of public financial incentives assists SMEs’ managers in hiring Skilled R&D employees and formulating innovative ideas (Un & Montoro-Sanchez, 2010). The SMEs used the financial resources provided by the government to make innovations in product design, employed advanced technologies in the production process and hired skillful workers who had proper training on the use of technology such as automated machines and artificial intelligence, and such things can boost the efficiency of SMEs.

The findings of our study revealed that government financial incentives have a significant and positive moderating impact on the relationship between risk-taking and the efficiency of SMEs. These results are supported by Khattak and Shah (2021) and Shu et al. (2019), who reported that government financial support and incentives significantly strengthened the linkage between risk-taking and SMEs efficiency. Government financial incentives enable SMEs to accomplish the capital and liquidity requirements in purchasing instruments needed to invest in risky projects with higher returns (Begenau, 2020). SMEs managers with government financial incentives can take the risk to utilize the marketplace opportunities, which elevate the firm’s performance (Nakku et al., 2020). When the government provides SMEs managers with low-cost financial resources, they can take advantage of international trade opportunities arising from the CPEC project, ultimately leading to increased SMEs efficiency.

The results showed that government financial incentives have a significant and positive moderating impact on the association of proactiveness and efficiency of SMEs. The findings of this research are supported by Khattak and Shah (2021) and Shu et al. (2019), who stated in their research investigation that government financial support had a significant and positive moderating influence over the linkage of proactiveness and efficiency of SMEs. It indicates that the financial incentives provided by the government build up SMEs to proactively identify new opportunities in the market (Khattak & Shah, 2021). The government financial resources also helped SMEs managers to hire skillful employees to interpret and anticipate future trends in the market (Nakku et al., 2020). The provision of financial resources by the government empowers SMEs to proactively seize business and technological opportunities emerging from the CPEC project, gaining an early advantage over their competitors and ultimately enhancing the export efficiency of SMEs.

The findings also indicated that government financial incentives have an affirmative and significant moderating influence over the association of competitive aggressiveness and SMEs efficiency. The financial support provided by the government improves the competitive position in such a way that SMEs can take advantage of low costs by offering loans at low-interest rates (Gençtürk & Kotabe, 2001). With the help of financial support, SMEs managers can formulate and employ an aggressive competitive strategy to expand their business in the new international market (Boso et al., 2016). With the prominent financing provided by the government, SMEs managers design a competitive strategy for utilizing the export and import opportunities provided by the CPEC, which leads to higher efficiency.

The findings stated that government financial incentives have a non-significant and negative moderating impact on the association of autonomy and SMEs efficiency. The results are supported by Nakku et al. (2020), who explored that government financial support has weakened the linkage between autonomy and firm’s performance. These empirical results may be supported by the arguments that the government financial support may reduce sovereignty and amplify the reliance on SMEs (Diyana & Abidin, 2013). Additionally, the association between autonomy and SMEs performance may weaken from unfavorable criteria for providing loans (Odongo, 2014).

The results reported that government financial incentives have a non-significant moderating impact on the association of competitive energy and the efficiency of SMEs. Due to the COVID-19 pandemic, job security concerns have adversely impacted the attitudes of SMEs’ staff toward their work (Camilleri, 2021), reducing staff and working hours (Aftab et al., 2021). Therefore, Government financial incentives had a non-significant impact on competitive energy and SMEs efficiency.

Moderating Impact of Government Non-Financial Incentives

The results indicated that government non-financial incentives have an affirmative and significant moderating influence over the association of innovativeness and SMEs efficiency. The results of this research study are relevant to Nakku et al. (2020), who reported that government non-financial incentives significantly and positively moderated the connection between innovativeness and firm’s financial performance. Training plays a vital role in employees’ creativity, leading to higher firm innovativeness (Birdi, 2021). Entrepreneurship schooling also enables SMEs managers to acquire the creative skills necessary to bring newness to the product (Gundry et al., 2014). SMEs managers regularly participate in training workshops and business counseling services and can also gain innovative skills vital for developing the novel product (Børing, 2017). According to Dong et al. (2022), to enhance green competitiveness and boost profits successfully, photovoltaic building materials companies should opt for digital green innovation initiatives as their investment focus. The government initiates digital platforms to train entrepreneurs for digital business (Dana et al., 2022), such as the Khyber-Pakhtunkhwa IT Board, Punjab IT Board, and National Incubation Centers programs for digital/ online business (Hussain et al., 2023). The training of digitalization, such as Amazon, could enhance the innovative technological skills and techniques (online business activities on Amazon) of SMEs managers and workers, enhancing the efficiency of SMEs in Pakistan.

The results reported that government non-financial incentives have significantly and affirmatively enhanced the association between risk-taking and SMEs efficiency. The findings match the research’s evaluations of the investigation by Nakku et al. (2020), who noted that government non-financial support has significantly and affirmatively enhanced the linkage of risk-taking and firm performance. Non-financial support programs construct business capability and realistic capacity of entrepreneurial ability (Miles et al., 2017). Training programs construct the manager’s capacity by providing them with risk management skills to recognize, analyze, and evaluate risk, leading to higher risk tolerance (Clarke & Varma, 1999). Government policies to educate and train SMEs about e-commerce could build the risk management capacity of SMEs employees, leading to higher efficiency. Other factors when it comes to increasing their entrepreneurial intention, Bangladeshi female students’ subjective norms and their attitude toward entrepreneurship play a significant role (Rahman, Salamzadeh, & Tabash, 2022), the women’s low participation in entrepreneurship (Yousfani et al., 2019) and field of study and the student’s intention to participate in entrepreneurship in Iran (Salamzadeh et al., 2014). These factors are not discussed in this study and have a scope to be studied in the future.

The results explored that government non-financial incentives have significant and affirmative moderating influence over the connection between the proactiveness and efficiency of SMEs. The findings of this analysis are relevant to the empirical findings explored by Nakku et al. (2020), who reported that government non-financial support has an affirmative and significant moderating impact on the connection between proactiveness and financial performance of SMEs. The training program can encourage SMEs to give special attention to strategic initiatives (Mensmann & Frese, 2016) and advance the firm’s proactiveness (Strauss & Parker, 2018).

The results evaluated that government non-financial incentives have significant and affirmative moderating contributions over the link of competitive aggressiveness and SMEs efficiency. The findings are supported by the findings of Grande et al. (2011), who stated the competitive attitude of the firm may be boosted by utilizing abilities as well as opportunities through the involvement of non-financial support programs. SMEs enhanced their operational efficiency by utilizing additional knowledge given by the business counselors to interpret and establish quick response competitive actions (Rotger et al., 2012).

The findings showed that government non-financial incentives have a non-significant and negative moderating impact on the association of autonomy and SMEs efficiency. The results of this research investigation are consistent with Nakku et al. (2020), who stated that government non-financial support program has insignificant and inverse moderating influence over the connection between autonomy and SMEs financial performance. Autonomy is the main hindrance to the accomplishment of SMEs objectives if workers’ freedom of action is considered (Baba & Elumalai, 2011). Furthermore, the country’s restrictions also reduced entrepreneurial autonomy (Shah et al., 2023).

Government non-financial incentives have insignificant as well as affirmative moderating contributions over the connection of competitive energy and the efficiency of SMEs. Due to the COVID-19 pandemic, SMEs staff’s attitude toward work was severely affected by insecurity (Camilleri, 2021), reducing staff and working hours (Aftab et al., 2021). Therefore, competitive energy has a non-significant influence on SMEs efficiency, although the government provides non-financial incentives.

Conclusion and Implications

Conclusions

The primary objective of this investigation was to evaluate the impact of EO’s dimensions with the moderating role of government financial and non-financial incentives on SMEs efficiency. The findings proposed that EO’s dimensions, such as innovativeness, risk-taking, and proactiveness, have an affirmative and significant impact on SMEs efficiency, supporting the idea that SMEs with highly entrepreneurial-oriented managers lead to prominent efficiency. Moreover, autonomy has a negative and significant impact on SMEs efficiency, which alarmed the SMEs managers to not utilize entrepreneurial autonomy at a higher level, which may decline the SMEs efficiency. Whereas competitive aggressiveness and competitive energy have non-significant influence over SMEs efficiency, they are irrelevant to the notion of entire affirmative advantage as RBV theory states that business organizations could utilize entrepreneurial strategies. The findings of this research investigation proved that SMEs with a high entrepreneurial orientation led to higher efficiency. The results indicate that the government financial incentives have a significant and positive moderating influence on the connection between innovativeness and SMEs efficiency, risk-taking and SMEs efficiency, proactiveness and SMEs efficiency, and competitive aggressiveness and SMEs efficiency while having a non-significant negative effect on the linkage of autonomy and SMEs efficiency, and competitive energy and SMEs efficiency. The results also recommend that the government non-financial incentives have significant and affirmative moderating influence over the association between each EO’s dimensions of innovativeness, risk-taking, proactiveness, and competitiveness aggressiveness with the efficiency of SMEs in the context of Pakistan, while the non-significant negative impact on autonomy and SMEs efficiency. Furthermore, government non-financial incentives had an insignificant moderating positive influence over competitive energy and SMEs efficiency. This study marks the first exploration of the impact of autonomy, competitive aggressiveness, and competitive energy and the moderating role of non-financial government incentives on the six dimensions of entrepreneurial orientation and the efficiency of SMEs. This research makes a valuable contribution to the existing literature in this field. The findings of this research were also supported by the concept of resource-based view theory, which states that an organization needs both tangible and intangible resources to enhance financial performance. Similarly, entrepreneurial orientation and their dimensions with the moderating role of government financial and non-financial incentives have enhanced both the operational and financial efficiency of SMEs in the context of Pakistan.

Practical Implications

The study recommended the following suggestions for policymakers as well as managers of SMEs operating in developing countries.

SMEs managers should enhance efficiency by applying entrepreneurial skills.

The government should lower customs duties and offer trade subsidies to SMEs in international markets.

Provide financial support to SMEs in emerging economies to reduce new venture failure rates.

SMEDA and Chamber of Commerce should provide training for managers on cash management, innovation, and crisis management and conduct online seminars for employee skill development and E-commerce.

The government should train SME managers and employees in digital technology, E-commerce, and artificial intelligence to facilitate international business expansion.

Design financial incentives to enhance autonomy and competitive energy benefits for SMEs efficiency significantly.

Improve non-financial incentives to reduce the negative impacts of autonomy and magnify the positive impacts of competitive aggressive and competitive energy for SME efficiency.

Limitations and Future Research Prospects

The data could potentially be influenced by social desirability bias, wherein participants might offer responses they believe are socially acceptable rather than revealing their true behaviors and attitudes. This is a cross-sectional design; it may not establish a robust causal relationship between variables. Longitudinal studies or experiments could provide more robust causal inferences. Future researchers can collect data from the SMEs of other cities in Pakistan. We use government financial and non-financial incentives as a moderator between EO and SMEs efficiency. Future researchers can also investigate the moderating role of NGOs and INGOs, government virtual support, government pressure, etc. In this research, the dependent variable is SMEs efficiency; future research can investigate the relationship between EO’s dimensions and the Financial and operational efficiency of SMEs individually. Moreover, the adoption of cutting-edge digital technology has the potential to enhance the business landscape significantly. Digitalization becomes a pivotal factor by effectively lowering costs, fostering innovation, and expanding market reach. Therefore, digitalization technology can serve as a moderator or mediator between EO’s dimensions and SMEs efficiency in future research.

Footnotes

Acknowledgements

This research project is supported by the Second Century Fund (C2F), Chulalongkorn University, Thailand. The authors are also grateful to all study participants who spared their time to provide the necessary data and information.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Consent to Participate

All participants’ consent to participate in the study was obtained before the interview.

Consent for Publication

All participants were informed about the purpose of the study, its academic use, and its publication.

ORCID iDs

Supawan Visetnoi

Siti Amanah

Availability of Data and Materials

The data will be available upon reasonable request to the corresponding author by email.

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