Opportunity recognition efficiency of small Chinese firms: findings from data envelopment analysis

Purpose: Small firms in China anticipate entrepreneurial opportunities for continual growth. However, they may fail to recognize opportunities because of their inefficiency in managing their knowledge. Design/methodology/approach: In this explorative paper, the authors assess the opportunity recognition efficiency of 168 small Chinese firms using data envelopment analysis (DEA). Supplementary Tobit regressions were conducted for further exploring the factors that influence the firms’ efficiency in opportunity recognition. Findings: Results from the DEA suggest that most respondents recognize significantly fewer opportunities than those with equivalent knowledge stock. Moreover, many firms have low levels of pure technical efficiency but high levels of scale efficiency, indicating insufficient use of knowledge as a major reason for inefficiency in opportunity recognition. The Tobit regressions show that sales and research and development intensity are relevant to a firm’s opportunity recognition efficiency. Research limitations/implications: This study calls for the investigation of efficiency issues in opportunity recognition and suggests that managers guard against unwarranted loss of opportunities owing to inefficient use of existing knowledge elements. Originality/value: First, the authors introduce the concept of opportunity recognition efficiency within the entrepreneurial process. Second, they manifest the role of knowledge management in opportunity recognition. Third, they introduce DEA to investigate the relationship between knowledge stock and opportunity recognition. Fourth, this study reveals that inefficient use of knowledge is a disadvantage of small Chinese firms in terms of opportunity recognition.