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Market Orientation and Internationalization in SME

Market Orientation and Internationalization in SME

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Published by schowdhury386
This article builds on studies from the literature on market orientation (MO) and internationalization to develop a model and a set of hypotheses regarding the relationships
among MO, knowledge acquisition (KA), and market commitment (MC), and the direct and indirect effects of these variables on the performance of small and medium-sized enterprises (SMEs) in foreign markets. The model and its hypotheses are tested by means of an empirical study of a multi-industry sample of Spanish SMEs
operating in foreign markets. The results, obtained by structural equation modeling,
indicate that a direct positive relationship exists between MO and a strategy of internationalization, and that the effect of MO on performance in foreign markets is
moderated by KA and MC.
This article builds on studies from the literature on market orientation (MO) and internationalization to develop a model and a set of hypotheses regarding the relationships
among MO, knowledge acquisition (KA), and market commitment (MC), and the direct and indirect effects of these variables on the performance of small and medium-sized enterprises (SMEs) in foreign markets. The model and its hypotheses are tested by means of an empirical study of a multi-industry sample of Spanish SMEs
operating in foreign markets. The results, obtained by structural equation modeling,
indicate that a direct positive relationship exists between MO and a strategy of internationalization, and that the effect of MO on performance in foreign markets is
moderated by KA and MC.

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Published by: schowdhury386 on Mar 13, 2010
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09/27/2010

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 MarketOrientationandInternationalizationinSmallandMedium-SizedEnterprises
by Julia M. Armario, David M. Ruiz, and Enrique M. Armario
This article builds on studies from the literature on market orientation (MO) and internationalization to develop a model and a set of hypotheses regarding the rela-tionships among MO, knowledge acquisition (KA), and market commitment (MC),and the direct and indirect effects of these variables on the performance of small and medium-sized enterprises (SMEs) in foreign markets. The model and its hypotheses are tested by means of an empirical study of a multi-industry sample of Spanish SMEs operating in foreign markets. The results, obtained by structural equation modeling,indicate that a direct positive relationship exists between MO and a strategy of internationalization, and that the effect of MO on performance in foreign markets is moderated by KA and MC.
 Introduction
 There are two major perspectiveson the process of internationalization of small and medium-sized enterprises(SMEs). The first perceives the interna-tionalization of SMEs as being a sequen-tial process that leads from a domesticmarket to international markets in accor-dance with a “learning process,” where-by knowledge of the new markets isacquired and resources are increasinglycommitted to those markets (Johansonand Vahlne 1990, 1977; Cavusgil 1980;Bilkey and Tesar 1977). The secondperspective, derived from the inter-national entrepreneurship literature, con-tends that a firm can be “born global”(Rialp, Rialp, and Knight 2005; Andersson and Wictor 2003; McDougall,Oviatt, and Shrader 2003; Kuemmerle2002; McDougall and Oviatt 2000;Madsen and Servais 1997; Knight andCavusgil 1996; McDougall, Shane, andOviatt 1994). The current state oresearch suggests that, in mature indus-tries in which environmental change isminimal, the sequential perspective on
 Julia M. Armario is associate professor of Business and Economics at the University of Malaga, Spain.David M. Ruiz is associate professor in marketing at the University of Seville.Enrique M. Armario is senior lecturer in marketing at the University of Seville. Address correspondence to: Enrique M. Armario, University of Seville, C/ S. Fernando, 4,C.P. 41004-Seville, Spain. E-mail:earmario@us.es.
 Journal of Small Business Management 2008 46(4), pp. 485–511
 ARMARIO, RUIZ, AND ARMARIO 485
 
internationalization is more appropriate, whereas, in growing industries, thesecond perspective provides a betterunderstanding of the internationalizationphenomenon. This assessment of theapplicability of the two perspectives ispredicated on the observation that, in theearlier stages, the internationalization of SMEs can be influenced by the life-cyclestage of the industry (Andersson 2004).Research has also shown that thepossession of certain competencies canfacilitate the development of a com-pany’s internationalization strategy, espe-cially in the earlier stages of the process(Li, Li, and Dalgic 2004; Yip, Gómez, andMonti 2000). The present study contrib-utes to this line of research by investigat-ing whether market orientation (MO),understood as a specific corporate com-petence, constitutes an antecedent tointernationalization in SMEs.From a behavioral perspective, MOhas been defined as “the organization- wide generation of market intelligencepertaining to current and futurecustomer needs, dissemination of theintelligence across departments, andorganization-wide responsiveness to it”(Kohli and Jaworski 1990). As such, MOcan also be understood as a companyresourcebecause, in terms of thetheory of the resource-based view (RBV),MO is an intangible property of the firmthat enables it to manage market infor-mation and deliver value to its customers(Hunt and Lambe 2000). In this regard,market-oriented behaviors facilitate orga-nizational learning and enhance marketknowledge (Day 1994). The acquisitionof such knowledge in a single, specificcontext is not as relevant as the acquisi-tion of the ability to analyze, understand,and respond to a range of contexts. Inother words, companies must learn tolearn. The present study aims to establish whether this learning process can beapplied to foreign markets—thus sup-porting an SME’s internationalizationstrategy. The first objective of the studyis therefore to develop a model that linksan SME’s overall MO with its internation-alization strategy, and the second objec-tive is to explore the joint effect of thesefactors on an SME’s performance inforeign markets.Given that the sample of SMEs used inthe present study belonged to matureindustries, it is presumed that they havefollowed the sequential-learning ap-proach in their internationalization(Andersson 2004). In this context, threeresearch questions are posed:(1) Does an overall MO facilitateknowledge acquisition (KA) inforeign markets?(2) Does an overall MO foster organi-zational commitment towardforeign markets?(3) Does an overall MO improve perfor-mance in foreign markets? To address these questions, a modelis developed, and this is tested in anempirical study of a multi-industrysample of Spanish SMEs operating inforeign markets. The remainder of this article is orga-nized as follows. Following this intro-duction, the next section reviews therelevant literature on the international-ization of SMEs, the concept of MO, andthe relationship between the two. Theresearch objectives and hypotheses arethen proposed, followed by the presen-tation of the proposed model. This isfollowed by an explanation of the meth-odology used in the empirical study. Ananalysis of the results of the study is thenprovided. The article concludes with adiscussion of the major findings of thestudy, its limitations, and suggestions forfuture research arising from it.
 Literature Review 
Internationalization of SMEs
 As stated in the introduction, there aretwo major streams of research on the JOURNAL OF SMALL BUSINESS MANAGEMENT486
 
internationalization of SMEs—(1) inter-nationalization as a learning process byan SME; and (2) internationalization fromthe time of creation of an SME. The
first stream
focuses on internalorganizational factors, especially duringthe incremental process of learning inthe earlier stages of internationalization. Within this stream, certain specific con-tributions can be identied. Theseinclude the “lifecycle model(Vernon1966), the ethno-centrism, regio-centrism, poly-centrism, geo-centrism(ERPG) model” (Wind, Douglas, andPerlmutter 1973), the “innovation model”(Rogers 1962), and the “Uppsala model”(Johanson and Vahlne 1977; Johansonand Wiedersheim-Paul 1975). The pre-sent study rests on the last of these, the“Uppsala model,” in developing its theo-retical framework. The Uppsala model is based on orga-nizational behavioral theory (Cyert andMarch 1963). According to the model,the process of internationalization isunderstood as a causal cycle in whicha rms knowledge is posited as anexplanatory variable. Essentially, compa-nies initially develop in their domesticmarkets, and internationalization is aconsequence of subsequent incrementaldecisions. Such decisions are limited bytwo factors—information and resources.It follows that the major barriers to inter-nationalization are a lack of informationand a scarcity of resources.Lack of information and scarcity of resources generates uncertainty. To mini-mize its risks, a firm is likely to begin itsinternationalization by choosing marketsthat exhibit less uncertainty. Companies with little international experience would rather enter markets that resembletheir domestic markets. In this regard,the concept of “psychological distance”becomes important in the early stages of the internationalization process. “Psy-chological distance” can be defined as agroup of factors—such as language,culture, politics, and so on—that hinderthe flow of information between thecompany and the market. Once thecompany has acquired internationalexperience, its decisions on market entryare likely to be more dependent on otherfactorssuch as market size or theglobal economic climate.In summary, the Uppsala model firstdescribes a firm’s sequence of entry intoforeign markets (in terms of the conceptof “psychological distance”), and thendescribes the subsequent incrementalcommitment of a firm to foreign markets(in terms of other factors).Models that portray the international-ization of SMEs as a steady process havebeen criticized for being deterministicand for paying insufficient attention toparticular contexts. Andersen (1993), forexample, has criticized the underlyingtheoretical weakness of all processmodels and the lack of coherencebetween theory and practice. In spite of this criticism, there is empirical evidencethat many SMEs have internationalizedin incremental stages (Korhonen, Luo-starinen, and Welch 1996; Crick 1995;Larimo 1991; Erramilli and Rao 1990;Luostarinen 1980; Wiedersheim-Paul,Olson, and Welch 1978; Bilkey and Tesar1977; Weinstein 1977). In particular,SMEs in mature industries are morelikely to follow such a sequential process(Andersson 2004). The
second stream
of research drawson the international entrepreneurshipliterature and argues that an SME can beinternational from its creation (Rialp,Rialp, and Knight 2005; Anderssonand Wictor 2003; McDougall, Oviatt,and Shrader 2003; Kuemmerle 2002;McDougall and Oviatt 2000; Madsen andServais 1997; Knight and Cavusgil 1996;McDougall, Shane, and Oviatt 1994). These companies have been described in various ways: (1) “born global” (Anders-son and Wictor 2003; Madsen and Servais1997; Knight and Cavusgil 1996); (2)“global start-ups” (Oviatt and McDougall1994); (3) “international new ventures” ARMARIO, RUIZ, AND ARMARIO 487

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