How Environmental Dynamics Shape firm Performance in Sri Lankan Apparel Firms

Purpose:- Prior empirical research has established that environmental characteristics influence business performance supported by the theoretical assumptions of contingency theory as well as dynamic capabilities theory. However, the influence of environmental variables on innovativeness and firm performance dynamic is not well established and few studies have explored the influence of environmental dynamism and environmental munificence on innovativeness – firm performance relationship. The objective of this article is to examine the moderating effect of environmental dynamism as well as environmental munificence on the innovativeness – firm performance relationship in a relatively less explored industry context in an emerging economy. Method:- A deductive research approach guided by a positivistic research philosophy underpinned the study. The sample frame consisted by 234 apparel firms listed with the export development board (EDB) of Sri Lanka. 415 usable responses were received. Findings:- There is an inverse relationship between the moderators (environmental dynamism and environmental munificence) and the innovativeness – performance relationship. Environmental dynamisms and environmental munificence moderate the innovativeness – firm performance relationship at different conditions. The moderators have a significant impact when they are strong as well as weak. When both environmental dynamism and environmental munificence is low, the influence on firm performance is greater and firm performance increases. Compared to environmental munificence, environmental dynamism has the largest influence on firm performance. Research Limitations:- The findings are not easily generalizable since the study is confined to a single industry context. Underlying factors that influence firm performance are not directly identified as the study focuses on testing established relationships, rather than building new theoretical perspectives. The results may not be easily applicable to developed countries since the regulatory framework, organizational practices and cultural norms could differ. Novelty:- The relationship between firm innovativeness and performance has been analysed in prior empirical research. However, this is among the first studies that links dynamic capabilities view, firm innovativeness, firm performance, environmental dynamism and environmental munificence in a family business context.