When Ethical Meets Entrepreneurial: How SME Leaders in Resource-Constrained Economies Can Build Sustainable Competitive Advantage
by Szilárd Podruzsik
In Jordan’s challenging business environment – marked by severe water scarcity, high unemployment, and the integration of over 1.3 million refugees – SMEs face an uncomfortable truth: approximately 70% fail within their first five years. Yet new research suggests that the path to survival and success lies not in choosing between entrepreneurial dynamism and ethical responsibility, but in strategically integrating both.
Small and medium enterprises (SMEs) constitute the backbone of emerging economies, representing over 95% of registered businesses worldwide and contributing significantly to national income and employment in developing countries. In Jordan specifically, SMEs account for 98% of all registered businesses, contribute 40% to GDP, and employ nearly 60% of the private sector workforce. Despite their critical importance, these enterprises face alarmingly high failure rates, particularly in resource-constrained environments where traditional competitive strategies may be limited.
The Integration Challenge
The contemporary business landscape increasingly demands that organizations integrate sustainable practices and ethical leadership as fundamental drivers of success. However, for SME leaders in emerging economies, this creates a seemingly impossible balancing act. How do you pursue innovative, entrepreneurial growth while simultaneously maintaining ethical standards and sustainable practices – all while operating with severe resource constraints?
Recent research published in Sustainability investigated this precise challenge through a study of 312 SME leaders across Jordan’s manufacturing, services, technology, and trading sectors. The findings challenge conventional assumptions about the relationship between entrepreneurial capability, ethical conduct, and sustainable development.
Entrepreneurial Skills as Foundation
The research identifies five critical entrepreneurial leadership dimensions: innovativeness, creativity, analytical thinking, emotional intelligence, and passion and motivation. Rather than existing in tension with ethical behaviour, these entrepreneurial competencies actually serve as antecedents to ethical leadership. The study reveals three specific mechanisms through which this occurs:
Cognitive enhancement: Analytical thinking enables better assessment of the ethical implications of business decisions, allowing leaders to anticipate consequences beyond immediate financial outcomes.
Emotional competence: Emotional intelligence facilitates deeper understanding of stakeholder perspectives, creating the foundation for fairness and social responsibility that characterizes ethical leadership.
Motivational alignment: Passion and commitment drive leaders toward long-term value creation rather than short-term exploitation, naturally aligning entrepreneurial energy with sustainable outcomes.
The Critical Role of Ethical Leadership
The research demonstrates that ethical entrepreneurial leadership serves as a critical mediating mechanism, accounting for 44.3% of the influence that entrepreneurial skills exert on sustainable development outcomes. This finding is particularly significant for emerging economies, where ethical leadership ensures that entrepreneurial capabilities serve broader societal goals rather than purely economic objectives.
Ethical leadership provides what the researchers describe as the “missing link”- the mechanism through which leader characteristics translate into organizational sustainability outcomes. This operates through three pathways:
Moral framing: Channelling innovation toward opportunities that are sustainable rather than exploitative. Stakeholder integration: Incorporating multiple perspectives into decision-making processes. Long-term orientation: Moderating short-term profit focus in favour of enduring value creation
From Sustainability to Competitive Advantage
Perhaps most compelling for practitioners is the finding that corporate sustainable development strongly enhances competitive advantage, with sustainability initiatives explaining 45.4% of the variance in competitive positioning. This relationship operates through several mechanisms: improved operational efficiency, reduced business risks, stronger stakeholder relationships, and enhanced brand reputation.
In resource-constrained environments like Jordan, where businesses face severe water scarcity, limited energy resources, and high operational costs, sustainability becomes not merely desirable but critical for survival. The research demonstrates that SMEs implementing sustainable practices – encompassing resource utilization, environmental conservation, employee care, and social governance -create tangible business value that competitors struggle to replicate.
Practical Implications for Policy and Practice
The research offers concrete guidance for both policymakers and SME leaders. Jordan’s policymakers should develop integrated leadership training programs that simultaneously build entrepreneurial competencies and ethical reasoning capabilities, while establishing certification programs and incentive structures that reward SMEs demonstrating both entrepreneurial innovation and ethical governance.
For SME leaders themselves, the message is clear: sustainable competitive advantage emerges through systematic integration rather than trade-offs. Leaders should focus on developing the five entrepreneurial dimensions identified in the research while establishing ethical frameworks including stakeholder consultation mechanisms and transparency reporting systems. Implementation should follow the sequential model validated by the research: entrepreneurial skill development leads to enhanced ethical leadership capacity, which drives sustainable development practices that ultimately create competitive advantage.
Rethinking Resource-Based Strategy
The theoretical contribution extends beyond the immediate context of Jordanian SMEs. The research enriches resource-based view theory by demonstrating how intangible leadership capabilities – the combination of entrepreneurial and ethical competencies – create sustainable competitive advantage even when traditional resources are scarce. This challenges classical resource-based thinking that emphasizes tangible assets, showing instead how resource orchestration, dynamic capability development, and stakeholder resource access can substitute for traditional resource endowments.
Looking Forward
As global markets increasingly demand Environmental, Social, and Governance (ESG) compliance, and as the 2025 sustainability trends emphasize moving from goal-setting to implementation, the integration of entrepreneurial dynamism with ethical responsibility becomes not merely advantageous but essential for emerging economy SMEs seeking international partnerships and market access.
The study acknowledges important limitations, including its cross-sectional design and single-country focus, suggesting that longitudinal research and cross-cultural comparative studies would strengthen understanding of these relationships. Nevertheless, the findings demonstrate that in resource-constrained environments, sustainable competitive advantage emerges through the systematic integration of entrepreneurial capabilities, ethical leadership practices, and sustainability initiatives -providing a foundation for responsible business leadership that balances economic prosperity with social and environmental stewardship.
For the 70% of Jordanian SMEs that currently fail within five years, this research offers a roadmap. The path forward lies not in choosing between entrepreneurial success and ethical responsibility, but in recognizing that in the contemporary business environment, they are inseparable foundations of sustainable competitive advantage.
This blog post is based on research by Thabit Atobishi and Szilard Podruzsik published in Sustainability (2025). The study was supported by King Faisal University, Saudi Arabia (Grant No. KFU252317).
