The Influence Of Market Orientation On Business Performance The Case Of Commercial Banks In Ethiopia

The main objectives of the current study were three-fold; investigating market orientation strategy of commercial banks in Ethiopia; uncovering if there exists a difference among public owned and private owned banks on market orientation practice; and identifying the influence of market orientation components on business performance of commercial banks. The study mainly focused on branches operating in Addis Ababa city. Stratified method of sampling was employed to select 297 bank branch managers as a respondent from five commercial banks with response rate of 88.1 percent. The data were collected using a questioner developed by Narver and Slater (1990) (with a little extension) and checked for its internal consistency using Cronbach’s Alpha test. The data were then analyzed using both descriptive and econometric analysis. The descriptive analysis confirmed that commercial banks in Ethiopia are more of customer oriented. Of the respondent’s 80.1 percent, 67 percent and 63 percent of respondents, respectively, rated components of customer orientation, inter-functional coordination and competitive orientation above scale level of 4 (in the questioner, scale level 4 represents neutral while 5, 6 and 7 represents somewhat agree, agree and strongly agree). This result was re-affirmed by factorial analysis using Principal Component Analysis method. That is, customer orientation, inter-functional coordination and competitive orientation ranked first, second and third, respectively with index value of 1.44, 0.59 and 0.43. The study further constructs latent variables for customer orientation, competitive orientation, inter-functional coordination and business performance indicators that are used to undertake econometric analysis. The inferential econometric analysis using model regression confirmed private banks are customer oriented, competitive oriented and inter-functionally coordinated vis-à-vis government owned bank. Finally, a multiple linear regression on the relationship between business performance and market orientation components claimed that customer orientation and inter-functional coordination has paramount importance in determining business performance. Moreover, the auxiliary regression on this showed that private banks, large sized branches and manager with high level of education found to have a positive and significant effect on business performance. Based on the findings, the study forwarded recommendations.

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