Enhancing firm performance via distribution channel innovation: The case of small and medium enterprises

As evidenced for many decades, small and medium enterprises (SMEs) have been the major and fundamental contributors to employment generation, poverty alleviation, value added creation and economic development around the globe. Due to the growing significance of internationalization, engaging in export drive has grown up among SMEs for seeking natural growth. Literature on export has shown that the effectiveness and efficiency of distribution channel become a critical issue for export performance. Whilst acknowledging that the characteristic of distribution channels is generally difficult to change once established findings of previous studies strengthen the indications that firm performance is also governed by affiliation among channel members on managing coordination, avoiding conflict, achieving sales and profit, exchanging information, trusting and holding commitment as well as how the applications of non formal channels, position of channel members; multiple distribution channels’ establishments; importers linkage establishments; and decentralization. The importance of innovation including innovation in distribution channels as the driver of performance is inconclusive. Additionally, such a study is extremely limited in small and medium enterprises (SMEs). Therefore, this study examines the impact of distribution channel innovation on the activities upon firm performance. Based on the existing literature gap, a special attention was given to the mediating role of distribution channel performance in the relationship between distribution channel innovation and firm performance of SMEs. Using a total of 120 samples collected from export-oriented agriculture-based SMEs in DIY province and the surrounding areas of the Central Java, Indonesia; a hierarchical regression analysis was used to estimate the distribution channel innovation-firm performance model. The clearer findings were found how the innovations lead to firm performance. It was indicated innovation in assortment, information sharing and transportation coordination led to greater firm performance. The result of the study also shows that distribution performance mediated the relationship between innovations in assortment, information sharing and transportation coordination, and firm performance. [...]