Composition-based strategy and firm's performance: the mediating role of competitive advantage

Abstract

The resource-based view (RBV) has been the dominant strategic perspective to study the growth of firms. However, few believe that RBV is more suited for large organisations as its central tenants are not aligned with the characteristics of small firms. Thus, a composition-based view (CBV) is an alternative perspective to studying the survival and growth of small and medium enterprises in emerging economies. Very little empirical work has been done using this strategic perspective. This paper attempts to test the central propositions of CBV by developing a causal mechanism that links composition-based strategy with a firm's performance through competitive advantage. For this purpose, data were collected from 150 owners/managers of different retail stores located in Lahore, Pakistan. Findings indicate that composition-based strategy is positively and significantly related to both firm's performance and competitive advantage. Moreover, competitive advantage mediates the underlying relationship between composition-based strategy and the performance of firms. These results provide interesting insight to both academics and managers. Academics may further explore composition-based strategy as a determinant of competitive advantage and firm's performance. Similarly, managers of small firms may pursue a composition-based strategy to attain multiple sources of competitive advantage and exploit them to achieve superior performance.