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International marketing in the Asia-Pacific region
Guest Editors: Paul Chao, Saeed Samiee and Leslie Sai-Chung Yip
International Marketing Review
International marketing in the Asia-Pacific region Guest Editors Paul Chao, Saeed Samiee and Leslie Sai-ChungYip
ISSN 0265-1335 Volume 20 Number 5 2003
Access this journal online __________________________ 467 Editorial advisory board ___________________________ 468 Abstracts and keywords ___________________________ 469 French abstracts___________________________________ 471 Spanish abstracts __________________________________ 474 Japanese abstracts_________________________________ 477 International marketing and the Asia-Pacific Region: developments, opportunities, and research issues
Paul Chao, Saeed Samiee and Leslie Sai-Chung Yip ___________________
Export market-oriented behavior and export performance: the moderating roles of competitive intensity and technological turbulence
John W. Cadogan, Charles C. Cui and Erik Kwok Yeung Li _____________
The relationship between strategic type and firm capabilities in Chinese firms
C. Anthony Di Benedetto and Michael Song __________________________
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A cross-cultural comparison of Internet buying behavior: effects of Internet usage, perceived risks, and innovativeness
Cheol Park and Jong-Kun Jun _____________________________________
The effect of FDI inflows and ICT infrastructure on exporting in ASEAN/AFTA countries: a comparison with other regional blocs in emerging markets
Taewon Suh and Omar J. Khan ___________________________________
Awards for Excellence _____________________________ 572
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EDITORIAL ADVISORY BOARD David Ballantyne Melbourne Business School, Australia Professor Jean J. Boddewyn The City University of New York, USA Dr Marylyn Carrigan University of Birmingham, UK
EDITORIAL REVIEW PANEL Dr Jim Bell Magee College, University of Ulster, UK Dr Roger Bennett London Guildhall University, UK Professor Paul Chao University of Northern Iowa, USA Dr Irvine Clark III James Madison University, USA Dr John B. Ford Old Dominion University, Norfolk, USA Dr June Francis Simon Fraser University, Burnaby, BC, Canada Professor George T. Haley University of New Haven, USA Professor E. Kaynak Pennsylvania State University, USA Professor Leonidas Leonidou University of Cyprus, Cyprus Professor Dale Littler UMIST, UK Professor Thomas J. Maronick Towson State University, USA Professor Hans Muhlbacher University of Innsbruck, Austria Dr Helen Perks UMIST, UK Professor C.P. Rao Kuwait University, Kuwait Professor Ronald Savitt University of Vermont, USA Dr Vivienne Shaw University of Otago, New Zealand Dr K. Sivakumar Lehigh University, Pennsylvania, USA Dr Chris Styles University of New South Wales, Australia Dr Isabelle Szmigin University of Birmingham, UK Professor Michael J. Thomas University of Strathclyde, UK Dr P.M. Williamson Liverpool John Moores University, UK Professor James E. Wills Jr University of Hawaii, USA
Professor Tevfic Dalgic University of Texas at Dallas, USA Professor Adamantios Diamantopoulos Loughborough University Business School, UK Professor Manucher Farhang Lulea University of Technology, Sweden Professor Krzysztof Fonfara Wielkopolska Business School, Poland Professor Nigel J. Holden Copenhagen Business School, Denmark Professor Constantine S. Katsikeas University of Wales, UK Sam Okoroafo University of Toledo, USA Professor Stan Paliwoda University of Birmingham, UK Professor K.N. Rajendran The University of Northern Iowa, USA Professor Ilkka Ronkainen Georgetown University, USA Professor Saeed Samiee University of Tulsa, USA Professor Bodo B. Schlegelmilch Wirtschaftsuniversitat, Wien, Austria ¨ Professor Vern Terpstra University of Michigan, USA Professor Sandra Vandermerwe Imperial College, University of London, UK
International Marketing Review Vol. 20 No. 5, 2003 p. 468 # MCB UP Limited 0265-1335
International marketing and the Asia-Paciﬁc Region: developments, opportunities, and research issues Paul Chao, Saeed Samiee and Leslie Sai-Chung Yip Keywords Asia-Paciﬁc, Electronic commerce, Brands, Multinational companies, International marketing This study is motivated by the theme of this special issue of International Marketing Review, which highlights the enormous economic success of Asia-Paciﬁc nations and their emergence as global marketers of the twenty-ﬁrst century. The success of ﬁrms situated in these nations has been even more pronounced since the 1990. This study highlights international marketing developments, opportunities, and research issues that warrant closer attention. In examining the topic, highlights a number of important developments including technological innovations, the penetration and inﬂuence of the Internet and electronic commerce in the region, the emergence of Asian multinational companies, the development of Asian brands, the importance of relationships and networks for ﬁrms in this region, and their greater international integration and cooperation with the rest of the world. International marketing research considerations pertaining to the Asia-Paciﬁc Region are explored in each section, as well as in the conclusions.
predictors of several dimensions of export performance. In particular, it appears that this behavior is most important for exporters operating under conditions of high environmental turbulence. The export market-oriented behavior – export performance relationship for these ﬁrms, was generally positive and strong. However, under conditions of low environmental turbulence, the costs of developing and implementing high levels of export market-oriented behavior may outweigh the beneﬁts accrued.
Abstracts and keywords
Export market-oriented behavior and export performance: the moderating roles of competitive intensity and technological turbulence John W. Cadogan, Charles C. Cui and Erik Kwok Yeung Li Keywords Export markets, Behaviour, Environmental regulations, Hong Kong This study examines the issue of how export market-oriented behaviors inﬂuence export success. Using survey data obtained from Hong Kong based manufacturing exporters, our ﬁndings suggest that export market-oriented behaviors are important
The relationship between strategic type and ﬁrm capabilities in Chinese ﬁrms C. Anthony Di Benedetto and Michael Song Keywords Strategic choices, Company performance, China, Strategic management, Decision making Proposes that ﬁrms of different Miles and Snow strategic types will have different bundles of ﬁrm-level capabilities; that is, certain capabilities will be more important to certain strategic types. Speciﬁcally, proposes that prospectors have greater relative inside-out capabilities and information technology capabilities, while defenders have greater relative outside-in capabilities and marketing capabilities. Empirically tests, and ﬁnds support for, the propositions using a data set of 245 Chinese ﬁrms, comprised mostly of state-owned enterprises. Understanding the Chinese business environment is of importance to businesses around the world as the Chinese economy undergoes rapid expansion and decentralization of strategic decision making to the level of the state-owned enterprise. As the central government takes on a lesser role in the management of enterprises, and Chinese enterprise managers become more responsible for their own strategic decision making, a clear understanding of the enterprise’s speciﬁc capabilities and advantages is required in order to achieve sustained competitive advantage. Concludes by discussing managerial implications.
International Marketing Review Vol. 20 No. 5, 2003 Abstracts and keywords q MCB UP Limited 0265-1335
A cross-cultural comparison of Internet buying behavior: effects of Internet usage, perceived risks, and innovativeness Cheol Park and Jong-Kun Jun Keywords Internet marketing, Republic of South Korea, United States of America, Perceived risks, Innovation, Online catalogues This research attempted to examine differences in Internet usage, Internet innovativeness, perceived risks of Internet buying, and Internet buying behaviors between Korea and America, and to identify a model for factors inﬂuencing Internet buying behavior, explained by Internet usage, perceived risks, and innovativeness on a cross-cultural basis. Results showed that there were signiﬁcant differences in Internet usage and the perceived risks of Internet shopping, but no signiﬁcant differences in Internet buying intentions or online buying experience between Korean and American consumers. Nonetheless, analyzing a regression model of factors inﬂuencing Internet buying behavior, and cultural differences in effects of Internet usage and perceived risks on Internet buying behavior were found. While there were main effects of Internet usage and perceived risk on Internet buying behavior, these effects were weaker or even opposite to those related to Korean samples. The implications of the study are discussed and further research suggested.
The effect of FDI inﬂows and ICT infrastructure on exporting in ASEAN/AFTA countries: a comparison with other regional blocs in emerging markets Taewon Suh and Omar J. Khan Keywords Foreign exchange options, Export markets, Globalization This paper explores the impact of both the increase in foreign direct investment inﬂows and the increase in information and communication technology infrastructure investments on exporting in ASEAN nations (the trade bloc of which is known as AFTA) compared with two other major trade blocs: CEFTA and LAIA. The analyses are based on data from a cross section of countries (26 emerging markets from three trade blocs) over time (from 1995 to 2000). The results show that the increase of investments in ICT infrastructure yields positive and signiﬁcant returns in the national exporting level only for the ASEAN/AFTA and CEFTA sample. Interestingly, the impact of the increase of FDI inﬂows on export is signiﬁcant only in the CEFTA and LAIA samples. These results are discussed in the light of the different economic experiences of these trade blocs, noting that variations are typically present between individual countries. Overall, reﬂecting the results from this study, research concerned with the determinants of national exporting level should be conducted independently, along with regional and national characteristics.
´ ´ Mercatique Internationale et la Region d’Asie Pacifique: developpements, ´ possibilites et questions de recherche Paul Chao, Saeed Samiee et Leslie Sai-Chung Yip ´ Mots-cles Asie Pacifique, Commerce electronique, Marques, Societes multinationales, ´ ´ ´ Mercatique internationale L’etude que voici est motivee par le theme du numero special que voici de la Revue ´ ´ ` ´ ´ Internationale de Mercatique, qui met en evidence le succes economique enorme remporte par ´ ` ´ ´ ´ les nations d’Asie Pacifique et leur apparition en tant que mercaticiens du vingt-et-unieme siecle ` ` au niveau mondial. Le succes des entreprises etablies dans ces nations est de plus en plus ` ´ prononce depuis les annees 1990. L’etude que voici met en evidence les developpements en ´ ´ ´ ´ ´ mercatique internationale, les possiblities qui s’offrent et les questions de recherche qui meritent ´ ´ d’etre considerees de plus pres. En examinant le sujet, nous soulignons toute une serie de ˆ ´ ´ ` ´ developppements importants, notamment les innovations technologiques, la penetration et ´ ´ ´ l’influence de l’Internet et du commerce electronique dans la region, l’apparition de societes ´ ´ ´´ multinationales asiatiques, le developpement de marques asiatiques, l’importance des rapports ´ et des reseaux pour les firmes etablies dans la region en question, ainsi que l’accroissement de ´ ´ ´ leur integration internationale et de leur cooperation avec le reste du monde. Nous explorons ´ ´ dans chaque section, ainsi que dans nos conclusions, les considerations de recherche en ´ mercatique internationale, qui ont trait a la region d’Asie Pacifique. ` ´ ´ ´ ` Comportement d’exportation oriente vers le marche et performance a ˆ ´ ´ ´ l’exportation: les roles moderateurs de l’intensite competitive et de la turbulence technologique John W. Cadogan, Charles C. Cui et Erik Kwok Yeung Li ´ Mots-cles Marches d’exportation, Comportement, ´ Reglements concernant l’environnement, Hong Kong ` L’etude que voici examine la question de savoir comment les comportements d’exportation ´ orientes vers le marche influencent le succes des exportations. Nous nous sommes servis de ´ ´ ` donnees obtenues au moyen d’un sondage entrepris aupres de fabricants exportateurs etablis a ´ ` ´ ` Hong Kong; nos resultats suggerent que les comportements d’exportation orientes vers le ´ ` ´ marche constituent des facteurs importants permettant de predire plusieurs dimensions de la ´ ´ performance a l’exportation. Il semble surtout que ce comportement soit le plus important pour ` les exportateurs fonctionnant dans des conditions de haute turbulence ecologique. D’une ´ maniere generale, il y avait, pour ces entreprises, un rapport positif et puissant entre le ` ´ ´ comportement d’exportation oriente vers le marche et la performance a l’exportation. ´ ´ ` Cependant, dans des conditions de turbulence ecologique faible, les couts representes par le ´ ˆ ´ ´ developpement et la mise en pratique de niveaux eleves de comportement d’exportation oriente ´ ´ ´ ´ vers le marche risquent de depasser les avantages retires. ´ ´ ´ ´ ´ Le rapport qui existe entre le type strategique et les capacites de la firme dans les firmes chinoises C. Anthony Benedetto et Michael Song ´ Mots-cles Choix strategiques, Performance de l’entreprise, Chine, Gestion strategique, ´ ´ Prise de decisions ´ Dans l’etude que voici, nous proposons que les firmes appartenant a differents types ´ ` ´ strategiques, selon Miles et Snow, auront differents lots de capacites au niveau de la firme; c’est´ ´ ´
International Marketing Review Vol. 20 No. 5, 2003 French abstracts # MCB UP Limited 0265-1335
a-dire que certaines capacites seront plus importantes pour certains types strategiques. Plus ` ´ ´ particulierement, nous proposons que les prospecteurs possedent de plus grandes capacites ` ` ´ d’externalisation relatives et de plus grandes capacites informatiques, tandis que les defendeurs ´ ´ ont de plus grandes capacites d’internalisation relatives et de plus grandes capacites de ´ ´ mercatique. Nous mettons nos propositions a l’essai de maniere empirique et les renforcons par ` ` ¸ des preuves, en nous servant d’un ensemble de donnees provenant de 245 firmes chinoises, ´ comprenant surtout des entreprises de l’etat. Il importe que les firmes dans le monde entier ´ comprennent l’environnement commercial chinois, tandis que l’economie chinoise subit une ´ expansion rapide et une decentralisation de la prise de decisions strategiques au niveau de ´ ´ ´ l’entreprise de l’etat. Tandis que le gouvernement central assume un role reduit dans la gestion ´ ˆ ´ des entreprises et que les directeurs d’entreprises chinoises deviennent de plus en plus responsables pour leur propre prise de decisions strategiques, il s’agit de comprendre clairement ´ ´ les capacites et avantages specifiques a l’entreprise, afin d’obenir un avantage competitif ´ ´ ` ´ durable. Nous concluons en discutant les implications pour les directeurs d’entreprises.
Une comparaison transculturelle du comportement d’achat par Internet: effets de `re l’utilisation de l’Internet, risques percus et caracte innovateur ¸ Cheol Park et Jong-Kun Jun ´ ´ Mots-cles Mercatique par Internet, republique de la Coree du sud, Etats-Unis, Risques percus, ´ ´ ¸ Innovation, Catalogues en ligne La recherche que voici s’efforce d’examiner les differences qui existent, entre la Coree et ´ ´ l’Amerique, dans l’utilisation de l’Internet, le caractere innovateur de l’Internet, les risques ´ ` percus que posent les achats par l’Internet, et les comportements d’achat par Internet; elle ¸ cherche a identifier un modele pour les facteurs qui influencent le comportement d’achat par ` ` Internet, tel qu’il est explique par l’utilisation de l’Internet, les risques percus et le caractere ´ ¸ ` innovateur, sur une base transculturelle. Nos resultats indiquaient qu’il y avait de grosses ´ differences dans l’utilisation de l’Internet et les risques percus des achats par Internet, entre les ´ ¸ consommateurs coreens et americains, mais qu’il n’existait aucune difference importante dans ´ ´ ´ les intentions d’achat par Internet ou l’experience d’achat en ligne. Cependant, en analysant un ´ modele de regression des facteurs qui influencent le comportement d’achat par Internet, nous ` ´ avons trouve des differences culturelles dans les effets de l’utilisation de l’Internet et les risques ´ ´ percus sur le comportement d’achat par Internet. Tandis qu’il s’agissait des effets principaux de ¸ l’utilisation de l’Internet et des risques percus du comportement d’achat par Internet, ces effets ¸ etaient plus faibles, ou meme contraires, par rapport aux effets ayant trait aux echantillons ´ ˆ ´ core ´ens. Nous avons discute les implications de l’e ´ ´tude et sugge ´ des recherches ´re supplementaires. ´
´ L’effet produit par les afflux d’investissements directs etrangers et l’infrastructure pour la technologie de l’information et de la communication sur les exportations dans les pays de l’ANASE/AFTA: une comparaison avec d’autres ´ ´ blocs regionaux dans les marches naissants Taewon Suh et Omar J.Khan ´ Mots-cles Options de change, Marches d’exportation, Globalisation ´ L’article explore l’impact produit sur les exportations dans les nations ANASE (dont le bloc ´ commercial est connu sous le nom d’AFTA Zone de Libre-Echange Asiatique) par les afflux croissants d’investissements directs etrangers et l’augmentation des investissements en ´ infrastructure pour la technologie de l’information et de la communication, par rapport a `
deux autres blocs commerciaux principaux: l’ALECE et la LAIA (Association latino-americaine ´ d’integration). Les analyses se fondent sur des donnees provenant d’un groupe representatif de ´ ´ ´ pays (26 marches naissants appartenant a trois blocs commerciaux) au cours d’une periode ´ ` ´ determinee (de 1995 a 2000). Les resultats indiquent que l’augmentation des investissements en ´ ´ ` ´ infrastructure pour la technologie de l’information et de la communication ne produit des resultats positifs et significatifs dans le niveau d’exportation national que pour l’echantillon de ´ ´ l’ANASE/AFTA et de l’ALECE. Ce qui est interessant, c’est que l’impact produit par les afflux ´ croissants d’investissements directs etrangers sur les exportations n’est important que dans les ´ echantillons ALECE et LAIA. Nous discutons ces resultats a la lumiere des differentes ´ ´ ` ` ´ experiences economiques de ces blocs commerciaux, en observant qu’il existe des variations ´ ´ typiques entre les divers pays. Dans l’ensemble, pour refleter les resultats de cette etude, toute ´ ´ ´ recherche traitant des facteurs qui determinent le niveau d’exportation national devrait etre ´ ˆ menee independamment et inclure les caracteristiques regionales et nationales. ´ ´ ´ ´
´ ´ Marketing internacional y la region de Asia-Pacıfico: desarrollos, oportunidades y ´ cuestiones de investigacion Paul Chao, Saeed Samiee y Leslie Sai-Chung Yip
Palabras clave Asia-Pacıfico, comercio electronico, marcas, empresas multinacionales, ´ ´ marketing internacional Este estudio esta motivado por el tema de esta edicion especial de International Marketing ´ ´ Review, que destaca el enorme exito economico de las naciones de Asia-Pacıfico y su ´ ´ ´ surgimiento como comercializadoras globales del siglo XXI. El exito de las empresas situadas ´ en estas naciones ha sido aun mas pronunciado desde 1990. Este estudio destaca los desarrollos, ´ ´ oportunidades y cuestiones de investigacion del marketing internacional que merecen una ´ mayor atencion. Al examinar el tema, ponemos de relieve una serie de desarrollos importantes, ´ incluyendo innovaciones tecnologicas, la penetracion e influencia de Internet y el comercio ´ ´ electronico en la region, el surgimiento de empresas multinacionales asiaticas, el desarrollo de ´ ´ ´ marcas asiaticas, la importancia de las relaciones y las redes para las empresas de esta region, y ´ ´ su mayor integracion y cooperacion internacional con el resto del mundo. Se exploran ´ ´ consideraciones de investigacion del marketing internacional relacionadas con la region de ´ ´ Asia-Pacıfico en cada seccion, ası como en nuestras conclusiones. ´ ´ ´
´ Comportamiento orientado hacia el mercado de exportacion y rendimiento de ´ exportacion: las funciones moderadoras de la intensidad competitiva y la ´ turbulencia tecnologica John W. Cadogan, Charles C. Cui y Erik Kwok Yeung Li Palabras clave Mercados de exportacion, comportamiento, reglamentos medioambientales, ´ Hong Kong Este estudio examina la cuestion de como los comportamientos orientados hacia el mercado de ´ ´ exportacion influyen sobre el exito exportador. Nuestros descubrimientos, utilizando datos de ´ ´ encuestas obtenidos de exportadores fabriles ubicados en Hong Kong, sugieren que los comportamientos orientados hacia el mercado de exportacion son pronosticadores importantes ´ de varias dimensiones del rendimiento exportador. En particular, parece que dicho comportamiento es mas importante para exportadores que operan bajo condiciones de gran ´ turbulencia medioambiental. El comportamiento orientado hacia el mercado de exportacion la ´ relacion de rendimiento exportador de estas empresas fue generalmente positivo y fuerte. No ´ obstante, bajo condiciones de baja turbulencia medioambiental, los costes de desarrollar e implantar niveles altos de comportamiento orientado hacia el mercado de exportacion pueden ´ superar los beneficios obtenidos.
´ ´ La relacion entre el tipo estrategico y las capacidades empresariales en empresas chinas C. Anthony Benedetto y Michael Song
International Marketing Review Vol. 20 No. 5, 2003 Spanish abstracts # MCB UP Limited 0265-1335
Palabras clave Elecciones estrategicas, rendimiento empresarial, China, gestion estrategica, ´ ´ ´ toma de decisiones En este estudio, proponemos que las empresas de diferentes tipos estrategicos de Miles y Snow ´ poseeran diferentes grupos de capacidades a nivel de empresa; es decir, ciertas capacidades ´
seran mas importantes para ciertos tipos estrategicos. Especıficamente, proponemos que las ´ ´ ´ ´ prospectoras tienen mayores capacidades relativas de ‘‘dentro-fuera’’, ası como capacidades ´ informaticas, mientras que las defensoras tienen mayores capacidades relativas de ‘‘fuera´ dentro’’ y capacidades de marketing. Ensayamos empıricamente, y encontramos apoyo para ´ nuestras proposiciones, utilizando un conjunto de datos de 245 empresas chinas compuestas principalmente por empresas propiedad del estado. Comprender el entorno de negocios chino es importante para los negocios de todo el mundo, a medida que la economıa china realiza una ´ rapida expansion y descentralizacion de la toma de decisiones estrategicas, hasta el nivel de las ´ ´ ´ ´ empresas propiedad del estado. A medida que el gobierno central desempena una menor ˜ funcion dentro de la gestion de empresas, y los gerentes empresariales chinos se hacen mas ´ ´ ´ responsables de su propia toma de decisiones estrategica, se requiere un entendimiento claro de ´ las capacidades y ventajas especıficas de la empresa para lograr una ventaja competitiva ´ sostenida. Concluimos con una discusion de las implicaciones gestoras. ´
´ Una comparacion transcultural del comportamiento de compra por Internet: ´ efectos del uso de Internet, riesgos percibidos e innovacion Cheol Park y Jong-Kun Jun Palabras clave Marketing de Internet, republica de Corea del sur, EE UU, riesgos percibidos, ´ innovacion, catalogos en lınea ´ ´ ´ Esta investigacion intento examinar las diferencias en el uso de Internet, el caracter innovador ´ ´ ´ de Internet, los riesgos percibidos de la compra por Internet, y los comportamientos de compra por Internet, entre Corea y America, ası como identificar un modelo para factores que influyen ´ ´ sobre el comportamiento de compra por Internet, explicado por el uso de Internet, los riesgos percibidos y el caracter innovador, sobre una base transcultural. Nuestros resultados mostraron ´ que existıan diferencias significativas en el uso de Internet y en los riesgos percibidos de la ´ compra por Internet, pero no diferencias significativas en las intenciones de compra por Internet o la experiencia de compra en lınea, entre los consumidores coreanos y americanos. No obstante, ´ se descubrieron diferencias analizando un modelo de regresion de factores que influyen sobre el ´ comportamiento de compra por Internet, y diferencias culturales en los efectos del uso de Internet y los riesgos percibidos en el comportamiento de compra por Internet. Aunque se observaron efectos principales del uso de Internet y el riesgo percibido en el comportamiento de compra por Internet, dichos efectos fueron mas debiles o incluso opuestos a aquellos ´ ´ relacionados con las muestras coreanas. Las implicaciones del estudio se discutieron y se sugirio mayor investigacion. ´ ´
´ El efecto de entradas de IED e infraestructura de TCI al exportar a paıses de ´ ASEAN/AFTA: una comparacion con otros bloques regionales en mercados emergentes Taewon Suh y Omar J. Khan Palabras clave Opciones de cambio extranjero, mercados de exportacion, globalizacion ´ ´ Este trabajo explora el impacto de las entradas de inversion extranjera directa (IED) y el ´ aumento de las inversiones en infraestructura de tecnologıa de comunicaciones e informatica ´ ´ (TCI), sobre la exportacion en naciones ASEAN (el bloque comercial conocido como AFTA) en ´ comparacion con otros dos bloques comerciales importantes: CEFTA y LAIA. Los analisis se ´ ´ basan en datos tomados de una seccion transversal de paıses (26 mercados emergentes de tres ´ ´
bloques comerciales) a traves del tiempo (de 1995 a 2000). Los resultados muestran que el ´ incremento de las inversiones en infraestructura de TCI ofrece unos beneficios positivos y significativos en el nivel de exportacion nacional, solo en la muestra ASEAN/AFTA y CEFTA. ´ ´ Peculiarmente, el impacto del aumento de entradas de IED en la exportacion solo es ´ ´ significativo en las muestras de CEFTA y LAIA. Estos resultados se discuten a la luz de las diferentes experiencias economicas de estos bloques comerciales, observando que tıpicamente ´ ´ se producen variaciones entre paıses individuales. En general, reflejando los resultados de este ´ estudio, deberıa realizarse independientemente investigacion relacionada con los determinantes ´ ´ del nivel de exportacion nacional, junto con las caracterısticas regionales y nacionales. ´ ´
International Marketing Review Vol. 20 No. 5, 2003 Japanese abstracts # MCB UP Limited 0265-1335
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International marketing and the Asia-Paciﬁc Region
Developments, opportunities, and research issues
University of Northern Iowa, Department of Marketing, Cedar Falls, Iowa, USA
College of Business Administration, The University of Tulsa, Tulsa, Oklahoma, USA, and
Leslie Sai-Chung Yip
Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Keywords Asia-Paciﬁc, Electronic commerce, Brands, Multinational companies, International marketing Abstract This study is motivated by the theme of this special issue of International Marketing Review, which highlights the enormous economic success of Asia-Paciﬁc nations and their emergence as global marketers of the twenty-ﬁrst century. The success of ﬁrms situated in these nations has been even more pronounced since the 1990. This study highlights international marketing developments, opportunities, and research issues that warrant closer attention. In examining the topic, highlights a number of important developments including technological innovations, the penetration and inﬂuence of the Internet and electronic commerce in the region, the emergence of Asian multinational companies, the development of Asian brands, the importance of relationships and networks for ﬁrms in this region, and their greater international integration and cooperation with the rest of the world. International marketing research considerations pertaining to the Asia-Paciﬁc Region are explored in each section, as well as in the conclusions.
International Marketing Review Vol. 20 No. 5, 2003 pp. 480-492 q MCB UP Limited 0265-1335 DOI 10.1108/02651330310498744
Over the last two decades an increasing number of Asian economies have adopted new economic policies that have bolstered their presence in the global marketplace. This development has received a great deal of press coverage and academicians are demonstrating greater interest in pursuing Asia-speciﬁc projects. Despite such coverage, little attention seems to have been paid to certain key developments in Asian economies that have positioned them for an even greater success in the years to come. An even sharper focus on Asia is timely and warranted for several reasons. As these markets are culturally and geographically removed from the traditional business centers of North America and Europe, detailed knowledge with respect to prevailing conditions in Asian markets is diluted and vague, if not lacking. Information ﬂow with regard to social, legal, and technological
progress in Asia continues to be limited. Furthermore, Asian markets include the two most populous nations of the world, which possess over one-third of the world’s population as well as enormous natural and human resources. More importantly, key Asian markets are developing at an accelerated rate that is rapidly expanding demand for all types of products and services. Concomitant with these developments is the need to pursue an intensive research agenda in Asia-Paciﬁc contexts. In this article, we aim to explore the developments, the opportunities, and the future research possibilities in Asian markets. Among others, we advocate the need for a greater focus on Asia-Paciﬁc research projects. Such an aggressive research agenda includes an (re)examination of existing and new concepts and theories to validate them within Asia-Paciﬁc contexts. By extension, such investigations also enrich our understanding of, and appreciation for, this very important region of the world. Clearly, given the vastness of the region and the presence of many different cultures and economic and political dynamics, we will only highlight the main elements pertaining to a few markets, rather than offering a comprehensive set of research topics or a full account of the events on the continent. In particular, we will focus on developments and conditions which will have a signiﬁcant inﬂuence on market opportunities in Asia. In doing so, we examine Asian-based technological innovations, the penetration and inﬂuence of the Internet and electronic commerce (e-commerce) in the region, the emergence of Asian multinational companies (MNCs), the development of Asian brands, the importance of relationships and networks, and the region’s greater international integration and cooperation with the rest of the world. In exploring each topic, we propose several research questions that will help shed light on important international marketing issues pertaining to Asia-Paciﬁc. Technological innovations Asian economies have dominated the market in a number of existing and emerging markets. Two examples from Japan demonstrate both the technological capability and the marketing savvy of Asian ﬁrms. In the mobile telephone market, NTT DoCoMo has been a clear leader in developing and marketing online telephones. The enormous success of the ﬁrm is reﬂected in the signiﬁcant market penetration of DoCoMo telephones among the Japanese. NTT DoCoMo has now developed the third generation of mobile telephones (3G) and is introducing it into global markets. Another example is the Japanese ﬁrms’ dominance in electronic games that were initially envisioned and developed by US ﬁrms (e.g. Atari and ColecoVision), but were manufactured in Asia. Such ﬁrms as Nintendo, Sega, and Sony have been uncontested leaders in this industry for nearly two decades. Although some competition from North America is now forthcoming, Japan continues to possess the lion’s share of the market. Indeed, attempts by such late-entrants as
Microsoft Xbox to compete in the crowded Japanese game console and software markets demonstrate how much US multinationals are following the lead of Asian ﬁrms while signifying the importance of Asian markets (Wildstrom, 2001). Technological innovations based in Singapore and Taiwan have also set the stage for greater inﬂuence in the shape of things to come. A Singaporean ﬁrm, Creative Technologies, for example, is the world’s largest maker of computer sound cards and its SoundBlaster card has become the standard for PC audio. The technological capabilities of Asian markets are backed by efﬁcient and low-cost manufacturing facilities and a large army of highly trained engineers and production workers. Malaysia, for example, has been the leading producer of memory chips for many years. Taiwan and Korea manufacture laptop computers under various well-known global brands of computers throughout the world. In China, Legend was initially a distributor of foreign PCs, but started manufacturing and selling its own computers in 1990 (Powell, 2002). Today, with its 28 percent market share, Legend is a formidable competitive force in the rapidly growing Chinese PC market (Knowledge@Wharton, 2003). According to IDC, Legend’s closest foreign competitor, Dell, with a manufacturing plant in China, had a market share of less than 6 percent at the end of 2002. These developments and conditions point to the technological agility and savvy in Asian markets. Western markets can no longer claim a technological monopoly that drives many products. If for no other reason, by virtue of controlling downstream activities, Asian countries can exert much inﬂuence on what is produced and how it is produced and marketed, and can introduce or even impose product standards and features for world markets. The dominance of Asian competitors in technology markets has largely gone unnoticed. It is noteworthy, for example, that seven out of the top ten global information technology (IT) ﬁrms (based on their performance over the last 12 months) are located in Southeast Asia (BusinessWeek, 2002a). The USA continues to be a major force in IT markets, but Asian countries are gaining fast. Just over one-half (51) of the ﬁrms in the list of top 100 IT ﬁrms are US-based. In spite of such technological advances, consumers in the West continue to hold poor or negative perceptions of products from most Asian countries. It is no secret that many Western consumers are leery of products manufactured in most Asian countries. However, Asian ﬁrms and governments are aware of this deﬁciency and have instituted quality processes and programs to address this shortcoming. Not surprisingly, they are increasingly noticed by such authoritative sources as Consumer Reports (Lundegaard, 2003). Korea and Taiwan, among other Asia-Paciﬁc nations, are understandably frustrated by the negative public perceptions regarding their products. In an attempt to counteract this negative bias, Taiwan has engaged in a series of
government-sponsored media campaigns in the USA to promote the quality of their products by reinforcing the notion that they are “very well made in Taiwan”. The question of whether such government-sponsored media campaigns are effective in reassuring consumers remains to be answered. China’s successful bid to host the 2008 Olympic games (the third Asian country to do so in recent years after Japan and Korea) offers a great opportunity for extending country image studies in a Chinese context. Indeed, an interesting research question might address whether the additional visibility gained by staging the Olympic games offers China a signiﬁcant boost to its image and, by extension, to its products. With the exception of a study by Jaffe and Nebenzahl (1993), no study has addressed the issue of how special international events may inﬂuence product/country images of an Asian country. In this regard, two research questions are worthy of consideration. The ﬁrst question concerns whether there are country equity or image improvements associated with such special international events. For example, did the image of Korea improve as a result of its recent co-hosting of the World Cup? The second question concerns whether the international standing or equity of brands manufactured or associated with the host country simultaneously improves. Both questions offer an opportunity to design and implement longitudinal studies that address these topics. Embracing the Internet and e-commerce Despite governmental controls in some Asian countries, the Internet has become an integral part of daily lives in some markets. Such countries as Japan, Hong Kong SAR (HK), and Singapore have made enormous investments in IT and, as a result, e-commerce is very much integrated into ﬁrms’ operations and consumer lifestyles. Available data indicate that Korea and Japan are ranked second and third in terms of broadband connection to the Internet (seven million and two million, respectively, versus ten million for the US). In fact, of the 28 million total global subscribers to broadband Internet service, over 12 million are in Asia, most of which are located in Southeast Asian nations. HK tops the list in terms of the percentage in its population with fast connection to the Internet. In fact, the results of a ten-country survey involving 11,410 consumers has demonstrated HK people’s relatively high level of sophistication in and enthusiasm for the Internet and e-commerce (American Express, 2000). The survey reveals that HK residents lead the other countries in terms of the inﬂuence of the Internet on how they view shopping and banking. Further, more HK residents associate convenience with shopping and banking on the Internet than other nations included in the study. Concurrently, HK has the lead, or is close to the leading country in terms of using the Internet for entertainment, information searches, shopping, e-mail, travel information and reservations, banking and ﬁnancial transactions, and monitoring credit card statements. A high level of reliance on the Internet potentially signiﬁes the
emergence of a new or modiﬁed cultural environment in the more advanced Asia-Paciﬁc countries, wherein impersonal modes of shopping and banking have gained acceptance. Given the very personal and relatively high context nature of cultures in the region, academic research is needed to uncover how this trend is inﬂuencing aspects of international marketing, in particular contract negotiation, supply chain management, and distribution strategies. The emergence and quick penetration of 3G systems in Asian nations is likely to result in a more rapid growth of e-commerce in this region than in other countries. This is in part because of the rapid penetration of mobile telecommunications in such important markets as Japan, Korea, and China. In Korea, for example, about 64 percent of the population carry a mobile telephone and the three mobile telephone ﬁrms there (KT Freetel, SK Telecom, and LG TeleCom) are rapidly implementing the 3G system which offers rapid, ongoing Internet connection (Moon, 2002). China Mobile (HK) has just announced its intended launch of its 3G Systems ahead of it rivals in the US or Europe. The existing success and deep market penetration of NTT DoCoMo in an increasing number of markets, along with Korean ﬁrms conversion to 3G, affords them leadership in an increasingly inﬂuential area of e-commerce. Market potential for IT and e-commerce is unevenly distributed across Asian nations. Such markets as Japan and Singapore, where Internet infrastructures are well-developed, face relatively lower global e-commerce growth rates. Emerging markets like Korea and Taiwan, where Internet infrastructures are also fully developed, but unlike countries such as Japan, production costs are still competitive, are prime candidates for realizing a more rapid growth in global e-commerce. Figure 1 demonstrates the global e-commerce potential of a sample of Asia-Paciﬁc nations. The rapid diffusion of wireless technology and the concomitant emergence of e-commerce in the region should generate much interest in this line of research. For example, the international product life cycle theory (IPLC) posits that new technologies are ﬁrst developed and introduced in advanced industrialized countries. Once production outstrips demand in the initiating country, these products are exported. The Internet and e-commerce have the potential of either modifying or changing the traditional IPLC view. Research projects in this regard can illuminate the impact of e-commerce on how innovations are globally adopted and traded.
Figure 1. The inﬂuence of IT penetration on the growth of global e-commerce
Whereas various reports have indicated rapid growth in the number of Asian online consumers (NUA, 2002a, b), consumer evaluation of online service qualities has received only modest attention. Since its development in the 1980s, the SERVQUAL scale has guided research for consumer services evaluations in the US (Parasuraman et al., 1985, 1988). Recent research has extended the application of this scale to the e-commerce arena (Lociacono et al., 2000; Zeithaml et al., 2002a). In addition to the unresolved issue of the underlying differences in service quality constructs associated with different modes of service delivery, the question of whether these constructs are universal and appropriate for use in a broad range of international markets remains critical for international marketers and offers additional opportunities for research. For example, cross-cultural differences may inﬂuence the ways in which Asian consumers evaluate web sites and this issue has not received adequate attention. The emergence of Asian MNCs For over two decades, Japanese MNCs have increasingly established footholds in markets around the world. Sony, Matsushita, Kyocera, Toyota, and Nissan are among global leaders in their respective industries and it is routine to note these ﬁrms’ names and activities in various media. What is increasingly visible in the business press, however, is the emergence of MNCs based in other Asian countries. For example, Haier of China, Samsung and LG of Korea, Samling Malaysia and Malayan WTK, and Acer, a Taiwanese ﬁrm headquartered in Singapore, are some of the relatively recent additions to the list of MNCs. These growing enterprises have served as suppliers to ﬁrms around the world for many years. Increasingly, however, they are moving their production facilities closer to their markets with the hope of gaining a foothold in key markets and/or integrating their operations downstream. Asian MNCs have aggressively pursued emerging markets around the world by establishing an increasing number of assembly and manufacturing facilities. Conditions in these markets are more risky, but competition is less intense and markets are generally undeveloped insofar as the availability of good quality, good value products are concerned. Samsung, under CEO Yun Jong Yong, has been transformed into a multinational powerhouse. Samsung is currently the No. 1 of the four major Korean chaebols and maintains manufacturing facilities in 14 countries, including China and Mexico (Holstein, 2002). Today Samsung generates 70 percent of its revenues from outside of Korea. Acer, for example, has aggressively pursued markets in Central and Eastern Europe. Acer opened a small representative ofﬁce in Moscow in 1993 to develop a network of distributors (Bruton and Samiee, 1998). With its manufacturing facilities in Taiwan, it had a relatively long lead time for delivery, which eroded its competitive edge. In addition, a shorter lead time between assembly and
delivery would reduce costs and permit Acer to be more price-competitive. Given the high risks associated with locating a plant in Russia, Acer decided to set up its operations for Central and Eastern Europe close to but away from the turbulent Russian business environment. Today, their manufacturing facilities in Lappeenranta, Finland are their main source of supply for the emerging countries of Europe as well as for the adjacent developed nations of the continent. Other Asian MNCs are also rapidly learning how to leverage their global competencies to remain globally competitive. Samsung, for example, maintains production facilities in both Korea and China. Lower paid Chinese employees work in the Korean plant and more skilled and experienced Korean employees provide managerial leadership in the Chinese plant (Booth, 2002). To beneﬁt from lower costs of manufacturing in China, an increasing number of Taiwanese ﬁrms have turned to the practice of processing orders in Taiwan, but shipping goods out of their plants in China. Research on global marketing strategies deployed by Asian MNCs is needed to ﬁll this gap in the literature. Finally, there are an increasing number of very capable domestic ﬁrms that are expected to enter the international arena in the short term. Legend Computers of China is but one example. Through its QDI subsidiary, Legend is already engaged in selling parts and components in Europe and Asia (Knowledge@Wharton, 2003). Likewise, China’s TCL (market share 8.1 percent) has passed Siemens (6.9 percent) and Samsung (6.3 percent) to become China’s third-largest cellular handset vendor after Motorola (28 percent) and Nokia (22.4 percent) (The Economist, 2003; Einhorn et al., 2003). In all, 36 manufacturers, including Ningbo Bird, Amoisonic, and Huawei are now competing in the Chinese mobile telephone market, thus creating an enormous competitive pressure in the domestic market. The competition is so intense that it has virtually driven out several foreign brands, including Ericsson of Sweden. The implication of such developments for Motorola, Nokia, and other MNCs is clear. Brand development Widely recognized regional and global brands are essential in competing internationally. With the notable exception of Japanese ﬁrms that possess a substantial number of well-known, publicized, and respected brands and several Korean ﬁrms that are marketing their brands internationally, Asian ﬁrms have not devoted sufﬁcient attention and resources to developing regional or global brands (Doebele, 2002). The reason for the limited presence of international Asian brands is in part historical. Many Asian ﬁrms continue to serve as subcontractors or contractors to ﬁrms abroad and manufacture high quality products under other well-known brands. Figure 2 demonstrates the relationship between global branding and key market access/entry strategies pursued by Asian countries. Given the large number of MNCs headquartered in
Japan, the nation is unique in the region. Japanese MNCs are clearly global marketers in every sense of the term. Others, like Korea and Taiwan, which continue to generally rely on contract manufacturing and exporting, have developed some global brands, but much more is necessary for them to be able to compete effectively against other global giants. Countries like India, on the other hand, are almost entirely reliant on unbranded raw material exports or contract manufacturing with hardly any international, let alone global, brands. This practice has served ﬁrms in the region well for several decades. However, this is an area to which substantial resources must be committed if Asian ﬁrms are to replicate the success demonstrated by Japan. The development of globally recognized brands is essential if these ﬁrms are to differentiate their products, to penetrate consumer and business markets, and to enjoy larger margins and market shares. Asian ﬁrms are aware of the importance of international brands and are gradually developing brands that are widely recognized. A handful of ﬁrms have already established admirable brands and positions within their respective industries. Singapore Airlines’ brand, for example, is synonymous with utmost quality in service and travel experience. Likewise, Cathay Paciﬁc Airways’ brand image ﬂawlessly ties in with Hong Kong’s image as one of the most vibrant cities in the world, as well as with a high quality service. Not surprisingly, these brands are rated as the second and ﬁfth best known Asian brands (The Great Asian Brands Survey, 2002). Other well-known international brands based in Asia Paciﬁc countries include Shangri-La Hotels (ranked 4), San Miguel beer (The Philippines, ranked 6), and Creative Technologies (Singapore, ranked 8). Other brands outside Japan and Korea are much lesser known internationally but several promising ones are on the horizon: Lee Kum Kee, Hello Kitty, Singha Beer, G2000 (HK-made apparel), Maggi, and Royal Selangor Pewter (Malaysia) (Flannery, 2001). China, with its very large market, has the potential to quickly turn successful domestic brands into internationally competitive ones. Haier appliances from China, for example, with plants in 13 countries, are rapidly gaining a foothold in 160 countries, including the USA (Flannery, 2001). With a 27.7 percent market share in 2002, Legend Computer is the largest manufacturer of PCs in China – a market that will soon overtake Japan as the second largest market (Knowledge@Wharton, 2003). Furthermore, Legend has already established a respectable name for itself by offering high quality, good service, and value.
Figure 2. International marketing strategy and global branding
The success of some Korean companies may serve as one model or path to brand development by other ﬁrms. Samsung, for example, through its consistent pursuit of research, development, licensing of new technologies, and foreign investment initiatives to bring it closer to its markets and customers, has managed to become one of the leading global brands. Based on estimated brand value, Samsung is currently ranked number 42 among the global 100 brands (BusinessWeek, 2001). Brand reputations are of great concern to Asian MNCs. Some ﬁrms do not believe their brands receive the recognition or respect they deserve. There are indications in the literature as to how Asian companies can effectively communicate their brands or county images in the Western markets. Retail distribution (Chao, 1989a, b) and pricing (Chao, 1993) strategies are but two ways companies in Korea and Taiwan can circumvent poorly perceived country images associated with products made in those countries. A limited number of international branding studies have focused on how ﬁrms can create and establish brand names in Asia to enhance consumer perceptions (Pan and Schmitt, 1996; Tavassoli, 1999; Zhang and Schmitt, 2001). Still, the manner in which Asian MNCs can create respected global brands like Sony and Toyota remains a critical research issue.
Relationships and networks A key strength in Asian business practice is reliance on personal and business relationships and networks to accomplish business tasks and consummate transactions. However, relationships and networks naturally exist in this part of the world and their primary purpose is not that of a commercial transaction. That is, relationships are critically important in people’s daily lives and their societal purpose always supercede commercial transactions. All ﬁrms possess “some” network in managing their operations, however, Asian ﬁrms have the added advantage of more easily maneuvering around the regulatory and bureaucratic requirements in their region (see Knowledge@Wharton, 2003). For example, local brands such as Legend Computers in China, in addition to having the ability to more easily adapt to local needs, tastes, and culture, have a signiﬁcant competitive advantage over MNCs owing to their local relationships and networks. Whereas the MNCs can develop savvy marketing campaigns and heavily promote their products in large Chinese metropolitan areas, the domestic brands have networks that reach deep into not only the cities but also the very large rural regions where mass media tends to be less effective. TLC, the large mobile telephone manufacturer, for example, has a branch selling TV sets and mobile telephones in nearly every town (The Economist, 2003). That is, all else being equal, Asian ﬁrms have both a cultural as well as a networking advantage in their home market. Despite the importance of relationships and networks in this part of the world, scholars have only recently begun to apply
the relationship marketing paradigm within an Asian context and, thus far, much of this effort is focused on China. Greater international integration and cooperation For some time Asia-Paciﬁc Economic Cooperation (APEC) Forum has been trying to emulate the success of the European Union in removing barriers to trade while accommodating economic development. APEC Forum has 21 members which account for 47 percent of world trade. APEC nations are home to a population of over 2.5 billion and produce a combined GDP of US$19 trillion. Although APEC’s vision of reaching its goals by no later than 2020 remains uncertain owing to economic and political problems in a number of member countries, there is wide-spread support for the movement and its objectives. Likewise, China’s admission to the World Trade Organization constitutes a major shift in regional economic policy for the nation while inﬂuencing competition in the region (Chandler, 2003). Within the next few years, many of China’s policies will need to be in line with those of other nations and China must open its markets to competitors from other countries. Concurrently, as more Chinese manufacturers are privatized, they will expand internationally to reduce their risk while enhancing growth opportunities. As noted earlier, Haier products are already being marketed in 160 countries and the computer maker Legend will increasingly seek to cultivate international markets as foreign competitors enter its traditional turf (Flannery, 2001). Opportunities and implications A major challenge facing international marketers wishing to enter markets in Asia is the highly varied levels of economic development and IT penetration. It is also common for many Western businesses to culturally cluster Asian nations together and to further assume that market information in these markets is easy to obtain. Businesses should recognize that conditions within and among Asian markets vary considerably from one country to the next (Walters and Samiee, 2003). Several markets in the region, such as Japan, are fully developed. Others, such as China, are rapidly developing, but advances are uneven across this vast nation. A third group, on the other hand, including Vietnam, Cambodia, and Myanmar, faces substantial infrastructure and development challenges. Thus, the heterogeneous nature of these markets demands a close market-based attention, leading to the conclusion that Asian markets cannot be cultivated with a single regional strategy. For ﬁrms within the region wishing to directly compete for market share in markets abroad, the development of respectable international brands is potentially the most critical challenge. In the absence of such development, the scope of their international involvement would be limited to competing as contract manufacturers or marginal exporters.
Conditions currently seem to favor enormous development and growth opportunities in Asia. In particular, investments in IT, in terms of training, access, software and hardware, at the very least accommodate the accelerated development of Asian multinationals and their corresponding brands. Effective communication is central to coordination and control of ﬁrms, and as Asian ﬁrms spread across time zones and continents, their competence in IT will permit them to grow faster and more efﬁciently than their rivals. By virtue of having served as suppliers to Westerns ﬁrms, these ﬁrms are also competent in not only negotiating and dealing with Western customers, but also in managing very efﬁcient production facilities. Furthermore, as contract manufacturers whose products are sold under well-known Western brands, Asian ﬁrms have learned how to maintain a very high level of quality in production. This competency is clearly a critical one in developing successful brands that can be differentiated from other offers. There are tremendous research opportunities involving Asia-Paciﬁc nations. The relationship marketing ﬁeld, for example, is over two decades old and is now receiving much attention from scholars. For much of its history, however, the paradigm was rarely applied in international contexts. As it turns out, the cultural imperatives of Southeast Asian nations offer an excellent ﬁt for applying the relationship marketing concept. In recent years, scholars have increasingly pursued projects involving the application of relationship marketing to the Asia-Paciﬁc cultures. In particular, HK-based scholars have been on the forefront of, and the drivers of, developing a rich literature in relationship marketing in a Chinese context. Such research initiatives, along with others proposed in this article, offer excellent topics for investigation in an increasingly important region and their pursuit should be promoted, supported, and encouraged.
Notes 1. NTT DoCoMo developed and successfully marketed the i-Mode mobile telephone in Japan. These phone are connected to the Internet at the speed of 9600 bps. Albeit slow, its use is very economical. In contrast, 3G operates at speeds of 40 times greater than i-Mode, but it also costs substantially more. It is believed that this will present a major challenge for DoCoMo as it attempts to replicate the success of i-Mode (Belson, 2002). 2. Other nations included in the survey were Argentina, Australia, Brazil, Canada, Great Britain, Italy, Japan, Sweden, and the USA.
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About the Guest Editors Paul Chao (PhD, University of Washington) is a Professor of Marketing at the University of Northern Iowa. His works have been published in the Journal of Consumer Research, International Business Studies, Management International Review, International Marketing Review among others. He has extensive international teaching and research experiences having taught in Austria, Denmark, Taiwan, Hong Kong and China. He is currently on the Editorial Review Board of the International Marketing Review. Saeed Samiee is the Collins Professor of Marketing and International Business at the University of Tulsa. He is also the Project Director for the Institute of International Business Education, a joint project between the University of Tulsa and Moscow Institute of Electronics Technology. His publications have appeared in Journal of Marketing, Journal of International Business Studies, Journal of the Academy of Marketing Science, Journal of Business Research, California Management Review, and others. He serves on the Editorial Review Boards of the leading journals in his areas of expertise, including the Journal of the Academy of Marketing Science and Journal of International Business Studies. In 2000, Professor Samiee was identiﬁed as the third most published author in the Journal of Business Research for the 1985-1999 period. He was also named among the ten most proliﬁc authors in international marketing during the 1987-93 period according to the ranking developed by the Journal of Teaching in International Business. He is listed among the ten and the top 30 most proliﬁc authors in the Journal of the Academy of Marketing Science and Journal of International Business Studies, respectively. Leslie Sai-Chung Yip is the Associate Professor and Head of Department of Business Studies, Faculty of Business, at the Hong Kong Polytechnic University. He is a Fellow of the Hong Kong Institute of Marketing and UK Chartered Institute of Marketing. His current research interest includes “Multidimensional Trust in Buyer-Seller Relationship”, and “Internet’s Contribution to Supply Chain Management and Business Performance”. His publications have appeared in Journal of Business Research, Industrial Marketing Management, International Journal of Advertising, and Entrepreneurship Theory and Practice. Special issue referees James Agarwal, Imam Alam, Paul Beamish, Allan Chan, Ricky Chan, Steven Chang, Jyh-shen (George) Chiou, Nicole Coviello, Michael Czinkota, Howard Davies, Paul Ellis, Abdi Eshghi, John Ford, Esra Gencturk, Andy Grein, Michael Hu, Insik Jeong, Myung- Soo Jo, Johny Johansson, Shashi Kaparthi, Namwoon Kim, Masaaki Kotabe, Dana Lascu, Don Lee, Kam Hong Lee, Tomasz Lenartowicz, Zhan G. Li, Tiger Li, Sherriff Luk, David Luna, Bruce Money, Matthew Myers, G.M. Naidu, Jae Pae, Nicolas Papadopoulos, Mohan Pisharodi, Raj Rajandran, B. Ramaseshan, Pradeep Rau, Bucha Reddy, Abhik Roy, Tanuja Singh, Susan Tai, Esther Tang, Peter Walters, Ian Wilkinson, Veronica Wong, Y. H. Wong, Attila Yaprak, Poh-Lin Yeoh, Joseph Yu and Yong Zhang
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The moderating roles of competitive intensity and technological turbulence
John W. Cadogan
Aston Business School, Aston University, Birmingham, UK
Export market-oriented behavior 493
Charles C. Cui and Erik Kwok Yeung Li
Manchester School of Management, UMIST, Manchester, UK
Keywords Export markets, Behaviour, Environmental regulations, Hong Kong Abstract This study examines the issue of how export market-oriented behaviors inﬂuence export success. Using survey data obtained from Hong Kong based manufacturing exporters, our ﬁndings suggest that export market-oriented behaviors are important predictors of several dimensions of export performance. In particular, it appears that this behavior is most important for exporters operating under conditions of high environmental turbulence. The export market-oriented behavior – export performance relationship for these ﬁrms, was generally positive and strong. However, under conditions of low environmental turbulence, the costs of developing and implementing high levels of export market-oriented behavior may outweigh the beneﬁts accrued.
Introduction It has been suggested that one route to superior export performance is for ﬁrms to adopt a market orientation in their export activities (Cadogan et al., 2001). Previous studies have indicated that measures of ﬁrms’ market-oriented behaviors in their export operations, export market-oriented (EMO) behaviors, are signiﬁcantly correlated with various dimensions of export success (Cadogan and Diamantopoulos, 1998; Cadogan et al., 1999). However, the latter ﬁndings were presented as part of the validation process for measures of export market orientation, and the original studies did not systematically examine the export performance related consequences of EMO behaviors. As a result, the exact nature of the relationship between ﬁrms’ levels of EMO behavior and export success, is in need of clariﬁcation. The purpose of the current study is to bridge this research gap. Speciﬁcally, we extend previous export market orientation research by investigating whether the degree to which EMO behavior and export success are associated, varies under differing environmental conditions. In particular, we attempt to determine whether competitive intensity and technological turbulence in ﬁrms’ export markets are moderators of the EMO behavior – export performance relationship.
International Marketing Review Vol. 20 No. 5, 2003 pp. 493-513 q MCB UP Limited 0265-1335 DOI 10.1108/02651330310498753
The main beneﬁt resulting from this research is that it will provide needed empirical grounding from which to make recommendations to export managers concerning important resource allocation decisions. Increasing market orientation levels requires signiﬁcant resource investments (Slater and Narver, 1994) and managers need to be sure that their investments will reap suitable rewards. Yet, as things stand, recommendations to practitioners are plagued with uncertainty, simply because the performance-related consequences of EMO behaviors have yet to receive rigoros empirical attention. Speciﬁcally, there are doubts as to whether increasing levels of EMO behavior is a good thing for all exporters, all the time. Thus, marketing scholars do not know the conditions (if any) under which the beneﬁts of EMO behavior outweigh the costs. Similarly, it is not known whether there are actually conditions under which the costs associated with increasing a ﬁrm’s level of EMO behavior, outweigh the beneﬁts accrued. Given that it is likely that the costs associated with behaving in a market-oriented way in a ﬁrm’s export operations may be signiﬁcantly higher than those associated with being market-oriented within a purely domestic setting, the generation of information concerning the performance consequences of EMO behavior is timely. In what follows, we ﬁrst deﬁne the key construct, EMO behavior. We then outline the study’s theoretical background and formally state our hypotheses. The methods chosen to provide evidence on our conceptual framework are described, and the key ﬁndings highlighted. We conclude with a discussion of the study’s signiﬁcance, pinpoint the research limitations and present several directions for future research. What are EMO behaviors? Market orientation is usually deﬁned as being the implementation of the marketing concept. What does this mean? Although differences abound, researchers are beginning to recognize that implementation means many things and that “market orientation” is, in fact, a broad, multi-dimensional concept. Speciﬁcally, the domain of market orientation encapsulates deeply cultural facets, such as market-oriented values and norms (Harris, 1998), as well as other psychologically endowed issues, such as market-oriented artifacts, stories, rituals and arrangements (Homburg and Pﬂesser, 2000). However, perhaps market orientation’s most critical manifestation is in the form of market-oriented behaviors (Jaworski and Kohli, 1993). Indeed, Homburg and Pﬂesser (2000) have argued that of the all the various sub-dimensions of market orientation, only market-oriented behaviors directly inﬂuence performance: market-oriented values, norms and artifacts are considered to be antecedents to market-oriented behavior, and any performance inﬂuence these aspects of market orientation may have is indirect and through the ﬁrm’s actual activities (for additional arguments in support of this claim, see also Jaworski and Kohli, 1996).
Thus, the focus of this study is on the behavioral aspects of market orientation. Fortunately, for the most part, researchers tend to agree on the core components of market-oriented behavior. Speciﬁcally, market-oriented behaviors comprise the generation of information about a ﬁrm’s markets, the dissemination of this information to relevant decision-makers within the ﬁrm, and development and implementation of appropriate responses to the information (Narver and Slater, 1990; Kohli and Jaworski, 1990). Importantly, researchers are now beginning to recognize that it is possible for ﬁrms to have different levels of market orientation across their different business operations (Cadogan et al., 2001; Rose and Shoham, 2002; Uncles, 2000). Consequently, if a ﬁrm has a strong market orientation in its domestic markets, this will not automatically be transferred into a high degree of market orientation in its export operations (Hooley and Newcomb, 1983; Cadogan et al., 2001). Thus, care must be taken when describing the level at which market orientation is being conceptualized. For instance, Rose and Shoham (2002) have conceptualized market orientation at the organizational level, while recognizing that market orientation may differ across the ﬁrm’s domestic and export activities. Cadogan et al. (1999), on the other hand, explicitly focused on analyzing ﬁrms’ market-oriented behaviors in their export operations, not their behaviors in their domestic markets. Therefore, given the current study objectives, and drawing on Cadogan et al.’s (1999) deﬁnition, EMO behavior can be formally deﬁned as consisting of export market intelligence generation, dissemination and responsive activities. The focus of a ﬁrm’s EMO behavior is towards the ﬁrm’s export markets, not its domestic markets. Indeed, it is likely that in many ﬁrms, the degree to which activities are market-oriented in the domestic and export settings will differ (Cadogan et al., 2001). The different components of EMO behavior are inter-related, but are qualitatively distinct. Export intelligence generation concerns the activities associated with generating information about the ﬁrm’s export customers’ current and future needs and wants, competition in the ﬁrm’s export markets, and other exogenous factors (such as technological and regulatory developments); export intelligence dissemination concerns the formal and informal information exchanges which allow the information generated to reach appropriate export decision-makers; and export market responsiveness is the design and implementation of strategies and tactics in response to changes occurring in the ﬁrm’s export markets.
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The export performance consequences of EMO behaviors In this study, we deﬁne a ﬁrm’s export performance as its degree of economic achievement in its export markets. Do ﬁrms with higher levels of EMO behavior outperform their less export market-oriented counterparts? There are two perspectives on this question.
On the one hand, the marketing concept suggests that ﬁrms should focus on the generation of information about their export customers’ needs and wants, and the provision of solutions to these in the form of goods and services. The better the ﬁrm is at identifying export customers’ real needs and wants, and following this up with matching solutions, the more successful the ﬁrm’s export operations should be. As Dickinson et al. (1986, p. 18) have noted, if buyers are rational, “it follows, seemingly as a truism, that [they] will choose and come to prefer those ﬁrms whose market offerings best meets wants”. Consequently, it can be argued that higher levels of EMO behavior should result in superior export performance, and that ﬁrms may need to expend greater effort to develop their EMO behaviors in order to remain competitive (Kwon and Hu, 2000). Consequently, we propose to test the following hypothesis: H1. There is a positive relationship between exporters’ degree of market-oriented behavior in their export operations and their export success. On the other hand, there are also arguments to suggest that behaving in a market-oriented way in a ﬁrm’s foreign markets may not be beneﬁcial for all exporters. Speciﬁcally, scholars have argued that aspects of the environment may moderate the market orientation – performance relationship. We focus on two such potential environmental moderators; competitive intensity and technological turbulence. Looking at competition in ﬁrms’ exporting operations, although their research was not speciﬁc to ﬁrms’ EMO activities, Jaworski and Kohli (1993, p. 57) argued that a market orientation may be less important under conditions of low competitive intensity: “in the absence of competition, an organization may perform well, even if it is not very market-oriented, because customers are “stuck” with the organization’s products and services”. Under more competitive conditions, however, less-market-oriented ﬁrms are likely to see their performance impaired as customers switch to more market-oriented competitors. Thus, it is possible that a market orientation is not always desirable, given that its development and maintenance is highly resource intensive (Slater and Narver, 1994), and that the rewards from being market-oriented may not always accrue (Jaworski and Kohli, 1993). The logic of Jaworski and Kohli’s (1993) argument can also be applied to the exporting context. Indeed, in ﬁrms’ exporting operations, market orientation’s importance may be even more severely limited. Speciﬁcally, it has been argued that, relative to ﬁrms’ domestic operations, behaving in a market-oriented fashion in export markets is more difﬁcult and, as a result, the resources required in the development and maintenance of EMO activities are signiﬁcantly higher (e.g. Cadogan and Diamantopoulos, 1995; Kwon and Hu, 2000). Consequently, it seems likely that EMO behaviors will be most important under conditions of high competitive intensity in ﬁrms’ export markets. Here, ﬁrms that do not
behave in a market-oriented in their export operations way, will see export customers switching to more market-oriented competitors. However, under conditions of low competitive intensity, the costs associated with having high levels of EMO behavior, may outweigh the beneﬁts accrued. Unfortunately, there is little by way of empirical evidence to shed light on this issue. Cadogan et al.’s (1999) work, for instance, demonstrated that within the samples obtained, measures of EMO behavior tend to correlate with measures of export performance (Cadogan and Diamantopoulos, 1998). However, no attempt was made to determine whether the competitive intensity in the export environment moderated the EMO behavior – export performance relationship. Other researchers have looked for moderator effects, but have failed to measure market orientation and other important variables at the exporting level. For example, Kwon and Hu (2000) and Rose and Shoham (2002) looked at the relationships and interactions between measures of market orientation, competitive intensity and export performance. However, neither of these studies attempted to measure ﬁrm’s activities in their export operations, but measured market orientation as an organization-wide variable. Furthermore, competitive intensity was measured across the whole of the ﬁrms’ activities – not within the ﬁrms’ export markets. Consequently, the market orientation and environmental turbulence scores reported in these studies are unlikely to reﬂect ﬁrms’ activities and experiences within their export operations. The fact that these studies failed to detect moderator effects with their measures of market orientation and competitive intensity,is difﬁcult to interpret. What is certain, however, is that the latter ﬁndings should not be used to conclude that the relationship between EMO behavior and export success is not moderated by ﬁrms’ export environments (Slater, 1995). Consequently, we propose to test the following hypothesis: H2. The relationship between exporters’ levels of market-oriented behavior in their exporting activities and their export performance is moderated by the competitive intensity in the ﬁrms’ exporting environments: speciﬁcally, under conditions of low competitive intensity, the relationship is negative; as competitive intensity becomes more great, the relationship becomes less negative; and under conditions of high competitive intensity, the relationship actually becomes positive and stronger. The second element of the export environment that we are interested in is technological turbulence. Here, “technology” is a broad term which encompasses “the entire process of transforming inputs to output, and the delivery of those outputs to the end consumer” (Kohli and Jaworski, 1990, p. 14). Drawing on Kohli and Jaworski’s (1990) qualitative study ﬁndings, it can be argued that for ﬁrms operating in technologically turbulent markets, channeling scarce resources into increasing market-oriented behavior levels
Export market-oriented behavior 497
may be counterproductive, since these resource could be better invested in R&D or improving operations and production efﬁciency. Indeed, as Jaworski et al. (2000) have noted, the success of ﬁrms operating in technologically turbulent markets often hinges on these ﬁrms’ ability to better deliver value to customers through more effective supply-side operations and cost management. The point that Kohli and Jaworski (1990) were making was not that market orientation is not a good thing for ﬁrms operating in technologically turbulent markets. Rather, they were saying that market-oriented behavior may not be as important as it is for ﬁrms operating in markets which are technologically stable. In the latter case, there are relatively few opportunities for changing the market structure or manipulating market behavior (Jaworski et al., 2000), and consequently, the “competitive battleground often focuses on changing customers’ perceptions of the focal ﬁrm’s offerings versus the competitors’ offerings on attributes known to be considered important by customers” (Jaworski et al., 2000, p. 47). Thus, we also argue the following hypothesis: H3. The relationship between exporters’ levels of market-oriented behavior in their exporting activities and their export performance is moderated by the technological turbulence in the ﬁrms’ exporting environments: speciﬁcally, under conditions of low technological turbulence, the relationship is strong and positive; as technological turbulence becomes greater, the positive relationship becomes progressively weaker. Methodology Sampling issues We used a mail survey to generate data in order to test the hypotheses. A random sample of 800 manufacturing ﬁrms with 50 or more employees was selected from the Hong Kong Trade and Development Council internet database system. The sample included businesses from a wide range of industrial sectors, including textiles and clothing, machinery, electronics, pharmaceuticals, toys and games, watches and clocks, and jewelry. In order to obtain the responses, we ﬁrst contacted all the ﬁrms in the sample by telephone in order to determine eligibility and then elicit cooperation in the study. The export manager in those ﬁrms agreeing to participate was mailed a questionnaire, together with a cover letter and pre-paid reply envelope. A week after the initial posting, follow-up telephone calls were undertaken to increase the response rate. Two weeks after this, a follow-up telephone call was made to elicit reasons for non-response. In total, 213 ﬁrms were deemed ineligible (e.g. the ﬁrm had never exported, the ﬁrm had stopped exporting, the ﬁrm was listed more than once), and a further 278 declined to participate. Of the 309 questionnaires mailed out, a total of 137 completed questionnaires were returned, corresponding to a response rate of 23 percent (i.e. 137/587). Our
telephone analysis indicated that the two main reasons for non-participation and non-response were: (1) company policies restricting the giving of information to external parties; and (2) time constraints. Measurement We used Cadogan et al.’s (2001) shortened version of the Cadogan et al. (1999) measures of EMO activities to capture the degree to which each ﬁrm behaves in a market-oriented way in its export operations. Incorporated in the instrument are items capturing ﬁrms’ levels of export market intelligence generation, export market intelligence dissemination and export market responsiveness. An additional item from Cadogan et al.’s (1999) original scale was included in the responsiveness measure. Two dimensions of environmental turbulence were also included in the study. Speciﬁcally, we used Cadogan et al.’s (2001) adaptations of Jaworski and Kohli’s (1993) measures of competitive intensity and technological turbulence. Cadogan et al. (2001) modiﬁed the original instruments so they reﬂect changes taking place in ﬁrms’ export markets, not changes taking place in ﬁrms’ domestic markets. Consequently, the measures of export environmental turbulence capture aspects of change and unpredictability in competitive activities and competitive intensity, and opportunities and threats arising from changes in the ﬁrm’s technological environment. Finally, following the recommendations of Cavusgil and Zou (1994) and Matthyssens and Pauwels (1996), among others, we measured three aspects of ﬁrms’ economic achievement in their export markets: export sales efﬁciency, export sales growth and export proﬁts. Our “export sales efﬁciency performance” measure contained two items: (1) the absolute average export sales turnover per company employee; and (2) the absolute average export sales turnover per export destination country. Our “export growth performance” measure contained two items: (1) the absolute annual percentage growth in export sales over the previous three years; and (2) the ﬁrm’s average annual export sales growth compared to the industry average, measured on a ten-point scale, from 1 ¼ poor to 10 ¼ outstanding. Finally, a single item was used to capture “export proﬁt performance”. Speciﬁcally, respondents were asked to indicate how proﬁtable their export operations had been over the last ﬁnancial year on a ten-point scale, from 1 ¼ very unproﬁtable to 10 ¼ very proﬁtable.
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Measurement assessment and construction In order to comment on the validity and reliability of the measures used, all scales were examined with conﬁrmatory factor analysis (CFA) using LISREL ¨ ¨ 8.30 (Joreskog and Sorbom, 1996). In order to avoid violating minimum sample size to parameter ratios, the scales were analyzed in sets. The ﬁrst set contained the three EMO behavior scales and three items were eliminated to ensure adequate model ﬁt. The second set contained the two export environmental turbulence scales. The third set contained the export performance measures. Since the “export proﬁt performance” latent variable contained a single item only, the latter’s error variance was set at [(1 - a) £ s2], where a ¼ scale reliability (and was assumed to be 0.90), and s ¼ item standard deviation. Table I provides the measurement model ﬁt indexes for each of the three CFA analyses. As can be seen, the ﬁt indexes obtained for the measurement models were good. The Appendix provides a complete listing of all items used for model testing. The ﬁnal measurement results for the scales together with a correlation matrix are shown in Table II. Overall, the results indicate that the scales perform well. Speciﬁcally, the CFA ﬁt indexes returned indicate that the speciﬁed measurement structures ﬁt the data acceptably and that the scales are unidimensional. Furthermore, the composite reliabilities are all above the recommended threshold of 0.60 and the average variance extracted (AVE) scores are all above the recommended threshold of 0.50, except for the competitive intensity measure, which returned an AVE of 0.44 (Bagozzi and Yi, 1988). Analysis Model testing was undertaking using LISREL 8.30. In preparation for the analysis, three procedures were undertaken.
Model Measurement (set 1) Measurement (set 2) Measurement (set 3) Main effects Initial interaction-effects Final interaction-effects
x2 (d.f.) 53.97 13.89 3.98 3.03 3.90 0.03 (51) (8)a (5) (3) (3) (2)
RMSEA 0.024 0.087 0.000 0.010 0.055 0.000
GFI 0.916 0.955 0.984 0.990 0.990 1.000
NNFI 0.979 0.936 1.026 0.990 0.896 1.317
CFI 0.984 0.966 1.000 0.998 0.989 1.000
Table I. Fit measures for the models
Notes: Measurement (set 1): export market intelligence generation, dissemination and responsiveness; Measurement (set 2): export market competitive intensity, and export market technological turbulence; Measurement (set 3): export sales efﬁciency performance, export growth performance, export proﬁt performance. RMSEA¼Root mean square error of approximation; GFI ¼ Goodness of ﬁt index; NNFI ¼ Nonnormed ﬁt index; CFI ¼ Comparative ﬁt index; a: signiﬁcant at p , 0.10
Standard deviation 1 2 3 4
Average variance extracted
1. Export market intelligence generation 4.63a 0.94 0.75 0.50 1.00 2. Export market intelligence dissemination 5.02a 0.88 0.83 0.50 0.19 1.00 3. Export market responsiveness 5.34a 0.89 0.83 0.55 0.28 0.12 1.00 4. Export market competitive intensity 14.78b 2.70 0.70 0.44 0.27 0.13 0.34 1.00 5. Export market technological turbulence 14.77b 2.99 0.84 0.65 0.12 0.30 0.12 0.29 1.00 6. Export sales efﬁciency performance 0.03c 1.77 0.73 0.59 0.13 0.12 -0.21 0.12 0.03 1.00 7. Export growth performance 0.09c 1.72 0.77 0.64 0.14 0.22 0.27 0.22 0.22 0.05 1.00 8. Export proﬁt performance 0.06c 1.14 na na -0.02 0.09 0.11 0.13 0.14 0.02 0.22 1.00 Notes: a average score across the items (on a seven-point scale); b sum of item scores (on a seven-point scale); c scale items were standardized prior to analysis and scale construction; na: composite reliability and average variance extracted are not applicable for the single item measure
Export market-oriented behavior 501
Table II. Measurement information and correlation matrix
First, single scores were created for each of the latent variables of interest. The use of single indicants within interaction-based structural models to reduce model complexity has been recommended in the literature (e.g. Jaccard and Wan, 1996). Thus, a single score was obtained for EMO behavior by summing across the export market intelligence generation, dissemination and responsiveness scales (Cadogan et al., 1999, 2001). A similar process was undertaken for export environmental turbulence, whereby single scores were created for the competitor and technological environments respectively, and for export performance, whereby single scores for “export sales efﬁciency performance” and “export growth performance” were computed. The “export proﬁt performance” measure was already measured using a single item. Second, to reduce possible problems associated with multi-collinearity arising from the introduction of interaction terms in the structural model, the single indicants for the EMO behavior scale, export market competitive intensity scale, and the export market technological turbulence scale, were all mean-centered (Ping, 1994). Third, interaction terms were created. Speciﬁcally, the observed mean-centered EMO behavior score was multiplied by the mean-centered competitive intensity score. The resulting interaction term is simply referred to as the “competition interaction” term. Similarly, using the mean-centered EMO behavior and the technological turbulence scores, a “technology interaction” term was created. Hypothesis testing procedures then followed Ping’s (1995) guidelines for the evaluation of structural models with interaction terms. Thus, a main effects only structural model was estimated ﬁrst, with the error variance of each latent variable’s indicator set at [(1 - a) £ s2]. Here, the EMO behavior and the two environmental latent variables were modeled as direct antecedents to all three export performance measures (the interaction terms were excluded from this main effects model). Looking at Table I, it can be seen that the model ﬁt the data well. Using the error variance and factor loading estimates obtained in the main effects model, together with Ping’s (1995) equations, the loadings and error variances of the interaction terms were calculated. An initial interaction-effects model was then estimated, in which the interaction terms were included. Here, the latters’ estimated loadings and error variances were speciﬁed as constants in the model, and the interaction latent variables were modeled as antecedents to the three performance latent variables. The ﬁt for the initial interaction-effects model was acceptable, as can be seen in Table I. However, the NNFI was below the recommended threshold value of 0.90. In order to improve the model ﬁt, an examination of the modiﬁcation indexes was undertaken. As a result, it could be seen that the exclusion of a signiﬁcant path from “export growth performance” to “export proﬁt performance” explained the relatively low ﬁt index. Given that the inclusion of this path in the model makes good sense from a theoretical
perspective, the modiﬁed model was re-speciﬁed accordingly (NB: the inclusion of this path did not substantively alter the other path estimates). As can be seen in Table I, the ﬁnal interaction-effects model returned excellent model ﬁt, with all ﬁt indexes showing substantial improvement, and the NNFI returning a value well in excess of the recommended threshold of 0.90. Furthermore, the decrease in Chi-Square on moving from the initial interaction effects model to the ﬁnal interaction effects model was signiﬁcant at p ¼ 0.05. A diagramatic representation of the ﬁnal interaction-effects model is shown in Figure 1, and Table III provides the standardized and unstandardized parameter estimates for the this model. Results H1. Positive relationship between EMO behavior and export success Looking at Table III, it can be seen that H1 receives only partial support. Speciﬁcally, only one of the three main effects from EMO behavior to the export performance measures was signiﬁcant: EMO behavior was a signiﬁcant predictor of export growth performance (g = 0.31, p , 0.01), but did not predict export sales efﬁciency performance or export proﬁt performance. However, it can also be seen that there is an indirect linkage between EMO behavior and export proﬁt performance, since the path from growth to proﬁts was also signiﬁcant (b ¼ 0.25, p , 0.05). As a result of the above, the ﬁndings provide clear support for the notion that EMO behavior is an important determinant of export success in terms of growth and proﬁts.
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Figure 1. Final interaction-effects model
Dependent variables 0.10
Export sales efﬁciency performance
EMO behavior 20.02 2 0.02 Competitive environment 0.11 0.18 Technological environment 20.01 2 0.02 Competition interaction term 0.11 0.36 Technology interaction term 20.06 2 0.25 Export growth performance 0.24 EMO behavior 0.30 0.31 Competitive environment 0.06 0.10 Technological environment 0.08 0.14 Competition interaction term 0.03 0.11 Technology interaction term 0.06 0.25 Export proﬁt performance 0.08 EMO behavior 20.03 2 0.06 Competitive environment 0.03 0.08 Technological environment 0.03 0.07 Competition interaction term 2 0.01 2 0.05 Technology interaction term 2 0.01 2 0.06 Export growth performance 0.15 0.25 Notes: a Unstandardized path estimates are used for interpreting the results of structural models with interaction terms (Jaccard 1996); *: signiﬁcant at p , 0.10 (one-tailed); **: signiﬁcant at p , 0.05 (one-tailed); ***: signiﬁcant at p , 0.01 (one-tailed).
Table III. Unstandardizeda and standardized path estimates for the ﬁnal structural model R2 Independent variables Unstandardized parameter estimates Standardized parameter estimates t-values 2 0.19 1.52* 2 0.13 2.78*** 2 1.89** 2.90*** 0.89 1.41* 0.92 2.08** 2 0.45 0.64 0.64 2 0.41 2 0.47 2.01** and Wan,
H2. Competitive intensity as moderator Some support was also provided in terms of H2. Speciﬁcally, for export sales efﬁciency performance, the competition interaction term returned a signiﬁcant path coefﬁcient (g ¼ 0.36, p , 0.01). Using the partial derivatives approach (Greenley, 1995), and knowing that the competitive intensity scale could vary between 3 (very stable) and 21 (extremely turbulent), the competitive export environment’s inﬂuence on the relationship between EMO behavior and export sales efﬁciency performance could be assessed. As a result, the value of the competitive intensity measure at which EMO behavior is estimated to have no relationship with export sales efﬁciency (i.e. the inﬂexion point for the competition interaction term) is 14.78. The result supports the notion that, for ﬁrms operating in environments where their competitive intensity score is less than the inﬂexion point, the relationship between EMO behavior and export sales efﬁciency is negative. Only as competitive intensity increases above a value of 14.78 does the relationship between EMO behavior and export sales efﬁciency become positive. This ﬁnding provides some support for the notion that EMO behavior is most important under turbulent competitive conditions in ﬁrms’ export operations. However, this ﬁnding was not repeated for either export growth performance or export proﬁt performance, since the competition interaction terms were non-signiﬁcant. H3. Technological intensity as moderator With export sales efﬁciency performance as dependent variable, the technology interaction term also returned a signiﬁcant co-efﬁcient (g ¼ -0.25, p , 0.05). This time, an inﬂexion point value of 14.77 was returned, on a scale varying from 3 (very stable to) to 21 (extremely turbulent). Here, for ﬁrms operating in technological environments that score less than the inﬂexion value, the relationship between EMO behavior and export sales efﬁciency performance was positive. However, as technological environmental turbulence increased above the inﬂexion value, the relationship between EMO behavior and export sales efﬁciency performance was negative. Consequently, this ﬁnding provides support for H3. Regarding export growth performance, H3 was refuted since the technology interaction term returned a signiﬁcant path coefﬁcient (g ¼ 0.25, p , 0.05). This time, the inﬂexion point occurred at a value of 13.57, and the parameter estimate indicates that for ﬁrms operating in technological environments less turbulent than the inﬂexion value, the relationship between EMO behavior and export growth performance was negative. Only those ﬁrms operating in export markets which are more turbulent than the inﬂexion point returned a positive relationship between EMO behavior and export growth performance. Finally, no support was found for H3 when looking at the export proﬁt performance measure, since the technology interaction term returned a non-signiﬁcant path coefﬁcient.
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Discussion The ﬁndings from this study are interesting from a number of perspectives. Looking at the main effects only, EMO behavior was not associated with export sales efﬁciency performance. Given that the sales efﬁciency measure was based on “efﬁciency ratios” (i.e. export sales per employee; export sales per country exported to), it can be concluded that EMO activity does not decrease the amount of effort required to bring about sales in export markets. EMO activities require considerable resource inputs themselves. However, EMO behaviors were strong predictors of export sales growth. Thus, while behaving in an export market-oriented fashion in ﬁrms’ export operations might not lead to increases in the efﬁciency with which sales are made (i.e. increases in resource inputs are required to achieve and maintain high levels of EMO behavior), it does appear to lead to increased sales per se. Furthermore, EMO behaviors also have an indirect inﬂuence on export proﬁt performance via export sales growth. Regarding the moderating effect of competitive intensity, a single effect was found in support of H2. Thus, under conditions of low competitive intensity, EMO behavior was negatively related to export sales efﬁciency performance, but positively associated with export sales efﬁciency performance under conditions of high competitive intensity. Figure 2 demonstrates this ﬁnding. Thus, under conditions of high competitive rivalry in export markets, sales efﬁciency decreases as EMO behavior levels decrease, indicating that EMO behaviors are a necessity under highly competitive conditions. However, when competitive conditions are less hostile, and competition is weak, exporters can perhaps get away with low levels of EMO behavior in order to sell their products. Indeed, since customers have little choice under these conditions, higher levels of EMO behavior may actually represent an unnecessary drain on resources which reduces the efﬁciency with which sales are achieved. This latter ﬁnding appears to indicate that, from an efﬁciency-based perspective, and in line with Jaworski and Kohli’s (1993) reasoning, the returns accruing from having high levels of EMO behavior under low levels of competition are not as great as the returns accruing from having high levels of EMO behavior under high levels of competition. However, the ﬁndings do not completely support H2, since the competition interaction term did not return a signiﬁcant coefﬁcient for either export growth or export proﬁts. EMO
Figure 2. Findings for H2. Competitive intensity
behaviors, therefore, while apparently reducing sales efﬁciency under conditions of low competitive intensity, do not appear to reduce actual sales growth, or the total proﬁts accruing from export sales. This ﬁnding also makes sense since, by performing EMO behaviors, ﬁrms are better positioned to: . respond to changing customer needs and wants; . develop competitive strategies; . identify new market opportunities; and . be able to match the ﬁrms’ marketing capabilities with the conditions facing the ﬁrm. This logic holds regardless of whether competition is weak or intense. The ﬁndings for the moderating effect of technological turbulence in ﬁrms’ export markets (H3) were a little more controversial. First, the ﬁndings with export sales efﬁciency performance appear to provide some support for H3, in that EMO behaviors were positively related to export sales efﬁciency performance under conditions of low technological turbulence. Unexpectedly, under conditions of high technological turbulence, rather than having a weak positive relationship, EMO behavior was negatively related to sales efﬁciency performance (see Figure 3). At ﬁrst glance, this appears to reinforce Jaworski and Kohli’s (1993) contention that under conditions of high technological turbulence, ﬁrms may ﬁnd that market orientation becomes less beneﬁcial. However, this result only pertains to the efﬁciency-based measures of export performance – not the sales growth measure. Here, refuting H3, sales growth is negatively related to EMO behavior under conditions of low technological turbulence and positively related to EMO behavior under conditions of high technological turbulence (Figure 3). It can be argued that these ﬁndings are a function of the fact that EMO behaviors add a variable cost to the ﬁrms’ activities (e.g. developing and implementing new technologies, new product development, etc.), and that this
Export market-oriented behavior 507
Figure 3. Findings for H3. Technological intensity
variable cost increases as a function of increased levels of technological turbulence. Consequently, increased technological turbulence decreases the efﬁciency with which sales are achieved by market-oriented ﬁrms. However, it is necessary for ﬁrms to accept these reduced efﬁciencies since, under high levels of technological turbulence, EMO behavior appears to be able to stimulate customer demand, and is thus an important direct driver of sales growth. In turn, since export growth is an antecedent to export proﬁts, those ﬁrms wishing to improve their proﬁts via increased export sales will need to ensure that their levels of EMO behaviors are sufﬁciently high. However, under conditions of technological stability, EMO behavior is positively related to sales efﬁciency and negatively related to sales growth. Possibly, technological stability in the environment may actually reduce the variables costs associated with behaving in a market-oriented way in ﬁrms’ export markets. Speciﬁcally, in a fairly predictable technological environment, the types of market-oriented activities required of ﬁrms also become fairly predictable and formalized and this, in turn, is likely to increase the efﬁciency of those activities (Ruekert et al., 1985). Hence, sales efﬁciency increases under conditions of low technological turbulence. By the same logic, as the technological environment becomes more stable and less prone to change, the need to generate, disseminate and respond to information about the technological environment, decreases. Consequently, some of those resources that help maintain EMO behavior levels could perhaps be better spent by investing in market driving activities, such as research into reducing production costs, more efﬁcient distribution systems, product innovations, new product designs, identifying radically new technologies, and the like (Jaworski et al., 2000). For example, by investing in more efﬁcient distribution systems, or by undertaking operation and production research, production, operations and distribution costs can be lowered. These lower costs can be used to spur sales growth through reduced prices or by increasing value in other ways. In short, under high levels of technological stability, high levels of EMO behavior appear to introduce an opportunity cost such that sales growth and proﬁts are compromised. Overall, then, the ﬁndings of this study provide strong support for the importance of EMO behaviors to export performance. Some direct effects from EMO behavior were observed, as well as several non-linear effects. What can be concluded is that the ﬁndings indicate that EMO behaviors are perhaps most important under conditions of high environmental turbulence, and become less important when changes occurring in the environment are limited. Conclusions and future research This study asked two key questions: (1) Does EMO behavior have a direct inﬂuence on export success?
(2) Does the export environment moderate in some way the EMO behavior – export performance relationship? Our results have provided support for our hypotheses; a direct affect from EMO behavior to export sales growth was observed, and moderator effects were also returned for both competitive intensity and technological turbulence. In general, the ﬁndings indicate that export sales growth and (indirectly) export proﬁts, are facilitated by exporters’ levels of EMO behavior. These effects varied depending on the degree of turbulence in the technological environment. EMO behavior may have a positive inﬂuence on export growth and sales under conditions of high technological turbulence, but the costs of EMO behavior may outweigh the beneﬁts accrued when technological change is rare. The ﬁndings also seem to demonstrate that an efﬁciency based measure of export sales efﬁciency performance was not directly inﬂuenced by EMO behavior. Instead, it appears that ﬁrms with high levels of EMO behaviors have higher levels of export sales per employee and export sales per export destination country under conditions of high competitive intensity. Thus, the payback from increasing levels of market orientation becomes greater when the competitive environment is more intense. Furthermore, under conditions of low technological turbulence, EMO behavior was also positively related to the efﬁciency with which sales are made. However, increased efﬁciency appears to come at a price, since sales growth and proﬁts appeared to be negatively affected by higher investments in EMO activities in technologically turbulence markets: perhaps investments in other activities would be more beneﬁcial for growth and proﬁts. An important implication of this study for academics and export managers is that there are likely to be many export business contexts in which high levels of EMO behavior are critical. However, our ﬁndings also suggest that academics should be aware that it is possible that higher levels of EMO behavior are not always necessary. Indeed, approximately half of the current sample operated in technological and competitive business contexts where it seems that the costs of developing and maintaining EMO behavior may exceed the associated beneﬁts (the term “costs” is a broad concept, and includes ﬁnancial expenditures and resource investments, as well as opportunity costs). While this conclusion may seem somewhat controversial, it is a logical development from the empirical ﬁndings reported here, and ﬁnds support in a growing body of market orientation research undertaken within the non exporting literature (e.g. Greenley, 1995; Kumar et al., 1998; Appiah-Adu, 1998; Gray et al., 1999). Of course, the ﬁndings reported here must be interpreted in the light of the study’s limitations. First, given the cross-sectional nature of the research, we cannot draw ﬁrm conclusions regarding causal linkages between variables. We can only compare the logic of the theoretical arguments with the patterns of association between variables. A
Export market-oriented behavior 509
longitudinal study to explore the issues raised in this paper would provide more conclusive evidence in this respect. The study also used a sample of exporting companies based in Hong Kong. In order to explore whether country of origin effects play a role in determining the effects observed in this study, multi-country studies are also warranted. There are also several directions for future research which may prove fruitful. For example, future researchers may ﬁnd it productive to investigate whether there are other important moderators of the EMO behavior – export performance relationship. Examples could include factors external to the ﬁrm (such as changing socioeconomic factors within export destination countries or the latters’ degree of political instability), as well as factors internal to the ﬁrm (such as co-ordination capabilities, political acceptance of exporting, export dependence or organizational structure issues). It is also the case that EMO behaviors may inﬂuence non-economic as well as economic performance. One avenue of research to pursue in this context is to determine whether EMO behaviors inﬂuence the success of the ﬁrm’s chosen strategies in their export markets. For instance, do EMO behaviors inﬂuence the success of ﬁrm’s adaptation or standardization strategies? There is also a need to understand how ﬁrms’ market orientation behaviors in both their export markets and domestic markets, interact. Why do some ﬁrms fail to carry the market orientation they have develop in the domestic context into their exporting operations? Are these ﬁrms behaving in a rational way, or should they be attempting to have consistent levels of market-oriented behavior in all their activities? Clearly, answers to issues such as these may have important resource allocation implications. Finally, investigators could examine market orientation in a more ﬁne-grained way. For example, should market orientation be viewed as a set of activities that can and do vary market-by-market (Uncles, 2000)? If market-oriented behavior does vary on a market-by-market basis, how can such differences be explained, particularly in light of the recently advocated market-oriented culture perspective of the ﬁrm (Harris, 1998; Homburg and Pﬂesser, 2000)? Perhaps, most importantly, what are the performance implications for ﬁrms with different proﬁles of market orientation across their business portfolios, and are there any heuristics which can be identiﬁed to help businesses organize their market-oriented behaviors in the most appropriate way?
Notes 1. In response to a reviewer’s question, we used Cadogan et al.’s (2001) measure because there are currently no valid alternative measures available of ﬁrms’ market-oriented behaviors in their export operations. 2. Two items were eliminated from the generation scale, leaving a three-item measure, and one item was eliminated from the responsiveness scale, leaving a four-item measure. 3. We thank an anonymous reviewer for suggesting this line of research.
References Appiah-Adu, K. (1998), “Market orientation and performance: empirical tests in a transition economy”, Journal of Strategic Marketing, Vol. 6 No. 1, pp. 25-45. Bagozzi, R.P. and Yi, Y. (1988), “On the evaluation of structural equations models”, Journal of the Academy of Marketing Science, Vol. 16 No. 1, pp. 74-94. Cadogan, J.W. and Diamantopoulos, A. (1995), “Narver and Slater, Kohli and Jaworski and the market orientation construct: integration and internationalization”, Journal of Strategic Marketing, Vol. 3 No. 1, pp. 41-60. Cadogan, J.W. and Diamantopoulos, A. (1998), “Measuring market orientation in an export context: some preliminary evidence”, in Buckley, P.J., Burton, F. and Mirza, H. (Eds), The Strategy and Organization of International Business, Macmillan, London, pp. 75-88. Cadogan, J.W., Diamantopoulos, A. and de Mortanges, C.P. (1999), “Developing a measure of export market orientation: scale construction and cross-cultural validation”, Journal of International Business Studies, Vol. 30 No. 4, pp. 689-707. Cadogan, J.W., Paul, N., Salminen, R.T., Puumalainen, K. and Sundqvist, S. (2001), “Key antecedents to ‘export’ market-oriented behaviors: a cross-national empirical examination”, International Journal of Research in Marketing, Vol. 18 No. 3, pp. 261-82. Cavusgil, S.T. and Zou, S. (1994), “Marketing strategy-performance relationship: an investigation of the empirical link in export market ventures”, Journal of Marketing, Vol. 56, January, pp. 1-21. Dickinson, R., Herbst, A. and O’Shaughnessy, J. (1986), “Marketing concept and customer orientation”, European Journal of Marketing, Vol. 20 No. 10, pp. 18-23. Gray, B.J., Greenley, G.E., Matear, S.M. and Matheson, P.K. (1999), “Thriving on turbulence”, Journal of Market Focused Management, Vol. 4 No. 3, pp. 231-57. Greenley, G.E. (1995), “Market orientation and company performance: empirical evidence from UK companies”, British Journal of Management, Vol. 6, pp. 1-13. Harris, L.C. (1998), “Cultural domination: the key to market-oriented culture?”, European Journal of Marketing, Vol. 32 No. 3/4, pp. 354-73. Homburg, C. and Pﬂesser, C. (2000), “A multiple-layer model of market-oriented organizational culture: measurement issues and performance outcomes”, Journal of Marketing Research, Vol. 37 November, pp. 449-62. Hooley, G.J. and Newcomb, J.R. (1983), “Ailing British exports: symptoms, causes and cures”, The Quarterly Review of Marketing, Vol. 8 No. 4, pp. 15-22. Jaccard, J. and Wan, C.K. (1996), LISREL Approaches to Interaction Effects in Multiple Regression, Sage, Thousand Oaks, CA. Jaworski, B.J. and Kohli, A.K. (1993), “Market orientation: antecedents and consequences”, Journal of Marketing, Vol. 57, July, pp. 53-70. Jaworski, B.J. and Kohli, A.K. (1996), “Market orientation: review, reﬁnement, roadmap”, Journal of Market Focused Management, Vol. 1 No. 2, pp. 119-35. Jaworski, B.J., Kohli, A.K. and Sahay, A. (2000), “Market-driven versus driving markets”, Journal of the Academy of Marketing Science, Vol. 28, Winter, pp. 45-54. ¨ ¨ Joreskog, K. and Sorbom, D. (1996), LISREL 8: User’s Reference Guide, Scientiﬁc Software International, Chicago, IL. Kohli, A.K. and Jaworski, B.J. (1990), “Market orientation: the construct, research propositions, and managerial implications”, Journal of Marketing, Vol. 54, April, pp. 1-18.
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Kumar, K., Subramanian, R. and Yauger, C. (1998), “Examining the market-orientation performance relationship: a context speciﬁc study”, Journal of Management, Vol. 24 No. 2, pp. 201-33. Kwon, Y.C. and Hu, M.Y. (2000), “Market orientation among small Korean exporters”, International Business Review, Vol. 9, pp. 61-75. Matthyssens, P. and Pauwels, P. (1996), “Assessing export performance measurement”, Advances in International Marketing, Vol. 8, pp. 85-114. Narver, J.C. and Slater, S.F. (1990), “The effect of market orientation on business proﬁtability”, Journal of Marketing, Vol. 54, October, pp. 20-35. Ping, R.A. Jr. (1994), “Does satisfaction moderate the association between alternative attractiveness and exit intention in a marketing channel”, Journal of the Academy of Marketing Science, Vol. 22 No. 4, pp. 364-71. Ping, R.A. Jr. (1995), “A parsimonious estimation technique for interaction and quadratic latent variables”, Journal of Marketing Research, Vol. 32 August, pp. 336-47. Rose, G.M. and Shoham, A. (2002), “Export performance and market orientation: establishing an empirical link”, Journal of Business Research, Vol. 55 No. 3, pp. 217-25. Ruekert, R.W., Walker, O.C. Jr. and Roering, K.J. (1985), “The organization of marketing activities: a contingency theory of structure and performance”, Journal of Marketing, Vol. 49, Winter, pp. 13-25. Slater, S.F. (1995), “Issues in conducting marketing strategy research”, Journal of Strategic Marketing, Vol. 3, pp. 257-70. Slater, S.F. and Narver, J.C. (1994), “Does competitive environment moderate the market orientation-performance relationship?”, Journal of Marketing, Vol. 58, January, pp. 46-55. Uncles, M. (2000), “Market orientation”, Australian Journal of Management, Vol. 25 No. 2, pp. i-ix. Further reading Thirkell, P.C. and Dau, R. (1998), “Export performance: success determinants for New Zealand manufacturing exporters”, European Journal of Marketing, Vol. 32 No. 9/10, pp. 813-29. Appendix. Scale items Export market intelligence generation (seven-point scale with very strongly disagree/very strongly agree anchors). (1) In this company, we generate a lot of information concerning trends (e.g. regulations, technological developments, political, economic) in our export markets. (2) We periodically review the likely effect of changes in our export environment (e.g. regulation, technology). (3) We generate a lot of information in order to understand the forces which inﬂuence our overseas customers’ needs and preferences. Export market intelligence dissemination (seven-point scale with very strongly disagree/very strongly agree anchors). (1) Too much information concerning our export competitors is discarded before it reaches decision makersR. (2) Information which can inﬂuence the way we serve our export customers takes forever to reach export personnelR. (3) Important information about our export customers is often “lost in the system”R.
(4) Information about our export competitors’ activities often reaches relevant personnel too late to be of any useR. (5) Important information concerning export market trends (regulation, technology) is often discarded as it makes its way along the communication chainR. Export market responsiveness (seven-point scale with very strongly disagree/very strongly agree anchors). (1) If a major competitor were to launch an intensive campaign targeted at our foreign customers, we would implement a response immediately. (2) We are quick to respond to signiﬁcant changes in our competitors’ price structures in foreign markets. (3) We are quick to respond to important changes in our export business environment (e.g. regulation, technology, economy). (4) We rapidly respond to competitive actions that threaten us in our export markets. Competitive turbulence in the ﬁrm’s export markets (seven-point scale with not at all/to an extreme extent anchors). (1) In our export markets, there are many “promotion wars”. (2) One hears of a new competitive move in our export markets almost every day. (3) In our foreign markets, aggressive selling is the norm. Technological turbulence in ﬁrm’s export markets (seven-point scale with not at all/to an extreme extent anchors). Regarding the impact of technology in your export business. . . (1) The technology in our industry is changing rapidly. (2) Technological changes provide big opportunities in our industry. (3) A large number of new product ideas have been made possible through technological breakthroughs in our industry. Export sales efﬁciency performance. (1) Export sales per company employee (the ratio of the ﬁrm’s total annual export sales to the total number of company employees). (2) Export sales per country exported to (the ratio of the ﬁrm’s total annual export sales to the total number of countries the ﬁrm exports to). Export sales growth performance. (1) Over the last three years, average annual percentage growth/decline in export sales (a percentage score). (2) How does your average annual export sales growth/decline compare to the industry average? (10-point scale with poor/outstanding anchors). Export proﬁt performance. (1) Overall, how proﬁtable has exporting been over the last ﬁnancial year? (10-point scale with very unproﬁtable/very proﬁtable anchors). Note: R reverse coded.
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The relationship between strategic type and ﬁrm capabilities in Chinese ﬁrms
C. Anthony Di Benedetto
Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA, and
School of Business Administration, University of Washington, Seattle, Washington, USA
Keywords Strategic choices, Company performance, China, Strategic management, Decision making Abstract Proposes that ﬁrms of different Miles and Snow strategic types will have different bundles of ﬁrm-level capabilities; that is, certain capabilities will be more important to certain strategic types. Speciﬁcally, proposes that prospectors have greater relative inside-out capabilities and information technology capabilities, while defenders have greater relative outside-in capabilities and marketing capabilities. Empirically tests, and ﬁnds support for, the propositions using a data set of 245 Chinese ﬁrms, comprised mostly of state-owned enterprises. Understanding the Chinese business environment is of importance to businesses around the world as the Chinese economy undergoes rapid expansion and decentralization of strategic decision making to the level of the state-owned enterprise. As the central government takes on a lesser role in the management of enterprises, and Chinese enterprise managers become more responsible for their own strategic decision making, a clear understanding of the enterprise’s speciﬁc capabilities and advantages is required in order to achieve sustained competitive advantage. Concludes by discussing managerial implications.
International Marketing Review Vol. 20 No. 5, 2003 pp. 514-533 q MCB UP Limited 0265-1335 DOI 10.1108/02651330310498762
Introduction Recent studies in the marketing and strategy literature have examined ﬁrms’ capabilities, deﬁned as “complex bundles of skills and accumulated knowledge . . . that enable ﬁrms to coordinate activities and make use of their assets” (Day, 1990, p. 38). Capabilities are typically extremely difﬁcult to imitate since they are deeply rooted in the ﬁrm’s routines and practices (Dierckx and Cool, 1987). Firm-speciﬁc resources, which include both assets and capabilities, are the source of the ﬁrm’s long-term competitive advantage and performance, and it is the task of management to determine how best to exploit and improve these resources (Mahoney and Pandian, 1992; Barney, 1991; Wernerfelt, 1984; Day, 1994). At the same time, a ﬁrm possessing a given strategy tends to develop capabilities that help it to pursue its strategies and attain long-term competitive advantage. That is, capabilities determine strategy, and strategy determines
The authors wish to thank the reviewers who provided valuable and insightful comments on an earlier draft of this article.
capabilities. This apparent circularity was perhaps best expressed by Hambrick: “prospectors tend to want to continue prospecting; defenders tend to want to continue defending” (Hambrick, 1983, p. 7). The marketing strategy literature suggests that several capabilities are critical to success, including “inside-out”, “outside-in”, marketing and information technology capabilities (Day, 1990, 1994; Day and Wensley, 1988). Inside-out capabilities permit the organization to improve production process efﬁciencies, reduce costs, and increase competitiveness. Outside-in capabilities such as purchasing and new product development allow the organization to exploit marketplace opportunities. Capabilities in marketing and information technology are also related to ﬁrm performance, and the ﬁrm’s ability to sustain competitive advantage (Conant et al., 1990; Jaworski and Kohli, 1993; Day, 1994). The research objective of this study is to investigate the relationships between strategic type (as measured by the Miles-Snow strategic typology of prospectors, analyzers, defenders, and reactors) and ﬁrm-level capabilities (Miles and Snow, 1978). Speciﬁcally, we propose that some of these capabilities will be relatively more important to ﬁrms that behave as prospectors, while others will be relatively more important to those that behave as defenders. Conant et al. (1990) empirically tested the relationship between marketing capabilities and the Miles-Snow strategic typology. Except for Conant et al.’s (1990) study, however, the relationships between ﬁrm capabilities, distinctive competencies, and strategic selection have not been empirically tested. In addition, we test our proposed relationships in the Chinese business environment context. China is currently experiencing substantial economic expansion. In the early 1990s, Business Week noted that China’s economy was growing at a rate well above 10 percent per year, and that the emergence of this economy was sure to “affect global trade, investment, and raw material ﬂows” (Barnathan et al., 1993). Fortune described the growth of the economy of Guangdong province as “a stunning accomplishment unmatched by Japan [and other Asian economies] during similar stages of development” (Worthy, 1992). Also, the New York Times characterized the Chinese economy as “the second largest . . .in the world . . . Such statistics, while open to conﬂicting interpretation, suggest that China could overtake the USA as the biggest economy in another decade or so” (Kristof, 1993, p. 1). By the mid-1990s, China represented about a quarter of the world’s population and had a trade surplus with the US of about $35 billion; recent Department of Commerce reports show that the US trade deﬁcit with China is greater than that with Japan (Borrus and Engardio, 1995; Barnathan, 1996). Many Chinese ﬁrms are state-owned enterprises (SOEs), characterized by parallel power structures; a combination of administrative and party authority (Schermerhorn and Nyaw, 1991). Managerial reforms initiated in the mid-1970s were designed to stimulate growth in the Chinese economy, including a focus
Strategic type and ﬁrm capabilities 515
on technology and innovation to increase competitiveness. Later reforms were intended to give the SOE greater latitude in strategic decision making, and initiated proﬁt sharing between the SOE and the state (Laaksonen, 1988; Child, 1987). Although the reforms have been adopted slowly, some decentralization has been observed. The central authority is commonly involved in management hiring, labor, investment, and performance targets, as well as employee compensation and discipline, while the SOE typically has some latitude in setting outputs, prices, and making product-mix and input decisions (Schermerhorn and Nyaw, 1991; Henley and Nyaw, 1986). Other types of Chinese enterprises, such as urban, township, or village collectives, are supervised by lower levels of government and less subject to central government control, as are small private companies (Parry and Song, 1994). As the Chinese economy moves toward a more decentralized form with less government involvement in planning and strategy, SOE decision-makers will increasingly be accountable for choosing advantageous competitive strategies in keeping with their ﬁrms’ distinctive capabilities. Despite the important, growing role of SOEs in the emerging Chinese economy and the increasing importance of China in the global marketplace, few studies have systematically investigated Chinese companies and their competitive strategies (Song and Parry, 1994; Parry and Song, 1994). To our knowledge there are no published empirical studies of the process by which managers of Chinese ﬁrms make and support strategic competitive decisions. The above-mentioned theoretical studies on ﬁrm capabilities assume capitalistic, Western market conditions; it is unclear whether their ﬁndings are generalizable to the Chinese business environment and Chinese decision makers. We develop several propositions relating four distinct ﬁrm capabilities (inside-out, outside-in, marketing, and information technology) to the ﬁrm’s strategic choices, and conduct an empirical study in the Chinese business environment in which we empirically test our propositions. We use the Miles-Snow typology to operationalize strategic type, and gather data from 245 managers of Chinese ﬁrms (mostly SOEs). Our empirical results largely support the conceptual work described above. That is, we ﬁnd evidence that the theoretical model we build from principles derived from the Western business environment appears to be generalizable to the Chinese business environment. We conclude by providing prescriptions for practicing managers in Chinese SOEs seeking to improve their ﬁrm’s process of strategy selection and capability development. Theoretical framework The Miles-Snow strategic typology The Miles and Snow (1978) strategic typology has received much attention and investigation in the marketing and management literature over the last two
decades (e.g. Hitt and Ireland, 1986; McDaniel and Kolari, 1987; Ruekert and Walker, 1987; Conant et al., 1990; Shortell and Zajac, 1990; Rajaratnam and Chonko, 1995; Dyer, 1997). Miles and Snow envisioned strategy as a pattern in a ﬁrm’s (or SBU’s) decisions, by which the ﬁrm aligns itself with its environment. Their typology categorize ﬁrms according to the enduring patterns of strategic behavior by which they achieve this alignment with the environment (McDaniel and Kolari, 1987). The critical underlying variable in this typology is the organization’s rate of change in its products or markets. Miles and Snow (1978) proposed four strategic types (prospectors, analyzers, defenders and reactors), and suggested that ﬁrst three types (the “archetypal” types) choose different competitive strategies with respect to products and/or markets. Prospectors, for example, are more likely to be technologically innovative with their products and/or to seek out new markets, analyzers will prefer a “second-but-better” strategy, and defenders will focus on maintaining their current position in their product markets. Reactors, by contrast, typically lack long-term plans. In short, all three “archetypal” strategic types can be desirable, but the ﬁrm or SBU must understand its distinctive competencies and capabilities in order to choose and implement its strategic type correctly. Detailed deﬁnitions of each strategic type are presented below: (1) Strategic types (Walker et al., (2003) as follows: . Prospectors. Firms that operate within a broad, periodically redeﬁned product-market domain. Prospectors value being a ﬁrst mover, responding rapidly to early signals of opportunity, and these responses often lead to competitive action. Prospectors generally compete by stimulating and meeting new market opportunities, though they may not sustain their strong position through time in all markets they enter. . Analyzers. Firms that make fewer and slower product-market changes than prospectors, but are less committed to stability and efﬁciency than defenders. Analyzers maintain a stable, limited line of products or services, carefully following a selected set of promising new developments. Seldom a ﬁrst mover, analyzers often act as a second or third entrant in product-markets related to their existing market base. . Defenders. Firms that attempt to locate and maintain a secure position in relatively stable product or service areas. Defenders offer a limited range of products, protecting their domain instead by offering lower prices, higher quality, or better service than competitors. Defenders are usually not at the forefront of new product development in their industries, often ignoring industry changes not directly related to their operations.
Strategic type and ﬁrm capabilities 517
Reactors. Firms that lack any well-deﬁned competitive strategy and do not have as consistent a product-market orientation as the competition. Reactors are generally not willing to assume the risks of new product or market development, nor are they as aggressive in marketing established products. Reactors respond primarily when forced to by environmental pressures.
(2) Capabilities (Day, 1990, 1994; Day and Wensley, 1988) as follows: . Inside-out capabilities. Those that allow the ﬁrm to keep costs down and/or differentiate its offerings from competitive offerings. This category includes ﬁnancial management, cost control, technology development, and logistics. . Outside-in capabilities. Those that bring key information into the ﬁrm and allow it to be more responsive to changes in customer needs. Allow the ﬁrm to be more effective in exploiting its inside-out capabilities. This category includes market sensing, channel linking, customer linking, and technology monitoring. . Marketing capabilities. Those that allow the ﬁrm to take advantage of inside-out and outside-in capabilities by implementing effective marketing programs. This category includes skill in segmentation, targeting, pricing, and advertising. . Information technology capabilities. Those that allow the ﬁrm to diffuse market information effectively across all relevant functional areas and direct its new product development efforts more effectively. This category includes having systems in place for facilitating cross-functional integration, internal communication, and technology and market knowledge creation.
Organizational capabilities An organization requires a wide range of capabilities in many areas to enable it to create economic value. Capabilities are generally scarce (different ﬁrms in an industry will not all have the same capabilities), they are relatively immobile (they are more useful to the ﬁrm that has them than to others), and they are not easily copied by competitors. For these reasons, capabilities allow the ﬁrm to sustain its competitive advantage through time and to achieve superior proﬁtability (Reed and De Fillippi, 1990; Amit and Schoemaker, 1993; Day, 1994). As noted earlier, the objective of this study is to determine whether certain ﬁrm-level capabilities will be relatively more important to certain strategic types in the Chinese business environment. That is, in this business environment, prospectors will focus on developing capabilities that sustain their competitive position as prospectors, and defenders will focus on
developing capabilities that sustain their competitive position as defenders. Analyzers, sharing characteristics of both prospectors and defenders, will be midway between prospectors and defenders in their importances of ﬁrm-level capabilities. We do not attempt to provide an exhaustive list of all possible capabilities an organization might have. We focus instead on four categories of capabilities that have been identiﬁed in the marketing and management literature as being critically linked to the development and sustainability of competitive advantage and long-term competitive success (Day, 1990, 1994; Day and Wensley, 1988; Conant et al., 1990; Jaworski and Kohli, 1993). Inside-out capabilities such as ﬁnancial management, cost control, technology development, and logistics allow an organization to keep costs down and/or to differentiate its offerings from those of competitors. Outside-in capabilities such as market sensing, channel and customer linking, and technology monitoring, bring key information into the organization and allows it to be more responsive to changing customer needs. Outside-in capabilities allow the organization to use their inside-out capabilities effectively to exploit external possibilities (Day, 1994). Marketing capabilities such as skill in segmentation, targeting, pricing and advertising permits the organization to take advantage of its market sensing and technological capabilities and to implement effective marketing programs. Finally, information technology capabilities permit the organization to effectively diffuse market information across all relevant functional areas so that it can direct new product development efforts. These have been more fully deﬁned earlier. Proposition development As shown previously, outside-in, or market sensing and linking capabilities are those that allow the organization to compete by sensing market changes and shifts in the market environment, forging durable links with customers, and creating strong bonds with channel members. These capabilities enable the organization to compete effectively, as it can sense marketplace requirements before competitors, and connect the organization’s other capabilities to the external environment (Day, 1994). By contrast, inside-out capabilities include capabilities in manufacturing process, technology and new product development, technology change forecasting, and production facilities, as well as the ability to forecast technological change in the industry (Walker et al., 2003; Day, 1994). While it is true that all organizations should possess good outside-in capabilities, defenders (as deﬁned earlier) owe their competitive existence to their ability to defend their familiar products and markets, so for their very survival it is crucial to have excellent market sensing and linking (outside-in) capabilities (Conant et al., 1990). Outside-in capabilities are less critical to the success of prospectors, who, according to the previous deﬁnition, would
Strategic type and ﬁrm capabilities 519
respond to the same challenge by seeking out new markets to serve, or developing new products that can be sold to new or existing markets. Thus, while outside-in capabilities are important for prospectors, the abilities to forecast technological change and develop new products (typical inside-out capabilities) are what allow prospectors to keep on prospecting and stay competitive. Thus, on a relative scale, inside-out capabilities are relatively more important to prospectors, while outside-in capabilities are relatively more important to defenders, with analyzers falling in between on both scales. We propose: P1. Prospectors will have the lowest relative outside-in capabilities and defenders the greatest, along the prospectors-analyzers-defenders continuum. P2. Prospectors will have the greatest relative inside-out capabilities and defenders the lowest, along the prospectors-analyzers-defenders continuum. Marketing capabilities include knowledge of competition and of customers, skill in segmenting and targeting markets, effectiveness of advertising and pricing programs, and marketing activity integration (Conant et al., 1990). While important to all organizations, these capabilities will be of utmost importance to defenders in sustaining competitive advantage, since they are most concerned about protecting current products and customers (McDaniel and Kolari, 1987). By contrast, prospectors rely more greatly on proactive new product development (Robinson et al., 1992), which requires that information is effectively gathered from the marketplace and disseminated throughout the organization (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993). Better information technology improves communication across functional areas in the organization, increases strategic ﬂexibility, and ultimately leads to greater new product success (Day, 1994; Gupta et al., 1986; Grifﬁn and Hauser, 1992, 1993; Moenaert and Souder, 1996; Bharadwaj et al., 1999). We propose: P3. Prospectors will have the lowest relative marketing capabilities and defenders the greatest, along the prospectors-analyzers-defenders continuum. P4. Prospectors will have the greatest relative information technology capabilities and defenders the lowest, along the prospectors-analyzers-defenders continuum. We are primarily interested in the relative capabilities found in the three archetypal strategic types, so our propositions do not explicitly include reactors. We will gather data from reactor organizations, however, and include them in our analysis section.
Data The sampling frame consisted of a random sample of 800 Chinese ﬁrms (almost all SOEs) listed in Ward’s Business Directory, Directory of Corporate Afﬁliations, and the World Marketing Directory. The data collection has three steps: presurvey, collecting data on SBU strategies, and collecting data on relative capabilities. In the ﬁrst stage, we sent a one-page survey and an introductory letter to the president of the company requesting participation to all of the selected ﬁrms. We also offered a list of available research reports to the participating ﬁrms. Each ﬁrm was asked to select an SBU/division for participation and provide a contact person in the SBU/division. Out of the 800 ﬁrms, 414 agreed to participate and provided the necessary contacts. In the second stage the designated SBU managers were contacted directly by the researchers and a questionnaire designed to collect data on strategic types, together with personalized letters, was mailed to each manager. We employed a three-wave mailing based on the recommendations of Dillman (1978). We collected data on strategic types from 352 Chinese ﬁrms (representing a response rate of about 44 percent). Two items at the end of the instrument assessed respondents’ conﬁdence in their ability to answer the questions. The individuals with a low level of conﬁdence (less than six) were excluded from the sample. In the third stage, the capability questionnaire (designed to collect data on the four capabilities) was sent to the SBU managers. The same process in the second phase was followed. We collected data on four capabilities from 245 Chinese ﬁrms. The data on strategic types used in this study are from this second phase while the data on four capabilities are from the third phase. The ﬁnal sample includes the following industries: computer related products; electronics; electric equipment and household appliances; pharmaceuticals, drugs and medicines; machinery; telecommunications equipment; instruments and related products; air-conditioning; chemicals and related products; and transportation equipment. The majority of the SBUs/divisions had annual sales between $11 million and $750 million and had between 100 to 12,500 employees. Measures A set of 36 capability scale items were generated based on our review of the literature (primarily Day, 1994 and Conant et al., 1990) and based on our preliminary ﬁeld research with Chinese managers. These scale items were grouped theoretically into four categories corresponding to the ﬁrm capabilities (outside-in, inside-out, marketing, and information technology). Respondents were required to rate their SBU on each of the capability scale items relative to their major competitors, using 0-10 scales. Consistent with earlier studies (e.g. Parry and Song, 1994; Song and Parry, 1994), our ﬁeld research also suggests that 11-point scales (0 for much worse than our competitors; 10 for much better
Strategic type and ﬁrm capabilities 521
than our competitors) are more appropriate for eliciting levels of agreement. Our experience with cross-national surveys suggests that 0-10 scales are better understood across multiple nations than are the 1-7 or 1-6 scales more commonly seen in North American research, perhaps because of their structural similarities to the metric system. We performed principal factor analysis with varimax rotation on the 36 capability variables. We retained variables with factor loadings exceeding 0.40. This procedure produced four factors and reduced the total number of variables to 21. All factors are distinguishable and well deﬁned, and are consistent with the four categories of capabilities theoretically expected as described above. Examination of the diagonal of the factor score covariance matrix (SMCs) indicates that all factors are internally consistent and well deﬁned by the measurement items. Factor loadings are reported in Table I. Construct reliabilities measured by Cronbach’s alpha for the four capabilities measures (outside-in, inside-out, marketing, and information technology) were 0.813, 0.825, 0.949, and 0.795. The construct reliabilities all exceeded the 0.70 level recommended by Peter (1979). Outside-in capabilities are deﬁned as market sensing and linking capabilities that are focused outside the organization. The ﬁnal scale had ﬁve items drawn from Day’s (1994) set of market sensing and linking capabilities. These measured the ﬁrm’s customer-linking capabilities (creating and managing durable customer relationships), channel-bonding capabilities (creating durable relationships with channel members), capability to create durable relationships with suppliers, the ability to retain customers, and market sensing capabilities. Managers were asked to rate their SBU on each of these capabilities, relative to competitors, on a 0-10 scale. Inside-out capabilities are deﬁned as those related to greater efﬁciencies, cost reduction, consistency in delivery, and greater competitiveness. From Day’s (1994) set of inside-out capabilities, we ultimately generated a ﬁve-item scale measuring: manufacturing processes, technology development capabilities, the ability to predict technological change, production facilities, and new product development capabilities. Marketing capabilities are measured using a six-item scale drawn from the Conant et al. (1990) study of marketing capability and strategic type. These include: knowledge of customers, knowledge of competitors, integration of marketing activities, skills in segmentation and targeting, effectiveness of pricing programs, and effectiveness of advertising programs. Information technology capabilities are deﬁned as those that help an organization create technical and market knowledge, and to facilitate intra-organizational communication ﬂow. Based on our ﬁeld studies with managers, we developed a set of information technology capability scale items, of which ﬁve items were ultimately retained. These included the possession of information technology systems for new product development, cross-functional
Outside-in capabilities Market sensing capabilities Customer-linking (i.e. creating and managing durablecustomer relationships) capabilities Capabilities of creating durable relationships with our suppliers Ability to retain customers Channel-bonding capabilities (creating durable relationships with channel members such as wholesalers, retailers, etc.) Eigenvalue of this factor Percent variance explained by this factor Inside-out capabilities Manufacturing processes Technology development capabilities Ability of predicting technological changes in the industry Production facilities New product development capabilities Eigenvalue of this factor Percent variance explained by this factor Marketing capabilities Knowledge of competitors Effectiveness of advertising programs Integration of marketing activities Skill to segment and target markets Effectiveness of pricing programs Knowledge of customers Eigenvalue of this factor Percent variance explained by this factor Information technology capabilities Information technology systems for facilitating cross-functional integration Information technology systems for new product development projects Information technology systems for internal communication (e.g. across different departments, levels of the organization, etc.) Information technology systems for facilitating technology knowledge creation Information technology systems for facilitating market knowledge creation Eigenvalue of this factor Percent variance explained by this factor
0.88 0.79 0.66 0.70 0.67 2.64 12.6 0.70 0.81 0.69 0.73 0.78 4.36 20.7 0.95 0.86 0.94 0.93 0.83 0.83 5.39 25.7 0.83 0.80 0.46 0.67 0.63 1.75 8.3
Strategic type and ﬁrm capabilities 523
Table I. Principal component factor analysis
integration, technology knowledge creation, market knowledge creation, and internal communication. Classiﬁcation of strategic type. We used the Conant et al. (1990) eleven-item scale to classify ﬁrms into four strategies (see Appendix). Following Conant et al. (1990), we classify the SBU’s strategic type (prospector, analyzer, defender, or reactor) using the “majority-rule decision structure” (see Conant et al., 1990 for details) with one modiﬁcation. We required that for an SBU to be classiﬁed as a prospector or a defender, it must have at least seven “correct” answers.
Analysis and results Validation of multi-item strategic type scales We validated the Conant et al. (1990) multi-item scale by using an independent assessment of strategic type made by experts who were highly knowledgeable about the Miles and Snow typology. We assigned a reliability score of 1 to organizations that were classiﬁed “correctly” by the multi-item scale (i.e. the scale classiﬁed the organization into the same strategic type category as the experts did), and a score of 0 to organizations classiﬁed incorrectly. Approximately 90 percent of ﬁrms were classiﬁed correctly by the multi-item scale. Additionally, we calculated the mean reliability score for each of the eleven individual items, and found these means to be consistently in the range of 0.84 to 0.86 (see Table II). That is, the responses given on each individual scale item were consistent with the “correct” strategic type about 85 percent of the time. As a result, we feel conﬁdent in using the Conant et al. (1990) multi-item scale to classify the organizations in our samples by strategic type. This procedure classiﬁed the 245 organizations as follows: 83 prospectors, 76 analyzers, 51 defenders and 35 reactors. We believe this is the ﬁrst time the Conant et al. (1990) multi-item scale has been validated using external experts, and the ﬁrst time it has been validated in the Chinese business environment. Test of propositions To test our propositions we compared the scores on each of the four multiple-item relative capabilities across all four strategic types using multiple analysis of variance. For each factor, a multiple-item scale was obtained by a simple average of the items. As shown in Table II, the MANOVA F-statistic was found to be signiﬁcant for all four relative capabilities, so pairwise
Strategic dimensions Entrepreneurial – product market domain 0.865 Entrepreneurial – success posture 0.849 Entrepreneurial – surveillance 0.841 Entrepreneurial – growth 0.849 Engineering – technological goal 0.841 Engineering – technological breadth 0.865 Engineering – technological buffers 0.845 Administrative – dominant coalition 0.845 Administrative – planning 0.865 Administrative – structure 0.849 Administrative – procedure 0.865 Notes: The entries in this table are mean reliability scores for each of the items of the Conant et al. (1990) scale. A score of 1 was assigned to organizations that were classiﬁed the same way by the Conant et al. (1990) scale and by independent knowledgeable experts (see text for details). The results suggest that the Conant et al. scale correctly classiﬁes ﬁrms about 85 percent of the time. For full text of scale items and possible responses, see Appendix
Table II. External validation of multiple measures of strategic types
comparisons were computed to examine the nature of the differences in relative capabilities among the four strategic types. The t-test results of the pairwise comparisons are also included in Table III. The results in Table III provide support for all four propositions. (In Table III, we report support for a proposition if at least two pairwise comparisons are signiﬁcant and in the expected direction; see note at bottom of table.) The relative outside-in capabilities of defenders and analyzers ﬁrms are signiﬁcantly higher than those of prospectors, although the difference between defenders and analyzers is not signiﬁcantly different. According to Table III, mean scores on outside-in capabilities are 2.22, 2.17, and 1.21 for defenders, analyzers and prospectors respectively. The F-statistic from the ANOVA is 11.21, which is signiﬁcant at p , 0.05. T-tests of the paired comparisons showed both the defender mean and the analyzer mean to be signiﬁcantly larger than the prospector mean (D . P; A . P) at the p , 0.05 level. This ﬁnding is consistent with P1. P2 is also supported. Relative inside-out capabilities are signiﬁcantly higher in prospectors than in analyzers or defenders (the capabilities for prospectors, analyzers and defenders are, respectively, 8.53, 7.81, and 7.43, prospector mean signiﬁcantly larger than the other two means at p , 0.05). P3 was supported. Defenders had signiﬁcantly higher relative marketing capabilities than prospectors (relative capabilities for defenders and prospectors were, respectively, 3.69 and 2.92, different at p , 0.05, while the analyzers’ relative capability was 3.37). Finally, P4 was strongly supported. Prospectors had signiﬁcantly higher relative information technology capabilities than analyzers and defenders (the capabilities for prospectors, analyzers, and defenders are 8.96, 8.58, and 7.94 respectively). It should be noted that no counterintuitive ﬁndings were obtained for any of the four propositions: all signiﬁcant ﬁndings were in expected directions. To summarize: our expectations were that prospectors would be most likely to be strongest in relative inside-out and information technology capabilities, while defenders would have the greatest relative strengths in marketing and outside-in capabilities. We ﬁnd support for all of these propositions. One unexpected ﬁnding concerned the relative capabilities of reactors. We noted, in particular, that reactors reported higher relative outside-in and marketing capabilities than did any other strategic type (2.71 and 4.13 respectively). Miles and Snow (1978) found that reactors did not implement strategies consistently, and therefore did not fully develop internal capabilities that allow them to compete successfully. Our results suggest that this expectation is not borne out in China. One possible explanation is that Chinese ﬁrms that are newly expanding their scope of operations to serve the export market (or even far-away domestic regions within China) have outside-in (market sensing and linking) and marketing capabilities that are better
Strategic type and ﬁrm capabilities 525
Countries/relative capabilities Prospector 1.21 (1.28) 2.17 (1.52) 2.22 (1.49) 2.71 (1.74) Reactor 11.21**
D . P; A . P; Yes R . A; R. P Inside-out capabilities 8.53 7.81 7.43 6.79 15.69** P . A; P . D; Yes (1.27) (1.28) (1.19) (1.85) P . R; A . R; D . R Marketing capabilities 2.92 3.37 3.69 4.13 2.30* D . P; Yes (2.20) (2.52) (2.82) (2.45) R. P Information technology capabilities 8.96 8.58 7.94 7.59 13.38** P . A; P . D; Yes (1.10) (1.13) (1.33) (1.60) P . R; A . D; A . R Notes: Each cell shows standard deviation below mean in parentheses. In univariate F-value column, **: p , 0.05; *: p , 0.10. In paired comparison column, signiﬁcant differences at p , 0.10 are reported. A hypothesis is supported if at least two pairs signiﬁcantly different in the hypothesized direction
Table III. Analysis of variance results: capabilities and strategic types Strategic type Analyzer Defender Univariate F-value Paired comparisons (t-tests) Hypothesis supported?
developed than those of Chinese ﬁrms just serving the local market. These ﬁrms use their skills in marketing to venture out into new foreign markets, where they are likely to behave in a highly reactive manner. Their superior market sensing skills allow them to act as prospectors in certain markets selected for entry, and possibly as adapters or defenders in others, and to be successful in doing so. A multinational organization doing business against a Chinese competitor should keep in mind that a ﬁrm apparently lacking a consistent strategy (i.e. displays reactive behavior) may nonetheless be highly skilled in marketing and market sensing and may be a surprisingly formidable opponent. Organizations adopt certain mechanisms in response environmental changes (Miles and Snow, 1978). They may choose to be pioneers in product or market development, seek to protect existing positions within their industries, or ﬁnd an intermediate position between these two extremes. As a result, ﬁrms exhibit relatively consistent strategies, or patterns of product/market innovation decisions, in response to environmental shifts. A ﬁrm that pursues a given strategy develops certain capabilities that help it to implement its preferred strategies (i.e. strategy determines capabilities); these capabilities are a source of competitive advantage and are exploited by management by choice of strategy (i.e. capabilities determine strategy). As noted earlier, “prospectors tend to want to continue prospecting” (Hambrick, 1983) According to this framework, all of the archetypal strategic types (prospector, analyzer and defender) are preferable to the reactor, or the ﬁrm that does not develop a consistent strategy with all the associated capabilities (Miles and Snow, 1978; Conant et al., 1990). That is, the organization that formulates a consistent strategy over time develops response mechanisms for dealing with environmental change. As noted earlier, the Miles and Snow typology is, above all, a typology of innovation strategies. We mapped four capabilities of innovating ﬁrms onto the Miles and Snow strategic typologies and developed a theoretical framework. We proposed that, to compete effectively, prospectors would need to build up inside-out and information technology capabilities, and defenders would need to develop outside-in and marketing capabilities in order to compete effectively. The extant studies used to develop this framework assumed a Western, capitalistic competitive environment, and the few available empirical studies had been conducted in North America. We then collect empirical data among state-owned enterprises in China to assess the generalizability of this theoretical framework in a vastly different business environment. We found supporting evidence for all our propositions. While not claiming that the theoretical framework is universally generalizable, we do suggest that it can be used to shed light on the rapidly globalizing competitive environment in China. This is not to say that the differences between Chinese and Western business environments are trivial. Indeed, one surprising and anomalous
Strategic type and ﬁrm capabilities 527
ﬁnding concerned the unexpectedly high levels of marketing and market sensing and linking capabilities among Chinese reactors. As noted in the results section, this ﬁnding may be a reﬂection of the recent changes in the Chinese business environment reducing the role of the government in planning and strategy and allowing SOE management more decision-making autonomy. Chinese SOEs, taking advantage of this newfound autonomy by venturing to foreign markets (or smaller Chinese ﬁrms branching out into far-away regions of their large home market) may have to compete by being reactive to the changing business environment in the targeted foreign market. Their superior marketing and market-sensing capabilities allow them to react quickly and correctly. As a result, these ﬁrms will score better on these capabilities than will more locally-focused Chinese ﬁrms. Our ﬁndings may be an artifact of the fact that the Chinese business environment changes are still relatively new. It would be interesting to conduct this study again in several years, to determine whether many of these current reactors have developed into more conventionally preferred strategic types such as prospectors or defenders. There are some implications for theory and future research derived from this study. The results generally support the Miles and Snow typology, and the contention that the most successful organizations do tend to respond in certain consistent ways in response to environmental change. Among Chinese SOEs, prospectors develop the greatest inside-out and information technology capabilities so they can continually and successfully pursue ﬁrst-to-market initiatives. Similarly, defenders develop greater outside-in and marketing capabilities in order to stay abreast of, and to respond effectively to, marketplace changes. As noted above organizations doing business with Chinese competitors (perhaps for the ﬁrst time) should recognize that reactors perceived themselves to be surprisingly strong in certain capabilities, more so that would have been predicted by the Miles and Snow model. An organization should not, therefore, take lightly a challenge from a Chinese competitor apparently following a reactor strategy. Several managerial implications are derived from this study. First, to compete effectively, an organization should recognize their main competitors’ apparent strategic types when conducting an external assessment, considering that these strategic types may not change rapidly. Then, it should do an honest internal assessment, considering its own strengths and weaknesses relative to the competitive environment, and selecting an appropriate strategic posture. Our theoretical framework suggests that there is a complementary relationship between capabilities and strategies. That is, relative strengths in inside-out and information processing capabilities are more consistent with pursuing a prospector (or even analyzer) strategy; and continuing to prospect should further develop these relative strengths and solidify the prospector’s competitive position. This is, to a certain extent, a resource allocation issue: when making investment decisions, the organization should allocate more to
building up capabilities that are most consistent with the chosen strategic type (defenders need to build up outside-in capabilities, and prospectors need to build up inside-out, for example). Our ﬁndings suggest that these implications are as relevant for managers in Chinese ﬁrms as they are for managers from Western ﬁrms, who will be increasingly doing business with China in the future. We recognize several limitations to our study. First, we selected four important strategic capabilities, yet several others could have been added to the study (such as human resource management capabilities). There are other important organizational capabilities such as ﬁnancial management and human resource management capabilities. Second, we used cross-sectional information obtained from self-reports. While common in this type of research, further information about how organizations chose their strategic stances and how ﬁrm capabilities evolved through time could not be studied; and using more data sources would have reduced self-report biases.
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Ruekert, R.W. and Walker, O.C. Jr (1987), “Interactions between marketing and R&D departments in implementing different business strategies”, Strategic Management Journal, Vol. 8, pp. 233-48. Schermerhorn, J.R. Jr and Nyaw, M.-K. (1991), “Managerial leadership in Chinese industrial enterprises”, in Shenkar, O. (Ed.), Organization and Management in China 1979-1990, E. Sharpe, Inc., London, pp. 9-21. Shortell, S.M. and Zajac, E.J. (1990), “Perceptual and archival measures of Miles and Snow’s strategic types: a comprehensive assessment of reliability and validity”, Academy of Management Journal, Vol. 33 No. 4, pp. 817-32. Song, X.M. and Parry, M.E. (1994), “The Dimensions of industrial new product success and failure in state enterprises in the People’s Republic of China”, Journal of Product Innovation Management, Vol. 11 No. 2, pp. 105-18. ´ ´ Walker, O.C. Jr, Boyd, H.W. Jr, Mullins, J. and Larreche, J.-C. (2003), Marketing Strategy: A Decision-Focused Approach, 4th ed., McGraw-Hill/Irwin, New York, NY. Wernerfelt, B. (1984), “A resource-based view of the ﬁrm”, Strategic Management Journal, Vol. 5, pp. 171-80. Worthy, F.S. (1992), “Where capitalism thrives in China”, Fortune, Vol. 125 No. 5, pp. 71-5.
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Further reading Leiberman, M.B. and Montgomery, D.B. (1988), “First-mover advantages”, Strategic Management Journal, Vol. 9, pp. 41-58. Shapiro, B.P. (1988), “What the hell is “market-oriented”?”, Harvard Business Review, Vol. 66 No. 6, pp. 119-25. Simon, D.F. and Detlef, R. (1988), Technological Innovation in China: The Case of the Shanghai Semiconductor Industry, Ballinger Publishing Company, Cambridge, MA. Snow, C.C. and Hambrick, D.C. (1980), “Measuring organizational strategies”, Academy of Management Review, Vol. 5, pp. 527-38. Swanson, E.B. (1994), “Information systems innovations among organizations”, Management Science, Vol. 40 No. 9, pp. 1069-92. Webster, F.E. (1992), “The changing role of marketing in the corporation”, Journal of Marketing, Vol. 56 No. 4, pp. 1-17.
Appendix. Strategic typology scale items The following statements describe some characteristics of this selected strategic business unit/division. Please circle the description that best describes this selected business unit. (1) In comparison to our competitors, the products which we provide to our customers are best described as: (entrepreneurial – product market domain) . Products that are more innovative, and continually changing (P). . Products that are fairly stable in certain markets while innovative in other markets (A). . Products that are stable and consistently deﬁned throughout the market (D). . Products that are in a state of transition, and largely respond to opportunities and threats in the marketplace (R).
(2) In contrast to our competitors, we have an image in the marketplace that: (entrepreneurial – success posture) . Offers fewer, select products which are high in quality (D). . Adopts new ideas and innovations, but only after careful analysis (A). . Reacts to opportunities or threats in the marketplace to maintain or enhance our position (R). . Has a reputation for being innovative and creative (P). (3) The amount of time our business unit spends on monitoring changes and trends in the marketplace can best be described as: (entrepreneurial – surveillance) . Lengthy: we are continuously monitoring the marketplace (P). . Minimal: we really don’t spend much time monitoring the marketplace (D). . Average: we spend a reasonable amount of time monitoring the marketplace (A). . Sporadic: we sometimes spend a great deal of time and at other times spend little time monitoring the marketplace (R). (4) In comparison to our competitors, the increases or losses in demand that we have experienced are due most probably to: (entrepreneurial – growth) . Our practice of concentrating on more fully developing those markets which we currently serve (D). . Our practice of responding to the pressures of the marketplace by taking few risks (R). . Our practice of aggressively entering into new markets with new types of products (P). . Our practice of assertively penetrating more deeply into markets we currently serve, while adopting new products after a very careful review of their potential (A). (5) One of the most important goals in this business unit in comparison to our competitors is our dedication and commitment to: (engineering – technological goal) . Keep our costs under control (D). . Analyze our costs and revenues carefully, to keep costs under control and to selectively generate new products or enter new markets (A). . Insure that the people, resources, and equipment required to develop new products and new markets are available and accessible (P). . Make sure we guard against critical threats by taking any action necessary (R). (6) In contrast to our competitors, the competencies (skills) which our managerial employees possess can best be characterized as: (engineering – technological breadth) . Analytical: their skills enable them to both identify trends and then develop new products or markets (A). . Specialized: their skills are concentrated into one, or a few, speciﬁc areas (D). . Broad and entrepreneurial: their skills are diverse, ﬂexible, and enable change to be created (P). . Fluid: their skills are related to the near-term demands of the marketplace (R). (7) The one thing that protects us from our competitors is that we: (engineering – technological buffers) . Are able to carefully analyze emerging trends and adopt only those which have proven potential (A).
Are able to do a limitednumber of things exceptionally well (D). Are able to respond to trends even though they may possess only moderate potential as they arise (R). . Are able to consistently develop new products and new markets (P). More so than many of our competitors, our management staff in this business unit tends to concentrate on: (administrative – dominant coalition) . Maintaining a secure ﬁnancial position through cost and quality control (D). . Analyzing opportunitiesin the marketplace and selecting only those opportunities with proven potential, while protecting a secure ﬁnancial position (A). . Activities or business functions which most need attention given the opportunities or problems we currently confront (R). . Developing new products and expanding into new markets or market segments (P). In contrast to many of our competitors, this business unit prepares for the future by: (administrative – planning) . Identifying the best possible solutions to those problems or challenges which require immediate attention (R). . Identifying trends and opportunities in the marketplace which can result in the creation of product offerings which are new to the industry or reach new markets (P). . Identifying those problems which, if solved, will maintain and then improve our current product offerings and market position (D). . Identifying those trends in the industry which our competitors have proven possess long-term potential while also solving problems related to our current product offerings and our current customers’ needs (A). In comparison to our competitors, our organization structure is: (administrative – structure) . Functional in nature (i.e. organized by department – marketing, accounting, personnel, etc.) (D). . Product or market oriented (P). . Primarily functional (departmental) in nature; however, a product or market oriented structure does exist in newer or larger product offering areas (A). . Continually changing to enable us to meet opportunities and solve problems as they arise (R). Unlike our competitors, the procedures we use to evaluate performance are best described as: . Decentralized and participatory encouraging many organizational members to be involved (P). . Heavily oriented toward those reporting requirements which demand immediate attention (R). . Highly centralized and primarily the responsibility of senior management (D). . Centralized in more established product areas and more participatory in new product areas (A).
Strategic type and ﬁrm capabilities 533
Notes: (P) ¼ prospector, (A) ¼ analyzer, (D) ¼ defender, (R) ¼ reactor. Provided here for informational purposes only, not part of the instrument.
A cross-cultural comparison of Internet buying behavior
Effects of Internet usage, perceived risks, and innovativeness
Department of Management Information Systems, Korea University, Seoul, South Korea, and
Department of Trade, Hankuk University of Foreign Studies, Gyunggi, South Korea
Keywords Internet marketing, Republic of South Korea, United States of America, Perceived risks, Innovation, Online catalogues Abstract This research attempted to examine differences in Internet usage, Internet innovativeness, perceived risks of Internet buying, and Internet buying behaviors between Korea and America, and to identify a model for factors inﬂuencing Internet buying behavior, explained by Internet usage, perceived risks, and innovativeness on a cross-cultural basis. Results showed that there were signiﬁcant differences in Internet usage and the perceived risks of Internet shopping, but no signiﬁcant differences in Internet buying intentions or online buying experience between Korean and American consumers. Nonetheless, analyzing a regression model of factors inﬂuencing Internet buying behavior, and cultural differences in effects of Internet usage and perceived risks on Internet buying behavior were found. While there were main effects of Internet usage and perceived risk on Internet buying behavior, these effects were weaker or even opposite to those related to Korean samples. The implications of the study are discussed and further research was suggested.
International Marketing Review Vol. 20 No. 5, 2003 pp. 534-553 q MCB UP Limited 0265-1335 DOI 10.1108/02651330310498771
Introduction The Internet is revolutionizing marketing and trade. As the Internet is essentially a global medium, it is one of the most signiﬁcant and the greatest marketing tools for the global marketplace (Samiee, 1998). The global nature of the Internet, combined with the nature of the communications that it can convey, makes it a perfect vehicle for international interactive marketing. International consumer research in a cross-cultural context is needed for a better understanding of global online consumer behavior (e.g. Javenpaa and Tractinsky, 1999). Cultural imperatives are likely to have a profound impact on the adoption and the use of the Internet in international marketing. For example, since Internet shopping tends to be impersonal, methodical, and policy-driven, it is not clear that a Confucian-based culture of personal interaction is well suited to it. Furthermore, cultures that score high on uncertainty avoidance are less likely to be early adopters of Internet marketing schemes, even if other cultural imperatives are met. However, some observers
view Internet-based transactions as essentially culture-free and personal owing to the perception that they bring parties closer together (Perterson et al., 1997). Some researchers found that many international users of the Internet are similar to US users (Quelch and Klein, 1996). Are Internet users around the world homogeneous, and is there a worldwide common culture of the Internet? The tremendous advances in global travel, communication, and media have led to suggestions that cultures are converging and that the globalization of markets will create, or at least lead to, a common culture worldwide. However, common or uniform behaviors appear, there continue to be clear differences in what these behaviors mean to the individuals and groups of different cultures (Costa and Bamossy, 1995). We could ﬁnd some similarities and differences in Internet shopping behavior between different culture groups. There are few cross-cultural studies on the adoption of Internet shopping. This research attempts to examine the differences in Internet usage, attitude (innovativeness and perceived risks), and Internet shopping behaviors between Korea and America and to identify a model of Internet buying, explained by Internet usage, perceived risk, innovativeness, and online buying experience on a cross-cultural base. There are two reasons why we chose to compare Korea and America. First, they are both in the leading group in terms of Internet usage. According to an OECD report, the Internet subscribers per 100 inhabitants of the two countries are well above the OECD average (OECD, 2001a). Second, the two nations are culturally very different from one another because Americans are generally individualistic whereas Koreans are traditionally collective. Theoretical background Internet usage Studies on the determinants of IT adoption and usage argue that perceived usefulness and perceived ease of use are primary explanations of computer acceptance behavior (Davis, 1986, 1989). Similarly, Igbaria et al. (1994) report perceived usefulness and perceived fun play respective roles in the acceptance of microcomputer technology. These factors can be applied to explain Internet usage. Teo et al. (1998) found that perceived usefulness has consistently strong effects on Internet usage, while the effects of perceived ease of use and perceived enjoyment are partly supported. Loshe et al. (2000), using panel data, found that the percentage of panelists making a purchase on the Internet increases as a function of time spent online. They showed that the longer the amount of time spent online, the greater the chance of making a purchase online. Number of months online as well as length of time spent online is an important predictor of online buying behavior (Bellman et al., 1999). They show that a typical online buyer has a “wired” lifestyle. The wired lifestyle variables include: number of months on the Internet; hours online per week; hours per week working online; searching for product information online; and the attitude
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that email is indispensable. The variables predict buying behavior for 79 percent of the sample. Similar ﬁndings have also been reported by the research of Citrin et al. (2000) on the role of Internet usage in the acceptance of Internet shopping. Perceived risks Many marketing practitioners and researchers continue to be interested in perceived risk because it is more powerful in explaining consumer behavior and also because the theory has intuitive appeal and broad application (Mitchell, 1999). Perceived risk is negatively correlated to self-esteem, rigidity and risk taking and positively correlated to anxiety (Shaninger, 1976). Attitudes toward perceived risk also affects consumer behavior. For some decision situations like gambling or stock market investing, attitudes towards perceived risk between subjects make signiﬁcant differences in risk preference (Weber and Milliman, 1997). Bhatnagar et al. (2000) argued that the likelihood of purchasing on the Internet decreases with increases in product risk. Risk perception is argued to have cross-cultural variation. The perception of the riskiness of activities threatening health and safety showed cultural variation (Slovic et al., 1991; Kleinhesselink and Rosa, 1991). Bontempo et al. (1997) observed cross-cultural differences also in the perception of the riskiness of ﬁnancial gambles, comparing students and security analysts from the USA, the Netherlands, Hong Kong, and Taiwan. Previous research has also demonstrated the existence of cross-cultural differences in risky choices. Weber and Hsee (1998) argue that people in socially-collectivist cultures tend to choose riskier options than those in individualist cultures. Innovativeness Innovativeness has received considerable attention among consumer researchers (e.g. Hirschman, 1980; Midgley and Dowling, 1978; Rogers, 1983). There are two approaches to innovativeness. Joseph and Vyas (1984) focus on a cognitive style, global innovativeness, which incorporates an individual’s intellectual, perceptual, and attitudinal characteristics, arguing that this kind of innovativeness is an important predictor of the adoption of innovations. Goldsmith and Hofacker (1991) developed the domain speciﬁc innovation scale as a Likert scale, arguing that it is a more useful predictor of the adoption of innovations by consumers. Innovativeness should also be thought of as a domain-speciﬁc phenomenon, linked to broader innovative traits, but more predictive of actual behavior in a speciﬁc product than is global innovativeness (Goldsmith and Flynn, 1995). Citrin et al. (2000) adopted the two measures of innovativeness to explain consumer adoption of Internet shopping. Their ﬁndings indicate that Internet usage and domain-speciﬁc innovativeness have a direct inﬂuence on the adoption of Internet shopping. They also report that domain-speciﬁc innovativeness is a moderator of the relationship between Internet usage and the adoption of the Internet for shopping, but that general
innovativeness does not inﬂuence the use of the Internet for commerce. Like perceived risk, consumer innovativeness can be different according to cultural differences. Hofstede (1980, 1991) identiﬁes three dimensions of national culture that can be related to consumer innovativeness: individualism, uncertainty avoidance, and masculinity. Individualism and masculinity are positively related to consumer innovativeness whereas uncertainty avoidance is the opposite (Skeenkamp et al., 1999). Cultural differences People are deeply inﬂuenced by the cultural values and norms they hold. Many researchers have classiﬁed cultures around the world in various categories. The most typical category is Western vs Oriental culture. The Western cultural value ascribes individualism and low-context while oriental ascribes collectivism and high-context (Kim et al., 1998). Individualism-collectivism is a cultural-level variable referring to the extent to which members of a culture tend to have an independent versus interdependent construal of the self (Hofstede, 1980). These cultural values inﬂuence consumption related behaviors (Wang, 1999). Western cultural values describe how an individual from an individualistic society fulﬁlls his/her needs through a market system that emphasizes individualistic goals (Tse, 1996). The independent construction of the self, which is dominant in Western cultures, is rooted in the belief that distinct individuals are inherently separate (Wong and Ahuvia, 1998). As hedonic value primarily gratiﬁes the internal, private self, Cheng and Schweitzer (1996) noted that American television ads stressed enjoyment much more than did Chinese commercials. Collectivists tend to be concerned with afﬁliating closely with others, maintaining connectedness, and blending the self/other boundary (Aaker and Williams, 1998). In collective and high-context cultures, group bonds and harmony are viewed as important, while analytical procedures and structures tend to be avoided. On the contrary, in individual and low-context cultures, explicit communication and clear procedures are preferred. Such traits were represented in pursuing the values or beneﬁts from certain activity or behavior. Harmonic and holistic beneﬁts would be preferred in collective cultures while accurate and analytical beneﬁts are opted for in individual cultures. Demographic variables Demographic variables have been reported as signiﬁcant variables inﬂuencing on Internet usage and buying. Males were found to use the Internet for downloading and purchasing activities to a greater extent compared to females (Teo, 2001). One possible reason is that since males are more likely to be interested in learning and using PCs compared to females, they are likely to be more skilled in downloading and purchasing activities on the Internet. Zeffane and Cheek’s (1993) study of computer usage in an Australian telecommunications organization found that age was negatively correlated
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with computer usage. Teo (2001), however, suggested that age was not signiﬁcantly related to usage of the Internet in terms of purchasing. Research questions Concerning Internet usage time, one might presume that Americans spend more time on the Internet than Koreans because America is a more developed country and is of course the origin of the Internet. However, recently Korea become one of the leading countries of Internet development and there are some unique cultural and infra-structural points relating to Internet usage. Korean culture has undergone individualization for decades, although collectivism still remains (Han and Shin, 2000). The ideology of independence, individuality and privacy has not yet been fully developed in Korean society. Individuals still do not exist alone. Rather, they exist as a part of their extended family and a collective network. The following concepts are said to be fundamental to understand the communication behavior of Korean people: che-myon (described as akin to, but more complex than, Western or Chinese concepts of “face”), jung (described as a psychological bond that goes beyond attachment and love), and noon-chi (described as an aspect of tacit communication akin to mind reading) (Gudykunst et al., 1996). Because of che-myon and noon-chi, Koreans usually do not speak to strangers. Likewise, value placed on harmony with others accounts for the collectivist styles of communication and for the absence of argumentation and debate in their daily life (Becker, 1986). But because status effects such as age, gender and occupation are reduced in computer-mediated communication (see Tan et al., 1998), many Koreans feel freer when communicating with one another on the Internet. Furthermore, the low price of Korea’s broadband services (Point Topic, 2002), combined with Koreans’ family-like social relationships helps to promote Internet usage. Koreans may spend more time online, ﬁrst because they show a high level of conformity with their peers (Cho and Kim, 2001). People in collectivist societies conform more to their peers because they regard the behavior and opinions of their peers as reference points. Korean people a have high degree of conformity with their peers in using the Internet because Korean society is characterized by collectivism. Collectivists are concerned with afﬁliating closely with others, maintaining connectedness, and blending the self/other boundary. Second, Koreans lead the world in per-capita broadband usage. High-speed connections encourage Koreans to use online audio/video components and to play online games, which are highly time consuming (NetValue, 2001). Since nearly 40 percent of the housing in Korea is apartments, broadband has been relatively easy and cost-effective to install. Furthermore, the average monthly broadband subscription is $28 (USD) with unlimited access time, which is highly conducive to heavy Internet use. This has been possible because the Korean government had made the information highway a national priority. There are a
´ lot of PC rooms (like Internet cafes) in Korea as well, which escalates the availability of the Internet. As stated above, cultural background is a strong determinant of risk perception (Bontempo et al., 1997), but the perceived risk of online shopping is not just a cultural matter, because the use of secure transaction systems or policies on privacy protection will mainly determine the level of perceived risk (Figure 1). The uptake of B2C e-commerce is constrained by the availability of adequate infrastructure for secure transactions. This infrastructure is unevenly distributed across countries. According to OECD, Korea had less than one secure server per 100,000 inhabitants in 2000, almost the lowest level among the OECD countries, while the USA had almost 25 (OECD, 2001b). Secure servers are essential for e-commerce and trust, so the low availability of secure servers in Korea makes online shoppers perceive a higher risk. In addition, Americans have experienced direct marketing through catalogues, telemarketing, and cable TV for much longer than Koreans have. So, American consumers who are familiar with direct marketing may perceive less risk involved in Internet buying.We propose the following research questions: RQ1. Do Korean Internet users spend more time online than American users? RQ2. Do Korean Internet users perceive more risks in Internet buying than American users? Other research questions are relating to factors inﬂuencing Internet buying behavior between two countries. The factors we considered were Internet usage, perceived risks, innovativeness, demographics, and nationality. We
Internet buying behavior
Figure 1. Secure servers per 100,000 inhabitants
built a conceptual model explaining factors inﬂuencing online buying on the basis of past studies (e.g. Swaminathan et al., 1999; Lohse et al., 2000; Bellman et al., 1999; Citrin et al., 2000). The relationships between each exploratory variable and the dependent variable in Figure 2 were proved to be signiﬁcant in past research, but nationality and its interactions has never been considered. Perceived product risks and consumer innovativeness may have different relationships to the adoption of Internet shopping in different cultures. According to previous research, both Internet usage and consumer innovativeness are positively related to the adoption of Internet shopping in the USA (Citrin et al., 2000). Citrin et al. (2000) found that higher levels of prior Internet usage, for purposes other than shopping, result in increased levels of the use of the Internet for shopping. Domain-speciﬁc measures of innovativeness have yielded more useful predictions of the adoption of innovations by consumers (e.g. Goldsmith and Hofacker, 1991). It was found that there is a signiﬁcant positive relationship between domain-speciﬁc innovativeness and the adoption of the Internet for shopping (Citrin et al., 2000). Bhatnagar et al. (2000) argued that the likelihood of purchasing on the Internet decreases with increases in perceived product risk. Perceived security of transactions had a negative, although marginal, effect on the frequency of shopping on the Internet (Swaminathan et al., 1999). According to Weber and Hsee (1998), there are cross-cultural differences in risk perception, but not in attitude towards perceived risk. The majority of respondents from the PRC,
Figure 2. Conceptual model of Internet shopping
USA, Germany, and Poland were willing to pay more for options perceived as less risky. We expect the same result will be found with Internet buying behaviors. We considered dependent variables such as Internet buying intention and online buying experience. Intention to behave (e.g. intention to buy) is widely regarded as the most immediate antecedent of behavior (e.g. actual purchase). Online buying experience means adoption of the Internet for shopping, and is usually obtained by asking how often they use Internet for shopping (e.g. Swaminathan et al., 1999; Citrin et al., 2000). While the experience of Internet shopping is a measure of behavior, it seems to have an inﬂuence on intention to buy. One’s past experience is an important inﬂuencing factor of one’s future action. There are few cross-cultural studies on how Internet usage, consumer innovativeness, and perceived risks inﬂuence Internet buying behaviors, so we attempted to identify cultural differences in these areas on Internet buying behaviors. This lead us to making following research questions: RQ3. Is there a cultural difference in the effect of Internet usage on Internet buying behavior? RQ4. Is there a cultural difference in the effect of perceived risk on Internet buying behavior? RQ5. Is there a cultural difference in the effect of innovativeness on Internet buying behavior? Method Samples and procedures An online survey was performed for obtaining data. The Korean subjects consisted of a panel from an online survey company in Korea (www.survey.co.kr). An HTML-format questionnaire was published on the Web site and the panel members visited the website and responded to the survey. They were given air mileage points as rewards. Of the Korean respondents 150 completed the online survey. Unlike telephone surveys, we could not generate a representative sample of American Internet users, so the American respondents were contacted through email, newsgroups, Web-board postings and by inviting them to visit the online survey site (www.survey.co.kr). Korean traditional folding fans (bu-chae) were offered as an incentive for them. Of the US respondents 133 completed the questionnaire. The available lists of e-mail addresses are usually not representative (Furrer and Sudharshan, 2001), so we diversiﬁed the sources of respondents to newsgroups and Web-boards. In the Korean sample, 6.0 percent were in their teens, 45.3 percent were in their twenties, 40.0 percent were in their thirties, and 8.7 percent were over 40 years old. The Korean sample consisted of 55.2 percent males, and 44.7
Internet buying behavior
percent females. The mean period of Internet usage was 3.88 years and the mean time of Internet usage per week was 18.15 hours. In the US sample, 6.9 percent were in their teens, 36.2 percent were in their twenties, 32.3 percent were in their thirties, and 24.6 percent were over forty years old. The American sample consisted of 56.7 percent males, and 43.3 percent females. The mean period of Internet usage was 4.84 years and the mean time of Internet usage per week was 11.3 hours. Our samples were from convenience sampling. Compared with the audience proﬁle of Nielsen/NetRatings (www.nielsen-netratings.com), the US sample had slightly more male respondents (56.7 percent, 48.9 percent in Nielsen/NetRatings), less teenage respondents (6.9 percent, 19.2 percent in Nielsen/NetRatings). The gender distribution of the Korean sample compared favorably with the Korea Netizen Proﬁle of 2002 (knp.adic.co.kr) (e.g. the Korean sample consists of 55.2 percent males, while KNP consists of 57.1 percent males), through the Korean sample had less teenage respondents (6.0 percent) than KNP had (27.8 percent). There was no difference in gender distribution (Pearson chi-square ¼ 0.06 with df ¼ 1, p ¼ 0.807) between the two samples. Because the proportion of the respondents who were more than forty years old was a little bit higher in the US sample than that in the Korean sample, the two samples were statistically different in age distribution (Pearson chi-square ¼ 13.93 with df ¼ 3, p ¼ 0.007). But the number of respondents in their forties or over was relatively small, so if we consider respondents who were in their thirties or older as a combined group the two samples then showed homogeneity in age distribution (Pearson chi-square ¼ 2.27 with df ¼ 2, p ¼ 0.322). Measurements Internet usage. Internet usage is said to have three dimensions: frequency of Internet usage, amount of daily Internet usage and diversity of Internet usage (Igbaria et al., 1994). We focused on the ﬁrst two dimensions by measuring hours of Internet use. Hours of Internet use per week and number of months on the Internet were measured by open-ended questions. Number of months on the Internet was recoded to number of years on the Internet. Perceived risks. Risk is a multidimensional construct. However, Bhatnagar et al. (2000) argue that in the case of Internet shopping, two types of risk – product category risk and ﬁnancial risk – are predominant. Product category risk matters if one has a speciﬁc product in mind before getting on the Internet. Since we focus on the risks involved in buying online regardless of product category, product risks are measured by concerns about product price and information. The reliability coefﬁcient for the scale was 0.671 for the Korean sample and 0.738 for the American sample. Financial risk associated with Internet shopping is primarily in regard to losing money via credit card fraud. Perceived security of transactions and concern for privacy are major elements
of ﬁnancial risk in online transactions. We measured privacy and security risks by a two-item ﬁve-point Likert-type scale in which the former were privacy concerns and the latter were the payment concerns. The reliability coefﬁcient for the scale was 0.581 for the Korean sample and 0.782 for the American sample. The relatively lower reliabilities of some constructs might undermine the signiﬁcance of the ﬁndings and their generalizability, but Nunnally’s guidelines are primarily concerned with the development of ﬁnely tuned measures of individual traits to be used for decisions about individual persons (e.g. GMAT tests). As most marketing research is not of this nature, lower levels of reliability may be acceptable in marketing research studies (Peter, 1979). Innovativeness. Domain speciﬁc innovativeness (DSI) was measured using Goldsmith and Hofacker’s (1991) six- item scale. Citrin et al. (2000) modiﬁed the scale for the Web, so we used their adoptation. Originally, the scale was a seven-point Likert-type scale, and items were anchored with “disagree strongly” and “agree strongly”, but we used a ﬁve-point scale. Three items that had factor loadings greater than 0.5 were retained. The scale yielded a standardized a = 0.681 for the Korean sample and 0.690 for the American sample. Others. A measurement of buying intention at the Internet shopping mall included a seven-point Likert-type scale ranging from “never buy” (1) to “must buy” (7). Online shopping experience measured by purchasing frequency on the Internet shopping mall included a ﬁve-point Likert-type scale from “never buy” (1), “1-2 times per year” (2), “3-4 times per year” (3), “once per one or two months” (4), “2-3 times or more per month” (5). The medium value of the each frequency scale was reassigned to make a numeric variable. For example, “1-2 times per year” becomes 1.5, “once per one or two months” codes as 9. Age (younger than 29 years old ¼ 1, 30 to 39 years old ¼ 2, and older than forty ¼ 0), gender (male ¼ 1, female ¼ 0) and nationality (Korea ¼ 1, America ¼ 0) were coded as dummy variables. Among the constructs in the model, Internet usage, nationality, intention to buy, and online shopping experience (frequency of Internet shopping) are not measured with multi-item scales. We did exploratory factor analysis ﬁrst to test unidimensionality, and after exploratory factor analysis (see Appendix), the constructs measured using multi-item variables were averaged for each factor and the averages were used as input for each construct.
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Results Cross-cultural differences in Internet usage and Internet shopping behavior An Independent sample t-test was performed to see if there are any differences between respondents from Korea and those from America. The results are presented in Table I.
The period of Internet usage (length) in the US sample was longer than that of Korean sample, but the hours of Internet use per week (hours) in the Korean sample was longer than that of the US sample. This result was consistent with other research reports (e.g. Nielsen/NetRatings, 2002; NetValue, 2001). Korean users were more innovative than American users, but showed higher perceived risk on privacy and security (RISK1) as well as higher perceived risk on product (RISK2) than American users. We could not ﬁnd any signiﬁcant difference in online shopping experience (EXP) nor in the Internet buying intention (BI) between the two samples. A Model on factors inﬂuencing Internet buying behavior Although there was no difference in online shopping experience (the frequency of Internet shopping) or in the Internet buying intention between the Korean sample and the US sample, there were signiﬁcant differences in the explanatory variables such as perceived risks, innovativeness, hours of Internet use, and length of Internet use. To investigate the reason for this phenomenon, we structured regressions to account for the differences in relationship strength by nationality. The conceptual model can be transformed into a structural model. We adopted a regression analysis to more clearly test the interaction effects (e.g. Nat*RISK1 and so on). We believe regression method is more straightforward in estimating interaction effects with a dummy variable (e.g. nationality). We calculated the variance inﬂation factor to check for multicollinearity. The VIF ranges from 1.04 to 7.43, which means multicollinearity is not a problem. In order to test our proposed model, we included hours of Internet use (hours), length of Internet use (length), perceived risk on privacy and security (RISK1), perceived risk on product (RISK2), Internet innovativeness (DSI), nationality (NAT) as main effects, in addition to each of the former ﬁve variables’ interactions with nationality. Since research questions 3 to 5 required testing for the moderating effects of nationality on the relationships between independent variables and dependent variable, we formed interaction terms. Two demographic variables – gender and age – were included in the analysis
Hours Total KOR USA Mean s.d. Mean s.d. Mean s.d. Mean t-value sig. P 14.93 15.05 18.15 16.13 11.30 12.84 6.85 3.973 0.000 Length 3.88 3.44 3.03 1.66 4.84 4.52 21.80 24.351 0.000 RISK1 3.44 1.08 3.96 0.77 2.83 1.07 1.13 10.211 0.000 RISK2 3.02 0.88 3.22 0.79 2.79 0.92 0.44 4.250 0.000 DSI 3.27 0.82 3.55 0.74 2.94 0.80 0.61 6.593 0.000 EXP 6.28 7.83 5.92 7.24 6.69 8.48 -0.78 -0.826 0.409 BI 4.37 1.33 4.49 1.27 4.23 1.38 0.26 1.661 0.098
Table I. Comparisons of mean differences between Korea and the USA
as control variables. A multiple regression analysis was used to estimate the model with the total sample. The results, with online shopping experience (model 1) and Internet buying intention (model 2) as the dependent variables, are presented in Table II. Model 1 is a kind of attitude-behavior model whose dependent variable (shopping experience) is taken place in the past whereas the independent variables are about present attitudes. That might result in mis-speciﬁcation of the regression model. Studies using cross-sectional data usually encounter such a problem; nevertheless the practice is adopted in many studies (e.g. Korgaonkar and Wolin, 1999, Citrin et al., 2000, Teo, 2001, Li et al., 1999). One of the notable features of attitude is enduring and will likely be retained until there is some strong reason to change them (Shimp, 1993). Therefore, we assumed that the independent variables did not change during the period of our concern and considered model 1. The explanatory power of the models, as indicated by R 2 for models 1 and 2 was 0.115 and 0.183 respectively. Model 1 shows that perceived risk on privacy and security (RISK1) negatively affects online buying experience (frequency of Internet shopping) (b = 2 1.558, p , 0.05), whereas hours of Internet use is positively related to online buying experience (b = 0.156, p , 0.01). Nationality (NAT) showed interactions with perceived risk on privacy and security (RISK1) and hours of Internet use in model 1. Model 1 also shows that the two variables act differently in each country. Although perceived risk on privacy and security
Internet buying behavior
Model 1 (dependant variable: EXP) Control variables (Constant) 22.689 (4.201) Gender 20.320 (0.963) Age 1 (# 29) 22.082 (1.403) Age 2 (30-39) 0.492 (1.439) Research variables DSI 0.516 (0.913) RISK1 21.558** (0.651) RISK2 20.380 (0.789) Hours 0.156*** (0.056) Length 0.187 (0.155) NAT 20.721 (5.895) NAT*DSI 1.513 (1.373) NAT*RISK1 1.838* (1.074) NAT*RISK2 20.790 (1.137) NAT*hours 20.145** (0.073) NAT*length 20.093 (0.452) EXP R2 0.115 F-value F(14,260)=2.417 Notes: * p, 0.1, ** p , 0.05, *** p , 0.01, S.E. in parentheses
Model 2 (dependant variable: BI) 2.073 (0.664) 0.059 (0.152) 20.154 (0.223) 0.345 (0.228) 0.430*** (0.144) 20.170 (0.104) 0.016 (0.125) 0.007 (0.009) 0.016 (0.025) 0.410 (0.932) 20.208 (0.218) 0.136 (0.171) 20.218 (0.180) 0.0005 (0.012) 0.031 (0.071) 0.027*** (0.010) 0.183 F(15,259)=3.855
Table II. Results of regression analysis
(RISK1) negatively affects online buying experience in general, Korean online users are not risk-aversive but risk-taking, when they purchase online. In other words, Korean online users tend to buy online even though they feel privacy and security risk while American users will not. This result is consistent with the results in Table I, showing that Korean users perceive more privacy and security risk (RISK1) than American users, but at the same time online buying experience (EXP) is almost same for both groups. Second, “hours of Internet use” is positively related to online buying experience, but the relationship is signiﬁcantly weakened in the Korean sample, meaning that Koreans prefer using the Internet for other purposes, besides shopping. This result is also consistent with the results in Table I. Other variables (innovativeness, perceived risk on product, and length of Internet use) do not interact with nationality. The analysis of model 2 shows that domain-speciﬁc innovativeness and online buying experience affect online buying intention (b = 0.430, p , 0.01; b = 0.027, p , 0.01), but that no variable interacts with nationality. In summary, we found there are some cross-national differences in experience (action), but no differences in intention (attitude). Discussion Internet usage and Internet buying behaviors Internet usage time is greater in Korea than in the US but there are no signiﬁcant differences in Internet shopping experience or intention between the two countries. According to Citrin et al. (2000), higher levels of Internet usage result in increased Internet shopping, but this was not supported in our Korean sample. One explanation for this is that the Internet is used primarily for the purposes of education, information searching, online gaming, participation in community forums, and personal communication in Korea (NetValue, 2001). As Korea is a collective society, involvement in online communities is higher than in any other country. The popular Web-sites of Korea are community sites such as “Daum”, “iloveschool”, “freechal”. Internet users in Korea tend to spend more time in online communities or communication, but less time shopping. This may explain why there is no signiﬁcant relationship between Internet usage time and Internet shopping experience. There is another explanation for this. Korea grabbed the top position in the world in terms of e-commerce site access with 78.2 percent of its Internet users visiting e-commerce sites, but only 28.3 percent of them making secure connections, representing the actual purchase, which is lower than that of western countries (NetValue, 2001). This may be somewhat related to the high perceived risk among Korean Internet users. Other explanations for the lack of a signiﬁcant relationship between usage time and Internet shopping experience in Korea are as follows. Consumers are shopping differently depending on whether their motivations for searching are
primarily experiential or goal directed (Babin et al., 1994). Goal-oriented shoppers are more interested in buying online than experiential shoppers (Wolﬁnbargar and Gilly, 2001). There should be some discrepancy in the motivations for Internet use between Koreans and Americans. Comparing the top 50 Web sites (as of March 2002) of Media Metrix US and the top 50 Web sites (as of April 2002) of Internet Metrix Korea, some differences were found. Although most sites in both top ten lists were portals, Koreans preferred community portals rather than information portals. Furthermore, there were two shopping sites (eBay and Amazon) in the US top ten list, while there were none in the Korean list. If we classify the motivations for Internet usage using theories of mass communication (Deﬂeur and Ball-Rokeach, 1989), Koreans, as collectivists, seem to be interaction- oriented whereas Americans, as individualists, are action-oriented. Therefore, longer Internet usage time among Koreans may not be an inﬂuence on their Internet shopping behaviors.
Internet buying behavior
Perceived risks and Internet buying behaviors The perceived risks of Internet shopping are higher in Korea than in the US. This means that fewer Koreans tend to trust e-commerce in Korea and that more Koreans perceive high risk in Internet shopping. This seems to be related to the low availability of secure servers (OECD, 2001b) and less experience with direct marketing. Generally, the security of online transaction systems and the protection of privacy are important to increase online purchasing, but many Koreans have shopped online when the security systems were not good. This means that Koreans take risks, somewhat, when they buy online, but cannot see that they prefer risks. Why do Koreans show a similar degree of online buying experience (frequency of Internet buying) in spite of higher perceived risks of Internet shopping? First, we notice that there are variances among Internet shopping malls in Korea. Koreans tend to trust some malls controlled by big companies, rather than independent malls. Perceived risks concerning these two kinds of shopping malls are totally different, and almost all Korean Internet shoppers prefer to buy products at more established malls, operated by big companies. Therefore, Koreans seem to take risks in Internet shopping, despite the regression result (i.e. high frequency of Internet buying, despite high perceived risks) since most shoppers purchase goods from large, more-established Internet shopping malls where they feel more secure, in spite of high perceived risks. Second, Korean Internet users tend to take risks owing to the high innovativeness of Internet and IT. The household penetration rate of high speed Internet (e.g. ADSL) in Korea at the end of 2002 was 67.5 percent, the highest among OECD countries. This fact shows the high Internet innovativeness in Korea.
Third, it is possible to interpret that cultural traits of Korea cause the risk-taking of Internet shopping. Hsee and Weber (1988) provided an answer to the cross-cultural differences in attitude toward perceived risk. They found that Chinese students were signiﬁcantly less risk-averse than Americans in their choices between risky options and sure outcomes. In their post-hoc explanation, they suggested a “cushion hypothesis”, arguing that in collectivist cultures like China, family or other members will help out any group member who loses a lot of money after selecting a risky option. On the other hand, in individualist cultures like America, a person is expected to bear the consequences of his or her decision. Collectivism, thus, acts as a cushion against possible losses, in other words as a social diversiﬁcation of risks. Because Korea is a collectivist culture similar to China, the cushion hypothesis can be an explanation for the results of this research. Bellman et al. (1999) explains that while online consumers are concerned, security and privacy concerns are a decreasingly important predictor of shopping behavior, because the number of consumers who has a bad experience with buying online will decrease over time. With the increase of secure servers and direct marketing in Korea, it is expected that the effect of perceived risk on Internet buying will decrease accordingly. Innovativeness and Internet buying behaviors Just like Internet usage, the Korean sample showed higher innovativeness for the Internet than the American sample, but there was no interaction effect of culture (nationality) and innovativeness (DSI) on Internet shopping behavior. This result could be understood in line with Internet usage time. Internet users in Korea usually think of themselves as innovative because of their heavy use of the Internet. Therefore, Internet innovativeness may not signiﬁcantly affect the Internet shopping experience of Koreans. In fact, Korean Internet users tend to be innovative in using IT communication tools (e.g. mobile phones, PDAs, instant messaging, and virtual communities). Therefore, innovativeness of IT communication tools seems to have no signiﬁcant relationship with Internet shopping. Another reason is that the high risk perceived by Koreans may offset the innovativeness effect on Internet buying behavior. This means that even though Internet innovativeness is high, if the e-commerce system is not secure and trustworthy, Internet buying will not occur. Conclusion and limitations The study found that there were signiﬁcant differences in Internet usage, innovativeness, and perceived risks of Internet shopping, but no signiﬁcant differences in online shopping experience and Internet buying intention and between Korean Internet users and American Internet users. Also, there were found to be cultural differences in the effects of Internet usage and perceived risks on Internet buying behavior. Although there were effects of Internet
usage and perceived risk on Internet buying behavior, the effects were weaker or even opposite in the Korean sample compared to the American sample. Even when the same information technology is introduced, its adoption and application depends on unique traits of the society. Advanced technology and international standardization are not particular to a locale. Therefore, though Internet marketing has some merit in targeting global customers, it should consider cultural differences when adopting and applying e-commerce. Eventually, proper cultural transformation in international marketing will be necessary, even in the Internet age. Managerial implications The ﬁnding that Korean online shoppers take risks offers some marketing implications. It might be important to develop a marketing strategy for promoting Internet shopping rather than to improve secure e-commerce systems. For example, discount pricing or convenient purchasing processes should come prior to protecting personal information or security for payments. As Korean Internet shoppers prefer big and noted shopping malls where they feel more secure, marketers of independent Internet shopping malls could consider strategic alliances with more-established malls to reduce perceived risks among their customers. This means foreign Internet shopping malls might be more successful if they align with famous Korean shopping malls in developing a Korean target market, because familiar brands or store names could reduce perceived risks involved in online shopping. The ﬁnding that Internet usage time is greater in Korea, but that usage is not related to Internet buying, implies that Internet marketers in Korea need to encourage Internet users to convert to Internet buyers. As Koreans use the Internet for social (e.g. virtual communities) and recreational (e.g. network games) purposes, Internet marketers should develop strategies that lead them from communities of fantasy, relationship, and interest towards communities of transaction (Armstrong and Hagel, 1996). Recently, in Daum (www.daum. net), the biggest online community site in Korea, sales from of shopping malls rapidly increased to 73 percent in 2001 from 28 percent in 2000, while the portion of online advertising decreased to 21 percent in 2001 from 54 percent in 2000 (Yonhap News, 2003). This shows that community sites in Korea are trying to develop e-commerce transactions. Limitations and further research This study has some limitations owing to its exploratory stage, and presents several challenges with respect to theory building and methodology. Some scales were measured in minute increments. Furthermore, convenience sampling weakens research objectivity. More scientiﬁc sampling will be required for further research. There are some omitted variables relating to Internet shopping in the model, for example, shopping orientations and vendor characteristics. A comprehensive model of Internet buying behavior will be
Internet buying behavior
required for further research. A structural equation model is needed to attempt to identify the exact causal relationship among variables. In addition, ﬁnding and identifying new mediating variables between Internet usage, perceived risks and Internet buying behavior will be needed for a more accurate explanation of cultural differences in Internet buying behaviors.
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Goldsmith, R.E. and Hofacker, C.F. (1991), “Measuring consumer innovativeness”, Journal of the Academy of Marketing Science, Vol. 19 No. 3, pp. 209-21. Gudykunst, W.B., Ting-Toomey, S. and Nishida, T. (1996), Communication in Personal Relationships Across Cultures, Sage, Thousand Oaks, CA. Han, G. and Shin, S. (2000), “A cultural proﬁle of Korean society: from vertical collectivism to horizontal individualism”, Korean Social Science Journal, Vol. 27 No. 2, pp. 69-96. Hirschman, E.C. (1980), “Innovativeness, novelty seeking, and consumer creativity”, Journal of Consumer Research, Vol. 7, December, pp. 283-95. Hofstede, G. (1980), Cultures Consequences, Sage, Beverly Hills, CA. Hofstede, G. (1991), Cultures and Organizations: Software of the Mind, McGraw-Hill, London. Hsee, C.K. and Weber, E.U. (1999), “Cross-national differences in risk preference and lay predictions”, Journal of Behavioral Decision Making, Vol. 12 No. 2, pp. 165-79. Igbaria, M., Schiffman, S.J. and Wicckowshi, T.S. (1994), “The respective roles of perceived usefulness and perceived fun in the acceptance of microcomputer technology”, Behavior and Information Technology, Vol. 13 No. 6, pp. 349-61. Jarvenpaa, S.L. and Tractinsky, N. (1999), “Consumer trust in an Internet store: a cross-cultural validation”, Journal of Computer-mediated Communication, Vol. 5 No. 2, available at: www.ascusc.org/jcmc/vol5/issue2 /jarvenpaa.htm Joseph, B. and Vyas, S.J. (1984), “Concurrent validity of a measure of innovative cognitive style”, Journal of the Academy of Marketing Sciences, Vol. 12 No. 2, pp. 159-75. Kim, D., Pan, Y. and Park, H.S. (1998), “High- versus low context culture: a comparison of Chinese, Korean, and American cultures”, Psychology & Marketing, Vol. 15 No. 6, pp. 507-21. Kleinhesselink, R.R. and Rosa, E.A. (1994), “Cognitive representation of risk perceptions: a comparison of Japan and the United States”, Journal of Cross-Cultural Psychology, Vol. 22, pp. 11-28. Korgaonkar, P.K. and Wolin, L.D. (1999), “A multivariate analysis of Web usage”, Journal of Advertising Research, March-April, pp. 53-68. Li, H., Cheng, K. and Russell, M.G. (1999), “The impact of perceived channel utilities, shopping orientations, and demographics on the consumer’s online buying behavior”, Journal of Computer-Mediated Communication, Vol. 5 No. 2, December, available at: www.ascusc. org/jcmc/vol5/issue2/ hairong.html Lohse, G.L., Bellman, S. and Johnson, E.J. (2000), “Consumer buying behavior on the Internet: ﬁndings from panel data”, Journal of Interactive Marketing, Vol. 14 No. 1, pp. 15-29. Midgley, D.F. and Dowling, G.R. (1978), “Innovativeness: the concept and its measurement”, Journal of Consumer Research,, Vol. 4, pp. 229-42. Mitchell, V. (1999), “Consumer perceived risk: conceptualisations and models”, European Journal of Marketing, Vol. 33 No. 1/2, pp. 163-95. Nielsen//NetRatings (2002), “South Korea dominates Asia paciﬁc Internet activity: global index”, press release, March 13, available at: www.nielsen-netratings.com/pr/pr_020313_hk.pdf NetValue (2001), Korea Boasts the Highest E-commerce Site Usage in the World but the Actual Purchase Rate is Low, press release, June 28, available at: www.netvalue.com/corp/presse/ cp0033.htm OECD (2001a), Business-to-consumer electronic commerce, available at: www.oecd.org/sti/ consumer-policy OECD (2001b), “Business-to-consumer e-commerce statistics”, Consumers in the Online Marketplace OECD Workshop on the Guidelines: One Year Later, Berlin, 13-14 March.
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Peter, J.P. (1979), “Reliability: a review of psychometric basics and recent marketing practices”, Journal of Marketing Research, February, pp. 6-17. Peterson, R.A., Balasubramanian, S. and Bronnenberg, B.J. (1997), “Exploring the implications of the Internet for consumer marketing”, Journal of the Academy of Marketing Science, Vol. 25, pp. 29-346. Point Topic (2002), DSL Worldwide Retail Directory, p. 4. Quelch, J.A. and Klein, L.R. (1996), “The Internet and international marketing”, Sloan Management Review, Spring, pp. 60-75. Rogers, E.M. (1983), Diffusion of Innovations, The Free Press, New York, NY. Samiee, S. (1998), “The Internet and international marketing: is there a ﬁt?”, Journal of Interactive Marketing, Vol. 12 No. 4, pp. 5-21. Shaninger, C.M. (1976), “Perceived risk and personality”, Journal of Consumer Research, Vol. 3, September, pp. 95-100. Shimp, T. (1993), Promotion Management and Marketing Communications, The Dryden Press, Orlando, FL. Skeenkamp, J., Hofstede, F. and Wedel, M. (1999), “A cross-national investigation into the individual and national cultural antecedents of consumer innovativeness”, Journal of Marketing, Vol. 63, pp. 55-69. Swaminathan, V., Lepkowska-White, E. and Rao, B.P. (1999), “Browsers or buyers in cyberspace? An investigation of factors inﬂuencing electronic exchange”, Journal of Computer-Mediated Communication, Vol. 5 No. 2, available at: www.ascusc.org/jcmc/ vol5/issue2/swaminathan.html Armstrong, A. and Jagel III, J. (1996), “The real value of on-line communities”, Harvard Business Review, May-June, pp. 134-41. Teo, T. (2001), “Demographic and motivation variables associated with Internet usage activities”, Internet Research: Electronic Networking Applications and Policy, Vol. 11 No. 2, pp. 125-37. Teo, T.S.H., Lim, V.K.G. and Lai, R.Y.C. (1998), “Intrinsic and extrinsic motivation in Internet usage”, Omega, International Journal of Management Science, Vol. 27, pp. 25-37. Tse, D. (1996), “Understanding Chinese people as consumers: past ﬁndings and future propositions”, in Bond, M.H. (Ed.), The Handbook of Chinese Psychology, Oxford University Press, Hong Kong. Wang, C.C.L. (1999), “Issues and advances in international consumer research: a review and assesment”, Journal of International Marketing and Marketing Research, Vol. 24 No. 1, pp. 3-21. Weber, E.U. and Hsee, C. (1998), “Cross-cultural differences in risk perception, but cross-cultural similarities in attitudes towards perceived risk”, Management Science, Vol. 44 No. 9, pp. 1205-17. Weber, E.U. and Milliman, R. (1997), “Perceived risk attitudes: relating risk perception to risky choice”, Management Science, Vol. 43, pp. 122-43. Wolﬁnbargar, M. and Gilly, M.G. (2001), “Shopping online for freedom, control, and fun”, California Management Review, Vol. 43 No. 2, pp. 34-55. Wong, N.Y. and Ahuvia, A.C. (1998), “Personal taste and family face: luxury consumption in Confucian and Western societies”, Psychology & Marketing, Vol. 15 No. 5, pp. 423-41. Yonhap News (2003), “Korean dot-coms hit record high revenue in 2002”, Yonhap News, January 17. Zeffane, R. and Cheek, B. (1993), “Proﬁles and correlated of computer usage: a study of the Australian telecommunications industry”, Computers in Industry, Vol. 22, pp. 53-69.
Further reading Bloemer, J. and Ruyter, K. (1998), “On the relationship between store image, store satisfaction and store loyalty”, European Journal of Marketing, Vol. 32 No. 5/6, pp. 499-513. Jarvenpaa, S.L. and Todd, P.A. (1997), “Is there a future for retailing on the Internet?”, in Electronic Marketing and The Consumer, Sage, Newbury Park, CA, pp. 139-54. Radford, M., Mann, L., Ohta, Y. and Nakone, Y. (1993), “Difference between Australian and Japanese students in decisional self-esteem, decision stress, and coping styles”, Journal of Cross-Cultural Psychology, Vol. 24, pp. 284-97. Skeenkamp, J. and Baumgartner, H. (1998), “Assessing measurement invariance in cross-national consumer research”, Journal of Consumer Research, Vol. 25, pp. 78-90. Slovic, P., Kraus, N.N., Lappe, H. and Majors, M. (1991), “Risk perception of prescription drugs: report on a survey in Canada”, Canadian Journal of Public Health, Vol. 82, pp. S15-S20. Szymanski, D.M. and Hise, R.T. (2000), “E-satisfaction: an initial examination”, Journal of Retailing, Vol. 76 No. 3, pp. 309-22.
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Appendix Items DSI RISK1 RISK2
1. I know new Web sites on the Internet more than my friends 0.792 2. I am an early adopter of Internet among my friends 0.720 3. When I hear about a new Web site, I try to visit it 0.661 4. I didn’t want to use the Internet until others started using it a lot 20.633 5. I seldom visit a new Web site with which I am not familiar 20.511 6. I do not feel safe exposing my personal information when I buy goods online 20.138 7. I am not sure of Internet payment systems, and hesitate to use them 0.011 8. To buy a product from web retailers would be a high potential for loss 20.024 9. Web retailers’ product information is generally not trustworthy 0.024 Eigenvalue 2.52 Variance explained (%) 28.0 Note: Rotation method: Varimax with Kaiser normalization .
20.114 20.128 20.269 20.01 20.209 0.884 0.854 0.155 0.061 1.89 21.0
20.118 0.124 20.214 20.168 0.047 0.037 0.193 0.873 0.868 1.20 13.3 Table AI. Factor analysis of measurement items (DSI, RISK1 and RISK2)
The effect of FDI inﬂows and ICT infrastructure on exporting in ASEAN/AFTA countries
A comparison with other regional blocs in emerging markets
Department of Marketing, College of Business Administration, Texas State University – San Marcos, San Marcos, Texas, USA, and
Omar J. Khan
Boeing Institute of International Business, John Cook School of Business, St. Louis University, St. Louis, Missouri, USA
Keywords Foreign exchange options, Export markets, Globalization Abstract This paper explores the impact of both the increase in foreign direct investment inﬂows and the increase in information and communication technology infrastructure investments on exporting in ASEAN nations (the trade bloc of which is known as AFTA) compared with two other major trade blocs: CEFTA and LAIA. The analyses are based on data from a cross section of countries (26 emerging markets from three trade blocs) over time (from 1995 to 2000). The results show that the increase of investments in ICT infrastructure yields positive and signiﬁcant returns in the national exporting level only for the ASEAN/AFTA and CEFTA sample. Interestingly, the impact of the increase of FDI inﬂows on export is signiﬁcant only in the CEFTA and LAIA samples. These results are discussed in the light of the different economic experiences of these trade blocs, noting that variations are typically present between individual countries. Overall, reﬂecting the results from this study, research concerned with the determinants of national exporting level should be conducted independently, along with regional and national characteristics.
International Marketing Review Vol. 20 No. 5, 2003 pp. 554-571 q MCB UP Limited 0265-1335 DOI 10.1108/02651330310498780
Introduction Emerging markets (EMs) constitute the major growth opportunity in the evolving world economic order (Arnold and Quelch, 1998). Any cursory overview of the global economy, however, indicates clearly that these markets are by no means homogenous. The needs are clear to study these markets in more regional groupings, in place of the ubiquitous “emerging market” designation, thus yielding greater validity in applying research results. After all, can an emerging economy like Brazil, for example, be rationally assumed to exhibit similar traits to Slovakia or Nigeria? While clearly not all EMs exhibit homogeneity in characteristics and attributes, it is useful to place individual countries within relevant trade bloc
contexts. As a former Under Secretary of Commerce, Garten (1996) ﬁnds great support for directing commercial and economic policy considerations towards trade blocs rather than just concentrating on the individual nations that comprise them; that is, for example, directing such policy initiatives to ASEAN countries as a whole rather than to Indonesia speciﬁcally, or viewing China as an integral part of the greater Chinese economic area (Tateisi, 1996). Academics have also exposed the inherent value of gearing studies across such multiple country group contexts (Craig and Douglas, 1996). After all, ﬁrms implementing market entry strategies into single-country EMs must be aware of the subsequent opportunities and pitfalls of the relevant trade blocs they may be entering. In studying some established parameters across several well-established trade blocs, our study directly provides just this kind of across-bloc insight and implications. Our contention to begin the paper is that studying all EMs together under one designation is too broad a stroke, while single country analyses may limit generalizability. While the growth and prevalence of regional economic blocs has itself increased the need for ﬁrms to internationalize and establish presence therein (Monye, 1995), academic studies have lagged in conceptualizing market entry parameters across trade blocs, rather than across single countries. We believe this to be a serious oversight in the literature that needs to be rectiﬁed. In this study, we use as our canvas three regional blocs, in order to provide us with greater within-group homogeneity. Whereas previous studies have been plentiful in both the area of export performance at the ﬁrm-level (Katsikeas et al., 2000; Holzmuller and Stottinger, 1996) and at the country-level (Dominguez and Seqeira, 1992), studies of the effect of information communications technology (ICT) infrastructure on exporting have been lacking, particularly in an emerging market context. A cursory scan of the literature reveals that studies outside of a one-country context are, in fact, few and far between. The primary contribution of our research is that we focus in on the effect of ICT infrastructure and foreign direct investment (FDI) inﬂows on exporting within three emerging market trade blocs – thus forming a useful, multiple, country-group context. Comparisons are made between these three groupings of EMs, and strategic implications (from both the ﬁrm and commercial policy-makers point of view) are drawn. Regional economic integration, as exempliﬁed by trade blocs, has the effect of increasing “size of the country”; and the individual countries within such groups can reap the resulting size-of-country beneﬁts (Buckley et al., 2001). Thus, its importance to the economic experience cannot be overstated. It provides the opportunity for within-group ﬁrms to expand their operations locally and utilize the immediately accessible markets. As Buckley et al. (2001) and his colleagues mention, it also motivates “outsider ﬁrms” to become “insider ﬁrms”. From a research standpoint, since countries vary in size, studying effects at the trade bloc level inherently controls for the differing
Exporting in ASEAN/AFTA countries 555
effects a larger country may have on the region as opposed to a smaller one. The needs for cross-trade bloc analyses are, thus, clear; and our study ﬁlls in this important gap in the literature while comparing the effects of FDI inﬂows and ICT infrastructure on exporting in ASEAN/AFTA trade bloc with those in CEFTA and LAIA. Summarizing from the preceding discussion why an analysis by regional blocs is relevant and necessary, we distill the following major points: . Increasingly, national trade policies and agreements are directed towards a regional bloc as a whole, rather than individual countries. . A country’s membership in a regional bloc opens up corresponding opportunities and pitfalls, of which a market-entering ﬁrm needs to be mindful. . Trade blocs offer increasing “size-of-country” beneﬁts, and can provide a means to countervail individual country size distortions when comparing multiple countries. . Such analyses provides greater generalizability than single-country analyses. . Despite the advantages of cross-bloc analyses, there remains a clear gap in the literature that needs to be ﬁlled. ASEAN/AFTA compared to CEFTA and LAIA With steady progress from supranational agencies like the GATT and its evolutionary offspring, the WTO, combined with organically blossoming free-market ideals, there has been a proliferation of free-trade bloc formation over the last two decades. Not coincidentally, these blocs have tended to form among nations who share certain core characteristics (like common language, similar economic conditions, shared political breakthroughs, and geographical proximity) (Czinkota et al., 2000). We, thus, believe that studies across these distinct country groupings provide for great theoretical generalizability, while still maintaining signiﬁcance in the validity of ﬁndings. The reasoning behind the selection of the particular country blocs used in our study is that: . all of them reﬂect countries which are considered EMs, and are in differing stages of development; . they possess within-group similarities (both economically and socially), allowing them to be differentiated prima-facie from one another as groups; and . they are well-established groupings familiar to, and used by, multiple text references in the existing literature One of the newest regional trade blocs to form in Europe, the Central European Free Trade Area (CEFTA), was created in 1993 by countries that had only recently acquired free market persuasions. Economically, the seven-member
CEFTA can be considered a relative success, seeing growth in GDP, falling unemployment, and a slowdown in inﬂationary trends among members since the bloc’s inception (Czech News Agency, 1997). Like Europe, the Americas and Asia are no exception to the growing number of regional co-operative groups. The Latin American Integration Association (LAIA) proposes, as its long-term objective, a common Latin American market – much along the lines of the EU. In reality, LAIA has become a labyrinth of bilateral trade agreements between its member states, and has experienced bumps along its path to economic union, primarily from the varying experiences of development among its 11 member states. One need only point out the recent demise of Argentine market emergence to highlight the dramatic challenges faced by this projected integration. Currently, this regional bloc operates most effectively as a trade bloc, with the operating goal of encouraging free trade among its member nations. As the replacement to the now defunct LAFTA (Latin American Free Trade Agreement), this regional bloc represents an operating and well-established trade bloc in Latin America, and provides us with a group that exhibits some useful commonalities among member states. It should be noted that while LAIA’s stated objectives go beyond the promotion of free trade among member nations, these objectives have been largely not met. Our third country grouping – and the primary focus of our comparative analysis – is the major multinational trade group in Asia, called the Association of Southeast Asian Nations (ASEAN). Created with the vision of harmonization of economic activity among member states, ASEAN also exhibits within-group similarities (Cateora and Graham, 2000). During the last few decades the member countries of the Association of the Southeast Asian Nations (ASEAN) have displayed an extremely high growth rate. Also, a formal integration process has been initiated in the region, and this has recently brought ASEAN into the focus of interest as a potential market and host of FDI. The trade bloc of these countries is called AFTA, i.e. the ASEAN Free Trade Association. Through the remainder of the paper, we will refer to this group of countries as ASEAN/AFTA rather than ASEAN, to reﬂect the emphasis on comparison of trade blocs (note: the composition of the country group is exactly the same either way). ASEAN/AFTA, with its more than 450 million people, represents a massive market which has not yet been fully utilized. With the constituent countries experiencing greater than average (i.e. world average) growth over the last few decades, this potential utility will likely grow rapidly in the future (Wilson and Mei, 1999). Certainly, there were stumbling blocs along the way (witness the Asian economic crisis of the late 1990’s). However, overall, these countries, along with the wider Asian continent, have experienced recovery and continue to do so (Bartels and Freeman, 2000). It is observed that the ASEAN/AFTA countries have stood up to the tribulations of the crisis, and continue to be in
Exporting in ASEAN/AFTA countries 557
growth mode. Much of this growth is attributable to the promotion of export expansion in order to achieve global competitiveness (World Bank, 1993). In addition, when compared to the other two blocs in our study, the countries of ASEAN/AFTA have had far longer (and more substantial) experience in the exporting of component parts and ﬁnished consumer goods. It is thus likely that their infrastructure and institutions are more tuned in with an exporting philosophy than the CEFTA or LAIA nations. The Latin American countries may, in turn, have greater experience in the export of primary products, while the Central Europeans may be more proﬁcient in exporting products requiring a highly educated labor class. These differing characteristics between the trade blocs can provide competitive advantages for one bloc over the other in the global marketplace. For example, Christopher Carr (1993) highlights the importance of manufacturing policies as primary sources of sustainable competitive advantage in a market economy; therefore, favorable manufacturing policies could be argued to provide a competitive advantage for the ASEAN/AFTA countries over either the CEFTA or LAIA nations. Research framework An export marketing plan for an emerging nation can work in a qualitatively similar manner as an exporting plan for a multinational ﬁrm; to paraphrase Cavusgil’s (1993) prescription, the plan must be reviewed and revised constantly as the nation acquires more experience, data, and feedback from the export market. A look back at the well-documented determinants of the national level of exports is warranted. After all, when studying the effect of any one particular variable on exporting, we must account for the effects of other determining factors as well. Signiﬁcant research exists on the determinants of export performance (Lages, 2000; Kumar, 1994), and the positive effects of FDI on a country’s level of exports are well known (Vernon, 1966). It has also been shown that promoting high-tech exports has a positive effect on the amount of FDI ﬂowing into a country (Wilkinson and Brouthers, 2000); and it is with this view that we explore the effects of the development of infrastructure that will facilitate these high-tech exports within a country. This becomes the primary variable under investigation in this study, and is referred to as ICT infrastructure. The impact of FDI inﬂows and ICT infrastructure FDI represents a great opportunity for emerging economies, like those of ASEAN, to improve their balance of payments picture through increasing exports. Consequently, further capital can be attracted from abroad, and a circular cause-and-effect relationship results. Firms go overseas in order to extract raw materials, source production; or penetrate markets (Kogut, 1984), and thus host countries need to provide this “bait”. And they are better able to do so with the added revenues from increased exporting activity. While there is
much greater support for FDI’s positive effect on exporting in the existing literature, we are also presented with the need for further clariﬁcation of the direction of causality between exporting and FDI; and we further contribute to this understanding by testing directionality in the discussion section of our ﬁndings. FDI directly affects a country’s exporting activity when the purpose of the FDI is to utilize host country comparative advantages and sell in other national markets (Hymer, 1976; Porter, 1990). Integrating economies are more likely to gain from improving intra-regional market accessibility (which leads to export-oriented FDI) than from tougher external trade policy, and may wish to offer investment incentives to encourage FDI by outside ﬁrms (Motta and Norman, 1996). In addition, FDI can play a key role in improving the capacity of the host country to respond to the opportunities offered by global economic integration, a goal increasingly recognized as one of the key aims of any development strategy (Financial Market Trends, 1998). Thus, countries become more in tune with global market trends and are able to gear their exporting activity to higher demand sectors. On the ﬂip side, developing countries’ governments are often concerned that too much dependence on inbound foreign investment may lead to an eventual unacceptable erosion of the country’s sovereignty (Dunning, 1998). An emerging economy can, however, improve its relative bargaining power with foreign multinationals in the conduct of direct investment (Fagre and Wells, 1982) by improving on the array of resources it has to offer. Thus, the beneﬁts to exporting activity from increased FDI far outweigh any potential downsides. This leads us to our ﬁrst research question: RQ1. Will the increase in FDI inﬂows positively effect exporting in EMs? Will the three trade blocs show similar effects in terms of this relationship? There is one stream of research on the efﬁciency of ICT, the so-called “productivity paradox of information technology”, which questions the contributions of ICT to economy-level productivity and growth (e.g. Roach, 1991; Brynjolfsson, 1993). There are conﬂicting results on this matter. For example, Dewan and Kraemer (2000) reported that returns from ICT capital investments were estimated to be positive and signiﬁcant only for the developed countries in the sample. Although a high-tech sector is great for a poor country’s prestige, it may not do all that much for the economy. However, we expect that although overall lack of some complementary factors may bar the infrastructure from contributing sufﬁcient inﬂuences to general national productivity in those markets, investments in ICT infrastructure in EMs may inﬂuence a particular part of the economy (in this case, exporting). For example, investment in the Internet would directly beneﬁt exporting, since an Internet-based source of export market information can provide tremendous help to export-oriented small and medium sized companies
Exporting in ASEAN/AFTA countries 559
(Williamson, 1999). Domestic investments in ICT infrastructure, indicated by penetration of computers, Internet hosts, and telecommunications in a nation, are sometimes designed to enhance the level of exporting. Thus, we expect that an increase in investment in ICT infrastructure will boost exporting in EMs. But owing to the exploratory nature of this research, we do not specify any expectation on the differences between the trade blocs in terms of this relationship. We offer as our second research question, the following: RQ2. Will the increase in ICT infrastructure investment have a positive effect on exporting in EMs? Will the three trade blocs show similar effects in terms of this kind of relationship? Covariates There are a number of factors which we must control for in order to focus on the major objectives of this study. Failure to do so may restrict the generalizability of signiﬁcant results found herein. Incentives need to be provided to nurture competitiveness and also promote domestic investment. This will, in turn, promote FDI, and thus positively affect exporting. The corporate tax rate comprises a major incentive, in that it helps determine net revenues and affects the proﬁtability of both domestic and foreign ﬁrms entering the host country (Abel and Bernanke, 2001). Firms operating in countries with friendly corporate tax rates tend to exhibit signiﬁcantly stronger export performance (Bagchi-Sen and MacPherson, 1999), and so this factor is presented as a control factor in our present investigation. Exchange rates also have a direct effect on the level of exporting in a country, and devaluation of the national currency has been often used as an instrument to promote the export level (Froyen, 2002; Yarbrough, 1988). Certainly, it has become widely accepted knowledge that when a particular country’s currency becomes “cheaper”, so effectively do the goods it manufactures or produces (for foreign markets, that is). Even though this tactic has often led to adverse effects on the domestic equity markets (Doukas et al., 1999), the potential beneﬁt to exporting ﬁrms of favorable exchange rates cannot be ignored. Exchange rates, of course, are a double-edged sword; and unfavorable exchange rate can have a directly detrimental effect on exporting (Chaoshin et al., 2001). Thus, quite clearly it is a factor that needs to be controlled for in our current study. It must also be noted here that emerging countries tend to see great turbulence in their political climate (Drabek and Laird, 1998). While it may not be possible to maintain overall political stability with the often ﬁnicky populace wanting to see immediate results, stability can and should be maintained in at least the policies affecting the exporting level of the country. Political upheavals caused by the new liberalism of EMs may, in fact, diminish over time as the nation realizes the economic gains through exporting.
Another principle determinant of national export level, productivity, relates directly to the concept of efﬁciency at the ﬁrm and industry level. Here, the focus is on market efﬁciency (Rockinger and Urga, 2000). Often, it is infrastructure conditions which themselves promote productivity, and the latter is naturally a necessary component to accelerate exporting. This is because productivity directly promotes cost effectiveness and, therefore, proﬁtability – providing the prime incentive for exporting activity (Tiratsoo and Tomlinson, 1997). Thus, it becomes a circular cause-and-effect phenomenon, which should be welcomed by countries seeking to become players in the global marketplace. And productivity becomes a variable to control for in our study. Real wages in the sense of labor cost also are inﬂuenced by productivity (Seguino, 1997). But even, in and of themselves, labor costs are a key driving factor in export oriented FDI. In other words, foreign ﬁrms wish to take advantage of a cheap labor pool within a country in order to establish production facilities there – but market their products elsewhere. Studies have shown that, at least in the long run, a labor cost advantage is directly related to exports (Ghosh et al., 2000), but this direct relationship is often moderated by other country-speciﬁc factors such as skills, geographical proximity, etc (Lee, 1999). It is clear, however, from the literature that labor costs affect exporting activity, whether through export oriented FDI or domestically initiated production. Thus, it is a factor we control for in this paper. Siebert (1999) found that economic growth is related to the openness of economies, which was measured as the rate of increase of the trade ratio. The openness of the economy is related, quite obviously, to the emergence of a market economy, as well as growth. This would imply, at least at the conceptual level, that FDI inﬂows would be positively effected by greater market openness, and that again – in circular fashion – would promote exporting. Market openness should, thus, be monitored when the country-level study includes non-emerging countries. Through the previous discussion, and related to all the determinants of exporting success, we ﬁnd that infrastructure development serves the major facilitating role in reaching higher levels of exporting. Where this improves, the other factors tend to follow. It is the responsibility of every nation’s government and its people to ensure that infrastructure has developed to the extent that private enterprise may be competitive and efﬁcient. Bartlett and Ghoshal (1989) found differences in local infrastructure development to be a major component of performance differences among countries. A powerful ally for responsible governments in emerging economies can be private infrastructure investment at the sub-national level, operating with transparency and disclosure (Beato and Vives, 2000). ICT infrastructure development, in particular, is of paramount importance for countries intent on achieving exporting success in today’s technology driven markets.
Exporting in ASEAN/AFTA countries 561
Research methods Data for this analysis is derived from various sources such as databases from IMF, the World Bank, and the International Telecommunication Union. The analysis was based on data from a cross section of countries (26 countries) over time (from 1995 to 2000), for a total sample size of 156 Table I shows the emerging countries by trade bloc included in our data set. Two countries in ASEAN/AFTA (Brunei and Myanmar) were excluded because of data unavailability. Also, we excluded intra-regional trade from our analysis, since intra-regional trade depends on the speciﬁc terms of the trade agreements – and AFTA, CEFTA and LAIA have differing trade arrangements among member states. Thus, we eliminated this potential “noise” from affecting an analysis such as ours – i.e. between regional blocs. This study aims at explaining the dependent variable exports using two focused independent variables and four control variables selected on the basis of their importance, as identiﬁed by this and previous research. The deﬁnitions of all the variables are presented in Table II. Our hypothesized independent variables explaining exports, based on a review of the theoretical and empirical literature and on the ideas we presented above in our theory section, are represented by the regression equation below. EXP is exports, FDI is net FDI inﬂows, ICT is information and communications technology infrastructure, PD is national productivity, ER is exchange rate, LC is labor costs, TR is tax rate, MO is market openness, 1 is error, i represents each sampled country, and t represents each year. ðLog EXPÞit ¼ b0 þ b1 ðLog FDIÞit þ b2 ðLog ICTÞit þ b3 ðLog PDÞit þ b4 ðLog ERÞit þ b5 ðLog LCÞit þ b6 ðLog TRÞit þ b7 ðLog MOÞit þ 1it Even though a nation’s wealth has been used as a common explanation for exports, national wealth indicators such as GDP per capita and GDP are thrown out from our model because of high degree of correlation (causing a multicollinearity problem). This can be legitimately rationalized since there is
Trade bloc ASEAN/AFTA CEFTA Country name Bruneia, Cambodia, Indonesia, The Lao PDR, Malaysia, Myanmara, The Philippines, Singapore, Thailand, Vietnam Bulgaria, The Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, RB de Venezuela
Table I. Countries by trade bloc included in the data
Note: a Countries excluded owing to unavailability of data
Variable name EXP FDI ICT PD ER LC TR MO
Deﬁnition Exports: comprising all exporting transactions between residents of a country and the rest of the world ($ million) Net FDI ($): net inﬂows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor ICT infrastructure: a composite variable composed of standardized indicators such as of Internet host, personal computer, telephone mainlines, and mobile phones (all in density term) Productivity: obtained by dividing the value added of industry establishments by the total payroll Exchange rate: the actual, principal exchange rate, an annual average based on monthly averages (local currency units relative to US dollars) Labor cost: obtained by dividing the total payroll by the number of employees, or the number of people engaged, in industry establishments Corporate tax rate: the highest rate shown on the schedule of tax rates applied to the taxable income of corporations Market openness: the sum of exports and imports of goods and services as a share of GDP
Exporting in ASEAN/AFTA countries 563
Table II. Deﬁnitions of variables
evidence of positive correlations between technological and innovative factor (that is ICT) included in our model and the economic development and growth level around the world (Saunders, 1994). ICT conﬁguration nicely replaces the level of economic development in our model. Also, GDP may be less important here because each country is represented in terms of regional economic integration. Because of the cross-country and time-series nature of the data, we log-transformed each variable to ﬁx the heteroskedasticity problem and employed a ﬁrst-order autocorrelation procedure to correct the potential problem of serial correlation. No variables in our model violate the common cutoff thresholds of multicollinearity measures (the range of tolerance value¼[0.46, 0.77]; the range of variance inﬂation factor ¼ [1.30, 2.19]). The correlations among independent variables and other descriptive statistics are shown in Table III. To test the hypotheses, few separate regression models were run. The ﬁrst two analyses include full sample (Table IV). The third, fourth, and ﬁfth models are censored to test each trade bloc sample, on its own. Findings Model ﬁt Model ﬁt with each censored sample was quite acceptable (R 2¼[0.72, 0.93]; with all F values signiﬁcant). However, when pooling the entire data set, the explanatory power of model drops steeply (refer to full model 2 in Table IV; R 2 ¼ 0.52). This explains why analyses by regional trade bloc are relevant
here. The hierarchical regression in Table IV conﬁrms the relevance of censored samples again (from full model 2 to full model 5). The CEFTA and LAIA dummy were signiﬁcant, and the R 2 changes from the original model (full model 2) were also signiﬁcant. Therefore, although we report the results from the full sample, our major focus is given to the results from each censored sample. Results Regarding RQ1, an increase in investments from foreign countries was signiﬁcantly associated with an increase in exporting in the full sample (refer to full model 2 in Table IV). However, in the censored samples, the increasing investments from foreign countries showed a signiﬁcant relationship with exporting only in the CEFTA and LAIA samples and not in the ASEAN sample. Also, regarding RQ2, in the full sample, the increase in ICT infrastructure investment was not signiﬁcantly associated with an increase in exporting (refer to full model 2 in Table IV); however, the results from the three trade bloc models show that the inﬂuence of increasing ICT infrastructure investment was signiﬁcant in the ASEAN/AFTA and CEFTA sample and not in the LAIA sample. Discussion As we take a look at the results from the three trade blocs individually, the explanation might be not so straightforward. We do need a more sophisticated discussion here other than the simple, independently drawn statements on the effect of ICT infrastructure and FDI inﬂows on exporting. As shown in Table IV, the increase of investments in ICT infrastructure affects exporting only for some ASEAN/AFTA and CEFTA countries. That is, returns for national exporting level from ICT investments are estimated to be positive and signiﬁcant only for the ASEAN/AFTA and CEFTA sample. Also,
Variable PD ER LC TR MO FDI ICT
Mean 0.58 1.79 3.54 1.46 1.84 9.11 2.00
SD 0.21 1.34 0.32 0.11 0.28 0.75 0.02
1 1.00 2 0.22** 2 0.24** 0.04 2 0.51** 0.23** 2 0.46**
2 1.00 2 0.36** 2 0.11 0.02 2 0.47** 2 0.29**
Table III. Means, deviations, and correlations between independent variables
1.00 2 0.32** 2 0.04 0.42** 0.50**
1.00 0.11 2 0.12 2 0.03
1.00 2 0.16* 0.50
Note: All variables were log-transformed; *indicates signiﬁcance at 0.05; **indicates signiﬁcance at 0.01
ASEAN/AFTA Model (n ¼ 66) Full model 1 (n ¼ 156) Full model 2 (n ¼ 156) Full model 3 (n ¼ 156) Full model 4 (n ¼ 156) Full model 5 (n ¼ 156)
CEFTA model (n ¼ 48)
LAIA model (n ¼ 42)
0.01 (0.01) 17.57*** (6.58) 7.27*** (12.09) 0.90 (0.99) 2.75*** (5.13) 0.34 (0.28) 0.29 (0.67) 1.71*** (5.92) 20.13** (2 3.18) 1.31*** (6.14) 1.39* (2.54) 0.46* (2.34) 0.31* (2.13)
0.22*** (5.19) 5.14* 2.34) 1.12 (1.82) 0.10 (1.82) 1.40** (3.36) 1.30*** (5.18) 0.06 (0.25)
0.24*** (4.66) 0.47 (0.18) 1.11*** (4.06) 0.06* 2.03) 2.59*** (10.91) 1.77*** (7.28) 0.48* (2.22)
0.32*** (5.54) 2.16 (0.79) 1.20*** (4.34) 20.04 (2 0.90) 0.83*** (3.96) 1.34** (2.74) 0.58** (2.82)
0.31*** (5.49) 0.51 (0.18) 1.64*** (4.84) 0.01 (0.18) 1.24*** (4.43) 1.48** (3.00) 0.68* (2.13)
0.14* (2.59) 4.26 (1.77) 2.76*** (8.33) 0.01 (0.31) 1.98*** (7.93) 1.53*** (3.45) 20.49* (2 2.05)
0.30*** (5.06) 3.36 (1.18) 1.18*** (4.29) 20.05 (2 1.28) 0.77*** (3.62) 1.30** (2.65) 0.37 (1.48) 0.17 (1.46)
Constant 210.73* (2 2.17) 0.72 0.65 – 1.70 26.73 (2 1.25) 0.92 0.91 – 2.31
R2 Adjusted R 2 R 2 change Durbin-Watson
242.10*** (2 8.47) 0.93 0.91 – 1.60
1.95 (1.16) 0.43 0.40 – 1.92
23.62 (2 0.67) 0.52 0.49 0.90*** 1.86
25.19 (2 0.95) 0.53 0.50 0.01 1.87
22.89 (2 0.47) 0.54 0.51 0.02* 1.87
21.19*** (2 6.53) 29.02 (2 1.89) 0.64 0.61 0.12*** 1.92
Note: Dependent variable: Log EXP, t-statistics are in parentheses; * indicates signiﬁcance at 0.05; ** indicates signiﬁcance at 0.01; *** indicates signiﬁcance at 0.001
Exporting in ASEAN/AFTA countries 565
Table IV. Regression estimates
the impact of the increase of FDI inﬂows is signiﬁcant only in the CEFTA and LAIA samples. Further investigation into the theoretical foundation of this hypothesis yields an interesting insight. A study of exporting tendencies reveals that ASEAN/AFTA trade bloc can be differentiated from the two other blocs (CEFTA and LAIA) in that the ASEAN/AFTA countries are more prone to be used as markets themselves as opposed to merely production facilities for other markets (Lexis-Nexis Academic Universe, 2001). That is, the FDI ﬂowing into the countries of CEFTA and LAIA is primarily export oriented – or put another way, foreign ﬁrms are utilizing these host countries’ comparative advantages in order to produce and manufacture goods for other country markets. Thus, an increase in FDI would signiﬁcantly and directly impact exporting – since that is the purposeful utilization of the FDI in the ﬁrst place. The FDI ﬂowing into ASEAN/AFTA, by contrast, is primarily market based, in that goods are produced there for host-country consumption. It then logically follows that an increase in FDI here may not signiﬁcantly affect exporting activity, since the “fruits” of this FDI are being dissipated in the domestic market. The data also bears witness to this thesis. FDI, in fact, accounted for 4 percent to over 20 percent of the gross domestic product growth in the ASEAN-5 (i.e. the largest ﬁve ASEAN countries) during the 1987-1997 period (Fan and Dickie, 2000). In addition, the countries of ASEAN/AFTA have long been major international exporters (far longer than their CEFTA and LAIA counterparts), with high level of exports in hardware component parts and consumer goods. The above discussion gives rise to the view that an increase in FDI inﬂows from countries outside the bloc will not signiﬁcantly affect the level of exporting in ASEAN/AFTA, but would do so in the CEFTA and LAIA markets. Just as importantly, it is seen that ASEAN/AFTA countries are heavily export-oriented in their own right – on a global scale, much more so than CEFTA or LAIA nations. Thus, the impact of export-oriented FDI on overall exporting in ASEAN/AFTA is not that much as the impact of the same on the other two blocs. Put another way, in ASEAN/AFTA, much more of the exporting activity is being accounted for by domestically initiated investments rather than foreign investment. ICT infrastructure is a powerful driver of these domestically-driven investments, and this is why we ﬁnd great signiﬁcance in our results relating ICT and exporting in the ASEAN/AFTA sample. To clarify the question of causality between FDI and exporting in our sample, we conducted a test through two-stage least-squares regression. FDI was still a strong predictor ( p , 0.001) of export after permitting the two error terms being correlated. Thus, we can conclude that while the causality between FDI and export is possible both ways, our test shows that FDI’s impact on
exporting is stronger than the other way around. And, as indicated in the literature review, this has been indicated and supported by existing theory. Another phenomenon peculiar to ASEAN/AFTA markets also needs elaboration – that of “mobile exporters”. There has been considerable activity within the ASEAN/AFTA group, of exporters from one country establishing outward-oriented factories in other countries. Taking Indonesia as an example, close to half of recent investments from other ASEAN/AFTA and East Asian countries has been for export factories – with the target markets being primarily North America or Europe (Wells, 1993). As Wells indicates, the reasons for this are similar to conditions which usually characterize FDI: “advantages in the hands of foreign ﬁrms and reasons for internalizing the transactions”. The data on these intra-ASEAN/AFTA investments points to increasing regional economic integration; in fact, intra-ASEAN/AFTA FDI accounted for 15 percent of the cumulative net FDI ﬂows in ASEAN/AFTA from 1995 through to the ﬁrst half of 1999 (Heinrich and Konan, 2001). In more recent years, as in the period under study, the main targets of mobile exporters were CEFTA and LAIA nations as opposed to ASEAN ones. This is borne out by our results, and is a direct consequence of the rapid opening up of Eastern European markets in the early nineties, together with the burgeoning interest in utilizing cheap labor markets in Latin American countries by US conglomerates during the same time period. In the meantime, when applying the results of this study, particularly to the experiences of individual nations, we must be cognizant of a number of variables which (if left uncontrolled) may confound or mediate the results. The following variables should be included in a model that has a categorically different sample (perhaps, using only individual nations without being classiﬁed by trade-bloc) from this study’s. First, gross domestic product (GDP), one of the most frequent measures of the size of markets, may also confound or mediate results. Davison (1980) concluded that investment activity is closely correlated with market size; it is naturally assumed that the larger the size of the emerging market, the larger the level of exports it will have – especially since it makes up part of the very deﬁnition of GDP. Thus, this variable needs to be controlled for so as to not obscure the results. However, the increase in GDP and its consequential effect on the level of increase in exporting is a matter worthy of investigation. Second, with ﬁnancial liberalization and central bank autonomy, borrowing and lending at substantial real rates of interest are made possible by a stable price level (Levine and Scott, 1993). It is never easy and full of potential pitfalls. Nevertheless, it is critical to our investigation, because ﬁnancial liberalization – by increasing savings – can lead to higher investment and growth, and consequentially to higher exports. Ending state controls allows funds to be channeled into productive investments without being wasted on unproﬁtable nationalized industries or lending to government cronies (Siddiqi, 2000). Third, public or government policy variables could be
Exporting in ASEAN/AFTA countries 567
critical for some country samples. These variables have two aspects. First, the legal and regulatory environment should be such that contract law, enterprise law, and property rights (including intellectual property) are all conducive to the development and promotion of private enterprise. The “shadow economy” or “black market” of the nation needs to be reigned in, either by assimilation into the real economy or through strict law enforcement to mitigate its counter-productive effects on real market development. Black markets in some emerging economies are so large that both these measures would need to be implemented simultaneously to have any signiﬁcant effect. In fact, in recent years, the total estimate for the world’s shadow economy has been upwards of $9 trillion (The Economist,1999). Additionally, one may concern multicollearity between a few variables (e.g. ER and FDI: -0.47). Although a few correlations are highly signiﬁcant, it does not seem to be a major problem because the face validity is so apparent and the multicollinearity measures such as VIF and tolerance value are quite acceptable (please refer to the methods section). Conclusions Overall, reﬂecting the results from this study, research concerned with the determinants of national exporting level should be conducted independently, along with regional and national characteristics. The drivers of exporting between trade blocs are recognized to be different in many ways, and exhibit similar within-group characteristics. This paper has contributed to the understanding of the effect of FDI inﬂows and ICT infrastructure on Exporting in ASEAN countries, through a comparison with two other major regional blocs – CEFTA and LAIA. Hence, the implication of our results are immediately useful to both MNCs’ considering strategic decisions within these trade blocs, and also country-level policy makers. Certainly, managers must be cognizant that macro-economic results may not apply to micro-economic conditions – and they must consider their own speciﬁc conditions and objectives. The results highlighted within the paper are limited to the period from 1995 to 2000, and the relationships can and should be explored further, using a larger time-frame in the future. Also, while the study provides great generalizability in assessing the peculiar economic experiences within countries belonging to the three regional blocs under investigation, it should not be interpolated to other regional economic alliances – as each nation (and, thus, each bloc for which it is a component) presents a unique situation which must be analyzed in the light of its own historic data set. Thus, the limitations (in terms of generalizability) of this study stem primarily from two conditions – time period and regional trade afﬁliation. Also, another limitation of this study is that within-group variability, which means the difference between nation members in a trade bloc, was given less importance. While this is because this study aims to reveal the inter-trade bloc differences in the hypothesized relationships, several other constructs should be monitored to
formulate and give tangible implications for each individual country. Some candidate constructs in this regard have been discussed at the end of our discussion section. The causal relationships between ICT infrastructure, FDI inﬂows, and exporting should be extensively investigated though more empirical tests and further theoretical discussion. The export-oriented foreign investments from MNCs are expected to play a mediating role between ICT infrastructure and national level of exporting.
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Awards for Excellence
Norwegian University of Science and Technology (NTNU) Trondheim, Norway
is the recipient of the journal’s Outstanding Paper Award for Excellence for his paper
‘‘The Born Globals: a new generation of small European exporters’’
which appeared in International Marketing Review, Vol. 19 No. 2, 2002
Øystein Moen has a Ph.D. from Nth (now NTNU). Currently, he is hair of the Department of Industrial Economics and Technology Management. His research focuses on the internationalization processes of newly established high-tech firms, the use of information technology in international marketing, and the development of public instruments to stimulate exporting/internationalization. His research is sponsored by and performed in close co-operation with the Research Council of Norway, the Norwegian Trade Council, and the Norwegian Ministry of Trade and Industry. As Through his responsibly for a number of evaluations of export promotion programs, he has had a significant impact on the development of public export promotion programs in Norway.
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