Towards the Underlying Theories of Small Firm Growth: A Literature Review

Abstract

As a pre-condition for the economic growth of a country, the concept of firm growth has emerged as a critical strategic issue for small businesses from the strategic management perspective. While some literature reviews have been conducted on small firm growth, a comprehensive review of theories emphasizing the association of intangible resources with the growth of small firms has not been conducted. This study aims to provide a literature review of extant theoretical perspectives of small businesses literature. For the review, materials are collected and extracted from various online databases, and results are analysed using classifier variables. Five theories of firm growth, namely, the resource-based theory, knowledge-based theory, dynamic capabilities theory, upper echelon theory and resource-dependency theory, are selected to review, associating the present research aim. The theories are compared using key attributes and outcomes. A clear direction towards an optimum theory to underpin the small firms’ growth has been provided from a resource-management perspective. By validating various theoretical perspectives to explain small business growth, the present study provides first-hand insights for managers to formulate strategies and creates a cornerstone for future empirical studies.

Keywords

Capability growth review small firm underlying theories

Introduction

A primary purpose of strategic management research is to identify the determinants of firm performance (Fuertes et al., 2020). Several researchers identified firm growth as a critical determinant of firm performance (Selvam et al., 2016) as a pre-condition to job creation and economic growth of any country (World Bank, 2020). It is a crucial parameter in the decision-making for financial investors (De Jong et al., 2014) and subject to interest to researchers, policymakers, media and other stakeholders.

Growth from the milieu of small firms lacks a unified theorem (Gupta et al., 2013; Wiklund & Shepherd, 2005), and analysis of firm growth using a unified set of independent variables is disregarded among academics. Several scholars appeared with diverse explanatory approaches on firm growth over the century. Penrose (1959) focused on managerial resources, Gartner (1990) emphasized entrepreneurial diversity, Stenholm and Toivonen (2009) focused on willingness, abilities and growth opportunities. Dutta and Thornhill (2008) advocated for growth intentions and perceived competitive conditions to grow. These multidimensional growth perspectives create a need to establish a unanimous theory to explain the growth of small firms (Dobbs & Hamilton, 2007; Pratono et al., 2016; Samuel & Mole, 2018).

One perspective to do this is to analyse different theories of firm growth through its resources and capabilities (Barney et al., 2011). Intangible resources have greater strategic value and are more likely to generate competitive advantage by being immaterial, rare, inimitable and socially complex (Kamasak, 2017). The research objective is to identify the theory to underpin small firms’ growth from intangible resources’ perspectives. Based on the objective, the study’s research question would be: Which theory optimally explains small firm growth through the lens of intangible resources? To be able to answer the question, the study articulates the literature review. It then explains the methodology applied to conduct the study. In the subsequent section, the results of the findings are explained. In the discussion section, resource-based growth is analysed to find the optimum theory. The article concludes by suggesting the study’s future directions.

Literature Review

The theory on the growth of a firm has been evolving to enrich the entrepreneurship literature. The Schumpeterian growth model is foundational in entrepreneurship based on the ideology that long-run growth is led by innovation and creative destruction (Schumpeter & Nichol, 1934). Other prominent contributors to firm growth, Penrose (1959) and Barney (1991), pondered small firms as a means to competitive advantages from the lens of underutilized resources. Lucas (1978) explored the concept through entrepreneurial factors, and some researchers linked it with entrepreneurial innovation from developing countries’ perspectives (Ramachandran & Kondaiah, 2000).

Despite extensive studies being conducted, comprehensive knowledge about firm growth is far from complete. A conceptual reorientation is therefore needed. While Penrose (1959) has defined firm growth as an internal expansion process, Achtenhagen et al. (2010) referred to it as increased sales, employees, profits, assets and competence. Dobbs and Hamilton (2007), Janssen (2009) and Davidsson et al. (2010) explained firm growth as an increase in size, diversification to markets and customers, intensification in the number and demand of products. Coad et al. (2013) believed growth results from good administration of resources and capacities. These heterogeneous and fragmented growth outcomes (Gupta et al., 2013) need to be underpinned with appropriate theories.

Theories help to understand the evolution of an emerging spectacle, firm growth. An underpinning theory is like a lens (Fisch & Block, 2018) that helps interpret data from a given context. It seeks to identify the inter-relationship among the environmental actors and bridge the gaps of assumptions within the context (Booth et al., 2016). Consequently, an investigation on intangible resources’ effect on firm growth theories would generate values from a resource-based context. The theories that have a clear connection with this aim are explored.

Resource-based Theory

The Penrosean and Barnean resource-based verdicts contribute to the most popular and widely applied theoretical approach to understanding firm growth. While Penrose’s theory considers recombining resources to ensure firm growth, based on the Penrosean legacy, Barney (1991) emphasizes exploiting resources that meet VRIN (valuable, rare, inimitable and non-substitutable) criteria to achieve competitive advantage and coined this strategy as ‘resource-based theory (RBT; Wach, 2020)

According to RBT, firm-specific resources can be categorized as resources that serve as the foundation of a firm’s competencies (Grant, 1996; Learned et al., 1969) and competitive advantage (Hall, 1993). The resources can be classified as tangible and intangible. The intangible resources being inaccessible in the factor markets and relatively inimitable due to their uniqueness, causal ambiguity and social complexity significantly influence the firm’s success (Kamasak, 2017) and (Samuel & Mole, 2018); and as a competitive advantage will ensure superior profits for the firms (Coyne, 1986).

The RBT helps identify the basis by which the resources and capabilities of a firm serve as sources of sustained competitive advantage (Barney, 1991; Wernerfelt, 1984). RBT deals with the business environment through the lens of the firm’s internal environment. Hence the theory often substitutes Porter’s five force model. When a firm’s abilities yield a competitive advantage, it will add value to customers, introduce new products, or expand market share.

RBT also confirms that not all internal resources will be considered as strategic and cause competitive advantage. This advantage is achieved only when there is a condition of heterogeneity and immobility of resources (Madhani, 2010). The VRIN resources cannot be transferred or purchased easily, and thereby ownership of such resources helps small firms to outperform rivals (Adnan et al., 2018). In this fast-paced globalized world, a firm with VRIN or VRIO (‘O’ denoting organized) resources would be more agile and flexible to sustain a competitive advantage.

Knowledge-based Theory

The knowledge-based view (KBV) and knowledge-based theory (KBT; Grant, 1996), arguably the most impactful extension of RBT, or stresses that tacit knowledge is the most strategically significant, unique and non-depreciable. Naheed and Isa (2019) highlighted managing knowledge with human collaboration and trust. This knowledge is embedded and carried through organizational culture, identity, policies, routines, documents, systems and employees. RBT considers knowledge as a generic resource that aims to provide a competitive advantage, together with other resources (Barney, 1991; Penrose, 1959), but KBT considers knowledge-based resources being hard to imitate, socially complex, immobile and heterogeneous, provide significant determinants of sustained competitive advantage (Grant, 1996). KBT consists primarily of intangible and immobile resources.

According to the Penrosean Ideology, business growth is triggered by applying entrepreneurial knowledge, configured as resources to recognize opportunity; and managerial knowledge, reconstructed as resources to exploit the opportunity. Growth occurs where knowledge is acquired and applied (Kelleci et al., 2019). Knowledge management, especially tacit knowledge management, has a hard-to-be-replicated nature, as advocated by Hörisch et al. (2015) and Yang et al. (2017), which can lead to competitive advantage and sustainability among the small firms.

‘Organization knowledge’, coined by Nonaka and Takeuchi (1995), leverages a firm’s credibility to foresee the business acumen and facilitate growth (Gatuyu & Kinyua, 2020). A positive relationship between knowledge and performance among tech-centric firms is found by Chen et al. (2016) and McDowell et al. (2018), while the same was exhibited for new ventures in the research of Martin and Javalgi (2019). Moreover, Yang et al. (2017) found a knowledge-based resource to be transferrable enhances adaptability in changing business environments. The financial and market growth are augmented by intellectual capital in the studies of Sardo and Serrasqueiro (2018) and Dzhioev and Gurieva (2020).

Dynamic Capabilities Theory

The dynamic capability theory (DCT) extends RBT and gained profound prominence in strategic management research. Given that the resources are static, as demonstrated in RBT, Teece (2007) advocates in DCT that the dynamic capabilities help the firms meaningfully adjust their resource-base to fill the shortcomings of RBT, in contrast with ordinary capability involving routine and practices (Helfat & Peteraf, 2003). Nevertheless, this adjustment requires managerial sensing or recognizing external opportunities, seizing or capturing the possibilities and adopting necessary adjustments reflecting environmental need, which can be leveraged by a small number of firms (Teece, 2017). Dynamic capability (DC) is reflected in individual managers in terms of ability to work and learn, intrinsic motivation, team-playing capacity, agility, change and ambiguity tolerance (Wieczorek & Mitręga, 2017). The DC can be categorized as (a) Sensing: identifying and developing technological opportunities matched with customer needs; (b) Seizing: mobilizing resources to explore opportunities and generate value; and (c) Transforming: renewing it continuously (Teece, 2017).

According to Kaur and Mehta (2017), Violinda and Jian (2016), and Hermawati and Gunawan (2020), dynamic capabilities significantly contribute to the competitive advantage of small firms. Considerable scholarly discussions emphasized organizational culture being directly associated with dynamic capability as entrepreneurial orientation (Covin & Slevin, 1989; Lumpkin & Dess, 1996; Wiklund & Shepherd, 2005), as innovation (Violinda & Jian, 2016), and firm resources (McKelvie & Davidsson, 2009). Similarly, studies such as Zhou and Li (2010), Kaur and Mehta (2017), Tseng et al. (2019) and D’Annunzio et al. (2015) found that strategic orientation as dynamic capabilities is found to lead to firm growth. A firm must have the technological orientation as dynamic capabilities (Rezazadeh et al., 2016). Given the recent economic-mayhem, maintaining greater dynamic capabilities and innovation and unique business models have become imperative for small firms to enable them to quickly transform, test, and reconfigure new and revised business models (Cuervo-Cazurra et al., 2020; Schoemaker et al., 2018; Teece, 2017).

Upper Echelons Theory

The upper echelons theory (UET; Hambrick & Mason, 1984) stresses that the holistic leadership philosophy of the top-management-team (TMT) is a pre-condition of their strategic actions. Firm growth is partially determined by the TMT’s personality traits, core values and experience, risk propensity and motivation. Hooi et al. (2016) suggest that under the domain of UET, bricolage tendencies and entrepreneurial orientation entwined within entrepreneurs explain why some firms achieve tremendous competitive advantage and growth over other firms.

The meta-analysis by Neely et al. (2020) has detailed the UET researchers’ acumen to guide the top management team. The theory has solid empirical support. Studies conducted by Ying et al. (2019) found that TMT skills, including intangible capabilities, financial literacy and business experiences, are crucial to managing firm growth effectively. Yusoff et al. (2018) found that the growth intention of TMT is primarily influenced by their perceptive ability and interpretation of barriers. The UET’s role in explaining firm growth has been demonstrated by the study of López-Muñoz and Escribá-Esteve (2017).

TMT’s demographic and psychographic factors, such as age, professional experiences, educational and economic status, play a significant role in evaluating the firms’ competitive behavior (LeCounte, 2020). On the other hand, Nor-Aishah et al. (2020) advocated that a firm’s diversification-level, innovation and strategic efficiency lead to entrepreneurial bricolage. Studies conducted by Jahanshahi and Brem (2017) and Nimfa et al. (2019) described that sustainability among small firms is caused by the strategic efficiency of the firm’s entrepreneurs. The upper echelon tasks also directly contribute to small firms’ growth (Tacheva et al., 2020).

Resource-Dependency Theory

Pfeffer and Salancik (2003) proposed the resource-dependency theory (RDT) to explain the managerial role in reducing environmental dependencies and increasing control over vital resources (Hillman et al., 2009). The critical assumption of RDT involves that firm A’s power over firm B should be equal to firm B’s dependence on firm A’s resources if firm B is younger and smaller than firm A. Therefore, power and resource dependence are positively associated. The relevance of this theory with small firm resources comes as the resources for small firms are either not readily available or under the control of manipulating actors.

RDT requires small firms to engage in transactions with external environmental actors to acquire resources by following a fine line of benefits instead of being dependent through purposeful restructuring. Small firms need critical resources such as raw material, land, or labor, or even location as defensive mechanisms at their disposal to enhance growth. Hence, Zehir et al. (2019) suggest that as the uncertainties increase, the smaller firms need to focus more on the ‘relationships of dependence on power’ through formal contracts, embeddedness and strategic alliances such as joint ventures or M&A instead of giving a power-advantage. Salam et al. (2017) advocate that such dependence will help them leverage the firms’ resource-related bargaining power, strategic partnership, or choice of exchange strategies. A study conducted by Elking et al. (2017) revealed a direct effect of focal firms and suppliers’ financial dependence on their financial performance. A study by Chen et al. (2014) found that a more substantial buy can shift inventory upstream to weaker suppliers and minimize the level of inventory.

Methodology

By articulating a translucent picture of the review techniques, the study aims to create a corridor for future researchers to update the review. The review advanced in three stages:

Stage 1: Search Protocol

An initial scoping of literature was done while constructing search threads (Table 1).

To address the concept of small firm growth theories, articles from leading electric databases: EBSCOhost, SpringerOpen, ScienceDirect, SAGE Publications, Wiley Online, Taylor & Francis and Emerald, which contain prominent journals on small firm growth, were searched both manually and computerized process, emphasizing the titles and abstracts contained the search terms along with ‘firm growth’. The search resulted in a total of 929 titles across all the databases.

Table 1.

Search Thread of Firm Growth Literature

Theme	Search Thread
Small Firm	SME or ‘small business’ or ‘small and medium-sized enterprise’ or ‘small and medium-sized business’ or ‘small venture’ or ‘entrepreneur’ or ‘small company’
Firm growth	‘Firm growth’ or ‘enterprise growth’ or ‘business growth’ or ‘company growth’
Resource-based theory	resource* or ‘resource-based’ or ‘resource-based view’ or RBV
Knowledge-based theory	KBV or ‘knowledge-based view’ or ‘knowledge-based system’ or ‘knowledge management’ or ‘intellectual capital’
Dynamic capabilities theory	DCT or ‘dynamic capability’ or ‘high-velocity market’ or ‘IS theory’
Upper echelon theory	UET or TMT or ‘top management team’ or ‘top executive*’
Resource dependence theory	RDT or ‘resource-dependency theory’

Source: The authors.

Stage 2: Screening

The initial screening of article titles and abstracts led to the retention of 321 articles (Table 2). Some 51 of these were rejected as they were published in journals with an impact factor of less than 0.7 or not peer-reviewed. A further 154 articles were rejected on the relevance of theories with study aim and 11 based on language. Another 63 were disqualified for mismatch in firm size. Mainly 52 articles were therefore retained for a full review.

Stage 3: Synthesizing

Theoretical reporting of the 52 articles was summarized based on their underpinning theories. A qualitative cross-case analysis approach is adopted to synthesize the heterogeneous data by considering each study as an individual case (Watson et al., 2018). The study moved iteratively between the study objectives and the data (Rana & Sharma, 2016) to extract theories.

Results

Descriptive Analysis

The results of the findings are analysed using three classifier variables: (a) yearly publication trend, (b) relevance of theories with study aim and (c) theoretical reporting using analytical blocks.

Yearly Publication Trend

The publication trend can be phased into three eras based on the common features:

Formation era (Pre-1990): The publication frequency was comparatively low during this phase, followed by the Penrosean launch. Below 4% of the extracted articles were published during this era.

Maturity era (1990–2009): During this era, attention by researchers started to grow. Some 8% of the extracted studies were found to be published during this era

Multidisciplinary era (2010–to date): This stage witnessed the advent of many managements and small business databases. Researchers started to correlate growth with various dimensions to explore the domain significantly. Some 88% of the studied articles were published in this era. This era is further evolving with future research possibilities.

Table 2.

Inclusion and Exclusion Criteria

	Inclusion Criteria	Exclusion criteria
Pre-requisite	-Full-text article	- Only abstracts and diagrams
Relevance	- Firm growth consistent with performance and organic types -Level of analysis: Firm-level expansion -Theories: corresponds with study aim	- Firm growth of inorganic type, scale economies and other economic variables. -Level of analysis: non-firm level expansion -Theories: unrelated* with study aim
Study type	Empirical and conceptual. Peer-reviewed; high-quality working/ conference paper	Non-peer reviewed; Articles from journals with impact factor lower than 0.7
Sector	Small business	Articles specialized in ‘large corporations.’
Language	English	Other languages

Source: The authors.

Note: *Some firm-growth theories have been excluded to evaluate for being unrelated to the study aim. For instance, Stakeholder theory (Freeman, 1984) considers maximizing the value-added of stakeholder wealth to outperform the firm’s internal resource development. The focus of the Market-based view (Caves & Porter, 1980) is a market condition rather than internal resources to develop firm-level strategies; while the competence-based view (Sanchez & Heene, 1997) concentrates on relational view to enhance firm’s competence by networking with partnering firms with little focus on internal resources. Diffusion of innovation theory (Rogers, 1962) was also disregarded as it spreads innovation through an idea, product, or behavior of firms, without considering resources to adopt that innovation.

Relevance of theories with study aim

Among the 52 studied papers, some 6 used more than one theory. Twenty-three used RBV, 6 used KBV, 4 used DCT, 2 used EUT and 3 used Human Capital Theory (HCT). Other papers used theories such as Jovanovic Learning theory (JLT), Information Processing Theory (IPT), Institutional Theory (IT), Human Capital Theory (HCT), Organizational Learning (OLT), Neoclassical Theory (NCT), Agency Theory (AT), Social Categorization Theory (SCT1), Social Capital Theory (SCT2), Experiential Learning (ELT), Penrosean Theory of Firm’s growth (TGF), Feminist Theory (FT), Social Network Theory (SNT) and Entrepreneurial Theory (ET).

Nevertheless, based on the relevance of specific theories with the study aim, to explore firm growth from the resource-perspective, the RBT, KBT, DCT, UET and RDT are considered for review.

RBT scrutinizes the internal resources of firm resources and capabilities to formulate strategy.

KBT emphasizes inimitable and socially complex knowledge-based resources formulate strategy.

DCT analyses dynamic capabilities to incorporate, shape and realign internal resources and competencies to formulate strategy in dynamic environments.

UET focuses on managers’ highly personalized lens on using the resources and capabilities of firms to formulate strategy.

RDT seeks to recognize external factors’ impact on firm behavior to formulate a strategy to reduce resource-dependencies and get empowered.

Theoretical Reporting

Based on the literature review (Table 3), the present study is divided into four analytical blocks:

Research area

Underpinning theories

Study outcomes

Attributes

Table 3 has been constructed to depict the key results yielded from the selected 52 studies that shield relevant growth theories for small firms. By constructing the Table 3, the authors matched the research area with the study outcomes to identify the similarities and variations in previously applied theories. The three attributes, that is individual, organizational and environmental, are suggested by Ferris et al. (2018); Ferguson (2018); Shaukat et al. (2016); Kumarasamy et al. (2015); Kapoor et al. (2014) and Guerras-Martín et al. (2014). A comparison is made on the identified theories (Table 4) to check the fitment using the three attributes and outcomes as comparison markers (Cavusgil et al., 2007) to reach an optimal understanding.

Table 3.

Reporting on the Studied Papers

Authors & Years	Area of research	Underpinning theories	Study Outcomes	Attributes
Campbell & Park (2017)	Small business performance	RBV	Resources such as social capital, entrepreneurial orientation, intellectual capital with strategic management impact small firm performance.	Organizational
Goh & Loosemore (2017)	Impacts of industrialization on construction subcontractors	RBV	Off-site technology influences the human, financial, intellectual and social resources of a subcontractor.	Organizational
Kiyabo & Isaga (2020)	Entrepreneurial orientation, competitive advantage and SMEs’ performance	RBV	RBV explains both physical and intangible resources such as entrepreneurial orientation.	Individual and organizational
Krasniqi & Mustafa (2016)	Role of human capital, institutional quality and managerial capacities on small firm growth	JLT, RBV and IT	Growth aspirations, managerial capacities and training have a significant association with growth	Individual
Stella et al. (2014)	Firm size and rate of growth		Medium firms grow faster than the small and large firms	Organizational
Jahanshahi & Brem (2017)	Sustainability in SMEs. top management teams (TMT) behavioral integration as a source of innovativeness	UET	More behaviorally integrated TMT are more prone to engage in sustainability-oriented actions of firms.	Individual
Gu et al. (2021)	Information technology usage on supply chain resilience and performance	IPT and OLT	Customers’ skilful use of IT influences firm performance.	Organizational
Abbas et al. (2019)	Entrepreneurial business networks on firms’ performance	RBV	Highly entrepreneurial firms are prone to create a business network for sustainable performance.	Individual
Adnan et al. (2018)	Predicting firm performance	RBV	VRIN resources significantly improve firm performance.	Organizational
Alom et al. (2016)	Success factors of overall improvement of microenterprises	JLT	Microenterprise performance is influenced by specific entrepreneurial and enterprise characteristics besides economic factors	Environmental and individual
Yli-Renko et al. (2020)	Survival and growth outcomes for young firms	KBV	A dynamic and complex view of young firms’ customer relationships impacts firm survival and growth	Environmental
Raza et al. (2018)	Entrepreneurial network towards small firm performance through dynamic capabilities	RBV and DCT	The mediating role of dynamic capabilities is examined to explain the relationship between entrepreneurial network and small firm performance	Organizational
Silva & Oliveira (2020)	Influence of innovation in tangible and intangible resource allocation	RBV	Innovative organizations of Portugal provide new insights on the importance of resource allocation to explain performance.	Environmental
Mahmutaj & Krasniqi (2020)	Innovation types and sales growth in small firms	HCT	Marketing innovation and new product sales have a positive and negative association with firm growth, respectively.	Individual and organizational
Kamasak (2017)	Tangible and intangible resources and capabilities to a firm’s profitability	RBV	Intangible resources and capabilities have a more significant influence on firm performance than tangible resources	Individual and organizational
Blackburn et al. (2013)	Small business performance: business, strategy and owner-manager characteristics	RBV	Size and age of enterprise impact performance more than strategy and owners’ entrepreneurial characteristics.	Organizational
Kouser et al. (2012)	Inter-relationship between profitability, growth and size	NCT and AT	Growth is associated with the firm size and profitability of non-financial firms	Organizational
Chen et al. (2016)	A knowledge-based theory of the firm	KBV	Stocks and flows of scientific knowledge have a positive impact on Chinese firms’ innovative performance	Individual and organizational
Kozan & Akdeniz (2014)	Role of strong versus weak networks in small business growth in an emerging economy.	SCT1	Culture is to be considered as a contingency variable to study the relationship between network strength and growth.	Individual and environmental
O’Cass & Sok (2014)	Role of intellectual resources, product innovation capability, reputational resources and marketing capability combinations in firm growth	SCT2	A high level of resources cannot compensate for a low level of capabilities (and likewise)	Individual and organizational
Ying et al. (2019)	Role of a manager’s intangible capabilities in resource acquisition and sustainable competitive performance	UET and RBV	Intellectual capital helps managers acquire valuable resources to enhance sustainable competitive performance.	Individual and organizational
Abbas et al. (2020)	Assessing the factors affecting the growth of Small Firms	RBV	Resources such as innovation and government-business relationships are equally crucial factors for firm growth like traditional factors	Individual and environmental
Fonger (2016)	Dynamic capabilities and growth of German small and medium-sized enterprises	DCT	A strong correlation between dynamic capabilities and firm growth	Individual and organizational
Sallah & Caesar (2020)	Intangible resources and the growth of women businesses	RBV	Social, human and reputational capital significantly contributed to the growth of women’s businesses.	Individual and organizational
Schiller & Perera (2012)	Managing intangible assets in enhancing dynamic capabilities of firms	ELT and DCT	Swedish and German firms consider that management of intangible assets is crucial in enhancing dynamic capabilities	Organizational and environmental
Samad (2020)	Achieving innovative firm performance through human capital and the effect of social capital	HCT	Direct association between human capital and innovative firm performance.	Individual
Babajide (2012)	Effects of microfinance on micro and small enterprises (MSEs) growth in Nigeria		Access to microfinance is not related to the growth of micro and small enterprises.	Organizational
Hossain (2020)	Financial resources, financial literacy and small firm growth	RBV	Financial resource and financial literacy have a significant positive relationship with small firm’s financial and non-financial growth.	Organizational
Rafiki (2020)	Determinants of SME growth	RBV	Firm size, entrepreneurs’ experience, training, financing and network relationship are significantly associated with a firm’s growth.	Individual and organizational
Ishtiaq et al. (2020)	Financial literacy in resource acquisition and financial performance	RBV	Financial literacy significantly influences resource acquisition and financial performance	Organizational
Chen et al. (2019)	The top management team and continual growth	UET	Low TMT diversity (educational, functional and team tenure diversity) engenders the Penrosean effect.	Individual
Nagano (2020)	The growth of knowledge through the resource-based view	RBV	The RBV has evolved in three phases.
Roomi et al. (2009)	Nature and activities of growth-oriented women-owned businesses		Most women-owned SMEs choose small, non-scalable, locally-focused businesses instead of growth-oriented businesses	Environmental
Tehseen et al. (2019)	Entrepreneurial competencies and SMEs’ growth	RBV	Strategic and ethical competencies of entrepreneurs do not impact directly on SMEs’ growth	Individual and organizational
Usama & Yusoff, (2019)	Financial literacy on business performance	RBV	Financial literacy has a statistical influence on firm performance.	Individual and organizational
Krasniqi (2012)	Building an expanded small firm growth model in a transitional economy	NCT	Proposes an integrative model to investigate small firm growth to clarify the determinants of small firm growth
Lockett et al. (2011)	Organic and acquisitive growth	TGF	Organic and acquisitive growth constitute two distinct strategic options faced by the firms	Organizational
Mudalige et al. (2016)	Relationship between entrepreneur characteristics and dynamic capabilities	DCT	Entrepreneurial characteristics positively influence the development of dynamic organizational capabilities	Individual and organizational
Agyapong & Attram (2019)	Owner-manager’s financial literacy on the performance of SMEs	RBV	Financial literacy is positively associated with a firm’s financial performance	Organizational
Gupta et al. (2013)	Firm growth and its determinants	RBV	Literature is scarce to find growth patterns of small and medium enterprises
Omerzel & Gulev (2011)	Knowledge resources and competitive advantage	KBV	Strategic resources and capabilities help determine the degree of competitive advantages; a pivotal role is often assigned to knowledge	Individual and organizational
Ferraresi et al. (2012)	Knowledge management, market orientation, innovativeness and organizational outcomes	RBV	Knowledge management directly contributes to market orientation	Individual and organizational
Laursen et al. (1999)	Firm growth from a knowledge structure perspective	NCT	Firm size, industry affiliation and educated employees are conducive to firm growth	Individual and organizational
Curado & Bontis (2006)	A knowledge-based view of the firm and its theoretical precursor	KBV	Knowledge being the most critical intangible resource makes a firm dynamic.	Individual and organizational
Davis et al. (2010)	Influence of CEO gender on market orientation and performance in serving small and medium-sized service businesses	FT	Female-led service SMEs perform significantly better due to their stronger market orientation than those led by males	Individual
Yin & Jahanshahi (2018)	Role of entrepreneurs’ social network size and trust	SNT and KBV	The relationship between a social network and knowledge-based resources is highly contingent on the trust level among network members	Individual and organizational
Theriou et al. (2014)	Knowledge management process to the firm’s performance	RBV	Firm-specific assets and knowledge capabilities are essential determinants of firms’ performance.	Individual and organizational
Jiang et al. (2012)	Growth of women-owned businesses	ET	Woman entrepreneur’s social-, human and reputational capital is related to the growth of her business	Individual and organizational
Ali et al. (2020)	Intangible skills product development and sustainable business performance	KBV	The intangible skills of managers to develop new products lead to sustainable competitive performance.	Individual and organizational
Alnoor (2020)	Human capital dimensions and firm performance	RBV	A positive and significant impact of HC-dimension on firm survival	Individual
Khan & Quaddus (2018)	Dimensions of human capital and firm performance	HCT	A positive effect of demographic and psychographic factors on firm performance.	Environmental
Wiklund et al. (2009)	An integrative model of small business growth	RBV	A set of propositions suggests how entrepreneurial orientation, environmental characteristics, firm resources and managers’ attitudes, directly and indirectly, influence small firm growth.	Individual, environmental and organizational

Source: The authors.

Table 4.

Comparison of Different Growth Theories of Small Firms

Theories	Individual Attributes	Organizational Attributes	Environmental Attributes	Outcome
Resource-based view		Heterogenous resources have to be VRIO	The firm’s internal resources are indifferent to the external environment	Sustainable competitive advantage is achieved by having resources and capabilities
Knowledge-based view	Manager’s intellectual capital (tacit knowledge) is imperative	Knowledge resources have to be VRIO	Works well inflexible and fast-changing environment	From knowledge-resources, it seeks to sustain competitive advantage
Dynamic capabilities theory	Managerial capabilities and skill-set is crucial	Firm-level capabilities have to be distinctive, dynamic and harmonious	Most appropriate for a dynamic environment	Sustainable competitive advantage is achieved using resources and capabilities to achieve either a lower cost structure or a differentiated product.
Upper echelon theory	TMT’s characteristics and cognitions play the central role	Strategic decisions have to come from TMT’s highly specialized lens	Indirectly dependent on community	From TMT’s traits, education and experience, the small firm attains a competitive advantage
Resource-dependence theory		Multidimensional resource-dependency is observed	Power is considered as relational, situational and mutual with the resource-dependence of other firms	By creating a strategic alliance, firms gain greater control over scarce resources and competitive advantage

Source: The authors.

Discussion

Other things being equal, if seen through the lens of resource management, a horizontal dimension of relationship is found to exist between RBT and other theories. Some scholars argue that RDT and the RBT should be combined to explain better, more robust control over external (through RDT) and internal environment to gain competitive advantage in the market (Nienhüser, 2008). Nevertheless, competitive advantage is achieved when a firm performs better than competitors or industry average (Barney, 1991), which will be sustainable if it outperforms over a long period. It can be achieved either through external environmental changes or by developing them inside the firm. External environmental changes can result from PESTLE factors and the firm’s ability to respond fast to changes. Internal Environmental changes can result from developing VRIO resources such as an intellectual property of patents or copyrights, brand equity, culture, know-how, reputation, unique competencies, innovative capabilities, cost advantage and differentiation advantage.

In this highly competitive, dynamic and tech-mediated business era, no theory singly can explain the evolving growth of small firms across the globe. The authors have revealed some matches and variations by comparing the existing theories based on three distinct attributes. It is argued that knowledge as an individual attribute and a sub-set of organizational attributes serves as a unique resource that yields a competitive advantage. However, in response to the contemporary fast-moving small firm’s settings, managerial expertise and skills need to be focused further on competitive existence in a dynamic environment. Hence, this study calls for integration among the individual, organizational and environmental attributes; and thus proposes a homogenized-blended theory for small firm growth and sustainability. The insights of current research are also aligned to the outcomes of the previous high-impact studies (Beske et al., 2014; Cooley & Prescott, 2021; George et al., 2012; Gupta et al., 2013; Smallbone et al., 1995; Storey, 2016) conducted to apprehend the growth of small firms.

With the trend of knowledge workers contributing more than 55% of the world’s GDP (Amirat & Zaidi, 2020), more knowledge is integrated with intangible resources to shift to services from the manufacturing sectors gradually. Some theorists believe that KBT is the natural evolution of RBT because the resource like knowledge with the most sustained competitive advantage is the most valuable, inimitable and immobile of all (Helfat & Peteraf, 2003). To achieve a competitive advantage in a business environment of scarce resources, a small firm must depend on internal resources (knowledge and other VRIO resources) and external changes (through dynamic capabilities) in a more balanced fashion. Therefore, from a resource-management perspective, a combination of the resource-based, knowledge-based and dynamic capabilities theories should have optimum effects on firm growth than other theories.

Nevertheless, small firms requiring continuous upgrading of resource bases by utilizing the intellectual capacity are often subject to lower external monitoring. They are more likely to engage in fraudulence or manipulation, which would adversely affect their future growth. Therefore, the small business managers need to implement proper auditing as a tool to ensure improved credit-control, taxation-related advice and actual profit calculation (Agbaje et al., 2017); and overall execution of plans to sustain firm growth in a competitive business environment.

Future Scope of Research

While underlying theories of firm growth have emerged as a general phenomenon (Barney, 1991; Grant, 1996; Hambrick & Mason, 1984; Penrose, 1959; Teece, 2007), the present study opted for a specific domain of small firms. The authors suggest extending the domain to larger or international firms to study inorganic growth. The present study did not consider any particular region. Thus, the authors recommend emphasizing either a particular region from Asia or Europe or perform a comparative study in the future.

The authors also recommend developing scales in the future (Rana et al., 2021) that would help quantify small firm growth precisely and significantly map the role of intangible resources to enhance small firm growth. Other fundamental aspects such as firm performance and strategic expansion can also be investigated using theories explored in this study or more theories can also be integrated for the greater enrichment of current literature of small firms. Also, this research may be extended by incorporating interdisciplinary theories that can contribute to other entrepreneurial domains, such as women, youth and minorities.

Conclusion

The present study attempted to identify an optimum theory to underpin small firm growth from resource perspectives. To analyse the theoretical effects of firm growth, a review of five theories is conducted. The literature is also decomposed into various classifier variables. Given that different firm growth theories affecting firm growth differently, from a firm’s intangible resource-perspective, a combination of the resource-based, knowledge-based and dynamic capabilities theories was found to guide the small firm’s growth optimally. Study like this covering extensive literature review on small firm growth theories may become highly relevant, especially as the pandemic has jolted the employment potential in urban and rural markets globally. The study offers pragmatic implications to the small businesses expected to be the next driving force in the post-pandemic landscape.

Footnotes

Acknowledgements

The authors gratefully acknowledge the support of Dr Sudhir Rana and honourable anonymous reviewers for their constructive comments that substantially helped improve the article.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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