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Effects of employee development and marketing capacity on competitive advantages: The mediating role of product innovation

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E-mail address: lemanhtungcmu@gmail.com (M.T. Le)
© 2020 by the authors; licensee Growing Science, Canada
doi: 10.5267/j.msl.2020.5.006
Management Science Letters 10 (2020) 3159–3166
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Effects of employee development and marketing capacity on competitive advantages: The mediating role
of product innovation
Manh Tung Lea*
aCommission for the Management of State Capital at Enterprises, Hanoi, Vietnam
C H R O N I C L E A B S T R A C T
Article history:
Received: March 3, 2020
Received in revised format:
March 25 2020
Accepted: May 5, 2020
Available online:
Ma
y
6, 2020
This research aims at examining the mediating of product innovation on the relationship between
employee development and marketing capacity on product innovation of small and medium enter-
prises (SMEs) in Hanoi. After 4 months of collecting data, the author received 350 responses and
311 responses left after refining. The findings from the research indicate that employee develop-
ment and marketing capacity did not only directly but also indirectly affect competitive advantages
via product innovation. The findings provide enterprises with important implications for improving
competitive advantages from marketing, human resources and product innovation perspectives.
© 2020 by the authors; licensee Growing Science, Canada
Keywords:
Employee development
Marketing capacity
Product innovation
Competitive advantage
1. Introduction
During the period 2010-2017, SMEs are accounted for 98.1% of the total number of operating enterprises, contributing about
45% of gross domestic product (GDP), 31% of total state budget revenue. On average, over the period of 2012-2017, the
number of SMEs was increased by 8.8%, higher than the average growth of large enterprises of 5.4% (Dong, 2019). As
Vietnam's market becomes more and more open (according to the committed integration roadmap), SMEs in Vietnam have
to deal with increasing international competition. However, according to Nga (2018), most Vietnamese enterprises are small
and medium and have low competitiveness; Meanwhile, the rate of enterprises having innovation activities is still low and the
level of innovation is still limited (Anh, 2019). Therefore, they are at the risk of losing the market at home (Nga, 2018).
However, to do so, it is important to figure out factors affecting product innovation and competitive advantages as well as the
mechanism these factors affecting the competitive advantages of SMEs in Vietnam. The resource-based view (RBV) argued
that an enterprise is a combination of resources and capabilities. The resources and capabilities are sources of an enterprise’s
performance and competitive advantages (Barney, 1991; Prahalad & Hamel,1990). According to Branco and Rodrigues
(2006), resources are the means through which firms accomplish their activities. Resources include the assets that firms use
to accomplish the activities they are engaged in to convert inputs into outputs, and can be classified as tangible or intangible
(including employee’s knowledge, experiences, skills, commitment and loyalty). Capabilities are thus seen as referring to the
actions through which resources are used and that firms engage in to get something done and accomplish their objectives.
Based on RBV, this study argues that employee development and marketing capacity are critical resources/capacities of an
enterprise. Product innovation is an indicator of enterprises performances, therefore, depends on employee development and
marketing capacities. Finally, competitive advantage is achieved via product innovation, employee development and market-
ing capacity. Several studies support our argument. For example, Pakistan, Batool and Batool (2012) found positive effects
of employee training on the organizational competitive advantage of private sectors in Pakistan. Nuryakin (2018) also confirm
positive effects on marketing capability on the competitive advantages of SMEs in Indonesia. Nguyen (2016) found product
3160
innovation has a positive effect on business performances in Vietnam. While, training (employee development) enhances the
assimilation of knowledge that promotes learning (Tsinopoulos et al., 2018); therefore, has positive impacts on innovation
(Dostie, 2017; Forés & Camisón, 2016). More recently, Medase and Barasa (2019) confirmed effective effects of marketing
capability on product innovation
Existing literature separately provide evidence to connecting employee development, marketing capacity to product innova-
tion and then to competitive advantages. However, not much research paid attention on how these factors simultaneously
affect competitive advantage. According to Nguyen and Nguyen (2019), such research could provide a better understanding
of the roles and the importance of the related factors in explaining dependent variables. Therefore, simultaneously examining
the effects of employee development, marketing capacity, and product innovation into an integrative research model could
provide a better understanding of how these factors together affecting competitive advantages of SMEs in Vietnam. Therefore,
to narrow these literature gaps, this current research incorporates the theoretically appropriate affecting factors of competitive
advantages into an integrated research model to:
Clarify the mechanisms through which employee development and marketing capacity affecting the competitive ad-
vantages of SMEs in Vietnam,
Examine the mediating roles of product innovation on the causal relationship between employee development and
marketing capacity and competitive advantages of SMEs in Vietnam,
Provide SEMs’ managers with practical implications to improve competitive advantages for SMEs in Vietnam.
The rest of the article is structured as follows. Section 2 presents the literature review and the research hypotheses, followed
by the research methodology in Section 3. Finally, results are discussed in Section 4 and conclusion and recommendations in
Section 5.
2. Literature review and hypotheses
2.1 Competitive advantage
Competitive advantage is reflected in the capability of a company to create more values for customers in comparison to
competitors and in profitable market shares (Kaleka, 2002; Grant, 1991). Many researchers agree that the competitive ad-
vantage of an enterprise is represented by the market share and the profitability of an enterprise in the market. In the most
general perspective, Porter (1985) suggests that, for enterprises, competitive advantage is reflected in the ability of enterprises
to compete in markets. Correspondingly, Mcfetridge (1995) suggested that the four important factors used to measure the
competitive advantages of an enterprise are profit, cost, efficiency, and market share. He argued that an enterprise that does
not generate a profit does not have a competitive advantage. The fundamental reason is that the production costs of an enter-
prise do not guarantee a competitive price in the market. In other words, the value created by this enterprise may be less than
the cost to create this value. This problem could stem from the possibility that the labor productivity of this enterprise is lower
than that of its competitors. Market share is one of the important factors affecting the costs. According to the economy of
scale rule, the greater the market share is, the larger the scale is, and then the higher the productivity is. As a conclusion,
profitability and market share are sufficient representatives of the competitive advantage of an enterprise. According to the
theories of strategy, the internal factors of a business, such as marketing, manufacturing, human resources, finance, research,
and development are factors that directly impact the competitiveness of an enterprise. Similarly, Chawla et al (1997) suggested
that internal elements such as finance, human resources, technology, organization structure, productivity, innovation quality,
diverse product/service, flexible performance, and customer service are the key factors affecting the competitive advantage
of an enterprise. These are the factors that enterprises themselves can control through strategic decisions as well as through
their operational decisions (Luk; 1996; Anshori; 1999; Porter, 1980; Argote et al., 2003; García-Cruz et al., 2018).
2.1.1 Employee development and competitive advantage
According to Orr, Bush, and Vorhies (2011), employee development is defined as the activities performed systematically and
routinely to maintain and enhance the knowledge and skills of employees. According to Newbert (2007), employee develop-
ment is implemented through human resource practices, especially through training and compensation. Cenzo and Robbins
(1994) defined employment development as a process that allows employees to acquire new knowledge, learn new skills,
change attitudes and behaviors, and to improve personal performance According to Wayne (1992), the concepts of training
and development can be used interchangeably and consist of programs that are planned to improve performance at all levels:
individual, group, and enterprise. These improvements lead to systematic changes in the evaluation of knowledge, skills,
attitudes, and social behavior. Bishop (2003) and Haksever (2005) explained training helps workers master specific new skills
and capacities that improve their performance or better take on new responsibilities. In a study in Pakistan, Batool and Batool
(2012) found positive effects of employee training on the organizational competitive advantage. The above arguments and
evidence indicate that:
Hypothesis 1: There is a positive relationship between employee development and the competitive advantage of an SME in
Vietn am.
2.1.2 Marketing capability and competitive advantage
According to Yam et al. (2004), marketing capability is a firm’s ability to publicize and sell products on the basis of under-
M.T. Le / Management Science Letters 10 (2020) 3161
standing a consumer needs, the competitive environment, the costs and benefits, and the acceptance of the innovation. Simi-
larly, according to Drucker (1993), marketing capacity is the capacity to recognize the market segments based on needs and
customer characteristics, and the capacity to develop unique marketing positions for products or services in the minds of the
target customers. In the same way, Song et al. (2007) considered marketing capability as the ability of a firm to use its tangible
and intangible resources to understand complex consumer specific needs, achieve product differentiation relative to competing
products, and achieve superior brand equity. Vorhies and Morgan (2005) found that strong marketing capacity allows com-
panies to leverage other resources for better competitive advantages. As Narsimhan et al. (2006) explain, a company that gives
more resources for communicating with customers is more sensitive to the market. Market sensitivity becomes an inimitable
resource of the company. According to Song et al. (2008), marketing capacity supports a company in creating strong connec-
tions with customers and distributors. In addition, marketing capacity contributes to a stronger brand. Burkitt and Zealley
(2006) assert that effective marketing helps increase customer satisfaction, boosts market share, and raises profitability and
productivity of employees. Therefore, the development of marketing capabilities can play a crucial role in keeping the market-
orientation of companies. Davis (2007) asserts that every enterprise is facing a situation in which their customers are being
drawn to wise competitors; as such, the key task of the marketing activities is to attract and retain customers. Currently, in a
study with sample of 200 SMEs in Indonesia Nuryakin (2018) also, confirm positive effects on Marketing capability on com-
petitive advantages of SMEs.
The above arguments and evidences indicate that:
Hypothesis 2: There is a positive relationship between the marketing capability and the competitive advantage of an SME in
Vietn am
2.1.3 Product innovation and competitive advantage
Chen and Liu (2005) consider product innovation as the planning and realization processes that create or rebuild a new tech-
nological system and provide the necessary functions to satisfy the needs of customers. The ultimate goal of product innova-
tion is to provide a solution that can be used or accepted by customers. According to Damanpour and Gopaiakrishnan (2001),
product innovation is defined as the creation of new products or services to meet the external user or market demand. Similarly,
According to Wang and Ahmed (2004), product innovation reflects the novelty and meaningfulness of new products intro-
duced to the market in a timely fashion.
Porter (1985) asserts that product innovation is one of the principal factors affecting the competitiveness of an enterprise.
According to Gronhaug and Kaufmann (1988), product innovation has become increasingly important to the competitive
advantage of enterprises. Product innovation allows companies to be ahead of their competitors, create market barriers, and
establish a leading position in the market (Mu et al, 2009). Similarly, Akgu et al. (2007) found that product innovation ca-
pacity has a positive relationship with profitability and market share.
Philip Kotler (1999) pointed out that the most successful products are often the products that are introduced first. Due to rapid
changes in tastes, technology and competition, companies cannot just rely solely on existing products. Consumers want and
wait for new and perfect products. Consequently, each company must have programs to design their new products. Roberts
(1999) argues that due to fierce competition and an uncertain environment, the pursuit of innovation is often important to
achieve competitive advantage; furthermore, innovation is perhaps the best way a business can hope to prosper. Similarly,
according to Akgu et al. (2007), product innovation capacity has a positive relationship with profitability and market share.
Innovative products include entirely new performance features that are better than those already in the market. Additionally,
the old features of innovative products can be produced at a lower cost. Wilson and Chew (2008) stated that many products
in the same industry perform the same functions, and even look the same. Therefore, product innovation is an important way
to create differentiation and increase competitiveness for companies. More recently, in a study with a sample of 105 manu-
facturing enterprises in Vietnam, Nguyen (2016) found product innovation has a positive effect on business performances.
The above arguments and evidences support:
Hypothesis 3: There is a positive relationship between product innovation and the competitive advantage of SMEs in Vietnam
2.1.4 Employee development and product innovation
According to Hatch and Dyer (2004), investing in employee development (training) at the enterprise level enhances learning
output. The reason is that training help staff to update new knowledge and improve absorptive capacity (Cohen and Levinthal
1990). Consequently, it results in successful innovation in both products and processes (Freel, 2005). Similarly, Tsinopoulos
et al. (2018) argued that training enhances the assimilation of knowledge that promotes learning; therefore, according to Dostie
(2017) and Forés and Camisón (2016) knowledge has positive impacts on innovation. Malik et al. (2017) found that a number
of scientific employees were engaged in exploratory learning conducive to the generation of new patents and product innova-
tion. More recently, Caloghirou et al. (2017) found training has positive effects on product innovation. The above arguments
and evidences indicate that:
Hypothesis 4: There is a positive impact of employee development on product innovation.
2.1.5 Marketing capacity and product innovation
Regarding product innovation, marketing capabilities reflect an enterprise’s abilities to differentiate its products from those
of competitors and to connect with consumers to create profitable relationships for innovation (Egbetokun, 2015). According
to Durukan and Hamsioglu (2016), marketing activities have a significant impact on new products. In contrast, insufficient
3162
market analysis, sales, distribution and promotion efforts have negative impacts over the success of the new product. More
specifically, marketing capabilities influenced the impacts of commercialization of innovations (Ren et al., 2015). Similarly,
Mu(2015) found that marketing capability is positively associated with new product development. Recently, Medase and
Barasa (2019) argue that marketing capabilities also allow enterprises to predict customer-specific and concealed demands;
therefore, have positive impacts on the ability of the enterprise to launch either new products or improved products.
The above arguments and evidences indicate that:
Hypothesis 5: There is a positive impact of marketing capability and product innovation.
2.2 Summary of research model
The summary of the above hypotheses is depicted in the research model in Fig. 1. According to this model, employee devel-
opment, marketing capacity, and product innovation have positive relationships with the competitive advantage of SMEs.
3. Research Methods
3.1 Sample
This study applies the systematic sampling method. The sample was selected based on a business directory in Hanoi. From
this list, 1000 enterprises were selected purposively. After 4 months of data collection, the author received 350 responses and
311 responses were left after refining. The response rate was about 35%. By business structure, respondents from the Limited
Enterprises accounted for 40%, respondents from Private Enterprises accounted for 29%, respondents from Joint Stock En-
terprises accounted for 24%, and respondents from other business structures accounted for 7%. By gender, 55% were males,
40% were females, and 5% were not specified. By age, respondents aged below 30 accounted for 20%, respondents aged from
31 to 40 accounted for 43%, those aged from 41 to 50 accounted for 30%, and those aged from 51 to 60 accounted for 5%.
3.2 Measurement Scales
Competitive advantage was measured via scales developed by Bhatt et al. (2010). Employee development was measured via
scales developed by Orr et al. (2011). Marketing capacity was measured by some scales developed by Yam et al. (2004).
Product Innovation was measured via scales developed by Akgu et al. (2007).
4. Research Findings
4.1. Confirmatory factor analysis
Based on the original scale, we conducted CFA. The results are presented in Fig. 2, Table 1, Table 2 and Table 3.
The detailed results of CFA for all construct were presented in Table 1. These results showed that the measurement model was
well fitted with 1< CMIN/DF = 2.748 <3 (acceptable); CFI = 0.959 (> 0.95) (excellent); 0.06< RMSEA <0.08 (acceptable).
All of these model-fit indexes indicate that the whole measurement model was well-fitted.
Tabl e 1
Model fit
Measure Estimate Threshold Interpretation
CMIN/DF 2.748 Between 1 and 3 Excellent
CFI 0.959 >0.95 Excellent
RMSEA 0.075 <0.08 Acceptable
To evaluate the measurement model, convergent and discriminant validity tests were conducted. To meet the convergent va-
lidity criterion, values of composite reliability (CR) for each construct should be higher than 0.7. In addition, values of the
average variance extracted (AVE) should be greater than the recommended threshold of 0.5. The results in Table 2 indicated
Employee
development
Marketing
capacity
Product
innovation
Competitive
advantage
h1
h2
H3
h4
h5
Fig. 1.
Research model
M.T. Le / Management
Science Letters 10 (2020) 3163
that the measurement models of employee development, marketing capacity, and product innovation meet construct reliability
and convergent validity criteria.
Tabl e 2
Tests results of convergent validity and reliability
CR AVE MSV MaxR(H) CA EM MC PI
CA 0.968 0.858 0.757 0.969 0.926
EM 0.910 0.672 0.661 0.925 0.813 0.820
MC 0.971 0.787 0.757 0.972 0.870*** 0.801*** 0.887
PI 0.971 0.893 0.705 0.977 0.838*** 0.811*** 0.840*** 0.945
Fig. 2.
Results from CFA
To meet the discriminant validity requirement, the square root of each construct’s AVE should be higher than the correlation
of the construct with other latent variables. The results are also presented in Table 2, confirming the good discriminant validity
of the measurement model. Employee development, marketing capacity, and product innovation are three different constructs.
Factor loadings of items on the related variables are presented in the Table 3.
Tabl e 3
Factor Loading
Va ri a b le s / It e m Factor
loading
Competitive
Advantage (CA)
Over the past three years, our firm’s financial performance has been outstanding. .918
Over the past three years, our firm’s financial performance has exceeded the competitor’s performance. .925 ***
Over the past three years, our firm’s sales growth has been outstanding. .937 ***
Over the past three years, profitability of our firm has been higher than our competitor’s profitability. .939 ***
Over the past three years, our firm’s sales growth has exceeded the competitor’s sales growth. .912 ***
Employee
Development (ED)
Routinely provide employees with opportunities for training. .872
Systematically provide employees with regular feedback about their performance. .859 ***
Provide regular opportunities for enhancing employee skills. .859 ***
Regularly reward performance as a means of increasing employee motivation. .859 ***
Regularly empowering employees to make decisions about their assigned tasks. .621 ***
Marketing
capacity (MK)
Relationship management with major customers. .857 ***
Knowledge of different market segments. .847 ***
Effectiveness of the marketing intelligence system. .901 ***
Effectiveness of marketing information dissemination. .911 ***
Distribution efficiency. .897 ***
Sales-force efficiency. .890 ***
Performance of after-sales services. .883 ***
Tracking customer satisfaction level. .912 ***
Maintenance of brand image and corporate image. .885
Product
Innovation (PI)
In new product and service introduction, our company is often first-to-market. .909
Our new products and services are often perceived as very novel by customers. .930 ***
N
ew products and services in our company often take us up against new competitors. .965 ***
In comparison with competitors, our company has introduced more innovative products and services during the past 5 years..974 ***
Significance of Correlations: *** p < 0.001
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All five items of competitive advantages had factor loadings that varied from 0.912 to 0.939. All five initial items of employee
development had factor loadings that varied from 0.621 to 0.872. All nine initial items of marketing capacity had factor
loadings that varied from 0.857 to 0.912. All items of product innovation had factor loadings that varied from 0.909 to 0.974.
The above findings indicate that the measurement scales used in this study were reliable and valid.
4.2. Hypothesis testing
We apply the SEM method to simultaneously test the proposed hypotheses (Fig. 3, Table 4, and Table 5). The results showed
that the structural model was well-fitted (CMIN/DF = 2.748; CFI = 0.959; RMSEA = 0.075)
Fig. 3.
Findings from SEM
Tabl e 4
Model fit
Measure Estimate Threshold Interpretation
CMIN/DF 2.748 Between 1 and 3 Excellent
CFI 0.959 >0.95 Excellent
RMSEA 0.075 <0.08 Acceptable
The results of hypotheses testing were presented in Table 5. The result indicates that employee development (EM) has positive
impacts on competitive advantage (CA) (β=0.225, at α≤0. 001), hence H1 is supported; marketing capacity (MC) also has
positive impacts on competitive advantage (CA) (β=0. 474, at α≤0. 001), hence H2 is supported; Product innovation (PI) has
positive effects on competitive advantage (CA) (β=0. 257, at α≤0. 001), hence H3 is supported; Employee development (EM)
has positive impacts on product innovation (PI) (β=0. 386, at α≤0. 001), hence H4 is supported; marketing capacity (MC) also
has positive impacts on product innovation (PI) (β=0. 530, at α≤0. 001), hence H5 is supported.
Tabl e 5
Findings from SEM
Predictor Outcome Std Beta Conclusion
EM (direct) CA .225 *** H1: supported
EM (via PI) CA .108 PI mediates EM-CA relationship
EM (total) CA .403
MC (direct) CA .474 *** H2: supported
MC (via PI) CA .138 PI mediates MC-CA relationship
MC (total) CA .619
PI CA .257 *** H3: supported
EM PI .386 *** H4: supported
MC PI .530 *** H5: supported
Significance of Correlations: *** p < 0.001
The results in Table 5 also indicate that employee development has indirect positive-effects on competitive advantages via
product innovation (β=0. 108) and marketing capacity has indirect-positive effects on competitive advantages via product
innovation (β=0. 138).
M.T. Le / Management Science Letters 10 (2020) 3165
5. Conclusions and recommendations
The findings indicate that employee development, marketing capacity, and product innovation positively affecting competitive
advantages. However, different from existing research, this study found that employee development and marketing capacity
affects competitive advantages through two mechanisms: directly and indirectly through product innovation. In other words,
the findings confirm the mediating effects of employee development and marketing capacity on the competitive advantages
of an enterprise.
The findings from the research suggest that investment in employee development and marketing capacity could have double
effects: speed up product innovation and improve competitive advantages. SMEs can do so by regularly creating opportunities
for employees to know their performances, training employees to improve their knowledge and skills, rewarding employees
to improve their motivation, and giving employees greater autonomy in the implementation of assigned tasks. SMEs can
strengthen the marketing capacity by improving their relationships with big customers, enhancing marketing research for
better knowledge of different market segments, improving the effectiveness of information systems and marketing communi-
cation activities, boosting the performance of the sales forces and distribution channels, promoting after-sales services, regu-
larly monitoring the level of customer satisfaction, and continuously maintaining the brand image and company image.
This study has the following limitations. Firstly, the sample was drawn from the SMEs in Hanoi based on the purposive
method, therefore, the findings have certain limitation in terms of generalization; future research can overcome this limitation
with the more representative sampling methods. Second, this study has not examined the controlling effects of factors such as
the size of the enterprises or industry that enterprise. Such research could provide a better understanding of how employee
development, marketing capacity affect product innovation and competitive advantage.
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