Abstract
The ‘liability of smallness’ (representing deficiencies such as funding, knowledge, and networking) implies that the performance of small and medium-sized enterprises (SMEs) may benefit from strategies that help them to identify much-needed resources. Microlending institutions (including crowdfunding and microfinance) provide a range of non-financial resources (in addition to funding) to SMEs that engage with them. However, engagement with microlending institutions does not necessarily result in improved SME performance. Additional research is needed to determine strategies that may help SMEs effectively benefit from engaging with microlending institutions.
To address this subject, this research examines how SMEs can more effectively identify and utilise resources when engaging with microlending institutions. Specifically, this study examines the mediating effect of both exploitative and exploratory search on the relationship between crowdfunding/microfinance engagement and SME performance. To accomplish this, this study operationalises exploitative and exploratory search as dynamic capabilities. Primary data was collected regarding the search processes of 581 Ghanaian SMEs engaging in both crowdfunding and microfinance. Partial least squares structural equation modelling (PLS-SEM) was used to examine the predictive ability of exploitative and exploratory search in mediating the relationship between crowdfunding/microfinance engagement and SME performance. PLS-SEM results indicate that both exploitative and exploratory search mediate crowdfunding/microfinance engagement and SME performance. The results also show that firm size influences the impact of crowdfunding/microfinance engagement on SME performance through search.
A qualitative analysis of 144 comments from the sampled SMEs was conducted to better comprehend how SMEs use exploitative and exploratory search to address resource gaps during crowdfunding/microfinance engagement. The findings show that, when engaging with microlending institutions, SMEs look to purposefully strengthen relationships with key stakeholders and expand their networks, while seeking knowledge and expertise to address efficiency and expansion shortfalls. The qualitative findings support and extend the results of the quantitative analysis by identifying the constituents of the two forms of search during crowdfunding/microfinance engagement.
The contributions of this research include expanding the scope of the dynamic capabilities theory by demonstrating how exploitative and exploratory search constitute deliberate approaches to sensing-seizing-reconfiguration (the micro-foundations of dynamic capabilities), enabling SMEs to modify their resource base and enhance performance. This study shows that exploitative search, as a dynamic capability, helps identify, integrate, and (re)combine resources to develop, maintain, or modify existing business models, procedures, structures, products, and services. Similarly, exploratory search facilitates the identification, integration, and (re)combination of novel opportunities, resources, assets, knowledge, and innovation to better achieve organisational goals. The findings demonstrate that exploitative and exploratory search, as dynamic capabilities, enhance strategic alignment between a firm’s capabilities and its external environment to adapt to changing markets.
Additionally, this study contributes to the strategic entrepreneurship literature by demonstrating the strength of both exploitative and exploratory search’s direct effects on SME performance and shows how these effects are contingent on firm size. The findings establish that when exploitative and exploratory search are used based on firm goals and needs, crowdfunding/microfinance engagement can result in improved performance. Deepening this contribution, this study differentiates between the two forms of microlending by determining that exploitative and exploratory search partially mediate crowdfunding engagement and SME performance, but fully mediate the microfinance engagement and SME performance relationship.
Practical implications include recommendations that SMEs maintain close ties with crowdfunding platforms and microfinance institutions (MFIs) to seek out opportunities they can tailor to their specific business requirements. This study demonstrates that SMEs benefit more from exploitative and exploratory search when seeking strategies to address customer demands and internal business processes, technologies, and capabilities. Furthermore, this research adds to the larger policy discussion on how crowdfunding platforms and MFIs can be used to enhance SME performance. In conclusion, this study urges a rethinking of financial institutions’ roles beyond merely offering funding.