The relationship between market orientation and business performance through innovation in auto parts and accessories

Abstract

The purpose of this study is to investigate the relationship between market orientation and business performance through innovations that include product innovation and process innovation. Auto parts and accessories companies in Thailand were used as sample for this investigation. The independent variable was market orientation that was expected to have an impact on the performance of business firms. The component of the market orientation composed of customer orientation, competitor orientation and interfunctional coordination. The dependent variable was business performance measured by return on assets (ROA). In addition, the innovations were examined as mediator. The subjects are the auto parts and accessory firms that were conducted under the sampling frame of Thai Auto Parts Manufactures Association (TAPMA). Survey research with structured questionnaire was used as the key instrument in collecting the data. The structural equation modeling (SEM) was assigned test the hypotheses. The sample size in this study requires the minimum sample size of 200. In addition, there are measurement model and structural model. The measurement model was assessed by using Confirmatory Factor Analysis (CFA) to purify each latent construct and measurement model of each exogenous and endogenous constructs. Composite reliability was applied to ensure reliability by examined convergence and discriminant validity of constructs. The GFI (Goodness of Fit Index), RMSEA (Root Mean Square Error of Approximation), CFI (Comparative Fit Index), IFI (Incremental Fit Index), and TLI (Tucker-Iewis Index) were employed to assess the overall model fit. The result found that competitor orientation, and interfunctional coordination has an effect on product innovation. Moreover, interfunctional coordination has an effect on process innovation, and return on asset. This indicates that within- firm coordination has crucial to firms’ performances. For the implication for practice, firms should support interfunctional coordination that members of different functional areas of an organization communicate and work together for the creation of value to target buyers. Since, the result of this study is obvious that interfunctional coordination is important to business performance and innovation. Therefore, firms have a complete managerial system that can support innovation, then in long term, they may have better profitability. Taken future research into consideration, this study finds that it may benefit other researchers in concerning market orientation, innovation, and business performance. Innovation should be considered as a mediator in the long time since innovation needs time to effect on business performance. In addition, market orientation is one of the factors that support innovations, to concentrate on a market driven approach alone is not appropriate for explaining innovation. Therefore, future research should apply more factors such as technology based accompanying with market orientation.