Branding capabilities and
SME performance in an

emerging market
The moderating effect of brand regulations

Raphael Odoom
Department of Marketing and Entrepreneurship,

University of Ghana Business School, Accra, Ghana
George Cudjoe Agbemabiese

Department of Marketing, University of Professional Studies Accra, Accra, Ghana and
Putra Business School, University of Putra, Putra, Malaysia, and

Thomas Anning-Dorson and Priscilla Mensah
Department of Marketing and Entrepreneurship,

University of Ghana Business School, Accra, Ghana

Abstract
Purpose – The purpose of this paper is to test the effect of brand regulations on the relationship between
enterprises’ branding capabilities (internal and external) and performance. It also examines the hypothesized
relationship effects across manufacturing and service-based enterprises.
Design/methodology/approach – The study uses data from 384 small- and medium-sized enterprises
(SMEs) within an emerging market setting. Moderated hierarchical regression was used to examine
the theoretical interrelationships between branding capabilities and enterprise performance within the
boundaries of regulations.
Findings – Results from the study suggest that both internal and external branding capabilities positively
affect enterprise performance. However, the effect is confounded as brand regulations attenuate the
relationship between enterprises’ branding capabilities and performance. Varying outcomes across
manufacturing and service-based enterprises are also assessed.
Originality/value – The study suggests that policy makers should review regulations on businesses,
particularly those relating to the small business sector. Regulations that ameliorate activities of SMEs should
be implemented to promote existing enterprises, and attract new ones for industrialization in emerging
markets. The findings provide evidence for issues of potential research and managerial interest, with
implications for both policy makers, small business owners and the academic community.
Keywords Emerging markets, Brand regulations, Branding capabilities,
Small- and medium-sized enterprises (SMEs)
Paper type Research paper

Introduction
Literature has long recognized that firm capabilities (such as branding capabilities) are vital
impetuses for organizational performance (Krasnikov and Jayachandran, 2008; Merrilees
et al., 2011; O’Cass and Sok, 2013). In spite of the burgeoning state of branding studies,
however, three key deficiencies are observed in marketing literature. First, a significant gap
exists regarding the amount of branding research focusing on small- and medium-sized
enterprises (SMEs) in comparison with those carried out with large organizations settings
(Neuvonen, 2016). Second, the branding literature exhibits a paucity of research works
emanating from emerging or less-developed economies compared to those from developed
economic settings (Odoom, 2016). In addition to this, management research and institutional
theory recognizes that the functions of firm capabilities are likely to fluctuate with the
nature of market environments (Eisenhardt and Martin, 2000; Liang et al., 2007).

Marketing Intelligence & Planning
Vol. 35 No. 4, 2017

pp. 473-487
© Emerald Publishing Limited

0263-4503
DOI 10.1108/MIP-08-2016-0138

Received 16 August 2016
Revised 24 October 2016

16 December 2016
21 December 2016

Accepted 22 December 2016

The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-4503.htm

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Yet, empirical works on the branding-performance nexus in SMEs have been relatively
inattentive to the effect of such institutional conditions on the relationship between
branding capabilities and firm performance (Wong and Merrilees, 2008; Berthon et al., 2008;
Reijonen et al., 2012; Agostini et al., 2015).

One institutional condition that appears to be completely neglected, particularly in small
business settings, is brand regulations, and how they impact the relationship between
branding capabilities and enterprise performance. Drawing from Kitching et al. (2013),
brand regulations may refer to all forms of compliances requiring firms to have registered
patents on their new products which may (or not) be manifested in performance outcomes
among firms. With several product and service brands (along with their variants) springing
up across the globe (Wan et al., 2012), it is permissible to comprehend the regulatory frame
within which these brand repertoires reside. The theoretical relevance of this is premised on
the point that most competitive business environments require a set of flexible corporate
and business legislation which enhance the range of possibilities and thus improve business
conditions for firms (Sjögrén and Syrjä, 2015). Yet the literature on branding appears to
have been silent on how brand regulations either ameliorate or attenuate the branding
capabilities-performance relationship among small businesses. As a result, the small
business marketing literature remains slightly leaky on this subject, until empirical
corroborations of such idiosyncrasies are provided from different contexts.

The foregoing gaps represent critical limitations in literature given that: SMEs form a
significant backbone of wealth-generating activities in both developed and less-developed
economies (Ayyagari et al., 2014); emerging markets provide natural platforms for testing
and developing theories, as well as offering a thriving future for many companies (Burgess
and Steenkamp, 2006); the relationship effects of organizational capabilities and firm
performance are confounded by facets of the economic, legislative/regulatory and social
environment (Wu, 2013). The current study is aimed at progressing literature by assessing
the moderating effect of brand regulations on the relationship between SMEs’ branding
capabilities and enterprise performance within an emerging market setting. It has been
reported that despite their chronic resource constraints, the SME sectors in some economies
boast of stronger brand investments in recent times (Agostini et al., 2015). As a result,
they have equally become viable sources of brand marketing information and a context
worth researching. It is relevant to study brand regulations in such a context because
regulation is not a homogenous phenomenon and does not have a uniform effect on
businesses and their brands, generating a debate as to whether they are burdens or benefits
(Kitching et al., 2013). Hence, its complex impact is an important policy concern for several
economies (Sjögrén and Syrjä, 2015), especially small businesses in emerging markets.

From a theoretical angle, emerging markets provide notable socioeconomic, cultural
and institutional departures different from those of western countries (Burgess and
Steenkamp, 2013). It is also noted in literature that existing models and theories emanating
from western contexts may not be applicable in all settings (Dawar and Chattopadhyay, 2002)
requiring corroborations and, where necessary, the development of new theories, models, and
methodologies pertinent to the unique contexts of emerging markets (Burgess and
Steenkamp, 2013). Accordingly, the definition of SMEs employed in this study follows the
classification by UNIDO for developing countries. Turnovers of such SMEs are typically not
more than US$5 million equivalent, with total assets, excluding land and building, not
exceeding the equivalent of $1 million in value. SMEs in Ghana (our current study setting)
contribute about 70 percent to the nation’s gross domestic product, account for about
92 percent of businesses in the country (Abor and Quartey, 2010), and invest substantially in
brand marketing programs (Odoom, 2016). Understanding the nuances of their branding
capabilities and performance vis-à-vis brand regulations therefore provide modest illumination
to the small business management literature.

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The study contributes, from a branding perspective, to the debate on the impact (burden
or benefit) of regulations on small business performance (Fletcher, 2001; Kitching, 2006;
Sjögrén and Syrjä, 2015). Extant literature recognizes that regulations are either targeted at
certain business types or expected to vary in their impact across firms (Kitching et al., 2013).
We hypothesize that branding capabilities will positively impact the performance of SMEs
within an emerging market setting (Hsiao and Chen, 2013). However, the normative
isomorphic pressures exerted by regulatory institutions on the success of marketing
practices in organizations (Liang et al., 2007; Hillebrand et al., 2011) begs us to theorize a
negative moderating effect of brand regulations on the branding capabilities-performance
relationship. The study further examines the effects of the hypothesized relationships
across manufacturing and service-based enterprises.

Theoretical development and hypotheses
Institutional theory duly recognizes that regulatory bodies or institutions exert three types of
isomorphic pressures on organizations (DiMaggio and Powell, 1983). Among these pressures,
normative isomorphism spells out the following of professional standards and practices
established by training methods, professional networks and education among firms. Brand
regulations, indicated earlier as a form of institutional compliance, follows a similar pattern
and tend to exert some pressure on firms’ branding capabilities. The regulation of business
operating components, such as property rights, licensing, ISO certifications and brand system
standards (Zhu et al., 2013), accordingly give legitimacy regarding what is acceptable for
churning out brand repertoires in firms. The overarching effects of such brand regulations on
small businesses are yet to be decisively determined in marketing literature, albeit they could
be both burdens and benefits for enterprises (Kitching et al., 2013).

Conceptualizing branding capabilities
Although the definition of branding capability is not firmly rooted in literature, a number of
conceptualizations on what it constitutes have been put across by scholars. O’Cass and Ngo
(2011) conceptualize branding capability as a firm’s capacity to marshal a bundle of interrelated
organizational routines to perform activities such as communication, and marketing programs
in delivering a consistent brand meaning with customers. Ni and Wan (2008) suggest that
firms’ branding capabilities can be understood along two dimensions: internal related
(comprising asset-related and knowledge-related capabilities) and external driven (comprising
of market factors and institutional factors). Additionally, Altshuler and Tarnovskaya (2010)
also put across their perspective of branding capabilities to embrace three facets. They include
a firm’s ability to design high-performance products at competitive prices, the ability to carry
out fruitful, beneficial collaborations with stakeholders, and the ability to communicate the
component brand at low cost. Furthermore, Merrilees et al. (2011) describe branding capability
to comprise four approaches: identifying brand meaning; using branding as an operational tool;
communicating consistent brand meaning and; getting staff to support the brand.

From the various conceptualizations, a broader theorization may suggest that firms do
not only select brand elements/identities but also incorporate marketing mix programs and
communications, as well as leverage on secondary associations when implementing
branding efforts (Keller, 2013). These branding efforts are developed through learning and
configuration mechanisms, which continually shape firms’ competencies and can be sources
of sustainable competitive advantage because they are not easy to replicate, imitate or learn.
Therefore, branding capabilities are not only generated internally within firms but also
attainable from external parties. The latter form of branding capabilities is particularly
important for firms in emerging economies, where institutional, social and market changes
take place more rapidly (Ni and Wan, 2008) amidst lingering shortage of resources,
unbridled competition and inadequate infrastructure (Sheth, 2011).

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Internal vs external branding capabilities
Internal branding capabilities refer to intra-firm branding efforts which enable enterprises to
develop unique product and service competencies (Gassmann and Keupp, 2007).
Such internally generated capabilities can foster SMEs’ ability to identify and respond to
market cues better, faster and cheaper than rivals (García et al., 2012). According to Galbraith
et al. (2008), branding resources such as licenses, trademarks and patents afford enterprises
with legal strategic rents through property rights which make them difficult for competitors to
duplicate. Although such resources are generally costly to SMEs (Lichtenthaler, 2010), they
enable enterprises to obtain performance benefits and other competitive advantages when
leveraged with internal branding capabilities (O’Cass and Sok, 2013). However, Wong and
Merrilees (2007) suggest that such internal resources and capabilities alone may not be able to
fully trigger performance. This is because the performance value is better enhanced via the
inclusion of external capabilities (Ethiraj et al., 2005). As a result, scholars recommend the need
to explore other sources outside of the enterprise which may present added returns for
performance, particularly for small firms (Khan and Ede, 2009).

External branding capabilities are often generated by developing ties with suppliers,
customers and other organizations via collaborations, joint ventures, alliances
(Zeng et al., 2010), as well as partners in international value chains (Gassmann and
Keupp, 2007). Generally, these occur in several SMEs, given that such firms are recognized
as resource-constrained entities which do not operate in a vacuum. To this end,
Partanen and Servais (2012) suggest that enterprises can gain access to essential
external resources and capabilities through their network relationships. From the view of
O’Cass and Sok (2013), the role of such networks is to enable enterprises overcome their
resource scarcity and improve growth and performance via larger connected groups
(Zeng et al., 2010). The external branding capabilities obtained from such collaborations are
important for triggering brand value components that are beneficial for all the parties
(Altshuler and Tarnovskaya, 2010). In essence, internal and external branding capabilities
are vital avenues that could underpin SMEs’ competences for efficiently developing new
products and achieving superior performance (Soh, 2003).

Branding capabilities and enterprise performance
A number of studies have examined and provided evidence of the impacts of capabilities on
firm performance and competitiveness. When a firm deeply etches its capabilities within its
organizational structure, these capabilities become difficult to imitate and transfer, thereby
offering sustainable competitive advantages (Day, 1994). Evidence within the marketing
literature has shown that such capabilities are important drivers of firm performance
(Krasnikov and Jayachandran, 2008; Morgan et al., 2009). Given the uncertain nature of
technological change and fierce competition in the marketplace, it is important that firms do
not only become innovative, but also strengthen their branding capabilities. Branding
protects, for instance, innovations from imitation by competitors as well as enables
firms to easily control risk and to respond more quickly and efficiently to changes in the
marketplace (Lei et al., 2013). Evidence from Hsiao and Chen (2013) highlights enhanced
performance generated via branding capabilities that result in brand awareness,
perceived product quality, better relationships with customers and ultimately, brand
choice (Narteh et al., 2012). Following from the discourses on the capabilities-performance
nexus, the first two hypotheses are theorized as follows:

H1. External branding capabilities have a positive and significant relationship with
enterprise performance.

H2. Internal branding capabilities have a positive and significant relationship with
enterprise performance.

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The moderating role of brand regulations
Although firms may shape their own capability trajectories (Cook et al., 2006), the
environment within which they operate, may also influence their brand repertoires
and processes. The environment may, in that regard, determine the prices of raw material
inputs, demand for firm’s products/services, competitive pressures from rival firms,
as well as legislations which bear pressures on firms’ products, processes and routines
(Green et al., 1994). Despite being fundamental constitutive element of business legislations,
brand regulations are typically imposed on firms (Rugman and Verbeke, 1998). Generally,
sound regulatory environments are renowned for ameliorating business performance by
creating market opportunities and improving efficiency and competitiveness of firms via
stable boundaries of acceptable behavior (Steenkamp and Geyskens, 2006). Evidence from
literature on this, for example, points to how some regulations have driven manufacturing
firms to consider unorthodox but innovative approaches as part of their business models
(Chen et al., 2006; Esmaeilian et al., 2016).

However, contrary accounts to this have also emerged in literature (Kitching, 2006).
The European Commission report on trade, for instance, revealed that majority of European
business firms were facing difficulties to export their services due to heavy brand regulatory
barriers (European Commission, 2001). According to Institute of Directors (2011), the
conventional view of business groups is that regulations are often a burden, cost or constraint
on businesses. As marketing expenses, brand regulations on patent registration and
maintenance of brand elements such as name and design, packaging, trademarks and logos,
for instance, tend to slam overheads on some firms (Sandner and Block, 2011). Interestingly,
SMEs are deemed to suffer disproportionately from the complications of such brand
regulations (Fletcher, 2001; Kitching et al., 2013). Moreover, Wu (2013) hints that firms
operating in economies with weak regulatory environments do not only encounter high
transaction costs but also face high uncertainty for the recourse of their marketing routines
and processes. In spite of the existence of legal codes in most emerging markets, inconsistent
and unpredictable brand regulations typically result in unethical behaviors such as false
advertising, cheating and counterfeiting (Sheng et al., 2011; Sheth and Sinha, 2015).

From the preceding discussions, regulations appear to be dynamic forces. They generate
contradictory (enabling as well as mitigating) performance effects from firms’ capabilities
and processes across various domains (Kitching et al., 2013). Yet, according to Sjögrén and
Syrjä (2015), fairly little is known about how small firms make strategic choices that drive
performance outcomes in a highly regulated environment. Additionally, the inconclusive
arguments in literature indicate that the presumed effect and the real effect of regulations on
businesses are yet to be established across various business and economic contexts.
Nevertheless, following the lead of Wu (2013) as well as Sheng et al. (2011), it is anticipated
that the effect of brand regulations on the capability-performance relationship of small
businesses in emerging market contexts are more likely be negative rather than positive
(Kitching, 2006). On the basis of this, the third and fourth hypotheses for the study are
stated as follows, and subsequently depicted in Figure 1 as the conceptual model:

H3. Regulations have a negative and significant relationship with enterprise performance.

H4. The relationships in H1 and H2 will be moderated with the introduction of brand
regulations.

Methodology
Data setting and collection
Following from Odoom (2016), a commercial database of registered SMEs was obtained
from the National Board for Small Scale Industries and Association of Ghana Industries,

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from which the participating enterprises were contacted for the data. Calls were made to
756 contact persons of the enterprises earlier to seek their consent to partake in the study after
which the survey instruments were mailed by post to the SMEs. We attached self-addressed
envelopes to facilitate the returning of the filled questionnaire. After two months, most of the
questionnaire were returned. In all, 384 valid responses out of 756 contacted SMEs became
usable for carrying out the empirical research analysis (response rate¼ 50.7 percent).

Prior to the data collection, an adequate assessment of the psychometric properties of the
scale items was carried out by testing for face and content validity (Bagozzi and Yi, 1988)
using academic faculty involving marketing lecturers and PhD students as well as branding
experts. To minimize initial concerns of common method bias, information provided by the
SMEs came from three categories of personnel in each enterprise (Podsakoff et al., 2012).
In most of the cases, the CEOs completed the sections on enterprise information and brand
regulations; marketing officers completed the section on branding capabilities while finance
officers completed the performance measures. Such perceptual response approaches have
been shown to be reliable and proven to produce results consistent with objective and
absolute measures (Agostini et al., 2015).

Variables and measures
To test the hypotheses in the study, a quantitative survey approach with the use of
questionnaire was employed on the empirical data to enable actual measures to be
calculated from the responses obtained from the enterprises. Variables in the questionnaire
included background information on the enterprises (sector, number of employees, assets
base and average annual turnover), as well as measures on branding capabilities,
firm performance and brand regulations. Apart from the background information, all other
variables were assessed via seven-point Likert-type scales anchored from “1¼ not at all” to
“7¼ to a very large extent” with “4¼moderately.” All directional constructs (independent
variables, moderating variable and dependent variable) were operationalized with
reflective measures.

By way of operationalizing the independent variables, we drew from the work of
Merrilees et al. (2011) for measures on internal branding capabilities. The scale captures the
extent to which the enterprises are better able to identify a simple brand meaning, use
branding as an operational tool, able to communicate a consistent brand meaning, and their
ability to get staff to support the brand. Measures for external branding capabilities were
derived from previous literature (Ni and Wan, 2008; O’Cass and Ngo, 2011). They consisted
of four items capturing how the enterprises mobilize resources from external associations,
their strong connections with suppliers, ability to keep in touch with stakeholders to meet
brand needs, as well as their ability to obtain additional skills from partner enterprises.

H3 (–)

H1 (+)

H2 (+)Internal
Branding

Capabilities

External
Branding

Capabilities

Brand Regulations
H4

Enterprise
Performance

Figure 1.
Conceptual model
and hypotheses

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Regarding the moderator variable (brand regulations), we adapted the measures from past
research (Sandner and Block, 2011; Sjögrén and Syrjä, 2015). The scale assessed the cost
involved for enterprises to meet minimum brand regulation requirements, the strictness in
obtaining licensing requirements before product/service enter the market, level of scrutiny
enterprises go through before launch of new product/service, and the impact of meeting the
minimum legal requirement. For the dependent variable (enterprise performance), we drew
on the works of Soh (2003) and Reijonen et al. (2012) for the measures. The scale captured
four items addressing the extent of increment of profit margin, market share, sales volume,
and new product success during the past three years.

Control variables
We considered the inclusion of some firm characteristics as controls to ensure results are not
unjustifiably influenced by these factors. Literature suggests that the fitness of a firm’s
strategy (such as branding) is dependent on the business’ competitive setting which is
typically a composite of both organizational and environmental contingencies (Ni and
Wan, 2008). Accordingly, the current study followed the lead of past research and controlled
for firm size, which was measured through the number of employees in the enterprises,
assets base and turnover (Abor and Quartey, 2010). It also introduced firm age as a control
variable, measured in terms of the number of years an enterprise has been operating in
business (Hirvonen et al., 2013). Additionally, ownership type was also controlled for and
was measured in terms of sole proprietorship and multiple ownerships (Odoom, 2016).

Results and analysis
Profile of the enterprises
All the statistical data analyses were carried out using IBM SPSS Statistics 24 and IBM
AMOS version 23 for Microsoft Windows. The results from the distribution of firm
characteristics reveal that the sampled enterprises were adequately represented. From the
usable data, a profiling of the enterprises revealed that about 70.3 percent of the sampled
enterprises were owned by sole proprietors while 29.7 percent had multiple owners. Most of
the surveyed enterprises (approximately 95.1 percent) have been in business for over five
years with only 4.9 percent of them having been in operation for up to five years.
The enterprises were either small-sized (47.0 percent) or medium-sized (53.0 percent),
categorized based on their number of employees, assets base and turnover.

Reliability and validity
Since the scale measures were adapted for the current study, they were validated via a
confirmatory factor analysis (CFA) using AMOS version 23. For internal consistency
purposes, Cronbach’s α values for the four constructs ranged between 0.76 and 0.88.
The factor loadings ranging from 0.60 to 0.94, all above the 0.50 acceptable level, indicated
that the theoretical constructs exhibit acceptable psychometric reliability in the study
(Nunnally et al., 1967). Model fitness was evaluated using the normed χ2 index ( χ2/df),
goodness of fit index (GFI), and the comparative fit index (CFI). This was followed by the
Tucker-Lewis index (TLI), normed fit index (NFI) and the root mean square error of
approximation index (RMSEA) as suggested by Anderson and Gerbing (1988). Using these
series of fit indices, the CFA resulted in χ2/df¼ 2.08, GFI¼ 0.94, CFI¼ 0.96, TLI¼ 0.95,
NFI¼ 0.93, and RMSEA¼ 0.05. These results confirm the unidimensionality of each
construct in the research model (see Table AI for results of the CFA).

Following from Fornell and Larcker (1981), convergent validity was assessed by first
calculating the average variances extracted (AVE). First, the items that loaded on
each of the constructs were further computed to create composite measures (Ping, 1995).

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Second, it was observed that composite reliabilities of the four scales also ranged from 0.76
to 0.87, which are all higher than the minimum threshold of 0.7 (Hair et al., 2010). Moreover,
all coefficients from the latent constructs to their corresponding manifest indicators were
statistically significant (i.e. tW2.0, po0.001). Additionally, discriminant validity was
established by comparing the shared AVE values between pairs of constructs with their
squared phi correlations. In all cases, the AVE values were greater than the shared squared
phi correlations associated with each pair of constructs, supporting the discriminant
validity of the constructs (Fornell and Larcker, 1981). Table I displays the results of the
discriminant validity (an indication that the constructs are distinct from one another) by
presenting the descriptive statistics and inter-construct correlations with shared AVE.

Moderated hierarchical regression
To examine the theoretical interdependencies among branding capabilities and enterprise
performance under the moderating context of brand regulations, the full data were analyzed
using moderated hierarchical regression modeling (see Table II). This multi-stage hierarchical
regression approach helps minimize concerns of endogeneity due to the use of continuous
scales on the four constructs (Hamilton and Nickerson, 2003). First, the effects of control
variables (ownership type, age and size of enterprise) on performance were tested in M1.
It was observed from the R2 value that the control variables account for only 10 percent of the

Brand-building efforts Mean SD 1 2 3 4

External capabilities 4.77 1.49 (0.58)
Internal capabilities 4.67 1.28 0.19** (0.54)
Regulations 3.45 1.52 0.41** 0.21** (0.44)
Performance 4.65 1.65 0.35** 0.56** 0.30** (0.64)
Notes: AVE values are in brackets. **Correlation is significant at the 0.01 level (two-tailed)

Table I.
Inter-construct
correlations and
descriptive statistics

Variables (M1) (M2) (M3) (M4) (M5) (M6)

Controls
Ownership type −0.20** −0.07 −0.05 −0.05 −0.10 −0.11
Age 0.58** 0.26* 0.24* 0.23* 0.27 0.22
Size 0.57** 0.24* 0.23* 0.23* 0.44* 0.06

Direct effects
External branding capabilities 0.27*** 0.29*** 0.29*** 0.30*** 0.28***
Internal branding capabilities 0.51*** 0.52*** 0.51*** 0.47*** 0.56***
Brand regulations (BR) −0.25** −0.23** −0.23* −0.32**

Moderating effects
BR× external branding capabilities −0.20** −0.11* −0.22**
BR× internal branding capabilities −0.41*** −0.15* −0.34***

Fit indicators
R2 0.100 0.393 0.403 0.410 0.345 0.461
Adj. R2 0.090 0.382 0.392 0.396 0.306 0.443
ΔR2 0.100 0.293 0.010 0.007
F-change 10.52*** 91.15*** 6.35** 2.20
Observations (n) 384 384 384 384 144 240
Notes: Dependent variable¼ performance. All Tolerance above 0.1; all VIF less than 1.3. *po0.1; **po0.05;
***po0.01

Table II.
Moderated
hierarchical regression

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variance in performance. Second, the main effects of the independent variables were
added to the initial model in M2. At this stage, a significant increase of 0.293 was found from
the R2 value, resulting in a 39.3 percent variance in performance across all the enterprises.
Next, the effect of the moderator variable was added in M3, where it was observed
that a change of 0.010 in the R2 value resulted in a 40.3 percent variance in the model
across all enterprises.

From the third model, the estimated standardized coefficients revealed that external
branding capabilities ( β¼ 0.29, po0.001) had positive and significant relationship with
enterprise performance. Therefore H1 which predicts a positive and significant
relationship between external branding capabilities and enterprise performance was
supported. Similarly, the estimated standardized coefficients for internal branding
capabilities ( β¼ 0.52, po0.001) also indicated a positive and significant relationship on
enterprise performance, supporting H2. The H3 predicts that a negative and significant
relationship exists between regulations and firm performance. Results from the
standardized estimated coefficients ( β¼−0.25, po0.05) in M3 indicate that this
hypothesis was also supported.

Subsequently, the moderating effect of regulations on the relationship between branding
capabilities and enterprise performance was also tested in M4 following the interactive
(multiplication) term procedure by Aiken and West (1991). Both branding capabilities as
well as regulations were first mean-centered, before multiplication, to reduce the potential
threat of multicollinearity (Ping, 1995). The results show significant and negative
relationships for both interaction effects on performance in M4. This suggests that brand
regulations negatively moderates the relationship between enterprises’ internal branding
capabilities and performance as well as the relationship between enterprises’ external
branding capabilities and performance. Although not hypothesized, further test of
sub-group variations was conducted to determine the extent of (in) variance of all the
hypothesized relationships across business operating sectors. Results from the standardized
estimated coefficients in M5 (services) and M6 (manufacturing) reveal that although
negative moderation effects were exhibited across both sectors, they were of significantly
greater magnitudes in manufacturing enterprises than in service-based enterprises.

Discussion and conclusions
This study examines and empirically tests whether the relationship between enterprises’
branding capabilities and performance is moderated by the brand regulations within their
operating environment. Results on research data from 384 SMEs in an emerging market
suggest that both internal and external facets of branding capabilities positively affect
enterprise performance. However, the impact is attenuated as brand regulations within the
operating market negatively moderate the relationship between enterprises’ branding
capabilities and performance. The findings and conclusions extend past research works
which have examined the role of regulations and compliances on organizational capabilities
and firm performance (Krasnikov and Jayachandran, 2008; Morgan et al., 2009; Kitching
et al., 2013). With literature recognizing that emerging markets exhibit departures from the
general conventions of theories, models and frameworks emanating from western contexts
(Burgess and Steenkamp, 2013), the current results provide palpable evidence for
corroborating past research (Wu, 2013).

Literature notes that, despite the recognized roles played by SMEs in emerging
economies, their development is largely constrained by a number of factors, among
which are legislations, regulations and rules that hamper the growth of enterprises
(Abor and Quartey, 2010). The current study results show congruence with past studies on
such assertions (Kitching, 2006; Kitching et al., 2013). The gravity of such findings is
that despite having limited resource capacities, SMEs in such contexts typically face the

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same fixed costs as their large firm counterparts while complying with brand regulations.
Although regulations improve business performance in some settings, it appears
brand regulations are a burden in the current study context. In such an instance,
despite the structural efforts put in place to improve their performance, the prospects
of these enterprises developing into large firms remain almost impossible (Abor and
Quartey, 2010).

Additionally, findings from the study also suggest that branding capabilities of
manufacturing enterprises appear to be negatively affected to a greater extent with brand
regulations than in the case of service-based enterprises. In line with Choi et al. (2009),
regulations may only reduce information asymmetry and also alter industry structure by
reducing the power of expert knowledge of service firms. For manufacturing firms,
however, a stricter mechanism of control may be produced by regulations, which eventually
affect not just routines and processes but also the brand repertoires of these enterprises
(Zhu et al., 2013; Esmaeilian et al., 2016). Specific areas such as product names and
packaging, logos and trademarks, ISO certifications and general brand patents appear to be
the hardest hit (Sandner and Block, 2011). In sum, the current findings add to the general
debate on whether regulations are either benefits or burdens for firms across various
economies (Kitching et al., 2013).

Implications for theory and practice
Findings from the study make five key contributions to the literature on branding as well as
small business management and marketing planning. First of all, the interdependencies
among the constructs examined in this study lend support to the dynamic capability as well
as the institutional theories. From the findings, empirical evidence has been provided to
corroborate the theorization that firms’ abilities to efficiently exploit, integrate, build and
reconfigure their internal and external firm-specific capabilities enable them to obtain
enhanced performance rents (Teece et al., 1997). Second, an empirical substantiation has
been provided to the hypothetical stance of the institutional theory that the environments
within which firms operate exert isomorphic pressures on organizations (DiMaggio and
Powell, 1983). The effects of these pressures cause either conformities or resistances
(Oliver, 1991), resulting in various confounds (burdens and/or benefits) on marketing
capabilities and firm performance.

Furthermore, the study progresses existing literature by extending and testing
fundamental assumptions about organizational capabilities and firm performance, within
small business settings and from a branding perspective. Evidence from current
literature exhibits a dearth of branding studies in SMEs compared to those conducted with
large organizations. We make a modest addition to existing literature by reinforcing, from
SME settings, the relationship that exists between branding capabilities and firm
performance across manufacturing and service sectors. Fourth, the study extends current
understanding on the role of brand regulations on the relationship between firms’ branding
capabilities and performance. Previous works have hinted that the relationship effects of
marketing efforts and processes of firms are confounded by moderators such as business
regulations and legislations (Wu, 2013). In relation to branding capabilities within the
context of small businesses, however, this has yet been tested. With SMEs contributing
toward wealth-generation across several economies (Ayyagari et al., 2014), as well as the
huge investments on branding made in these sectors, such an empirical examination of
the effects of brand regulations on enterprises’ capabilities-performance relationships is
very opportune for research.

Finally, another major contribution of this paper lies in the presentation of empirical
results from an emerging market setting on the subject matter under study. Generally,
literature recognizes possible inapplicability of western models and theorizations in

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non-western contexts, owing to the variability in infrastructure, market heterogeneity, and
rampant competition among firms within such settings. These characteristics present
business operating dynamics which are unique from that of developed economies, where
firm activities and outcomes are almost nuanced (Dawar and Chattopadhyay, 2002;
Sheth, 2011). The current study provides palpable evidence which may (or not) be consistent
with studies conducted in other contexts with similar or different economic and market
conditions. Findings from Wu (2013) provided empirical evidence relating marketing
capabilities and institutional factors with firm performance on a large number of emerging
markets, generalizing the findings to a broader context. In response to his calls for further
studies to examine the moderating role of regulatory contexts on marketing activities and
processes in specific countries, we provide empirical evidence, with SMEs focus, from a
branding perspective. Our country-based findings offer relevant support for the need to
examine effects of context-specific regulations when explaining firm capabilities-
performance relationships (Burgess and Steenkamp, 2006).

The findings also offer some implications for both policy makers and small business
owners. Governments in many emerging economies seek investors to augment their existing
business markets, with the hope of engendering economic boosts. However, these investors
may not be allured to such settings where regulations are found to negatively impact firm
capabilities and performance. Based on the current study findings, it is suggested that
policy makers should revise regulatory compliances on businesses, particularly SMEs, in
ways that ameliorate their operations. Despite the chronic resource constraints, these SMEs
are generally expected to comply with the same operating regulations as with their large
organization counterparts. In the light of the attenuating effects of brand regulations, this
may, however, cripple a lot of small businesses who may not be able to realize optimum
performance benefits from their marketing processes and routines such as branding.
Governments in such markets should review their regulatory policies if current ones appear
unfavorable for enterprise performance and growth. Regulations that stabilize or enhance
business activities should be implemented to promote commercial efforts of existing SMEs
as well as attract new ones to help industrialize economies of emerging markets. Small
business owners are equally urged to not only take advantage of their internal branding
capabilities, but also leverage external sources for enhancing their brand performance
amidst environmental pressures.

Limitations and future research avenues
The current research has some limitations, signifying curious avenues for future research.
First, the hypotheses formulated for branding capabilities and performance within the
boundaries of regulations, were tested using SMEs from a single country. The nature of
brand regulations in other settings may present similar or differential outcomes on the
subject matter. Therefore, it will be relevant to carry out further investigations
across other settings for theory development. In addition to this, the research design used
in this study is cross-sectional, which may suggest static relationships between the
variables used, at a single point in time. It should also be pointed out that the construct
effects tested in the study are that of relationships and not causalities. Again, one of our
constructs had an AVE value below 0.50, representing a statistical limitation. Given that
capabilities evolve over time, a longitudinal study may be required to address the full
effect of the experiences of branding capabilities on performance over a longer
period. Moreover, there is the need for studies to examine the effects of regulations on
capability-performance relationships among more/less compliant firms and enterprises.
As one of the preliminary studies to examine brand regulations, further organizational
capabilities could also be examined within the boundaries of other forms of regulations in
different contexts.

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Appendix

Corresponding author
Raphael Odoom can be contacted at: rafaelodoom@gmail.com

Constructs and measurement items
CFA

loadings t-value

Internal branding capabilities (α¼ 0.82; CR¼ 0.82)
Able to get staff to support the brand 1.00a 15.45
Better able to identify a simple brand meaning 0.67 11.48
Use branding as an operational tool 0.60 9.81
Better able to communicate a consistent brand meaning 0.94 12.53

External branding capabilities (α¼ 0.88; CR¼ 0.84)
Obtain additional skills from partner enterprises 1.00a 16.36
Mobilize resources from external associations 0.75 12.96
Strong connection with suppliers 0.84 14.16
Keep in touch with stakeholders’ to meet brand needs 0.73 12.60

Enterprise performance (α¼ 0.88; CR¼ 0.87)
New product success 1.00a 17.42
Increase in sales volume 0.81 14.45
Improved market share 0.86 15.28
Growing profit margin 0.83 14.69

Brand regulations (α¼ 0.76; CR¼ 0.76)
Meeting minimum legal requirements is the only impact of regulations on our
business 1.00a 13.21
Not costly for business to meet minimum brand regulation requirements 0.67 10.36
Licensing requirements before product/service enter the market are not strict 0.68 10.62
Firm goes through scrutiny before launch of new product/service 0.65 10.12
Notes: CFA model fit indices: χ2¼ 218.76; df¼ 105; GFI¼ 0.94; CFI¼ 0.96; TLI¼ 0.95; NFI¼ 0.93;
RMSEA¼ 0.05. CR, composite reliability. aFixed factor loading. All t-value estimates significant with po0.001

Table AI.
CFA and

measurement model

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	Appendix